Tough Times Require Innovation in the Community

News of a sluggish economy and of shrinking state revenues across the country suggests hard times are here for those working in community development. Talk among colleagues more often than not slips into discussions about one group or another that is struggling financially. Some are talking about possible partnerships and sharing resources.

The Community Affairs Office of the Federal Reserve Bank of St. Louis wanted to find out how organizations in the Bank's District are faring—are they in a crisis, cutting back or unaffected—and about their strategies for surviving until the economy turns around. What suggestions could they offer to others in the field?

Staff members conducted informal interviews with about 20 representatives of housing and community development corporations; social service organizations; and state, local and federal governments. The groups ranged from experienced and well-established to those trying to get a toehold in their communities. Many agreed to talk openly only if their names wouldn't be used.

Almost all the organizations reported recent funding problems that did not exist when the economy was healthier. The types of shortages varied, however. Although government funding is dwindling for some, it remains level for others. One of the biggest issues is the unknown. For instance, a common worry is the status of Community Development Block Grant (CDBG) funds. As this newsletter goes to press, these federal funds have not yet been approved for 2003. Programs depending on them are in limbo. The anticipation is that CDBG funds will be cut.

Another unknown is state funding. A Missouri official notes that—at least for now—the state probably has more tax-credit programs for community and economic development than any other state. Hundreds of Missouri community organizations generate revenue by leveraging donations for state tax credits. But with the state's budget crisis, these tax-credit programs may be scaled down or eliminated.

Community development groups said their investments, loans and donations from banks remain steady, but the groups fear that such help from banks will be the next source to dry up. Funding from foundations has actually increased for one group, while others said foundations they approached for help were broke.

Some organizations reported that funding for programs is still in place, but funding for administrative costs is more difficult to find. A community development corporation in Arkansas has seen a 30 percent drop in funds, resulting in the staff doubling up on duties. Another organization is operating on its reserves. Yet another anticipates a 50 percent drop in operating grants. Staff members have been cut or laid off for periods of time.

Even seasoned organizations are having problems, and some have closed their doors. Many offered familiar and innovative ideas on how organizations can stay afloat until the economy improves. (See accompanying list.)

What makes one organization more resilient than another? Longevity and a good reputation were the unequivocal answers. In addition, two common themes that surfaced were the importance of continually looking for new funding sources and the need to have a strong board of directors.

Organizations that reach a certain comfort level with their funding, neglecting to look for new resources until their regular ones dry up, risk disaster, one person said. "We are constantly looking for new funding sources" was repeated over and over. Many groups are writing more grant requests than in recent years. One progressive housing group in Memphis is tackling new programs, such as the New Markets Tax Credit, and for-profit ventures to sustain itself. The same group recently received a donation from a professional basketball team. Another innovative thinker suggested incubators for nonprofits, much like those for small businesses. They could be housed in the same building, where they would share overhead and administrative costs.

The composition of a group's board is also seen as vital to sustainability through tough times. Qualities listed as essential for an effective board are: a high energy level, openness to new ideas on how to make the operation work, a willingness to change with the times, the ability to think strategically and implement long-term planning, an interest in and a passion for the organization's mission, and a desire to advance the cause of the organization rather than self. Successful organizations also urged others to run their organizations on a business model.

The last question we asked organizations was what they wanted to tell bankers and other lenders and investors about why they should be interested in community development projects. One quote speaks for all the responses:

"This is a no-brainer. Banks have a vested interest in keeping communities in which they operate viable and productive."

Find out more...

A book from the Amherst H. Wilder Foundation addresses ways for nonprofit groups to survive during an economic slump. The book, Coping with Cutbacks: The Nonprofit Guide to Success When Times Are Tight, includes a comprehensive list of 185 strategies for sustainability. The list is also on the foundation's web site. For information, go to www.wilder.org/pubs/cutbacks/index.html.