June 28, 1993
The Connecticut legislature this June passed “An Act Establishing a Community Economic Development Program.” This Act was based on extended consultations among legislators, the executive branch, private investors, and community-based organizations and developers. The purpose of this article is to describe the Act, explain its intent, and provide background on the concerns to which it responds.
The Problem
Connecticut’s new Community Economic Development Program responds to two overlapping crises in Connecticut life. Each is part of a broader national pattern, but each takes a specific form in Connecticut.
The first problem is a long-term tendency toward the concentration of poverty and related economic and social problems in particular segments of the state. It is often noted that Connecticut, with the highest per capital income in the country, has by some measures three of its ten poorest cities. It is less often noted that poverty is equally severe in some of the state’s rural areas and small cities.
This concentration of poverty and related problems is taking a growing toll on the economic and social life of the state as a whole. Attempts to address it have been hindered by the fact that it is often viewed as exclusively a problem of larger cities, which have remained politically isolated in a largely suburban state.
This increasing concentration of poverty has been overlaid by a second problem: the sharp downturn in the state’s economy in the context of national recession and reductions in military production. Since 1989, Connecticut has lost approximately 200,000 jobs, roughly 10% of all jobs in the state.
The result has been a downward spiral of job loss, tax-base erosion, deteriorating services, and rising taxes. This downward spiral first became visible in our less affluent communities, but it now is spreading through the entire state. It has been accompanied by a reduction in lending and investment — a withdrawal of capital.
The Connecticut Economic Development Program aims to start reversing that downward spiral where it began — with the loss of jobs in our poorer communities. Individuals who do not have access to good jobs are automatic candidates for poverty, poor health, family stress, substance abuse, and many other problems. Communities which do not have access to good jobs are candidates for soaring taxes, declining services, and community decay. This Act focusses on the creation of jobs.
Connecticut’s less affluent communities already have individuals and organizations hard at work trying to address their economic needs and problems; many more would join them if given the chance. But these community developers face two great problems. Many lack some of the specific technical skills they need. And most lack the capital they need to get started. This program is designed to help overcome those obstacles. It is based on the principle that communities and their citizens must take the initiative to meet their own needs, but that they should have access to outside resources when necessary to do so.
The program is not intended to be a cure-all for what ails the Connecticut economy. It is intended to help stimulate an economic renewal in our poorer communities, and to do so in a way that contributes to solving the problems of the state as a whole — and perhaps even tests some models that may be useful beyond Connecticut as well.
Purpose
The Act establishes a community economic development program whose purpose is “to strengthen neighborhoods by maintaining or creating employment for neighborhood residents, generating tax revenues and stemming physical deterioration and the social problems resulting from deterioration.”
The program is geographically targetted to “public investment communities.” These are defined by a formula which identifies the 25% of Connecticut’s municipalities with the greatest concentration of poverty and shortage of community resources, as indicated by high per capita unemployment, AFDC, and mill rates and low per capita incomes and grand lists. These 42 municipalities include major cities, small cities, and rural areas. At least 70% of the Act’s financial assistance must go to the state’s eleven “targeted investment communities,” which include its major impoverished cities.
The Act lays out seven goals which together define a strategy for economic development:
— Creation of jobs and the development of skills in the target areas, particularly for persons who are unemployed, underemployed, or receiving public assistance.
— Leveraging of private and community investment. Community investment may take the form not only of money, but of labor and in-kind resources.
— Community participation in decision-making. Widespread experience has demonstrated that community development works best when the community affected by a project is involved and committed to it. Community participation may take a great variety of forms, ranging from participation on the board of directors of an applicant organization to local ownership of microenterprises and cooops to volunteer labor on community projects.
— Establishment of self-sustaining enterprises. The program is not designed to provide continuing grants, but to help communities to develop institutions able to sustain themselves.
— Improving the environment. A central need in the state of Connecticut, and a crucial potential area for future economic development, is the enhancement of the physical environment. The program will particularly encourage projects which contribute to that goal, such as recycling, lead removal, and renewal of damaged natural areas like public woodlands and Long Island Sound.
— Promotion of affirmative action and equal employment opportunities and minority-owned businesses. A central source of the growth and concentration of poverty in Connecticut lies in racial and gender discrimination. The program will aim to help counter that by ensuring that its resources increase opportunities for discriminated-against groups.
— Coordination with the State Plan of Conservation and Development and local, regional, and state strategic economic development plans. Development increasingly requires planning, both to take advantage of opportunities for synergy and to prevent destructive side-effects which hurt the environment or other economic sectors. The program will encourage projects which support the state’s carefully designed and regularly updated conservation and development plan and its emerging efforts at strategic economic planning.
To assure that those supported by the program function as good citizens, recipients of financial assistance will be required to certify that they have complied with all applicable laws, labor regulations, and fair trade practices.
The Vehicle
The Act authorizes the office of policy and management to establish a non-governmental “Entity” — as yet unnamed — to accomplish its purpose. This Entity is governed by a state-wide board of directors which includes representatives from three sectors: state agencies, community representatives, and investors.
