A Fresh Start in Distressed Cities: Experts Present Ideas on Renewal

December 31, 2002
By  Linda D Fischer
John Gulick

John Gulick makes a point during a roundtable discussion at the Rays of Hope conference in East St. Louis on Oct. 22 and 23. Gulick is a community development specialist with the Missouri Department of Health and Senior Services.

Let's play a word association game. I say, “East St. Louis.” You say? Most likely “crime, corruption, poverty.” You might want to add “crumbling buildings, inferior schools, trash-filled vacant lots.” And the list goes on.

For decades, poverty has tightened its grip on this city, keeping thousands who live there in its stranglehold. To those who don't know better, the situation seems hopeless.

East St. Louis, Ill., like many impoverished areas, is all of the things mentioned above. But take a second look. In the midst of the devastation that pervades the city, there are signs of new life. New stores are going up, new schools are under construction, new houses stretch down tree-lined streets. The progress is on a small scale, but something is happening in the city.

That “something” prompted the Community Affairs department of the Federal Reserve Bank of St. Louis to hold its recent conference on community development across the river in East St. Louis. The revitalization efforts there inspired the title of the conference: Rays of Hope: A New Day for America's Distressed Urban Areas.

The specific work going on in East St. Louis and the general themes of how community development comes about were interwoven throughout the event Oct. 22 and 23 at the Jackie Joyner-Kersee Center. The East St. Louis Action Research Project (ESLARP), a community assistance program run by the University of Illinois at Urbana-Champaign, joined the Fed as co-sponsor.

Panelists covered many topics, including building individual wealth, traditional and nontraditional approaches to redevelopment, attracting businesses to the inner city, redeveloping brownfields, models for urban design and the economic benefits of a light-rail system. Keynote speakers focused on: (1) the breakdown of cities and programs that were intended to help but did just the opposite; (2) the renewal that is going on in some communities.

The Breakdown of Cities

An overview. Federal housing policies going back to the 1930s are generally seen as contributing to the demise of many urban neighborhoods, with major changes kicking in after World War II. Prior to the war, cities had a healthy mix of upper-, middle- and lower-income populations, said Andrew Theising, an associate political science professor at Southern Illinois University Edwardsville. He cited historian Kenneth Jackson's book Crabgrass Frontier, which lists three ways federal policy began to interfere with growth in the cities after the war.

“Federal housing subsidies shifted the balance of affluence from cities to suburbs…and made tremendous changes to the housing landscape of the United States,” Theising said. Making money available for home loans became a priority. Second, there was the “ghettoization” of public housing. Although the original intent was that public housing would be a transitional step to home ownership, it became instead a way to clear out slums. Third, the federal government's transportation policies had a negative impact on urban growth. The construction of interstate highways to accommodate automobiles meant that transit options started to diminish. Decisions about where to build highways hurt the economy in many urban areas.

“Government didn't understand what impact these policies would have on cities,” Theising said.

Federal Reserve Board Gov. Mark Olson added, “The conventional wisdom at the time was that improvements in housing conditions would enhance urban residents' overall quality of life, thereby resolving other social and economic ills that had beset inner-city neighborhoods.”

Into the 1960s, federal agencies were dedicated to funding home mortgages, constructing public housing and replacing substandard housing in the cities. “With a large budget and a heavy hand, neighborhoods were transformed as urban planners demolished long-standing homes and businesses and replaced them with high-density, subsidized apartment buildings for low-income residents,” Olson said.

Those affected by the policies had no say in the redevelopment that drastically affected their lives, he said.

The unintended consequences were displacement of residents, demoralized communities and the concentration of poverty, unemployment and crime.

Wealth stripping. James Carr, a senior vice president at the Fannie Mae Foundation, specifically linked inadequate financial services in many urban areas with their breakdown. Through the years, reputable financial institutions have moved out, leaving a void that was easily filled by subprime lenders, payday lenders, pawn shops and rent-to-own businesses. “There are more payday lenders in California than McDonald's and Burger Kings altogether,” Carr said. That is significant because McDonald's and Burger King are located throughout the state, while payday lenders are located mainly in low-income neighborhoods, he said. It is also significant because payday lenders are not subject to the same regulations as banks.

