Cities across the United States are facing immense financial pressure. With limited public funds, they aren’t able to invest enough in the community, economic or human capital development that is needed to ensure all low-income residents have access to opportunity. While philanthropic dollars can help, a significantly larger opportunity lies with private sector capital. If we can harness the power of private capital to work on behalf of underserved communities, we’ll be able to significantly increase opportunity for low-income people and the cities in which they live.
Yet getting private capital to flow towards community investment is not easy. One lesson we’ve learned through our Integration Initiative* is that the ability of places to effectively use different forms of capital to provide needed goods and services to underserved communities – that is, the _ capital absorption capacity of places_ – is dependent on an ecosystem that performs the functions required to absorb and then deploy this investment capital. This means that even if a place has a significant supply of capital, without a supportive ecosystem for investment, community investments won’t be made.
Perhaps more importantly, we’re also learning that community investments can be facilitated by the robust civic infrastructure of a collective impact partnership. In these partnerships, decision-makers from across sectors and jurisdictions work together to define and address complex social problems. Collective impact partnerships are a core element of Living Cities’ Integration Initiative.
Private capital engagement is another core element. Each Integration Initiative site has a Community Development Financial Institution (CDFI) partner involved in its cross-sector leadership. The benefits of a CDFI participant in the partnership flow in both directions. CDFIs help realistically shape community investment deals through their market perspective, provide access to sources of capital (such as New Markets Tax Credits), and provide insights into how grants and subsidies can be used to unlock further capital from impact investors. On the flip side, CDFIs and other lenders become more effective in achieving their own mission by meaningfully participating in the civic leadership of a place.
How is a CDFI’s capacity enhanced by participating in collective impact partnerships? The answer is in the relationships they form. The cross-sector partnership can help them gain broader exposure and build new relationships with local decision-makers. This is the foundation upon which several more tangible and transactional benefits are built. For example: in Minneapolis-St. Paul, the Neighborhood Development Center’s involvement in Corridors of Opportunity led to new relationships with the county government and, eventually, to new connections to East and West African communities in the Twin Cities’ suburbs (which evolved into new entrepreneurial program offerings).
Participation in collective impact efforts helps facilitate community investment in three concrete ways:
Developing a lending pipeline. By sitting at a table of local cross-sector leaders, lenders are able to develop stronger relationships with city and state officials, philanthropy, business leaders and non-profit partners. These relationships can lead to deal referrals and consideration for prominent community development projects. Ongoing participation on a collective impact table allows CDFIs to solidify their role in the community investment ecosystem of a particular place.
Identifying new business development opportunities. Beyond the benefits of deal referral, community investment lenders also gain from insights into new program or business development opportunities. For example, The Reinvestment Fund’s (TRF) participation in the governance for the Baltimore Integration Partnership (BIP) led to new prospects for fresh food and energy lending, as well as anchor engagement and additional policy work. Relationships made through participation in BIP also helped TRF raise additional capital from local philanthropy for these new areas of work.
Overcoming gaps and hurdles to closing deals. Developing community revitalization projects can often cause headaches for all involved, especially in weaker market cities where debt capital is less available and real estate values are depressed. A third tangible benefit of sustained relationships with leading civic decision-makers is access to alternative funding sources. By participating in a local partnership with leaders from the private and philanthropic sectors, CDFIs are able to access public and philanthropic capital and subsidy needed to patch together complicated financing (whether for real estate or businesses). This is the case with NCB Capital Impact’s participation in the Woodward Corridor Initiative (WCI) in Detroit, where the CDFI has had to blend senior and subordinated debt with subsidy and grants to close on WCI projects. Aside from filling financing gaps, relationships also allow CDFIs to surmount potential regulatory hurdles, such as permitting and ordinances.
When CDFIs become embedded in a local civic leadership ecosystem - as happens when participating in a collective impact partnership - they improve their ability to deploy capital to improve outcomes for low-income communities and build equitable cities. The relationships built within a robust civic infrastructure lay the groundwork for sustained community investment by enhancing lender capacity as well as the capacity of the overall investment ecosystem. As impact investment gain momentum, the role of a strong civic infrastructure becomes even more critical in figuring out how to channel private capital for social good.
*The Integration Initiative is an $85 million initiative to change the systems that produce poor outcomes for low-income people in Baltimore, Cleveland, Detroit, Minneapolis-St. Paul, and Newark.