CED Lessons from the Field: Lessons Learned

Publication Date: July 2, 2018

This featured lesson and case studies are 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.

Resilience

East Missouri Action Agency

For the most part, CDCs are small nonprofit organizations. There have been no recent studies of organizations in the field, but a study done more than a decade ago (in 2003) by the National Congress for Community Economic Development, suggested that the median CDC nationwide had a staff size of only seven people. Thus, the groups have learned to be resilient and flexible. After all, at that size, if you lost one large grant, your organization may not survive.

In this look at CED recipients, one overriding external threat to the success of virtually all of the projects was the national recession of 2007—2009. The recession slowed business formation and expansion, reduced the flexibility of private lenders to make commercial and other loans, and diminished the ability of consumers to spend money for goods and services. To overcome this nationwide threat, the CDCs had to demonstrate resilience. And many of these organizations showed how that was possible.

In Milwaukee, the Northwest Side Community Development Corporation abandoned plans to expand its existing business incubator and instead worked with partners to support a new consortium of businesses and universities to advance research and innovation in energy. In Los Angeles, New Economics for Women (NEW) found that its new business in cleaning buildings could not work due to unforeseen worker compensation costs—and instead supported some of the workers in that business to start their own small firms in the same field. And in Park Hills, Missouri, the East Missouri Action Agency determined that the restaurant it opened was not able to break even under its management—and developed a partnership with a more experienced operator who shared its project goals and could take on the project.

This featured lesson and case studies are 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.

Connections to the Community

One characteristic of successful CDCs is their ability to develop partnerships with different types of organizations in their communities: their connectivity. This connectivity is one of the things that helped most of these 10 CDCs to be resilient and make the necessary changes to allow their projects to work. The Northwest Side CDC had strong and deep connections with one of the largest businesses in its community and the leadership of that business helped to make the pivot toward the new energy collaborative.

Guadalupe Street

Avienda Guadalupe Association

But even in the projects that did not need to make changes, connections helped contribute to project success. Coastal Enterprises, Inc., in Maine used some of the connections it developed over 30 years of working in the state to advertise its new revolving loan fund, as well as other connections to fund the job training programs that helped loan recipients to hire low-income workers. In San Antonio, Avenida Guadalupe Association had developed strong connections with the mayor, who helped the organization gain the city approval needed to allow the extensive building renovations required to make its project successful.

This featured lesson and case studies are 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.

Connect to the Local Economy

One clear lesson from these 10 studies is that the sponsoring CDC must know and have connections to the local economy. What does this mean? Typically, the economy of a community does not act in a vacuum; it is connected to broader trends—city, region, national and international. As the disruption caused by the national recession rippled down to communities, some of the CDCs had to make changes in their projects. Awareness of the economic trends—the large, national trends, as well as the local —trends—helped the organizations understand what they had to do and assisted them to find other ways of getting the job done.

Little Dixie Community Action Agency

 

The case studies provide several examples of how the CDCs connected to the economy. Coastal Enterprises Inc. of Maine twice commissioned outside studies of the potential for green industry growth in Maine before it decided to invest heavily in that sector locally. In Honolulu, Hawaii, Pacific Gateway Center—which historically worked a great deal with Asian immigrant communities—knew that food was important to its clientele, and offered a way of stimulating new jobs in its community. And so, it used food as a central theme in the renovation of its historic building.

Little Dixie Community Action Agency, which serves a rural area of Oklahoma, knew that many of its older residents needed access to health services and to groceries. But rather than creating these facilities itself, it used its CED grant to expand its transit services so that more residents, especially the elderly without cars, could get to the services in larger communities nearby. On the Oglala Sioux reservation of South Dakota, Lakota Funds saw that construction was the major industry, but that no banks were making loans to help Native American residents create or expand construction businesses to take advantage of the trend. So, it targeted half of its CED funds to help small firms expand and take on more building work—and create jobs at the same time.

On the other hand, sometimes knowing the trends is not enough. In Los Angeles, New Economics for Women knew that—with a great deal of construction going on in or near its neighborhood— building maintenance was a necessary industry. It started a maintenance operation employing local residents. However, what it did not know until too late, was that the State of California was imposing large workers compensation fees—up to $100,000—on businesses doing this work.

This featured lesson and case studies are 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.

Use of Nontraditional Finance

While it would be terrific if businesses and residents of low-income communities had equal access to traditional financial services offered by banks, this is not yet the case. Some low-income communities and rural areas still have problems getting the size and types of loans and investments they need to thrive. Thus, sometimes it is important to rely on nontraditional finance. The CDCs and Community Development Financial Institutions (CDFIs) have learned how to do this.

Coastal Enterprises Inc.

Coastal Enterprises Inc., in Maine, created its own loan fund to foster the expansion of the kinds of businesses it believed would benefit its community. It has been doing this kind of lending for over 30 years and has now provided over $1 billion in loans and investments across the state. On the Oglala Sioux reservation of South Dakota, Lakota Funds saw that no traditional bank was lending to Native American businesses; it took on that work itself, with a CED grant, CDFI Fund awards, and other resources. Lakota Funds, though, realizes that it cannot always be the lender; after all, it does not have enough capital itself. So, some of its business loan products are specifically designed to help borrowers build credit records and then qualify for more traditional loans.

This featured lesson and case studies are 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.

Risk-Taking Leaders

Almost by definition, economic development is a risky enterprise. As these 10 examples—and many other CED projects—show, projects are not usually a sure thing, and there is no one sure way to success. But it is also important to remember that risk taking is a vital way of making progress.

Pacific Gateway Center

In New Jersey, Isles, Inc. took a chance by using its CED grant to create an energy efficiency company. Hawaii’s Pacific Gateway Center and Texas’ Avenida Guadalupe Association used their grants to renovate old neighborhood buildings for commercial use—even though they did not have all tenants lined up in advance. Coastal Enterprises and Lakota Funds literally placed their money at risk by making loans to small businesses.

In each of these cases, the CDCs exercised leadership in their communities by showing that development can happen. But they also backstopped their risk taking by assuring that the organizations had partners, had expertise, and deep knowledge of their communities.

This featured lesson and case studies are 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.

Lessons from Projects That Did Not Go as Planned

Avoid Undercapitalizing the Business.

The nonprofit sector often suffers from not asking for enough money to get the job done. Perhaps this comes from years of having to “make do” with little money and lower-than-market salaries. But in the business world, capital is king. There is no penalty for asking for more money.

Several of the projects that did not survive long appear to suffer from undercapitalization. NEW’s property management business, for example, did not have capital needed to pay unexpected state worker compensation bills. Isles’ energy business did not have capital to advertise its services broadly enough to private building owners, and thus had to rely more on public sector programs.

The CED program has a formula that dictates how much money can be given, based on job projections of the applicants. So, that pool of funds is not an unlimited source of capital. However, the most successful projects have shown an ability to assemble capital from many sources and thus can often withstand unforeseen bumps in the road.

Rely on Expertise.

While CDC leaders have proven themselves adept at many things—community organizing, project management, fund raising, real estate development, resource brokering, and so forth—they may not be masters of everything. Some business skills are not transferable from one project to another. As some of these case studies have shown, the CDCs are better served relying on specialized business expertise and not trying to develop it in-house.

Take for example, running a restaurant. Pacific Gateway Center and East Missouri Action Agency both planned to use some of their funds to open new restaurants, to be run by the CDC. They learned though that they lacked the skill or experience to do it well and had to close the establishments. Both succeeded though when they developed a partnership with an experienced operator. They both also learned that this did not mean giving up on community goals, because the new operators agreed on goals for hiring and using local produce.

 

 

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