Such urban areas also have become incubators for criminal activity by predatory lenders. Although Carr is quick to point out that many alternative financial institutions operate within the law, he said they target the nation's most vulnerable people and do not offer savings plans. High-cost loans turn into a cycle of debt, with the borrower often taking out a second loan to pay off the original loan.

For someone in a distressed area who is lucky enough to buy a home, it often comes through a subprime lender with high interest rates, Carr said. Although Carr acknowledged the legitimacy of subprime home mortgage lending, he said high interest rates have an adverse effect on homeowners. “Money spent on interest could have been spent on home repairs instead,” he said.

Adding to the cycle of poverty are rent-to-own businesses, Carr said. He gave an example of a person who rents a television and ends up paying three times what it's worth in rent. If the customer misses one payment, he may lose the product. “People often furnish their entire households at rent-to-own places,” he said. “The problem is, they aren't building wealth.”

Renewal in the Cities

An overview. It became clear to policy-makers who craft urban revitalization programs that the federal government's early unilateral approach to community development did not work, Olson said. In addition to housing, meaningful community renewal requires community involvement, broad-based partnerships and local, sustained investment by the private sector, he said.

Community involvement became so important to the process that by 1970, local community development corporations were created and given federal assistance in mobilizing neighborhoods to improve their social and economic conditions.

The process of funding redevelopment initiatives has also changed. “For example,” Olson said, “the Community Development Block Grant program authorized local governments to allocate federal funding for community redevelopment, rather than the direction being dictated by federal agencies.” This began a process that would expand local involvement and investment and use philanthropic and private-sector funds to leverage federal dollars for revitalizing distressed communities, he said. Foundations, as well as banks, have become important sources of capital for urban redevelopment, he said.

Fed Gov. Mark Olson

Conference attendees ride MetroLink, the St. Louis area's light-rail system, and listen to John Roach explain how its extension into Illinois has spurred development in the East St. Louis area. Roach is with the St. Clair County Transit District. In red tie is Fed Gov. Mark Olson.

“The change in the base of capital providers for community development…fostered innovation in the financing strategies,” Olson said. The federal government's role shifted from being the sole source of funding to providing tax incentives and credit enhancements to encourage private investment. “This fundamental shift in community development financing philosophy engendered market-based strategies for redeveloping distressed communities,” Olson said.

Wealth building. “Communities that are really vibrant start with individual wealth building,” Carr said. It's important for community developers to figure out how to empower residents to build wealth, he said. In turn, the entire community will prosper.

He touted home ownership as the most significant way Americans build wealth. Because a house is a major investment, homeowners will work to improve their communities, which results in rising property values, improved businesses and services, increased wealth and a cycle of wealth, he said. However, low- and middle-income people have a difficult time saving for a house and when they do, they often can't find a bank to give them a loan.

Carr said the Earned Income Tax Credit could be a valuable tool for increasing wealth. The federal tax credit of up to $4,000 is intended to help low-income workers increase their financial stability. The General Accounting Office estimates that 25 percent of these refundable tax dollars go unclaimed every year.

“There are billions of dollars sitting in the Treasury Department that are untapped,” Carr said.

As for payday lenders and rent-to-own shops, Carr said they are here to stay. And since the majority of their customers don't have bank accounts and deal mostly in cash, it's difficult to track how much money flows through poor neighborhoods.

Customers could be drawn away from fringe lenders by banks and other lenders that offer competitive rates, Carr said. Financial literacy classes for residents also would help. In order to prosper, low-income people need a full range of financial services and insurance to guard against disaster, Carr stressed.

