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Sharing the Wealth:ResidentOwnershipMechanisms

A PolicyLink Report2001

Resident Ownership Mechanisms

A PolicyLink Reportby Heather McCulloch, Senior Associatewith Lisa Robinson

2001

Sharing the Wealth:

PolicyLink

101 BroadwayOakland, California 94607tel 510.663.2333 fax 510.663.9684

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www.policylink.org

Financial support from the Fannie Mae Foundation, the U.S.Department of Housing and Urban Development (HUD), andfrom the Ford Foundation, the Rockefeller Foundation, theAnnie E. Casey Foundation, and the Open Society Institute.

The work that provided the basis for this publication was sup-ported by funding under a grant with the U.S. Department ofHousing and Urban Development. The substance and findingsof the work are dedicated to the public. The author and publish-er are solely responsible for the accuracy of the statements andinterpretations contained in this publication. Such interpreta-tions do not necessarily reflect the views of the government.

i Preface

iii A Note from Funders: Fannie Mae Foundation

v A Note from Funders: U.S. Department of Housing and Urban Development

1 Executive Summary

13 Chapter I. Framework, Approach, and Methodology

13 Policy Context

14 Problems Point to New Opportunities and New Challenges

15 Leveraging Opportunities to Seek Solutions

15 Responding to Need and Opportunity

16 Framework

16 Equitable Development, Community Equity Mechanisms, and Resident Ownership

17 Who Benefits?

17 Important Considerations Regarding the ROM Framework

18 Approach and Methodology

18 Approach

20 Methodology

21 Chapter II. Background: Historical Perspective and Literature Review

22 Historical Perspective: Connecting People and Place

22 The Continuing Evolution of the Community Development Movement

23 Community Building as an Evolution of the Movement

23 The Increasing Importance of Asset Accumulation Strategies

25 Micro-enterprise and Capital Access Strategies Contribute to the Movement

26 Connecting Community Development to Community Residents

26 ROMs and Value Recapture

27 ROMs and Social Capital

28 Contemporary Challenges

30 Summary

31 Literature Review

31 Wealth Inequality and the Importance of Assets

34 Broadened Ownership

38 Integrating People and Place

40 Summary

contents

41 Chapter III. Models and Infrastructure

41 Models

43 Quick Reference Guide to Models

44 Commercial Real Estate Development

44 CDC Development with Resident Partners

48 Resident Ownership in Real Estate Trusts

58 Mechanisms to Support Resident Investment

62 Business Development

62 Shared Resident Equity in Business Development

67 Cooperative Ownership Models

82 Public Enterprise with Resident Dividends

86 Financial Institutions and Resident Ownership

87 Community Development Credit Unions (CDCU)

90 Community and Individual Investment Corporation (CIIC)

94 Home Equity: Expanding Equity-Building Opportunities

94 Community Land Trust (CLT)

97 Housing Co-ops

97 Limited Equity Housing Co-ops (LEHC)

98 Leasing Cooperative

99 Section 8 Homeownership Program

102 Natural Resources: Capturing and Preserving Value for Residents

102 General Stock Ownership Corporation (GSOC)

103 Fair Exchange Fund

103 Sky Trust

105 Infrastructure: Opportunities and Challenges to Advancing Resident Ownership Mechanisms

106 Demand: Capacity Challenges

107 Potential Supply: The Existing Infrastructure

119 Bridging Supply and Demand: Assessment of Findings

120 Conclusions

121 Chapter IV. Perspectives from the Field

122 Interview Highlights

122 Overview

122 Reaction to Framework/Conceptual Approach

123 Reaction to Models

125 Community Development and Individual Asset Building

125 Significance of Ownership: Ownership and Civic Engagement

126 Tension Between Individual and Collective Ownership Strategies

126 Capacity and Infrastructure Issues

127 Playing the Inside and Outside Game

128 Risk and Reward/Risk Mitigation

128 Getting Community Stakeholders to the Table

129 The Role of Private Philanthropy

129 Summary

130 Policy Opportunities and Challenges

130 Overview

130 Alternative Government Roles in Advancing ROMs

131 Policy Opportunities at the Federal Level

132 Past and Present Federal Policy Levers

133 Policy Opportunities at the Local Level

133 The Need for a New Type of Development Intermediary

134 Paying Attention to Private Sector Interests

134 Building Public Support for ROMs

135 Philanthropy and Policy

135 Summary

136 Next Steps

136 Additional Research

136 Connecting to the Field and Supporting Models

137 Building Connections

137 Broadening the Conversation

137 Developing an Action Agenda

137 Communications

138 Strategies to Deal with the Urgency of Displacement

138 Learning from Global Policy and Models from Abroad

138 Summary

139 Chapter V. Conclusion: Findings and Closing Comments

140 Findings

140 Key Ingredients for Developing Effective ROM Models

144 Maximizing Outcomes

146 Closing Comments

147 Appendixes

147 A: Interviewees and Symposium Participants

155 B: Bibliography

163 C: Glossary

i

We believe that in this new economy, achievingequity requires a multifaceted approach that con-nects socially and economically isolated residentsto the region, the economy, technology, and ulti-mately, to full participation in democracy. Makingthese connections demands the integration of peo-ple- and place-based strategies so that regionalopportunities of all kinds are more fairly distrib-uted. At PolicyLink, we are advancing a frame-work to achieve this outcome that we call “equi-table development.” Equitable development isachieved through policies and practices thatenable low-income and low-wealth residents toparticipate in and benefit from regional economicactivity. It grows out of the theory and practice ofcommunity building and community development.

Equitable development requires multifacetedstrategies that we call “Community Equity Mecha-nisms” (CEMs) to ensure that development policiesand projects benefit low-income/low-wealth resi-dents. Community Equity Mechanisms (CEMs)include a broad set of tools—in the areas of hous-ing, transportation, education, workforce, and eco-nomic development—to help achieve equitableoutcomes for all residents of metropolitan regions.

Preface fromPolicyLink

Sharing the Wealth: Resident Ownership Mech-anisms (ROMs) describes one set of CEM tools.ROMs contribute to equitable development by pro-viding low-income/low-wealth residents withopportunities to obtain a financial stake and voicein economic activity in their communities. ROMsenable residents to participate—as stockholders,not just stakeholders—in development projects.They include residents as vested partners—withthe public, private and nonprofit sectors—in theprocess of building strong, healthy communities inwhich they and their families can live and prosper.

We are very grateful for financial support fromthe Fannie Mae Foundation; the U.S. Departmentof Housing and Urban Development (HUD); andour core supporters, the Ford Foundation, theRockefeller Foundation, the Annie E. Casey Foun-dation, and the Open Society Institute.

We wish to give a special acknowledgment toLisa Robinson for her immense contribution to thereport in terms of research, writing, and creativethought. In addition, this work has been greatlyenriched by the critical thinking of the many peo-

ple who gave their time to be interviewed and toreview documents. We are especially grateful toXavier de Souza Briggs at Harvard University andJessica Gordon Nembhard at the University ofMaryland for their contributions to the initial phas-es of the research and their thorough critique ofdraft documents.

We would like to give special thanks toPolicyLink board members James O. Gibson andWilliam Julius Wilson for their thoughtful critiqueof the work and timely and helpful guidance, andto PolicyLink advisors J. Phillip Thompson andElliott Sclar of Columbia University, who havegiven enthusiastic support and a critical eye. Weare especially grateful to Carl Anthony, formerly ofthe Urban Habitat Program and now with the FordFoundation, for his inspiration and encouragement.And, finally, we thank the PolicyLink team mem-bers who worked so intensively on the projectincluding, in particular, Vice President Judith Bell,Senior Communications Associate Zita D’AzaliaAllen, and Program Assistant Sujata Roashan.

ii | Sharing the Wealth: Resident Ownership Mechanisms

Angela Glover Blackwell Heather McCullochPresident Senior Associate

The current surge of advocacy for market-basedapproaches to revitalize distressed communitieshas sparked growing attention to the need to moreeffectively anchor lower-income residents to theeconomic enhancement of their communities.Failure to directly and explicitly link residents tothe growing prosperity of their neighborhoods, as aresult of successful community revitalizationefforts, can lead to gentrification and destabiliza-tion of the traditional cultural and social fabric ofcommunities.

Sharing the Wealth: Resident Ownership Mech-anisms provides a comprehensive overview of vari-ous financial and economic tools and strategies,existing or conceptual, that can be used to leveragemarket forces for the benefit of lower-income com-munity residents. They are grouped into six broadcategories based on the neighborhood assets uponwhich these mechanisms would be built. Thereport also includes a review of the literature onthe relationship between asset/wealth developmentand individual economic development, as well asthe relevance of ownership as an asset buildingstrategy. This report makes clear the fact that

A Note from FundersFannie Mae Foundation

iii

lower-income status should not be a barrier to theparticipation of local residents in the economicadvancement of their communities. Further, thenumerous potential resident ownership mecha-nisms presented in the report demonstrate that res-ident involvement does not have to be limited topolitical organizing.

The concepts and ideas in this report, rein-force and promote the broader concept of ValueRecapture introduced by Fannie Mae FoundationSenior Vice President, James H. Carr, in a 1999NeighborWorks Journal article titled “Community,Capital, and Markets.” In that paper, he arguedthat linking residents to the economic benefits ofsuccessful community investment efforts was notonly possible, but also essential, to avoid simply

shifting problems from one neighborhood to anoth-er. Ensuring lower-income residents directly bene-fit from successful community revitalization initia-tives is also the most effective manner by which acommunity’s social capital can be leveraged tosupport development activities.

The report offers an excellent starting point fora national dialogue about ways to expand owner-ship options to residents of low-income communi-ties as part of market-based approaches to commu-nity investment. The Fannie Mae Foundation ispleased to have supported this report and looksforward to continuing to explore ways in whichlower-income households can more effectivelybecome owners of the engines of economic oppor-tunity and prosperity.

iv | Sharing the Wealth: Resident Ownership Mechanisms

Stacey Davis PresidentFannie Mae Foundation

For more than 35 years, the U.S. Department ofHousing and Urban Development (HUD) hasfocused on helping low-income communities revi-talize and improve the housing and economicopportunities of low-income residents. Througholder programs, such as Urban Renewal, UrbanDevelopment Action Grants, and CommunityDevelopment Block Grants, as well as more recentprograms, such as Empowerment Zones and thesoon-to-be-implemented Renewal Communities,HUD has provided billions of dollars that low-income communities have used to leverage otherpublic and private investment in redevelopmentstrategies.

This experience has provided many valuablelessons. HUD has come to recognize a number ofthe factors that help promote successful redevelop-ment and has incorporated this knowledge into itsprograms. Partly as a result of these economicdevelopment efforts, many distressed communitieshave experienced significant turnaround. Howev-er, even well-intentioned redevelopment efforts canhave substantial adverse effects if they do notappropriately address the needs of the community’s

A Note from FundersU.S. Department of Housing and

Urban Development (HUD)

v

poorest residents. The result is the redevelopmentof “place,” but the worsening of the conditions ofthe “people” that once lived there.

The need to simultaneously address peopleand place remains one of the most daunting chal-lenges in community redevelopment. It is an issuethat has become increasingly important as adecade of record growth has led to reinvestment insome of the country’s most impoverished areas—atrend that provides both opportunities and chal-lenges.

This report on Resident Ownership Mecha-nisms provides valuable information for stimulatinga national conversation on how best to address thenexus of people and place in community develop-

ment. It provides the first comprehensive invento-ry of promising models for ensuring that low-income residents benefit from community revital-ization and discusses reasons why such approachesshould be made a fundamental part of a long-termredevelopment strategy.

The report is important, but it is only a firststep. Next steps include evaluating models todetermine factors of success or failure, defining thecontext in which they may be most effective, andassessing their potential impact. It may also beimportant to consider how these models interactwith federal, state, and local policies. It is hopedthat this report will both inform readers and inspiredialogue on this important issue.

vi | Sharing the Wealth: Resident Ownership Mechanisms

Lawrence L. Thompson General Deputy Assistant Secretary forPolicy Development and Research,U.S. Department of Housing andUrban Development

“Resident Ownership Mechanisms” (ROMs) arestrategies and tools to enable low-income/low-wealth residents to gain an ownership stake in therevitalization of their communities.

1

O v e r v i e w

For decades, economic development policy in theUnited States, at all levels of government, hasfocused on attracting private investment into poorurban and rural areas. While these policies havesometimes succeeded in changing the physicalenvironment of communities, they have been lesssuccessful at benefiting the people who live inthem. In large part this is because many residentsof poor communities do not own assets in theircommunities.

Sharing the Wealth: Resident Ownership Mech-anisms examines a range of strategies and instru-ments to increase opportunities for residents tobecome owners in the development process—to bestockholders, not just stakeholders, in local eco-nomic activity. Ownership can increase residents’financial assets and ensure that they have voiceand influence in decisions about their communi-ties. This report explores opportunities for resi-dents to be included as active and vested part-ners—with the private, public, and nonprofit sec-tors—in economic development activities in theircommunities.

Executive Summary

Disconnection Between People- and Place-Based Strategies

Historically, there has been a disconnectionbetween place-based (e.g., community develop-ment) and people-based (e.g., social services)strategies for addressing poverty. For over 40years, community development theory and practicehave focused on attracting public and privateinvestment to revitalizing places, while U.S. socialpolicy has focused on providing income and serv-ices to low-income individuals and families, withno direct link to the places where they live. Onlyrecently has there begun to be interest in linkingplace- and people-based policies and practices.

While public dollars are used to subsidize pri-vate investment in low-wealth communities(through direct subsidy, tax credits/abatements,loan guarantees, etc.), the subsidies rarely comewith a quid pro quo to ensure an economic returnfor residents. As a result, when these public andprivate investments spark neighborhood revitaliza-tion and asset values appreciate, residents withoutassets do not benefit. In fact, low-income and low-wealth residents are the first to be displaced whenrevitalization results in rising rents and real estatevalues. Historical, as well as recent, waves of dis-placement in cities experiencing rapid reinvest-ment demonstrate this predicament.1

Few economic development projects in low-income/low-wealth communities include explicitmechanisms to ensure that residents gain economicbenefits. Typically, the primary beneficiaries ofpublic incentives aimed at encouraging investmentin poor communities are private-sector investors,developers, and entrepreneurs. In many cases,urban and rural reinvestment is being fueled bypublic policies that encourage private investment(such as Empowerment Zones and redevelopmentpolicy); but, rarely, have the direct beneficiaries ofthese policies included the low-income/low-wealthresidents of the target communities.

The development of economic assets offers anopportunity for low-income and low-wealth resi-dents to build their assets. But, today, theseopportunities are not being realized.

Asset Poverty

At the same time, an ominous trend that ischallenging all poverty alleviation efforts is thegrowing wealth gap. Recent data have demonstrat-ed the widening divide between rich and poor, interms of income and ownership of assets. In 1998,the richest 1 percent of U.S. families (as ranked byfinancial wealth) owned 47 percent of total house-hold financial wealth; the richest 20 percent owned91 percent.2 At the same time, the top 10 percentheld almost 90 percent of the total value of stocks,bonds, trusts, and business equity.3

Some analysts blame decades of social policyfocused on income instead of assets. Others blameinequities in the tax structure that deliver subsi-dies for middle- and upper-income families andlargely leave the poor behind. Whatever the caus-es, being low-income and low-wealth limits anindividual’s or family’s future options. Withoutassets, poor individuals and families cannot takeadvantage of economic opportunities; nor can theyresolve crises—a rent increase or job loss—with-out severe consequences.

2 | Sharing the Wealth: Resident Ownership Mechanisms

1 Maureen Kennedy and Paul Leonard, Dealing With Neighbor-hood Change: A Primer on Gentrification and Policy Choices, Dis-cussion Paper from PolicyLink and the Brookings Institution Cen-ter on Urban and Metropolitan Policy (Washington, DC: TheBrookings Institution and PolicyLink, April 2001). This reportreviews the literature on gentrification and provides several recentcase studies of cities where rapid investment threatens the stabili-ty of lower-income residents and the businesses that have servedthem.

2 Edward N. Wolff, “Recent Trends in Wealth Ownership, 1983-1998” (New York: Jerome Levy Economics Institute WorkingPaper 300, 2000), p. 4 athttp://www.levy.org/docs/wrkpap/papers/300.html. Wolff definesfinancial wealth as “…net worth minus net equity in owner-occu-pied housing (the difference between the value of the property andits outstanding mortgage debt).”

3 Ibid.

Emerging Opportunities

Successful strategies are emerging that helplow-income and low-wealth individuals and fami-lies accrue financial assets. These strategies,including Individual Development Accounts(IDAs), have been effective at demonstrating thecapacity of low-income/low-wealth individuals tosave, given appropriate incentives and institutionalstructures. This report offers additional opportuni-ties to link revenues from community developmentto building individual and family assets. It pro-vides a survey of mechanisms being used by com-munity development practitioners, identifies inno-vative ideas in the field, and proposes new strate-gies that could be developed by building frommodels in the nonprofit, public, and private sec-tors.

Sharing the Wealth: Resident Ownership Mech-anisms was produced by PolicyLink with supportfrom the Fannie Mae Foundation and the U.S.Department of Housing and Urban Development(HUD), along with funding from the Ford Founda-tion, the Rockefeller Foundation, the Annie E.Casey Foundation, and the Open Society Institute.The Fannie Mae Foundation support was providedunder its Market Paradigm Agenda, which pro-motes market-based approaches to communityinvestment. Specifically, the report contributes tothe Foundation’s value recapture research, a com-ponent of its Market Paradigm Agenda that focuseson tools and strategies to ensure that lower-incomeresidents benefit from redevelopment efforts intheir communities.

The Research

The mechanisms examined in this report gobeyond traditional asset building strategies, suchas single family homeownership and individually-owned small businesses. They include a mix ofthe following characteristics:

• Leverage economic activity to produce resi-dent benefits;

• Target low-income/low-wealth communityresidents as beneficiaries;

• Enable residents to be owners of economicdevelopment activities;

• Build the financial assets of residents; and• Give residents a voice in decision-making.

Existing and emerging resident ownershipmechanisms are described, and conceptual modelsthat could be built from practical or policy prece-dents are proposed. The ROMs presented in thereport embody a continuum of mechanisms, someof which provide residents with opportunities toparticipate in decision-making and make a finan-cial return from investments, and others, at theopposite end of the continuum, that include fullownership and control of economic institutions.

3A PolicyLink Report | Executive Summary |

Commercial Real Estate DevelopmentCDC Development with Resident Partners

CDC Projects with Resident Shareholders

Resident Ownership of Real Estate Trusts

Value Recapture Framework

Community Building Trust

Community Building REIT

Mechanisms to Support Resident Investment

Individual Development Account

Community Building IDADevelopment-Supported IDA

Business DevelopmentShared Resident Equity in Business Development

Resident Ownership of Community Businesses

Resident Stock Ownership Plan

Customer Stock Ownership Plan

Cooperative Ownership Models

Employee Ownership• Worker-Owned Cooperative• Employee Stock Ownership Plan

Producer Cooperatives• Agricultural Cooperatives Serving• Low-Wealth Farmers• Craft Cooperative

Aggregation and Networking Among Cooperatives• Regional Cooperative Network

Public Enterprise

Public Ownership with Resident Dividends

Financial Institutions and Resident Ownership Community Development Credit Unions

Community and Individual Investment Corporations

Home Equity: Expanding Equity-Building OpportunitiesCommunity Land Trust

Limited Equity Housing Co-op

Leasing Cooperative

Section 8 Homeownership Program

Natural Resources: Capturing and Preserving Value for ResidentsAlaska Fund

General Stock Ownership Corporation

Fair Exchange Fund

Sky Trust

Quick R e f e r e n c eGuide to Models

This guide displays the fullrange of models discussedin this report. Modeldescriptions include back-ground information, exam-ples underway in the field,an assessment of how themodel currently meets ROMcriteria, and suggestions forstrengthening resident own-ership components.



