Posts by Author: Oscar Perry Abello

What Is Your Local Business Improvement District Funding?

Union Square in San Francisco. (Photo by 1Flatworld)

If you’ve been around a downtown shopping area lately, in practically any city in the U.S., you’ve seen the names on trash cans, street-cleaning staff uniforms, tour guide jackets, or maybe a banner hanging from a streetlamp. They’re typically known as Business Improvement Districts, or BIDs. They’ve grown increasingly popular over the past few decades. By one count, there’s more than a thousand of them across the U.S. New York City has 75. Chicago calls their 73 “Special Service Areas.” Los Angeles has 41. Philadelphia has 14, with at least one more on the way. There’s also a BID for Waikiki, Honolulu.

BIDs are commonly quasi-public entities, established as nonprofits but funded by a city-sanctioned levy on top of existing property taxes, assessed to property owners within the BID area. The funds pay for things like the fancy BID-branded trash cans and the maintenance teams that empty them and sweep up the street. BIDs might also pay for programming to help attract shoppers to the area.

But in San Francisco, a new study from researchers at the UC Berkeley School of Law and the Western Regional Advocacy Project shines a spotlight on how San Francisco’s BIDs, known as Community Benefit Districts, have been funding measures to criminalize homelessness, SF Weekly reports.

“Although [BIDs are] present in almost every city in California, researchers, policymakers and the public have paid little attention to their rise and growing influence in local and state affairs,” says Jeff Selbin, the director of the Policy Center and UC Berkeley School of Law, at a press conference Monday, according to SF Weekly. “Our key finding is that they exclude homeless people from public space through aggressive policy advocacy and policing practices. This finding raises important legal — and I would say moral — concerns.”

Former UC Berkeley law student Shelby Nacino, who contributed to the study, described to SF Weekly how the rise of Community Benefit Districts coincided with a sharp rise in the number of anti-homelessness laws. They are “effectively using taxpayer dollars to lobby local government,” she told the site. For example, she said, Union Square’s Community Benefit District unsurprisingly lobbied in support of Proposition L, better-known as the sit/lie law, which passed in 2010.

On a day-to-day level, local homeless advocates told SF Weekly about the behavior of private security firms hired by Community Benefit Districts to patrol neighborhoods, which are often assigned tasks such as moving people along who are sitting or sleeping on sidewalks.

One of study’s main criticisms is that even though the primary source of funds for BIDs is public, the means by which those funds are spent is through private nonprofit entities with their own boards and their own priorities, with little public oversight, SF Weekly reported. That allows BIDs to channel their funds into lobbying for measures such as those that criminalize homelessness.

The study echoes some of the sentiments seen last year in Queens, N.Y., where residents organized to stop a BID from expanding into their neighborhood, fearing that the BID expansion would result in mass evictions and displacement of existing local businesses that serve the area’s predominantly immigrant population.

 

Mapping the Presence and Potential of Gentrification in Austin

A map of gentrification in Austin, with darker purple and blue representing later stages. (Credit: University of Texas Center for Sustainable Development in the School of Architecture & the Entrepreneurship and Community Development Clinic in the School of Law)

Gentrification, referring in this case to the displacement of low-income minority households because of rising property values, is local news in Austin.

“Sometimes change can be hard to see, but those who live in the Lanier neighborhood will tell you change is happening,” reports Kalyn Norwood of KVUE-TV news, in a story filed on Monday.

Norwood’s story was pegged to the release of “Uprooted: Residential Displacement in Austin’s Gentrifying Neighborhoods and What Can Be Done About It,” a new report from researchers at the University of Texas. According to KVUE-TV, the report, part of a yearlong study of gentrification, identified 16 neighborhoods where gentrification is happening, and 23 neighborhoods at risk of experiencing gentrification. The Lanier neighborhood was one of the 23 at-risk neighborhoods.

“They’re rebuilding these houses, they’re taking them down to the two-by-fours and just rebuilding them and selling them for big money,” William Kasper, who lives in Lanier neighborhood, told KVUE-TV.

The University of Texas researchers created color-coded maps of their results. The maps showed stages of gentrification as defined by the researchers as well as vulnerability to gentrification, based on a number of factors.

(Credit: University of Texas Center for Sustainable Development in the School of Architecture & the Entrepreneurship and Community Development Clinic in the School of Law)

The research comes at a key moment for the city, which was recently announced as part of the inaugural cohort of All-In Cities Anti-Displacement Network, convened by PolicyLink — as previously covered in Next City. Meanwhile, the city started, then recently stopped a citywide zoning overhaul, citing a poisoned process.

Part of the challenge in addressing gentrification and displacement is finding a productive way to surface the historic role of government — state, federal, and local — in determining where rich and poor, white and non-white, currently live in cities today.

“Many people thought that gentrification was a natural effect of market forces,” Nefertitti Jackmon, a member of the Austin Anti-Displacement Task Force, told Next City earlier this year. The task force is charged with developing a set of recommendations to present to Austin City Council by October.

 

Denver Approves Low-Income Discount for Transit Riders

Denver's mass transit system will soon be more affordable for low-income households. (AP Photo/David Zalubowski)

Fast-growing Denver is grappling with the equity challenges of rapid growth in a number of ways, from expanding its parks system to providing rental assistance for moderate-income families to move into the city’s glut of luxury condos. The city’s transit-oriented development fund has become a model for other cities — and directly related to that, this week Denver’s regional transit authority voted to approve discount fares for low-income riders.

The Regional Transit District’s low-income fare program approved Tuesday will take effect in early 2019 and provide a 40 percent fare discount to households at or below 185 percent of the federal poverty level, the Denver Post reported. A deeper-than-existing 70 percent fare discount for riders between the ages of six and 19 was also approved, among other changes.

The program expands upon the Regional Transit District’s existing discount fare program, which, according to the transit authority’s website, already serves seniors ages 65 and up, individuals with disabilities, Medicare recipients, and elementary, middle and high school students ages six to19. Children five and younger already ride free with a fare-paying adult.

