Community development corporations

Community Development Corporations

A community development corporation (CDC) is a private, nonprofit organization that aims to support and revitalize distressed communities, particularly those with low- and moderate-income populations. Operating within the broader field of nonprofit finance, CDCs engage in various activities, including real estate development, economic development, and providing social services. These organizations are typically community-controlled, meaning that local residents and stakeholders play a significant role in their governance and decision-making. Community development corporations serve as key anchors in their target neighborhoods, working to improve quality of life and create opportunities for residents.

History and Origin

The concept of community development corporations emerged in the United States during the 1960s, driven by efforts to address poverty and urban decay. Senator Robert F. Kennedy and his aides are often credited with floating the idea of CDCs in New York City in 1966. The aim was to leverage market-based approaches to achieve what government bureaucracies often struggled to do. The Ford Foundation and the federal government provided substantial initial investments, leading to the establishment of the nation's first CDC in New York's Bedford-Stuyvesant neighborhood. Over the following decade, CDCs proliferated across the country, focusing primarily on poor inner-city and rural areas.¹¹ Early CDCs initially sought to attract corporations to urban neighborhoods but eventually shifted their primary focus to affordable housing assistance, which had more subsidies and higher demand.¹⁰

Key Takeaways

• Community development corporations are nonprofit entities focused on revitalizing distressed communities.
• Their activities encompass real estate development, economic development, and social service provision.
• CDCs are typically community-controlled, fostering local participation and ownership in development efforts.
• They play a crucial role in leveraging diverse funding sources, including government programs, private capital, and philanthropic grants.
• The effectiveness of CDCs can be measured by improvements in neighborhood quality, property values, and the provision of essential services.

Interpreting Community Development Corporations

Community development corporations are interpreted as key drivers of local revitalization, translating broad community needs into tangible projects and initiatives. Their success is often measured by their ability to attract capital investment, improve housing stock, create jobs, and enhance the overall living environment in underserved areas. For instance, studies have shown that CDC investments in residential and commercial properties can lead to significant increases in property values within their service areas, demonstrating a positive impact on neighborhood improvement.⁹ These organizations often act as intermediaries, bridging the gap between community needs and the resources available from financial institutions, government agencies, and the private sector. The comprehensive nature of a community development corporation's work, spanning physical improvements to social support, means their impact is viewed holistically, reflecting changes in community well-being, economic vitality, and social cohesion.

Hypothetical Example

Imagine a neighborhood struggling with vacant lots, dilapidated buildings, and a lack of local services. A newly formed community development corporation, "Hope Springs CDC," identifies these challenges. Their first project is to acquire a rundown, abandoned apartment building. Hope Springs CDC secures an investment grant and a low-interest loan, leveraging these funds to rehabilitate the building into 20 units of affordable housing.

Concurrently, the CDC partners with a local business incubator to transform a nearby vacant storefront into a small business hub, providing affordable retail spaces for local entrepreneurs. This initiative aims to stimulate economic development and create job opportunities within the community. The CDC also organizes community meetings to gather input on future projects, such as a community garden on another vacant lot and after-school programs for children. Through these actions, Hope Springs CDC actively demonstrates its commitment to the comprehensive revitalization of the neighborhood, engaging residents in the process and building local capacity.

Practical Applications

Community development corporations are instrumental in a range of practical applications aimed at urban and rural revitalization. One primary application is the development of affordable housing units, where CDCs acquire, rehabilitate, or construct properties to provide safe and affordable homes for low- and moderate-income families. This often involves navigating complex financing structures, including federal programs like the Low-Income Housing Tax Credit.⁸