Market Creek Plaza is a 20-acre, mixed-use commercial and cultural center in theheart of one of San Diego’s most ethnicallyand culturally diverse—and most dis-tressed—urban neighborhoods. A productof an extensive community planning process,Market Creek is among the nation’s firstreal estate development projects to be ownedby community residents.

Market Creek is anchored by a grocerystore and includes a multiplex theater, mul-ticultural restaurants, retail and office spaceand a 500-seat open-air amphitheater. Inthe fall of 2001, community residents willhave the opportunity to transition fromstakeholders to stockholders in the develop-ment. To facilitate this transition, a limitedliability corporation has been set up to sellshares (units) directly to residents.

Neighborhood investors will be includedas a special class of stockholders (members).The Jacobs Center for Nonprofit Innovationhas provided comprehensive support for thisresident ownership strategy, including theprovision of training in the economics ofinvestment to maximize the skills, knowl-edge, and information access of residentinvestors, as well as supporting the estab-lishment of several related entities to expandcommunity asset development and capacitybuilding in connection with the project.4

4 Description based on interview with Jennifer Vanica, ExecutiveDirector of the Jacobs Center for Nonprofit Innovation, March2001, and Jacobs Center document: “Market Creek Plaza—Com-munity Ownership: Building Individual and Community AssetsWhile Rebuilding a Neighborhood,” undated, used with permis-sion.

Highlights of Models and Examples

Commercial Real Estate Development

The report found a number of strong models ofresident ownership mechanisms tied to commercialreal estate development. One strategy is the saleof shares to residents in development projects ledby community development corporations. Anotheris the use of individual development accounts(IDA)—savings accounts matched by philanthrop-ic, public, or private resources—as a tool for com-munity investment in home buying, small business,and real estate development.

Sharing the Wealth also explores conceptualreal estate approaches. One such strategy, a Com-munity Building Trust (CBT), builds on the notionof value recapture advanced by the Fannie MaeFoundation and involves the creation of a trust oflocal real estate assets in which residents areshareholders in and managers of the trust. Theother builds from the existing legal construct of aReal Estate Investment Trust (REIT) and calls forthe creation of a local or regional CommunityBuilding REIT (CB/REIT) that would target resi-dents as shareholders.

One example that pulls from elements of sev-eral models is the Market Creek Plaza project inSan Diego, California.

Business Development

The business models include a broad mix ofexisting, emerging, and conceptual strategies. Oneinnovative strategy, described below, involves resi-dent ownership of community businesses.

Other business development models includedin the report are worker-owned cooperatives andemployee stock ownership plans in which workersare owners of firms; and producer cooperatives, inthe areas of agriculture and crafts, which benefitlow-wealth residents, primarily in rural and tribalcommunities. The report expands on theseapproaches by examining regional cooperativeassociations. It also examines public enterprisesthat include residents as primary beneficiaries.Finally, conceptual models explored in this chapterinclude innovative approaches to resident owner-ship in local businesses: Resident Stock Owner-ship Plans (RSOPs) and Customer Stock Owner-ship Plans (CSOPs).


B.I.G. Wash is a community businessstarted and owned by residents of the low-income Columbia Heights neighborhood inWashington, DC. The idea for the businesswas born when a group of friends were dis-cussing the need for a laundromat in theirneighborhood. With technical assistancefacilitated by the local Hope Housing Devel-opment Corporation, they researched themarket, secured financing, and ultimatelyraised $30,000 to start a laundry in 1995.They were able to do this by selling sharesof stock in the company for $100 per share,payable in increments, to others in theneighborhood.

The original investors received divi-dends equal to 185 percent of their holdingsover three years. In 1999, one member solda share for $600. They have not missed apayment on their debt and by the end of1999 had paid off one loan. The increasedequity and annual dividends increased thefinancial stability of the shareholders andeven enabled some to purchase homes in theneighborhood.5

5 Information for this description was derived from severalsources: a telephone interview with Rita Bright, B.I.G. Washfounder and board member, March 2001; David Montgomery, “ANeighborhood Cleans Up: Community Laundry Sells Shares,”Washington Post, March 8, 1999; and Jessica Gordon Nembhard,“Entering the New City as Men and Women, Not Mules: Democra-tic and Humane Economic Development Strategies for Revitaliz-ing Inner Cities” (unpublished manuscript, 2000), pp. 15–16.

Financial Institutions

The research found no models of resident own-ership mechanisms targeting large national orregional financial institutions (banks, insurancecompanies, etc.), but it did uncover models of resi-dent ownership in community development finan-cial institutions (CDFIs), such as communitydevelopment credit unions (CDCUs).

One innovative model, promoted by the U.S.Department of Housing and Urban Development(HUD) in the late 1990s, is the Community andIndividual Investment Corporation (CIIC). In itsoriginal conception, the CIIC initiative aimed to“…demonstrate the feasibility of new, community-oriented financial institutions…owned by the resi-dents of selected Empowerment Zones (EZs),Enterprise Communities (ECs), and other eligiblecommunities.”6 CIICs were a new form of resi-dent-owned financial institution designed to pro-vide access to capital in inner-city communities.The model was designed both to build assets forlow-income residents and to provide them with astronger voice in running an institution dedicatedto the development of their community.

Described in the box at left, the City FirstBank of DC is being structured in a way thatincludes key elements of the HUD CIIC model,including the resident ownership component.


City First Bank of DC Washington, DC

City First Bank of DC is a communitydevelopment bank that opened its doors in1998 when a small group of individualsconcerned about the scarcity of bankingservices for smaller businesses in the Dis-trict’s distressed areas, determined that theywanted to start a bank. They responded tothe CIIC funding opportunity through HUD.City First Bank received $3.5 million inEconomic Development Initiative (EDI)grants and $5 million in Section 108 loanfunds.

The bank provides credit and financialservices to individuals and businesses inlower-income, underserved areas. It isunique in that it will eventually enable arearesidents and businesses to control the bankthrough owning shares of stock.

While City First Bank of DC is in a sta-ble financial position, banks generally takeseveral years to achieve profitability. Conse-quently, the Board has decided to offer stockto residents when the bank becomes prof-itable, which could be as early as 2002.7

6 Department of Housing and Urban Development (HUD), Officeof Community Planning and Development, The Community andIndividual Investment Corporation: A guide to a new economicpartnership between citizens, government, communities, and the pri-vate sector (Office of Community Planning and Development,1996), p. 1.

7 Based on a telephone interview with Peggy Delinois, GeneralCounsel of City First Bank, January 2001, and an article byGwendolyn Flowers, “What Can We Expect from Community-based Lending for the District of Columbia,” American EconomicReview, 89:2 (1999), pp. 367–371.

Home Equity

The home equity section includes a number ofROM models that help to expand home ownershipopportunities to lower-income community resi-dents. These models include Community LandTrusts (CLTs), Limited Equity Housing Coopera-tives (LEHCs), Leasing Cooperatives, and HUD’sSection 8 Homeownership Program. LEHCsenable residents to share ownership of a buildingby purchasing shares in a cooperative corporation.They preserve ongoing housing affordability bylimiting the price at which shares can be resold.Leasing cooperatives broaden ownership opportu-nities by enabling residents to build their owner-ship stake over a leasing period. HUD’s Section 8Homeownership Program facilitates accumulationof home equity by providing assistance for mort-gage payments, as opposed to rental payments.

The following example highlights a CLT, aROM that aims to build individual and collectiveownership of property in low-income/low-wealthcommunities. “Community land trusts are demo-cratically controlled nonprofit organizations thatown real estate in order to provide benefits to localcommunities—and in particular to make land andhousing available to residents who cannot other-wise afford them.”8 CLTs “unbundle” the packageof rights commonly attributed to homeownership.They maintain ownership of the land while resi-dents own the buildings and other structuralimprovements.


Burlington Community Land TrustBurlington, Vermont

One of the largest and most influentialCommunity Land Trusts is located inBurlington, Vermont. Since the early 80s,Burlington has become an increasinglydesirable—and expensive—place to live.With active support from city government,Burlington Community Land Trust (BCLT)was established in 1984 to produce and pre-serve affordable housing for local residents.

In sixteen years, BCLT’s holdings havegrown to nearly 500 units of housing,including single-family homes, housingcooperatives, condominiums, and variedrental options. All of BCLT’s housing isaffordable not just for the first residents butfor all residents thereafter. BCLT DirectorBrenda Torpy says, “We’re old enough tohave had a number of resales, and we’veseen it really work. The second time aroundwe don’t need any additional governmentsubsidy and we typically serve a lower-income family. We’re doing that at thesame time that the seller is taking equitywith them and has had all the tax benefitsand all the security that homeownershipoffers.”9

8 Institute for Community Economics (ICE), “An Introduction tothe Community Land Trust Model,” undated.

9 This description is from the Institute for Community Economicswebsite at http://www.iceclt.org/clt/cltprofiles.html.

Natural Resources

The natural resources section examines strate-gies—existing and emerging—to capture the valueof natural resource development to help residentsbuild financial assets. One example, the AlaskaPermanent Fund, is highlighted as a business andnatural resource development model.

This report also includes a number of concep-tual models—the General Stock Ownership Corpo-ration (GSOC), the Fair Exchange Fund, and theSky Trust—that build on current thinking aboutleveraging the preservation and development ofnatural resources to benefit community residents.


Alaska Permanent FundAlaska

The Alaska Permanent Fund began opera-tions in 1976. Its original charge was toinvest a portion of the royalties and otherfees that the state collected from oil compa-nies drilling on its public lands. The Fundwas created by state constitutional amend-ment and ratified by voters.

The Alaska Permanent Fund Corpora-tion, guided by a six-person board oftrustees appointed by the governor, investsFund assets in stocks, bonds, and real estateto earn income. Although the Fund is bestknown for its dividend payments to Alaskancitizens, its initial focus was simply to pre-serve the fruits of the state’s oil wealth forfuture generations. The amendment stipu-lated that at least 25 percent of each year’soil royalties must go to the Fund, laterraised to 50 percent for fields drilled after1980. As of June 2000, total assets of theFund exceeded $28.1 billion.

The dividend program was establishedin 1982. Since then, the Fund has madean annual payment to every Alaskan resid-ing in the state for at least one year(including children). In 1984, each resi-dent received just $331.29; in the year2000, each resident received $1,963.86.The amount of the dividend varies eachyear based on the Fund’s performance thatyear and for the four previous years.10

10 Information for this example has been summarized from twosources: Alaska Permanent Fund Corporation, “Frequently AskedQuestions” at http://www.apfc.org/indexinc.cfm?p=faqindex.cfm&,and Eric Laursen, “The 20-Year Gusher” in Asset DevelopmentInternational, 1998, athttp://www.assetpub.com/archive/ps/97-02psfeb/feb97ps28.html.

Chapter IIIModels and Infrastructure includes descrip-tions of existing ROM models. Wherever pos-sible, the descriptions include case studiesfrom different communities, in the UnitedStates and abroad. It also includes conceptualmodels that could be designed to enhanceexisting models to better reach ROM goals.The second part of the chapter explores infra-structure issues—the web of resources, stake-holders, skills, and experience necessary forROMs to advance in the current political andeconomic contexts.

Chapter IVPerspectives from the Field includes highlightsof interviews with over 75 community develop-ment practitioners and other stakeholders fromaround the country. The section includes adiscussion of policy opportunities and chal-lenges and identifies key next steps to advancethe development and implementation of ROMconcepts and models. All of these chapterswere informed by a symposium, held in April2001, which gave interviewees and otherstakeholders an opportunity to assess the draftresearch findings.

Chapter VConclusion: Findings and Closing Commentsdiscusses key ingredients to ROM design,development, and implementation. It clarifiesimportant ingredients for creating effectiveROMS and for maximizing their outcomes;finally, it offers closing comments from theauthors.


Report Organization

Sharing the Wealth is organized into five chapters:

Chapter IFramework, Approach, and Methodology pro-vides an overview of the policy context forundertaking ROMs, the equitable developmentframework, and the general approach and spe-cific methodology used to carry out theresearch. It proposes the use of a simplescreen—the posing of the question “who bene-fits?”—to assess how low-wealth residents areserved by economic development initiatives intheir communities.

Chapter IIBackground: Historical Perspective and Litera-ture Review examines historical strains of thecommunity development movement relevant toROMs and links them to contemporary workon equitable development, other communityequity mechanisms, and to the concepts ofvalue recapture and social capital. It includesa survey of relevant literature, includingresearch and analysis of asset development,alternative ownership, business/finance, com-munity development, and community buildingtheory and practice.

Adequate funding and financing for planning andimplementation:Whether adapting an existing model or design-ing a new one, ROM development involves asubstantial commitment of time and resources.ROMs must meet local needs and priorities,and the requisite adaptation incurs costs.Developing ROMs requires early and ongoinginvestment by funders who are willing to sup-port a range of planning, development, andimplementation activities.

Active engagement in the political process:Much as other private developers, businessowners, and local financial institutions areactive players in the political process, so tooare successful ROM developers. Most of theplanning and development processes that ledto the ROM models described in this reportincluded outreach to local elected officials.Other ROM developers worked with academicinstitutions to gather the data necessary toensure that their story was being told.

Strong accountability systems:In the long term, the credibility of a ROMmodel will depend on effective and transparentmonitoring and evaluation systems.

Finding ways to tell the story:Telling the story of how a ROM was createdand how it is operating helps to build finan-cial, political, and public support. In addition,documentation helps to spur replication andinterest in exploring mechanisms that canexpand ROM operations.


Key Ingredients of ROM Design,Development, andI m p l e m e n t a t i o n

The research uncovered a range of resident owner-ship mechanisms, covering five areas of economicdevelopment activity: real estate, businesses,financial institutions, home equity, and naturalresources. The research revealed a number of keyingredients in designing models that meet theROM goals and that are relevant to all phases ofROM planning and implementation:

Ongoing and meaningful resident education, par-ticipation, and leadership: Residents—the ultimate beneficiaries ofROMs—need to become engaged early and tostay involved throughout the planning andimplementation processes. Such involvementcan be catalyzed by diverse stakeholders andtake a variety of forms. It can be initiated by agroup of residents or by an established organi-zation. Participation can build a broad senseof ownership. Meaningful resident leadershipwill ensure that the selected ROM addressesreal community needs.

Access to high-quality technical support:The design, development, and implementationof ROM models require specialized technicalexpertise in a mix of finance, real estate, law,tax accounting, and other areas. Access tohigh-quality technical assistance can make thedifference in planning and operating a ROM.

The following points should be considered in orderto maximize the impact of ROMs:

• ROMs will have a greater impact if they arepart of comprehensive community planningefforts.

• Community-based organizations are integralto the design, development, implementation,and management of successful ROM models.

• Low-income/low-wealth residents willrequire subsidies and technical assistance togain access to some ROMs.

• Public policy measures will be needed toproduce large-scale benefits from ROMs.

Private markets are recognizing that poor com-munities hold a wealth of undervalued assets—buildings, infrastructure, and human capital—withthe promise of a strong return on investment. Tra-ditional approaches to economic development havenot included an explicit return for residents

because residents were not seen as active part-ners—stockholders—in the development process.ROMs offer new solutions for building collabora-tive, community-building approaches to develop-ment, producing win-win solutions for all stake-holders. ROMs benefit low-income/low-wealth res-idents, who become vested in their community’ssuccessful development, as well as privateinvestors and developers, who are able to profitfrom their work with residents as partners. ROMsare integral to establishing equitable developmentpolicies and practices that ensure benefits for low-income/low-wealth residents.

Resident ownership mechanisms, alone, willnot lift people out of poverty, but they can be partof the solution. They are an important and innova-tive approach to expanding asset building opportu-nities for community residents. Like other assetbuilding strategies, ROMs will help to increaseindividual and family wealth and help to buildstrong, organized communities.


Framework, Approach, and Methodology

13

Chapter I

11 Examples include home mortgage tax deductions, tax-favoredretirement accounts, and low capital gains taxes.

12 J. Larry Brown and Lar ry W. Beeferman, “From New Deal toNew Opportunity,” The American Prospect, February 12, 2001, pp.24–25.

Policy Context

Historically, U.S. policy has not focused on build-ing the assets and wealth of low-income/low-wealthpeople as a strategy to move people from poverty toopportunity. While the national tax structureencourages citizens to build financial assetsthrough a package of incentives and subsidies thatsupport savings and investment, these policies areoften inaccessible to low-income wage earners.11

The dearth of policies and strategies to increasesaving and investment opportunities for poor fami-lies has severely constrained their ability to gain afoothold in the economic mainstream, while stag-nant or falling wages have made income-focusedstrategies increasingly ineffective in addressingpersistent poverty.12

Instead, poverty alleviation efforts have movedalong two separate tracks of policy activity. Onetrack has produced a set of strategies intended to

improve the lives of poor people, regardless ofwhere they live. These strategies aim to mitigatethe effects of poverty through income supports andservices. The other track includes strategies thatfall under the rubric of “community development,”“economic development,” or “community economicdevelopment.” These strategies aim to improve theneighborhoods where poor people live—usuallyareas of concentrated poverty—with the hope ofimproving the lives of the people who live in them.

These disparate policy tracks only occasionallyintersect and are rarely linked to asset buildingpolicy.13 For low-income/low-wealth residents ofthe targeted communities, the results range fromlost opportunities to displacement. For example,when local economic development projects are notaccompanied by services to enable residents totake advantage of emerging job opportunities, suchas transportation and job placement or training,then residents do not benefit from those opportuni-ties. When economic development projects resultin rising real estate values with no asset buildingopportunities for low-income renters and homeown-ers, then these residents are typically forced tomove because they can no longer afford to pay therent or taxes on their homes.

Problems Point to New Opportunities and New Challenges

Increasing awareness of the implications of agrowing wealth gap has triggered recent efforts toexpand access to savings and investment opportu-nities for low-income citizens. Relevant policysuccesses include expansion of the Earned IncomeTax Credit (EITC) and the child tax deduction,which include a refundable tax credit for low-income families. At the same time, communitydevelopment practitioners have continued tostrengthen strategies that more explicitly linkplace-based (community development) and people-based (social services) policy and practice in waysthat enable low-income/low-wealth individuals andfamilies to build their financial assets while con-tributing to the improvement of their communities.

Some such strategies—low-interest loans forhomeownership and small and/or micro-enterprisebusiness development—have included direct sub-sidies and support services to enable low- andmoderate-income residents to invest in their com-munities. These savings and investment strategiesare producing measurable outcomes in terms ofenabling lower-income residents to save and investin ways that are improving their communities; butthey are still accessible to only a subset of resi-dents—those with the resources, capital, and skillsrequired to make the up-front investment. In themeantime, newer strategies, like Individual Devel-opment Accounts (IDAs), are opening up savingsand investment opportunities to a broader array ofresidents and paving the way for more creativeapproaches to asset-based policies.


