How does the nonprofit infrastructure work in practice? At the national level, it’s difficult to see, but a slice of the nonprofit sector—the more than 4,000 urban and rural community development corporations (CDCs) that develop housing and economic development strategies—demonstrates some infrastructural components in operation.
Few inside the community development sector would suggest that the infrastructure that supports CDCs is across-the-board healthy. There are tensions, fissures, and gaps in the fabric of supports, and CDCs and funders alike suggest the need to repair them. But to some extent, community development provides persuasive evidence of what infrastructure organizations can accomplish in terms of supporting nonprofit rural and urban community developers and in their recent efforts to aggressively combat the problem of subprime mortgage foreclosures.
Based on some two dozen interviews with leaders in the sector, this article explores the function and development of the community development infrastructure.
The Community Development Infrastructure and What It Does
While some components of the community development infrastructure have obvious counterparts in serving the nonprofit sector overall, some are either specific to community development or more developed. We describe them below.
Community development financial intermediaries. The dominant infrastructure element of nonprofit community development is the array of national community development intermediary organizations that combine training and technical assistance with regranting and project financing functions. Those in the sector can quickly name the Local Initiatives Support Corporation (LISC), Enterprise Community Partners, and NeighborWorks America.
These institutions are large and well capitalized.1 LISC and Enterprise bundle multiple program activities to assist thousands of nonprofit community developers between them: predevelopment lending, bridge lending, project and operating support grantmaking, housing tax-credit syndication, the New Markets Tax Credit program, public-policy advocacy, and more. With a longtime focus on homeownership, NeighborWorks includes a secondary market, various financing programs, and a respected training program that provides nonprofits with training and capacity building on core nonprofit functions in addition to CDCs’ housing development roles.
According to one observer, the intermediaries’ prime contribution to the sector has been technical assistance, enabling nonprofit community developers to access the national capital markets and deploy a mix of concessionary and market financing in some of the nation’s most intractable inner-city and rural markets. They help CDCs access market resources that these organizations could not access on their own.
The large nationals are hardly the only intermediaries active in the field. There are smaller intermediaries, such as the Low Income Investment Fund,2 various regional and local community development financial institutions, assorted local and regional community loan funds, and housing partnerships. In addition, other intermediaries serving defined community development populations have developed financing and technical assistance functions, notably the National Council of La Raza,3 which offers Latino development organizations networking, financing, and policy advocacy, and the Housing Assistance Council,4 which provides crucial development financing, technical assistance, and networking activities for CDCs that serve rural America.
National CDC networks. In the summer of 2006, the community development sector lost its longtime national trade association. After 35 years in existence, the National Congress for Community Economic Development (NCCED) thanked its supporters for their loyalty and ceased “official operations.”5 Within community development, NCCED’s demise was greeted with near silence. Many were aware that their trade association had been weakened by political infighting and racial and ethnic divisions.
Even before NCCED’s collapse, networks of CDCs functioning as trade associations had begun to spin off. Two spinoffs reflect the belief that NCCED had failed to meet constituents’ needs: the National Coalition for Asian Pacific American Community Development (National CAPACD) and the National Association of Latino Community Asset Builders (NALCAB).
Both National CAPACD and NALCAB focus on racial and ethnic subsets of the community development world; but with the absence of NCCED, no organization provides definition and vision for the sector as a whole. In response, several of the state CDC association members of NCCED launched the National Alliance of Community Economic Development Associations (NACEDA).6 With 24 state and metropolitan CDC associations as its current membership, NACEDA has absorbed some of NCCED’s policy advocacy and information management functions. As a coalition of largely state CDC associations, NACEDA’s function for community developers is similar to that of the National Council of Nonprofit Associations vis-à-vis state nonprofit associations: it undergirds the national structure by drawing on the grassroots strength of state associations.
Technical assistance and training providers. If there is consensus among observers, it is that the training programs of the Neighborhood Reinvestment Corporation’s Training Institute constitute a high-quality asset for the development of the field (national intermediaries and the various state CDC associations provide additional training). National intermediaries’ aggregation and delivery of technical assistance and training is also distinctive. Though less true recently, at one time the programs of the Baltimore-based Development Training Institute (DTI),7 constituted a Good Housekeeping–like Seal of Approval, convincing reluctant investors and government agencies that program graduates had the technical financial and management skills to warrant investment in the DTI alumni-run CDCs.
