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in communityand economic development
Federal Reserve Bank of Atlanta
Volume 11 , Number 2
Branching Out
In 1981, the Deparh11ent of Su pervision
and Regulation established a team of fo ur
individuals at the Fed eral Reserve Bank of
Atlanta·s Miami Branch foll owing an efficiency analysis of exa minations a nd su pervisory fun ctions condu cted th roughout
South Florida. Over the yea rs, the team
expanded w ith the growth of Internati ona l
activities and related supervision, and the
d ecentralized structure has p roven to be
highl y successfu l.
In 1997, Community Affairs, which is
struch.1red w ithin Supervision and
Regulation, sim ilarl y reached a point
w here we justified expanding to Miami
because of our growing constituency. As
our Commwlity Affairs p rogra m emphasizes technical assistance and facilitation of
parh1ersllips, we soon realized that a
Branch liaison ca n be m ore effecti ve du e to
grea ter accessibili ty. ln addition, loca l staff
m embers are able to conduct m ore outreach, attend more fun ctions, and stay
more aw are of loca l news and acti vities
than Atlanta staff. Furthermore, Branch
liaisons provide an add ed service to their
Branch offi cers by being an on-site resource
fo r commu11i ty info rmation.
Th.is m od el's su ccess set the tone fo r creating a position in both our N ash ville and
Birnlingham Bra nches in 1999, and the
ex pansion also p roved to be highly successful in our service to Tennessee and
Alabam a. In 2001 , with the attrition of staff
in Atlanta, we were able to com plete the
full Bra nch network by crea ting positions
in the Fed eral Reserve·s remaining two
Branches: Jacksonville and New Orlea ns.
As a result, a team of six Branch liaisons
now cover the six Branch geographical
FallFRASER
Digitized for
2001
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
zones: Alabama, North Florid a, South
Florida, Georgia, Louisiana/ Mississippi,
and Tennessee. In ad dition, Jennifer
Gri er, w ho has been w ith us almost 10
yea rs, brings in valuable assistance in
coordinating fun ctions such as training,
conference p lanning, d a tabase d evelopment, publica tions, and special p rojects.
The current Community Affairs tea m has
a combined skill set that we believe is
second to none in any Communi ty
Affairs program anywhere. While that
probably sounds biased , the cred entials
speak fo r themselves. Incl uding my own
background, the team presentl y has well
over 100 yea rs of combined experience in
various specialties such as lending,
nlicro-enterprise, small business incubators, invesh11ents, tax credits, rural development, Communi ty Development
Financial Institutions (CDF!s),
Communi ty Development Corporati ons
(CDCs), subprime and predatory lending, Individual Development Accounts
(I DAs), consumer compliance laws,
urban planning, government progra ms,
public policy, and Hispanic initiati ves.
This issue of Pnrt11ers is an opportuni ty
for us to showcase each Bra nch liaison on
a cu rrent topic of in terest. As a n added
fea ture, we have a gu est column from
a fo rm er Commun ity A ffai rs li aison
concernin g p redevelopment fund ing .
Finall y, it is with g rea t pride to
a nn oun ce our "bra nching out" into the
new Fed era l Reserve buil d ing in
Atla nta, w hich is shown above. After
Community Affa irs moved o ut o f th e
ma in offi ce "tem pora ril y" in 1986, we
have fina ll y rejoined th e res t of th e
Ba nk in its brand new fac ility at 1000
Peachtree Street in Midtown Atla nta.
A long w ith th e n ew address, we have
a new telepho ne exchange: 498. (Our
d irect-d ia l ex tensio ns rem a in th e
sa m e.) For your re fe ren ce, th e
De p artment's m ai n telepho ne num ber
is 404 / 498-7200 w here we ca n a ll be
reach ed.
With this full Bra nch netwo rk in
place, we·re p ositio ned optima ll y to
serve you in p ro m o tin g community
a nd econo mic d evelopment a nd fa ir
lendin g th rou g hout th e Southeast.
We li ve in a d yna mic time w here cha llenges a re a certa inty, ye t crea ti v ity
a nd opportunity s till abound . And
we a re we ll positioned to do our work
in a way tha t m akes a di ffe rence.
- Edito r
In This Issue
Section 8Homeownership
Program in ashville ................................ 2
Mark-to-Market Update ............................ 4
Investments in America's
New Markets .............................................. 6
M~d~eH~~~I~~n~.:.~:..~~~~'.~~·····················8
OneGeorzj_a Authority: Bridging
Georgia'fEconomic Divide ......................9
The Greater New Orleans IDA
Collaborative ............................................ 10
FHLB of Atlanta's Predeveloprnent
Fund Helps Members Support
Nonprofif Development Projects ............11
Federn l Reserve Bank of Atlnn tn
2
Section 8 Homeownership
Program in Nashville
By Jessica Le Veen
Jess irn LeVec11, Co111 1111111ity /11 ves t111 e11t A dv isor, is i11 tir e
In Septembe r 2000, H D published
th e fina l reg ulatio n that allowed
Public Hou sing Autho riti es (P H As)
to use Secti on 8 rental vouchers for
homeownership assis tance. HUD's
Section 8 progra m has provid ed
rental assis ta nce to low income
families sin ce 1974. However, in
an effort to increase housing
opportu nities for low-income famili es, the new legislation all ows
Pl !As to convert any porti on of
their Section 8 rental assista nce to
homeownership assista nce. Thi s
progra m aims to promote self-suffi cie ncy and empower lower
income famili es, w ho ca n be
brou ght into the economi c mainstrea m throu g h the benefits of
homeowners hip.
H UD initially a utho ri zed 15 PI-I As
to develop pilot programs . The
fin al rule requires that the prog rams contain certain provisio ns,
inclu ding :
♦ employme nt a nd incom e
requirements;
♦ a m inimum dow npayment of
·1 percent from the homebuyer 's
resources;
♦ a term-limit o n assistance of 15
years;
♦ a requirement for homeow ners hi p counseli ng;
♦ a hou sing qua lity inspectio n.
