A Local Perspective

Ellen Burzynski
Detroit Development Bancorporation

Respondents:
George Galster, Urban Institute
James Head, National Economic Development and Law Center
Charles Smith, Metro Toronto
Avis Vidal, New School for Social Research

Moderator: Bill Wilson, Center on Urban and Regional Affairs

Ellen Burzynski

I'm here not as an academic, but as a practitioner, in this business since 1968. It gets more challenging every day, and it is encouraging to see so many people here sharing the same concerns. My intention is not to provide you with any solutions, but just to help you understand one approach we are taking locally in addressing the issues of community disinvestment caused by social, racial, and economic change. We're doing community reinvestment. The problem of disinvestment starts with slowing capital reinvestment, sometimes in response to massive job loss, or white flight based on real or perceived racial or socio-economic change. People decide that their investment wouldn't bring enough of a return. Homeowners and landlords decide not to invest in or maintain their property. If this slowing reinvestment rate does not stabilize, it stops altogether, and disinvestment begins.

This places pressure on remaining residents. Local businesses react by trying to reduce costs through decreasing services and quality. Costs for insurance, security, and employee recruitment go up. People stop investing in their businesses, eventually closing them or relocating to another area. Property goes up for quick sale. Abandonment begins and accelerates. Those who have the financial capacity to leave do so. Remaining residents are unable to invest in themselves by upgrading their educations or skills. This is where Shorebank enters.

Shorebank began in 1973 when a biracial group of bankers from Hyde Park bought the last failing bank in a Chicago south side neighborhood. Our mission is targeted neighborhood revitalization. Everything we do is based on that. We now have projects in Arkansas, the Upper Peninsula of Michigan, Cleveland, the west side of Chicago, and the state of Washington. We provide managerial services internationally, to the World Bank, for example. Our approach assumes that a holistic approach to redevelopment has to occur. Our structure is a bank holding company with three subsidiaries: (1) traditional commercial banks, providing mortgages, rehabilitation financing, and small business loans; (2) for-profit real estate development, with focus on single-family and multi-family mixed-income housing; (3) for-profit business support to women and minorities, entrepreneurial and homebuyer counseling, down payment and ownership retention training, venture capital, start-up seed capital, and loans for mom and pop rehabilitators. We believe that through the combination of these three approaches locally, we have the ability to undertake the level of service and risk in neighborhoods that can bring about further investment.

We have found that the first priority is to change market perception of an area. We do that by drawing a line in the sand and saying, "The blight stops here." We are involved in 600 units in Detroit in a twelve block area that right now has fewer than twenty-two standing structures. Working with local community based organizations, we go door to door to discuss loans with all homeowners. We provide loans for non-owner occupied buildings to residents of the neighborhood. We work with city planners and residents in clean-up and green-up efforts. One of the immediate results is a decrease in crime, because of the increase in public activity and improvements in lighting.

Basic market change needs to occur to sustain this work. Access to capital and credit for local residents is the first step, but committing to lending is not enough. Despite the Community Redevelopment Act, pressures on traditional financial institutions are still difficult at best. There are pressures from the regulators, who on the one hand, do a public CRA, and on the other hand, rate you on safety and soundness--asking, "What are your delinquencies? What's your loan to value approach?" They face pressure from shareholders, secondary market sources, and appraisers, who have no comparables for seventy acres of city land that looks like Beirut; from insurance agencies, who up the price of their policies in these areas, raising the potential owners' monthly payments, thus pricing buyers out of the market.

Shorebank's holistic approach allows us to use our not-for-profit, for-profit, and real estate companies to address some of these issues. The entrepreneurial sector is the key in our local efforts. We focus on female and minority business development, supporting people who may lack managerial expertise and access to capital, but who have good ideas and hard skills. Our goal is to have traditional banks want their business, and free up our capital for other investments. Our labor force enhancements use employer-driven strategies, because a major problem with employment programs has been that they are short-term, remedial, and have no employer involvement. We are working on a labor force initiative that is outcome-based, carefully discussing how businesses are feeling about their employees from this training. We don't want our program to be a revolving door. We focus on work support networks for employees and employers. We believe that people will make the difference. What motivates people is a feeling of hope that they will be able to provide for their families, and a sense that what they put their money into, be it homeownership or education, has value. Our goal is to be a catalyst, to release a community's energy to improve the quality of life where we work.

