November 30, 2020; CNN Business
Yesterday, based on a story from CNN, I wrote an article that highlighted a reported $2 billion in donations to LISC (Local Initiatives Support Corporation). The source seemed reputable, as it was based on an interview with organization CEO Maurice Jones. LISC itself tweeted about the interview, where it touted “deploying a record-breaking $2B in fundraising this year to address #COVID19’s impact on families of color and close the racial health, wealth and opportunity gaps,” and Jones retweeted the LISC tweet.
We knew from the math that the corporate donations we found were far less than $2 billion—the ones we directly identified only totaled $205 million—but we also figured the gap was made up by other national donations we did not know about and business donations to local LISC affiliates. Still, something seemed a little off. So, we inquired—and, as it happens, the grants totaled considerably less than $2 billion.
Here is what happened: LISC did “raise” $2 billion, but it appears a majority of that support was in equity investments (likely in the form of government-subsidized tax-credit allocations) and loans, not grants.
We all know the difference between grants and investments—and so, frankly, should CNN Business. But to state the obvious, grants are money you don’t have to return, while investors expect a financial return. Investments are critical to making community economic development work. They are not, however, a gift. Even lenders who offer below-market interest rates still expect to receive a positive financial return. If they didn’t, they would write a check (a grant), rather than offer a loan.
CNN noted the correction—sort of. At the end of the article, updated yesterday afternoon, CNN acknowledges that its original article “incorrectly described the $2 billion in funds. It came in the form of investments and donations from companies, philanthropy and government sources.” However, at press time, its headline still reads “Corporate America gave this nonprofit almost $2 billion to fight institutional racism and it’s already making an impact,” which is not true. Again, investments are not gifts.
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Here it is important to recognize that what LISC actually did is more impressive than what the CNN story implies. LISC took the grants it got and used them, matched with loans and equity (typically tax-credit) investments, to not only make grants to businesses primarily owned by women and people of color, but also sustain housing for large numbers of low-income households, many of whom are of people of color.
Community development is an efficient use of resources because it leverages limited grant dollars by combining those grant dollars with investment dollars.
As we noted last March, over its 40-year history, LISC has invested $20 billion, which has helped finance the development of over 400,000 units of housing. LISC finances many things beyond housing, but for simplicity sake, let’s assume that the $20 billion was just for housing. In that case, that would be about $50,000 investment per unit of housing. But remember, a good portion of that money gets paid back—it’s an investment. The cost in grant dollars per unit of housing is even less.
Much more could be said, but one thing that this tells us is that if affordable housing were adequately funded, we could end the housing shortage in America. We wrote about one such plan that would cost $50 billion a year for 10 years a couple years ago.
It is great to see new funders step up to invest in LISC, which is doing important community economic development work. It would be even greater if business writers would learn how the community economic development industry functions.—Steve Dubb