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FEDERAL RESERVE BANK OF DALLAS P BANKING & COMMUNITY APRIL 1996 erspectives . What are the key elements of NationsBank Neighborhood Program the NationsBank Neighborhood Program that targets neighborhood revitalization? The key elements of our neighborhood program stem from our general approach to all our community investment initiatives. It’s simply a more An Interview with focused, targeted strategy. Hugh L. McColl First, we believe it’s essential that Chairman and CEO, NationsBank Corp. any effort be needs-based and resultsdriven. There is no one development NationsBank has established the NationsBank Neighborhood Program in 30 communities as a holistic approach to targeted revitalization of inner-city neighborhoods. In this article, Perspectives asked McColl to discuss neighborhood revitalization and the partnership roles of community-based organizations, government and community development financial institutions. INSIDE Mission Accomplished Ä The Power to Make a Difference Ä National Nonprofit Intermediaries Ä plan that fits all neighborhoods. . . . . . . . . . . . . . . . . . . Listening is critical. We seek input from residents and business owners in the neighborhood so we can learn— first-hand—issues, concerns and common ground. Finally, partnership is the way to results. The task of rebuilding our most develop innovative products and ser- troubled neighborhoods is complex. No vices, and to not let uninformed critics one company, nonprofit organization or government agency can do it alone. All have important roles to play. All have certain expertise and resources to bring to the table. Through partnerships, we’re able to avoid duplication of efforts, maximize limited resources and get results that truly make a difference in people’s lives. In your opinion, what specific economic and affordable housing development actions can banks take as partners in neighborhood revitalization efforts? I’m proud that NationsBank is rec- Community Development ognized as a leader in neighborhood Defined revitalization. We’ve achieved this distinction because we’ve been willing to take a nontraditional approach, to . . . . . . . . . . . . . . . . . . . . . distract us from the important work we are accomplishing. Bankers traditionally have taken leadership roles in their communities. That provides us a unique opportunity to be the catalyst for bringing groups together. Beyond that, as an industry, clearly we need to learn more about and better understand neighborhood issues. And we need to be able to find ways to advance solutions. Every financial institution should constantly reevaluate industry standards and question acceptable levels of risk. Do we hold certain loans in our portfolio? Can we enhance underwriting, making products more innovative and responsive to neighborhood (continued on page 2) (continued from page 1) needs? These are questions we should have the same government restrictions ness perspective, you achieve early be asking. At all times, however, the and costs as traditional banks. entry into a new market by helping sta- answer must be framed with what makes good business sense. Do you have any suggestions that would serve to strengthen the partnership among banks, community-based organizations and government to better facilitate neighborhood revitalization? Egos must be checked at the door. Given the image I sometimes have in the popular press, that may sound contradictory. And, I’ll admit, I want NationsBank to be the best in this business. My expectation is for NationsBank to be a catalyst while influencing other players to join the effort. All participants must be open and honest when they come to the table. Participants can’t have hidden agen- . . . . . . . . . . . . . . . . Therefore, they’re able to take bilize a neighborhood. NationsBank is more risk and make loans that a tradi- often first to establish a banking center tional bank cannot. in a low- to moderate-income neighbor- What value has NationsBank derived from being a partner in But the real challenge inherent in tiatives? being a leader is you frequently become We benefit when our neighbor- a target for unwarranted attacks. hoods become healthy and stable communities. As they prosper, we prosper. Being involved in the revitalization puts us closer to our customers. They know us, become comfortable with us and do their business with us. That contributes to earnings for our company and returns for our shareholders. What value do education and counseling programs provide? Demystifying banking is part of that overall education process so important Territorialism is a clear impediment to to making successful partnerships. getting anything accomplished. And Beyond that, we cannot do our job of everyone must be willing to share making loans if customers do not under- responsibilities and accountability. stand the process. A strong customer base is essential to creating a strong two-way street. Just as banks and community. We can aid that effort by other business leaders need to learn helping prepare those customers who and understand neighborhood agen- may never have used a bank. We have das, community leaders should be a role to play in increasing the under- realistic about what is and is not in the standing of why it’s important to estab- scope of the business community or lish and maintain good credit, to broad- the public sector. en awareness of the loan application Do you envision a role for competitors always