Using Capital Assets Wisely to Prosper: Shelbina, Mo., Pools Resources to Generate Millions of Dollars

October 01, 2001

As communities come to realize how the changing financial landscape is affecting community development, they will find that it is possible to build more resilient economies by becoming more knowledgeable about capital. Becoming a "capital literate" community means using capital assets wisely to survive and prosper. The story of Shelbina, Mo., (pop. 2,000) illustrates creative approaches being used by many communities.

In 1999, the Community Affairs Department of the Federal Reserve Bank of St. Louis began conducting community development finance training sessions throughout the District. Participants were asked to share their experiences in dealing with changes in the industry. Many mentioned the dwindling federal funds and the shift in responsibility to state and local governments; the growth of community development corporations; more sources of private money; and a shift from three or four funding sources and partners to as many as 10 in a single project. The discussions pointed toward a need for deeper understanding about how capital and credit markets behave.

Some approaches to community development finance have mistakenly created dependencies on public subsidies that may not be sustainable into the future. Many communities rely on federal and state grants as the sole source for community development. But good community finance requires building the skills to recognize and use capital assets wisely—for example, developing partnerships among a growing number of funding sources and addressing all partners' expectations for a return on their investment.

Shelbina: A Success Story

Shelbina Library
Shelbina residents refused to accept that they couldn't afford to build an addition to their library that would match the original building. The addition is on the left.

In the past three years, residents and officials in this northeastern Missouri town have generated $11.4 million in private and public contributions and grants by pooling their knowledge about using capital to leverage more capital. A common vision of community progress—usually difficult to achieve—is cited by community leaders as one of the town's greatest assets. Shelbina's philosophy is seen in the completed addition to the Carnegie Library. When library board members proposed to use architectural design elements and materials to match the original structure, they were told that the project would be far too costly. "Never tell us that something can't be done," said John Bode, economic development director for Shelbina.

What is Capital?

Capital can be created, grown, purchased or attracted. It exists in all communities and may take the form of money, raw materials, buildings, technology, human labor, information or skills. Leveraging capital expands the production of the community beyond the levels that could be attained without it and plays a large part in improving productivity, the standard of living and the quality of community life.

Capital goods and services make up a community's assets—that is, any advantages, resources, goods or services available for use by the community. An advantage may be location, access to information, proximity to excellent transportation routes and the existence of community organizations.

Examples: Community-owned properties are capital that play an important role in a town's growth.

  • Unlike many small communities, Shelbina did not sell its publicly owned utilities. The water and electric plants and a natural gas pipeline distribution system are capital assets that expand the production capabilities of the community. A second electric power plant, which was completed in the spring of 2001, serves as a backup to the first plant and expands the community's ability to produce more capital goods and services. The system produces excess electricity that is sold through the Missouri Public Electric Pool, in which Shelbina is a partner. The utility's profit helps to pay for other public services and to keep tax rates in Shelbina low.
  • The school district retained ownership of four FM radio frequencies when it was common among other districts to sell the rights. It uses one of the frequencies for internal communications and leases the other three to a cellular telecommunication company, bringing money into the district's operating budget.

How Do We Get Capital and Assets Moving in Our Community?

A local financial institution is important because money begins to circulate through communities as a result of savings and investments. This means that there must be not only sufficient capital but an excess of it to allow for savings and investing. As more money is generated, it can be used in combination with funds from individual developers and tax credit programs to finance local developments.

Examples: Farmers, corporation, theater group understand value of local money, programs.

  • In Shelbina, a group of farmers recognized the importance of a local financial institution. When a local bank was scheduled to close several years ago, the farmers made investments to buy the bank and keep it operating. Now called the Community State Bank, it recently moved from the outskirts of town to a large new facility in the downtown area.
  • The Family Farms Pork Corp. is taking advantage of Missouri's New Generation Cooperative Incentive Tax Credit Program. The program is designed to induce private investment in cooperatives, such as Family Farms, that process Missouri agricultural products into value-added goods. Family Farms recently received approval to begin raising capital from private investors. The cooperative hopes to break ground on an $18.5 million processing plant in Shelbina's industrial park next spring.
  • Movies are shown and plays are performed at the new Hawkins Theatre. A state tax credit was used to attract $800,000 in private donations.