The Regional Transit District is paying for the new low-income fare in part by raising base fares on buses and on the region’s rail transit line to Denver International Airport. Local bus fares will rise from $2.60 to $3, and regional bus fares from $4.50 to $5.25. Fares will go up along the region’s A-Line train, driving the cost of a one-way trip between Denver and the airport from $9 to $10.50, the Post reports.

The changes were recommended as part of the Regional Transit District’s three-year cycle for reviewing its fare structure. As part of the most recent cycle, the transit authority convened a 25-member “Pass Program Working Group” in March 2017, which concluded its work in March 2018, recommending a low-income discount program. At the time, StreetsBlog Denver characterized the transit authority’s pass programs as “confusing and unfair.”

StreetsBlog Denver also reported that transit advocates, including Mile High Connects and 9to5 Colorado, said a 50 percent discount was critical for the low-income program. The Pass Program Working Group’s final presentation included a 50 percent low-income discount program as a point of comparison to the 40 percent discount that the Regional Transit District board ultimately approved.

 

The Gentrification of Chicago’s West Side Takes the Stage

Chicago's Humboldt Park has been a stronghold of the city's Puerto Rican community for decades. (AP Photo/Charles Rex Arbogast)

On the West Side of Chicago, the Humboldt Park neighborhood has been home to a Puerto Rican Day Parade since 1966. Near an entrance to the park that gave its name to the neighborhood, a massive Puerto Rican flag sculpture arches over Division Street, a major east-west thoroughfare in the city. The park entrance near the flag is named for Oscar Lopez Rivera, a controversial figure who fought for Puerto Rican independence from the United States. He was released from prison last year.

Starting Friday, Humboldt Park is hosting a new play tackling the gentrification now facing the neighborhood.

Located in a storefront on Division Street a few blocks from the Puerto Rican flag sculpture, the UrbanTheater Company will be hosting the first run of “Not for Sale,” reports Block Club Chicago.

Written by Guadalís Del Carmen, born and raised in Chicago but now based in NYC, the play is a fictionalized account of two neighbors — one that has called Humboldt Park home for 40 years and another who only recently arrived — who have to learn to co-exist in the neighborhood. Del Carmen worked closely on the production with director Sara Carranza and UrbanTheater’s artistic director, Miranda Gonzalez, according to the news site.

The story, Block Club Chicago reports, was inspired by a real-life conflict a few years ago involving the theater and a new neighbor.

“We were getting yelled at for making too much noise,” Gonzalez, a Humboldt Park native, told Block Club Chicago.

“I was like, ‘That’s interesting.’ It’s a busy street. We’re within the city’s noise ordinance,” she added.

“A lot of the time the people who are given a platform to speak in the Latinx community are folks from other areas, other states and other cities,” Gonzalez said, according to Block Club Chicago. “So I thought UrbanTheater Company would be a good place to begin fostering those stories and create a pipeline that bleeds into the national conversation about what is going on in Chicago.”

The show begins previews tonight, opens Friday and is currently scheduled to run until October 20.

 

Will NYC Finally Do Something about All Its Vacant Storefronts?

Tekserve, a beloved, independently-owned computer and camera store — "the Apple store before there were Apple Stores" — on 23rd Street in Manhattan before it was forced to close in 2016. (Photo by Oscar Perry Abello)

Once you notice it for the first time, you can’t go back to not noticing it, and it seems to get worse every year. I’m talking about storefront vacancy in Manhattan, and across NYC.

It just doesn’t make sense. NYC sidewalks and storefronts should be prime commercial real estate, given that NYC residents — not to mention tourists — walk everywhere. Only a quarter of Manhattan households have a car, and only half of all NYC households have a car, according to the NYC Economic Development Corporation.

When freelance web developer Justin Levinson took note of Manhattan’s storefront vacancy in 2016, he did what web developers do — he mapped them.

The New York Times this year responded to the city’s alarming spike in storefront vacancy and sent a photographer and reporters around the city to document it, publishing its findings earlier this month. Some 20 percent of storefronts are vacant in New York City, up from 7 percent in 2016, the real estate brokerage firm Douglas Elliman told the New York Times.

And now, finally, New York City Council is moving forward with a provision that may help address the spike in commercial vacancy. Sources confirmed to Crain’s New York this week that the council will finally hold a hearing on the Small Business Jobs Survival Act, sometime before the end of October.

Aptly timed, the Association for Neighborhood and Housing Development, a citywide network of nonprofit affordable housing developers and tenant organizations, also this week launched the #EndCommercialVacancy campaign to address the issue. The association and its allies believe the Small Business Jobs Survival Act will keep more current businesses in place rather than letting their spaces go vacant because of exorbitant rent increases that do not align with actual market conditions.

Different versions of the Small Business Jobs Survival Act have been proposed in New York City Council since 1984, each time struck down because of lightly-examined constitutionality concerns — which some still level at the current bill. Under the current version, Crain’s reports, the bill would entitle any commercial tenant who has complied with the terms of their lease to a 10-year renewal and the right to force the negotiations into binding arbitration if the new terms are contested — perhaps because of an exorbitant rent increase.

Council Speaker Corey Johnson, whose district includes Manhattan’s West Village, Chelsea, the west side of Midtown including Times Square and the Hell’s Kitchen neighborhoods, endorsed the bill last year, Crain’s notes. NYC Mayor Bill de Blasio opposes the bill, but has not had to wield a veto, because the bill was stalled in city council by Johnson’s predecessor as council speaker, Melissa Mark-Viverito.

The Small Business Jobs Survival Act was one of several policies examined in a 2016 report on how cities are grappling with a spike in commercial rents, which Next City covered at the time. That report, from the Institute for Local Self-Reliance, cited a complex web of causes for the rise in rents, beginning with rampant real estate speculation.