In add ition , the ru le provid es several o ptions for applying the
Section 8 payment towards homeow nership. The Section 8 payment
the recipie nt is eli gibl e to receive
equ als the difference between
I-I UD's Fa ir Ma rket Rent a nd the
30 percent of the recipi ent's
Pnrt11ers in Co111 1111111ity
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Federal Reserve Bank of St. Louis
nslwille Bm11cl, t111d serves 111iddlc t111d ens tem Te1111essee.
in come. The payment can either
be d edu cted from the principal
and interest pay ment on the firs t
mortgage, it ca n be added into th e
recipi ent's inco me, o r it ca n be
used to pa y off a seco nd m ortgage
o n the home. Wit hin these parameters, each PHA was all owed to
d evelop ind ividual progra m
requirem ents a nd eli gibili ty poli cies.
screened by the program criteria,
over 1,800 recipien ts were identifi ed as potenti al ca ndid a tes for
homeownership. Th e individ uals
we re contacted , a nd afte r a second
round of scree ning, approxi m ately
200 participants we re selected into
the Sectio n 8 to Homeownership
progra m, at va rying stages of
homebu ye r readiness.
Second Mortgage Prog ram
ashville Pilot Prog ram
Many of the PHAs have chosen to
partner with no nprofit orga ni zations to assis t with the ad minis tration of their progra m and to provid e the homeownership counseling. One of the pilot progra ms
was d eveloped in Na shvil le, TN
through a pa rtners hip between the
city's public housing agency,
Metropolitan Housing and
Develo pme nt Age ncy (M DHA ),
a nd Affo rd able Ho using
Resources (A HR), a loca l nonprofit. Neighborh ood Rein ves tme nt
Corpora tio n (NRC), I IUD, Fa nni e
Mae, and loca l fina ncial ins titu ti ons a re a lso impo rta nt partners
in this progra m.
The MDHA / AHR progra m
requires tha t participants be
enrolled in th e Fami ly Self
Suffi ciency program o r be referred
by the Secti on 8 staff at MDHA.
In add iti on, the pa rti cipant mu st
have an a nnual income of at least
$15,000 a nd have been employed
fo r a minimum of three yea rs
(with some exceptio ns). MDI-IA
provid es Section 8 vouc he rs to
over 5,300 household s. When the
Section 8 recipients were first
MDHA a nd A HR chose to structure its p rog ra m to offer a second
mo rtgage to qualified applica nts.
The parti cipa nt works w ith a traditio nal lender to qualify for a firs t
mortgage where the month ly payment w ill be no hig her than
29 percent of their income. The
a mount avai lable fo r the second
mortgage is determined by the
sum of the participan t's current
Secti on 8 payments, a n,o rti zed
over 10 years a t the preva iling
inte rest ra te.
AHR sets th e max im um hou se
pri ce the par ti cipant can a fford
based o n the sum of the fi rst mortgage, the available second mortgage, the participant's requi red
downpayment a nd any other
avai lable resources, m inus the estima ted cl osing costs. The second
mo rtgage is provid ed by AHR,
a nd MDHA pays the Section 8
paym ent directl y to AHR for up to
10 yea rs in o rd e r to re tire the second mortgage.
All program participants a re
req uired to pa rticipate in AHR's
Fast Track Counseling program,
w hich includ es two ho urs of indiContinu ed on next page
n11d £co110111ic Developl/le11t
3
vidual cou nseling and eig ht
hours of cla ssroom tra ining.
Participants in need of g reater
assis ta nce are offered long-term
counseli ng.
In ord e r to impleme nt this prog ra m, A HR ca pita li zed a revo lving loa n fund to provid e the seco nd mo rtgages. The two largest
contributors to this poo l a re The
cig hbo rhood Reinvestment
Corporation (N RC ) and Fa nnie
Mac. N RC provided $200,000 in
ca pita l g rants, a nd Fannie Mac
made an initia l investment of
$200,000, which was followed
recentl y by an additiona l
5500,000 in ves tment. To
date, A HR has loaned
approximately $350,000 of
this pool fo r th e second
mortgage program.
ea rl y nationa l success stories . As
of October 2001 , HUD records
indicate that the AH R prog ram
pa rticipa nts who have closed on
the purchase of the their home
acco unt for a pproximately 25 percent of a ll of the new Section 8 to
Homeowners hip home closi ngs
na tio nwid e. NRC recentl y awarded $5 million to 20 a ffiliate organi za tions to develop programs utili zing a simi la r model.
Edd ie Latime r, executive direc tor
of AHR, beli eves the appea l of the
second mortgage model is the
si mplicity of the program fo r the
From a counseling perspecti ve,
Mr. Latimer said tha t the prog ram
is workin g well beca use the minimum requirements fo r the progra m parti cipa nts au tom atica ll y
id entify those who arc stabl e in
te rms of e mployme nt a nd income .
Th e second mortgage mod el a lso
has widespread a ppea l to lend ers
as they arc a bl e to o ri g inate the
first mortgages utilizing existi ng
loan produ cts a nd und erwriting
g uid elines, with low loan -to-va lu e
ratios, and therefore re latively
lower risk.
There a re severa l other critica l elements that have contributed
to th e success of thi s program. First, MDHA a nd
AHR have a very stron g
working rela ti o ns hip. Each
partner has clearly defined
respons ibiliti es a nd the
Since the inception of
ca pacity to fulfill these
Section 8 to Homero les. A second key element
ownership in ea rly 2000,
is the support of th e loca l
186 individu a ls ha ve been
fin a ncia l and rea l estate
e nrolled . Of those initi a l
community, w hich has been
enrollees, 1--15 a re still
encou raged by ed uca ting all
ac ti ve. As of September
involved parties o n the
2001, 21 parti cipants ha ve
deta ils of the Section 8 progra m . La stl y, the ex tensive
closed on the purchase of
Stn11di11g, left to right: R11!11!1 /Jcrl'l'y, Director, FNMA Trnlll'SSI'<'
th eir ho me, 22 we re rea d y
counseling services providPnr/11crsl111 1 Officc; Pnt Clark, MOHi\ ; 11 11 d Joyce No rris, AH/{.