13 Empowerment Zones offer one example of where people- andplace-based approaches do intersect.

Leveraging Opportunities to Seek Solutions

Recent interest in the undervalued assets ofAmerica’s “emerging markets” is presenting newopportunities for a convergence of these disparatepolicy solutions to persistent poverty. This interesthas been fueled by a strong demand for affordablehousing, while favorable rates of return experi-enced by Community Reinvestment Act (CRA)investors have catalyzed recognition of investmentopportunities in low-income/low-wealth communi-ties.

Many community development analysts areseizing this opportunity to think about how toleverage economic development in ways that bothaddress poverty among low-income/low-wealth res-idents and benefit multiple sets of stakeholders.“Smart growth” planning efforts underway at thelocal, regional, state, and national levels are oneexample in that they include diverse stakehold-ers—equity advocates, environmentalists and busi-ness—working together around common reinvest-ment goals. A new generation of venture capitalfunds—in California, Massachusetts, Oregon, andFlorida—that aim to produce a “double-bottomline” of financial returns and social equity out-comes are another example.

These efforts are helping to move discussionsabout economic development policy and practicefrom a “zero-sum game” comprised only of winnersand losers to new “win-win” solutions that producemutual benefits for a broad range of stakeholders.But, efforts to address poverty in the target commu-nities are still constrained by the limited numberof tools available to enable low-income/low-wealthresidents to gain an equity stake in the develop-ment process. Without these mechanisms, it is dif-ficult if not impossible for many residents to par-ticipate in the benefits of economic growth in theircommunities.

Responding to Need and Opportunity

Sharing the Wealth offers a “menu of opportu-nities” for community residents, developers,investors, and other stakeholders to consider newforms of community development partnerships—ones that include residents as stakeholders andstockholders in the development process.

The mechanisms examined go beyond tradi-tional asset building strategies, such as homeown-ership and business development, and suggestways for community residents to gain a shared eco-nomic stake in their communities—in real estate,businesses, financial institutions and naturalresources. It accomplishes this task by examininga range of existing, emerging, and conceptual resi-dent ownership mechanisms.

Sharing the Wealth is targeted to a diverseaudience of community development practitioners,researchers, policy analysts, foundations, andinvestors interested in leveraging economic devel-opment opportunities to benefit multiple stakehold-ers, including community residents and institu-tions. It does not pretend to offer any one solution.But, it does aim to contribute to the national dia-logue about the array of strategies necessary toenable low-wealth families to move from poverty toeconomic opportunity, building both people andplaces, simultaneously, as part of healthy commu-nities.

15A PolicyLink Report | Chapter I: Framework, Approach, and Methodology |

F r a m e w o r k

Equitable Development, Community Equity Mechanisms,and Resident Ownership

The concept of resident ownership mecha-nisms has emerged from PolicyLink efforts todevelop the elements of a practical and policyframework for regional economic development or“equitable development.” Equitable developmentaims to:

• Engage and direct market forces to benefitlow-income/low-wealth residents and com-munities;

• Include multifaceted strategies designed toensure individual and community benefitfrom neighborhood improvement;

• Support meaningful resident participation indecision-making; and

• Integrate people-oriented services withplace-oriented neighborhood and regionaldevelopment.

Equitable development, however, is merely aframework. Achieving equitable developmentrequires a broad set of tools that can be used toinform, guide, and support the work of communitybuilders around the country. These tools, broadlydefined as “Community Equity Mechanisms(CEMs),” include a range of strategies and prac-tices that enable low-income/low-wealth communi-ty residents to advance a regional equity agenda.14

CEM tools are being developed to addressregional inequity in areas such as housing,employment, job training, social services, invest-ment, and savings. They include a broad range ofmechanisms such as those that enable low-income/low-wealth residents to access suburbanjobs; derive benefits from public investment;obtain access to affordable housing throughoutmetropolitan regions, etc. Resident ownershipmechanisms are one form of community equitymechanisms.

PolicyLink staff chose to conduct research onROMs as part of the CEM toolkit for several rea-sons:

• Resident ownership is a direct and an endur-ing way to ensure that residents obtain finan-cial benefits from—and a voice in—thedevelopment process, factors that are criticalfor promoting equitable development;

• ROMs are tools that can help the public andprivate sectors to partner with communitystakeholders;

• ROMs give residents a vested interest in thesuccess of economic development venturesin their community;

• There is a dearth of applied research on theownership mechanisms that could be appliedto economic development policy and prac-tice; and

• Discussion and consideration of residentownership opportunities draw attention to theissue of how community residents do or donot benefit from economic development at alllevels of planning and decision-making.


14 In this context, “equity” is defined as “justice according to nat-ural law or right; specifically: freedom from bias or favoritism,”Merriam Webster Collegiate Dictionary, Tenth Edition.

Who Benefits?

The long-term objective of the ROMresearch—and the equitable development work—is to catalyze a shift in the way that communityresidents, leaders, intermediaries, academics, poli-cymakers, and the public view “success” in therealm of economic development in the nation’s low-income/low-wealth communities. The first steptowards this goal is to ask: who benefits?

• Who benefits from community-based develop-ment policies, strategies, and projects?

• Who benefits from municipal economicdevelopment policy and practice that offerincentives and technical support to encour-age and facilitate private-sector investment?

• Who benefits from regional, state, and federalpolicies that result in subsidies to encouragethe flow of public and private capital intolow-wealth communities?

• Who benefits from the range of public- andprivate-sector investments in low-wealthcommunities?

The long-term goal of the equitable develop-ment work underway at PolicyLink is to ensurethat the answer to these questions is: low-income/low-wealth residents of communitiesthroughout metropolitan regions.

Important ConsiderationsRegarding the ROM Framework

ROMs embody a continuum of mechanisms,some of which provide residents with elements ofvoice and financial return, and others—at theopposite end of the continuum—that include fullownership and control of economic institutions.

Broadened ownership can play an important role inenabling residents to have a voice and decision-making authority in the economic developmentprocess; but even the level of ownership associatedwith the most fully developed ROMs is insuffi-cient, by itself, to achieve equitable development.Local economic development planning processesand institutions that include residents as leaders inthe planning process are also critical to producingequitable outcomes. In the final analysis, strongorganized communities—the product of communityoutreach, resident education, and organizing—arealso essential to building the political power andpublic will necessary to ensure equitable develop-ment outcomes.

ROMs are a unique form of community equitymechanism that focus on building a direct finan-cial stake for individuals and families in economicdevelopment projects.

Some readers may perceive a tension betweenindividual and collective ownership, but this ten-sion should not be assumed. By creating opportu-nities for larger numbers of residents to gain anownership stake in a broader range of communityassets, ROMs are actually building the collectiveownership of community assets. For example,community building real estate investment trustswould ensure that investment in community realestate development is opened to a broad range ofcommunity residents, while resident stock owner-ship plans would create ways for residents to own astake in business development.15

Other models, such as community land trusts,maintain collective assets (affordable housing) andat the same time offer opportunities for individualasset building. The value placed on maintainingaffordability versus enabling residents to buildfinancial assets is an important decision to bemade by local stakeholders in response to the cir-cumstances and priorities of each community.


15 See “Chapter III. Models and Infrastructure” for details.

• If community residents have an economicstake in the development process, they aremore likely to engage—and be heard—indecisions affecting their community;

• It is in the interest of private- and public-sector developers, business owners, andfinancial institutions to provide ownershipopportunities to community residents. Whenresidents have a direct stake they becomepartners in ensuring the success and vitalityof economic development projects in theircommunity;

• Resident ownership mechanisms help buildsocial capital by creating opportunities andincentives for often adversarial parties tocome together over win-win strategies thatrevitalize local communities.

Levels of Investigation

Research involved three primary levels ofinvestigation, including examination and analysisof:

• Existing wealth-building approaches thatenable residents of low-income/low-wealthcommunities to obtain an ownership stake incommunity assets;

• New ownership and wealth creation mecha-nisms that could be developed by applyingexisting models—in the public, private, andnonprofit sectors—to the community devel-opment arena; and

• Infrastructure—financial resources, techni-cal assistance, organizational support, finan-cial training/education, etc., needed to sup-port and expand opportunities for residentsto build financial assets through the revital-ization process.


Approach and M e t h o d o l o g y

Approach

The findings regarding resident ownershipmechanisms, as described in this report, are theproduct of a nine-month PolicyLink nationalresearch project. The short-term goal is to helpbuild the knowledge base for ROMs specificallyand community equity mechanisms generally. Thelong-term goal is to apply this knowledge base sothat communities can use ROMs as a tool towardachieving equitable development.

Hypotheses Guiding Research

The research for this survey of ROMs is guid-ed by the following set of hypotheses about therelationship between community development andindividual asset building/accumulation strategies.Additional research is required to fully test thesehypotheses:

• Local/community economic developmentoffers opportunities to build the financialassets of low-income/low-wealth individualsand families;

• Increasing opportunities for residents tobuild their financial assets, through thedevelopment process, will increase theirability to achieve family economic security;

• Greater economic security among residentsand families will contribute to the social sta-bility of the neighborhood;

Model Selection Criteria

A working set of criteria was used in theresearch process. The models all met the followingcriteria, to varying degrees.




• Build the financial assets of residents; and

• Give residents a voice in decision-making.

What Is and Is Not Covered

The ROM research focuses on models thatbuild the financial assets of community residentsthrough the development of real estate, businesses,financial institutions, and natural resources intheir communities. Conventional strategiesattempting to build resident ownership of single-family homes, small businesses, and micro-enter-prises are strong examples of ROMs, but are notfeatured in this report, because a large body of lit-erature already exists on these topics. Only home-ownership strategies specifically targeted toincreasing opportunities for the lowest-income resi-dents through shared approaches to building homeequity have been included.

Institutional ownership of community assetswas not the focus of this report; but the researchdoes examine the roles of community-based insti-tutions in helping advance ROMs in ways that areresponsive to broader community building goals.The infrastructure section highlights the need tobuild the capacity of community-based institutionsto enable them to serve as initiators, facilitators,service providers, and intermediaries in ROMdevelopment.

The research raises issues that require addi-tional investigation, including:

Risk/reward:Additional research is needed to assess thepotential levels of risk and reward and to iden-tify risk mitigation strategies associated witheach ROM.

Documentation of the link between resident owner-ship and civic engagement:Anecdotal evidence and some research datasuggest a causal relationship between residentownership and civic engagement that requiresfurther evaluation and documentation.

Demand for resident ownership mechanisms: A more systematic “market analysis” wouldserve to document the demand for differenttypes of ROMs at the local level. Such ananalysis should include an assessment of theeconomic viability of different models.

Impact, scale, and effectiveness of models:This report offers an overview of a cross-sec-tion of resident ownership mechanisms. Thosemechanisms deemed most promising by practi-tioners (informed by the market analysis men-tioned above) will require additional evalua-tion regarding their past and present effective-ness and the potential for replication andexpansion.

Assessment tool:Communities will need a tool to help themassess which ROMs are most appropriate givenlocal conditions, assets, capacities, and needs.Such a tool would enable communities to makeinformed decisions regarding which ROMs tointegrate into a broader portfolio of equitabledevelopment strategies.


Policy tools and opportunities:The policy discussion in Chapter IV proposesa general framework for advancing ROMs.Additional research is needed to identify spe-cific opportunities and tools at the local,regional, state, and national levels.

Attention to rural issues and priorities:While this report includes a preliminary inves-tigation of rural ownership models, furtherinvestigation is required to identify modelsthat adequately address the needs and priori-ties of rural communities.

Investigation of models from other countries:Models from other countries were referencedduring the research process, but the team didnot have sufficient time or resources to ade-quately explore them. Additional research isneeded to gain insight from resident ownershipmechanisms in other countries and to deter-mine how that research may be relevant tointernational economic development policyand practice.

Methodology

The research process leading to this reportincluded a nine-month investigation:

Literature Review:The research team conducted an environmen-tal scan and compiled a bibliography of aca-demic, policy, and practitioner writings. Theliterature survey is included in Chapter II.

Interviews:The PolicyLink research team conducted over75 interviews with key informants at thenational and local levels to answer a number ofquestions:

• How does the ROM framework relate to his-torical and contemporary community devel-opment and community building theory, poli-cy, and practice?

• How are the models under investigation rele-vant to activity underway in communitiesacross the country?

• What additional models, concepts, orapproaches should be included as part of theresearch?

• What type and level of technical assistanceis needed to support ROM strategies?

• How does the contemporary economic andpolitical context affect the environment foradvancing ROMs?

Symposium to Review Draft Findings:An integral step in the research process was asymposium held April 10, 2001, in Washing-ton, DC, where interviewees and other stake-holders reviewed and discussed the draftresearch findings. Participants includednational and local practitioners in communitybuilding and development, finance, real estate,housing, public policy, philanthropic funding,and other areas of expertise. Their commentsand recommendations served to strengthen thereport and to give direction to a broader policy,research, and action agenda.

In addition to publishing and distributingSharing the Wealth, PolicyLink is authoring aseries of related articles for policymakers, themedia, and the general public.


This chapter includes background informationrelevant to the research, including an overview ofthe trends in community development that haveset the stage for the development of ROMs, and areview of relevant literature.

Background:Historical Perspective and Literature Review

21

Chapter II

ed by community activists focused on the civil andeconomic empowerment of community residents;many were led by community-based leaders of var-ious social movements, including the civil rightsmovement, economic rights groups, organizing net-works, and faith-based groups.17

By the late 1970s CDCs, with strong ties toneighborhood activism and organizing, numberedbetween several hundred and a thousand.18 How-ever, beginning in 1981, large federal funding cutsreduced CDCs’ ability to rely on federal funds forcore support, thereby diminishing their capacity totake on a range of community improvement activi-ties. In response, the generation of CDCs thatgrew up in the 1980s and 1990s specialized in thedevelopment of affordable housing, for which fund-ing was available and increasingly tied to privatecapital investment through mechanisms such asthe Low Income Housing Tax Credit.19 Most CDCsretained neighborhood-focused strategies andincluded resident representation/voice in theirorganizational structures, but few developed oradvanced strategies to build resident ownershipopportunities.


16 Alice O’Connor, “Swimming Against the Tide: A Brief Historyof Federal Policy in Poor Communities,” in Urban Problems andCommunity Development, Ronald F. Ferguson and William T.Dickens, eds. (Washington, DC: Brookings Institution Press,1999), p. 77.

17 Sara E. Stoutland, “Community Development Corporations:Mission, Strategy, and Accomplishments,” in Urban Problems andCommunity Development, Ronald F. Ferguson and William T.Dickens, eds. (Washington, DC: Brookings Institution Press,1999), p. 197.

18 Stoutland, 1998. The author also cites Robert Zdenedk, “Com-munity Development Corporations,” in Beyond the Market and theState, Severyn Bruyn and James Meehan, eds. (Philadelphia: Tem-ple University Press, 1987), pp. 114–115; and Neal Pierce andCarol Steinbach, Corrective Capitalism: The Rise of America’sCommunity Development Corporations (New York: Ford Founda-tion, 1987), p. 27.

19 Stoutland, 1999, and Christopher Walker and Mark Wein-heimer, Community Development in the 1990s (Washington, DC:The Urban Institute, 1998).

Historical P e r s p e c t i v e :Connecting People and Place

The Continuing Evolution of the Community Development Movement

Community development…has come to encom-pass a large number of different place-targetedinterventions that have never quite added up toa coherent, comprehensive strategy.16

The community development movement is onethat has grown and evolved in response to chang-ing community priorities, funding streams, andpolitical and economic opportunities. At the heartof the movement are community development cor-porations (CDCs) that grew out of community-ledefforts in black neighborhoods in the early 1960s.With roots in the movement for black economicself-determination, the early CDC movementembodied concepts of resident ownership and con-trol of community assets. Many CDCs were found-

Community Building as an Evolution of the Movement

In the 1990s, the community building move-ment began to articulate a new way of thinkingabout community development. It began to refocusattention on the need to link the development ofplace, low-income/low-wealth communities, withpeople, the residents of those communities, withinthe context of broader community planning efforts.The community building movement sought tostrengthen the community revitalization process ina way that builds a new civic dialogue about pover-ty issues. It aimed to expand the range of stake-holders in the dialogue to include community resi-dents, community-based developers, serviceproviders, foundations, academics, policymakers,and private sector actors.

The approach of community builders broughtrenewed emphasis to the centrality of residentvoice and agency (decision-making authority) inthe community revitalization process.20 The hall-mark of community building is the integration ofservices and development strategies in ways thatare responsive to the complex lives of those livingin concentrated poverty. Community builders alsobegan to routinely incorporate enrichment activi-ties (sports, cultural events, family support) asessential components of comprehensive approachesto change.

The Increasing Importance of Asset Accumulation Strategies

Out of the community building movement, anumber of practitioners and academics beganemphasizing the importance of building assets ofall types as a strategy to enable low-income/low-wealth families to escape poverty. Broadlydefined, assets can be thought of as “a special kindof resource that an individual, organization, orentire community can use.”21 While this reportfocuses principally on the importance of accumu-lating financial assets as a means to overcomingpoverty, assets of all types have relevance to thedevelopment of resident ownership mechanisms.

In his comprehensive review of asset concepts,Larry W. Beeferman describes a range of assettypes, including: financial, income, human capital,community, social capital, enterprise, and commonassets.22 John B. Kretzmann and John L.McKnight, in particular, pioneered the strategy of acommunity recognizing or “mapping” diverseassets as a foundation for community development.Relevant assets include the individual skills, gifts,and capacities of residents; neighborhood religious,cultural, athletic, and recreational associations;and more formal institutions within the communitysuch as private businesses, schools, libraries,parks, police and fire stations, hospitals, and social

23A PolicyLink Report | Chapter II: Background |

20 G. Thomas Kingsley, Joseph B. McNeely, and James O. Gibson,Community Building Coming of Age (Washington, DC: Develop-ment Training Institute and Urban Institute, 1997), and JoanWalsh, Stories of Renewal: Community Building and the Future ofUrban America (New York: Rockefeller Foundation, 1997).

21 Melvin L. Oliver, foreword to Securing the Future: Investing inChildren from Birth to College, Sheldon Danziger and Jane Wald-foge, eds., (New York: The Russell Sage Foundation, 2000), p. xii.Cited in Larry W. Beeferman, “Working Paper on Asset Develop-ment Policy: Beyond the New Deal and Devolution” (draft inprogress, 2000), p. 10.

22 See Beeferman, pp. 12–15.

service agencies.23 Others describe “social ener-gy” as an important asset in the developmentprocess, as a strategy that “allows communitymembers to combine their energy and willingnessto work together with unconventional and alterna-tive resources.”24

As the 1990s produced increasing evidence ofa widening wealth gap in America, communitydevelopment practitioners, policymakers, and aca-demics paid increased attention to financial assetaccumulation strategies in addressing poverty.Recent research and practice have demonstratedthat the poor indeed have the ability to accumulatefinancial assets. For example, Hernando de Sotodescribes the tremendous stock of undocumentedassets held by the poor in developing countries,which take the form of undeeded homes, unregis-tered businesses, and other undocumented hold-ings.25 In the United States, the American DreamPolicy Demonstration has shown that low-incomeparticipants are able to save, accumulating anaverage of $900 per year through Individual Devel-opment Accounts (IDAs).26

Several strategies are emerging to facilitateasset accumulation by the poor. Developed by theCorporation for Enterprise Development (CFED)and the Center for Social Development, IDAs are amechanism modeled after the Individual Retire-ment Account (IRA). IDAs help residents to buildindividual assets by matching savings with subsi-dies from the philanthropic sector, individualdonors, and, more recently, the public sector.These accumulated funds can typically be used for

the purchase of a home, education, or small busi-ness development. IDA programs helped to attractattention to the importance of asset building andaccumulation for individual residents and families.The IDA movement established a precedent forphilanthropic and, ultimately, public subsidies tosupport low-income/low-wealth individuals toaccumulate financial assets.

