Challenges of Financing Equitable Community Development

May 29, 2019

People in Neighborhood Park Sketch

Revitalizing struggling communities takes money. But getting funds and resources where they are needed, and quickly, cannot always happen within today’s capital system. Could more flexibility be the key to driving real regional change?

We asked participants in the Strong, Prosperous, and Resilient Communities Challenge (SPARCC) for their thoughts. Please note: The San Francisco Fed is one of four nonprofits implementing SPARCC in six regions across the United States.

A central hypothesis of SPARCC, when it rolled out, was that flexible financing is necessary to encourage capital deployment and effect regional change.

All SPARCC participants agreed with the hypothesis.

However, our midcourse check-in finds that incremental changes within today’s capital system will not produce the flexibility that communities seek.

The emphasis on capital deployment within the first half of SPARCC surfaced important tensions between the aspiration for a deeply community-driven process and rigidity of the traditional capital system.

For example, consider the hottest real estate markets across the United States. Larger, established commercial developers are in the best position to purchase land quickly, increasing displacement risks. Community-driven projects, especially those aiming for equitable outcomes, are often:

  • Slower to obtain capital financing.
  • Challenged in funding the full scope of work, including strategy and organization.
  • Reluctant or unable to take on debt.

SPARCC respondents say:

“The disparity between what’s community-driven, community need, and power are strongest with capital deployment.”

“Site control and land are key issues. Being able to get out and buy land would be disruptive to the current system in a good way. We have the tools to hold it and redevelop it. The tricky part is getting the property.”

“We’re in a time crunch as land and construction costs keep increasing. We need to do this at a rapid pace, but the current process will not allow it.”

“We [the table] hear that capital in the form of debt is problematic. A lot of these communities have been through waves of predatory lending, so capital products based on debt don’t work for them. They’re asking for equity investments or recoverable grants.”

“We need a process that is flexible in the pursuit of financing. The process is hard; a barrier in itself. We need a flexible process for creating a financial model for a great idea—learning how to get in the door, knowing what the deal killers are.”

“Capital needs to fund different parts of the work: organizing, strategy, and real estate.”

ABOUT SPARCC FUNDING

SPARCC has a pool of financing available to support sites in the development of built environment projects that advance racial equity, health, and climate resilience.

Each SPARCC table has access to and control over $500,000 in allocated grant dollars. Grants may be used in conjunction with debt financing to maximize flexibility, leverage, and impact.

Other funding sources include program-related investments (PRIs)—low-interest, long-term loans to SPARCC lenders—and top-loss and shared-loss credit enhancement guarantee authority from SPARCC philanthropic funders that allow for greater flexibility in underwriting.

Visit the SPARCC hub for additional information about SPARCC and its funding.

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Strong, Prosperous, and Resilient Communities Challenge (SPARCC) is a three-year initiative with major funding by the Robert Wood Johnson Foundation, Ford Foundation, The Kresge Foundation, JPB Foundation, and The California Endowment. Four nonprofits form the partnership that implements SPARCC: Federal Reserve Bank of San Francisco, Enterprise Community Partners, Low Income Investment Fund, and Natural Resources Defense Council.

The views expressed here do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System.