Scntcd, left to right: Jc1111ifer Pierce, c/o,i11g ng('ll t; Lnslw/1/111
to buy, of which seven have
ed to the program particiMil/ff, Srctiou 8 Hclllll'mc•11l'r, /1ip 1•11 rticip1111/.
ho mes und e r contract, and
pants a re essential to e ns ure
a pproxi ma tely 80 particitha t they a re ready to both
pants may be rea d y to buy within
purchase and ma inta in a n investhomebu ycr. "Thi s is a simpl e
a yea r.
ment in a new home.
model , whic h is easier to und erstand and compl y with for a firs t
The typica l par ticipa nt in the protime homcbu ye r. It is based on
The re a re ma ny optio ns avai la bl e
g ra m is a n Africa n- America n
the historica l precedent of homefor the structure of the Section 8 to
Homeow ne rs hip prog ra m, a nd
female head of househo ld , age 38.
ownership, mea ning the ho meMos t of these individuals have
e;,ch community has unic1u e
buyer makes one pay ment to the
requirem ents. Ho weve r, the initial
wo rked an average of fi ve yea rs,
mortga ge compa ny, whi ch wo n' t
a nd the average a nnu a l income is
success of A HR a nd MDI-I A prochange as lo ng as they hold that
$21,000. Th e ave rage purchase
g ram indica tes tha t th e mod e l this
mortgage."
par tnershi p has d evelo ped prop ri ce of the pa rticipant's homes is
approxima tely $80,000, and the
vides a good framework fo r the
" In ad diti o n, the one pa yment
ho m es have been purchased
d evelo pme nt of future programs
program is simil ar to paying rent,
nilti o nwid c. ♦
throu g hout the metropo litan
so it does not require a s ig nificant
Nas hvi ll e area.
change in be ha vio r. An add itiona l
benefit of thi s mod el is th a t there
Key to Program's Success
is no pay ment s hock to the homebuyer when the Section 8 voucher
The Sectio n 8 to Homeownership
expires afte r 10 yea rs, as tha t porprogram d evelo ped by AHR and
tion of the loan will have been
MDH A is recog nized as o ne of the
compl etely paid off."
Fn /1 2001
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Federal Reserve Bank of St. Louis
Fcdern l Reserve Bn11k of Atln11tn
4
Mark-to-Market Update
By Michael Milner
Mik e Miln er, Sen ior Co mmunity Inves tment Adv iso r, is i11 tl1 e Bir111ing lt a111 bra11cl1 an d serves tire sta te of A labama .
H UD's Mark-to-Market progra m is
aimed at preserving the affordability
of low-income rental housing w hile
reducing costs to the fed eral government of rental assistance subsidies
provided to low-income households.
mortgage debt. This type of restructuring generally occurs when the
property is physica lly and financially sound enough to continue operation at market-level rents wi th its
existing mortgage.
The program provid es a process of
restructuring insured Section 8 properties by lowering their rents to
market levels when their current
Section 8 contracts expire, and
reduces their mortgage debt if such
action is necessary for the properties
to continue to have a positive cash
flow. Without restructuring rents for
ma ny of the approximately 8,500
properties in HUD's po rtfolio that
substantially exceed market levels,
there would be higher federal subsidies under the Section 8 program.
Current Status of Program
As of May 2001 , the GAO reports
that approximately 1,500 properties
have entered OMHA R's mark-tomarket program. About 60 percent
of these properties are expected to
receive full mortgage restructurings
and the other 40 percent are expected to receive rent restructurings
onl y. OM HAR estimates tha t the
federal government wi ll realize
about $499 million in savings over a
20-year period from restructurings
that it has completed thus far.
Mark-to-Market Restructuring
The Office of Multifamily Housing
Assistance Restructuring (OMHAR)
contracted with public and nonpu blic entities to carry out the mark-tomarket restructurings on behalf of
the federa l governmen t. These
Participati ng Ad ministrative Entities
(PAEs) negotiate w ith the owners to
perfo rm two types of restructuring.
The first type of restructuring is
referred to as a fu ll mortgage restructure. In these cases, a property's
rents are adjusted to market levels
and its mortgage debt is reduced by
the amount need ed to permit the
property to achieve a positive cash
flow. The second type of restructuring, referred to as rent restructuring,
involves reducing the property's rent
to market levels, but not red ucing its
Pnrtners in Community
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Federal Reserve Bank of St. Louis
Loss of Affordable Housing Units
Through Owners Opting Out
When a Section 8 contract renewa l
request is made, the owners of the
property ca n either renew the contract without restructuring the mortgage debt, renew the contract and
restructure the mortgage, or "opt
out" of the Section 8 program. The
first option can be done wi th either
below-market or above-ma rket projects. Because the contract restructuring process may take some time,
contracts are renewed at present rent
levels temporarily while the mortgage is being restructured .
The Mark-to-Market program was
initially developed to target those
Section 8 properties that had rent
subsidies above ma rket rates. o
consideration, however, was given to
property owners that had subsidies
below Fair Ma rket Rents (FMR).
Consequently, HUD found that as
contracts expired, a signi fica nt nu mber of owners elected to opt out of
the program.
According to the Florida Housing
Coa lition's Housin g ews etwork,
the state of Florida had a 1,200 percent increase in the number of
Section 8 uni ts converted to market
rents through the Opt-Ou t process
within a 12-month period .
Mark-Up-to-Market Program
H UD estimated that in 1999, approximately one million subsidized units
would be subject to contract expiration in the next five yea rs. About half
of these have contract rents below
prevailing market rental rates for
com parable units. Thus, HUD
responded to this potential crisis
with a "Mark-Up-to-Market" program, allowing owners to receive
subsidy increases that would provide rents comparable to the market.
This program is available only for
property owners that believe their
properties could attract at-market or
above-market rents.
Opt-Out Protections for Tenants
Although Congress intended to
allow owners their prepayment
right, it also wa nted to minimize
involuntary displacement of tenants.