Another strategy, advanced by the federalDepartment of Housing and Urban Development(HUD), is the Family Self-Sufficiency (FSS) pro-gram. FSS is a government-supported asset accu-mulation model that enables low-income familiesin Section 8 or public housing to have part of theirrental payment put in an escrow account andretrieve it at the end of a designated period. TheFSS model is relevant to the ROM discussion inthat it is a mechanism whereby public agencies(HUD and public housing agencies) are subsidiz-ing savings by low-income/low-wealth individualsand families. Approximately 1,200 public housingagencies are implementing the FSS program, withabout 50,000 families enrolled.


23 See John B. Kretzmann and John L. McKnight, Building Com-munities from the Inside Out: A Path Toward Finding and Mobiliz-ing a Community’s Assets (Evanston, IL: Institute for PolicyResearch, 1993), pp. 1–11.

24 Jessica Gordon Nembhard, “Entering the New City as Men andWomen, Not Mules: Democratic and Humane Economic Develop-ment Strategies for Revitalizing Inner Cities” (unpublished manu-script, 2000), p. 7. She cites Haynes’ definition of social energyas “nonmaterial resource stimulated by the strategic use of coop-erative action and consensus seeking.” See Curtis Haynes, Jr.,1993, “An Essay in the Art of Economic Cooperation: CooperativeEnterprise and Economic Development in Black America,” Ph.D.dissertation, University of Massachusetts, Amherst.

25 Hernando de Soto, The Mystery of Capital: Why Capitalism Tri-umphs in the West and Fails Everywhere Else (New York: BasicBooks, 2000).

26 Amanda Moore et al., Saving, IDA Programs, and Effects ofIDAs: A Survey of Participants , research report (St. Louis: Centerfor Social Development, Washington University, 2001), p. 7. TheAmerican Dream Policy Demonstration is a joint endeavor ofCFED and CSD to assess the effectiveness of IDAs. It includes14 sites, 2000 participants, and runs from 1997 to 2001.

Micro-enterprise and Capital Access Strategies Contribute to the Movement

Two parallel movements began to emerge inthe 1980s and 1990s of significance to residentownership mechanisms. The micro-enterprisedevelopment movement in the 1980s and the Com-munity Development Financial Institution (CDFI)movement in the 1990s helped to bring the issuesof individual ownership and access to capital to thecenter of community planning and revitalizationdiscussions.

The history of these two movements isdescribed, in Lisa Servon’s Bootstrap Capital:Microenterprises and the American Poor.27 Micro-enterprise development is a community develop-ment strategy that, for the most part, grew up in thedeveloping world. Initiated in Bangladesh in thelate 1970s with the establishment of the GrameenBank, the approach spread in the early 1980sthroughout portions of Asia, Africa, and LatinAmerica before it gained widespread attention as apoverty-alleviation strategy in the United States.

By the mid-1980s, domestic practitioners andpolicymakers began to see the strategy as a way toaddress the lack of access to credit among low-income/low-wealth entrepreneurs in the UnitedStates.28 The United States had a history of lend-ing programs available to entrepreneurs, but the

introduction of micro-enterprise development pro-grams focusing on lower-income populations was anovel concept. Spurred on by grassroots leaders—many with a focus on women entrepreneurs—micro-enterprise programs began to take hold inthe United States in the late 1980s. The emphasison access to credit and the need for financial liter-acy training added significant new strains to thecommunity development dialogue.

In the early 1990s, a number of federal policyinitiatives strengthened the connection betweenindividual credit access and training strategies andthe community development movement.29 In1994, a major piece of legislation, the CommunityDevelopment Bank and Financial Institutions Act,fueled the establishment of a network of CDFIs.Supported by the CDFI Fund, a wholly owned gov-ernment corporation within the U.S. Department ofthe Treasury, these institutions include micro-enterprise funds, community development creditunions, community development banks, communitydevelopment loan funds, and community develop-ment venture capital funds.

By the late 1990s, CDFIs had become a majorpart of the community development landscape.They had successfully drawn attention to the lackof access to capital in low-income communities,and they had succeeded in bringing new forms ofsocial capital into the community developmentmovement.


27 For the full history, see Lisa Servon, Bootstrap Capital:Microenterprises and the American Poor (Washington, DC: Brook-ings Institution Press, 1999), pp. 16–28.

28 It should be noted that some observers dispute the fact that thestrategy came from abroad by citing the establishment of theWomen’s Economic Development Corporation (WEDCO) in 1983in Minneapolis. See Servon, p. 22, for details.

29 Servon, p. 24.

Connecting Community Development to Community Residents

Taken together, by the late 1990s these cur-rents of theory and practice moved the dialogueabout community planning and revitalization to anew level. Focusing attention on the connectionbetween people- and place-based strategies, theyhelped raise awareness about the value of integrat-ed approaches. At the same time, a growingemphasis on building resident and family assetsserved to strengthen the link between communitystability and the economic security of residentsand their families. And increased interest in cred-it access and financial literacy helped highlight the“market imperfections”; i.e., the gap between thesupply and demand for capital at the neighborhoodlevel that in the past had severely constrained theoptions of community residents, entrepreneurs, anddevelopers.

ROMs and Value Recapture

In 1999 new frameworks, ideas and terminolo-gy were added to the community development fieldthrough a discussion about “value recapture,”spearheaded by the Fannie Mae Foundation, underthe Foundation’s broader Market Paradigmagenda.30 Value recapture is a broad developmentconcept that promotes the establishment of internalwealth-generating mechanisms within communities

that are undergoing revitalization to ensure that“lower-income residents benefit from redevelop-ment efforts in their communities.”31

According to the value recapture approach,any community currently with assets—physical,social, and financial—that are undervalued rela-tive to their full market potential can recapture theincreased value that might be generated from revi-talization, given the appropriate tools. Instead ofallowing market forces to take their own courseand displace existing residents, these same forcescan be leveraged to benefit community residents.While it promotes market-based strategies for com-munity revitalization, value recapture also empha-sizes community control and participation for itsmanagement.

Value recapture mechanisms (VRMs) are spe-cific tools and strategies that channel market-gen-erated funds into “activities that benefit residents,either individually or collectively.”32 Sources offunds primarily include “rising real estate values,but can also include non-real estate business rev-enues or fees.”33 VRMs can take many forms,depending on a variety of factors, including socioe-conomic character of the targeted neighborhoods,organizational strength of the community residents,regional economic trends, federal and state regula-tions informing revitalization efforts, availableinfrastructure and finances, etc.

The development of ROMs has the potential tocontribute to and enrich the broader concept ofvalue recapture in that ROMs promote asset devel-opment and ownership opportunities for individualresidents and families in the context of the commu-nity economic development process.


30 James H. Carr, “Community, Capital and Markets: A New Para-digm for Community Reinvestment,” in The NeighborWorks Jour-nal, vol. 17, no. 3 (1999): 20-23.

31 Carr, p. 20.

32 Fannie Mae Foundation, “Value Recapture Mechanisms”(Annual Housing Conference Binder, 2000), p. 3.

33 Ibid.

ROMs and Social Capital

Resident ownership mechanisms are directlylinked to contemporary discussions about buildingsocial capital. The term “social capital” is “abroad term encompassing the norms and networksfacilitating collective action for mutual benefit.”34

The term has been widely applied to the work ofcommunity builders as they have explicitly focusedon the value of relationships—among residents andbetween residents and institutions—in addressingquality of life issues in low-income/low-wealthcommunities.

Strategies to build and use social capital muststrive to make constructive connections with thefinancial and political institutions that play acritical role in community well-being. Scholarsstudying the role of social capital in developingcountries have used the term synergy to charac-terize the situation where local organizations,economic actors, and state institutions worktogether for positive developmental outcomes(Evans 1997; Woolcock 1998)….Synergydemands the creation of constructive connec-tions, a form of social capital, between organ-ized residents of poor communities and the offi-cials and staff of public and privateinstitutions.35

By offering residents opportunities to invest inand own economic institutions in their communi-ties, in partnership with other stakeholders, resi-dent ownership mechanisms provide communitybuilders/developers with tools to forge economicrelationships between community residents andthose institutions. Applied within the context ofcomprehensive community building efforts, thesetools provide practitioners with the means to buildnew forms of social capital that are critical to thehealth of their community.

Today, comprehensive community buildingefforts are weaving the evolutionary strands ofcommunity development together by bringing resi-dents back to the forefront of the movement asleaders, decision makers, policy advocates, andultimately, beneficiaries, of community revitaliza-tion efforts. The resident ownership mechanismshighlighted in this report can help to continue thisevolutionary process by offering new strategies tolink low-income/low-wealth community residents tothe benefits of community revitalization.36


34 Michael Woolcock, “Social Capital and Economic Develop-ment: Toward a Theoretical Synthesis and Policy Framework,” inTheory and Society, 27 (1998): 151.

35 Mark R. Warren, J. Phillip Thompson, and Susan Saegert,“Social Capital and Poor Communities: A Framework for Analy-sis,” (paper delivered at the Conference on Social Capital andPoor Communities: Building and Using Social Assets to CombatPoverty, 1999), p. 23.

36 “Community builder” describes a range of stakeholders in thecommunity revitalization process—residents, community-baseddevelopment and financial institutions, community developmentcorporations, public and private sector stakeholders, and privatephilanthropy.

Contemporary Challenges

Contemporary challenges are putting the issueof resident ownership at the center of the commu-nity development/building dialogue. Multipleforces are catalyzing this shift: a growing recogni-tion of the wealth gap, and the importance of assetaccumulation for low-wealth individuals and fami-lies, and recognition of new opportunities to lever-age public and private sector investment into pre-viously disinvested markets in ways that benefitcommunity residents. The remainder of this sec-tion highlights key reasons for community buildersto prioritize the creation of an expanded menu ofasset building opportunities in their poverty allevi-ation efforts.

The Growing Significance of the Wealth Gap

A growing body of research about the Ameri-can wealth gap is drawing attention to the issue ofasset poverty in communities. This research showsthat community builders cannot fully addressissues of poverty without paying attention to thedearth of assets among low-income community res-idents.

Economic circumstances, now reinforced byrecent changes in public policy, compel the poorto “work first” in jobs that are seldom ladders ofopportunity….For many American households,this set of realities means uncertain employ-ment, as well as wages that hover at a subsis-tence level. It often means a future with noprospect of significant social mobility—a path-way of low-wage, low-skill, and low-benefit jobswith no opportunity to gain the skills and sup-ports to move up.37

Described in greater detail in the literaturereview, numerous researchers helped to contributeto the growing body of knowledge about the gap infinancial assets within America; among them:Melvin Oliver, formerly at the University of Cali-fornia, Los Angeles and now at the Ford Founda-tion; Thomas Shapiro at Northeastern University;Dalton Conley of Yale University; Michael Sher-raden at Washington University in St. Louis, Mis-souri; and Edward Wolff at New York University.

These researchers use numerous definitions ofwealth in their data gathering and analysis. Onedefinition offered by Wolff is:

Wealth is found by adding together the networth of the household. Wealth is found byadding together the current value of all theassets a household owns—financial wealth suchas bank accounts, stocks, bonds, life insurancesavings, mutual fund shares; houses and unin-corporated businesses; consumer durables likecars and major appliances; and the value ofpension rights rights—and subtracting liabili-ties—consumer debt, mortgage balances, otheroutstanding debt.38

Selected highlights of their research findings:

• “Equalizing trends of the 1930s–1970sreversed sharply in the 1980s. The gapbetween the haves and the have-nots isgreater now than at any time since 1929.”39


37 J. Larry Brown and Larry W. Beeferman, “From New Deal toNew Opportunity,” The American Prospect, (February 12, 2001):24–25.

38 Edward N. Wolff, Top Heavy: The Increasing Inequality ofWealth in America and What Can Be Done About It (New York:The Twentieth Century Fund. 1995), p. 1.

39 Wolff, p. 2. Wolff ’s sources include the following: “Data on thesize distribution of household wealth in the United States areavailable principally from estate tax records and cross-sectionalhousehold surveys. The existing information can be piecedtogether to document the historical trends. A reasonably consis-tent series of estate tax records for the very wealthy collectednationally exists for selected years between 1922 and 1986. Com-parative estimates of household wealth inequality are also provid-ed from four surveys conducted by the Federal Reserve Board, in1962, 1983, 1986…and 1989. As indicated above, these arebased on strategic samples and are reasonably consistent overtime. In addition a figure for 1979 is obtained from the IncomeSurvey and Development Program (ISDP) of that year.

• “In 1998, the top 1 percent of families (asranked by marketable wealth) owned 38 per-cent of total household wealth, and the top20 percent of households held 83 per-cent.”40

• As of 1998, financial wealth was even moreconcentrated, “with the richest 1 percentowning 47 percent of total household finan-cial wealth and the top 20 percent owning 91percent.”41

• “In 1994, the median white family heldassets worth more than seven times those ofthe median nonwhite family.”42

• “Nearly three-quarters of all black children,1.8 times the rate for whites, grow up inhouseholds possessing no financialassets.”43

• “In the end it may be the economically dis-advantaged family backgrounds of youngAfrican Americans more than the color oftheir skin that hurt their efforts to accumu-late wealth.”44

• By far the bulk of the assets relating to busi-ness, real estate, and a range of financialenterprises is held by the few. “[The richestone percent of households (as ranked bywealth) invested about 80 percent of theirsavings in investment real estate, businesses,corporate stock, and financial securities in1995.]”45

• Those same households [above] “held half ofall outstanding stock and trust equity, almosttwo-thirds of financial securities, and overtwo-thirds of business equity, and 35 percentof investment real estate.”46

• In 1995, “the fraction of households withzero or negative wealth [was]…29 per-cent.”47

The wealth gap is relevant to a broad range ofpublic policies and particularly relevant to contem-porary community development/building discus-sions. If community builders do not pay attentionto asset accumulation and focus only on incomegeneration and service delivery strategies, in thelong run they will not be able to gain access toeconomic opportunities for the vast majority of low-income/low-wealth residents. Resident ownershipmechanisms are one set of mechanisms that canhelp low-wealth residents accrue financial assets.


40 Edward N. Wolff, “Recent Trends in Wealth Ownership, 1983-1998,” (New York: Jerome Levy Economics Institute, WorkingPaper 300, 2000), p. 4 athttp://www.levy.org/docs/wrkpap/papers/300.html. Wolff definesmarketable wealth, or net worth, “as the current value of all mar-ketable or fungible assets less the current value of debts. Networth is thus the difference in value between total assets and totalliabilities or debt,” p. 3.

41 Ibid., p. 4. Wolff defines financial wealth as “net worth minusnet equity in owner-occupied housing….It thus reflects theresources that may be immediately available for consumption orvarious forms of investments,” p. 3.

42 Dalton Conley, Being Black, Living in the Red: Race, Wealth,and Social Policy in America (Berkeley and Los Angeles: Univer -sity of California Press, 1999), p. 1. Conley cites the Panel Studyof Income Dynamics (PSID), 1994 Wealth Supplement as thesource for these data.

43 Oliver and Shapiro, p. 90.

44 Conley, p. 49.

45 Larry W. Beeferman, “Working Paper on Asset DevelopmentPolicy: Beyond the New Deal and Devolution,” (draft in progress,2000), p. 17. The author cites Edward N. Wolff, “Recent Trendsin Wealth Ownership” (paper delivered at the Conference on Ben-efits and Mechanisms for Spreading Asset Ownership in the Unit-ed States, New York, 1998), pp. 12–13.

46 Beeferman, p. 17. The author cites Wolff (1998), p. 14.

47 Beeferman, p. 17. The author cites Wolff (1998), pp. 15–16.

Displacement—The Achilles Heel of Community Development Theory and Practice

By the late 1990s, a continuous wave of rein-vestment in select regions and communities waspresenting serious challenges to community-basedinstitutions, leaders, and residents. Some commu-nities began to experience the soured fruits of“successful” revitalization efforts in the form ofwidespread displacement of low-wealth residents toother disinvested areas of the region.

If not an explicit intention of cities’ redevelop-ment efforts, gentrification can be a byproduct,particularly in cities with little vacant land orfew unoccupied buildings. For the benefits itcan bring, gentrification can impose greatfinancial and social costs on the very familiesand business owners who are least able to affordthem.48

While the displacement phenomenon of the1990s was limited to a subset of the nation’s for-merly disinvested, low-wealth communities, one ofits primary causes—low rates of asset ownershipamong community residents—is by no meansunique to these communities. The severe conse-quences of asset poverty in revitalizing communi-ties offer critical lessons for community builders.

Summary

Contemporary challenges point to the need forthe community development/community buildingmovement to pay closer attention to asset poverty.Not only is asset poverty limiting the economicchoices of low-income families, but it is also mak-ing them vulnerable to displacement when revital-ization is successful.

Described in Chapter III, resident ownershipmechanisms are tools that can be used to leverageeconomic activity in low-wealth communities tobuild the assets of low-income/low-wealth resi-dents. These tools can help the community devel-opment movement proceed in a new direction—one that links people and place by leveraging eco-nomic activity for the direct economic benefit ofcommunity residents.


48 Maureen Kennedy and Paul Leonard, Dealing With Neighbor-hood Change: A Primer on Gentrification and Policy Choices(Washington, DC: Brookings Institution Center on Urban and Met-ropolitan Policy and PolicyLink, 2001), p. 2.

Wealth Inequality and the Importance of Assets

Consideration of resident ownership mecha-nisms is emerging following a period of sustainedprosperity and growing inequity in terms of how thenation’s abundance is distributed. Wolff (1995)brings this inequity to light through an analysis ofwealth data in the United States, focusing on the1980s. During the period 1983–1989:

The share of the top 1 percent of wealth holdersrose by 5 percentage points. The wealth of thebottom 50 percent showed an absolute decline.Almost all of the absolute gains in real wealthaccrued to the top 20 percent of wealthholders.50

The sharpest inequality lies in the distributionof financial wealth and is particularly strikingwhen one examines how increases in financialwealth are dispersed.51 During the same “boom”period of 1983–1989, gains in financial wealthwere distributed in the following way: “66 percentof the growth accru[ed] to the top 1 percent and 37percent to the next 19 percent. The bottom 80 per-cent collectively lost 3 percent”52 (emphasis added).The growing disparity is “compounded by the starkreality of a growing proportion of households withzero or negative net worth.”53

It is important to note that these trends werenot confined to the 1980s. In a follow-up study,Wolff found that wealth inequality continued toincrease through the 1990s.54 Indeed, he foundthat:

The average wealth of the poorest 40 percentfell by 76 percent between 1983 and1999….The ownership of investment assets wasstill highly concentrated in the hands of therich in 1998. About 90 percent of the totalvalue of stocks, bonds, trusts, and business equi-ty were held by the top 10 percent.55


49 For a more comprehensive compilation of relevant literature,refer to the bibliography in Appendix B.

50 Edward N. Wolff, Top Heavy: The Increasing Inequality ofWealth in America and What Can Be Done About It (New York:The Twentieth Century Fund, 1995), p. 7.

