Alan Greenspan: Empowering communities, attracting development capital and
creating opportunities
Remarks by Mr Alan Greenspan, Chairman of the Board of Governors of the US Federal Reserve
System, at the 2005 National Community Reinvestment Coalition Conference, Washington DC,
18 March 2005.
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It is a pleasure to join this group that is dedicated to developing strategies for ensuring that
opportunities for economic advancement are available to all Americans, including members of
lower-income families and communities. In a couple of years, we will celebrate the thirtieth anniversary
of the Community Reinvestment Act (CRA). To date, this act has brought many successes, but much
remains to be accomplished. Before passage of the CRA, lending to underserved populations was
often considered an act of goodwill, not good business. I do not disparage benevolence, but I believe
that one of the most enduring achievements of the CRA has been that lenders, often to their surprise,
have found low-income community lending to be a normal extension of their outreach for profitable
business.
Mortgage and consumer lending is driven by credit analysis, and for small-business lending, also by a
belief in the potential success of the business venture. Because it is critical that low- and
moderate-income lending be, and be perceived as, an extension of regular business practice, we have
been building a substantial database on low-income credit experience and business opportunities.
This information has been critical to the successes in low-income lending. But information collection
and analysis must reach further. If communities are going to be empowered, they need hard evidence
of their successes and, yes, hard evidence of their failures, which, as you know, can point the way
toward success. Accordingly, I would like to emphasize the important role of program assessment in
the community development process. Success of these programs can be understood only through
measurement and critical analysis. To date, systematic research on community economic
development programs has been limited. One of your challenges then is to expand the information
about the impact of your activities so that you can demonstrate the viability of your efforts and replicate
local models of success for the benefit of other communities and families.
Measuring the impact of community economic development programs
The overarching objective of community economic development and empowerment is to help
underserved populations accumulate assets and improve their economic well-being. Measuring the
results of programs dedicated to this objective is essential to effectively managing scarce resources
and maximizing the impact of these programs. Achieving the objective, particularly in areas and
among populations where biases and negative perceptions may have contributed to market failures,
helps people improve their financial standing, regardless of their current economic status.
For nearly four decades, numerous policies and programs have been implemented with the intent of
increasing economic opportunity. A variety of management and funding strategies have been
implemented, ranging from federal government appropriations to debt and equity financing from
private sources. Despite the broad spectrum of programs, the length of time they have been in place,
and the array of funding participants, empirical research quantifying their impact is rare, regardless of
whether government agencies, nonprofit organizations, or private entities sponsor the programs.
The lack of empirical data is particularly regrettable in the case of government-sponsored programs,
because quantifying the impact of these programs is crucial to the legislative process. When a bill is
proposed in Congress, the nature of the problem and the factors presumed to be contributing to that
problem typically are explicitly stated. And generally included is a projection of the outcomes that
would indicate success. This process of problem diagnosis, program justification, and projection of
results, if fully embraced, provides a framework for assessing a program's value. The program can be
judged worthwhile when the data demonstrate that the benefits exceed the costs, including the
opportunity costs of any investment.
Even with such a framework, conducting research on community development and economic
empowerment programs can be challenging, in part because the effects these programs intend to
achieve are often quite difficult to measure and may not become apparent for relatively long periods of
time. Initiatives aimed at addressing complex economic and social problems that were decades in the
making most likely require many years to achieve their goals. Also, virtually no specifically defined
standards exist for monitoring the value of social and economic improvement programs.
For community development researchers, the challenge is to develop parameters for objectively
assessing the value of their programs. For example, the measures that affordable-housing
organizations use could illustrate the extent to which their programs have, or have not, increased
homeownership rates and property values, reduced crime, improved school performance, or spurred
new private-sector investment in a disadvantaged neighborhood.
Research must isolate the variables that best convey the impact of a program, define the specific data
that must be collected, and develop a system for maintaining and retrieving the data over time. In
other words, the challenge is to quantify the marginal effect of a program. The value of such a system
is clear. So too, however, is the complexity of creating it. Consider, for example, the difficulty of
measuring the marginal impact of a financial education program. It requires unique data collection
techniques and unconventional tracking systems to gauge the benefit that an individual derives from
making informed financial decisions that resulted from that educational program.
Socioeconomic trends for underserved populations and communities
The relative paucity of data and research on community development programs has limited the ability
to fully demonstrate the programs' impact and to credibly differentiate those that are effective from
those that are not. Undeniably, impressive local community development initiatives have been
undertaken, and individual testimonials reveal advances in the economic well-being of many of the
beneficiaries. However, the absence of formal data collection and research for the numerous
neighborhood revitalization efforts over the past several decades has resulted in a reliance on mostly
anecdotal reporting at a neighborhood or individual level. Anecdotal information is not without value. It
offers clues to the construction of a more-formal statistical analysis. But, as I am sure all of you know
from experience, anecdotes are selective and can convey a false message about the success or
failure of a program.
Given the lack of data that can be used to measure the success of new initiatives, the inclination is to
examine the data that does exist to identify trends in areas where community development
organizations have been a consistent presence for some time. When broad positive trends cannot be
completely attributed to conventional market forces, perhaps community development is at least a
partial explanation. Since community development initiatives focus on traditionally underserved
populations - lower-income families and communities - economic indicators relating to these markets
may offer some insight into the influence of local economic and social programs. For example,
according to a 2003 study by the Brookings Institution, the number of people living in high-poverty
neighborhoods decreased 24 percent between 1990 and 2000. Much more dramatic improvements
occurred in some cities, such as Detroit, where the decrease was 75 percent. In addition, the report
found that concentrated poverty decreased among all racial and ethnic groups, with the percentage of
African-Americans living in high-poverty neighborhoods declining from 30 percent in 1990 to 19
percent in 2000. These data present an encouraging picture of improvement in the economic condition
of very low-income families and communities.
