Michael O. Minor, Glenda J. Wilson
Breathing new life into distressed neighborhoods is a challenging proposition. It requires government agencies, community organizations, financial institutions, corporations and individuals to come together to get the job done. Sometimes, these entities are unaware of the work each is doing ... unaware of the possibilities collaboration would offer.
That's where the Federal Reserve comes in.
The Community Affairs Office at the Federal Reserve Bank of St. Louis works to foster community and economic development in low- and moderate-income (LMI) neighborhoods by bringing these entities together. Staff members keep a finger on the pulse of community development in the Eighth District by participating in local community development and asset-building collaboratives and conducting outreach meetings with constituents. The District includes all of Arkansas and portions of six other states: Missouri, Mississippi, Tennessee, Kentucky, Indiana and Illinois.
The Community Affairs team recently completed a districtwide environmental assessment that focused on community and economic development issues and opportunities. More than 80 individuals representing more than 60 organizations covering nearly the total breadth and width of the District were interviewed. Interviewees represented state and local governments, colleges and universities, financial institutions and other lenders, nonprofit developers, small business technical assistance providers, social service providers and others.
Several significant themes emerged from this assessment.
Regional economic factors having an impact on LMI individuals or communities:
- Low-skill/high-wage manufacturing jobs are being replaced with low-wage service jobs. A more diverse employer base is needed, but it is difficult in some parts of the District to attract industries. Contributing factors include a lack of education among residents and an unskilled workforce.
- Several times during the interviews, individual development accounts (IDAs)-matched savings accounts that enable low-income, working individuals or families to save, build assets and enter the financial mainstream-were mentioned as a tool in short supply in the District. The monthly savings and matched funds can be used toward purchasing an asset (most commonly buying a first home, paying for post-secondary education or starting a small business). The lack of matching funds for IDAs limits the number of successful programs.
Capacity and sustainability of nonprofit organizations
- In general, the District has an immature nonprofit (community and housing development) community. Too many nonprofits are lacking capacity, and the challenge to developing capacity is that a high level of staff know-how or expertise is not matched with salary.
- Agencies are challenged to support their existing infrastructures, not to mention any new programs they want to introduce. Competition for private dollars is getting more intense. Government funding and foundation support for community development corporations (CDCs) has diminished. Community organizations would benefit from increased participation by intermediaries that are often a source of capacity-building support.
- As nonprofits compete for a shrinking pool of funds, they are striving for operational efficiency and self-sufficiency. Some suggested ways to accomplish these goals include: starting for-profit ventures that can provide a regular funding stream, adopting a business approach to managing the organization, and developing CDC networks to achieve scale that would allow greater access to insurance and credit.
Effect of bank mergers on the ability of financial institutions to serve credit needs
- Many in the community believe that the loss of headquartered banks has a negative impact on LMI individuals because, when banks merge, credit standards may be tighter, and credit decisions are no longer made locally. However, a banker told us, "As for bank mergers, some would say this has had a negative effect on the availability of credit for LMI borrowers. I see positives and negatives. On the positive side, with each merger, we reviewed the products offered by both financial institutions and kept those that best meet the credit needs of the customers. In some instances, the bank merging with us had some products that we did not have, so we have added them to our offerings. On the negative side, mergers lead to the elimination and consolidation of the back office. When this happens, the back office functions may not be at the depositor's local institution. Therefore, credit decisions slow down and give the perception that credit is more difficult to get. With the loss of the local back office, we have also lost some of the ability to do special-case exceptions based on personal knowledge."
- A nonprofit developer said, "It is difficult to do business with non-local banks since project management requires decisions that are quicker/more timely. The challenge for the bank is in the complexity of markets and development structures. Most don't have in-house expertise. Some are trying to develop new expertise, but it may not be cost-effective for them to do so."
Support services for the Hispanic community
- In some parts of the District, the Hispanic population is growing, but the growth has been relatively slow, so that many Hispanics have assimilated into the community. Other parts of the District, particularly Arkansas, have seen a large increase in the number of Hispanics.
