NEWS

New UNC study reveals problems with community development corporations, offers recommendations

By DAVID WILLIAMSON
UNC News Services

CHAPEL HILL -- The first systematic study of community development corporations that have failed, downsized or merged indicates that such problems appear to be widespread nationally and deserve greater attention from researchers, policymakers and people connected with those organizations.

"Community development corporations (CDCs) are key vehicles for providing better housing and promoting development in low- and moderate-income neighborhoods," said Dr. William M. Rohe, professor of city and regional planning at the University of North Carolina at Chapel Hill. "In neighborhoods where the loss of private businesses has often been endemic and where private and even public investments may be extremely low, CDCs provide housing and create jobs and economic opportunities for residents."

But in recent years, many have failed or faced other difficulties, said Rohe, director of the UNC Center for Urban and Regional Studies. One of the most dramatic examples was Indianapolis’s East Side Community Investments, which was among the country’s largest and most celebrated CDCs. Between the early 1990s and1997, its staff dropped from 115 to six, and it closed in October, 2001.

Rohe and colleagues wanted to find out how that could happen.

Overall questions they asked of knowledgeable sources included whether CDC failures, downsizings and mergers were isolated incidents or were part of a more general nationwide pattern.

"We also wanted to know what factors led to the problems CDCs experienced, how those problems affected their communities and what policies and other actions were needed to respond to them," he said.

The group first identified a large number of CDCs that had faced difficulties and selected six for in-depth study, the professor said. They found 103 organizations that underwent one of the three changes, including 46 failures and 41 downsizings.

Failed organizations examined in detail were the Community Development Corp. of Wisconsin in Milwaukee and Whittier Housing Corp. of Minneapolis. Downsized groups were the Oak Cliff Development Corp. of Dallas and Advocate Community Development Corp. in Philadelphia. Slavic Village Development in Cleveland and Albina Community Development Corp. in Portland, Ore., were chosen as case studies for mergers.

The team also selected similar organizations for comparison and conducted three-day site visits in each city to interview current and former executive directors, staff, board members, city officials and others.

"We found six contextual factors that were important, " Rohe said. "For example, weakening of local housing markets in cases like Milwaukee’s reduced the demand for CDC housing and created financial problems, while in other cities, stronger markets made it harder to acquire property for development."

Also, he said, growth in the number of CDCs led to heightened competition for public and private resources and led in part to downsizing in Dallas and Philadelphia and mergers in Portland and Cleveland. Changes in local city policies for distributing money prompted funding cuts in Milwaukee and Minneapolis.

Other important influences were pressures from funders to take actions that became counterproductive in some way, lack of effective local support in the political process and insufficient trust among key players, Rohe said.

Six organizational factors also contributed to the disruptions studied, he said.

Sometimes, excessively narrow "missions" created troubles such as in Dallas where a focus on single-family homes left the organization vulnerable to shifts in funding to multifamily rental housing. Over-reliance on a single source of funding, such as in Milwaukee, fostered financial shortfalls when cities cut back money for housing units.

"A third organizational factor involved internal management problems, which were cited in both failures, both downsizings and one merger," Rohe said. "Those included poor financial projections, cost control and accounting, inadequate tenant screening and eviction procedures, lack of maintenance and not enough social support services."

Researchers found excessive turnover among executive directors and other employees because of higher pay elsewhere and poorly balanced or passive boards that included few community residents or did not adequately monitor the CDC’s financial health. Another problem was poor communications between executive directors and boards, funders and city officials or politicians. Still another issue was a lack of strong and continuous community support.

"We found CDC failures and downsizings can undermine both public and private sector confidence in CDCs as effective providers of affordable housing and other services," Rohe said. "They can reduce production of affordable, decent housing, contribute to neighborhood instability and produce fear, confusion and distress among inhabitants of the properties involved."

Overall, unlike failures and downsizings, mergers tended to have positive effects such as improving capacity, fundraising and community organizing, he said.

Eleven recommendations grew out of the study. Among them were that CDCs and their supporters develop and revise strategic plans periodically, diversify activities and funding sources and work hard to maintain community support. They also should work closely with social service agencies, create citywide support and trade organizations and enhance mutual trust by participating in collaborative projects.

In addition, city and state policymakers should provide adequate operating support and assess the impact of proposed policy changes on CDCs, Rohe said. Funders should create realistic performance standards, provide help in meeting those standards and help organizations going through funding boosts or cuts.

"Finally, we recommend that CDC support communities provide enough opportunities for staff and board training to increase retention of key staff," he said. "Since communication problems played an important role in the organizational changes experienced in five of the six cases studied, it is important to identify and acknowledge problems as they arise and not allow them to fester."

Co-authors of the report are Dr. Rachel G. Bratt of Tufts University and Dr. Protip Biswas of the Enterprise Foundation. The Fannie Mae Foundation supported the research.

Created in 1957, the UNC Center for Urban and Regional Studies is a multi-disciplinary research center focusing on issues and problems that U.S. cities and regions face.

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Note: Rohe can be reached at (919) 962-4769.
Contact: David Willliamson, (919) 962-8596