“There’s a tremendous amount of footloose global capital that is looking for a place to get returns. Where a lot of that capital has landed is in urban real estate,” Stacy Mitchell, co-author of the report and co-director of the Institute, told Next City at the time. “So there’s this speculative run-up in prices that has little to do with the actual economics of a particular building.”

Mitchell also pointed out the particular nature of the kind of capital flooding urban markets — it comes with a bias against local businesses. “If you’re buying a building or renovating a building or developing a building with commercial space, if you have signed national-brand tenants, you’re going to get a better interest rate and better terms on that loan than if you’ve signed a locally owned business,” she said.

Signing a national-brand tenant can even be the difference between getting financing or not getting financing for a commercial or mixed-use development project, according to Mitchell. Local businesses that could even pay those higher rents can still get shunned by developers. “If you’re doing a development in Salt Lake City and the money is from a national source, they don’t know the King’s English Bookshop and they don’t know that’s a viable business,” she explained. “But they know who Starbucks is.”

 

Big Bank Invites Cities to Compete for $500 Million in Community Development Funds

(Credit: 401kcalculator.org)

Cities and banks can mostly agree on at least one point: there should be more dollars spent on or invested in community development. But how those dollars find their way to those purposes? That’s a never-ending debate.

JPMorgan Chase, currently the nation’s largest bank, yesterday invited local coalitions in cities across the United States to submit proposals for a slice of $500 million from the bank, intended to create affordable housing, to start and grow minority- or women-owned businesses, or to increase the number of livable-wage jobs that aren’t immediately threatened by technological advancement. In turn, the bank anticipates its dollars will help local coalitions directly leverage another $1 billion in funding from other sources.

The announcement comes at a time when cities are anticipating a flood of new investment dollars into low-income communities, thanks to new Opportunity Zones tax incentives. But it also comes at a time when federal regulators have initiated a reform process for the Community Reinvestment Act, a 1977 law that requires banks to serve low-income communities. That reform process, advocates say, could result in a major loss of lending and community development dollars for low-income communities.

While the Opportunity Zones’ wide-open nature features few guardrails to ensure low-income communities actually benefit from those investments, JPMorgan Chase does have a process it will use to allocate funding to projects under its new $500 million, five-year initiative, known as AdvancingCities. Under the plan, the bank is requesting proposals from existing local coalitions of elected, business and nonprofit leaders who are “working together to address major social and economic challenges such as employment barriers, financial insecurity, and neighborhood disinvestment,” according to the press release. As is typical of bank reinvestment programs, proposals must cover areas that overlap with the firm’s geographical business footprint.

Half of the $500 million will consist of philanthropic grants and up to $250 million will be low-cost, long-term capital deployed by a new AdvancingCities Investment Fund. This capital will be used to fund projects “in critical sectors of underserved neighborhoods that frequently lack access to traditional financing, such as affordable housing, commercial real estate and small businesses.”

As explained in the press release, JPMorgan Chase is taking lessons learned largely from its work over the past decade in Detroit, Chicago, Washington, D.C., and other cities where it has invested alongside foundations, the public sector and other funding sources. As Next City has previously reported, JPMorgan Chase has funded all or parts of initiatives such as the equitable development plan around D.C.’s 11th Street Bridge Project, which is under the bank’s PRO Neighborhoods Program that supports collaborations among CDFIs (community development financial institutions). JPMorgan Chase is also one of the partners behind Detroit’s Entrepreneurs of Color Fund for lending to minority-owned small businesses — an initiative the bank is now replicating in Chicago.

One of the lessons JPMorgan Chase has learned is how it can leverage its expertise (and its reputation) to help smaller groups unlock other sources of funding for community development — meaning foundations, corporate funders, other banks, or the public sector.

Unfortunately, when it comes to community development, current federal regulators may be out of step with cities or banks.

While advocates agree much reform is needed to strengthen the Community Reinvestment Act, the current reform process threatens instead to weaken it and thereby reduce the overall amount of capital available for community development needs. Banks reported to federal regulators that they made $96 billion in community development loans in 2016, up from $87 billion in 2015 and $74 billion in 2014, according to the Federal Financial Institutions Examination Council. Those figures, representing primarily investments in affordable housing, economic revitalization and other projects, do not include home lending or small business lending reported to federal regulators for Community Reinvestment Act purposes.

In addition to reducing incentives for community development lending, changes proposed by current federal regulators to weaken the Community Reinvestment Act could result in the loss of up to $105 billion a year in home lending and small business lending to low- and moderate-income areas, according to a forecast by the National Community Reinvestment Coalition, a national network and advocacy group representing fair housing advocates and community development organizations across the country.

 

What Millions of Retiring Small Business Owners Could Mean for Cities

An offset printing machine at Chicago's Salsedo Press, which converted to a worker co-op in the mid-1990s. (Photo by Oscar Perry Abello)

Roughly 10,000 baby boomers turn 65 every day in the United States. They don’t all own small businesses, but their aging presents an opportunity for more workers to get the chance to own businesses and even build some wealth.

Baby Boomers own the majority of small businesses, but only 17 percent of them have a formal exit plan for when they want to retire. Shutting down is the first option, even in cases where the business might be doing well. The consequences can include the disappearance of the lifeblood of any neighborhood or the soul of any street and a significant loss of jobs. Such changes would most negatively affect those who earn and own the least. While each business may employ a small number of people, small businesses provide the vast majority of employment within low-income urban areas.

Selling to investors, or to a competitor, provides another common option for retiring business owners, especially if they’re successful. That may preserve some jobs, but a sale to a larger competitor or someone outside the community comes with the threat of downsizing or maybe a total overhaul of the business. Firing longtime workers and hiring all new employees may mean losing the connection between that commercial space and neighborhood residents.

A report published today, “Co-Op Conversions at Scale,” takes a deep dive into another option: retiring small-business owners selling to their employees.