- Language barriers are a challenge to offering services, and because some Hispanics are undocumented, it is hard to connect them to services. Financial institutions, as well as service providers, that do not have bilingual employees identified the language barrier as a major issue. Also, while some banks have established programs for outreach to Hispanics in their service areas, others cited the concern about legal status as an issue that was hindering them from providing more services.
- Although several organizations are supporting immigrant or refugee populations, the lack of financial resources for these organizations is diluting their impact.
- Workforce development efforts have been hindered by a lack of accessibility (transportation and location). Also, the lack of adequate, affordable child care makes it difficult for low-income parents to maintain employment.
- Job skills training is available in most communities through community colleges, churches or other organizations. Some interviewees suggested that an evaluation of the number and types of programs and their effectiveness would be beneficial. Employment trends, job classifications and types of industries a community is attracting (or hopes to attract) should dictate the type of employees the community will need and, therefore, what skills training is needed.
- Rising interest rates combined with the availability of flexible mortgage products and relaxed credit standards are now leading to higher levels of bankruptcies and foreclosures. Low credit scores and poor credit histories are keeping many potential borrowers from accessing credit through traditional lenders. As one banker said, "Finding qualified home buyers is becoming more difficult."
- Many low- and moderate-income individuals still lack the basic skills, fundamentally and financially, to become home owners. Home-buyer counseling programs generally are available throughout the District, but the quality of the education being provided is an issue. Both financial education curricula and home-buyer training programs should be evaluated for effectiveness, and, as one interviewee put it, "stick with the ones that work."
- Following hurricanes Katrina and Rita, the cost of building materials has risen. Escalating construction costs have resulted in the development of fewer affordable housing units and demands for more program resources.
- In addition to the expected responses about affordable housing (credit concerns, funding issues and a need for home ownership training), there were concerns about the general availability of both affordable and moderate-income housing. Even with qualified buyers, there was not enough housing stock available. This issue was even more pronounced in rural areas where there was not significant stock of moderate-income rental housing. Financing sources for repair of rental units was also cited as a need.
Availability of capital for small businesses and entrepreneurs
- On the entrepreneurial front, inadequate training for entrepreneurs and the lack of significant venture capital for startup and emerging businesses are concerns.
- Tightening credit standards can "turn off the faucet" for small businesses and entrepreneurs, which are typically undercapitalized. Business loan pools are helping to meet the demand for financing.
- Microenterprise loan programs are filling some of the financing gaps for loans in the $5,000 to $50,000 range.
The need for collaborative efforts
- Finally, the assessment showed a need for more collaborative efforts that include all affected stakeholders: not only community groups, local government and lenders, but also state and federal governments, academic institutions and others.
Regional, Rural and Urban Needs
Recognizing the wide range of locales within the District, further analysis was done to distinguish issues along regional, rural and urban areas. About two-thirds of the interviews occurred in urban areas and a third in rural areas; however, the organizations served a variety of geographic regions-from as small as a neighborhood to as large as multi-state. The breakdown of interviews by geographies served was: 36 percent multi-county, 17 percent county, 16 percent city, 13 percent MSA, 10 percent multi-state, 7 percent state and 1 percent neighborhood.
Regionally, the major issues of concern could be summarized as the need for more and diverse collaboration and more information sharing. In rural areas, workforce development and diversifying the employment base were distinct needs.
An analysis of issues in urban areas presented three significant findings. First, there was concern about the pace and scope of revitalization of central cities in all urban areas. Second, gentrification, particularly in metro Memphis and St. Louis, is becoming a larger concern as increasing house prices are forcing some home owners out of the market. Finally, expanded Hispanic support services are a definite need in Little Rock, St. Louis, Memphis, Evansville and Springfield, Mo.
This environmental assessment helped direct the Community Affairs department's focus for 2007. The department's initiatives primarily will fall under three comprehensive themes: opportunity finance, asset building and placed-based economies.
Opportunity finance involves community development and economic growth in which people come together and make decisions to organize and pool assets and resources for the purpose of addressing unmet needs and opportunities.
Asset building encompasses public policies, strategies and programs that enable people with limited financial resources to accumulate long-term and productive assets.
Finally, place-based economies focus on building the organizational capacity of states, cities and neighborhoods to create housing, jobs and community development.