follow. neighborhood revitalization ini- das that will blindside other partners. Finally, the education process is a hood. It’s interesting; without fail, our process and how decisions are made, We firmly believe the benefits and . . . . . . . . . . . . . . . . . . . . . . . . . . rewards far exceed that risk. The true measure of success should be in results. A four-year total of $13.2 billion of loans in low- and moderate-income neighborhoods and projects such as Dallas’ Wynnewood Gardens clearly demonstrate NationsBank is making a positive impact. Unfortunately, baseless attacks on a leader who is recognized for achieving results become disincentives for other banks or businesses to get involved in neighborhood revitalization. Why not remain on the sideline and avoid the conflict? No one really questions the motives, credibility or effectiveness of the attackers. Is this a group that truly speaks for the neighborhood? Has it been successful in getting results, building coalitions or developing sustainable revitalization programs? These are questions that rarely get asked. If such attacks result in keeping community development finan- and to present the advantages of doing other banks and businesses on the cial institutions (CDFIs) in business with a bank. sidelines, no one wins. And the real neighborhood revitalization? Absolutely. That’s why NationsBank What challenges are inherent for banks in taking a leader- has committed $25 million to CDFIs ship role in neighborhood revi- and is seeking additional investors. talization? CDFIs play an important role in Clearly, the upside is recognition neighborhood revitalization. As special- and satisfaction that you’re accom- purpose lending institutions, they don’t plishing important work. From a busi- losers will be the neighborhoods and individuals most in need. Ä 3 P ublic & Private Partnership Mission Accomplished As pastor of East Austin’s day care center, an office building and Marvin C. Griffin had watched the affordable housing for the elderly—that neighborhood surrounding his church would serve as a cornerstone in the become the second poorest area in the community’s revitalization. city due to a lack of economic develop- East Austin’s Ebenezer Baptist Church opment projects—a child and elder Ebenezer Baptist Church since 1969, “As in many inner-city areas, the ment and capital infusion. The church church is a guiding influence in the stood beside dilapidated buildings that community, and Ebenezer Baptist gave shelter to drug deals and other Church served as an anchor for rede- Puts Its Community illegal activity. Rev. Griffin and his 850- velopment in East Austin,” says on the Path to Revitalization member congregation sought to com- Johnson of the church, which was bat the community’s overt signs of organized in 1875. “If there were any decay by buying property around the hopes of revitalizing the neighborhood, church, demolishing an old building then the Ebenezer Baptist Church and planning new developments. would be the key in making those Through Partnerships with Banks, the City, the State, a Foundation and a Private Developer Rev. Griffin’s and the congregation’s ideas were set in motion in 1988, when Van Johnson, an economic changes because the church understands the community’s needs.” The church also had the financial development specialist, encouraged resources, initiative and commitment to the church to form the East Austin pursue its plans, says Johnson, who Economic Development Corp. now serves as executive director of (EAEDC), a nonprofit organization that EAEDC. Through the acquisition and would eventually oversee three devel- Ebenezer Baptist Church plays a key role in the redevelopment of East Austin. (continued on page 4) (continued from page 3) sale of land near the church and money saved from annual budgets, Ebenezer Baptist had $1.5 million in land and money to commit to the EAEDC and its development efforts. In its early stages of operation, a $28,000 planning and technical assistance grant from the Indiana-based Lilly Endowment Inc., a private, charitable foundation, enabled EAEDC and the church to plan a development strategy, as well as identify the type of commitment their future partners would have to make to realize the church’s development goals. The grant was one of 28 awarded by the Lilly Endowment to promote collaboration between religious institutions and community development organizations to create jobs, housing and economic change within their neighborhoods. “One attractive aspect of the . . . . . . . . . . . . . . . . . . . . Endowment. “Their commitment and Haley Moy, community investment the grant allowed them to leverage coordinator at NationsBank, agrees. additional financial support for their “We felt comfortable entering into a projects.” partnership with EAEDC because the “The Lilly Endowment was a criti- organization is meeting the need for cal element in our ability to spend time child care in the community and to develop a detailed plan for our pro- because of the combination of city jects, which led to crucial partnerships funding, endowment grants and the with the city and local banks,” says significant capital the church con- Johnson. tributed,” he says. “All these factors, as In 1995, through EAEDC’s efforts, well as the pastor’s long history in com- the church’s first project—a 25,000- munity leadership, were strong incen- square-foot child and elder care cen- tives for NationsBank’s involvement.” ter—received $400,000 in community