Community development funders. For some years, the Council for Community-Based Development (CCBD) aimed to promote foundation grantmaking for community development. A 1989 CCBD report counted 196 foundations making grants specifically for community development that totaled $68 million.8
The Foundation Center counts grantmaking for “community improvement and development,” generating a much larger dollar amount for this sector’s foundation grantmaking, though it’s hardly focused on nonprofit community-based developers (including community development grants to non-U.S. organizations and to community improvement organizations that are not CDCs).
As the Foundation Center numbers indicate, grantmaking by the dominant foundations for community improvement and development has decreased not only as a proportion of total grantmaking but also in absolute numbers. In 2004 the top foundations devoted 4.4 percent of their grant dollars, or $684 million, to community improvement and development. In 2005 that number fell to 3.5 percent, or $567 million. And by 2006, reflecting the foundation sector’s huge growth in grantmaking, the grants of top foundations for community improvement and development rose to $700 million, but that still represents only 3.7 percent of total grant dollars (a decline since 1999, when it was 5.1 percent). With the recent financial meltdown and the elimination of grantmaking from Fannie Mae and several banks, post-2006 grant totals will likely plummet.
While interviewees noted the importance of philanthropic funders as a component of the infrastructure, they didn’t view funders as an organized component. Foundation and nonfoundation respondents alike did not typically define the Neighborhood Funders Group, one of the nation’s preeminent foundation affinity groups, as a community development–oriented entity. Now known as Living Cities, the National Community Development Initiative is viewed as funders’ avatar in the community development infrastructure.
In terms of total dollars, using foundation dollars to leverage private and government capital, Living Cities has by its own counting generated more than $540 million.9 Living Cities excludes CDCs outside its locations of operation: 23 cities and metropolitan areas served by LISC or Enterprise. Nonetheless the monies funneled through Living Cities constitute an unprecedented philanthropic commitment,10 leveraging private and government capital to the tune of 29 to 1.
Government. Most “maps” of the nonprofit infrastructure omit the Internal Revenue Service’s Tax Exempt & Governmental Entities, state attorneys general, and the multiple sources of government grantmaking to nonprofits. But without government funding, community development would effectively be crippled. As one interviewee puts it, “So much of the community development infrastructure depends on support from a federal government grant flow.”
Living Cities serves as an example of the significant role of government in the community development infrastructure. A significant piece of its funding has been through Department of Housing and Urban Development (HUD) appropriations, including $56 million prior to FY2004 and infusions in subsequent years.11
Despite successful lobbying for capacity-building appropriations, HUD discretionary funding for community development has hardly been on the upswing. Community development is a sector that depends heavily on government subsidy. CDCs view (1) the Community Housing Development Organization portion of the HOME program, (2) their ability to connect with local governments to access CDBG funds, and (3) the direct funding application ability they have with the Office of Community Services program at the Department of Health and Human Services as crucial components of the community development infrastructure. At the state government level, state nonprofit associations have won impressive victories to maintain and increase state funding for community development activities, including bond appropriations, housing trust funds, and other state programs.12
Research and publications. Based at the National Housing Institute in New Jersey, the monthly Shelterforce magazine functions as the journal of record for community development.13 Interviewees also noted the research of the Urban Institute, the Joint Center for Housing Studies, and the work of the Metropolitan Policy Program at the Brookings Institution. Overall, however, respondents most frequently mentioned NCCED’s regular “census” of nonprofit community developers.14 With the help of LISC, NACEDA is attempting to conduct an updated, and perhaps more rigorous, CDC census.
Assessing the Community Development Infrastructure
In the wake of NCCED’s collapse, how important is the community development infrastructure? On one hand, “it takes time to feel the loss,” says on interviewee. On the other, however, NCCED’s downward spiral was a long time coming.
