Elizabeth A Duke: Building sustainable communities
Speech by Ms Elizabeth A Duke, Member of the Board of Governors of the Federal Reserve
System, at the 2012 National Interagency Community Reinvestment Conference, Seattle,
Washington (via videoconference), 27 March 2012.
* * *
Building sustainable communities
I am pleased to participate in the ninth biennial National Interagency Community
Reinvestment Conference. Since its inception in 1996, this conference has fulfilled its
mission to train bankers and community development professionals on the requirements of
the Community Reinvestment Act (CRA) by providing cutting-edge information about
regulations, policies, and best practices in community development. In addition, it has
become a source of inspiration for CRA-related community development activities. As this
year's agenda demonstrates, this interagency conference has grown to encompass all
aspects of community development, including discussions of community amenities that
provide both quality of life and economic resilience for low- and moderate-income residents.
Before I begin, I would like to thank the thousands of community development professionals I
have met in the course of my work with the Federal Reserve for helping me to understand
the breadth of the work that they do. In fact, many of you are here today. You have shown
me your projects, shared your triumphs and frustrations, testified at hearings on the future of
CRA, served on our Consumer Advisory Council, and actively participated in Federal
Reserve conferences. Your counsel has given me a deeper appreciation of the complexities
involved in creating and maintaining strong communities, particularly in times of economic
stress. In my remarks today, I would like to share some of these insights.
Background
With the enactment of CRA in 1977, Congress directed financial regulators to assess each
depository institution's record of meeting the credit needs of its entire community, including
its community's low- and moderate-income neighborhoods. In the early years, even though
CRA evaluations considered an institution's provision of all types of credit in lower-income
communities, most were primarily focused on mortgage credit. This was in part due to the
availability of Home Mortgage Disclosure Act (HMDA) data which made robust analysis of
mortgage lending possible. In addition, the focus of community development advocates on
housing issues, including the redlining practices that prompted CRA's passage, eclipsed the
law's broad scope in public perception. Only over time have community stakeholders come
to appreciate the broader context of CRA.
Today, financial institutions have become partners in community development, bringing with
them an important source of capital and financial expertise. By working together, bankers,
community development practitioners, state and local governments, and other community
stakeholders have learned a great deal, and the community development field has matured
significantly.
Places and people
At one time, policy discussions revolved around whether community development was about
people or places. I would argue that the debate is over and both sides won. Successful
community development is based on attention to both the physical infrastructure, whether
housing or commercial spaces, and the health and welfare of the residents therein.
CRA supports community development by requiring financial institutions to identify and
address the financial needs of the communities they serve.
Safe and affordable housing will always be an important concern for lower-income
Americans, but the recent recession and resulting damage to communities across the
country make it clear that communities are more than physical structures. Sustainable
communities - those that can weather economic downturns - not only provide decent
housing, but also have the resources to support individuals and families and to create a
dynamic business environment. For this reason, community development today is a
multidisciplinary exercise that challenges us to think holistically about how housing relates to
jobs, educational opportunities, transportation, healthcare, and other services and amenities.
Neighborhood stabilization
Taking a well-rounded approach is essential now, as weak national economic conditions
have caused particular hardships in lower-income communities, and have stretched the
federal, state, and local resources available to address neighborhood stabilization and
revitalization. In some areas, high rates of vacant and abandoned properties resulting from
foreclosures have depressed housing values, drained the coffers of local governments, and
created breeding grounds for crime and other social ills in what were otherwise stable, albeit
low-income, communities. The result has been a shift in focus in community development,
from building new housing to preserving or disposing of existing housing.
In recent years, local governments and community-based organizations have struggled to
counter the effects of foreclosures on neighborhoods. Some communities have found
success by establishing land banks to manage low-value properties that might otherwise sit
vacant if left to the private market.1 Land banks are typically public or nonprofit entities, often
with a limited lifespan and sunset provisions. The notion of a land bank, as opposed to a land
trust, is that properties are brought in and moved out of a land bank's portfolio rather than
permanently preserved. While part of the land bank's portfolio, foreclosed properties can be
physically rehabilitated, rented, sold to new owner-occupants or responsible investors, or, in
some cases, demolished. Using this kind of mechanism, a community can gain control of
vacant properties and keep them from causing problems for the surrounding neighborhood
until market conditions are more conducive to redevelopment or sale.
Land banks are just one example of the new approaches to housing issues that are being
pursued across the country, many with the assistance of the Neighborhood Stabilization
Program (NSP) administered by the Department of Housing and Urban Development. The
NSP program offers some funding to tackle these issues, but it also provides a structure to
bring community stakeholders together to identify the best strategies for addressing
foreclosures given the particular circumstances of each community. Whether a community
decides to purchase and rehabilitate homes for resale, demolish vacant homes, or create
land banks to help control the destiny of these properties, the collaborative problem-solving
approach used by NSP is one that can make the most of limited resources.