The day care center will enable block grant development funds from the church to care for 170 children—70 the city of Austin. NationsBank followed the city’s commitment with two loans to the church and the day care center totaling $800,000. “Ebenezer Baptist Church and EAEDC brought sizable assets to the table, such as land, money and com- [Ebenezer Baptist Church] projects munity support,” says Johnson, about was the potential effect they would the revitalization projects. “The church have on turning around an area of the and EAEDC approached the city and city that was in significant decline,” NationsBank as strong partners in the says Willis Bright, program director, economic development, which helped community development, at the Lilly minimize the risk for the city and bank.” . . . . . . . . . . . . . . . . . . . . more than the church’s previous center—as well as provide care and activities for senior citizens. “Caring for children has been a part of the church’s ministry for many years, and now we can also better serve the needs of our community by also caring for the elderly,” says Rev. Griffin. In addition to the Lilly Endowment grants, NationsBank provided a $25,000 grant that EAEDC used to create a revolving loan fund. The loan fund makes lines of credit available to minority subcontractors working on the developments, which fuels the local job market. EAEDC built upon the successful partnerships it forged during the child and elder care center development with its second project—a two-story, 10,000-square-foot office building. The project was funded by $150,000 from Ebenezer Baptist Church, two loans totaling $480,000 from the city, a $220,000, 10-year, 8.5-percent interest, loan from Texas Commerce Bank and a $100,000 grant from the Lilly Endowment. The city has leased 70 percent of the building as space for its microloan program and for the Austin From left: Wendel Pardue of Texas Commerce Bank, EAEDC’s Van Johnson, Haley Moy of NationsBank and Rev. Griffin of Ebenezer Baptist Church review EAEDC’s developments. multibank CDC. EAEDC offices will 5 Fast Facts also be housed within the building. “Bankers really enjoy seeing the East Austin Economic Development Corp. (EAEDC), a nonprofit organization created by Ebenezer Baptist Church, is taking a holistic revitalization of a community,” says approach to neighborhood revitalization and community and econom- Wendel Pardue, vice president at Texas ic development. EAEDC is building a child and elder care center, Commerce Bank, of its involvement in office building and 12 units of affordable housing for the elderly. the church’s office building project. “Ebenezer Baptist Church has a heart Child Care/Elder Care Center: $1.9 million project for the area and for the people.” City of Austin CDBG $400,000 (grant) NationsBank $800,000 (15 years at 9-percent interest) The third piece of the church’s and EAEDC’s development strategy is housing for the low- and moderateincome elderly that will be finished in Ebenezer Baptist Church $500,000 (cash) $200,000 (value of land owned by church) June. “The elderly have few affordable housing choices in East Austin,” says Johnson. EAEDC’s six duplexes, which Austin Kiwanas Donating equipment for the playground will contain a dozen, 700-square-foot units, will provide more housing options Office Building: $950,000 project in the community. The church and its Ebenezer Baptist Church $150,000 (cash) developments now occupy two city blocks in East Austin. Lilly Endowment $100,000 (grant) Texas Commerce Bank $220,000 (10 years at 8.5-percent interest) Everyone who has partnered with Ebenezer Baptist Church and EAEDC attributes the recent spurt in economic development in East Austin to the City of Austin CDBG $480,000 (two loans, $130,000 for 10 development activities of these two years at 1-percent interest and $350,000 organizations. for 20 years at 0-percent interest for years 1–10 and 4-percent interest for years 11–20) “Ebenezer Baptist Church is providing a shot in the arm for East Austin,” says Greg Smith, manager for Ebenezer Senior Housing: $850,000 project community development assistance Texas Department $741,000 (HOME Program deferred programs at the city of Austin. The city of Housing and loan—no repayment required) now plans to develop an office retail Community Affairs complex, and another local nonprofit is planning a 100-home affordable hous- Ebenezer Baptist Church $109,000 (value of land owned by church) ing development in East Austin. “Our initial investment in the The Lilly Endowment and Bennet Construction provided grants for neighborhood has attracted more than administration, and NationsBank provided a grant that EAEDC used $20 million in new development,” says to establish a revolving loan fund to make lines of credit available to Johnson. “East Austin is now assured minority subcontractors. of extensive redevelopment, and there is a tremendous infusion of public and For More Information: private money that is transforming the East Austin Economic Development Corp. area from one of the most distressed to 1010 E. 10th one of the most vital in Austin.” Ä Austin, Texas 78702 (512) 472-1472 The Lower Colorado River Authority has been bringing power to Texas Hill Country businesses and resi- R dents for more than 50 years, but for the past six years the utility company has also promoted economic development in its service region by sponsoring a certified development corporation. In 1990, the Lower Colorado River Authority (LCRA) formed