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President's Speech
Speech to the Greenlining
Institute’s 14th Annual Economic
Development Summit
Los Angeles, California
By Janet L. Yellen, President and CEO, Federal Reserve
Bank of San Francisco
For delivery April 19, 2007, 12:50 PM Pacific, 3:50 PM
Eastern
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PDF Version (26KB)
Community Development: Opportunities in Low-income and
Minority
Communities
Good afternoon, everyone. I’m Janet Yellen, President
and CEO of the Federal Reserve Bank of San Francisco. I would
like to thank Greenlining for inviting me to speak at this
year’s Economic Summit. Before I begin, I would just
like to add my own words of congratulations to Luis Arteaga,
Erin Pak, and Cory Jasperson. It is heartening to see their
commitment to improving the well-being of low-income and
minority communities, as well as to hear about the range
of innovative strategies and programs that are needed to
accomplish lasting change.
In my remarks today, I would like to speak to the theme
of this year’s summit, “seizing the opportunity.” The
focus on opportunity is an important one. Since its inception,
Greenlining has worked to reframe how financial institutions
view low-income and minority communities, arguing—often
passionately—that these markets represent a true business
opportunity and not just a regulatory obligation.
This emphasis on “opportunity” mirrors a broader
shift in the field of community development as a whole. Slowly—and
perhaps not yet universally—community development strategies
are evolving to focus on community assets rather than on
community needs. In other words, instead of framing a neighborhood
by its problems, such as high crime rates or disinvestment,
the community development field has begun to emphasize the
sometimes hidden assets of low-income neighborhoods, such
as the market potential and untapped purchasing power of
inner city residents, historical architecture, unique small
businesses, and talented local entrepreneurs. As Chairman
Bernanke noted in his Greenlining speech last year, quantifying
these assets and helping investors become aware of the opportunities
in underserved neighborhoods can help to enlist market forces
in the service of community development.
How is this focus on community assets different from community
development efforts thirty years ago? Since I don’t
have time today to go into a detailed history of community
development, let me just illustrate how this shift in thinking
can spur very different models of inner city revitalization.
As many of you know, downtown Los Angeles has undergone
an incredible transformation over the past eight years. What
you might not know, however, is that where we stand today—the
Bonaventure Hotel—is located within the Bunker Hill
redevelopment area, the
site of one of the largest urban renewal projects in the
country’s history. Once the
home of the very rich, Bunker Hill fell into decline in the
1920s and 30s, and the neighborhood’s elegant mansions
were converted into apartments to house low-income families.
By the 1940s, 99 percent of the units in Bunker Hill were
tenant occupied, many without running water, and the incidence
of crime and disease in the neighborhood was among the worst
of any area in Los Angeles. By
1955—after several
attempts to attract private investment failed—Los Angeles
city planners were convinced that only a massive infusion
of federal
dollars and an ambitious top-down redevelopment strategy
would be able to reverse the decline. The solution to the
problem of Bunker Hill was to remove it. Once the
redevelopment plans were in place, the Chairman of the Community
Redevelopment
Agency boasted, “The Bunker Hill redevelopment project
promises to become one of the biggest and most important
slum clearance projects in the West.” It took thirty
years—and for much of this time the land stood vacant—for
the Community Redevelopment Agency to develop L.A.’s
commercial downtown, including the Union Bank building, the
Pacific Telephone and Telegraphic building, California Plaza,
and the Bonaventure Hotel.
Urban renewal in Los Angeles did transform dowtown L.A.,
and ultimately contributed to higher property values in
the city. But, in hindsight, it also incurred significant
costs.
More than 7,000 families were displaced as their homes
were destroyed to make way for commercial redevelopment in
the
area. Moreover, these commercial buildings were not enough
to create a new vibrant neighborhood or stem the flight
of businesses and families from the inner city. By the mid-1990s,
downtown Los Angeles faced high office vacancy rates, problems
with poverty and homelessness, and deserted streets at
night.