Most observers suggest that several functioning infrastructure organizations have contributed to what one described as a “solidified” community development sector—but at the same time that gaps in the community development infrastructure have led to the collapse of several CDCs.15 According to one interviewee, without the infrastructure organizations’ functions, “community development could be worse.” With varying degrees of emphasis, all interviewees conveyed the importance of a functional community development infrastructure.
Several elements of the distinction of the community development infrastructure stand out, none more markedly than the ability of national intermediaries to perform multiple roles.16 By contributing to the development and retention of programs such as the New Markets Tax Credit and the Low Income Housing Tax Credit, Enterprise and LISC have taken on NCCED’s role of national community development lobbying, which has made the erosion of NCCED less acutely felt. LISC and Enterprise have also generated a structure of field offices governed more or less by local philanthropic, government, and community leaders, serving as mechanisms to match intermediaries’ resources with the distinctive conditions of local settings. Nonetheless, in communities and regions outside national intermediaries’ geographic “footprints,” support for community development suffers.
Observers suggest that intermediaries tend to work best with and advocate for mature community developers that can place and use intermediaries’ financing and investment; working with startup organizations is labor-intensive and costly, not an attractive prospect for intermediaries that carry significant foundation program-related investments (PRIs) that they have to deploy or lose. Some observers see intermediaries’ assiduous lobbying for the housing tax credit and for the New Markets Tax Credit as self-interested. These organizations own and operate major tax-credit investment funds, and their networks of mature community developers are likely users of both tax-credit programs.
Foundations’ Role in the Community Development Infrastructure
Various prominent foundations have played a major role in supporting the community development infrastructure. According to the Foundation Center, LISC and Enterprise have been major recipients of foundation support. In 2004, LISC (its national regional offices) received more than $28 million through 178 foundation grants (including from corporate foundations) and, in 2005, nearly $35 million through 237 grants. These numbers don’t include the Walton Family Foundation PRI of $10 million and the Prudential loan of $20 million to LISC for charter school financing. For its part, in 2005, Enterprise garnered more than $25 million, which doesn’t include prodigious funding received directly from corporations or the funds regranted to intermediaries through Living Cities.
Over the years, foundations have been significant funders of community development organizations, but a significant portion of CDCs’ unrestricted funding came from developers fees generated by housing and economic development projects.17 With philanthropy reluctant to invest in CDCs with general-support grants, CDCs are driven to do more brick-and-mortar development and diminish the activities that aren’t supported or can’t generate unrestricted money.
Because core support is the lifeblood of the sector, the importance of developer fees compels the infrastructure to focus on the activities and related capacity building that yields this important resource. According to one CDC interviewee, “For most of the CDCs, their bread and butter is development fees from deals, but it’s a hard balancing act to do that and make sure we’re doing a project that is really needed as well.” For many CDCs, developer fees keep the groups alive and pay for core functions, but not necessarily for additional program services, such as community organizing and civic engagement.
Interviewees indicate a feeling of funder discontent with community development, belying the substantial foundation commitments to both the intermediaries and the Living Cities consortium. Addressing the field as well as its infrastructure organizations, some interviewees view community development as somehow stuck and “mired in older debates, such as looking for new ways of financing affordable housing or new incentives for economic development” but not addressing emerging needs such as demographic change, gentrification, workforce issues, and K–12 education. According to one funder with a long history of commitment to community development, “There’s a general unhappiness. Part of the disappointment is that the . . . model hasn’t changed. People experience the system as it was 20 years ago.”
In their view, the model is limited because community development organizations have had to fixate on small neighborhood geographies, which frustrated new immigrant populations and funders, with the latter feeling “politically bounded by these [community development] groups and their [geographic/neighborhood boundary] origins of 30 to 40 years ago.” Expressing a perspective shared by many, one funder observed, “The community development infrastructure is not morphing as fast as changes in community economic development, such as regionalization, demand.”
Some interviewees suggested that successful CDCs had become arms of local government, relied on to deliver in lower-income neighborhoods. Community development’s function was less as civic mobilizer and more as government and private-capital outpost and stand-in. Without prompting, several funder interviewees articulated the notion that “CDCs have become agents of government and lost their social-change agenda,” while community-based organizers “see themselves as the voice of neighborhood residents.”