51 Wolff identifies three concepts of wealth: marketable wealth,augmented wealth, and financial wealth. “Marketable wealth (ornet worth)…is the current value of all marketable or fungibleassets (‘fungible’ ones are defined as liquid assets plus stocks andother equities) less the current value of debts….Augmentedwealth [is] defined as the sum of household wealth, pensionwealth, and Social Security wealth….Financial wealth [is] definedas net worth minus net equity in owner-occupied housing (the dif-ference between the value of the property and its outstandingmortgage debt). Financial wealth is a more ‘liquid’ concept thanmarketable wealth, since one’s home is difficult to convert intocash in the short term. It thus reflects the resources that may bedirectly available for consumption or various forms of invest-ments,” pp. 59–60.

52 Wolff, p. 13.

53 Wolff, p. 51.

54 Edward N. Wolff, “Recent Trends in Wealth Ownership,1983–1998” (New York: Jerome Levy Economics Institute Work-ing Paper 300, 2000) athttp://www.levy.org/docs/wrkpap/papers/300.html.

55 Ibid., pp. 4–5.

Literature Review

The concept of resident ownership mecha-nisms draws on several different areas of thoughtand practice, including asset development, alterna-tive ownership, business/finance, and communitybuilding/community development. This literaturereview highlights works that best illustrate a cur-rent of thinking pertinent to resident ownership.It also highlights works that address the contempo-rary economic and policy context of renewed pri-vate investment in America’s “emerging markets”and the ensuing consequences for low-income/low-wealth residents.49

Within the context of the wealth gap, ROMsare predicated on the importance of asset owner-ship as a strategy for overcoming poverty. In thissense, they build on the research and analysis ofMichael Sherraden and the Center for SocialDevelopment, Washington University in St. Louis,Missouri. In particular, Sherraden (1991) arguesthat contemporary welfare policy has failedbecause of its emphasis on income, instead ofassets, as a measure of economic well-being. Hecounts among assets both tangible goods such asmoney savings, stocks, bonds, real property, andnatural resources, as well as less tangible itemssuch as human capital, cultural capital, politicalcapital, and social capital.56

According to Sherraden, policies such as taxsubsidies for corporate and individual retirementpensions and homeownership have enabled the nonpoor, rather than the poor, to build wealth andwell-being.57 Welfare recipients, on the otherhand, have actually been prevented from accumu-lating assets because of the limitations stipulatedby income transfer programs.58 Sherraden makesthe case for a significant asset building strategy:federally supported individual developmentaccounts that would provide matching funds orsubsidize deposits for the poor, with the specificpurpose of supporting long-range savings andinvestment.

De Soto (2000) highlights the asset accumula-tion capacity of even the most impoverished peoplein developing countries. He finds that the assetholdings of the poor are largely undocumented andinclude “houses but not titles; crops but not deeds;businesses but not statutes of incorporation.”59 DeSoto estimates that undocumented property hold-ings throughout the developing world approach avalue of $9.3 trillion. However, the absence of alegally integrated property system makes it nearlyimpossible for the poor to transform their assetsinto useful capital.

Oliver and Shapiro (1997) address the impor-tance of financial assets in particular through ananalysis of persistent wealth disparities amongblacks and whites, including blacks and whiteswith similar incomes. The authors stress theimportance of addressing current wealth inequality,since “wealth is closely tied to individual and fam-ily access to life chances.”60 They maintain thatwealth reflects both current circumstances and his-torical patterns of unequal access to materialassets.61

When black workers were paid less than whiteworkers, white workers gained a benefit; whenblack businesses were confined to the segregatedblack market, white businesses received the ben-efit of diminished competition; when FHA poli-cies denied loans to blacks, whites were the ben-eficiaries of the spectacular growth of goodhousing and housing equity in the suburbs.62


56 Michael Sherraden, Assets and the Poor (Armonk, NY: M.E.Sharpe, 1991), pp. 101–105.

57 Sherraden, p. 68.

58 Sherraden, p. 6.

59 Hernando de Soto, The Mystery of Capital: Why Capitalism Tri-umphs in the West and Fails Everywhere Else (New York: BasicBooks, 2000).

60 Melvin L. Oliver and Thomas M. Shapiro, Black Wealth/WhiteWealth (New York: Routledge, 1997), p. 2.

61 Ibid.

62 Ibid., p. 51.

Oliver and Shapiro outline a number of policychanges that would serve to democratize assetaccumulation. Among them, they suggest reform ofthe mortgage-interest deduction and modificationof the capital gains tax so that capital gains aretaxed at the same rate as earnings—capital gainsare currently taxed at a lower rate, a policy thatbenefits wealthier taxpayers.

Conley (1999) builds on Oliver and Shapiro’sargument regarding racial disparities in wealthholdings by creating a model of “the black-whitewealth discrepancy in a multigenerational frame-work.”63 After progressively analyzing and factor-ing out a number of potential causes, Conley con-cludes that:

In the end it may be the economically disad-vantaged family backgrounds of young AfricanAmericans more than the color of their skin thathurt their efforts to accumulate wealth.64

While young African Americans may havethe opportunity to obtain the same education,income, and wealth as whites, in actuality theyare on a slippery slope, for the discriminationtheir parents faced in the housing and creditmarkets, which sets the stage for perpetual eco-nomic disadvantage.65

Conley also pinpoints the effects of black-white disparities in “liquid” vs. “illiquid” assets.The dichotomy between these two types of assetsholds special relevance for analysis of new andexisting ROMs. In addition to possessing feweroverall assets than whites, black families possessfewer liquid assets (stocks, bonds, and cashaccounts). What assets black families do havetend to be “illiquid,” i.e., home or vehicle equity.In times of unemployment or other unforeseenproblems, it is much more difficult to convert theseto cash and thus such assets are less helpful insustaining a family through a crisis.66

Finally, in another argument emphasizing theimportance of financial assets, Ackerman andAlstott (1999) propose that every American receivea “stake” of $80,000 as he or she reaches earlyadulthood. They maintain that this economic stakeis consistent with capitalism’s preeminent value onthe importance of private property. Granting astake to all eligible adults would redistribute pri-vate property in such a way that would “enable allAmericans to enjoy the promise of economic free-dom that our existing property system now offers toan increasingly concentrated elite.”67

ROMs are also based on recognition of the lesstangible, but equally significant asset of socialcapital, both as a prerequisite to building residentcontrol of assets and as an outcome of this process.Putnam (1993) conceives of social capital as net-works and norms that enable participants to acttogether effectively to pursue shared objectives.68


63 Dalton Conley, Being Black, Living in the Red: Race, Wealthand Social Policy in America (Berkeley and Los Angeles, CA:University of California Press, 1999), p. 43.

64 Ibid., p. 49.

65 Ibid., p. 152.

66 Ibid., p. 28–29.

67 Bruce Ackerman and Anne Alstott, The Stakeholder Society(New Haven: Yale University Press, 1999), p. 12.

68 Ross J. Gittell and Avis Vidal, Community Organizing: Build-ing Social Capital as a Development Strategy (Thousand Oaks,CA: Sage Publications, 1998), p. 15. See Robert Putnam, withRobert Leonardi and Raffaella Y. Nanetti, Making DemocracyWork: Civic Traditions in Modern Italy (Princeton, NJ: PrincetonUniversity Press, 1993).

Using Putnam’s characterization as a point ofdeparture, Gittell and Vidal (1998) identify meas-ures for social capital that include individualcapacities, neighborhood organizational capacity,and network or “linkage” capacity.69 In the samevein, Gittell and Thompson (1999) examine howsocial capital and other community assets interactfor successful economic development.

Enhanced community networking can improveaccess to financial capital, political influence,and other resources which in turn sustainhuman capital. Where “action agents,” such aspromising entrepreneurs, within communitiesand outside institutions can be identified, net-worked, and supported, a virtuous cycle ofdevelopment can ensue.70

Based on the importance of assets of all kinds,Beeferman (2000) argues for an asset developmentpolicy that would “assure universal access to thoseassets that enable independence, initiative, andgrowth.”71 Towards this end, he proposes initia-tives such as assuring low-income householdsaccess to financial services that enable savings andasset accumulation; creating broadened ownershipopportunities for employees and other stakeholdersat the workplace; and leveraging social capital as ameans of increasing access to financial assets andinstitutions.72

Broadened Ownership

Making resident ownership mechanisms acces-sible to low-income/low-wealth residents requiresbroadening access to equity building opportunitiesas well as strengthening alternative ownershipforms. In his study of ownership forms in the Unit-ed States, Hansmann (1996) notes that whileinvestor-owned firms are the most prevalent, thischoice of ownership structure is also contingentupon circumstances. One contingency, governmentregulation, frequently allows investor-owned firmsto flourish where cooperatives or nonprofits wouldotherwise be dominant.73 In addition, Hansmannfinds that forms of ownership that are efficientwithin any given industry frequently change as theindustry evolves. The author concludes thatdespite the apparent dominance of investor owner-ship, a variety of ownership types—partnerships,cooperatives, and consumer-owned companies—are effective in different circumstances and each“has its appropriate niche in the economy.”74


69 Ross J. Gittell and Avis Vidal, p. 25.

70 Ross J. Gittell and J. Phillip Thompson, “Making Social Capi-tal Work: Blending Social Capital and Other Community Assets inCommunity Economic Development” (paper presented at the Con-ference on Social Capital and Poor Communities, 1999), p. 26.

71 Larry W. Beeferman, “Working Paper on Asset DevelopmentPolicy: Beyond the New Deal and Devolution” (draft in progress,2000), p. 19.

72 Beeferman, pp. 23–37.

73 Henry Hansmann, The Ownership of Enterprise (Cambridge,MA: The Belknap Press of Harvard University Press, 1996), p.294.

74 Hansmann, p. 287.

Gates (1998) raises concerns about theincreasingly concentrated ownership patterns inthe United States as well as in the rest of theworld. He contends that concentrated ownership isno accident because “capitalism is not designed tocreate more capitalists; it is designed to financemore capital for existing capitalists.”75 Lettingthis growing disparity in ownership proceedunchecked carries dangerous implications world-wide.

The UN reported in 1996 that the assets held bythe world’s 358 billionaires now exceed thecombined incomes of countries with 45 percentof the world’s people. These findings led UNdevelopment experts to conclude “Developmentthat perpetuates today’s inequalities is neithersustainable nor worth sustaining” [emphasisadded by Gates]….The UN offers the most dra-matic assessment, concluding that, if this rich-poor divide continues, it will produce a world“gargantuan in its excesses and grotesque in itshuman and economic inequalities.”76

According to Gates, U.S. social welfare policyhas failed because it has emphasized ineffective“downstream” redistribution strategies focused onincome, while ignoring “up-stream” strategies thatwould broaden access to income-producingassets.77 He identifies a multitude of ways to dis-tribute ownership more broadly, arguing for areengineering of the system to make it possible formore people to participate as capitalists.”78

Focusing mainly on public incentives and pro-grams to encourage employee ownership and simi-lar ownership mechanisms for a firm’s customers,suppliers and other stakeholders, Gates has beeninstrumental, in the United States and abroad, indrafting legislation to facilitate expanded owner-ship. Many of these ownership concepts are high-lighted elsewhere in this report.

Gates’ concern with broadening ownershiptakes up the ideas advanced by Kelso and Hetter(1967) regarding universal capitalism, or “an eco-nomic system in which all citizens (either as mem-bers of families or as individuals) own or haveeffective opportunity to own viable holdings of pro-ductive capital.”79 Kelso and Hetter argued forthe creation of a “second economy”—through vari-ous tax and corporate policy tools regarding trans-fer of ownership and wealth—so that those current-ly excluded from capital ownership would gainaccess to wealth-producing capital.80 One of thesetools, originally conceptualized by Kelso, was themodern Employee Stock Ownership Plan (ESOP).


75 Jeff Gates, The Ownership Solution (Reading, MA: Addison-Wesley, 1998), p. 22.

76 Ibid., p. 7. Gates cites Forbes magazine, 28 July 1997 for hisdata on the world’s billionaires. Also cited in this section isHuman Development Report 1996 (New York: United NationsDevelopment Program), p. 3.

77 Ibid., p. 33.

78 Ibid., p. 15.

79 Louis O. Kelso and Patricia Hetter, Two-Factor Theory: TheEconomics of Reality (New York: Vintage Books, 1967), p. 7.

80 Kelso and Hetter, p. 68.

Alperovitz (1999) cautions that broadeningownership based primarily on a worker-ownershipmodel as suggested by Gates may leave out thosewho are not employed and could favor “sectoraland institutional interests as against the communi-ty as a whole.”81 He advocates for a range of equi-ty building strategies and affirms the importantrole of such contemporary efforts as communityland trusts, ownership of income-producing enter-prises by community development corporations,and municipally owned enterprises. Howard(1999) describes how many of these alternativeownership efforts are working.82

Nembhard (2000) suggests the viability ofcooperative ownership in particular as a means tofoster economic development and wealth creationin low-income/low-wealth neighborhoods. Sheargues that wealth creation results from collective,not individual, effort and, therefore, more inclusiveownership forms are necessary.

The current methods of organizing privateenterprise through sole-propriety, partnerships,and corporations, based on traditional models,are too limited to fulfill community needs forwealth and empowerment….They only reward achosen few, when wealth creation is actually acollective effort for which all should be reward-ed. Individuals and corporations do not makemoney on their own. Individuals and corpora-tions use the earth’s water and air often withoutpaying for it or without paying for having toclean it up after they pollute it (although this ischanging). Our tax money pays for the roadsand electricity they use, and other amenitiesand infrastructure. Our tax money also pays

for the subsidies they get not to plant some-thing, or to sell overseas, or to hire welfarerecipients, and the other corporate welfare ourpublic policies support and promote. Wealthcreators also use society’s collective knowledge,our public education system, and the hard workof employees and coworkers—whose collectiveproductivity is greater than the sum of itsparts.83

Nembhard maintains that cooperatives offer anideal ownership form for revitalizing inner-cityneighborhoods as evidenced by their track recordof success in other parts of the world; their empha-sis on democratic participation; and their poolingof resources and sharing of wealth.84

Fondation, Tufano, and Walker (1999) con-tribute by examining strategies that would facilitateownership and investment opportunities on the partof the inner-city poor. Finding that many inner-city residents are impeded by a poor or nonexistentcredit history as well as limited available assets,they suggest that residents may need a “bridge” toparticipate in asset building opportunities. Theauthors argue that local churches can play a keyintermediary role by combining the small invest-ment capacities of individual members into a largepool with significant investment potential. At thesame time, the authors recognize the need toaddress the issue of risk.


81 Gar Alperovitz, “Who Owns Capital?,” Boston Review, Febru-ary/March (1999): 2.

82 See Ted Howard, “Ownership Matters,” Yes! A Journal of Posi-tive Futures, Issue 9 (1999).

83 Jessica Gordon Nembhard, “Entering the New City as Men andWomen, Not Mules: Democratic and Humane Economic Develop-ment Strategies for Revitalizing Inner Cities” (unpublished manu-script, 2000), p. 5.

84 Nembhard, p. 8.

Financial engineering can be used to createinvestment vehicles that allow low-income indi-viduals to enjoy some of the appreciation ofhigh-risk, high-return investments like equitieswhile eliminating the risk of principal loss.Simple index-linked schemes, which havebecome popular vehicles to sell stock to blue-col-lar employees in European privatizations, couldbe adapted to create more attractive vehicles forrisk-averse investors than low-yielding bankaccounts.85

Megson and O’Toole (1993) contribute to resi-dent ownership concepts through their assessmentof ESOPs not only as a strategy to broaden owner-ship but also as a tool to build a community-basedeconomy. They distinguish between ESOPs wherethe employees own a majority of the corporationand exercise their rights of control (“democraticESOPs”) and ESOPs in which employees own aminority of shares and do not have voting rights,arguing that it is the former that offers greatestpotential contribution to community developmenttheory and practice. Megson and O’Toole maintainthat companies controlled by local workers haveincentives to plan and invest for the long term,rather than produce short-term results for outsideshareholders. Such ESOPs contribute to retainingand building jobs and an economic base and thuscounteract the effects of disinvestment.86

The Community Land Trust (CLT) approach toownership is also significant to the development ofROMs. Abromowitz (2000) advances a concept ofownership that differs from the traditional “all ornothing” proposition. Some CLTs do allow mem-bers greater access to equity appreciation—allow-ing a seller in a CLT to receive up to 50 percent ofthe increase in appraised value of the home. Abro-mowitz describes how the CLT model affords low-income residents access to the security and auton-omy of homeownership, while limiting how muchthose residents can benefit from the appreciation ofthe equity:

The essence of the limited equity concept is thatby properly reallocating one of the typicalattributes of ownership…the right to sell in themarket to anyone at the highest price—a lower-income homeowner can affordably achieve mostof the ownership benefits without precluding thenext low-income buyer from the same opportu-nity.87

The Institute for Community Economics (ICE,forthcoming) sheds light on the tensions inherentin the dual goals of maintaining affordability andallowing for a fair return on investment in the con-text of a discussion of formulas to limit equity.CLTs hold relevance to resident equity mechanismsin that they play an important role in facilitatinginstitutional ownership of land by the community;removing land from the speculative market; provid-ing those at risk of displacement—low-income/low-wealth people—access to homeownership; and, insome cases, providing certain wealth accumulationopportunities.


85 Larry Fondation, Peter Tufano, and Patricia Walker, “Collabo-rating with Congregations: Opportunities for Financial Services inthe Inner City, Harvard Business Review, July–August (1999): 6.

86 James D. Megson and Michael O’Toole, Employee Ownership:The Vehicle for Community Development and Local Economic Con-trol (Boston: ICA Group, 1993), p. 8.

87 David Abromowitz, “Essay on Community Land Trusts,” inCharles Geisler and Gail Daneker, eds. Property and Values: Alter-natives to Public and Private Ownership (Washington, DC: IslandPress, 2000).

Integrating People and Place

ROMs seek to integrate people-based strate-gies (building opportunities for individuals) withplace-based strategies (efforts to improve the eco-nomic vitality of low-income/low-wealth communi-ties). The ultimate goal in bringing these strate-gies together is to build vibrant, healthy neighbor-hoods where current residents have the options andnecessary assets, of all types, to determine theirindividual and collective destinies.88

Much of the community development literatureis place-based and focuses on the physical andeconomic accomplishments of community develop-ment corporations in low-income communities. Ina study of the activities of 130 CDCs, Vidal (1992),for example, finds that CDC development activityhas made tangible “bricks and mortar” contribu-tions to the quality of neighborhood residential andcommercial areas.89

Stoutland (1999), however, points out the rela-tive weakness of the CDC literature, for the mostpart, in examining issues of resident participationand control.