George Galster

I'm tossing an intellectual grenade. Deconcentration is a prerequisite for the economic redevelopment of center city low-income neighborhoods of color. There are two prongs of deconcentration: providing opportunities for people to move in and opportunities for people to move out. The process of neighborhood change is not smooth; it is continuous, but sudden. As the neighborhood declines, at some point it falls off the cliff. Effects are not proportional, they are exponential. Decline is steep in areas undergoing radical capital disinvestment, with a rapid escalation of social problems such as crime, out-of-wedlock births, and income based on government transfer payments. Once it gets this bad, we need these two forms of deconcentration to pull it back into position, and get it on a different trajectory. We can't do it until there is deconcentration to change perceptions and bring in non-low-income people to increase resource flows and generate demand for entrepreneurial products. If the environment discourages educational achievement and job attendance, our best efforts will be frustrated.

Deconcentration, or reducing the percentage of low-income people, can be done in several ways. Low-income people can move out, non-low income people can move in, or low-income people can increase their income. Many people say we should go straight to the third, but I say you need the first two in place first. That's my intellectual grenade, and I hope something goes off in your head.

James Head

I'm just going to make a couple of points, because the more I hear, the more I think we need to have some very serious conversations and discussions. The National Economic Development and Law Center is based in Oakland, but we work in a number of cities, with a range of stakeholders, including local governments, community based organizations, community development corporations, and the education system, on community development issues.

I don't think we all have the same definition of what a healthy community is. A definition of healthy has to include financing systems, economic or community development, housing, transportation, and education. The CDC community looks at building internal capacity. There's a balance we need to strike between internal and external measures. The issue is not so much whether you can change these communities, or how, but what do these communities view as important, and how do they think this change should occur? We're looking for good education, economic stability, and good environments.

Debt financing, even at subsidized rates, is problematic. Many of these communities can't afford it. L.A. has recently gone from Rodney King's "Can we all get along?" to "Can we all get a loan?" Many of these communities need patient equity and investment capital. We can't expect a short term return, but should invest in an idea or a concept that is also a business. Another critical question is affirmative action, which goes to the heart of the issue of long-term equity, and whether we are where we think we are as a country.

Lastly, part of the difficulty is media perception. People working locally see the jewels and the human resources in our communities, but the media often misses these, and focuses on the negative aspects. Alternatively, they can overlook issues of profound consequence. An example is the 7-year old girl who piloted a plane and was killed recently. She got much more coverage than a study that found a young person is killed by violence every 90 minutes. The larger picture in both relates to dreams deferred, or dreams destroyed; but, as a society, we don't want to deal with these other people who are dying in the street. We need to get the media to focus on the issue of rebuilding in these communities.

Charles Smith

I'm from Toronto, and we're having discussions similar to these, although our problems are not as severe. When we deal with juxtaposed communities, I recall James Baldwin's A Fly in Buttermilk, about a child who, although he seemed fine in many ways, became quiet when he attended a school in which he was a racial minority. What's missing in these talks? How do we talk about community participation? My own experience is in municipal government and the involvement of people in policy development and inclusion. We need to figure out how to increase participation of some of the people sitting around these tables today.

How does Shorebank involve people, especially the people who are supposed to benefit? We often have worked from a model based on an idea that staff have the expertise, that we move people along, then we leave. Later we are surprised to hear that someone else is retracing our path. We must look at our process. How is decision-making done? Who is involved? A lot of the hope we have has to come from developing, engaging in the process of development, where that's definable. Also, one group can't be seen as the sole clear beneficiaries. It has to be involving of all different sectors of the community, with a clear definition of what equity is about and what "equal outcomes" means.

Take the example of mixed-income housing. Housing location preference--white flight--has a reason. It is based on real issues of race and poverty perception, and the fact that many white people have no information about people of color except from the media, which is focused on crime. A study of child care providers identified their biggest problem as "racial incidents." There is a reliance on racial stereotypes. James Head's comment about the repeal of affirmative action is another example, in which a perception is created of preferential treatment, or reverse discrimination, which ignores history and the reasons these programs are essential. People in Toronto are very concerned about the backlash created by such movements. We need to think of how to get beyond these barriers. Not just people of color, but people within the white or dominant culture need to look at their ability to work with people outside their own immediate community.

I've also heard discussion about definitions, and I have some concerns about some of the terms that are being used at this conference. A colleague here commented that we need to look at social transformation based on critical dissent, to enable people to hear the agenda, understand the language we use, and expand the dialogue.

Avis Vidal

We're still missing a key part of the agenda. The only way to bring working and middle class people into disinvested neighborhoods is to change their perceptions about what is possible by getting people in disinvested neighborhoods to come together to begin to invest in themselves. There's another kind of "capital" that low-income people can bring to the table that is in the form of social organization and policy organization. Once established, it provides a venue for coming to the table to do the part of Ellen Burzynski's job that she didn't talk about at all--developing the means to reach outside the community to other sources (social investment capital).