On the other hand, nonprofit interviewees are not enamored with the foundation sector’s approach to community development. Several say that the philanthropic sector’s focus on metrics has undermined CDCs’ credibility in asking for broader civic engagement approaches. Community developers and their infrastructure partners report that it’s easier to get support for projects that can be listed, measured, and photographed, as opposed to projects that reflect the amorphous concept of stimulating an engaged, mobilized community on issues that affect neighborhoods. According to one respondent, “If you can touch it or tour it, it’s fundable; if you have to sit still a little more to observe it, it’s hard to fund.”
Infrastructure Operating in Community Development
In their study of nonprofit responses to the September 11 terrorist attack, Rikki Abzug and Dennis Derryck noted the nonprofit infrastructure’s importance. Organizations that were “networked” through “umbrella and intermediary organizations” received help and support for dealing with the extraordinary short-term financial and service challenges that ensued, while “unaffiliated small and medium-sized organizations” found themselves “reeling” from immediate service demands, staffing needs, and financial reimbursement challenges.18 A similar dynamic is visible within the community development infrastructure, providing an example of how nonprofit infrastructure undergirds the ability of groups of nonprofits to respond to issues and challenges that would overwhelm organizations lacking networks and interrelationships.
During the past two years, the subprime mortgage crisis has swamped the nation’s economy. With millions of homeowners likely to face foreclosure because of adjustable-rate mortgages and other kinds of home financing, several decades of CDC achievements were suddenly at risk. Communities such as St. Paul and Indianapolis confronted vacancy rates that had not been seen in 20 years. Other markets such as Boston and San Diego confronted destabilizing foreclosure rates, and longtime troubled markets such as Cleveland, Detroit, and Buffalo spiraled further downward.
The magnitude of the subprime crisis, taking down banks such as Wachovia and investors such as Lehman Brothers necessitated a federal response, but the design of the response led to important functions for the community development infrastructure. The fact that the infrastructure existed and, despite gaps, was healthy enough to respond, positioned community development groups to play important roles in mitigating the impact of the foreclosure crisis and shaping longer-term solutions, including the following:
Foreclosure counseling. In the fall of 2007, when the subprime crisis emerged, Congress quickly called for emergency increases in the availability of foreclosure counseling. Although HUD was directed to distribute funding for expanded counseling, there was little capacity within the agency to quickly mount a program. In December 2007, Congress instead turned to NeighborWorks, which was given $130 million in the FY2008 Consolidated Appropriations Act to disburse in 60 days for foreclosure counseling nationwide. By the end of February 2008, Neighborhood Reinvestment announced grants to 130 organizations inside and outside the NeighborWorks network.19
Capitol Hill advocacy. At the same time, the community development infrastructure organizations began meeting to coordinate their proposals for legislative initiatives to deal with the deeper causes of the subprime crisis—inappropriate bank lending, acquisition and redevelopment of foreclosed properties, purchasing and refinancing through the Federal Housing Administration subprime loans, and so forth. Under the banner of the National Foreclosure Prevention and Neighborhood Stabilization Task Force, intermediaries began cooperatively fashioning legislative proposals that by the summer of 2008 emerged as legislation. Task force leaders include LISC, Enterprise, the National Council of La Raza, NACEDA, the Housing Partnership Network, and many others.
Capital infusions. Through their national infrastructure partners, community development advocates successfully convinced Congress to pass and the president to sign the Housing and Economic Recovery Act of 2008, allocating approximately $4 billion that CDCs and others can tap to address foreclosures and vacant properties. To deal with CDC capacity issues, foundation supporters working through intermediaries quickly made available $10 million in grants and loans to fund “promising approaches” that might be replicated and expanded in subsequent federal legislation.20 In June 2008, by taking advantage of the networking within the community development infrastructure, Living Cities funders (including Ford, MacArthur, and others) made grants to agencies in the Midwest, Northeast, Washington, D.C., and other areas with the promise of more later.