The governor will appoint representatives from relevant state agencies. Legislative leaders will appoint “persons of low or moderate income” residing in targeted communities or “representatives of non-profit organizations the primary purpose of which is to serve low and moderate income, unemployed or underemployed residents” of targeted neighborhoods; they will comprise at least one-third of the Board. Each investor which commits a certain minimum amount of money to the program will also be entitled to a seat on the Board. Such investors might include banks, other financial institutions, corporations, foundations, municipalities, pension funds, universities, and others.
A major barrier to economic development in less affluent communities has been a lack of cooperation among those whose resources are needed for development. The board of the Entity is designed to be a place where these different sectors can talk with each other, come to a better understanding of each others’ needs, resources, and problems, and work together to create solutions. It is made tripartite so no one sector will be able to determine decisions unless it can persuade others to join it.
The Act gives the Entity a great deal of flexibility in establishing its own structure, providing it the opportunity to learn and develop over time. Often it is advantageous for such efforts to utilize several overlapping organizations, for-profit and/or non-profit, with different roles and structures; the Act allows the initial Entity to establish state-wide affiliates.
There is also flexibility in how the program can operate at the local level. Where there are community-based organizations and community development corporations able to provide the necessary functions, they can be the vehicle. But where such organizations do not exist, the Entity can create its own local affiliates, with their own local boards, to provide needed services to the local community.
An important role for such efforts is the leveraging of public funds with private investment. The Entity can serve as a conduit for any kind of financial or other resources.
Activities
Ten million dollars will be provided to the Entity through state bonding. It is expected that this will leverage a far greater amount from other parts of the public and private sectors.
The bulk of the funds will be used to provide financial assistance, including loans, extensions of credit, guarantees, and equity investments. Most financial assistance will not take the form of grants but of loans and other investments which will require repayment. This assistance can be provided to a wide range of recipients, including individuals, organizations, businesses, community development corporations, regional development corporations, and the Entity’s own affiliates.
These funds will be provided on a competitive basis for proposals which help to achieve the program’s goals. They can be used for such purposes as:
— Small business loans
— Community revitalization loans
— Technical capacity training
— Loans to “peer lending groups”
— Creation of business incubators
— Development of commercial real estate for businesses owned, operated, or employing residents of a target area.
The Entity will be able to provide financial assistance that is currently unavailable from either the private or the public sector. It will develop underwriting criteria which will provide a return on its investment, but which may differ considerably from conventional criteria which aim at profit maximization and which may not take into account the specific needs and potentials of less affluent communities. (These efforts are intended to complement, but not to substitute for, efforts made by banks to meet Federal and other Community Reinvestment Act requirements.)
Where appropriate, the Entity may create or help other organizations to create local “storefronts” to deliver services to selected communities. These storefronts will serve as outreach centers, seeking appropriate projects in targetted areas. The staff will provide technical assistance to potential borrowers not adequately served by existing credit sources. They may help with development of business plans and financial statements, credit counselling, and refinement of project proposals. They will try to provide “one-stop shopping” by helping to “package” funding requests to combine a variety of private and public sources, thus using the Entity’s own funds to leverage other sources. For projects which receive funding, the staff will continue to provide technical assistance, monitoring, and support.
At least one million dollars from the state’s initial funds will be devoted to technical assistance to increase the economic capability of target communities. This can be provided either directly by the Entity or through contracts with organizations which specialize in such assistance. Technical assistance can take the form of grants, and the Entity will use receipts from its other activities to make funds available for technical assistance on a permanent basis.
An important function of the program is to strengthen coordination among those who can contribute to solving the problems of Connecticut’s distressed communities. Relevant state agencies will be involved from the start. Private investors and local community representatives will have a structured role. Educational institutions and technical support organizations will be drawn on to develop capability in the target communities. Staff will actively seek out opportunities to draw on Federal programs.
Flexibility and Accountability
Programs of this kind frequently meet two kinds of criticism. On the one hand, they are often criticized as inflexible — unable to respond to the real needs of the constitutencies they are meant to serve because they are governed by bureaucratic structures and procedures which are too slow and cumbersome to meet the requirements of the real world. On the other hand, they are also often criticized for a lack of accountability — a tendency simply to pass out money to private organizations without any way of ensuring that jobs and other desired results are actually produced.
This Act has been structured to address both these concerns. The Entity it creates has a free hand in developing its own structure. However, it has carefully defined goals to achieve, and it must report to the legislature in detail on its past and future efforts to achieve them.
In each annual report, the Entity must report on its efforts in the preceding year to meet each of its seven goals, as described above. It must report the number and types of jobs provided to the unemployed, underemployed, and persons receiving public assistance. It must lay out a strategy and set specific targets to meet in the coming year for each goal.
Connecticut and its impoverished communities are filled with unment needs for housing, education, healthcare, transportation, environmental improvement, infrastructure development, and the like. It has un- and underemployed people eager to work. This program offers a way to put those people to work meeting those needs.