COMMUNITY DEVELOPMENT CORPORATIONS

Community development corporations (CDCs) are locally based organizations that work to help the residents of impoverished areas to improve their quality of life. Such organizations exist in virtually all major urban areas of the United States today. CDCs provide residents with a variety of different benefits, including housing, day care for children, nursing home care for the elderly, employment opportunities, job training, and health care facilities. Some CDCs act as part-owners of vital businesses within their neighborhoods, like supermarkets and shopping centers, while others assist residents in starting their own small businesses.

"Community development corporations function somewhat like private developers but are governed by the community," Gustav Spohn explained in an article for the San Diego Business Journal. "Their boards of directors are typically composed of community residents together with experts who advise them on the technical aspects of fund-raising and development projects. They depend heavily on government and private philanthropic funds, which in turn leverage financing from banks and other investors. Their goal is not to turn a profit but to generate economic renewal in poor communities."

As recently as a decade ago, CDCs were being dismissed as small-time players unable to make a real contribution to solving urban problems. Banks were rarely willing to provide them with financing or any other assistance. But today CDCs are viewed as "key components of public strategies to fight poverty in cities across the country," according to Spohn. Nearly every major bank in the country is now actively involved in community development in at least one city. "CDCs are the driving force in most reviving poor places because they refurbish housing, restore enterprise to ruined commercial districts, and make life unpleasant for those standing in the way of progress, from junkies to zoning bureaucrats," Harrison Rainie wrote in an article for U.S. News and World Report.

Although CDCs have had an increasing impact on the fight to reclaim urban neighborhoods, they are still the subject of some skepticism. Some critics believe that CDCs cannot operate on a large-enough scale to overcome a 40-year lack of investment in the inner cities. Others believe that community improvement efforts in impoverished neighborhoods are pointless, claiming that residents will simply choose to leave as soon as they are able to raise their incomes to a certain level. Finally, some people worry that CDCs—which receive major funding from the federal government through the Community Development Block Grant and other programs—will not be able to remain effective in the face of inevitable budget cuts.

In his article, Spohn outlined some of the functions of a successful CDC. First, it must make local residents feel that they have an investment in the neighborhood. Second, it must serve a mediating role between the differing interests of various neighborhood groups. Third, it must not polarize the interests of the community and the interests of government and outside private-sector institutions. Finally, it must continually battle the forces that act to return the inner cities to a state of disorder. Overall, CDCs can have a significant impact on the communities they serve. "Nationally there's a feeling that nothing can work in the cities—they have no hope—that there's nothing the society can do," Roland Anglin of the Ford Foundation told Spohn. "It's not true. There is a movement there. There is a structure there in inner cities. There is a strategy that can help."

OTHER COMMUNITY INITIATIVES TO ATTRACT SMALL BUSINESSES

In the late 1990s, as Internet technology made location less important for many small businesses, a number of communities began enacting programs designed to attract entrepreneurs to their areas. These cities and towns "are appealing directly to a new breed of 'lone eagles,' self-employed professionals who can do their work any time, any place, and who don't need the security of a regular paycheck," David Stamps wrote in Training. For instance, some communities chose to upgrade their telephone systems to offer high-speed connections for computer modems, while others began providing inexpensive Internet access and hosting services for small business Web sites.

In a study for Business Horizons, William M. Shanklin and John K. Rayns, Jr. found that "economic development initiatives designed to invigorate entrepreneurial growth have become centerpieces of state and community efforts. Indeed, political entities spend billions of dollars and untold hours on stimulating their economies." Numerous communities have begun offering a wide variety of assistance programs for entrepreneurs and small businesses. In the course of their research, Shanklin and Rayns found that such programs were most successful when the communities first conducted a realistic self-assessment to uncover the unique benefits they had to offer developing businesses. "Neglecting to complete this strategic first step is precisely why some communities set missions that are unrealistic," the authors noted. "Concisely stated, without a strategic compass there is no way a community can design programs and policies that are effective in boosting entrepreneurship."

Shanklin and Rayns also surveyed small business owners and entrepreneurs to see what components of community assistance programs they found most helpful. The respondents particularly valued community assistance in obtaining loans to begin operations, developing pro-forma financial statements, conducting market research, obtaining equity capital, and finding a suitable location for their businesses. Communities that provide assistance in these areas—for example, by creating enterprise development boards staffed by knowledgeable local business people—were most likely to boost entrepreneurship in their areas. "Results from states and communities throughout the United States show that economic development efforts can and do boost entrepreneurial performance," Shanklin and Rayns wrote. "By creating a climate that encourages small business and offering competent managerial and technical assistance to aspiring and growth-oriented entrepreneurs, economic development officials can make a difference."

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