Beyond housing, CDCs are heavily involved in local economic development. They might develop commercial spaces, facilitate job training programs, or support small business creation to boost local economies. Many CDCs also provide direct social services such as childcare, health clinics, and financial literacy workshops to address the holistic needs of residents. The Community Reinvestment Act (CRA) encourages financial institutions to invest in community development, often through partnerships with CDCs.⁷ The U.S. Department of the Treasury's Community Development Financial Institutions Fund (CDFI Fund) also plays a vital role in supporting community development by providing financial and technical assistance to mission-driven organizations, including many CDCs.⁶ Research by the Urban Institute suggests that CDCs contribute to tangible neighborhood improvements, including increased property values.⁵

Limitations and Criticisms

Despite their significant contributions, community development corporations face limitations and have drawn criticisms. One common critique revolves around their reliance on external funding, often from government sources and private philanthropy. This dependency can sometimes limit their autonomy and direct their activities towards funder priorities rather than purely grassroots-driven initiatives.⁴ Critics also argue that some CDCs, by focusing heavily on subsidized housing, may inadvertently perpetuate a cycle of dependency rather than fostering upward mobility and genuine self-reliance among residents.³

Furthermore, the impact of CDCs on broader market dynamics is debated. While they can revitalize specific areas, some studies have questioned the extent of a widespread "spillover effect," where CDC activities directly spark broader private investment beyond their immediate projects.² The complexity of urban planning challenges and the multifaceted issues facing distressed communities mean that CDCs, while vital, are part of a larger ecosystem and cannot solve all problems in isolation. Their effectiveness can be constrained by factors such as persistent poverty, limited public policy support, and the challenges of achieving true resident empowerment alongside development goals.

Community Development Corporations vs. Community Development Financial Institutions (CDFIs)

While often working in the same ecosystem and sometimes collaborating, Community Development Corporations (CDCs) and Community Development Financial Institutions (CDFIs) are distinct entities.

Community Development Corporations (CDCs) are typically nonprofit organizations focused on the comprehensive revitalization of specific geographic areas. Their activities often involve direct development projects, such as building affordable housing, developing commercial spaces, and offering social services. CDCs primarily focus on physical and social improvements within a defined neighborhood or community.

In contrast, Community Development Financial Institutions (CDFIs) are specialized financial institutions that provide financial products and services to underserved markets and populations. These can include banks, credit unions, loan funds, and venture capital funds. CDFIs operate with a mission to serve low-income communities and may offer loans for small businesses, mortgages for low-income homebuyers, or other financial products that conventional banks might not. The U.S. Treasury Department's CDFI Fund certifies and supports these institutions.¹ While a CDC might receive funding or loans from a CDFI for its projects, a CDFI primarily functions as a lender or financial service provider, whereas a CDC is a developer and community organizer.

FAQs

What is the primary mission of a community development corporation?

The primary mission of a community development corporation is to revitalize and improve the quality of life in distressed communities, often focusing on low- and moderate-income areas, through various development initiatives and social programs.

How are community development corporations typically funded?

Community development corporations receive funding from a diverse range of sources, including federal and state government grants, philanthropic foundations, private sector investments, and loans from financial institutions and Community Development Financial Institutions (CDFIs). Many also leverage programs like the Low-Income Housing Tax Credit.

Do community development corporations only build housing?

No, while affordable housing development is a significant activity for many community development corporations, they also engage in a wide array of other initiatives. These can include commercial real estate development, small business support, job training programs, and the provision of various social services to meet the holistic needs of the community.

What is the Community Reinvestment Act (CRA) and how does it relate to CDCs?

The Community Reinvestment Act (CRA) is a federal law that encourages financial institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods. The CRA often motivates banks to invest in or partner with community development corporations to fulfill their obligations, providing a crucial source of capital for CDC projects.

What is the difference between a for-profit developer and a community development corporation?

The fundamental difference lies in their primary motivation. A for-profit developer's main goal is to generate profit for its shareholders or owners. A community development corporation, as a nonprofit organization, is mission-driven, focusing on community benefit and revitalization rather than financial returns for investors. Any surpluses generated by a CDC are typically reinvested back into its community development efforts.