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Cascade: No. 76, Winter 2011

Moving Forward in a Time of Change: The Future of the Community Development Industry

The recent recession has affected many business sectors, and the community development industry is no exception. Nonprofit community development corporations (CDCs), community-based organizations (CBOs), and community development financial institutions (CDFIs) have all felt the credit and economic crises as their funders — whether they be banks, foundations, or local, state, or federal governments — faced reduced revenues. Even in good times, the players in the community development world compete for limited resources, but today’s environment is particularly challenging.

So what will it take for CDCs and CBOs to attract funding in the future? We initiated this conversation in May 2010 at the Federal Reserve Bank of Philadelphia’s Rethink. Recover. Rebuild: Reinventing Older Communities conference. In the final panel, four community development leaders discussed the future of the community development industry, specifically its neighborhood-based groups’ need for funding. A key discussion point was the most effective role for CDCs and CBOs, given diminished funding sources and a recent shift in the federal government’s strategy toward comprehensive neighborhood development within a regional framework.

Having heard these leaders discuss their thoughts, the Community Affairs Department conducted a qualitative survey of 19 leading stakeholders in the community development industry through phone or in-person interviews. The participants were from all different sectors, including lending institutions, government offices, private foundations, trade associations, CDCs, and intermediaries. The survey objectives were: (1) to identify any patterns or trends around the capacity of CDCs and CBOs as effective community development practitioners; and (2) to look for ways that the recession and the federal government’s more comprehensive neighborhood development strategy are changing the industry infrastructure. We also sought to understand how the Fed’s Community Affairs Department could strengthen the capacity of the industry and support the various practitioners in their roles.

The following points emerged in our survey:

1. Changing Roles

There is no doubt that the economic recession has resulted in decreased funding for CDCs and CBOs. We also heard that the structure of the community development industry is evolving, as are the traditional roles of stakeholders in the field. During the interviews, several lenders reported that CDCs are being replaced as the developers of affordable housing and mixed-use projects by for-profit entities and that smaller neighborhood nonprofit developers are being replaced by larger regional or statewide nonprofit developers and CDFIs. The increasing role of CDFIs as the distribution channel for private and public funding also challenges CDCs and CBOs to form new partnership structures with CDFIs.

2. Neighborhood Change Agents, Strategic Partnerships

Survey participants noted that the CDC-centered model for distributing funding to low- and moderate-income (LMI) communities has become increasingly less productive, yet most respondents agreed that a real need exists for a neighborhood organization to play a catalytic role in community development projects.

In this context, it appears that a new role for CDCs and CBOs has emerged — as partners with the larger-scale developers. Under the new model, the CDCs and CBOs can plan the structure, manage the political aspects, and deliver zoning and other entitlements, and then rely on the larger-scale developer to produce the structure.

Several respondents also emphasized that the future of community development will entail partnerships across disciplines, including education, workforce, health, physical development, and transportation. As grassroots organizations, CDCs and CBOs know how to engage the “system” and can promote community change as the facilitator for neighborhood and regional stakeholders. The forward-thinking organizations are already adapting to the new reality. One respondent recalls a comment from a CDC executive director: “We no longer call ourselves a CDC, but a neighborhood change organization.”

3. A Coherent System as a Solution

Our survey respondents suggested that the community development system is fragmented and lacks a central platform of civic leadership and a unified regional strategy. Without a center, the infrastructure remains thin and spread out.

Respondents recommended an alignment among various funding sources to create a shared vision for the region. The content of the strategy must focus more on the challenges of wealth creation and balancing the needs of existing and new residents. It was recommended that preservation tools include pairing policy with development as well as providing financial literacy and consumer education so that the conversation will change at the community level. Policy should also address fears of gentrification and displacement of long-term residents. CDCs and CBOs as community change agents might present the best vehicle for implementing a more thoughtful approach to new investment.

4. The Fed’s Role

The majority of respondents see the Community Affairs Department’s most effective role as that of a convener. Respondents noted that the Federal Reserve is the only institution that can break down communication barriers among the community groups and the banking industry. Several respondents suggested that our conferences and meetings focus more on solutions. While the respondents acknowledged that it was beneficial to identify problems, they also emphasized that conversations involving solutions lead to more meaningful results for all parties.