So, it enacted a series of post-prepayment resident protections. All current residents have a right to remain
in the property so long as they pay
Co ntinued on next page
nnd Econom ic Develop111e11t
the new market rent. To enable them
to do so, HUD will grant special
Section 8 Enhanced Vouchers to certain ca tegories of residents provided
the new rent requires a tenant payment grea ter than 30 percent of
adjusted gross income and the rent
increase takes
effect w ithin 12
months of the
owner prepaying a HUD loan.
renew it; instead, the owner must
give twelve months notice of tem1ination and compl y with Section S's
statutory disclosure requirements.
Fa ilure to provid e sufficient notice
requires the owner to accept
Section 8 LMSA renewal.
claims against the FHA insurance
fund . Unless the government provides additional financia l incenti ves
to fo r-profit property owners, getting
non-profits in the business of acquiring and managing Section 8 properties continues to be the most viable
option if the
appropriate
capital fund in g is ava ilable
a nd the necessary training is
provided on
managing the
units.
Tius enhanced
voucher program is crea ted
specifically fo r
the properties
HUD is aware
that are being
of this market
prepaid a nd the
condition and
eligible resiprovides
dents. These
incenti ves to
enhanced
property ownvouchers proers who
vide tha t the
intend to sell
resident's contheir property
tribution to rent
to non-profits.
will remain at
TI1e more nonw hatever it is
profits prepare
today, but not
fo r what many
below 30 persee as a significent of income.
cant opportuSo long as the
ni ty to serve a
A s Sectio11 8 co11trncts expire, tl,e owners of //,e property cn11 eitl,er relllw t/,e co11/mct wit/, or witl,out
resident
tremendous
reslr11c/11ri11g tl,e 111ortgnge, or 'opt 011/' of 11,,, program.
remains in the
communi ty
property, HUD
need, the betConclusion
wi ll pay the Section 8 subsidy up to
ter the future looks fo r older Section
a total rent that is considered the rea8 p rope rti es . ♦
TI1e efforts of HUD to decrease the
sonable post-prepaym ent rent for the
number of Opt-Outs and to provide
property. If the resident moves out,
additional protections for tenants a re
the subsidy travels with the resident,
For ,1dditional information on Marknotable and will no doubt help in the
but in tum the owner or purchaser is
to-M,1rket, Mark-Up-to-Market, or
Section 8 affordable housing shortthen free to rent the apartment to
Enhanced Voucher~ c,111 be found in
age. However, many are concerned
unassisted resid ents. In areas w here
the Section 8 Rene\,·,1! Cuide at
abou t the long-term effect of the
the FMR is below-market rent for the
www. hud .gov/ fhc1 / mfh /
overa ll restructuring process. Is
property, the residents have an ecothere enough fin ancial incentive to
nomic moti va tion to stay in the preexp /s8renew.pd f
keep the owners of these properties
paying property.
interested long term7 What about
the marginal properties tha t are not
Some properties have Section 8 Loan
eligible fo r restructuring or MarkManagement Set Aside (LMSA) conUp-to-Market rents?
tracts. These LMSA contracts do not
automatically temunate on prepayTI1e reduction in H UD paym ents
ment. HUD has established detailed
may fo rce many owners to cu t back
notification procedures fo r tenninaton maintenance or defa ult on their
ing these contracts. Generally, when
mortgages. The result would be detea Section 8 LMSA contract expires,
riorating properties and substantial
the owner ca nnot simply decline to
Fa ll 2001
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Federal Reserve Bank of St. Louis
Federal Reserve Battk of Atlanta
6
Investments in America's New
Markets
By Ana Cruz-Taura
A1111 Cr11 z- T1111r11, Co 1111111111ity lu ves t111ent Advisor, is in the Mi11111i brn11c/1 11 11 d serves So11t/1 Florir/11.
Economic vitality is the cornerstone
of a hea lthy community. More
specifically, community development professionals often emphasize
the importance of a community
being able to sustain itself economica lly in order to ensure long-term
growth and stabili ty.
The New Markets Venture Capital
Program and ew Markets Tax
redit Program target a well-capitalized and sustained flow of investment into lower-income communities to support a long-term business
development cycle.
New Markets Venture Capital
Despite the fa ct that there is a plethora of economic development programs ava ilable on a local, state, and
federal level, the greatest challenge
lies in securing an adequate capital
infusion to support a prolonged revital ization cycle. In some cases, there
is limited fundin g ava ilable that rnn
provide a handful of small businesses with small loans. Too often the
available funding cannot satisfactorily meet the cred it needs of existing
businesses or attract la rger employers to the commw1i ty.
The New Markets Ventu re Ca pital
Progra m ( MVC) Act of 2000 focu ses on economic development in
low-income areas. The U.S. Small
Business Admi nistration (SBA) has
been charged with ad ministering
the program by selecting NMVC
companies that will serve as the conduits fo r capital infusion and technica l assistance in growing and
strengthening sma ll businesses.
Two new federa lly enacted economic
development programs are intended
to be a ca tal yst to spur capital investment into the economic core of our
most challenged communities. The
ew Markets Venture Capital
Program and New Market Tax
Cred it Program are in final stages of
implementation to begin complementing ongoing revitalization initiati ves in target areas next year.
As described by SBA, a NMVC
company is a priva tel y managed,
newly formed, fo r-profit investment
company established for the purpose of providing capital and operati ona l assistance to smaller businesses loca ted in specific rural and
urban areas. These compcmies may
have a va riety of structures parh1ership, limited liabili ty company, or corporation - but must have
been formed after December 21,
2000.
These programs draw on a marketbased approach to attract invesh11ent
into long-neglected urban and rural
geographies. The goa l of both programs is to bring these isolated,
under-served areas back into the
macro-economic framework of the
local, and potentiall y globa l, economy by re-establishing commercial
channels and developing the assets
unique to each community.
