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cr C O M M U N I T Y REINVESTMENT forum FALL | 2006 Policy Summit | keeps spotlight on poverty PUBLISHED BY THE FEDERAL RESERVE BANK OF CLEVELAND Poverty surged back into public awareness on the destructive tides of Hurricane Katrina last year. But this problem extends well beyond the South. Every region of the country has its share of poverty, in areas ranging from rural to urban. In fact, Cleveland was recently named – for the second time in three years – as the poorest city in the United States among those with populations greater than 250,000.* Concentrated poverty – the percentage of poor people living in high-poverty tracts – is of particular concern to researchers, community development practitioners, and policymakers because of its harmful effects on people, neighborhoods, and community reinvestment strategies. *See page 4 sidebar for an explanation of how these rankings were arrived at, along with a caution against drawing conclusions without considering additional factors that were not a part of the poverty rankings assessment. CONTINUED ON NEXT PAGE AN EXCHANGE OF COMMUNITY DEVELOPMENT ISSUES AND IDEAS 4th District Profile 4 In My Opinion Compliance Corner Concentrated poverty in the Fourth Federal Reserve District Finding new ways to combat an old problem Changes to CRA aimed at nonmetropolitan middle-income areas 6 7 CONTINUED FROM PAGE 1 T ‘Why does the Fed care?’ research involving patterns of Community development lens to the persistent problem of What is the Federal Reserve wealth, poverty, and regional Examining concentrated poverty. But keeping a spotlight Bank of Cleveland’s connection economic development. poverty through the lens of on the issue is critical to moving to concentrated poverty? Increasingly, research finds a community development toward solutions. To that Federal Reserve Bank of correlation between levels of focuses inquiry into which end, the Federal Reserve Bank Cleveland President and CEO poverty and the economic federal, state, and local policies of Cleveland examined the Sandra Pianalto addressed health of a region. can be most effective. challenges of concentrated this question in her opening poverty at its annual commu- remarks: here are no simple answers | | COMMUNITY REINVESTMENT FORUM 2 nity development policy summit in June 2006. “By bringing together the key players – academics doing research on concentrated poverty, community development funders and practitioners working directly in low-income communities, policymakers at all levels – we hope to stimulate www.clevelandfed.org/CommAffairs thinking across disciplines and encourage ongoing discussion and action aimed at positive, market-based solutions to this problem,” notes Ruth Clevenger, vice president and Community Affairs officer at the Federal Reserve Bank of “Why does the Cleveland Fed care about this issue? The fact is that we are committed to the goals of community development. Our Community Affairs program helps us fulfill one of our important public policy mandates – to enforce fair-lending regulations that protect consumers in the financial marketplace. We also believe that understanding the issues behind concentrated poverty will help us better assess overall economic performance.” O ver the past few years, the Cleveland Fed has pursued Cleveland. “We know that most people Historically, poverty has who are trapped in poverty been addressed through the cannot participate fully in the social services sector, which labor market or the financial assists low-income families system,” noted President Pianalto. “So there is good reason, just from a macro- 2006 Policy Summit Highlights economic viewpoint, for the Check out a summary of the 2006 Community Development Policy Summit at www.clevelandfed.org/2006Policy SummitProceedings. Federal Reserve to analyze these issues. But our involvement actually reaches much further – the Federal Reserve is involved in community development, especially as the nation’s fair-lending laws have evolved over the past few decades.” For the full text of President Online proceedings include: • Overview of all sessions • Opening remarks by Federal Reserve Bank of Cleveland President and CEO Sandra Pianalto • Follow-up Q&A among participants and conference speakers • Speaker presentations for downloading • Keynote address by Dr. William Julius Wilson Pianalto’s opening remarks, go to www.clevelandfed.org/2006 PolicySummitProceedings. This year’s policy summit drew a sell-out crowd of more than 200 community develop- Ignoring poverty won’t solve it The Plain Dealer credits Fed President Sandra Pianalto with keeping a spotlight on the issue of poverty. See text of editorial and hear WVIZ’s interview with Dr. William Julius Wilson. ment practitioners from Ohio and neighboring states. & What’s the link between poverty and minimum wage? Policy summit panelists and other experts address questions from conference participants in a follow-up discussion of issues related to concentrated poverty. Attendees included bankers, academics, elected officials, government representatives, and nonprofit community developers. “We know that most people who are trapped in poverty cannot participate fully in the labor market or the financial system. So there is good reason, just from a macroecomonic viewpoint, for the Federal Reserve to analyze these issues.” – Sandra Pianalto, Cleveland Federal Reserve Bank President and CEO Sandra Pianalto, president