In contrast to this top-down approach, the current transformation
of downtown Los Angeles is driven from the bottom up—by
local government working with the private sector, residents,
nonprofits, and local entrepreneurs—all of whom are empowered
by new resources to capitalize on their ideas and unlock
the economic potential of this community. For example, rather
than tearing down the old commercial buildings, this strategy
relies on infill development and the adaptive reuse of historic
buildings for new housing units. Investors are supporting
local entrepreneurs and providing private equity to inner
city businesses. Nonprofit organizations and community development
financial institutions are helping to incubate new businesses
by providing technical assistance and small business loans
to low-income and minority entrepreneurs.
Equally notable are local efforts to ensure that downtown
residents benefit from these investments. The Staples Center
Community Benefits Agreement sets an important precedent
for how local government, private developers, and community
groups can work together to promote equitable development.
Among other features, the Agreement ensures that 20 percent
of new housing units in the project area will be affordable
to low-income households, and stipulates that 70 percent
of the jobs at the new center pay a living wage. The Agreement
also provides for preferential hiring treatment to local
and displaced residents.
While these two different vignettes greatly over-simplify
the complex realities of redevelopment, I hope that this
brief exercise in “comparing and contrasting” does
illustrate how much the model of inner city revitalization
has changed over the last 30 years. It also points to how
much the financing of community development has changed.
Whereas early efforts at urban renewal were funded largely
by centralized federal grants, today’s community development
projects are more likely to be financed by a combination
of public and private dollars. The Low Income Housing and
New Markets Tax Credit programs, for example, both reflect
a shift in the federal government’s role in community
development. Instead of providing funds directly to neighborhoods,
these programs encourage private investment by offsetting
risk through tax incentives. The community development finance
field has also become extremely innovative in the way it
secures both equity and debt financing, and has brought a
much wider range of investors, lenders, and funders to the
table. Today, you have government investing alongside banks,
pension funds, and venture capitalists, all looking at ways
to develop the assets that are present but underutilized
in low-income neighborhoods.
Despite these innovations in community development finance
and the shift to a “bottom-up” strategy, the
lessons from the past should also caution us against thinking
that the road ahead will be easy. While these new approaches
hold much promise, Los Angeles must still contend with difficult
issues such as homelessness, education, workforce training,
and additional affordable housing for low- and moderate-income
families. Substantial gaps in access to credit and capital
also remain. To provide just one example, research studies
suggest that minority-owned small businesses have a harder
time getting access to credit than other businesses, even
after controlling for a wide variety of factors related to
creditworthiness. Finding new ways to help connect capital
with viable investment opportunities in these underserved
markets is critical for an asset-based approach to community
development to work. At the San Francisco Fed, the Center
for Community Development Investments is conducting research
and holding conferences to explore ways to improve access
to capital for community development, for example, by securitizing
community development loans, expanding the availability of
community development venture capital, and overcoming information
barriers to investment in emerging domestic markets like
downtown L.A.
In bringing my remarks to a close, I would like to underscore
how important your efforts are to the strength of the communities
across the country. I encourage you to continue working
together to help provide increased economic opportunity in
your communities,
and I wish you the best of luck in your efforts. I am confident
that the ideas and partnerships that you develop in forums
like these will help to answer the critical challenges
facing the community development field. Thank you.
1. Chairman Ben S. Bernanke
(2006). “By the Numbers: Data and Measurement in Community
Economic Development,” speech to the Greenlining Institute's
Thirteenth Annual Economic Development Summit, Los Angeles,
California (via satellite), April 20, 2006.
2. For maps and information about the
Community Redevelopment Agency of the City of Los Angeles
project areas, including Bunker Hill, visit http://www.crala.org/internet-site/Projects/index.cfm.
3. Mara A. Marks (2004). “Shifting
Ground: The Rise and Fall of the Los Angeles Community Redevelopment
Agency,” Southern California Quarterly 86(3), p. 247.
4. Ibid., p. 261.
5. More information about
the Community
Benefits Agreement along the Figueroa corridor.
6. For a review of these studies, see Michael S. Barr (2005). “Concluding
Remarks,” paper presented at the Conference on
Entrepreneurship in Low- and Moderate-Income Communities,
Federal Reserve
Bank of Kansas City, November 3-4, 2005.
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