In 2010, Living Cities—an innovative philanthropic collaborative of 22 of the world's largest foundations and financial institutions—invited 19 cities to propose ways to accelerate existing efforts for improving the lives of low-income people as part of our Integration Initiative.
Living Cities has been working for the past 20 years to revitalize underinvested communities. The Integration Initiative is a new $85-million effort that encourages public, private, philanthropic and nonprofit leaders to work together to implement game-changing innovations that improve the lives of low-income people and the cities where they live. Rather than dictating the issues or systems on which applicants should focus, we required that they explain how they would put our principles into practice for the benefit of low-income communities.
The 19 cities submitted 23 proposals, and we selected nine for further review. A selection committee of our member foundations and financial institutions chose five urban regions to participate in the Initiative: Baltimore, Cleveland, Detroit, Newark, N.J., and the Twin Cities of Minneapolis and Saint Paul, Minn.
These regions face significant challenges such as shrinking budgets, and opportunities such as the prospect of harnessing the billions of dollars of economic power controlled by local anchor institutions, including hospitals and universities, for the benefit of low-income people and neighborhoods. Several themes run through multiple Initiative sites: For example, Baltimore, Detroit and the Twin Cities are looking at the potential of transit-oriented development to create access to opportunity for low-income people. Job creation and workforce development strategies are important in all of the cities; promoting the success of small businesses is another key goal.
Living Cities and its members are providing each site with at least $15 million in grants, below-market-rate loans and commercial debt. Each site is receiving three years of grant support, between $3 million and $4 million in 10-year, below-market-rate loans, and between $9 million and $15 million in commercial debt with terms of up to seven years.
But investing dollars isn't enough. We also are providing the support that can help make these sites successful and establish them as nationally significant models. We have developed a learning network that meets both in person and virtually to share lessons learned and to chart necessary interventions. We also included ongoing local and national evaluation, and have committed to sharing what we learn—through our successes and challenges—with our members and the field at large.
As attendees at the Exploring Innovation conference in St. Louis learned, the Integration Initiative aims to promote systems change by disrupting obsolete approaches. Many essential systems that affect low-income people and limit their access to opportunity are based on outdated assumptions, such as the notion that a nine-month school year is necessary to accommodate a harvest season. The Integration Initiative also is working to foster the development of a resilient civic infrastructure in America's cities by breaking down silos and cultivating integration across sectors and issues. Finally, the Initiative is demonstrating new ways of blending capital, including philanthropic grants, commercial debt, low-cost loans and public subsidies, thereby better engaging private markets to work on behalf of low-income people.
CDFIs are pivotal players in The Integration Initiative. Early in the application process, we required that every potential site identify a qualified financial intermediary to partner with the lead applicant. The involvement of the CDFI had to be more than transactional; the financial partner was to be an integral part of the governance table, bringing a market perspective and expertise in blending capital to the initiative as a whole.
The financial intermediaries are blending capital from multiple sources. These include commercial debt from seven Living Cities member financial institutions, flexible debt from our Catalyst Fund, government subsidies and foundation grants. They are using the capital to lend to priority areas such as small business development, preservation of affordable housing, mixed-use projects near transit, grocery stores, charter schools and community facilities.
The Integration Initiative is still in its early days. However, just a few months into
it, Living Cities has learned some key lessons about the ability to absorb capital in underinvested communities, the integration of program and finance, the potential of a resilient civic infrastructure and ways to promote the spread of CDFI capacity.
Many of the applicant cities struggled to find an appropriate CDFI partner. Some had CDFIs that were too small to accept the $10 million or so of commercial debt that came with participation in the Initiative. In other cities, CDFIs specialized in a type of lending different from the focus of the local initiative.
We have addressed this challenge by implementing a variety of models. In Baltimore, we are working with a regional CDFI that hired a local loan officer to provide on-the-ground support. In Detroit, we are working with a national CDFI that transferred a loan officer to Michigan to work on this effort. A national CDFI is creating a special-purpose entity backed by a local foundation guarantee in Cleveland. In Newark, a for-profit financial institution is creating a special-purpose entity and matching Living Cities' investment dollar for dollar. Local and national CDFIs in the Twin Cities are partnering on the different types of lending called for by the Initiative.
We believe we will learn from these models how we can intervene in places that lack the capacity to absorb capital for community development efforts.
The Integration Initiative creates a new, tighter relationship between program and finance. We have realized that program experts and finance people often speak
different languages. To be effective, partners in the Initiative need to be "bilingual." We are facilitating this through training in financial concepts and by providing opportunities for partners to learn each other's priorities, business models and ways of operating.
To foster development of a shared vision, each team has been asked to define what makes for a "catalytic investment" in their site. And we have required that the lead applicant certify the priority of an investment as a condition of each draw.
Already, we have begun to see the power of "one table." Bringing together leaders
from public, private, nonprofit and philanthropic sectors can foster creation of a shared vision, cement relationships that can overcome obstacles and improve utilization of scarce resources. Working together, these leaders can invent and test solutions to persistent problems.
Finally, we have learned that including a national or regional CDFI at the cross-sector local table helps the CDFI become "local" quickly. Sitting with local leaders helps a CDFI to understand local priorities, cut through red tape and assemble resources. Without access to the civic infrastructure, CDFIs are less effective in their efforts.
The Integration Initiative will help us understand how cities can provide opportunities to low-income individuals and revitalize communities, particularly at a time when subsidy is likely to be scarce. We look forward to sharing our journey with the field. For more information, please visit the Living Cities web site at www.livingcities.org.
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