and CEO of the Federal Reserve Bank of Cleveland, and Richard Walker III, vice president and Community Affairs officer for the Federal Reserve Bank of Boston, listen to discussion during one of the policy summit’s sessions. In the background is David Buchholz of CFED (Corporation for Enterprise Development). “Who knew economists could be so interesting!” Check out this and other comments from conference evaluations. Photo Gallery See pictures from Day 2 of the policy summit. are common. Most ghetto residents cannot afford an automobile and therefore have to rely on public transit systems that make the connection and suburban job locations difficult and time-consuming. “The least upwardly mobile in society – mainly low-income people of color – are stuck in neighborhoods with high concentrations of poverty and deteriorated physical conditions.” – Dr. William Julius Wilson, from his keynote speech 5th Annual Community Development Policy Summit To make matters worse, many inner-city residents lack information June 21-22, 2007 or knowledge about suburban job opportunities. In segregated inner-city ghettos, the breakdown of the Cleveland, Ohio informal job information network aggravates the problems of job spatial mismatch. The older central | | cities feature a severe spatial mismatch between inner-city residents how the economy’s increasing internationalization, transpor- Cleveland, although entry-level services. Community develop- tation issues, and lack of jobs workers are concentrated in inner-city ment solutions, on the other have contributed to the rise neighborhoods, 80 percent of the hand, focus more on physical in urban poverty: 3 and suburban jobs. For example, in care, and other valuable entry-level jobs are located in the infrastructure. One way this is accomplished is through community development lending. In addition to providing mortgage loans for first-time homebuyers and financing for multi-family housing units, lending programs can also include microloans. T he keynote address – given by poverty expert Dr. William Julius Wilson, director of the Joblessness and Urban Poverty Research Program and Lewis P. and Linda L. Geyser Professor at Harvard University – focused on new challenges facing the urban “Sprawl and economic stagnation suburbs. And the lack of feasible not only fuel physical decline, they transportation options exacerbates also isolate disadvantaged residents this mismatch.” of the city from meaningful access to To read the entire text of from the Fed work with researchers at noted academic social and economic opportunities. Dr. Wilson’s address, visit institutions on issues related With the departure of higher-income www.clevelandfed.org/2006 to concentrated poverty, such families, the least upwardly mobile in PolicySummitProceedings. as earnings inequality in Appalachia. society – mainly low-income people of color – are stuck in neighborhoods Ongoing efforts with high concentrations of poverty The policy summit is just one and deteriorated physical conditions. example of the Cleveland These neighborhoods offer few Federal Reserve Bank’s involve- jobs and typically lack basic services ment in concentrated poverty, and amenities, such as good schools, both regionally and nationally. banks, grocery stores, retail establish- A second effort is a partnership ments, parks, and quality transit. between the Bank’s Community Unlike in previous years, labor Affairs and regional Research markets today are mainly regional, teams to launch a joint Visiting and long commutes in automobiles Scholars program. Economists A nother effort involves case studies conducted on specific issues related to concentrated poverty – for instance, the impact of the minimum wage on poverty. Check the Bank’s website – www.clevelandfed.org – and the Community Affairs subsite at www.clevelandfed.org/ poor. Dr. Wilson, whose latest CommAffairs for additional book, Good Kids from Bad information and resources Neighborhoods: Successful related to concentrated poverty. Development in Social Context, was released this fall, noted www.clevelandfed.org/CommAffairs with subsidized housing, health COMMUNITY REINVESTMENT FORUM between inner-city neighborhoods Save the Date! 4th district Concentrated poverty in the Fourth Federal Reserve District T | | COMMUNITY REINVESTMENT FORUM profi 4 www.clevelandfed.org/CommAffairs less than 4.9 percent 5–9.9 percent 10–19.9 percent 20–39.9 percent 40 percent or greater he Fourth Federal Reserve District, which includes all of Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia, encompasses a diverse range of communities and economies. Whether urban or rural, industrial or agricultural, lakeside or Appalachian, these communities all have some residents living in poverty. Just how widespread is poverty across the District? Where is it most concentrated? In the map shown here, some areas clearly show higher concentrations of people living in poverty than others. It’s important to clarify two distinct terms that this map and graph illustrate: High poverty refers to a poverty rate of 40 percent or more within a specific area – in other words, where nearly one of every two people has an income below the poverty level.1 Do numbers tell the whole story? 