Although there is much talk about the impor-tance of residents in community development,there is surprisingly little research that attemptsto document the process of resident participa-tion….[T]here are no recent comparative data

on whether boards with community representa-tion are more likely to have more successfuldevelopment programs or more likely to empow-er residents than boards without communityrepresentation. Given the centrality of communi-ty control and resident participation to the CDCmission, more research on these subjects iscalled for.90

Furthermore, Stoutland notes that most inquiryhas been limited to the scenario of resident mem-bership on CDC boards,91 ignoring other strategieswhereby residents could or do exercise voice.Finally, there is little mention in the contemporaryliterature of scenarios for low-income/low-wealthresident ownership of community assets as a meansto increasing voice or building wealth.

At the same time, an important emerging bodyof literature is moving beyond physical develop-ment statistics to focus on the social processes andcommunity building outcomes of neighborhooddevelopment efforts. In their examination of thework of three CDCs, Briggs and Mueller (1997)find on the one hand that CDC activities do notautomatically lead to broader community buildingoutcomes such as greater social connection amongresidents or increased activism. On the otherhand, they discover that when CDCs explicitlyinvest in efforts to build connections among resi-dents and to involve them as stakeholders in the


88 Gittell and Vidal, p. 25. “Control indicates the degree to whichcommunity residents influence relations, activities, and ultimatelyoutcomes. The integrity of many community development efforts…is dependent on increasing local community control….Withoutlocal control of community development processes and outcomes,it would be very difficult to sustain local commitment and capaci-ty building and to achieve long-term community development out-comes.”

89 Avis Vidal, Rebuilding Communities: A National Study ofUrban Community Development Corporations (New York: GraduateSchool of Management and Urban Policy, New School for SocialResearch, 1992), p. 10.

90 Sarah E. Stoutland, “Community Development Corporations:Mission, Strategy, and Accomplishments,” in Ronald F. Fergusonand William T. Dickens, eds. Urban Problems and CommunityDevelopment (Washington, DC: Brookings Institution Press, 1999),pp. 225–226.

91 Ibid., p. 223.

CDC, there are some positive impacts. Residentsreport that they know more of their neighbors, feelsafer in their community, and are more optimisticabout their ability to collectively improve theirconditions.92

Walsh (1997) examines the community build-ing field as a constellation of efforts that buildscommunity institutions, social networks, and resi-dents’ self-reliance. These efforts are informed bythe recognition that urban poverty is “not justabout money, [but] about relationships” andrequires solutions that are equally complex.93 Shedescribes how community building seeks to inte-grate community development and human servicestrategies, forge partnerships, build on communitystrengths, and foster broad community participa-tion.94

According to Kingsley, McNeely, and Gibson(1997), community building gives higher priority tosocial and human capital development than didearlier neighborhood improvement programs. Inits essence, community building seeks to “obliter-ate feelings of dependency and to replace themwith attitudes of self-reliance, self-confidence, andresponsibility.”95 In this sense, community build-ing focuses on building on community strengths,fostering broad and meaningful resident involve-ment in improvement efforts, and forging partner-ships with outside institutions that will serve com-munity interests.96

Several authors establish a foundation forROMs by focusing on financial asset developmentstrategies within the context of community revital-ization. Carr (1999) brings this dimension to com-munity development through his concept of “valuerecapture.”

Capital market tools can be combined withinnovative “value recapture” mechanisms, suchas strategically designed land trusts, to gener-ate funding for housing rehabilitation andhome-ownership for a neighborhood’s low-income residents. This internal wealth-generat-ing mechanism can help ensure that lower-income residents benefit from redevelopmentefforts in their communities.97

Carr’s concept of value recapture is related tostudies of “land value capture” in developingcountries characterized by weaker planning andfiscal mechanisms. For example, Doebele (1998)describes a law passed in Colombia that permitsmunicipalities to recover “socially created” landvalues. The law provides for determination ofproperty value before and after certain municipalactions to modify zoning, other land use regula-tions, or allowable densities governing a parcel.Based on this valuation, the municipality maydemand that it “recapture” 30 to 50 percent of theincrease in value. Municipalities must then desig-nate the revenues for specific purposes, such as


92 Xavier de Souza Briggs and Elizabeth J. Mueller with MercerL. Sullivan, From Neighborhood to Community: Evidence on theSocial Effects of Community Development Corporations (New York:Community Development Research Center, Robert J. MilanoGraduate School of Management and Urban Policy, New SchoolUniversity, 1997), pp. 239–250.

93 Joan Walsh, Stories of Renewal: Community Building and theFuture of Urban America (New York: Rockefeller Foundation,1997), p. 14.

94 Walsh, p. 25.

95 G. Thomas Kingsley, Joseph B. McNeely, and James O. Gibson,Community Building Coming of Age (Washington, DC: The Devel-opment Training Institute and the Urban Institute, 1997), p. 3.

96 Kingsley, McNeely, and Gibson, pp. 6–8.

97 James Carr, “Community, Capital and Markets: A New Para-digm for Community Reinvestment,” in The NeighborWorks Jour-nal, vol. 17, no. 3 (1999): 20.

acquiring land for affordable housing or openspace or financing mass transit.98

Land value capture is pertinent to ROMs inthe sense that local governments have engineered amechanism for the public to reap some of thereturns from publicly created value, rather thanhaving private landowners be the sole beneficiar-ies. The ROM approach aims to go the next step ofconnecting these economic assets directly to com-munity residents.

Like Carr, Briggs (2000) explicitly addressesthe disconnection between private capital invest-ment in low-income communities and the residentsof those communities. According to Briggs, policystrategies must move beyond the provision ofexpanded capital access and business technicalassistance that are designed to increase jobs andincomes in low-income communities.

…[A]dditional steps are typically needed to helpbuild the assets of people in low- and moderate-income communities, both urban and rural,across America. That is, without careful atten-tion to equity participation in economic devel-opment deals by residents or by organizationsthat are community based, new capital accessincentives could expand the job and tax bases indistressed neighborhoods without doing muchabout the “wealth gap” that separates workersand would-be workers in these communitiesfrom the broader society.99

Summary

Additional research and practice are needed tofurther develop the role that resident ownershipmechanisms can play in enabling low-income resi-dents to accumulate assets and wealth and to exer-cise greater leverage in the broader economicdevelopment and policy-making processes affect-ing their communities. The subsequent chapters ofthis report aim to contribute to that discussion.


98 William A. Doebele, The Recovery of “Socially Created” LandValues in Colombia (Lincoln Institute for Land Policy website athttp://www.lincolninst.edu/landline/1998/july.html, 1998), p. 2.

99 Xavier de Souza Briggs, “A Piece of the Action: CommunityEquity in the New Economy” (paper prepared for the Social Ven-ture Network, 2000), p. 1.

This section presents a scan of existing, emerging,and conceptual ROMs. The scan includes diverseresident ownership models that cut across a varietyof theoretical and practical approaches. It pro-vides an overview of mechanisms to present arange of possibilities for building resident owner-ship of community assets. The models represent aheterogeneous mix of approaches, but they all meetthe following criteria, to varying degrees. They:






41

Chapter III

“Resident Ownership Mechanisms” (ROMs) arestrategies and tools to enable low-income/low-wealth residents to gain an ownership stake in therevitalization of their communities.

Models

Models and Infrastructure

The models are presented in five categories:

• Commercial Real Estate Development;

• Business Development;

• Financial Institutions;

• Home Equity; and

• Natural Resources.

Readers should envision ROM models asfalling along a continuum. At one end of this con-tinuum are models that present a baseline fordevelopment of a resident ownership mechanism.These models present a promising strategy or toolbut lack the critical combination of community andindividual asset development components that arekey to ROMs’ definition. With the suggestedchanges, these models could develop into promis-ing ROMs.

Along the center and at the other end of thecontinuum are actual models of resident ownershipmechanisms. These strategies and tools include amix of the ROM criteria, some with a partial fulfill-ment of the criteria, others with a strong compila-tion.

The scan also includes conceptual ROM mod-els. These examples take a current operatingmodel and suggest modifications to strengthenROM characteristics. The proposed modificationsare drawn from practical precedents and aredesigned to improve the model’s impact on residentownership and to facilitate implementation. Whilethe conceptual models hold promise, they have notyet been implemented in a particular community.

The description of each model addresses the fol-lowing set of questions:

• What is the model?

• How does it relate to the definition of resi-dent ownership mechanisms used in thisreport?

• What are emerging opportunities to strength-en, expand, and/or link the model to othercommunity building efforts?

• What are examples of the model working onthe ground?

• What are the practical or policy barriers toadvancing the model at the local or nationallevel? How can these barriers beaddressed?

• What are the implications for advancingROM opportunities?

To increase the effectiveness of ROMs as strategiesthat help to move people from poverty to prosperityin strong healthy communities, the following pointsshould be considered. They are discussed in moredetail in Chapter V.

• ROMs will have a greater impact if they arepart of comprehensive community planningefforts.

• Community-based organizations are integralto the design, development, implementation,and management of successful ROM models.

• Low-income/low-wealth residents mayrequire subsidies to gain access to ROMs.

• Public policy measures will be needed toproduce large-scale benefits from ROMs.


43A PolicyLink Report | Chapter III: Models and Infrastructure |

Quick R e f e r e n c eGuide to Models

This guide facilitateseasy access to modelsdiscussed in this report.

A. Commercial Real Estate Development 44

CDC Development with Resident Partners 44

CDC Projects with Resident Shareholders 45

Resident Ownership of Real Estate Trusts 48

Value Recapture Framework 48

Community Building Trust 51

Community Building REIT 56

Mechanisms to Support Resident Investment 58

Individual Development Account 58

Community Building IDA 60Development-Supported IDA

B. Business Development 62

Shared Resident Equity in Business Development 62

Resident Ownership of Community Businesses 62

Resident Stock Ownership Plan 65

Customer Stock Ownership Plan 65

Cooperative Ownership Models 67

Employee Ownership 68• Worker-Owned Cooperative 68• Employee Stock Ownership Plan 71

Producer Cooperatives 76• Agricultural Cooperatives Serving 76• Low-Wealth Farmers• Craft Cooperative 78

Aggregation and Networking Among Cooperatives 80• Regional Cooperative Network 80

Public Enterprise 82

Public Enterprise with Resident Dividends 82

C. Financial Institutions and Resident Ownership 86

Community Development Credit Unions 87

Community and Individual Investment Corporation 90

D. Home Equity: Expanding Equity-Building Opportunities 94

Community Land Trust 94

Limited Equity Housing Co-op 97

Leasing Cooperative 98

Section 8 Homeownership Program 99

E. Natural Resources: Capturing and Preserving Value for Residents 102

Alaska Fund 102

General Stock Ownership Corporation 102

Fair Exchange Fund 103

Sky Trust 103

Commercial Real Estate D e v e l o p m e n t

Resident ownership of commercial real estatedevelopment provides opportunities for increasingresidents’ assets and for strengthening their voicesin local economic and public policy decisions.Especially at the local level, owners of land areconsidered key stakeholders in public decision-making processes and frequently are consulted andincluded in planning decisions before residents areinvolved. Property earnings, in the form of bothrental payment and capital gains, have served tobuild the wealth of generations of families through-out U.S. history,100 but property ownership remainsconcentrated: in 1995, the richest one percent ofhouseholds held 35 percent of investment realestate in the United States.101

Existing and conceptual models highlighted inthis chapter identify ways to broaden the base ofproperty ownership to include more low-income/low-wealth residents as owners of realestate investments in their communities. Whilethe models differ in the degree of financial stake,voice, and ultimately ownership given to communi-ty residents, they share a common goal of capturingthe value of community real estate assets in a waythat directly benefits existing residents.

CDC Development with Resident Partners

CDC Ownership of Development

Community Development Corporations are setup under Section 501(c)(3) of the Internal RevenueCode like other nonprofits, with the broad missionof “improving the quality of life in low-incomeneighborhoods.”102 CDCs are established by localstakeholders—residents, business owners, faith-based institutions, service providers, etc.—whosegoal is to revitalize a targeted low- or moderate-income community. According to a national cen-sus of CDCs conducted by the National Congressfor Community Economic Development (NCCED),through 1998 CDCs had produced 550,000 units ofhousing and 247,000 private sector jobs in theUnited States.103 To a lesser extent, CDCs haveengaged in commercial development and operationof for-profit businesses: by 1993, CDCs had devel-oped more than 23 million square feet of officespace in the United States.104

The standard CDC model—in which the localCDC engages in housing or real estate projectswith profits accruing to the corporation, not to indi-vidual residents—does not meet the ROM defini-tion. CDCs offer benefits to community residents,


A .

100 Michael Sherraden, Assets and the Poor (Armonk, NY: M.E.Sharpe, 1991), p. 101.

101 Larry W. Beeferman, “Working Paper on Asset DevelopmentPolicy: Beyond the New Deal and Devolution” (Asset Develop-ment Institute, Brandeis University, 2000, draft in progress), p.17. The author cites Edward N. Wolff, “Recent Trends in WealthOwnership” (paper prepared for the conference on Mechanismsfor Spreading Asset Ownership in the United States, New YorkUniversity, December 10–12, 1998), p. 14.

102 Sara E. Stoutland, “Community Development Corporations:Mission, Strategy, and Accomplishments,” in Roland F. Fergusonand William T. Dickens, eds. Urban Problems and CommunityDevelopment (Washington, DC: Brookings Institution Press, 1999).p. 193.

103 Roy Priest, “Cooperative Approaches to Community EconomicDevelopment,” Journal of Cooperative Development, Fall (1999):14, and NCCED website at http://www.ncced.org.

104 Walker and Weinheimer, p. 14.

in the form of access to housing, jobs, retail, orcommunity services, but most CDC developmentsdo not sell shares to residents, nor do they offerthem direct financial benefits. Although the levelof resident involvement and control of CDCs variesaround the country, most include some form ofvoice, leadership, and, in some cases, control bycommunity residents. A seat on the CDC board ofdirectors and community involvement on CDCadvisory boards are common forms of residentinvolvement.105

According to Roy Priest, NCCED presidentand CEO, many CDCs have explored the concept


105 According to Walker and Weinheimer, “CDCs are controlledby residents and located in the neighborhoods they serve,” p. 6.

106 Roy Priest, NCCED interview, Washington, DC, December2000.

107 This information is based on an interview with Albert “Butch”Hopkins, president and CEO, Anacostia Economic DevelopmentCorporation, September 2000, and on research by the NationalEconomic Development and Law Center for “Communities Gain-ing Access to Capital,” a report by PolicyLink and the UrbanHabitat Program, December 2000.

Good Hope MarketplaceWashington, DC

The Anacostia Economic Development Corpora-tion (AEDC) acquired Good Hope Marketplace, ashopping center development, from the Safewaysupermarket chain in 1997. AEDC created two for-profit subsidiaries for the purchase: Anacostia Mar-ketplace Inc., the managing partner, and the Ana-costia Community Investment Corporation (ACIC).AEDC plans to make 10 percent of the project’s equi-ty available to residents through the shares held bythe ACIC. Because of financing requirements,which include putting a percentage of revenues intoa maintenance and security reserve, AEDC will not

sell stock until after the fifth year of the project(2002), when revenues should increase.

The intent of AEDC to sell stock to residents isbased on the premise that ownership will give resi-dents a personal stake in maintaining and support-ing the Good Hope Marketplace and that it will alsohelp residents to obtain tangible economic benefitsfrom neighborhood revitalization efforts. AEDCexpects to use ACIC as the mechanism to sell stockto the community in future development projects inwhich ACIC is an investor.107

of resident ownership in CDC development proj-ects but have been discouraged by the level oftechnical expertise and associated costs requiredto establish the appropriate mechanisms. Thispoint is discussed in more detail below.106

CDC Projects with Resident Shareholders

Several CDCs have recently begun to explorethe creation of mechanisms that offer stock to com-munity residents. While these models are stillunder development, as described in the followingtwo examples, they offer important precedents forthe field.


108 This information is based on a telephone interview with JohnMelvin, Project Manager, West Side Community DevelopmentCorporation, March 2001.

Jack London Gateway PlazaOakland, California

Jack London Gateway Plaza is a 50,000-square-foot shopping center in West Oakland. Theplaza had been struggling for years as a result ofthe overall disinvestment and decline in West Oak-land. In 1998, the West Side Economic Develop-ment Corporation, along with its partners, wasawarded the development rights for the shoppingcenter from the city of Oakland and received a $7million grant and loan package from Oakland’sEnhanced Enterprise Community Program.

Under new ownership, the plaza began tochange. West Oakland residents had long expressedthe need for a grocery store; they had to leave thecommunity to buy fresh produce and other necessi-ties. Today, Gateway Plaza is home to a large gro-cery store that is well stocked with fresh produce andis well patronized by residents. Other tenants of theplaza include a shoe store, a discount clothing store,a community development credit union, several fastfood franchises, and several other small businesses.The plaza is completely leased save for one remain-ing space.

West Side formed a for-profit subsidiary, RealCommunity Partners, which currently co-owns thecenter with East Bay Asian Local Development Cor-poration (a local nonprofit developer) and PortfolioProperty Investors. The co-owners have agreed thatwithin a five-year period, Real Community Part-ners, as a West Oakland community organization,will acquire the ownership stake of the others andbecome the sole owner of the plaza.

West Side is committed to finding a way to offerWest Oakland residents a direct ownership stake inGateway Plaza and/or provide direct financial bene-fits, once the CDC’s subsidiary is the sole owner.Mechanisms currently under consideration includemaking a certain percentage of shares in the shop-ping plaza available to residents or providing finan-cial benefits through a matching program wherebyresidents would receive a yearly dividend based onhow much they spend at the shopping center. West-side is currently grappling with questions of how todefine who benefits, i.e., whether an ownershipand/or financial stake should be extended to allfamilies, based on residence within a geographicarea, or whether to target families at a particularincome level. The bottom line for the CDC is find-ing a mechanism for directing profits from GatewayPlaza back to the community.108

Assessment of CDC Model

Many CDCs have considered resident ownershipstrategies as a way to build resident benefits andvoice in the development process; but key deter-rents include:

• The cost of legal and real estate expertiseneeded to develop the models;

• A lack of staff and organizational capacity toimplement ownership opportunities, giventhe need for increased levels of outreach,education, and engagement of communityresidents; and

• Concern about the lack of resources to pro-vide for the requisite levels of financial liter-acy education and training needed in orderfor residents to gain access to ownershipopportunities.

Appropriate model development that is respon-sive to community interests and concerns requiresthe active engagement of community residents atthe beginning of the project design phase. Tofacilitate this connection, CDCs can join ongoingcommunity building efforts. However, where effortsare not already underway, CDCs need additionalresources to engage community residents and lead-ers and to educate them about ownership opportu-nities and all of the relevant risks and rewardsavailable to shareholder participants.

Broadening the use of this model will requirespecialized forms of technical assistance, whichcould be prohibitively costly for many CDCs.National technical assistance intermediaries maybe needed to provide technical assistance in a waythat offers economies of scale, thereby makingservices more affordable to individual CDCs.

CDCs could be encouraged to take the initia-tive in designing, developing, and implementingresident equity models through incentives offeredby private philanthropy and the public sector. Forexample, incentives for ROM development couldbe tied to philanthropic grants and Project RelatedInvestments (PRIs). In addition, public subsidiesfor private developers could be tied to partnershipswith CDCs.