the nonprofit CEN-TEX Certified Development Corp. (CDC) to serve expanding businesses and to foster economic growth in its rural and urban areas. “LCRA has been promoting economic development for some time,” says Randy Schlueter, senior business analyst with LCRA. “CEN-TEX CDC is another way for us to ensure that the communities we serve grow and remain economically healthy and vital.” LCRA, one of the few utility companies in the country to sponsor a CDC, provides office space, professional staff and supplies to CEN-TEX, . . . . . . . . . . . . . . . . . . . . . . ESOURCE The Power to Make a Difference Utility Company Fuels Economic Development which is overseen by a 10-member board of local business and community people. “LCRA has a long-term relationship with its customers, and two years ago we surveyed them to find out our customer’s needs,” says Rosa RiosValdez, who oversees CEN-TEX’s Community Lenders program. “We discovered that the primary needs were jobs and housing for working families.” Through its Community Lenders program, CEN-TEX will soon offer two new loan products at below-market rates, Joyce Smith of CEN-TEX CDC visits with Dan Jardine of Jardine’s Texas Foods at his salsa and spice plant, which he built using proceeds from a SBA 504 loan. interim construction financing to small businesses and down payment and closing cost assistance programs for working families seeking to buy affordable new or existing homes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Although CEN-TEX’s services include housing development and community lending, its original service—providing SBA 504, 502 and 7a loans—has been quite successful in the growth and expansion of numerous businesses in its service region. Since its inception five years ago, CEN-TEX has made 44 SBA 504 loans totaling approximately $41.5 million. CEN-TEX loans have helped its customers open a car wash, a convenience store, a gas station and other businesses. “Through CEN-TEX and the SBA loans, small business owners who may not be able to get a traditional bank loan can now get financing,” Schlueter says. “CEN-TEX completes all of the SBA paperwork, services the loan and processes the closing,” says Patrick Brandenburg, senior vice president of business and professional lending with Franklin Federal Bancorp, an Austin bank that has worked with CEN-TEX to provide SBA 504 loans. “The SBA 504 loans offer borrowers long-term, fixedrate financing for up to 20 years at a favorable rate.” “SBA 504 loans obtained through CEN-TEX always have below-market interest rates compared to conventional loans—with a 10-percent down payment instead of a 20-percent down payment,” says Schlueter. “Banks benefit from participating in the loan as well because they receive first lien on the loan, even though they contribute only 50 percent of the funds.” (continued on page 8) 7 S ince the late 1970s, national nonprofit intermediaries have assisted the neighborhood revitalization efforts R of local nonprofit organizations by providing a range of services including technical assistance, grants for administration of the nonprofit organization or for development projects, development loans, equity investments in projects through the purchase of tax credits and a secondary market for loans. Nonprofit intermediaries also assist local nonprofit developers by serving as their agent or negotiator when they’re working with financial institutions and government agencies to forge public–private partnerships. A national nonprofit intermediary often works closely with a communitybased nonprofit development organization to provide assistance with community organizing, strategic planning and resource development. And because the national nonprofit intermediaries around the country, they can provide local nonprofits with information on community revitalization models that have proved effective in National Nonprofit Intermediaries Fostering Community Development cal assistance to community-based nonprofit organizations and provides grants, loans and equity investments for affordable housing development and to improve commercial and retail services in low-income communities. Corporations, foundations and others interested in community revitalization have invested in LISC affiliate investment funds such as the National Equity Fund, a syndicator of federal tions in 150 communities, Enterprise provides technical assistance, grants, low-interest rate loans and equity investments. The Enterprise Foundation’s Loan Fund works with private corporations, . . . . . . . . . . . . . . . . . . . . . individuals and religious organizations to provide assistance to their communities. Enterprise Foundation has also created two subsidiaries, the Enterprise Social Investment Corp., a low-income housing tax credit equity investment fund, and Enterprise Mortgage Investments Inc., which provides permanent financing for the development of affordable multifamily rental housing. The National Rural Development and Finance Corp. (NRDFC) The NRDFC is a nonprofit community development finance intermediary serving distressed rural areas. The NRDFC is active in 11 states. It works with local rural development organiza- – – – Intermediary (int-er-med-e-er-e)— One who acts as an agent between persons or things; negotiator; gobetween; middleman e work in many communities . . . . . . . . . . . . . . . . . . . . . EPORT other communities. As examples of how nonprofit intermediaries assist local nonprofits, this report focuses on four national