Several conditionall y approved
NMVC compa nies already exist,
with their formal approval contingent on their ability to raise required
amounts of regulatory capita l and
grant ma tching resources, as well as
meeting other technica l requ irements for participation. Following
forma l designation of MVC companies and fu nd ing commih11ents,
the NMVC Progra m will provide up
Pn rt11 ers in Co11 11111111ity
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Federal Reserve Bank of St. Louis
n11d Eco110111ic Ocvelop111e11t
to $50 million in economic development ftmding in the coming year.
The program is a deriva tion of the
SBA's Small Business Investment
Company (SBIC) Progra m that has
attai ned considerable success in
establishing and growing small
busi nesses through equi ty-type
investments. While the SB IC
Program is focused on providing
capital to businesses owned by
socially or economica lly disadvantaged individuals, the MVC
Program uses a geographic
approach, targeting enti re lowincome communities to create general entrepreneurial opportunities,
strengthen the commercial infrastructure, and increase employment
opportunities.
For c1ddition,1l informiltion, visit the
SBA website a t www.sba.gov.
New Markets Tax Credit
As part of the Communi ty Renewa l
Tax Relief Act of 2000, $15 mill ion in
tax credits will become available
over seven years for additional priva te inves tment into the economic
development of low-and moderateincome communities fo llowing final
implementiltion of the program
parameters (expected in late 2001 ).
New Markets Tax Cred its (NMTCs)
are aimed to spur new investment
into priva tel y managed investment
programs that make loa ns and equity investments in eligible businesses
in distressed urba n, rural, and
Native American communities.
Continu ed on nex t page
-
ew Markets
Continued from previous page
The DepcHtment of the Treasury's
Community Development Financial
Institutions (CDFI) Fund has been
designa ted to ad minister the MTC
Program. The CDFl Fu nd is accepting applications from nonprofit and
fo r-profi t entities for certifica tion as
a Com muni ty Development Enti ty
(COE) throu gh wh ich the ta x cred its
will be distributed. A CDE must
have as its primary mission serving,
or providing investment ca pital for,
low-income communities or lowincome persons. Pri vate investors
making qualified invesh11ents into
C DEs w ill be eligible to receive tax
,
•-', • ... , ...~~~1(;;,:
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-
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7
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..
credits alloca ted to the particular
CDE. The alloca tion process wi ll be
competitive, with priority given to
organi za tions w ith successful track
records.
The COE may distribute the tax
cred its to its in vestors. The tax credits will be claimed by investors over
a seven-yea r period. Investors will
receive 5 percent of the investment
for each of the first three yea rs and
6 percent for each of the remaining
fo ur years. The accu mulated stream
of tax cred its will total 39 percent,
w ith a present va lue of approximately 30 percent. Expectations arc that
the progra m will mirror the success
...,
~
•
•, l
"!
•"7
•
.•
•
of the Low Income Housing Tax
Cred it l~rogram, which has spurred
substantial growth in the development of affordable housing since its
in ce ption . ♦
For .idditional information, \'bit
\-vww.treas.gov / cdfi/
programs / newmarkets/
index.html
New Markets Venture Capital Company Spotlight
The aim of this initiative is to assist smaller businesses, but the endeavor is no sma ll business itself. One
conditionally approved NMVC compa ny, The Southern Appalachian Fund, LP., is attracting $5 million in
ca pital to be ma tched accordi ng to NMVC Program parameters at 150 percent throu g h SBA-issued debentures to create a $12.5 million venture capital fund . Another $1.5 million is being raised to be matched
dollar-for-dollar by the SBA to fund operational assistance to the Fund's portfolio companies and market the
program to the target geogra phy.
TI1e Fw1d is an equal general parhlership between the Kentucky Highlands lnvesh11ent Corporation and
Technology 2020 Finance Corporation, both experienced small business development entities with established performance in the targeted geography. As a conm1unity development venture capital fund , The
Southern Appalachian Fund w ill promote economic development and the crea tion of wealth and job opportunities in low-income and under-served geogra phic areas in southern Appalachia by providing access to
ca pital throu gh equity for seed, ea rl y-stage, and grow th companies.
Hank Helton, Assistant Fw1d Manager, says that initial fundin g for portfolio companies is projected to range
from 250,000 to $750,000. TI,e Fund has coordinated an assessment team that w ill review potentia l business
investment opportunities fo r viability and eligi bili ty fo r fundin g. Helton ex pects the majori ty of business
growth supported by The Southern Appalachian Fund to be in the telecommunications, information technology, and manufacturing industries. 1--Ie says that the Fund will meet an id entified venture capital gap in
the target markets, particularly in low-income geogra phies.
Investment in The Southern Appalachian Fw1d, LP. will be attracted from va rious industries and individuals, including financial institutions fo r which these wi ll be quali fied comrnwi.i ty development invesh11ents
under the Community Rei.nvesh11ent Act. Investments also stand to qualify for ew Markets Tax Credits if
such credits are alJocated to the Fund as a Communi ty Development Entity under that program. The minimum subscription from investor-lini.ited parh1ers is $100,000 with 10 percent nt of the ca pital commih11ent to
be delivered at the closing of the Fund, with subsequent dra w-downs by the Fund on an as-needed basis.
For more information, ca ll Technology 2020 at 865 / 220-2020.
Fn/1 2007
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Federa l Reserve 81111k of At/1111t11
8
Unique Solutions for Special
Needs Housing
By Janet Hamer
When communities cons id er the
needs of its disabled citizens, particularly the d evelopmentally disabled , it is often in the context of
social services. The rea lity is that
disabled indi viduals and their
famili es ha ve the sa me basic
needs as all of o ur ci ti zens, including afford able housing a nd economic opportunities to lead selfsufficient li ves.
Grove House, a Jacksonville,
Florid a nonprofit orga niza tion,
was formed in 1993 by a small
gro up of committed indi viduals,
m any of w hom had fam il y members wi th disabilities. It has since
evolved into being the primary
provid er of housing o ppo rtunities
in northeast Florida for ad ults
w ith developmental and acquired
disabilities.