Such networking has helped to fashion responses suited to the emerging dimensions of the subprime crisis. Among the items in progress is a proposal designed by LISC, Enterprise, the Housing Partnership Network, and NeighborWorks for a National Community Stabilization Trust to coordinate the disposition and purchase of properties foreclosed and controlled by lenders, servicers, and others and to get them into the hands of local CDCs for redevelopment and reuse. The scale of the subprime mortgage disaster is beyond the capacity of individual community-based organizations to navigate. But through interrelationships with national and regional infrastructure organizations, CDCs have acquired properties and financing to stabilize neighborhoods and help displaced homeowners.
A Living Infrastructure for Community Development
Observers inside and outside community development are hardly sanguine about the community development infrastructure. Many CDCs harbor deep suspicion about financial intermediaries while acknowledging the extent to which LISC and Enterprise jump-started the nation’s growth in CDCs. Others might suggest that the infrastructure has not kept up with changing community development dynamics and demographic conditions. Witness the collapse of NCCED and its replacement by more specialized groups that believed they had been poorly represented by national infrastructure entities.
But the overall story of the community development infrastructure is one of dynamic operations with lessons for the nonprofit sector infrastructure concerning national and local market conditions, changing stakeholder demographics, the requirements of CDCs to change, and more. Like any nonprofit subsector, the community development subsector contains components that are perhaps highly advanced and others that are less optimal. Sometimes the problems among community development organizations, particularly issues of racial and ethnic equity, are mirrored within infrastructure organizations themselves.
The history of the community development infrastructure underscores a crucial point about the nonprofit sector: organizations that are “networked” into mutually supportive infrastructure partners can potentially withstand and overcome sectoral “shocks, such as hurricanes and international financial crisis, better than groups that lack access to capacity-building and capital networks. It should come as no surprise, therefore, that CDCs have come to recognize that their success is inextricably linked to the vitality of the nonprofit infrastructure that supports them.
1. In the Forbes list of the 200 largest nonprofits, for example, LISC was the 102nd largest nonprofit in terms of total net assets and 229th in the Chronicle of Philanthropy’s “Philanthropy 400” list of charities raising the most money from private sources such foundations, corporations, and individuals.
2. The Low Income Investment Fund.
3. The Raza Development Fund.
4. Building Rural Communities.
5. National Congress for Economic Community Development.
6. The National Association of Economic Development Associations.
7. Development Training Institute.
8. Expanding Horizons: Foundation Grant Support of Community-Based Development, 1989.
9. For research, see the Living Cities Web site.
10. Metis Associates, The Cities Program Follow-the-Money Report: Living Cities: The National Community Development Initiative: Analyzing How Funds Are Used for Real Estate Investment and Production [PDF], Sept. 22, 2006, p. 2.
11. HUD funds through Section 4 of the HUD Demonstration Act of 1993, initially limited to the NCDI cities served by LISC and Enterprise, were later expanded to include funding for Habitat for Humanity and YouthBuild.
12. Housing trust funds are operational in 38 states plus the District of Columbia, link.
13. Shelter force
14. NCCED released reports in 1988, 1991, 1994, 1998, and 2005, the last of which is titled Reaching New Heights [PDF].
15. Cf. William M. Rohe, Rachel G. Bratt, and Protip Biswas, “Learning from Adversity: The CDC School of Hard Knocks,” Shelterforce Online, May/June 2003.
16. Y. Thomas Liou and Robert C. Stroh, “Community Development Intermediary Systems in the United States: Origins, Evolution, and Functions,” Housing Policy Debate, vol. 9, no. 3, 1998.
17. Alexander Von Hoffman, Fuel Lines for the Urban Revival Engine: Neighborhoods, Community Development Corporations, Financial Intermediaries, Fannie Mae Foundation, 2001.
18. Dennis Derryck and Rikki Abzug, “Lessons from Crisis: New York City Nonprofits Post–September 11,” the Nonprofit Quarterly, vol. 9, no. 1, spring 2002.
19. National Foreclosure Mitigation Counseling Program.
20. Living Cities, “Mitigating the Impact of Concentrated Foreclosures on Neighborhoods: A Multi-City Pilot to Prove What Can Work”.
Rick Cohen is the Nonprofit Quarterly’s national correspondent.