Using data from the National Establishment Time Series (NETS) database — the same database that many banks use to predict lending risk for businesses — the report’s authors make a case that significant potential exists to finance the conversion of businesses with 20 to 100 employees into worker cooperatives.

In a worker cooperative, in addition to sharing ownership, workers share collective responsibility in managing the business, often using the principle of “one worker, one vote” to govern decisions like hiring management or delegating management responsibilities to each other. According to the Democracy at Work Institute, which supports worker cooperatives across the United States, the typical worker cooperative employs 9-10 worker-owners earning an average hourly wage of $15.82, each working an average of 30.35 hours a week, bringing in an average of $3.9 million in annual revenues at an average profit margin of three percent. Under a worker co-op, profits are typically also shared equally among worker-owners.

The benefits of small businesses becoming employee-owned may go beyond preserving jobs or maintaining the connection between a community and its local businesses — it may also represent a significant transfer of wealth from mostly white-owned businesses to workers of color. For all these reasons, NYC, Cleveland, Rochester, Austin and other cities across the country are finding ways to encourage worker-ownership.

Congress has explored supporting worker cooperatives too, and has several initiatives on the table. A law enacted in August could help the Small Business Administration expand support and lending for employee ownership conversions.

“Co-Op Conversions at Scale,” from Citi Community Development and Capital Impact Partners, a nonprofit that provides capital for community development, started out as an internal discussion at Capital Impact Partners about whether there was any potential market demand in the worker co-op conversion space for the organization. (Next City receives funding from Citi Community Development for The Bottom Line series.)

Since its founding in 1982, Capital Impact Partners has provided $20 million in financing for establishing and expanding worker cooperatives, but none of that has been for the purpose of converting existing businesses.

“We knew instinctively that there had to be [demand for worker co-op conversions], and we knew there was data on baby boomers retiring but there really hadn’t been a lot of data out there with this segmentation,” says Alison Powers, program officer for strategy, innovation and impact at Capital Impact Partners, about the level of detail the new report considers.

To be convinced that it should move more intentionally into worker co-op conversions, Capital Impact Partners wanted information about retiring owners with businesses at least 25 years old, and independent businesses whose owners would be in a position to sell to employees.

The community development lender wanted to assess five key sectors that are essential to its mission of supporting communities through living-wage jobs with benefits as well as high-quality services: grocery stores, food manufacturing, home-care agencies, residential care facilities and child-care centers.

Powers says they wanted to keep the focus on small businesses with 20 to 100 employees because Capital Impact Partners is a larger lender with a portfolio of nearly $1 billion in loans. The nonprofit is part of an informal group that includes smaller community development lenders that support worker cooperatives, including Cooperative Fund of New England, Local Enterprise Assistance Fund, Shared Capital Cooperative and The Working World.

A new report reveals the potential of converting small businesses to worker cooperatives when the owner is retiring. These graphics show the number of businesses considered, number of employees and more, for (from top to bottom): the Chicago metro, Los Angeles and the Bay Area, and the New York City metro. (Credit: “Co-Op Conversions at Scale,” Citi Community Development and Capital Impact Partners)

The lender also didn’t want to focus on businesses larger than 100 employees. At that size, the more popular employee-stock-ownership plans (ESOPs) are more feasible, given the expensive legal and administrative burdens required to pursue that option. There are currently more than 6,000 companies around the U.S. with ESOPs in place, covering some 2.1 million employees — at an average of around 343 employees per company. The sweet spot, 20 to 100 employees, was where Capital Impact Partners felt it could meet a need that neither the smaller lenders nor ESOPs were meeting.

The report examines five regions where there’s already local or national support helping with the non-financial side of worker co-op conversions. That includes education and outreach to owners as well as significant training and technical assistance for workers to assume ownership and management responsibilities. The areas are: New England, the NYC metropolitan area, the mid-Atlantic (consisting of Philadelphia, Baltimore and Washington, D.C.), the Chicago metropolitan area, and California (consisting of the Bay Area and Los Angeles metropolitan area). Data for Miami was also included in the report, which notes that there isn’t yet a strong technical assistance ecosystem for worker cooperatives in that region.

“Funding for technical assistance is something that we really look for as a lender,” says Powers. “We know that technical assistance is absolutely critical, both during the conversion process but also ongoing, especially in the three to five years after conversion. As a lender, we really know that mitigates risk — knowing there are trusted [technical assistance] partners, sources of funding for those partners, whether that’s through the municipality or state or foundations.”

Of the companies that met the report’s criteria (size, location, etc.), from 1991 to 2014, 159 were sold or shut down per year, affecting 5,724 employees. A majority, 85 of those companies each year, shut down, despite most being profitable businesses.

“For me, the biggest aha moment was that more long-standing healthy businesses close than are sold,” says Powers. “That hit me over the head as an immediate crisis.”

As Powers also points out, the report shows there is a significant market for worker co-op conversions even within its limited geographic and industry scope. There’s still unstudied market potential out there in other regions and other industries.

ICA Group, a Boston-based nonprofit consultancy that assists worker-owned companies, was the primary author of “Co-Op Conversions at Scale.” One of the key services ICA Group offers in its own work is determining the market value of businesses that are interested in worker co-op conversions or other worker-ownership structures. ICA Group estimated that the median value of the businesses studied was around $777,000. Median values ranged wildly between sectors and regions, from $240,000 for a child-care business in the Miami area to $3.73 million for a California food-manufacturing business

Knowing the range of values for these businesses is essential. Workers generally won’t have all the cash they need to pay owners what their businesses are worth, Powers explains. That’s where community development lenders like Capital Impact Partners can step in and provide a loan on favorable terms. At a median value of $777,000, a projected 30 worker co-op conversions per year of businesses in the 20 to 100 employee range would require $23 million in capital, according to the report.

But even with a favorable loan from Capital Impact Partners, a bank or credit union, or some combination of all the above, workers will still have to come up with at least a small down payment, which may pose another barrier. The recent changes at the Small Business Administration may help reduce the down payment needed, but they won’t eliminate the barrier.

