CED Case Study Neighborhood Businesses Aren't Always Small Businesses FY 2018

Northwest Side Community Development Corporation - Milwaukee, WI

Publication Date: July 31, 2018

This case study is a part of the CED Lessons from the Field resource.
To learn more and explore the case study library, go to CED Lessons from the Field.

Like a large number of community development corporations, Northwest Side CDC Visit disclaimer page in Milwaukee has programs to assist neighborhood businesses. It has developed revolving loan funds, provides technical help to businesses and entrepreneurs, and helps to develop commercial and mixed-use properties to benefit its community.

So, what happens when the CDC is approached for help by a large business—a defense contractor—that is one of the largest employers in the neighborhood? Does it decline because its mission is to help only small businesses? Of course not. The CDC, which occupied an office within the facility as a tenant, responded to the business’ request for assistance because the company is a major job supplier in the community and a good corporate citizen in the Northwest community. Howard Snyder, the CDC’s executive director, said, “We went from a situation where they were our landlord to where we were their banker.”

The resulting relationship led to four major benefits, paying off for each stakeholders (OR SOME SUCH): 

  1.  The defense contractor upgraded its manufacturing facility
  2.  The company hired low-income workers and workers from the surrounding neighborhood
  3.  The CDC transitioned from a role as a business incubator to a partner in a consortium that focuses on building the energy industry in Wisconsin
  4. The upgraded facility housed workspaces for the collaborative efforts of the consortium members.

The CED Grant

DRS Technologies is a multi-billion dollar company, now a subsidiary of the international Finmaccanica, that builds and provides the defense industry with a variety of power, intelligence, training, computer, and other key systems that are installed into U.S. ships and planes and outfit other defense installation and facilities. One of the manufacturing facilities of the DRS Power and Control Technologies Division has been a mainstay of the Northwest neighborhood of Milwaukee, employing some 300 to 400 people to build power systems for the U.S. Navy’s new generation of littoral combat ships. (Littoral combat ships are designed to engage in many different forms of combat close to shore. This new generation of fighters was first commissioned by the Navy in the early 2000s, and the first one “off the line” was launched in Milwaukee in 2008.)

DRS needed to rehabilitate and update its Milwaukee factory to have adequate facilities to build its part of the new ships. The cost of this work was more than $10 million. The company borrowed $580,000 from the Northwest Side CDC as a part of the overall package. The CDC’s funds were from a Community Economic Development grant made in 2007 by the Office of Community Services.

Despite the fact that DRS is a part of a large multinational corporation, the financing and construction of the updated facility still took several years. The CDC’s Mr. Snyder says that the financing “was not faster than a typical CDC project, just different.” For example, DRS received some financing from a Milwaukee-sponsored tax increment financing bond, which took time to pass through the appropriate processes. The predevelopment time was about the same as the CDC’s typical development project; it took at least seven years from the time the company began thinking of how to use the site to opening the new facility. Mr. Snyder equated this to the time it took the CDC to finance a mixed-use library/residential complex elsewhere in the neighborhood. Nevertheless, because the corporation had its own legal and financial team, it took the lead in compiling the financing, which lowered the workload for the CDC.

Ultimately, the new DRS facility added more than 50 jobs to the company’s workforce, almost twice the expected 30 new slots. Unlike most industries during the national recession that began in 2007, the defense field did not contract. Instead, the company expanded its work in building the littoral ship power plants.

Some of the new jobs were filled as a direct result of job training sponsored by the CDC and its local workforce partners, especially the Milwaukee Area Workforce Board. According to the CDC and an independent evaluator, about two-thirds of the new employees at DRS had been unemployed at the time of their hiring, and about 30% were from the CDC’s immediate neighborhood.

DRS Technologies Commitment to the Neighborhood

According to CDC Executive Director Mr. Snyder, “Our CDC gave the company reasons why it should stay, with money to help with the renovations, a job training network, and connections to other area business leaders. … The transaction was a part of DRS’s long-term vision of the corporation.” This vision included making the neighborhood a better place for business. The company understood that a healthy neighborhood makes for a better place to do business—for DRS and suppliers. A safe neighborhood means that the company can more easily attract workers, including higher paying workers who have choices of where to live and work. As the neighborhood’s largest business concern, these efforts were important to DRS. Moreover, the DRS vice president and Milwaukee general manager, who served on the Northwest Side CDC’s board, supported these efforts.