The data also reveal gains in homeownership among low-income and minority populations. The
Federal Reserve Board's 2001 Survey of Consumer Finances (SCF) concluded that, between 1998
and 2001, families in the lowest quintile of the income distribution increased their rate of
homeownership nearly 5 percent. Although results from the 2004 SCF are not available, data reported
under the Home Mortgage Disclosure Act indicate that home-purchase lending to lower-income
families increased 11 percent between 2001 and 2003. These data also reveal a 17 percent increase
in home mortgage loans to African-Americans and a 30 percent increase in home mortgage loans to
Hispanics. Further, HMDA data for the same period show a 45 percent increase in home mortgage
loans in low-income tracts, while lending in higher-income tracts rose by only 19 percent.
In weighing the implications of the trends reflected by the data, it is important to consider the presence
of changes in external market influences. For example, advances in mortgage underwriting and
delivery systems have resulted in increased availability of funding for homeownership, which has
resulted in increased efficiencies in extending credit in harder-to-reach markets. However, despite the
difficulty of distinguishing between outcomes attributable to macroeconomic conditions and those
attributable to localized community interventions, we must attempt to make this differentiation. Indeed,
understanding the effects of the multiple influences on the economic conditions of a market is the only
means of achieving the highest possible use of public funding and establishing appropriate
expectations for private-sector participation in redevelopment activities.
Information gains in community development
Despite the lack of empirical data about the effectiveness of specific community development
programs, many community development corporations (CDCs) have modified their strategies and their
structures to enhance their efficiency and impact. Most notably, CDCs have realized the necessity of
diversifying their funding sources and reducing their reliance on government support, which is
vulnerable to the vagaries of shifting political priorities. In expanding the range of financing for their
programs, community development leaders have gained a better understanding of the risk tolerance
and return requirements of their various capital providers.
In addition to diversifying sources of funding, community developers have sought to broaden the types
of financing they use. They once viewed debt as the primary, if not the sole, vehicle available for
capitalizing community development efforts, but now they recognize the vital role of equity investment
in helping communities withstand economic downturns. New sources of equity - community
development venture capital funds and secondary markets that securitize community development
loan pools - have become available to energize market forces in economically distressed
neighborhoods.
Technological advances have significantly improved the development of new financing strategies. With
increased information-processing capacity, loan portfolio managers can better assess risk and monitor
credit performance. Additionally, the ever-increasing availability of data facilitates the development of
neighborhood profiles that can be useful in understanding and tracking community socioeconomic
trends. For example, cross-referencing data sets on mortgage lending patterns, business start-ups,
and employment against crime statistics and property values can provide a valuable perspective.
Community developers have made important strides in establishing performance parameters and
developing information systems to promote rigorous evaluation of programs and organizations. Data
collection programs have produced insights into the markets that community economic development
lenders serve and the characteristics and financial performance of the institutions providing these
services. For example, the Department of Treasury's Community Development Financial Institutions
(CDFI) Fund launched its Community Investment Impact System in mid-2004, with the goal of
establishing a comprehensive repository of data on community development finance institutions and
activities. The systematic collection and standardization of information on these institutions'
customers, transactions, and markets holds promise for increasing understanding of the institutions'
impact on the communities and populations they serve.
Other information collection systems have been launched within the community development field in
an attempt to assess organizations' effectiveness in fulfilling their expressed mission. These data
collection programs underscore the importance of identifying the organizational structures and policies
characteristic of effective enterprises. For example, the Neighborhood Reinvestment Corporation has
adopted a data system that defines and tracks success measures of its member organizations. The
Success Measures Data System is a participatory evaluation model designed to document the
outcomes and measure the impact of community development programs, using parameters defined by
the leaders and stakeholders in the field. Another program, the CDFI Assessment and Rating System,
was developed by the National Community Capital Association to help investors and donors assess
the social impact and financial strength of community development finance organizations. While these
systems are in the early stages, they are a critical step in advancing understanding of the community
economic development finance field and in designing policies and practices that can improve
economic opportunity for low-income families and neighborhoods.
Benefits of research
Undoubtedly, we have learned many valuable lessons over the years, and it is essential to
disseminate and apply these lessons to improve program effectiveness. Only through a
comprehensive understanding of the outcomes of a program can success be emulated and failures
reduced.
By consistently and reliably measuring outcomes, and thus helping current and prospective investors
better assess their risks and predict their returns, community development organizations can attract
more funding. Such accountability is crucial for any organization, regardless of its size.
In addition to increasing funding options, research can also increase the scope and scale of programs.
As effective strategies are identified, they can be replicated and incorporated into efforts in other
communities, as well as by organizations seeking to develop programs to address related issues.
In conclusion, I want to emphasize the importance of the role of those who interpret the research.
Analysts must be scrupulous in characterizing research results, or their work becomes advocacy
rather than research. Objectivity is paramount because research findings from previous efforts
become the basis for subsequent efforts to target scarce resources as effectively as possible.
Objectivity requires great discipline and integrity; it requires that researchers resist any innate desire to
characterize results in the most- or least-favorable light possible. The failure of a program is not a
research failure; it is a source of information. And acknowledgment of the research findings,
regardless of how disappointing, contributes to a foundation of knowledge upon which future
successes can be built.
In the quest to do good for our society's most-vulnerable populations and communities - the objective
compelling the work of this group - analysts must embrace the challenge to develop objective and
quantifiable standards for assessing community development programs. Ultimately, research is the
only means for determining whether we are making advances in distressed neighborhoods by
improving access to economic opportunities for traditionally underserved populations. I applaud your
efforts and look forward to learning of your future progress.