“It can be especially tricky when you have an industry where not all workers have a lot of income,” says Powers. “We’re not exactly sure what [a solution] could look like, but we know it’s a problem.”

 

Storied South Side Chicago Neighborhood Begins a New Chapter with a Playground

A mural in Chicago's Pullman neighborhood is dedicated to the history of the Pullman railcar company. (AP Photo/Charles Rex Arbogast, File)

Chicago’s Pullman neighborhood, deep into the city’s south side, has a storied history as a home to the Pullman Railroad Car Company’s main railcar storage and maintenance yard. The company was one of the few that hired black workers on a nationwide basis to handle baggage for travelers across the country. The network of black baggage handlers helped distribute Chicago’s black-owned newspapers throughout the south, even as those states banned the production or sales of black newspapers locally.

With the demise of the company, followed by the demise of the steel mill that took its place in Pullman, the neighborhood, like much of the south side, fell on hard times, eventually leading to the rise of gang violence, among other social ills. Even as the neighborhood is amid a kind of revival, thanks to a national park designation for the former Pullman yard and the economic revival of its unused land, gang violence remains a concern.

Now, a new playground in Pullman is more than just a place for neighborhood kids to play. It’s a symbol of a truce between rival gang factions in the area.

Previously, the Chicago Tribune reported, violence “marred the community. Kids didn’t play outside. They knew not to go to the basketball courts or the gas station — both hotspots for shootings when rival gang members found each other across the 107th Street dividing line.”

As the paper reported, the workings of a truce began about a year ago when Sherman Scullark, a member of one of the factions, approached Vivian Williams, a detective with the Chicago Police Department and resident of the neighborhood for 32 years.

“I could see in his face that he needed to talk about something. And when I opened the door he said, ‘Officer Williams, I’m just tired. I’m tired [of the violence],’ ” Williams said, according to the paper.

Scullark asked for help to set up a meeting with the rival gang faction. Williams needed to ask her district commander, who approved, but not before Scullark had already reached out to the rival gang and initiated discussions, the paper reported.

Scullark then asked Williams to set up a meeting with Arnie Duncan. The former education secretary under Barack Obama and former Chicago Public Schools CEO, Duncan now leads the organization Chicago Creating Real Economic Destiny, known as Chicago CRED.

According to Block Club Chicago, in just half a day, a joint effort transformed the park. The organizations who collaborated on making the playground possible included: the Chicago White Sox; Chicago Park District; Chicago CRED (Create Real Economic Destiny), an organization whose mission is to provide at-risk young men with job opportunities in an effort to end violence; KaBOOM!, a national non-profit dedicated to giving kids safe places to play; and engineering firm F.H. Paschen.

After the playground was built using designs from neighborhood children, Chicago CRED now pays rival gang members to maintain the park’s landscaping, according to the Tribune. Scullark told the paper the gangs used to pay members to clean up the park area using funds raised from illicit activities.

“We’re doing it the right way now,” Scullark said, according to the Tribune.

 

See The Evolution of Local Tax Revenues in New York City

(Photo by Aude)

Property tax is the type of tax most people associate with local government, especially when it comes to funding education, for better and for worse — mostly for worse. Most cities still rely heavily on property taxes to fund parks, public schools, public safety and other vital functions of local government. Property taxes, while still the largest source of tax revenue for the City of New York, isn’t nearly as large a share of revenue as it once was.

Property taxes made up 94 percent of New York City’s tax revenues in 1929. In 2017, property taxes were a shade under 45 percent of the City of New York’s tax take, replaced by a mix of sales and income taxes.

The history of how New York City’s tax revenues have evolved from 1929-2017 can be seen easily now, thanks to a new tool from the New York City Independent Budget Office, a publicly-funded city agency that provides nonpartisan information about New York City’s budget to the public and their elected officials, such as the federal government’s Congressional Budget Office.

The tool comes with a timeline of key tax-policy changes. For example, in 1935, New York City became the first U.S. municipality to enact a general sales tax. By the 1950s and early 1960s, the sales tax generated around one-fifth of total city tax revenue, with a peak share of 23.9 percent in 1953.

(Credit for all graphics: New York City Independent Budget Office)

In 1979, property taxes dipped below 50 percent of city tax revenues for the first time.

In 2007, property taxes accounted for their lowest-ever share of city tax revenue, while the shares of business income taxes and real estate-related taxes (such as mortgage recording, property transfer and commercial rent taxes) hit all-time highs.

It doesn’t delve into all of the history, however. Among the omissions is the history of how NYC’s most expensive apartments have the lowest tax rates, thanks to a mix of notoriously-abused developer incentives and a property-tax law that hasn’t been updated since 1981. Still, it’s pretty cool tool.

 

Will This New Investor Tax-Incentive Policy Avoid Mistakes of the Past?

Historians have meticulously documented how government policies and racial discrimination combined to result in billions of dollars invested in the creation of white-only, middle-class suburbs across the United States, while systematically denying the same investment to black people and black communities. You can read about it most recently in Richard Rothstein’s “The Color of Law.”

The consequences of this history remain firmly entrenched, as evidenced by today’s racially-segregated metropolitan areas and astounding levels of racial-wealth inequality. With government backing to build their homes and cement what was, in most cases, the primary source of wealth, white homeowners left other groups in the dust. In Boston, according to a study funded by the Federal Reserve, white households have a median net worth of $247,500, compared with just $8 (not a typo) in median net worth for U.S.-born black households. In Los Angeles, another Federal Reserve-funded study found that white households in that city have 100 times the median net worth of black and Latino households.

The next big chapter of this history is probably being written as you’re reading this, thanks to the new federal policy known as “Opportunity Zones,” passed as part of the Tax Cuts and Jobs Act at the end of 2017. A broad array of affordable housing developers, community development lenders, venture capitalists, real estate investment platforms, local housing and economic development agencies, bankers, and others have already lined up to utilize the new policy. It’s intended to drive billions of dollars in private investment into communities of color and other low-income communities that previous policies have left behind. Whether the policy will actually benefit the current residents of those communities remains to be seen.