1 The poverty level is determined by income, family size, and the ages of family members. Using 2005 information, for example, a family of four with two adults and two children and an annual income less than $19,806 is considered to be living in poverty. Any researcher will tell you that statistics can easily be misinterpreted. For example, Census Bureau data have branded Cleveland as the poorest big city in the United States, with nearly a third of the city’s residents living in poverty. “The numbers tell us that Cleveland has many poor people,” noted Mark Schweitzer, assistant vice president and economist for the Federal Reserve Bank of Cleveland, and Brian Rudick, senior Research assistant. “But the numbers don’t tell us that Clevelanders have become worse off, that the region’s economy has deteriorated, or even that there are more poor people in the city than before.” In a recent piece posted to the Bank’s Economic Research & Data website, the two researchers explain how we might jump to the wrong policy prescriptions by focusing on poverty solely within the city limits, and they suggest that we look at the greater metro area for a more accurate picture of the causes of Cleveland’s poverty rate. See the full text of their posting at www.clevelandfed.org/research/regional/features/2006/september/poverty.cfm. le Concentrated poverty refers to the share (or percentage) of poor people living in highpoverty areas. 25 20 15 10 5 0 y en gh le Al S M umm on tg it om er y te et ay F Fr an kl in Bu tle r Ha m il Cu ton ya ho ga Concentrated poverty refers to the percentage of poor people living in high-poverty areas. In the Fourth District, Census 2000 data reveal 187 census tracts where the poverty rate was at least 40 percent. These tracts are located within 42 counties stretching across all four states within the Fourth District. The counties range from high-population urban counties to low-population rural counties. A clearer picture emerges when examining the percent of a county’s poor population (residents living below the poverty threshold) that resided in one of the census tracts with a poverty rate of 40 percent or greater. Concentrated poverty shows how clustered or disparate the poor are – whether they are huddled together in high numbers in the same census tracts or neighborhoods, or spread out throughout the county. In the Fourth District, counties in rural eastern Kentucky and western Pennsylvania, along the Ohio River, and within major cities all have areas of concentrated poverty. The Fourth District includes a number of counties that are part of Appalachia, including counties in western Pennsylvania, West Virginia, southeast Ohio, and most of eastern Kentucky. Many of the Appalachian Percentage of poor living in high-poverty tracts Urban Concentrated Poverty s k g in ca ar St Lu hon a M ie Er land e or m st e W Counties counties have areas of high concentrated poverty. In particular, three counties in Kentucky – Owsley, Martin, and Clay – have fully 40 percent or more of their poor population living in high-poverty census tracts. Martin County shows a concentrated poverty rate of 48 percent. In Clay County, the concentrated poverty rate is 46 percent. Owsley County, Kentucky, has a staggering 100 percent concentrated poverty rate, which means every one of their poor residents lives in a high-poverty tract. Outside of Appalachia, the Fourth District’s major urban counties also have concentrated poverty. Both Cuyahoga (Cleveland) and Hamilton (Cincinnati) counties in Ohio, as well as Ohio County, West Virginia (Wheeling), have areas of concentrated poverty ranging from 20 percent to 40 percent. In fact, all but one of the Fourth District’s 14 counties with populations greater than 250,000 have some level of concentrated poverty. While areas of high poverty in the Fourth District are located primarily in counties in Appalachia and in urban counties within major central cities, all counties in the District have some portion of their population living in poverty. In fact, in 2000 just 13 census tracts – of the more than 4,500 tracts in the entire district – reported a poverty rate of 0 percent. Some of these zero-poverty tracts are located inside counties that also have high-poverty tracts. Ohio Kentucky Pennsylvania Census tracts are sub-county areas defined as small, relatively permanent statistical subdivisions of a county. They usually have 2,000–8,000 residents and, when originally delineated, were designed to be homogeneous with respect to population characteristics, economic status, and living conditions. Census tracts are used to evaluate information in relatively small geographic areas and can be used as a proxy for a neighborhood. in my opinio Finding new ways to combat an B Y C L A U D I A C O U LT O N , P h D Dr. Claudia Coulton, a nationally known expert on urban poverty and a panelist at the 2006 Community Development Policy Summit, shares her perspective on research efforts aimed at addressing concentrated poverty. Why is there an emphasis on studying concentrated poverty, versus simply poverty? Claudia Coulton is the Lillian F. Harris Professor at the Mandel School of Applied Social Sciences, Case Western Reserve University, and co-director of the Center on Urban Poverty and Social Change, located in Cleveland. A nationally known expert on urban poverty, Dr. Coulton has had an impact on public policy at every level of government. Her teaching and research expertise is sought by policymakers, advocates, and the media nationwide. Dr. Coulton was awarded a BA cum laude in 1969 from Ohio Wesleyan University, a MSW in 1972 from the Ohio State University, and a PhD in social welfare in 1978 from Case Western Reserve