Resident Ownership in Real Estate Trusts

Value Recapture Framework

As described in Chapter I, value recapture is ageneral concept advanced by the Fannie MaeFoundation that promotes the establishment ofinternal wealth-generating mechanisms in commu-nities that are undergoing revitalization. Valuerecapture’s purpose is to ensure that “lower-incomeresidents benefit from redevelopment efforts intheir communities.”109 Value Recapture Mecha-nisms are specific tools and strategies that channelmarket-generated funds into “activities that benefitresidents, either individually or collectively.”110

While sources of funds primarily include risingreal estate values, it can also include non-realestate business revenues or fees. A Value Recap-ture Trust (VRT) is one kind of value recapturemechanism that directs an income stream frommarket-rate investment in a low-income area touses that assist current residents and strengthenthe community infrastructure.

The value recapture trust is an emerging ideathat has not been widely tested. It offers an inno-vative way for community builders to create a sus-tainable stream of resources for community resi-dents. Some of the VRT models described by theFannie Mae Foundation, such as Community LandTrusts (CLTs) and Fannie Mae’s concept of a “com-munity REIT,” include ROM elements and are dis-cussed in more detail in this report. Other exam-ples of value recapture trusts provide benefits forlow-wealth residents of target communities, but donot necessarily include key ROM elements of own-ership, voice, or asset building opportunities.

Battery Park City highlights the concept of avalue recapture trust. The development of BatteryPark City offers a unique model of how publiclands can be leveraged to produce benefits for low-income residents in a targeted region. The exam-ple also offers important lessons about the need toensure that appropriate accountability mechanismsare built into the value recapture structure.


109 James H. Carr, “Community, Capital and Markets: A New Par-adigm for Community Reinvestment,” The NeighborWorks Journal,vol. 17, no. 3 (1999): 20.

110 Fannie Mae Foundation, “Value Recapture Mechanisms”(Annual Housing Conference Binder, 2000), p. 3.

111 BPCA was authorized to allocate revenues and/or issue bondsfor affordable housing but not outside of Battery Park City.

112 Eric Lipton, “Battery Park City is Success, Except for Pledgeto Poor,” New York Times, January 2, 2001.

113 Ibid.

114 The Fannie Mae Foundation case study was researched byShereen Aboul-Saad with the Atlanta Neighborhood DevelopmentPartnership and presented at the Fannie Mae Foundation AnnualHousing Conference on “The Market Power of Emerging Commu-nities,” in September 2000. Used with permission.


Battery Park CityNew York City, New York

Battery Park City includes 92 acres of land inLower Manhattan, owned by a state agency, theBattery Park City Authority (BPCA). In the mid-1980s, New York City was in the grips of a majoraffordable housing crisis, which prompted Mayor EdKoch, Governor Mario Cuomo, and the state legisla-ture to agree on an innovative approach to captur-ing the value of development on BPCA lands toleverage the development of affordable housing inother parts of the city.

In 1986, Housing New York Corporation(HNYC) was created to sell bonds for the rehabilita-tion and construction of low- and moderate-incomehousing in poor neighborhoods throughout NewYork City.111 These bonds were backed by BPCAlease revenues, with authority to determine the useof the funds granted to the city’s housing division.

In 1987, $143 million was earmarked for thedevelopment of affordable housing as a direct resultof the “value recapture” structure. The funds result-ed from the bond issuance, backed by $400 millionin BPCA lease revenues. The city’s housing divisionused the funds to convert city-owned property intonew housing. A portion of the funds was dedicateddirectly to the development of “New SettlementApartments” in the Bronx. As reported by the Fan-nie Mae Foundation, because of the funds the proj-ect was completed with no debt, thereby freeing uprevenue from rental units to be used to support com-munity programs.

It should be noted that the model included somestructural flaws that undermined its continuedimplementation. In January 2001, a New YorkTimes article revealed a number of shortcomings inhow the original agreement had been followed:“Ultimately, despite the promising start made withthe $143 million generated by the first burst of bondrevenues, none of the remaining $257 million prom-ised under the agreement was paid to the city….Thesecond mechanism by which Battery Park City wasgoing to deliver on its stated mission—direct pay-ments of $600 million in surplus revenues to the citygovernment to support housing projects—has alsobeen far from fully realized.”112

According to Fannie Mae Foundation research,the city’s financial difficulties in 1990 led MayorDinkins to obtain the state’s approval to use thefunds to support the city’s budget deficit. WhenBPCA subsequently tried to issue housing bonds, theissuance was delayed because of investor concernsover one of the leaseholders; in 1995, HNYC’s abili-ty to issue bonds was ended because of language inthe enabling legislation.

Although the New York Times cites BPCArecords showing that a total of $276.2 million ofthe $600 million promised in surplus revenues hasindeed been turned over to the city since 1992, inrecent times “the Guiliani administration has notfelt compelled to spend the money on housing pro-grams, asserting that the commitment made yearsago is neither legally binding nor fiscallysmart.”113 In 1999 funds turned over by BPCAwere used to maintain general city services, in spiteof that year’s unprecedented $3.2 billion city budgetsurplus.114

The following example illustrates the conceptof a value recapture trust in that value is capturedfrom the development of a parcel of land in thecommunity and used to benefit low-income/low-wealth residents. The model is an expansion of theBattery Park City example in that it includes com-munity representatives in the decision-making

process. It diverges from ROMs in that it does notchannel financial benefits directly to individualsand families; nor does it offer resident ownershipopportunities. Residents are not included in theownership structure in either the Battery Park orOakland Army Base examples.


Community Development Fund/Oakland Army Base Oakland, California

The Oakland Army Base is a 422-acre parcel ofprime commercial real estate on the waterfront ofthe San Francisco Bay. When the base was ear-marked for closure by the Department of Defense in1995, it triggered a federally mandated local reuseplanning process.

Unlike other bases around the country that werehandicapped by environmental contamination andoutdated infrastructures too costly to improve, theOakland Army Base had little contamination, anda rising real estate market enhanced the develop-ment potential despite high infrastructure costs. Asa result, the reuse planning process included multi-ple stakeholders vying for the land, including thecity and port of Oakland, private developers, and acoalition of community residents, nonprofits andpublic agencies known as the West Oakland ArmyBase Task Force (the Task Force).115

Rather than compete with local developers, theTask Force began to work with a local developer,early in the process, around the concept of develop-ing the base in a way that would produce clear ben-efits for community members. This partnership suit-ed the developer, who was in competition for theland with other stakeholders and needed communitysupport; and it benefited community residents whohad long been frustrated by a legacy of exclusionfrom the benefits of economic development in theirneighborhood.

After years of negotiation, a final agreementbetween the city and port of Oakland and OpusWest, the master developer for the base, included adedicated funding stream for a “Community Devel-opment Fund,” based on a percentage of the profitsfrom the development.116 Delayed by the complica-tion in the transfer process at the federal and thenlocal level, the deal is still under negotiation, butthe funding stream has been approved by the localreuse authority.117


115 The West Oakland Army Base Task Force was a unique col-laboration of homeless providers from throughout the region, localcommunity-based organizations, public agencies, and a privatedeveloper. The lead organizations included the Alameda CountyHomeless Collaborative and the Coalition for West Oakland Revi-talization. Other nonprofits included job training and other serv-ice providers. Public agencies included the Oakland UnifiedSchool District and various county agencies.

116 According to James Thomas of the Alameda County HomelessCollaborative and leader of the West Oakland Army Base TaskForce, the deal includes 10 percent of profits to support the Com-munity Development Fund, but the details of how “profits” wouldbe measured is still under negotiation.

117 Case study detail based on interviews with James Thomas inJanuary and February 2001.

118 Fannie Mae Foundation, p. 5.

Community Building Trust (CBT)

A Community Building Trust (CBT) embodiesthe value recapture framework advanced by theFannie Mae Foundation with the addition of resi-dent ownership as a key feature. CBTs includecommunity residents as shareholders and primarybeneficiaries of the trust. As shareholders, resi-dents have a voice in the policy and operationaldecisions related to the trust and have opportuni-ties to accrue financial benefits from developmentproceeds. The trust “captures value”—i.e.,receives a portion of the profits from a develop-ment project—with residents having decision-mak-ing control over how the funds are allocated.

The following example (see page 52) demon-strates the concept of value recapture since a por-tion of the profits from a community developmentproject will be “captured” and used to providebenefits for low-income residents of the surround-ing community. The example demonstrates a keycharacteristic of a resident ownership mechanismin that it includes residents as owners in the limit-ed liability corporation that owns the developmentand offers them a voice in the decision-makingprocess.

Assessment of Community Building Trust Models

A key challenge to the design and implemen-tation of a community building trust is the need toensure that the target beneficiaries have a voice inthe management of the trust; strong and transpar-ent accountability mechanisms are in place tomonitor its activities; and an ongoing system ofpublic evaluation ensures that it is accountable tothose it is created to serve.

Challenges relevant to the design, develop-ment, and implementation of a CBT are:

• The cost of legal, financial, and real estateexpertise that will be necessary to establishthe trust, create resident ownership opportu-nities, and guide its ongoing operations;

• Geographic, purchasing, or demographicqualifications that will determine who bene-fits from the trust;

• The transferability of “shares” or other own-ership mechanisms within the community;

• Establishing accountability systems, includ-ing the cost of credible monitoring and eval-uation of the trust’s activities;

• The vulnerability of the trust to shifting eco-nomic and political conditions.

Community building trusts, like most othertypes of value recapture trusts, are challenged bythe need to compete for land. In response to theprevious challenges, they might focus their ener-gies on accessing public lands—held by cities,counties, ports and airports, state and/or federalentities—as an opportunity where they would beable to leverage the political clout of communityresidents, leaders, and institutions to gain accessto the properties. For example, local governmentsoften possess large holdings of vacant, abandoned,or tax-delinquent properties that could be madeavailable to community builders, working in col-laboration with local government, to assemble landfor CBTs.118

The successive rounds of military base clo-sures in the 1990s also provided opportunities for

communities to obtain public property. When theDepartment of Defense declared the bases to nolonger needed by the military, the property wentthrough the federal land transfer process. An eco-nomic development conveyance (EDC) was one ofthe land transfer mechanisms created through spe-cial federal legislation and regulatory measures.Local governments can apply for an EDC to obtainsurplus federal property for local economic devel-opment purposes. While community-based organi-zations cannot apply directly for an EDC, they canwork with their local government to gain control ofthe land. Alternatively, a similar mechanism could

be created through future base closure legislationto enable community-based institutions to applydirectly to the federal government to obtain surplusproperty for a community building trust.

Another item for consideration is risk. Real-estate development markets are volatile andinclude a large degree of risk related to potentialasset value depreciation. One way to mitigate thatrisk is to build a diversified trust portfolio withproperties in different real estate markets. Forexample, the trust could hedge its local exposure


119 A unit is a share in the development.

Market Creek PlazaSan Diego, California

Market Creek Plaza is a 20-acre, mixed-usecommercial and cultural center in the heart of SanDiego’s “Diamond Neighborhood” business improve-ment district. Catalyzed by the Jacobs Foundationfor Nonprofit Innovation, Market Creek Plaza prom-ises to be a national model of real estate develop-ment planned, designed, and owned by communityresidents.

The Diamond is a diamond-shaped district setwithin a network of culturally diverse communitiesthat include African-American, Latino, Laotian,Samoan, Filipino, Somalian, and Guamanian fam-ilies. With a current poverty rate of 23 percent, theDiamond has experienced little or no commercialinvestment for the past 25 years.

A product of a community planning process thatincluded 700 surveys, hundreds of community meet-ings, and a network of eight working teams, MarketCreek Plaza is anchored by a Food 4 Less grocerystore, which opened in January 2001. It includes amultiplex theater, multicultural restaurants, 42,000

square feet of retail space, 160,000 square feet ofoffice space, and a 500-seat open-air amphitheaterthat opened in February 2001.

In the fall of 2001, community residents willhave the opportunity to transition from stakeholdersto stockholders (members) in the development. Theplan includes the formation of three community-based entities to capture benefits of the developmentfor community residents. The first entity, a commu-nity development limited liability corporation (LLC)called Market Creek Partners (MCP), has been setup as the owner of Market Creek Plaza. MCP is inthe process of applying to the California Departmentof Corporations to sell units directly to residentsthrough a California public offering.119 Neighbor-hood investors, “Diamond Community Investors,”will be included in a special class of stockholders(members). Units will be sold to residents for $10per unit. Restrictions on unit sales include a 10-unit minimum, which can be waived by MCP, and alimit on total investment to a maximum of 10 per-cent of any investor’s net worth. In order to ensure aclear understanding of the community investment

by purchasing additional real estate assets outsideof the community or by purchasing equity in aReal Estate Investment Trust (REIT), described inthe next section, that includes geographically dis-persed real estate assets. This approach woulddepart somewhat from ROM purposes, which is forresidents to gain control of local assets. Anotherchallenge would be the cost of legal and real estateexpertise needed to develop the model effectively.

The challenges just described are common tothe creation of many forms of legal entities to guideownership/property rights. Trust mechanismswould need to be structured in a way that meet

standards of legal and fiduciary responsibility andthat are responsive to and reflective of the interestsand priorities of community residents. The formerrequire the availability of specialized expertise andresources; the latter require a level of time, energy,and resources that are characteristic of most com-prehensive community building efforts.


120 Description based on interview with Jennifer Vanica, Execu-tive Director of the Jacobs Center for Nonprofit Innovation, March2001, and Jacobs Center document: “Market Creek Plaza—Com-munity Ownership: Building Individual and Community AssetsWhile Rebuilding a Neighborhood.” Undated. Used with permis-sion.

arrangements, the special provisions for MCP com-munity investors are spelled out in a charter. Theproject includes training in the economics of invest-ment and basic business economics to maximize theskills, knowledge, and information access of residentinvestors.

Diamond Community Investors will exercisetheir voice in the day-to-day decision making ofMCP through an advisory council comprised of fourresident investors, to be increased to seven, selectedfrom the investor group. A member of DiamondManagement, Inc., MCP’s managing company, willserve on the Advisory Council for five years toinform, train, and advise resident advisory boardmembers. The board of Diamond Management,Inc., will include one member of the Advisory Coun-cil selected from the group.

Two other entities identified and established byJacobs in response to community leadership includea community foundation, the Neighborhood UnityFoundation, that will be funded by developmentproceeds; and a community-based capacity-buildingcorporation that will provide training for localstakeholders in leasing, property management, andproject management.

Additional benefits to local stakeholders include:

• A goal of 65 percent of the $45 million in con-struction contracts to minority- and women-owned businesses (the average in San Diego is2 percent; the project has already achieved 70percent);

• A Mentor-Protégé Program for local contractors;

• A planned 1,700 new jobs in the neighborhood,linked to residents through a system of employ-ment development services;

• Space and services for local entrepreneurs;

• Training in leasing and property management,etc.

The Jacobs Center is the operating foundationsupported by the Jacobs Family Foundation. Dr.Joe Jacobs is chair of the boards of the Jacobs Cen-ter and of Jacobs Engineering, one of the world’slargest engineering firms. Jacobs and other familymembers have been actively engaged in and sup-portive of the innovations in resident ownershipadvanced by the Market Creek Plaza project.120

Real Estate Investment Trust (REIT)121

A Real Estate Investment Trust (REIT) is acorporation or business trust that owns a portfolioof properties (for example, apartments, shoppingcenters, offices, and warehouses).122 Congresscreated REITs in 1960 to provide opportunities forsmall investors to invest in large-scale, revenue-generating real estate assets. Today, REITs arewidely used real estate investment vehicles: thereare about 300 REITs in the United States withassets totaling approximately $250 billion.123

Most REITs are publicly traded on a major stockexchange; of the private REITs—that are not cur-rently traded publicly—some plan for eventual

public stock offerings while others opt to remainprivate.

The structure of REITs could serve as a prom-ising ROM model. Like a mutual fund, a REITenables investors to own shares in and gain bene-fits from a diversified portfolio of real estate assets(reduced risk is one such benefit). REITs requireno minimum investment. The stable incomestream from property rents typically provides forhigh dividends to investors. In addition, REITsavoid the double taxation of corporate and individ-ual returns. Investors benefit from current incomedistributions and also from the liquidity of REITshares.124


Community Development TrustNew York, New York

Community Development Trust (CDT) is thenation’s first REIT to specialize in preserving afford-able housing. Using similar investment practices tothose of mainstream REITs, CDT “purchases fixed-rate mortgages on multi-family rental projects forlower-income people and then packages the loansinto securities to be resold to investors at a profit.”126

These activities differ from mainstream REITs inthat the goal is not simply to make a profit for REITshareholders. Because of their smaller size or othercharacteristics, mortgages purchased by CDT oftendo not fit the requirements of other entities active inthe secondary mortgage market. CDT contributes to

making overall lending for low-income housingprojects more attractive for commercial lenders byhelping to create a market for the sale of theseloans.

In addition to purchasing mortgages, CDT spe-cializes in acquiring multi-family properties whereSection 8 contracts are expiring. Current ownersstand to lose subsidies and thus such properties arevulnerable to conversion to market-rate units, leav-ing low-income tenants at the mercy of marketforces. CDT offers such property owners a viableexit strategy.127 Most important, once acquired byCDT, the multi-family properties are maintained asaffordable.128

According to Michael Grupe, Vice President ofthe National Association of REITs (NAREIT), someREITs have a local/regional geographic focus interms of properties held, while others are broaderor even national in scope. In general, however,even national players still focus on key regionalmarkets in establishing their niche.125

Community development practitioners haverecently begun to see the value of the REIT struc-ture in attracting capital to low-income communi-ties. To date, the REIT model has not beenapplied in a way that meets the criteria of a ROM,but it has the potential, for a number of reasons.REITs offer direct financial benefits to stockhold-

ers in the form of dividends. As previouslydescribed, they must distribute 95 percent of tax-able income to shareholders, thereby offeringdirect financial benefits to shareholders. The man-agement of a REIT is hired by and accountable toa board of directors that is elected by shareholders.Resident shareholders in a REIT would be able tohave a voice in decision-making through electingor serving on the board of directors.

Finally, REITs are portfolios of assets held bya minimum of 100 shareholders. A private REITcould sell shares to residents of a targeted geo-graphic area. With this model, residents couldgain an ownership stake in a portfolio of properties.(A public REIT, in contrast, would be open to allinvestors as the stocks are publicly traded). Giventhe low minimum investment requirement, theopportunity to invest could be open to a wide rangeof resident investors.

A recently established REIT in New York isdedicated to acquiring and preserving affordablehousing properties. While this is not a ROMmodel, it does point to innovative thinking withinthe field about the utility and application of REITsto community development projects.


121 Information for this section is summarized from two sources:the National Association of Real Estate Investment Trust(NAREIT) website: http://www.nareit.org; and from an article byMichael Grupe and Chuck DiRocco, 2000, “Investing in RealEstate Investment Trusts,” American Association of IndividualInvestors Journal posted on the NAREIT website.

122 There are several variations on the REIT concept. MostREITs are “equity REITs” meaning that they own real estate.“Mortgage REITs” (about 5 percent of REITs) derive their incomemainly through interest earned on their mortgage loans. “HybridREITs” own properties and make loans to real estate owners andoperators.

123 NAREIT website at http://www.nareit.org.

124 “Frequently Asked Questions about REITs,” NAREIT websiteat http://www.nareit.com/changingfacesite.fawtext.htm.