What Do Investors Expect from Communities?

Hawkins Theatre
Movies are shown and plays are performed at the new Hawkins Theatre. A state tax credit was used to attract $800,000 in private donations.

Capital flows to the path of least resistance and greatest return. Capital follows well-laid business plans that communicate the expectations, time frames, risks and other essential information that help investors and partners make sound financing decisions. The community must have supportive rules, standards and operating policies, such as a special tax district and local ordinances that create confidence and attract investments.

For an investor in community development projects, decisions about where to put capital include more criteria than that used in traditional investment decisions. Multiple bottom lines and alternative measures of return on an investment are always present. For example, community development tax credit programs and social venture investment funds are designed to fulfill political, social or economic goals in addition to providing financial incentives to the taxpayer or a financial return to the investor.

Choices remain difficult for investors because the same capital may have a better use or a greater rate of financial return if invested elsewhere. For example, an investor could place $1,000 in a 12-month certificate of deposit at a community development financial institution (CDFI) paying 3 percent interest or invest the same $1,000 in a 12-month certificate of deposit at a traditional bank paying 4 percent interest. Because proceeds from the deposit earnings to the CDFI are used for loans with a community development purpose, the investor may receive a lower rate of financial return but be willing to accept a moral, social or economic return on the investment.

Community development project officials seeking capital should consider why an investor would give up an alternative investment in favor of the project with a lower rate of financial return and be prepared to answer the question, preferably in a written business plan.

Why Does Some Capital Go Unused?

Capital may be unused, underused or otherwise not flow toward community development investments because of inadequate information about how to match it up with a development.

Examples: Trust funds and endowments lay dormant for years until persistent officials found a way to use them.

  • A charitable trust fund restricted for the establishment of a hospital in Shelbina remained unused for decades. Many attempts were made through the years to find a way to put the money to use and operate a small community hospital. Eventually, descendants of the family that had established the trust were asked to allow a portion of it to be used for construction of a medical building instead of a hospital. The nonprofit Hannibal Regional Hospital agreed to become an investing partner and to operate the facility. The family agreed to alter the trust, and a $600,000 medical building was constructed by using $350,000 from the trust fund. As trustee, the city owns the building and leases it to Hannibal Regional Hospital. If for any reason it would cease to operate as a health facility, the building would revert to the trust. The trust retained approximately $75,000 in cash investments so that it might grow again.
  • Substantial amounts of money in Shelbina, perhaps as much as $3 million, have recently been recognized as capital assets that could be put to greater use and leveraged to produce other capital assets. For example, the Carnegie Library has grown its endowment to $1 million during a period of about 70 years. In addition, school scholarship funds, two church endowment funds and two cemetery endowment funds are being considered as seed money in a three- to five-year capital campaign to create a community foundation. The body and earnings of individual trust or endowment funds would remain with each institution. Pooling the funds would enable the community foundation to leverage and attract other investments from sources such as the W.K. Kellogg or Ford foundations and future contributions from individuals.  The additional earnings and investments as a result of the community foundation would finance community development initiatives.


If you want to be capital literate, you should know these basic terms.


  • Market risks: investor psychology, supply and demand and, the economic cycle.
  • Social risks: dishonesty, corruption, illegal discrimination or unfairness.
  • Political risks: instability, corruption, uncertainties associated with change in officeholder.
  • Credit risk: possibility of default.
  • Risk mitigation: any steps that can be taken to reduce risk.

the ability to use a small amount of money to attract other money, including loans, grants and equity investments. Leverage also refers to providing the organization with the tools it needs to raise other kinds of funds.

the teamwork that is essential to structure and to implement savings and investing vehicles at the community level, especially to share market knowledge and mitigate risks.

Flexibility and customization:
the ability to tailor savings and investment programs, services and products to the unusual circumstances of markets or consumers. For example, microlending is right-sizing capital for businesses that have a need for small loans, usually less than $10,000.


the patterns that usually recur in business, investment and development. These cycles must be recognized and used to maximize savings and investments.

Bridges is a regular review of regional community and economic development issues. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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