Community Development Corporations
By Carol Lamm
Vol. 10, No. 2, 1988, pp. 19-20
Over the years, MACED has worked at economic development from many angles. We began by providing technical assistance to worker cooperatives and then went on to work with locally owned private businesses. We did our first policy work in the late 1970s when we convinced the state of Kentucky that there was more to economic development than branch plant attraction. Back then we helped state officials design a loan fund for small businesses. We have worked with bankers to make mortgages more available to moderate income families. We have a couple of for-profit subsidiaries now that invest in businesses, mostly forest product industries, where we concentrate our technical assistance.
A couple of years ago, MACED decided that we could not continue to put all our eggs in the diversification basket, that is, into looking for ways to get around the coal industry. We began to do some research and policy advocacy on ways to make the coal industry itself have a more developmental impact on the region.
Our most recent project involves grassroots education as we assist an organization in Kentucky’s fifth congressional district which has the lowest percentage of high school graduates among its adult population of any congressional district in the country. Over the past year we have started or worked with seventeen affiliates in the district’s twenty seven counties.
When I step back from this recitation of activities and ask, “What have we learned that I can share today?” I came up with three major areas.
First of all, we have learned that economic development is more than job creation. Ken Johnson spoke yesterday about the limits of counting jobs as a measure of progress. He pointed out that the ways wages are earned and the distribution of wages are other important measures. Whenever a region’s economy can serve moderate and low income people better, that is economic development. Sometimes economic development can mean new and better jobs for people. But, economic development can also mean better housing, schools, and medical care. There are a number of ways to make the economy work better for people besides job creation, critical though that is.
A second lesson recognizes the importance of doing something, then thinking about it, then doing the next project based on what you figured out. This sounds so obvious, but I have seen community organizations, to say nothing of state government agencies, that skipped the thinking part, or constrained their evaluations in such narrow ways that their question became, “Did we send out as many brochures as we said we would?” One of the most satisfying aspects and exciting things about working for MACED is the way that we repeatedly step back and look at the results in the light of bigger goals. We keep getting new insights into what might work.
Let me tell you a little bit of how we looked at forest products when we started out about twelve years ago.
There are hundreds of small sawmills in eastern Kentucky. They are very important in the economy for the low income people who are employed in them and in logging. So we began providing technical assistance to existing sawmills. Then, we stepped back from that and said, “Well this
is not really having the effect that we would like to have. It is not creating new activity. Let’s start working with sawmill startups.” So we did that through financial and technical assistance. Then we stepped back and said, “This is not getting us to very many people. What can we do that will give us a lever on this forest products industry and, actually make a significant difference?”
We saw that each of these little sawmills had marketing problems. They were so small that they could not accumulate enough lumber to sell in certain markets, even if they knew where they were. They were selling high quality hardwoods to be made into pallets because they could not get together enough of them to sell to a major buyer. So we established a lumber yard and sawmill that was big enough for the export market. This had an impact on many sawmills in the area. They now had a steadier market than before.
Our ability to act and reflect points to a special role that Community Development Corporations can play in state policy-making, too. Because we are small and energetic organizations, CDC’s can try out different approaches and get some feel for their relative success while the state bureaucracy is still waking up to the thought that a new direction is in order.
Part of thinking involves choosing issues opportunistically, strategically.
We looked the housing situation over for several years, looking at the reasons given for the dearth of housing starts and the prevalence of sub-standard housing, even among middle-income families in the mountains. We chose a housing issue upon which we could make a difference. We concluded that one problem lay in the kind of mortgages that were available. Banks were offering ten- to fifteen-year variable-rate mortgages with from twenty-five to thirty-three percent down payments, minimum. The thirty-year fixed-rate, five-percent down mortgages that were widely available throughout the US, simply weren’t to be had in eastern Kentucky.
In the rest of the country, banks had figured out ways to sell their long term mortgages to buyers who wanted long term fixed rate investments through secondary mortgage market mechanisms. In eastern Kentucky, bankers weren’t familiar with those mechanisms, and there existed a handful of regulations that made secondary mortgage marketing difficult in rural areas.
MACED organized a consortium of ninety-four out of the 102 bankers in eastern Kentucky. We negotiated the necessary changes with one of the secondary mortgage market outfits that was receptive, and we organized training sessions with the bankers. They then were able to make loans that they could sell in the secondary mortgage market. We also put together two bond issues that together raised $46 million for low-interest rate mortgages and used some innovative financing that made the mortgages available to considerably lower income families than would have qualified otherwise.
We chose that point of intervention very strategically to make a difference.
For the last nine years I have worked for MACED, the Mountain Association for Community Economic Development. From an office in Berea, Kentucky, MACED works in the central Appalachian Mountains.