University. There is a vast amount of research on the dynamics of poverty at the individual level. Starting in the 1980s, there was a growing interest in looking at the neighborhoods where poor people lived. Researchers were learning that negative outcomes associated with poverty, such as lower performance in school and higher incidence of involvement in crime, were also concentrated in poor neighborhoods. At the same time, changes in manufacturing meant that more jobs were moving out of the cities, increasingly cutting off inner-city residents from economic opportunities. These two things – a concentration of social ills in the same areas of poverty coupled with a declining opportunity structure – drove interest and speculation in looking at poverty not just from the individual standpoint, but also taking into account where they lived. We’re examining concentrated poverty for several reasons: One, to find out what’s happening to poor families and children. And two, to find out the implications for cities looking to maintain economic viability in the face of decreasing resident and business populations and increasing concentrations of poor residents. 1 2 Concentrated poverty is a real concern to civic leaders. It impacts their cities’ economic status and ability to provide services and collect taxes. Poverty has been a problem – and has been studied – for decades. What new directions are researchers pursuing in this field? We do know some things about concentrated poverty: We know where it’s located, and we know it tends to be associated with social ills such as exposure to violence, worse housing, underperforming schools, and bad health. What we know less about is whether this matters to the individuals and families living in areas of concentrated poverty. And if it does matter, how, why, for whom, and to what extent does it matter? This line of research attempts to examine the “neighborhood effect” of living in concentrated poverty. Researchers interested in isolating the impact of concentrated poverty on individuals and families are asking questions like, Are the neighborhood conditions impacting outcomes for these individuals and families, or do the individual and family factors play a larger role? One promising direction this research has taken is in studying individuals and families who move out of areas of concentrated poverty. Two well-known efforts have looked at outcomes for individuals and families, both with optimistic results. The Gautreaux experiment in Chicago found school performance improvements for children and increases in parental employment for those moving into lower-poverty areas. HUD’s Moving to Opportunity, a more rigorously controlled experiment, found that movers to low-poverty areas felt safer, less bothered by crime, and more positive overall about their environment. Researchers also found strong evidence of improved health. Another new line of concentrated poverty research will look more closely at the mechanisms that may correlate with negative outcomes in areas of concentrated poverty, such as peergroup pressures, lack of services and amenities, attitudinal issues, and social capital. These studies are more qualitative or descriptive than experimental in nature. How do policymakers use the analyses generated by researchers studying concentrated poverty? Are they considering the data, and, if so, how are the data being factored into their policy decisions? 3 In housing policy, I think we’ve seen a pretty clear effect. Research suggests that the concentrated poverty found in public housing has a negative effect on individuals and n BY BARBARA BELLUARDO Senior Examiner Federal Reserve Bank of Cleveland A • affordable housing for low- and moderate-income (“LMI”) individuals • community services targeted to LMI individuals • activities that promote economic development by financing small businesses and farms • activities that revitalize or stabilize LMI geographies. These activities still apply. Effective September 1, 2005, “revitalize/stabilize” was expanded to include activities that revitalize or stabilize • distressed or underserved nonmetropolitan middle-income geographies, and • designated disaster areas. In the distressed nonmetropolitan middle-income areas, the activity must either explicitly help to attract new, or retain existing, residents and businesses in the community. An activity will be presumed to revitalize or stabilize the area if it is consistent with a bona fide government revitalization or stabilization plan. The agencies will consider all activities that revitalize or stabilize a distressed nonmetropolitan middle-income geography, but will give greater weight to those activities that are most responsive to community needs, including the needs of LMI individuals or areas. For example, the plan or project would produce significant long-term employment opportunities for the community, including low- and moderate-income individuals. Underserved nonmetropolitan middle-income areas are sparsely populated, and they are therefore considered to have trouble financing the fixed costs of essential community 7 needs such as infrastructure improvements and health facilities. To qualify under the expanded definition, the activity must help to meet essential community needs, including the needs of LMI individuals. An example of this type of activity would be a hospital expansion program, because it facilitates essential infrastructure to the area and benefits the entire