In 1998, Grove House Executive
Director Shari Weitzner
approac hed the City of
Jacksonville's Housing Servi ces
Division and the Duval County
Hou sing Finance Authority with
the idea of providing ind ependent
living in a group setting fo r the
special need s clients tha t are
served by Grove Ho use.
Out of this pa rtnership evolved an
ongoing prog ram to prov id e second mortgage assista nce to purchase single fam ily houses fo r use
as small ind epend ent li ving
hom es. The second m ortgages
were provided in the form of forgivable g rants. Sources included
Sta te of Florida SHIP (Sta te
Hou sing Initiatives Pa rtnerships
Program) fund s a nd the city's fed erall y funded HOME prog ram.
First Allia nce Bank, a loca l thrift
Partners in Comm unity
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
institution, has provided first
mortgages for the purchase of 10
single-famil y homes. David
Strickland , president of First
Allia nce Ba nk, has stated tha t in
addition to the bank providin g
housing oppo rtunities for peopl e
in its community., the loa ns made
sound business sense because the
second mo rtgage subsidies
all owed the bank to have a 60 percent loan-to-va lue position .
The CASA (Conve nient, Affo rd able, Sa fe, Attractive) progra m
provid es affordable rental housing
convenient to public transportation and employment in sa fe,
si ngle-fami ly neighborhoods.
Twenty-seven clients are now residents of the houses. Rents a re
d etermined on a sliding sca le
based on income a nd range from
$200 to $225 a month.
The Florida Developmental
Disabilities Council has desig nated Grove House as a state demonstration site to d evelop affordable
hou sing progra ms for individu als
with developmental a nd acq uired
d isabilities. A tota l of $55,000 has
been ea rmarked to fund operatio nal expenses over a two-yea r
period for the program . Ad ditionall y, the Florida Hou sing Coa liti on
awa rd ed Grove House an "Award
of Specia l Recognition" fo r outstand ing ac hievement in crea ting
community based housing o pportunities for Florid ia ns.
The newest housing prog ram to
be implemented by Grove Hou se
is a ho meow ners hip progra m .
The Florida Developmental
Disabilities Council has fund ed a
and Economic Development
facilitate affordable homeownership o pportunities for individuals wi th developm ental disabilities. As a result of thi s g rant,
Grove House crea ted a userfri endly training manu al to assist
in the homeownership process.
Informa tion in this m anua l is
being presented at a cu stomized
training course offered by
Jackso nville Consumer Cred it
Counseling Services. Eighty p ersons a re either enroll ed or sched uled to be enrolled in this course.
Another cru cial compo nent of
the o rganization's mission of
enabling the developmentally
disabled to lead produ ctive,
dignified and ind epend ent lives
is economic self-sufficiency. A
suppo rted employment initiative
is und erway to assist clients to
be successfull y integrated into
the work force. N inety percent
of the Grove House clients are
ei ther employed in the private
secto r or a re enroll ed in training
for employment.
Grove House has taken an innovative a pproach to addressi ng
the need s of the developmentally
disabled that looks beyond the
con text of social services. By
fo rming stra tegic partnerships,
the orga ni za tio n is providing
uniq ue opportu nities for these
indi vid uals to obtain selfsufficiency and lead prod u ctive,
ind ependent liv es. ♦
OneGeorgia Authority:
Bridging Georgia's Economic Divide
By Sibyl Howell
Sibyl Howell, Co111 1111111 ity In ves tm ent Adv isor, is in tl, e A tlanta office and serves th e state of Georgia.
OneGeorgia Autho rity is the latest
loca l a nd regio nal econo mic d evelo pment tool crea ted to address
Geo rgia's econo mic di vid e.
Crea ted by Governor Roy Ba rnes
a nd the sta te legisla ture, the
Authority wi ll utilize o ne third of
Geo rgia' s Na tio nal Tobacco
Se ttlem ent to assis t the most economica lly challenged areas in the
sta te.
Ano ther $'IO million is d evoted to
wa ter a nd sewer loa ns approved
fo r Tier 1 a nd Ti er 2 counties
through the Geo rgia Environ mental Facilities Authority (GEFA) .
Application Process
OneGeorgia Autho rity anti cipates
spend ing $1.6 billion o n inves tme nts in 71 of Geo rgia's poo rest
counties ove r the 25-year term o f
the settlem ent. OneGeorgia's
investments will be in tier 1 a nd
tier 2 counties, based o n a four-ti er
job tax credit ma p d eveloped by
the Geo rgia Departme nt of
Community Affairs (DCA). These
tiers a re ranked based on unemployment, pove rty ra tes, a nd pe r
ca pita income.
OneGeorgia 's funding also
incl ud es two pri mary components:
na mely the EDG E Fund a nd the
Equ ity Fund. Both fund s were
all oca ted $10 million each to help
eligible muni cipalities th rou g hout
the sta te add ress economi c d evelo pment issues. The Equity,
Growth a nd Expa ns ion (E DGE)
Fund prov id es financial assista nce
to eligible a pplica nts tha t a re being
consid ered as a reloca tion or
ex pansion site a nd a re competing
wi th another state fo r loca tion of a
project. The Equity Fund wi ll provid e fundin g to Tier 1 and 2 communities to help bu ild the necessary infras tructure for economic
d evelopme nt.
FY 2001 Program Funding
Eligibility Requirements
On October 6, 2001 , the
OneGeo rgia Autho rity Boa rd
a pproved a $62 milli o n bud get fo r
the fiscal year. A total of $9 million
was a lloca ted to a reserve account
w ith the remaind er d esigna ted for
fiv e sepa rate fund acco un ts. The
Flin t Ri ver Dro ug ht Pro tection p rogram was alloca ted $10 millio n to
compensa te farm ers in the Fli nt
Ri ver Basin a rea fo r losses incurred
when they agree to forgo irriga tion
during a d ecl a red d ro ug ht yea r.
Anothe r $13 million is bud geted
for additio nal assista nce to the
tobacco farm ers beyond that p rovided throu g h the tobacco settleme nt, w hich wi ll assist in a ttracting addi ti onal fed eral d ollars.