Neighborhood stabilization is doubtless the precursor to community development in some
communities and, in recognition of this, the federal banking agencies amended CRA
regulations to specifically recognize neighborhood stabilization activities in designated NSP
areas as appropriate for CRA consideration.2 In addition, the Federal Reserve has identified
and shared a number of promising practices for dealing with foreclosed and vacant homes.3
While some cities are pioneering with land banks, others, such as Cleveland, Detroit, and
Baltimore, are using data to plan for the future in ways that city governments wouldn't have
imagined just a few years ago. Partnering with local foundations, universities, and community
organizations, these cities are collecting extensive property data to identify neighborhood
assets and build on those strengths.4 In Phoenix, local officials and non-profits are partnering
with local realtors to match families with affordable homes for sale.
Unemployment
The foreclosure crisis that resulted from unsustainable subprime lending has persisted
largely because of high unemployment rates. Thus, in order to be successful, any effort to
stabilize and revitalize lower-income neighborhoods will need to consider housing through
the lens of access to jobs and educational opportunities. The Federal Reserve System
currently has an initiative underway to better understand the relationship between community
development activities and successful workforce development strategies. We anticipate that
this research will provide valuable information for bankers and their community partners as
they address the needs of their communities.
Of course, having a job is one thing. Getting to it is another. With good reason, transportation
considerations have become more common in community development plans in recent
years. More communities are taking public transportation into account when planning
residential projects. Given the high cost of owning and operating a car, transportation options
are a significant factor in a neighborhood's overall affordability. Demographic shifts over the
last decade have resulted in the suburbanization of poverty, and now dictate that
communities work together to create transportation options, including buses, light rail, and
even car-sharing arrangements.
Even so, as the Federal Reserve Bank of Richmond has discovered in its work on car
ownership for low-income workers, public transportation is not always sufficient to solve the
transportation problems of the poor. Some jobs, such as construction work, require that
workers report to different locations. Shift workers, whether security guards, airport baggage
handlers, or hospital workers, may not have easy access to public transportation at night.
Supporting nonprofit organizations, such as Vehicles for Change, which takes donated cars
and refurbishes them for sale to low-income workers for a very small fee, may be the most
effective means for some communities to overcome the barriers to car ownership.5
2
See, 75 FR 79278 (Dec 15, 2010) amending the CRA regulations by revising the term "community
development" to include loans, investments, and services that support, enable, or facilitate projects or
activities that meet the "eligible uses" criteria in the Housing and Economic Recovery Act of 2008 and are
conducted in designated target areas identified in NSP plans approved by the Department of Housing and
Urban Development.
3
See Federal Reserve Banks of Boston and Cleveland and the Federal Reserve Board of Governors (2010),
REO and Vacant Properties: Strategies for Neighborhood Stabilization (PDF), proceedings of the conference,
REO and Vacant Properties: Strategies for Neighborhood Stabilization (Washington: Federal Reserve Board
of Governors).
In addition, the Federal Reserve System created a series of video reports that highlight promising stabilization
work being done in Cleveland, Detroit, and Phoenix. These videos and related data tools can be found at
www.federalreserve.gov/communitydev/neighborhoodrevitalization/stablecommunities.htm.
4
See Board of Governors of the Federal Reserve System (2011), Putting Data to Work: Data-Driven
Approaches to Strengthening Neighborhoods (PDF) (Washington: Board of Governors of the Federal Reserve
System, December).
5
More information about Vehicles for Change is available at www.vehiclesforchange.org.
One of the more innovative solutions to this issue that I have seen was developed by an
organization in Dallas that aims to move the jobs to the workers, rather than vice versa. Lone
Star Investment Advisors LLC is a private equity fund that invests in Texas companies
located in, or willing to move to, low-income census tracts. The fund's managers have
focused on manufacturing and distribution companies that can create jobs in the state's
lower-income communities. One of the businesses in the fund's portfolio, PrimeSource Food
Service Equipment, moved from an affluent northern Dallas suburb to South Dallas, where
the poverty rate was higher than 40 percent, relocating more than 100 employees and hiring
new employees from South Dallas. I raise this example because it demonstrates what a little
imagination can do to solve the problem of connecting people with jobs. Moreover, this
double bottom-line approach to investments - making a profit while benefitting the
community - makes this kind of activity attractive to bankers with CRA obligations and other
socially-minded investors.