community, including low- and moderate-income individuals. Designated disaster areas are major disaster areas designated by the federal government. Activities related to disaster recovery that revitalize or stabilize a designated disaster area will be given CRA consideration for 36 months following the date of disaster designation. The agencies carefully analyzed the criteria that were added to the CRA regulations in order to give financial institutions CRA credit for qualified community development activity. Additional information can be found at www.FFIEC.gov. www.clevelandfed.org/CommAffairs lthough there were several changes made recently to the Federal Reserve Regulation BB, this article focuses on the revised definition of community development as it relates to the revitalization and stabilization of nonmetropolitan middle-income geographies, or designated disaster areas within a bank’s assessment area. The enhancements to the community development definition can benefit all financial institutions regardless of asset size. Before the 2005 regulation change, the definition of community development included four distinct activities: | | families. There’s been a move toward using tenant-based assistance rather than project-based assistance for subsidized housing. Section 8 vouchers, for instance, give people the option of moving to areas with less concentrated poverty. Hope VI, another federally funded effort to improve public housing, deliberately tries to create mixed-income housing. While there is no research yet that clearly shows living in mixedincome settings changes the outcomes for poor families and children, the real knowledge is that it is feasible – with certain incentives, such as tax abatements and well-built housing – to provide more mixedincome housing as an alternative to low-income housing projects. Studies under way will examine the impact of living in such environments. But housing is definitely the most visible piece of policy that’s been responsive to research on concentrated poverty. Urban and municipal policy also has been responsive to research in this area. Cities with high levels of concentrated poverty are not doing as well as cities with more mixedincome levels. Urban mayors are starting to see that reducing concentrated poverty can help their cities gain a more even economic footing with their suburban counterparts. Regional cooperation among urban and suburban areas – involving things such as jobs programs, transportation coordination, and sharing resources and services – is a practice that might help overcome concentrated poverty. Changes to CRA aimed at nonmetropolitan middle-income areas COMMUNITY REINVESTMENT FORUM old problem corner compliance Conferences + Events of interest More information is available at www.clevelandfed.org/CommAffairs. CLEVELAND Ruth Clevenger Vice President and Community Affairs Officer firstname.lastname@example.org 216/579-2392 Cassandra McConnell Community Affairs Manager email@example.com 216/579-2474 Foreclosure Summit: Implementing Solutions to Ohio’s Foreclosure Crisis • November 14, 2006 Toledo, OH Primary sponsorship provided by the Toledo Fair Housing Center Emma R. Petrie Research Analyst firstname.lastname@example.org 216/579-2236 Dynamics of Poverty: A Dialogue with Economists, Policymakers, and Practitioners Paula Warren Administrative Assistant email@example.com 216/579-3111 • December 14, 2006 New York, NY CINCINNATI Sponsored by the Federal Reserve Bank of New York Jeff Gatica Senior Advisor firstname.lastname@example.org 513/455-4281 Candis Smith Community Affairs Advisor email@example.com 513/455-4350 System Research Conference: Financing Community Development – Learning from the Past, Looking to the Future • March 29-30, 2007 Washington, DC CR Report, Summer 2006: Microenterprise: Creating Wealth for Individuals and Communities Sponsored by the Community Affairs Offices of the Federal Reserve System Fifth Annual Community Development Policy Summit • June 21-22, 2007 Cleveland, OH Sponsored by the Community Affairs Office of the Federal Reserve Bank of Cleveland and LISC Community Development Finance Research Conference Summary PITTSBURGH Joseph Ott Community Affairs Advisor firstname.lastname@example.org 412/261-7947 Visit us at www.clevelandfed.org FIRST CLASS MAIL FEDERAL RESERVE BANK OF US POSTAGE PAID CLEVELAND CLEVELAND, OHIO P. O . B O X 6 3 8 7 PERMIT NO. 385 CLEVELAND, OHIO 44101-1387 The views stated in Community Reinvestment Forum are those of the individual authors and are not necessarily those of the Federal Reserve Bank of Cleveland or of the Board of Governors of the Federal Reserve System. Materials may be reprinted provided the source is credited. 8 www.clevelandfed.org/CommAffairs Anne O’Shaughnessy Communications Coordinator email@example.com 216/579-2233 Sponsored by the Federal Reserve Banks of Philadelphia and Cleveland and by Rural LISC | | Lisa Nelson Senior Advisor for Applied Research firstname.lastname@example.org 216/579-2903 • October 26, 2006 Harrisburg, PA • November 14, 2006 Beaver Falls, PA • November 16, 2006 DuBois, PA COMMUNITY REINVESTMENT FORUM We welcome your comments, suggestions, and requests for additional copies. Send them to email@example.com. Also feel free to contact the following members of the Community Affairs staff if you have questions. Publications available to download at www.clevelandfed.org/ CommAffairs Hold the Date CR FORUM Community Development Financing in Rural Pennsylvania