The power of the people. One theme that ran through the conference was the importance of using the power that already exists within a distressed area. John Kretzmann, co-director of The Asset-Based Community Development Institute at Northwestern University, said those involved in redevelopment often dwell on the negative aspects of a community. They might see unemployment, crime, illiteracy, gangs, broken families, welfare recipients. If they focused on the assets in a community, they might see youth, elderly, artists, libraries, block clubs, churches, parks, community colleges. “We're not just talking about economic assets,” he said.

A South Bronx resident once told Kretzmann that the most difficult thing about living in her neighborhood was other people's perceptions. Whenever she told people where she lived, they immediately defined her by her neighborhood's deficiencies, she said. As hard as she worked to improve her community, she felt imprisoned by outsiders' views of what her community was like.

About 15 years ago, Kretzmann and members of his organization decided to find out what they could learn by talking to people who had improved some of the nation's toughest neighborhoods. They embarked on a three-year nationwide odyssey, collecting 3,000 success stories from neighborhoods where young people were prospering, where drug dealers were being moved out, where schools were being brought back to life, where microenterprises were thriving, where things were happening without a lot of fanfare.

The most important lesson they learned was that successful revitalization starts with residents in the neighborhood.

“When problems come up, turn to each other first,” Kretzmann said. “The solutions might be down the block or in the church or in the local school, not necessarily in the big systems or institutions whose job is to treat us after we have gotten sick.”

In most communities, there are many small civic, faith-based and cultural groups, from softball teams to choirs, with the potential to have a positive effect on the neighborhood.

His group also learned that the community needs to take advantage of the local economy—there is often an untapped market—and figure out how to link it to a larger economy.

Kretzmann said the findings do not mean that communities have everything they need or that they can survive without help from governments. They need help from the traditional institutions, but they also need recognition that they are capable of improving themselves.

Kretzmann said when his group asked people what they did best—instead of asking what they were lacking—it became clear that poor neighborhoods have many skilled people who are capable of bringing about change.

The National Center for Neighborhood Enterprise takes a strikingly similar approach. Founded in 1981 by Robert L. Woodson Sr., its members have traveled to low-income, high-crime neighborhoods around the country to find residents who are functioning within those communities despite the problems.

Conference participants

Conference participants pick up resource material.

“National Center looks for strengths in neighborhoods. Once they identify successful people in low-income neighborhoods, they bring them together and get them interacting with their peers,” Woodson said. He called such people “antibodies” to the societal diseases around them.

The center helps community and faith-based organizations that are having some measure of success, links them to sources of support and evaluates their experience for public policy. The organization particularly works with groups on the issues of youth violence, substance abuse, teen pregnancy, homelessness, joblessness, education and deteriorating neighborhoods.

“It's a lack of imagination and new thinking that prevents us from serving the poor,” Woodson said.

Millions of dollars have been invested in programs to help the poor, yet millions of people live in poverty, Woodson said. “Secular comforts aren't making affluent people happy. How can we expect low-income people to be happy?”

Government programs often are weakened by the struggle between conservatives and liberals. “People who suffer in this struggle are the low-income people,” Woodson said. “People to the left of center see a sea of victims who must be rescued by experts,” he said. When the community doesn't respond, the liberals seek more money for programs to resolve the problems. “People on the conservative right say if people are not responding to all that those on the left are giving them, we should cut the program,” he said.

Woodson contends that poverty does not cause social dysfunction. During the Great Depression, a time when unemployment soared to 25 percent, crime and substance abuse rates were minimal compared with today, and families and communities formed networks of support, he said. He attributes many of today's critical problems to an internal and spiritual void. He cites the success of faith-based grassroots groups and calls their leaders “community healers.” He points to groups that are not rooted in a particular religion but whose members have spiritual motivation for their tireless efforts. Many of these organizations have forged solutions to youth violence and drug abuse because they have inspired an internal transformation in young people, on the level of heart and spirit, he said.

Woodson recommends one important criterion for evaluating public policy on social and economic issues: “How does it affect the least of our society?”

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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