Profitwise News and Views

September 2003 Issue

Seeds of Growth Conference Summary

Seeds of Growth Sustainable Community Development: What Works, What Doesn't, and Why

Conclusion
This year's research conference made significant inroads into measuring the effectiveness of community development programs, strategies and tools. Authors Hirad, Zorn, Elliehausen, Lundquist, and Staten presented results indicating that financial education and counseling has a favorable impact on consumer financial behaviors. Their work shows that after appropriate, targeted counseling, consumers tend to save more, default less, and reevaluate their investment goals.

Research into housing issues showed that control of litter, abandoned buildings, and other symptoms of blight positively affects rates of homeownership in communities. Programs such as foreclosure intervention serve to promote neighborhood stability. Housing development similarly improves communities. However, it was noted that communityâ€“based organizations cannot meet demand at this time.

On community development partnerships, the paper by Tranel and Gasen concludes that partnerships can succeed given well-defined and balanced roles for each partner. Presence of a dominant partner (e.g., as recipient of funds) can undermine the partnership. The research of Bright identified an opportunity to redevelop publicly owned but dilapidated buildings obtained through tax foreclosures and other means in partnership with private enterprise.

Some conference papers examined public policy's role in neighborhood development. CDFIs, Enterprise Zones, and other government interventions have facilitated community development in low- and moderate-income communities directly and with some ancillary benefits. Questions arise concerning scale, cost, and capital needs for sustainability. The design and orientation of government programs may also steer funds away from intended (type) projects or to projects that do not require subsidy.

Research examining the various ways that CRA and CRA agreements impact communities suggested that lending to underserved communities increases as a result of CRA and CRA agreements. Moreover, technical assistance and credit counseling were found to be key components in making CRA agreements more effective.

In the international and ethnic areas, research revealed that cultural affinity, underwriting flexibility, and counseling favorably impacted lending in ethnic communities. Toussaint-Comeau and Newberger explored these ideas in their paper examining Hmong entrepreneurs in St. Paul, Minnesota, and their efforts to finance their businesses. Another important characteristic of effective community development lending, whether in the U.S. or abroad, is program design that takes into account the educational, organizational, and legal infrastructure of the country or region where the lending is taking place. Paulson examined community development banks in Thailand, where, at least in remote rural areas, a carefully adapted banking system pervades. The virtual lack of a (bank) regulatory infrastructure in these areas, and no resources to create one, has given rise to a simple but rigid system of saving and financing. It is a system that all parties understand, however, and as such is sustainable and amenable to oversight by the village as a whole.

The research showed the potential for carefully constructed strategies and tools to increase credit and services to low- and moderate-income populations. While there is no universal model, and some techniques are more labor intensive than others, these findings set the stage for others to build on. Further, carefully orchestrated research, built upon these and similar findings measuring effectiveness of community development programs and strategies, will inform policy makers, lenders, and community development practitioners to help put available resources to their most efficient use.

Conference summary written by:
Jeremiah P. Boyle is a community affairs director in the Consumer and Community Affairs division of the Federal Reserve Bank of Chicago. Mr. Boyle provides technical assistance to financial institutions and community groups to promote community and economic development. Prior to joining the Fed, he was an Assistant Commissioner of Planning and Development for the City of Chicago. Mr. Boyle holds an M.B.A. from North Park University, a Master of Urban and Regional Planning degree and a B.A. in Political Science from the University of Illinois at Urbana Champaign.

Steven W. Kuehl is the consumer regulations director for the Consumer and Community Affairs division of the Federal Reserve Bank of Chicago. Mr. Kuehl served as a senior examiner with the Federal Reserve Bank of Chicago, and later managed a technical advisory service program targeted to banks in the Seventh Federal Reserve District. Prior to joining the Fed, he was an examiner for the Office of Thrift Supervision. Mr. Kuehl earned a B.S. in Finance and Economics from Carroll College, and a Juris Doctor degree from Chicago Kent College of Law.