Community development: an entrepreneurial enterprise
This innovative example serves as a reminder that successful community development is an
entrepreneurial enterprise. Thinking about community development this way reminds me of a
presentation made at a recent Federal Reserve research conference on small business and
entrepreneurship.6 Amy Wilkinson, Senior Fellow at Harvard's Kennedy School Center for
Business and Government, has conducted research to identify the skill sets of high-impact
entrepreneurs and small business leaders. The skills she identified are, not surprisingly,
applicable to community development. They include being able to spot opportunities that
others don't see, managing complexity, reiterating ideas and revamping plans repeatedly,
experimenting and failing wisely, networking to create solutions, and, as Amy put it,
"unleashing generosity" in ways that create reciprocity within the network.
No doubt these sound familiar. Community development is an ongoing process of identifying
and understanding the complicated interaction of people and places. Solutions are found
through the cycle of experimentation and adjustment. Successes look easy but they mask
hard work and, often, failed attempts. Transformational changes in communities rarely
happen without the involvement and support of a network that includes residents, business
owners, community organizations, financial institutions, and local government. Sustained
interaction among these stakeholders is what makes the opportunity known and the solution
successful.
The city of Rochester, New York, put these principles to work and managed to weather the
bankruptcy of the city's largest employer. Eastman Kodak once employed some
61,000 Rochester residents and invested significantly in the city's educational and cultural
institutions; three decades later, it employs fewer than 7,000 people and recently filed for
bankruptcy protection.7 This is not an uncommon story, except for the fact that Rochester
managed to gain a net of 90,000 jobs during the three decades of employment decline at
Kodak.
How did Rochester manage this transition so successfully? The city recognized early on the
need to diversify its economic base and, some 20 years ago, created a network of private
and nonprofit partnerships to leverage the city's assets, the same universities and cultural
institutions Kodak had supported. Together with local government, this network trained
entrepreneurs and supported new business ventures, many of which are in optics and
photonics. Through foresight and the collaboration of government, private and nonprofit
partners, and committed citizens, Rochester was able to build on the Kodak legacy,
effectively turning lost jobs at Kodak into new local opportunities.
Healthy communities
In addition to housing and employment, residents need communities that support their health
and well-being in a variety of ways. Community developers play a critical role in supporting
healthy lifestyles by planning for sidewalks, parks, and other open spaces connecting
housing and commercial areas in ways that also provide places for people to meet and
children to play. Renovation and new construction plans increasingly adhere to standards
that incorporate "green" materials and technologies not only because they lower utility costs,
which is important, but also because they improve health results, such as asthma rates,
among residents.
One of the most obvious ways to support healthy lifestyles in lower-income neighborhoods is
by making healthy food accessible. In the face of increasing rates of obesity, low-income
neighborhoods are notably underserved by grocery stores. This is beginning to change
because of programs like The Pennsylvania Fresh Food Financing Initiative, which is
supported by a partnership between The Reinvestment Fund, a nonprofit developer, and two
community organizations, The Food Trust and the Greater Philadelphia Urban Affairs
Coalition. This partnership stepped in to fill a financing need where infrastructure costs were
not met by conventional financial institutions. Their original objective was to make fresh food
available in low-income neighborhoods. But they have achieved much more. The grocery
stores the partnership helped to establish create an anchor for other retail needs in the area.
Moreover, the stores hire local workers and train them in both the required job skills and in
the workplace etiquette necessary to succeed in any job. One of the original groceries
financed under the program has also added in-store financial services and a health clinic. As
this grocery operator discovered, access to healthcare is another critical need in many
low-income communities.
In Chicago, residents have taken it upon themselves to fill the need for primary and specialty
healthcare by establishing the Lawndale Christian Health Center. Ownership in the Center is
retained by residents to ensure that it continues to meet the needs of its neighborhood. In
another example of a community facility meeting more than one need, the Center has
expanded over time to provide leadership development and organizational capacity building
services to its members in addition to health services.
Conclusion
I could go on to recite more examples of programs that respond to community needs, but I
think you get my point: Taking an entrepreneurial approach to community development
results in innovative and effective programs, making communities more desirable places to
live and more resilient in hard times. The CRA regulations encourage banks and thrifts to
invest in activities that provide affordable housing or financial services for individuals,
promote economic development, or revitalize or stabilize low- or moderate-income areas.
At a time when the needs of these communities are so great and the resources available to
meet those needs are so scarce, it behooves financial institutions to think broadly about their
CRA obligations. By partnering with other community stakeholders, these institutions can
help address existing community needs and lay the groundwork for stronger credit demand
in the future.
I don't want to underestimate the difficulty of the task. The recession damaged communities
of all types, but particularly lower-income neighborhoods, and economic recovery has been
stubbornly slow. Nonetheless, the commitment and innovation demonstrated in communities
all across the country is encouraging. Taking an entrepreneurial approach to community
development and thinking about the needs of both people and places will, I believe, make for
stronger, more resilient communities in the future.