Improving Access to Community Development Capital

St. Louis area leaders know all too well the joy of having dreams of what their communities could be and the heartbreak of having those dreams relegated to plans that sit on a shelf.  Many times, the problem is a lack of funding.

On Nov. 17, 2005, a group of St. Louis community development professionals attended “Improving Access to Community Development Capital,” an event co-sponsored by the Federal Reserve Bank of St. Louis on the topic of community development finance. 

Eliza Mahony, an investment officer with the Calvert Foundation, articulated the topic succinctly:  “How can we mobilize millions, billions and even trillions of dollars into the community development field?”

The answer is to attract more private investors to community development, Mahony says.  By creating innovative financial products and services, the Calvert Foundation is working to remove barriers that keep private investors from lending to community development and social enterprises.

Another entity trying to improve community development finance is ESIC Realty Partners, a subsidiary of Enterprise Social Investment Corp.  Daniel Moss, managing director of acquisitions, promoted two products ESIC has to expedite developments:  financing that is enhanced with New Markets Tax Credits and “mezzanine lending.”  The tax credits are designed for investors in commercial projects, and the mezzanine lending provides gap financing for developers of mixed-income housing in urban neighborhoods.

Then again, maybe the answer is as simple as changing how investors perceive community development finance.  That’s the view Mark Pinsky brought to the meeting.  Pinsky is president and CEO of National Community Capital Association.

“In the current policy environment, our industry takes a defensive stand,” Pinsky says. “We feel we have to apologize for what we do. We need to go on the offense.  We need to change our language and how we talk about what we do.”

For example, there is a pervasive notion that because community development financial institutions work with lower-income people, they don’t have money and are a risky investment, Pinsky says.  In fact, the perceived risk is much greater than the real risk, he says.

“If there’s a story about community development financial institutions, it’s that we can change the behavior of markets by changing the perception of risks in the market.”

One way to do that is to start referring to “community development finance” as “opportunity finance,” a term investors respond to more positively, Pinsky says. 

Other changes Pinsky promotes are:

• modernizing community reinvestment by extending the Community Reinvestment Act;
• leveraging existing funds;
• making tax reform compassionate; and
• saving America’s assets by preventing predatory lenders from stripping wealth from individuals.

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