This leads us to the question of what can or should be done inside to build social organization. Primary in developing new internal relations is breaking down racial and other stereotypes. Changing undermining market perceptions and increasing investment across lines of color and class probably can only happen up close and personal. Desegregation of the military and civil service are examples of the significant educational benefits even where integration is "forced" or pressed upon resisting whites. In the housing market, the ability to require compliance in a way that assures conversation and work toward shared objectives is not available to us in the current political system. Neighborhood groups and community based organizations from banks to churches may provide such a venue.

Lastly, on George Galster's point that deconcentration means inside and outside: deconcentration internally is most important. If disinvested communities want to come to the table as equals, as they should, the community level is where they need to build the capacity, as a grounds for mutual respect at the table.

Question and Answer Session

Joel Hodroff: The whole premise is still poverty. I don't agree that everyone can't have a job. We're in a transitional time, in which we could use increased flexibility about hours or job definitions to provide more employment and more leisure. We need to think in ways that make poverty obsolete.

Tara Jackson: I am a co-author of the preferences study which has been referred to several times today. It disturbs me that this study is often used as a wedge issue in the debate about whether integration is the solution to some of these problems. Let me clarify a couple of things. Black locational choices are often made under constraints, and these choices are not as tied to racial composition as they are for whites. Blacks look for jobs, safety, and good schools, as whites do, but blacks are willing to go outside their own neighborhood and go into white areas to secure these things, while whites are unwilling to do so. Also, preferences change over time: between 1976 and 1992 there was an increase in the kinds of areas that both blacks and whites were willing to live in. Preferences, and certainly this study, are not reasons to abandon integration.

Bill Wilson: Migration data for Minnesota from 1940-75 show that the black population grew by 50 percent each year. The settlement pattern was split between inner city and suburbs. This seems to indicate that when they had a choice, they made it. So we need to look at what choices are really available, as well as the motivation for those choices.

Jonathan Horowitz: On the outside/inside game: In changing market perceptions, how do you see the stance toward large external corporate entities? If you bring Walmart in, does it displace mom and pop?

Burzynski: We don't determine what the best company to attract to an area might be. We help communities to leverage resources, but the residents make the choices. Do you want a low-end service provider? Sometimes they do, sometimes they don't. On Chicago's south side, we developed a successful upscale supermarket because the residents needed a place to buy groceries. I'm just a catalyst to assist in bringing resources.

Edith Hagler: I'm with the Community Stabilization Project. Deconcentration requires transportation for low-income people and infrastructure funding. I can't live in the suburbs, because there's no transportation; the Minnesota state government cut the transportation funding. We also need clean, safe, and affordable rental units.

Wilson: Is the perception that poverty is a condition of the pocketbook, or is it a condition of the spirit?

Burzynski : You may be rich in spirit, but if you can't support your family, you are poor.

Head : There can be a perception that people have to go somewhere to get what they need. Part of the perception is that there's a silver bullet, rather than a range of strategies. There is a debate about whether to use entrepreneurial vs. small business vs. job training strategies. A decent income is a decent income, whether it comes from a local business or a chain.

Smith : Sometimes we assume that people who are poor are poor in skills. Then they are devalued by people who want to bring something in, rather than engaging in a really participatory process, in which the community has some input and involvement in designing the future.

Vidal: In the context of Paul Jargowsky's introduction, the fact that residential patterns of very low-income black and very low-income white households are so different allows for the perpetuation of different perceptions about the nature of poverty. Whites are reinforced in the belief that poverty is individual. In heavy poverty neighborhoods, people tend to think that poverty is systemic and hard to address individually.

Gretchen Nicholls : The role of neighborhood organizations is yet to be explored. It's about building relationships. These organizations are becoming more effective at outreach and organizing, pulling together a variety of issues and players; yet we haven't explored how to increase a sense of investment, or place.

Head: Transformation cannot occur without an active level of private sector involvement. It's also important to realize a couple of other things. We should not be surprised when we get into the process, to find that people in local communities disagree. Power struggles occur among people with, and without, resources. The question of where they come out and the process they use is what's important. Building of capacity at the local level is not something that is easy or quick, but it is important.

Leon Rice: Does the bank pay a penalty for this type of social lending, in terms of its returns?

Burzynski : We have sought shareholders who are willing to take a lower rate of return, who think a 12 percent return is okay. We don't do this for short term gain. We emphasize mission vs. profit. Both are important, and provide creative tension when balanced. Sixty percent of our deposit base comes from national and local individuals and organizations who do "development deposits" that allow us to enter these communities.