“If residents and intermediaries are able to organize effectively — and I don’t mean marching in the streets, but effective organizing in the sense of finding right tables to be at — to have sustained negotiations about the types of projects that are suitable, and developing the right criteria to ensure that the types of projects built or invested in benefit the local community first … If you’re able to do that, then you actually see benefits for everyone else as well,” says Christopher Brown, financial policy director at PolicyLink, a nonprofit research and advocacy organization that works in cities across the country. “The fear is that the status quo will persist, and we know how that will shake out.”

Regulatory Guard Rails, or the Lack Thereof

Even the name, “Opportunity Zones,” sounds straight out of a history in which phrases such as “urban renewal” eventually came to symbolize the exact opposite of what the words seem to mean. “[Urban renewal] means negro removal,” author James Baldwin once said, referring to the federal policy of encouraging cities to bulldoze entire neighborhoods at a time — neighborhoods often fully populated by black residents — to make way for highways, hospitals, large-scale public housing projects that later failed, or other public works. Opportunity Zones have a chance to avoid similar mistakes of the past, but the nature of the new policy leaves precious little time and not much legislative prerogative to put measures in place to avoid those mistakes.

In efforts to avoid those mistakes, Opportunity Zone proponents and critics have used another key phrase: “guard rails,” as in, this new policy doesn’t have any. Or at least, not yet. Some have compared the tax incentive to the mortgage-interest tax deduction, in that anyone with capital gains income will be able to claim it when filing their annual tax returns, without any transparency. Unless the Internal Revenue Service (IRS) says differently in its pending guidelines, the main method of enforcing whether the tax incentive meets its intended goal will be after the fact, through individual tax audits, potentially years from now.

Clearer guard rails, critics say, could help ensure that those benefits materialize while preventing any displacement as a result of new capital flooding into communities already facing displacement pressures. As the policy currently stands, analysts such as those at the nonpartisan Urban Institute fear the tax incentive could draw investors to finance luxury condos, hotel development or other investments with little benefit to and potential displacement of existing residents of opportunity zones.

While investors await key guidelines about the program from the IRS, including the actual forms to claim the tax incentive, some are already pushing ahead to source or cultivate deals for opportunity-zone investment — with varying degrees of regard for the needs of existing residents in those zones.

“I’m optimistic that this policy could result in investments that would not have happened and jobs that would not have happened,” says Teri Williams, president and chief operating officer of OneUnited Bank, the largest black-owned bank in the U.S. “I am concerned that it would benefit investors and not the community if we don’t have a say in how it’s done.”

The Opportunity Zone Selection Process

The Opportunity Zones policy works by offering capital-gains tax breaks to investors in exchange for investing capital-gains income into eligible businesses or projects located in designated opportunity zones. The idea was first laid out in an April 2015 white paper published by the Economic Innovation Group, co-authored by a researcher from the left-leaning Center on Budget and Policy Priorities along with a researcher from the right-leaning American Enterprise Institute, both based in Washington, D.C. Senators Cory Booker (D-NJ) and Tim Scott (R-SC) were primarily responsible for getting the policy into the Tax Cuts and Jobs Act. The inclusion of the policy in the tax reform act was a surprise to many and left many questions on the table, not all of which have been resolved.

“Although all the details haven’t been spelled out, it appears to be relatively simple to execute, so it gives our communities not only the opportunity to attract new dollars but also the opportunity to set up their own funds,” Williams says.

A Miami #BankBlack event organized by OneUnited (Credit: OneUnited)

OneUnited did manage to get a word in regarding the designation of at least some opportunity zones.

Rather than putting the power to designate opportunity zones into the hands of a federal agency, the new policy gave governors of states and U.S. territories the power to designate up to 25 percent of eligible census tracts as opportunity zones. To be considered eligible, census tracts must have poverty rates of at least 20 percent or median family incomes no greater than 80 percent of the surrounding area. Or they must be adjacent to such census tracts. Governors had until March 21 of this year to submit their proposed opportunity-zone designations for certification from the U.S. Treasury, or to request a 30-day extension.

According to John Lettieri, co-founder of the Economic Innovation Group, the opportunity-zone designation process was designed in part to avoid the abuse present in a previous federal program, the EB-5 Immigrant Investor program, wherein developers of luxury real estate have been able to gerrymander wealthy areas into customized investment zones that include enough distressed census tracts to satisfy that program’s requirements.

In contrast, “these are not places that were gerrymandered together,” says Lettieri. “Every census tract itself had to meet a prescribed threshold of need. It was a design feature to exclude that possibility.”

At the same time, however, the policy required no public engagement in selecting the zones. Some states had more open processes for selecting opportunity zones than others.

In Florida, where the Office of Governor Rick Scott took input on opportunity-zone designations from local communities, Miami-Dade County’s economic development agency worked with OneUnited to request that the state’s opportunity zones include black communities where the bank and the agency have prioritized economic development. Although based in Boston, OneUnited has branches in Miami and Los Angeles and offers banking services nationwide online.

“We were actively advocating in Miami-Dade for the communities that we operate in, which are Liberty City, Overtown, Miami Gardens, Opa-Locka, and North Miami, to get them into opportunity zones,” says Williams. “We were glad to see that most of the communities, or at least the low-income areas in those communities, were designated as opportunity zones.”

By June, all 50 states, five U.S. territories and the District of Columbia had designated their opportunity zones. Out of 42,176 eligible census tracts, 8,762 received designation as opportunity zones. This includes 230 “contiguous” census tracts, which are census tracts not eligible based on demographics, but which are adjacent to one or more eligible census tracts based on demographics. The legislation allowed for up to five percent of designated opportunity zones to be contiguous census tracts.