The Midwest Energy Research Consortium

The creation of new jobs at DRS is not the only benefit from the CED-funded project. A large part of the overall project—and one that really attracted the CDC—is the creation of the Midwest Energy Research Consortium, an energy-related consortium in the neighborhood.

Originally, a portion of the CED grant made to the CDC in 2007 was to expand the organization’s business incubator. The organization, though, learned that the neighborhood could not support such an expansion, especially during the national recession that was then reaching its peak, and the CDC’s 20-year old incubator was not able to attract new businesses. In fact, there was a low rate of business formation across the State of Wisconsin: the Ewing Marion Kauffman Foundation, an advocate of entrepreneurship, ranked the state 40th out of 50 in business start-ups as of 2010.

The business incubator also suffered from its location within the DRS facility. The DRS defense contracts required high security, meaning that anyone entering the site needed to go through a security check, and companies located there would be required to coordinate with DRS’s security systems. While DRS and the CDC hoped to attract DRS suppliers and new firms to the incubator, concerns about the high security requirements dissuaded people from the site.

Much more promising is the partnership that the CDC joined to promote innovation in the energy field. The Midwest Energy Research Consortium was formed by industrial leaders in the energy, power, and control sector, along with research universities and technical colleges, to provide consulting, research, workforce development, and industrial expansion. While initially focused on building the energy industry in Wisconsin, it has since grown to encompass industrial and educational members across the upper Midwest States of Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Ohio, and Wisconsin.

Not coincidentally, the founding director and CEO of the new Midwest Energy Research Consortium is the former DRS general manager who formed the original partnership with the CDC. The relationship the CDC has long had with DRS and this manager has been important in helping provide the CDC with a foothold in the Consortium’s planning. Chief among the outcomes of CDC involvement was that the Consortium chose to stay in the neighborhood.

The Consortium won a $1 million grant from the State of Wisconsin to build out several floors of the DRS site as an Energy Innovation Center, a facility to house cooperative workspaces for start- ups and collaborative efforts among members. The Energy Consortium is one of several industry clusters established in Milwaukee, including one related to water industries. The Energy Innovation Center is separated from the defense work that DRS conducts and does not need to be integrated with DRS’s security systems.

The Consortium is already working with the CDC to help mentor new start-up technology businesses, and the CDC has assisted the Midwest Energy Research Consortium to link to Milwaukee area workforce development programs, such as a state grant to train people in math skills, terminology used in electric work, and teamwork.

Why Did This Project Succeed?

In the decade before this project was funded, the Northwest Side CDC went through a major organizational change. Previously, it functioned as a site developer for businesses and owned about 250,000 square feet of commercial space by 1994. When it encountered cash flow and property management issues, the organization adapted and became a partnership-developer and a lender to new and expanding businesses. The DRS project became the largest such partnership.

When the opportunity for this partnership arose, the CDC took it and developed an effective partnership with DRS. It helped a large corporation and received help from it as well. The CDC provided DRS with financial support using the CED grant, as well as political support. In exchange, the CDC gained an avenue to expand the job market in the neighborhood, directly through the expansion of the site and indirectly through the joint development of the Energy Consortium.

The CDC exhibited resilience as it met the challenges that came with this partnership. The project took several years to develop, despite the size of its for-profit partner or maybe because of its size, but the CDC committed itself to a long view of community change. In addition, the CDC had to change its original incubator concept due to national economic upheavals. While business start-ups were declining, discussions with DRS leadership helped to uncover a new concept of the energy and power accelerator. Together, the partners saw this concept as more promising and pivoted their efforts in the new direction, which included expanding the partnership and finding new workforce training resources.

According to Mr. Snyder, the project has been transformational for the CDC, making the organization a part of the conversation with larger businesses in the community, especially energy-related businesses. In turn, the CDC has made important connections among the businesses and workforce development agencies, making the project “a model of how a CDC could work with big businesses.”

Northwest Side Community Development Corporation

4201 North 27th Street, 7th Floor
Milwaukee, WI 53216
https://nwscdc.org/ Visit disclaimer page

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