Eligible applicants fo r the Equity
a nd EDG E fund s are cities, counties, government authorities and
joint or mu lti-county d evelopment
a ut horities. Eligible uses of EDGE
fund s a re the d evelopment of public infras tru cture, la nd acq uisition
a nd site d evelopme nt. The Equity
fund regulatio ns were writ ten to
be very broad and fle xible a nd ca n
be used fo r a va ri ety of ac ti vities to
assist in prepa rati on fo r economic
develo pment. Eligible projects
incl ude traditio nal econo mi c
d evelopme nt projects such as
wa ter and sew er projects, road , rail
a nd airpo rt improvements a nd
industrial parks as well as wo rkfo rce d evelopment projects, tech-
Fall 2001
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
nology d evelopme nt o r to uris m
d evelo pment pro posa ls. Special
consideration is give n to p rojec ts
of regional significa nce.
The OneGeorgia Autho rity will
accept EDG E applica tio ns o n a n
ongoing basis. The Equ ity Fu nd
will be awa rded o n a compe titi ve
basis three times a yea r o n
Ma rch 30, Jul y 31, a nd ovember 30. Since limited funding is
ava ilable thro ug h bo th programs,
projects s hould be conside red fo r
other sources of fund s before
appl yin g fo r assis ta nce. In addition, fun d ing w ill be tied to p erfo rmance-based criteria.
To date, the EDG E p rog ra m has
awa rd ed over $5 millio n to seven
projects. The projects fund ed a re
projected to crea te 1,754 new jobs
a nd retain 300 ex isting jobs
th roug h the creatio n o r ex pa ns io n
of businesses in the s ta te. There
have been two round s of competitio n fo r the Equity Fund w ith a
total of 30 projects awa rd ed
approxima tely $11 .4 million in
loa ns a nd g ra nt s. ♦
Fo r mo re d etails about the
O neGeorgia Autho rity Fund ing o r
to view the county ti er map visit
their website a t
www.onegeorg1a .org
Federa l Reserve Bank of A tlanta
10
The Greater New Orleans
IDA Collaborative
By Nancy Montoya
a11cy Mo 11toya, Co1111111111 ity l11vest111e11t A dv isor, is i11 the
Americans have long been encouraged to gain self-sufficiency throu gh
prog rams that promote wealth accumu lation. The Individ ual
Developmen t Accou nt (I DA ) was
born from the idea that low-income
workers could achieve better access
to homeownership, post-secondary
edu ca tion, and self-employm ent
opportunities by building assets
throug h saving.
IDA programs incent participants to
save by providing matching fund s.
With the cooperation of severa l loca l
partners, the Greater cw Orleans
!DA Collaborative is realizing significa nt results as both an anti-poverty
and community empowerment
strategy.
In 1997, the Tula ne-Xavier Na tiona l
enter for the Urban Community
and eighborhood Housing Services
of ew Orleans launched pilot IDA
progra ms targeting residents of public housing. Both organi za tions
enlisted the support of Hibernia
Na tiona l 13,rn k to estab lish the reside nts' savi ngs accou nts and assist
with financial literacy training.
Soon, United Bank and Trust joined
the effort, a nd thus the Greater New
Orleans !DA Collabo rati ve
(Collaborative) came into being.
The Collaborative is now comprised
of over 35 members, including service providers, foundations, housing
counseling agencies, commun ity
action agencies, public housing
authorities, a nd other committed
entities. Its objectives arc threefold :
(1) to share with members the cxpc~
rience and expertise of existing progra ms, (2) to develop hu man, fi nancial, and infrastructure resources for
their members and, (3) to expa nd the
Pnrt11ers i11 Co1111111111ity
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ew Orlea 11s ura 11c/1 a11d serves so11tl1em Lo 11 is ia11 a a11 rl M ississippi.
number of !DA programs, service
providers and referrals throu ghout
the region.
Initial fu nd ing for the ollaborativc
was provided by a $195,000 AH P
gra nt throug h the Federa l Home
Loan Bank of Dallas. I libcrnia,
nited Bank a nd Trust, and Whitney
ational Bank are providing savings
accounts and ma tchi ng funds . In
addition, the Collaborati ve was
a wa rd ed an Assets for Independence Act (AFIA) demonstration
grant throug h the U.S. Depa rtment
of Hea lth and Huma n Services that
provides a ·1:1 match to private and
non-federal dollars.
To date, the group has raised
$175,000 in non-federa l funds, which
ca n be ma tched with AFIA dollars.
"We like to ca ll this a process, not a
progra m," says Donna Darcnsborg,
the Collaborati ve's coordinator.
"We're in this to change li ves by
usi ng edu ca tion as a mea ns to help
poor fam il ies work their way ou t of
poverty."
The process begins w hen a participating member refers an interested
person to the Collaborati ve. The
first step after determining eligi bility
is to insure that a qualified credit
counseling agency obtains the
client's cred it report from the three
credit reporti ng agencies, reviews
the reports in person with the cl ient,
and a long w ith the cl ient develops a
bud get and credit repair action plan.
With these documents, the detailed
application form and copies of
income documentation in hand, the
cl ient meets with Ms. Darensborg to
review their responsibi lities and
establish a savings account with a
parhier ba nk.
n11d Eco110111ic Develop111e11t
All participants are required to adhere
to certa in requirements of the program: stick to a monthly savings
deposit goa l, resolve any cred it issues,
a nd a ttend 12 hours of financia l li teracy train ing. Also, the
participant m ust complete "asset-specific" training based on their specific
goals, such as homeownership training, sma ll business planning, or a
counseling session w ith a career planner at the school of their choice. At
the end of a ·12-to-24 month process,
the client should be "read y, willing
and able" to achieve their asset-building goals.
Since its inception in October 2000,
the Collaborative has enrolled 160
participan ts and anticipa tes meeti ng
its one-year goa l of enro ll ing 180 famil ies. Eight families have purchased a
home so far, with another 12 not too
far behind.