According to an analysis by the nonpartisan Urban Institute, governors designated census tracts that were disproportionately black and Latino, and disproportionately lower-income, compared to the overall set of eligible census tracts. Some 78 percent of designated census tracts were also located in a metropolitan area. In other words, as Lettieri points out, mostly Republican governors happened to over-select for populations and areas that aren’t remotely Republican-leaning.

Will Low-Income Communities Really Benefit?

For some, the precise targeting of opportunity zones in low-income communities and communities of color is exactly the reason for concern. Too many of those areas, they say, already have too much capital, so the challenge is how to ensure that even the existing investments benefits historically marginalized residents.

“You have areas in California where you’ve always had an influx of capital,” says Paulina Gonzalez, executive director of the California Reinvestment Coalition, a network of 300 nonprofits advocating for and working in low-income communities and communities of color across the state. “It’s interesting to see opportunity zones where capital has never been an issue.”

The coalition is now circulating letters for its members to sign, directing municipalities or the state of California to consider enacting local or state-level guard-rail measures such as requiring community benefit agreements or mandating local hiring for any opportunity-zone investments, or creating inclusionary-housing overlay zones to ensure any opportunity-zone investment projects set aside at least some affordable housing. Currently, the policy has no such guard rails at the federal level.

“We believe the state, in designating these zones, has a responsibility to protect the communities that are already there and make sure they benefit from these zones,” says Gonzalez.

PolicyLink, which also launched the All-In-Cities Anti-Displacement Network earlier this year, is circulating its own letters for various strategic partners to sign and send to governors’ offices and the Treasury, outlining recommended guard-rail measures to protect against displacement. The recommendations include a call for federal regulators to clearly define what constitutes abuse in the Opportunity-Zone regulations. The idea is to short-circuit any projects that would result in evictions of tenants or small businesses, dramatic rent increases, and the loss of deed-restricted or naturally-occurring affordable housing.

“That’s the biggest risk,” says PolicyLink’s Brown. “Low-income folks [are] struggling and barely holding on as it is, particularly in urban centers where displacement pressures are already mounting. [Opportunity Zones] can only exacerbate that risk, because now we’re talking about a flow of unchecked capital without any proper guard rails.”

In its analysis of designated opportunity zones, the Urban Institute sought a rough measure of how many of those zones already were experiencing changes that could indicate the unwilling displacement of communities of color. Among the metrics they reviewed were the average housing cost burden, changes to median family income, and changes to the percentage of residents with a bachelor’s degree or higher as well as the percentage of non-Hispanic white residents. The Urban Institute found that only 3.2 percent of designated opportunity zones had experienced a sizable upward shift in these displacement metrics from 2000 to 2016. In comparison, 3.7 percent of all U.S. census tracts had experienced comparable demographic shifts over the same period.

Such demographic shifts weren’t uniform across the entire country, however. In Washington, D.C., 32 percent of overall census tracts experienced sizable upward shifts in the Urban Institute’s measures for potential displacement, as well as 21 percent of census tracts in New York City, 37 percent of census tracts in Oakland, Ca., and 40 percent of census tracts in Seattle. Not all of these census tracts had been designated as opportunity zones, but the disparities illustrate the challenges facing opportunity zones in some metros versus others.

“Areas where you have real displacement concerns, real gentrification concerns, it’s a real problem, but it’s not the primary challenge in most places,” says Lettieri. “The biggest challenge that most of these places are facing are disinvestment, depopulation, decline.”

Who’s Lining up to Take the Opportunity-Zone Plunge?

Lettieri’s Economic Innovation Group estimates that investors hold some $6.1 trillion in unrealized capital gains that would be eligible for opportunity zone tax incentives, although no one expects the incentives to attract all of that eligible money into opportunity zones. One number floating around community-development circles is an expected $30 billion of investment coming through opportunity zone tax incentives. Compare that to the annual $8 billion or so in annual Low-Income Housing Tax Credits, or the $3.5 billion allocated annually through the federal New Markets Tax Credit program, or the $3 billion or so for Community Development Block Grants currently proposed by Congress for next year’s budget.

Whatever the final number is for opportunity-zone investment, a diverse array of intermediaries is lining up to connect investors to eligible projects in opportunity zones, everything from affordable housing to economic revitalization to small-business growth.

BRIDGE Housing, a nonprofit that develops, owns, and manages affordable housing up and down the West Coast, has announced a target to raise $500 million from opportunity zone investors. That money will primarily go to affordable-housing projects already in its pipeline, typically developed in partnership with local or state affordable-housing agencies that provide additional subsidized capital to ensure projects are financially feasible while remaining affordable for low-income households. The nonprofit has around $3 billion in projects currently in development, representing some 5,000 units of new affordable housing construction and 4,000 units of existing affordable housing rehab projects. About a third of those projects are in opportunity zones, according to Cynthia Parker, CEO of BRIDGE Housing.

“I think some of the projects that would not have been feasible could be feasible through this program,” Parker says.

The Low-Income Investment Fund is also reaching out to potential opportunity-zone investors, some of whom, it says, have directly contacted its borrowers (mostly nonprofit or mission-driven affordable housing developers around the country). The community development lender says it has made more than 350 investments in what now are designated opportunity zones, out of more than 1,200 total investments across its history.

“We’re talking to 3-5 investors a week [about opportunity zones], whether we’re reaching out or people reaching out to us,” says Amy Laughlin, vice president for structured products and capital markets at the Low-Income Investment Fund. “I would say we’re getting a fair number of inbound calls because investors are really excited about the tax benefit available to them.”

Enterprise Community Partners, one of the largest nationwide developers, owners and financiers of affordable housing, projects that it will influence about a billion dollars’ worth of opportunity-zone investment, some of it managed internally and some managed by outside investment firms. Through its advisory services arm, Enterprise estimates that its relationships with local economic development agencies reach about 27 percent of opportunity zones across the country. The group anticipates serving largely as an intermediary between those agencies and potential opportunity-zone investors for economic revitalization projects.