nonprofit intermediaries for community development. Local Initiatives Support Corp. (LISC) LISC was created in 1979 through a partnership among the Ford Foundation and six major banking, insurance and industrial firms, and it is active in 35 communities throughout the United States. LISC extends techni- tions to identify business and community investment needs, assess rural investment risks and manage lending transactions. NRDFC has utilized funds received from the Rural Development . . . . . . . . . . . . . . Low-Income Housing Tax Credits; the Retail Initiative, a commercial equity fund for the development of supermarket-anchored neighborhood retail shopping centers; and the Local Initiatives Management Asset Corp., a secondary market for affordable housing and community development loans. The Enterprise Foundation The Enterprise Foundation has facilitated the development of affordable housing through more than 500 community-based nonprofit organiza- . . . . . . . . . . . . . . Administration, private foundations and corporations to increase access to capital for rural businesses, develop community-based services, such as clinics and day care centers, and develop affordable housing. Neighborhood Reinvestment Corp. (NRC) The NRC was created by an act of Congress in 1978 to facilitate neighborhood housing improvement and revitalization. By assisting and coordinating a NeighborWorks network of local organi(continued on page 8) . Community development loans DID YOU KNOW . . . ? (continued from page 7) include loans to nonprofit organizations zations in more than 239 neighborhoods serving primarily LMI housing and throughout the country, the NRC creates other community development needs. and strengthens resident-led partner- However, loans to nonprofits for origi- ships among community residents, local nal amounts of $1 million or less that corporations, including financial institu- Reinvestment Act (CRA) regulation are secured by real estate or collateral- tions, and local government offices. clarifies how community development ized by production payments where Neighborhood Housing Services of activities are evaluated under CRA. the proceeds ultimately go to a for- America, a NeighborWorks affiliate, pro- The revised regulation defines commu- profit business are reportable in the vides financial and fundraising services call report as small business loans. to local organizations, as well as a sec- Loans reported as small business ondary market for their loans. Community Development Defined The revised Community nity development to mean affordable housing for low- or moderate-income (LMI) individuals (including multifamily rental housing), community services targeted to LMI individuals, activities that promote economic development by financing businesses or farms that . . . . . . . . . . . . . loans for call report purposes should For further information about the be reported under CRA as small busi- intermediaries, contact their respective ness loans and are not reportable as national offices: community development loans. Please refer to the revised CRA Local Initiatives Support Corp. regulation for additional examples of (202) 785-2908 community development loans, exam- Enterprise Foundation ples of qualified investments and (410) 964-1230 examples of community development National Rural Development and services. Copies of Regulation BB Finance Corp. requires that qualified investments, (Community Reinvestment) are avail- (210) 212-4552 community development services and able free from the Public Affairs Neighborhood Reinvestment Corp. community development loans have Department of the Dallas Fed at (214) (202) 376-2400 community development as their pri- 922-5254 or (800) 333-4460, ext. mary purpose. 5254. meet size eligibility standards or have gross annual revenues of $1 million or less, or activities that revitalize or stabilize LMI geographies. Additionally, the revised regulation Ä (continued from page 6) A $1.4 million loan arranged through CEN-TEX and Franklin Federal in 1991 helped Dan Jardine expand his salsa and spice company from a small operation to a 30-acre, 26,000-squarefoot plant in Buda, Texas. “We were in a small, cramped space, and we wanted a place of our own with room to expand,” says Jardine, founder of Jardine’s Texas Foods. “We had tried to get a traditional bank loan but couldn’t get approval. We were convinced we could afford to expand, and we eventually obtained . . . . . . . . . . . . . . . Ä the loan through CEN-TEX and Franklin Federal Bancorp.” Today the Buda plant employs 65 people, and Jardine’s Texas Foods has annual sales in excess of $8 million. Jardine says everyone involved recognized it would be good for the community to have the plant in Buda. “With the expansion and move to the new plant, we added about 35 people, and as our business expands, we will continue to create new jobs,” Jardine says. Ä Perspectives Federal Reserve Bank of Dallas Community Affairs Office P.O. Box 655906 Dallas, Texas 75265-5906 (214) 922-5276 Gloria Vasquez Brown Community Affairs Officer Nancy C. Vickrey Community Affairs Manager Ariel D. Cisneros Community Affairs Specialist Jim V. Foster Community Affairs Specialist Bobbie K. Salgado Houston Branch Community Affairs Specialist The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System. Articles may be reprinted on the condition that the source is credited and a copy is provided to the Community Affairs Office.
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