"We know how difficult it is to
develop low-income homcbuyers
without partnerships like the
Collabo ra ti ve. No t only is it a critica l
commu nity development tool, it's
a lso a business development strategy
for our affordable housing goals,"
says Bernadette Johnson, mortgage
ba nker with United Bank and Tru s t. ♦
For more information please refer to
the GNO ID/\ website at www.frec-
man.tulanc.edu /
lri / lOA / IDA_AP_main.hh11I.
I I
FHLB Predevelopment Fund Helps
Members Support Nonprofit
Development Projects
By Keenan Conigland of the
Federal Home Loan Bank of Atlanta
The most difficult part of many
endeavors is getting sta rted. Often,
nonprofit organizations that want to
sponsor affordable housing and
rea l-estate based community
economic development projects sec
their plans falter fo r lack of fund s to
cover initial expenses. To encourage
member institutions to increase their
participa tion in eligible projects,
the Fed eral Home Loan Bank of
Atlanta (FHLBA) has created a new
51 million Prcdevelopmcnt Fund that
allows them to provide up to
$100,000 per project for certain startup expenses.
"The Bank expects that these fund s
wi ll encourage members to form
parh1erships with other public and
private institutions throu ghout the
district as well as help provide needed housing, services and jobs to these
communities," says President and
CEO Ray Chrishnan. Members will
be in a better position to provide constniction and permanent financing to
projects that have used the
Prcd evelopmcnt Fund because the
project will be able to demonstrate
that it is feasib le, marketable and
financially sound .
Recoverable Grants
To minimize risk, Pred evelopment
Fu nd money is disbursed as recoverable g rants to FHLBA member institutions, which will in turn disburse
the fund s as g rants, recoverable at
completion of construction and / or
throu gh permanent fin ilncing. If the
grant is used to acquire property that
is subsequently sold, the proceeds of
the sa le must be applied to repayment. The maximum $100,000 grant
amount may not exceed 75 percent of
the total eligible predevelopment
expenses.
Fall 2001
https://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Upon recovery, the funds roll back
into the Predevelopment Fund, making it a revolving source of capital.
However, if the project never receives
construction or pern1anent fina ncing
and docs not go fon-vard - throug h no
fa ult of the sponsor- the g rant will
not be recovered. If the FHLBA determines that the sponsoring orga ni zation has not mad e a good faith effort
to complete the project, the gra nt will
be recovered.
Intended Projects
FHLBA's intent is to enable member
financ ial institutions to assist projects
that may qualify for its Affordable
Housing Program (A l-IP) a nd its
Economic Development and Growth
Enhancement (EDGE) progra m. Al-IP
is a competitive program tha t provides subsidized funding for singleand multi-family households with 80
percent or less of area media n income.
The FHLBA alloca tes 10 percent of its
net profits annuall y for AHP
EDGE makes it possible for the
FHLBA to lend money to members at
subsidized interest rates, for eligible
projects such as childcare centers,
hea lthcare faci lities, recreationa l fa cilities, small business incubators, microloa n fund s, grocery stores, job training
fac ilities, community centers and bu sinesses that create jobs that pa y livable
wages and offer benefits.
Exel usive Nonprofit Sponsorship
Because they typically don' t have the
equity or the resources to cover startup costs, nonprofit organi za tions arc
the exclusive recipients of Prcdevelopment Fund grants. But they must
demonstrate a strong track record or
have a guarantee from a pu blic entity,
and their projects must be loca ted in
the FHLBA's district. Nonprofits that
want to apply for Predevelopment
Fund grants must have successfu ll y
completed at least two real estate
development projects within the last
five yea rs. Those who don' t have that
level of experience may qualify if they
ca n demonstrate that the development team ca n provide orga ni za tional
and financial management expertise.
To determine the fea sibility of a housing or economic development project,
applican ts will have to demonstrate
both their development ca pacity and
the financial feasibility of the project.
Attracting Partners
Grants from the Predevclopment
Fund should levera ge funding from
other sources; they are not intended to
be the exclusive source of funding for
the fu ll range of predevelopmcnt
expenses. "A Predevelopment Fund
g ra nt ca n be used to get other community parh1ers to put up matching
fund s when they' re interested in what
the nonprofit is doing, but ca n' t put
up all the soft, or up-front money
themselves," says Arthur Campbell,
vice president of economic development in the Communi ty lnveshnent
Services (CIS) d ivision,"
The Predevclopment Fu nd represents
an innovative ilpproach to utilizing
resources to jump-start viable projects
in economically distressed communities. When used in conjunction with
other development fin ance tools, it
can help generate transformationa l
economic activity-the kind of activity that improves the quality of life for
local res id ents. ♦
Further in formation and applications
for the Predcvclopment Fund arc
ava ilable on Fl IBLA's website a t
www.fhlbatl.com .
frdcm l Reserve Bn11k of Atln11tn
V ICE PRESll ) I.C:NT
l-{017 Zirnrncrrnall
2002 Community Reinvestment Conference
San Francisco, California,
January 30 - February 1, 2002
Brochures were mailed in October. To receive a copy,
call Bruce Ito at 415/974-2422. If you have questions
regarding the conference agenda, please contact Lena
Robinson at 415/974-2717.
1.0:D ITOR
Wc1ync Srn it ll
,\ SSOCJ;\ TE L:.l)JTOR
JC!lllifcr Grier
Free subscription and additional copies
a re avai lable
upon
reques t
to
Commu n ity Affairs, Federal Reserve
Bank of Atl a nta , 1000 Peachtree St. , N.E,
Atlanta , Georgia 30309-4470, or e-mai l us
a t Partners@atl.frb.org or ca ll 404 / 4987287; FAX 404 / 498-7342. The views
ex pressed are not necessa rily those o f th e
Federa l Reserve Bank o f Atlanta or the
Federal Reserve System . Materia l may
be reprinted or abstracted provid ed that
Partners is credited and provided with a
copy of the publication.
Printed on recycled paper
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I OCX) Peaclltrcc S tree t . NE
,,-\ tl a nt a. Georgia 30309-44 70
Pnrtners
in Community
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Federal Reserve Bank of St. Louis
nnd Eco110111 ic Development
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