Enterprise has also been active on the policy front, calling for measures to ensure more transparency around opportunity-zone investments. “We need to understand if this comes up for renewal, extension, or enhancement, what is the taxpayer return on investment,” says Rachel Reilly, director of impact investing at Enterprise Community Loan Fund. “Today, I can’t project what types of activities are going to occur, but the concern further underscores the need for that reporting and level of transparency.”

The Local Initiatives Support Corporation (LISC), a prominent nationwide community development lender, hasn’t committed yet to a specific number for capital raised through Opportunity Zone tax incentives, but it does anticipate managing or participating in multiple opportunity-zone investment funds, focusing on housing, economic revitalization and direct investment in small businesses. The nonprofit lender does about $1.4 billion in projects a year. It expects that many opportunity-zone investors will be relatively new to the community development space.

“I do think what you’re going to have is a significant chunk of investors who, if not new to community development, will for the first time be investing in substantial amounts,” says Maurice Jones, CEO of LISC.

LISC made a splash with new community-development investors last year when it became the first community-development nonprofit to issue a public bond offering, raising $100 million from investors in the same manner as a typical profit-driven corporation. According to Jones, those investors were all entirely new to LISC, and they made those investments knowing full-well that LISC would be considering the social impact of those investor dollars alongside financial returns. As a positive indication of investor interest in projects that consider social as well as financial outcomes, LISC received more than $100 million in bids for last year’s bond offering.

Transparency and accountability are a concern for LISC as well. “I’m hoping that the treasury rules help provide transparency about who’s involved and what they’re doing, because this will only work if we really know what people are using this tool for and how they’re using it,” says Jones, who testified earlier this year in the only Congressional Hearing held about opportunity zones since its passage.

Local and state government agencies could potentially play a key role in creating transparency and accountability around opportunity-zone investments, according to Katie Kramer, vice president at the Council of Development Finance Agencies. The council’s members include housing finance authorities and economic development agencies from across the U.S.

Kramer has spent much of this year educating members about Opportunity Zones and how their agencies can play a key role, both in convening opportunity-zone investors and community representatives as well as in providing additional capital or incentives to ensure that opportunity-zone investments benefit target communities.

“What’s scary for some of our members is [that opportunity zone] investors are not required to conduct their investments in a way that’s accountable to communities,” says Kramer. “We hope that we can compel them to conduct their investments in that way by being alongside them.”

Meanwhile, Fundrise, the online investment platform for real estate, announced plans to raise $500 million for opportunity-zone investment through its platform. Fundrise CEO Ben Miller says he only heard about the new policy in May, but the platform began raising capital for its opportunity-zone investment fund this month. The minimum investment is currently $25,000, though Fundrise has considered going as low as a $10,000 minimum investment. The mission of the platform has been to make real estate investment more accessible for less wealthy families; for its conventional platform (not targeting opportunity zones), the minimum investment is $500.

Not content to wait for final regulations, Fundrise provided some of its own cash reserves as seed capital to its opportunity-zone investment fund, allowing it to acquire ownership in two opportunity-zone properties, one in Washington, D.C., and another in Los Angeles. Fundrise sourced both projects through real-estate broker networks, a slight departure from its typical model of serving as a source of capital for other developers. While Fundrise would not say whether it has plans for community engagement around these or future opportunity-zone investments, it certainly won’t be hard to track where it makes investments — all portfolio properties are listed online, with notes on project progress.

The Great, or Maybe Not-So-Great, Unknown

Other potential investors, who won’t be as transparent or engaged with communities, mean uncertainty about the eventual impact of the policy.

There is a major incentive for long-term investment built into the legislation. The longer opportunity-zone investors hold on to those investments, the larger the incentive — for example, investors who hold onto their opportunity-zone investments for at least ten years pay zero capital-gains taxes on any additional capital gains earned from those investments. So an investor could invest a million dollars of capital-gains income with an eligible company located in an Opportunity Zone today, and if in ten years that company goes public, and that investor’s shares are worth $10 million, if that investor decides to sell those shares at that time the investor only pays capital gains taxes on the first million dollars (at a reduced rate, also part of the legislation).

“I think a lot of this activity will just happen, and we’ll find out later,” says the Urban Institute’s Brett Theodos. “I would expect relatively little overall investment running through an opportunity fund to be managed by a group that has a community-engagement process.”

“You might not even know that investment is flowing into your community and I think that would be a really unfortunate result,” says Kramer at the Council of Development Finance Agencies. “There’s nothing to require investors to cooperate or collaborate, so it’s really incumbent on local governments to create those conversations.”

At the same time, without requirements to jump through the kind of hoops found with the Low-Income Housing or New Markets tax credits programs, nor the annual allocation limits like those programs have, the wide-open nature of opportunity zones has many toeing a fine line between hopeful and heartbroken.

“It’s a double-edged sword, since it really is light in terms of the guard rails to it,” says John Lewis, executive vice president at the bank holding company for The Harbor Bank of Maryland, a black-owned bank based in Baltimore.

While banks are not eligible to be recipients of opportunity-zone investment, black-owned banks such as Harbor Bank or OneUnited are making plans to serve as a relationship broker between businesses or projects in their circles and potential opportunity-zone investors.

“For a firm like us, we’re going to leverage this policy through our relationships in disinvested areas,” says Lewis.

The challenge is that black-owned banks, experienced community development lenders, or development finance agencies won’t be the only ones using the new investor tax incentives to make investments in those same areas.

“The good money is going to bump up against the bad money,” says Brown. “Unfortunately economic development does not always allow the good guys to prevail.”

This article is part of The Bottom Line, a series exploring scalable solutions for problems related to affordability, inclusive economic growth and access to capital. Click here to subscribe to our monthly Bottom Line newsletter. The Bottom Line is made possible with support from Citi Community Development.

Our features are made possible with generous support from The Ford Foundation.

 



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