125 Michael Grupe, telephone interview, January 2001.

126 Patricia Lamiell, “Low-Income Group Uses Expert Tactics,”Associated Press, June 8, 1999.

127 In order to facilitate a REIT’s acquisition of property from aseller through the provision of tax benefits to the seller, theUmbrella Partnership REIT (UPREIT) emerged in 1992. In thetypical UPREIT, the partners in an existing real estate partnershipand a REIT become a new partnership, termed the OperatingPartnership. In exchange for their property interests, the existingpartners receive units in the Operating Partnership (OP units).This exchange of partnership interests generally does not result ina taxable transaction and provides an attractive tax-deferred exitstrategy for sellers of real estate who may incur significant tax lia-bilities in a cash sale. For more information, see the CommunityDevelopment Trust website at http://www.commdevtrust.com/programs/equity4.html.

128 Information from this description was obtained from CDT writ-ten materials as well as the CDT website at http://www.commdevtrust.com.

Community Building REIT (CB/REIT)

Researchers found no existing model of aREIT adapted as a resident ownership mechanism.However, if structured appropriately, a REIT couldprovide a powerful tool for low-income/low-wealthcommunity residents to obtain an ownership stakein local or regional real estate development. Basedon the twin notions of reducing risk and providingopportunities for small-scale investors embodied inthe REIT structure, a community building REIT(CB/REIT) could include a comprehensive portfo-lio of real estate projects within a community, num-ber of communities, or metropolitan region.129

A CB/REIT could be structured as a privateREIT that targets the sale of shares to residents ofthe communities in which it holds property. Itcould limit the sales to residents or target a mix ofresidents and other investors, thereby increasingthe REIT’s access to capital.

Given the fact that REITs have no restrictionson minimum investment amounts, they could beopen to a large number of community residents.Similar to investment clubs that pool the individualfinancial capacities of low-income residents, aCB/REIT could enable those traditionally excludedfrom the stock market to generate income from asmall initial investment. If linked to a communitybuilding IDA (CB/IDA), described in the followingsection, low-wealth investors could leverage theirinvestment with matching funds, and the pool ofpotential resident investors—and capital for theREIT—would be increased. By investing in aportfolio of properties including properties in theneighborhood, residents would obtain a direct eco-nomic stake in their neighborhood’s future devel-opment.


129 See Fannie Mae Foundation, p. 12, for a discussion of REITsin the context of value recapture trusts.

Assessment of CB/REIT Model

There are several key issues and challengesregarding this model.

Limited diversification:While a key benefit of a CB/REIT is that itwould enable residents to control some of thereal estate assets in their community, the con-centration of investments in one communitywould increase the risk of investment. Thestandard REIT model includes a portfolio ofproperties that is geographically diverse—withinvestments in a range of communities, andreal estate markets, across the region or nation.To mitigate risk, a CB/REIT could be some-what diversified by acquiring a portfolio ofproperties throughout a metropolitan region ormultiple regions. Ownership could then betargeted to residents of the multiple communi-ties in which property is held.

Limited capital:An essential component of the CB/REIT modelis that it provides residents a voice in deci-sions pertaining to neighborhood real estate.However, a private REIT targeted to low-wealth investors limits the capital available forinvestment. While selling CB/REIT shares tooutside investors would bring in additionalcapital, it would dilute the voice of residentshareholders. According to NAREIT, it maybe feasible for a private REIT to provide votingshares only to residents and nonvoting sharesto outside investors,130 but outside investorsmight be discouraged from investing in a REITthat imposed limitations on their voting rights.

Political challenges:It may be politically difficult for a community-based REIT to reject deals proposed by com-munity members. For a REIT to be financiallysuccessful, it would have to make decisionsbased on strict financial criteria and a trans-parent review process.

Investment risk:Real estate markets can fluctuate tremendous-ly. In order to make informed investment deci-sions related to a CB/REIT, residents wouldneed financial education and ongoing profes-sional advice. This could be accomplishedthrough a number of institutional mechanisms,including an affiliated community-basedorganization, CDC, CDFI, or community build-ing initiative, or through a private-sector pro-fessional hired by community-based institu-tions to provide resident services.

Resident investment resources:Finally, many low-wealth residents simply lackthe resources to invest in a REIT or any othertype of real estate investment vehicle. Provid-ing opportunities for all residents to haveaccess to investment opportunities requiressubsidy and other creative approaches.


130 Since REIT shares need to be fully transferable, the IRSwould need to rule on certain details such as whether requiringvoting shares to be transfer red only among residents of a particu-lar geographic area meets the share transferability criteria.

Mechanisms to Support Resident Investment

Note: The models described herein are included inthis chapter because of their direct connection to thediscussion of acquiring real estate assets. However,these models are not limited to real estate invest-ment and will be referenced in relation to residentinvestment in local businesses and financial institu-tions, described later in this report.

Individual Development Account (IDA)

By enabling low-wealth residents to accumu-late assets, IDAs represent an important departurefrom traditional income-transfer strategies to alle-viate poverty. IDAs are incentive-based savingsaccounts designed to encourage low-income peopleto save for designated purposes. Deposits made bythe account holder are matched by funds from pub-lic or private sources, based on a specific ratio.Sources providing matching funds include privatefoundations, financial institutions, employers, reli-gious institutions, private contributors, and the fed-eral government.131 The accumulated funds cantypically be used by the individual for investmentin the local community, including buying a home,starting a business, or education/training for a jobopportunity.

Professor Michael Sherraden at the Center forSocial Development (CSD) at Washington Universi-ty developed the IDA concept, based on originalresearch about the importance of accumulatingassets to overcome poverty.132 In collaborationwith CSD, the Corporation for Enterprise Develop-ment (CFED) has played a major role in setting upIDA programs around the country in partnershipwith community-based organizations.

More than 250 IDA programs are servingapproximately 5,000 account holders. Thirty-sixstates have authorized IDA programs via directappropriation of funds: tax credits, TemporaryAssistance for Needy Families (TANF) funds,Community Development Block Grant (CDBG)funds, and other mechanisms.133 IDA demonstra-tion projects are underway in 13 sites. Preliminaryresults from this and other research include thefollowing:

1,326 low-income families participating in [thedemonstration] saved $378,708 as of June 30,1999, and these savings leveraged another$741,609 in matching funds. Monthly depositstypically range from $30-$75.134

Also, research summarized by the Center forSocial Development demonstrates many beneficialaspects of assets: they promote economic house-hold stability and educational attainment; decreasethe risk of intergenerational poverty transmission;increase health and satisfaction among adults; andincrease local civic involvement.135

The following example illustrates how IDAsare working.


131 Corporation for Enterprise Development (CfED) website athttp://www.cfed.org.

132 See Michael Sherraden, Assets and the Poor, (Armonk, NY:M.E. Sharpe, 1991).

133 Center for Social Development, Washington University in St.Louis website, at http://gwbweb.wustl.edu/Users/csd/ida/whatareidas.html.

134 Corporation for Enterprise Development website,http://www.cfed.org.

135 Ibid.


Bay Area IDA CollaborativeSan Francisco Bay Area, California

The Bay Area IDA Collaborative, led by EastBay Asian Local Development Corporation(EBALDC), is designed to give low-income familiesin the San Francisco Bay Area a comprehensive andsupportive structure in which to accumulate savingsfor homeownership, education, or business develop-ment. Begun three years ago, the collaborative con-sists of 17 community-based organizations that pro-vide a variety of resources and services to partici-pants. It has 400 individuals currently enrolled orrecently graduated from the IDA program.

To qualify for the program, participants must beat no more than 60 percent of area median income.They save between $10 and $80 per month, deposit-ed in a savings account at a local bank with whichthe program is partnering. The collaborative pro-vides a 2:1 match. Matching funds are kept in aparallel account and managed by the IDA collabo-rative. In two years, a participant can accumulatea maximum of $5,760 including both savings andthe match.136 Participants graduate from the pro-gram when they have reached their savings goaland have drawn down their combined savings andmatched funds to purchase their asset.

Twenty families have recently closed escrow onhomes as a result of their participation in the pro-gram. Combining participants’ IDA savings withresources offered by the collaborative’s partners hasbeen an essential strategy for success. For example,the collaborative was able to leverage individualsavings with the affordable housing developmentactivities of EBALDC. Eight IDA participants nowown homes in a recently constructed developmentproject for first-time homebuyers consisting of 70single-family homes in the $175,000–$200,000range.

In addition, collaborative partners have steeredprogram participants to local government down-payment assistance programs; helped participantsobtain mortgage credit certificates; provided train-ing in homeownership and entrepreneurship; andconnected members to the Federal Home LoanBank’s IDEA program, which has enabled addition-al participants in the collaborative to save at thehighest rate (and receive the corresponding match-ing funds) in order to purchase homes.137

136 The collaborative manages several different IDA programs,and this maximum savings figure applies to the American DreamDemonstration.

137 Information for this example was obtained from two sources:from a telephone interview with Pam Salsedo, former director ofAsset Building Program at East Bay Asian Local DevelopmentCorporation (EBALDC), February 2001, and from the IDA Collab-orative’s website at http://www.ebaldc.com/organization/econ/idea.htm.

Community Building IDA/Development-Supported IDA

The existing IDA structure is a resident owner-ship mechanism in that it enables residents to owncommunity assets, including homes and new busi-nesses. This model could be expanded into a com-munity building IDA (CB/IDA) that allows resi-dents to invest either all or a proportion of IDAsavings in a broader array of community assetssuch as existing or expanding community business-es or real estate development projects.

A CB/IDA is a matched savings account thatcould be drawn down for the purpose of invest-ment. It would, in effect, serve as a tool to supportresident investment in community assets and thusaddress one of the key challenges of implementingROMs—the lack of available investment capital onthe part of many residents in low-income/low-wealth communities. As is the case with a stan-dard IDA, the account could be matched by fundsfrom individuals, foundations, and the public orprivate sectors.

One source of matching funds for a communitybuilding IDA could be proceeds from local realestate development projects in the community.138

A development-supported IDA (DS/IDA) would bea new or expanded form of IDA account thatderives matching funds from a funding stream fromone or more local development projects. TheDS/IDA structure could augment the existing sup-ply of matching funds for IDAs and enable abroader range of lower-wealth residents to invest inthe various resident ownership models described inthis report. While a DS/IDA would not necessarilyhave to be formed in connection with a CB/IDA, ifthey were linked, residents could acquire a stakein the developments that are funding their IDAaccounts. Such linkages would enhance residents’support for the developments; and it wouldincrease the supply of capital available to a rangeof economic development projects, with residentinvestors as the bridge between projects.

Using their IDA savings, residents couldbecome stakeholders in economic development ini-tiatives in their community traditionally outsidetheir reach. Such IDAs would also serve existinglocal businesses by providing them with access toadditional sources of local investment capital.Finally, they would create new community buildingopportunities by giving businesses a mechanismand incentive to partner with community residents.


138 The Fannie Mae Foundation has advanced a version of thisconcept in relation to the value recapture concept. See FannieMae Foundation, pp. 5 and 12. The CB/IDA includes andexpands on the value recapture notion by including an incomestream of capital and mechanisms for resident investment in com-munity assets.

Assessment of New IDA Mechanisms

Together, these approaches—the communitybuilding IDA and the development-supportedIDA—could create opportunities to build newcommunity partnerships serving multiple stake-holders: They would:

• Provide a mechanism to subsidize residentinvestment in community assets;

• Provide local businesses with new sources ofcapital to grow their businesses; and

• Offer developers and entrepreneurs tools tobuild alliances with community residents.

Variations on IDAs would require additionalresearch to design and develop appropriate struc-tures and to address legal, policy, and capacitychallenges. Also, IDAs that allow residents to usetheir savings to invest in real-estate developmentprojects would require careful attention to the risksinherent in real estate investment. Once again,quality information, education, training, and pro-fessional assistance for community residents arecritical ingredients to the successful design andimplementation of these and other models.

Concluding Comments: Commercial Real Estate Development

The commercial real estate ROM modelsexplored in this section represent potent but large-ly untested mechanisms for providing a directequity stake in community real estate for low-income/low-wealth residents. Additional researchand testing are needed to move any of these mod-els to the point where they can be useful to largenumbers of communities. Nonetheless, the exam-ples highlighted demonstrate the level of innova-tion underway and offer promising seeds of hopefor other communities seeking guidance in thedevelopment of appropriate models.


Shared Resident Equity in Business Development

Resident Ownership of Community Businesses

The following model is characterized by com-munity residents working together to build a localenterprise that addresses community needs. Resi-dents hold an equity stake in the business thatoffers a potential return on their investment.


139 Jessica Gordon Nembhard, “Entering the New City as Menand Women, Not Mules: Democratic and Humane EconomicDevelopment Strategies for Revitalizing Inner Cities” (unpub-lished manuscript, 2000), p. 16.

140 Information for this description was derived from severalsources: a telephone interview with Rita Bright, B.I.G. Washfounder and board member, March 2001; David Montgomery, “ANeighborhood Cleans Up: Community Laundry Sells Shares,”Washington Post, March 8, 1999; and Jessica Gordon Nembhard,“Entering the New City as Men and Women, Not Mules: Democra-tic and Humane Economic Development Strategies for Revitaliz-ing Inner Cities” (unpublished manuscript, 2000), pp. 15–16.

Business D e v e l o p m e n t

Whereas the previous section explored waysfor residents to gain an ownership stake in realestate development, this section examines waysthat residents can be involved, as partners andstockholders, in the growth, stability, and expan-sion of businesses in their community.

B .


Community Business Development:B.I.G. WashColumbia Heights, Washington, DC

B.I.G. Wash, a coin-operated laundry, is a com-munity business venture in the low-income Washing-ton, DC, neighborhood of Columbia Heights; it hasbeen in existence since 1995. The business conceptand plan grew out of the collective efforts of com-munity residents, led by Rita Bright and her neigh-bor Henry Gibson, along with her husband Michael;Magnolia Brown; Joe Pearson; and Ruben MacCor-mack, the executive director of the local nonprofitHope Housing Development Corporation.

Many of the original investors lived on BelmontStreet and worshiped at the nearby Community ofHope Church. With technical assistance facilitatedby Hope Housing, the group hammered out a busi-ness plan over a two-year period and searched forinvestors. Finally they initiated a public offeringthat involved the group’s selling neighbors shares inthe venture at $100 each, raising $30,000 amongcommunity residents. The biggest stakeholder thenwas a Postal Service custodian and president of theboard who owned 74 shares. As of 1998–99,“B.I.G. Wash had revenues of about $240,000 anda payroll of about $70,000—exceeding all expecta-tions. The original investors received dividendsequal to 185 percent of their holdings over threeyears. In 1999, one member sold a share for $600.

They have not missed a payment on their debt, andby the end of 1999 had paid off one loan. Theincreased equity and annual dividends increasedthe financial stability of the members and evenenabled some to purchase homes in the neighbor-hood.”139

B.I.G. Wash, Inc., is located in a neighborhoodmall developed by the Columbia Heights CDC.Today, it employs neighborhood residents—all part-time—serving as bookkeepers, auditors, CPAs, andmonitors. Members of the board are exploring waysto expand their unique business model to benefitother residents and have talked about branching outand establishing spin-offs in other areas of the city.

At the same time, there are challenges. Theneighborhood is experiencing gentrification that hasdriven up property taxes by as much as 25-30 per-cent for some homeowners. Rent in the neighbor-hood has also been increasing rapidly. Brightbelieves that shareholders have a unique opportunityto reinvest the dividends they have accrued, both fortheir own benefit and that of the community. “Mostof our stockholders use their money to supplementtheir Social Security and other checks. They aren’tthinking about reinvesting that money. But, weneed to look at ways that they can reinvest thosefunds in the community, and we need to find waysto educate them about the value of doing that.”140

Assessment of Shared Equity Model

Community businesses that have low-incomeresidents as investors/shareholders are clear exam-ples of ROMs. This model offers financial benefitsto those members of the community who haveassets to invest and opportunities for resident own-ers to have a voice in decisions pertaining to thebusiness. It offers clear and direct ownershipmechanisms in the form of stock held by residentinvestors.

Key issues to be addressed in considering thismodel:

Risk:Since less than half of small businesses last

more than four years, risk is an important issueto address.141 Risk is inherent in all businessventures; however, careful business planning,technical assistance, and support can increasethe chances for success. Furthermore, asdemonstrated in the B.I.G. Wash example, suc-cessful risks can bring financial rewards.

Lack of investment capital under local control:As is the case with many ROM models, thismodel could be limited by the fact that onlythose residents with expendable assets couldafford to invest. Utilizing the strategies pro-posed for increasing shareholder participation,such as community building IDAs and othersubsidy mechanisms, would help to addressthis challenge.

Long-term growth and control:As the company grows, so too will the marketsfor the shares. This liquidity is good forinvestors but may ultimately result in a loss ofcommunity control of the business. The modelallows for bylaws to be written with restrictionson the sale of shares. The original investorsmust determine the trade-off between thepotential for stock appreciation and ongoingcommunity control.

Accountability:The need for trade-offs between individual andcommunity interests is common to all types ofbusiness ventures. But resident ownershipoffers a greater chance that business decisionswill reflect broader community priorities sinceresidents’ accountability to other members ofthe community is probably greater than that ofoutside investors.


141 This figure is from the U.S. Small Business Administration(SBA) Office of Advocacy website, atwww.sba.gov/advo/stats/sbfaq.html#q6.

Resident Stock Ownership Plan (RSOP) and Customer Stock Ownership Plan (CSOP)

Another strategy to ensure resident benefits,while building new partnerships between residentsand local businesses, is for residents to obtainshares in businesses that serve the community butare owned and operated outside of it. A ResidentStock Ownership Plan (RSOP) would give residentsa direct economic stake in the business and voicein business decisions, in partnership with otherstockholders.

Researchers found no existing model of a stockownership plan offered to community residents; buta model could be developed from the underlyingconcepts of offering stock to a preferred class ofinvestors used in Employee Stock Ownership Plans(ESOPs) and Related Enterprise Share OwnershipPlans (RESOP), described later in this section.Stock could be made available based on communi-ty residence (i.e., geographic) or on resident use ofthe local business, as consumers, as opposed tobeing based on employment or service. The latter,consumer-based approach bears a relationship tocustomer cooperatives and Customer Stock Owner-ship Plans (CSOPs), a model that is being exploredin many places as a way to provide an ownershipinterest for customers of certain enterprises.

CSOPs have been considered in Britain inconnection with the privatization of the BritishBroadcasting Corporation (BBC).142 The CSOPconcept has also emerged in the debate about Cali-fornia’s energy crisis and the near bankruptcy ofutility companies in the state. (At one stage in thecrisis, the concept was floated of offering cus-tomers the option of obtaining stock in the utilitycompanies, in return for higher electricity bills.) Avariation on the CSOP model is the ownershipstructure of the Green Bay Packers professionalfootball team, which is owned by a nonprofit corpo-ration in which local residents and fans own all theshares:

The Packers’ ownership resides in a not-for-profit corporation (first established in 1919)whose 4,634 shares are valued today at thesame $25 as when issued. Shares can be left torelatives but cannot be sold to outsiders withoutfirst offering them to the team. No one can ownmore than 200 shares. If the team were sold(major league franchises routinely fetchupwards of $150 million), the proceeds arerequired to be used to construct a war memorialat the local post of the American Legion.143


142 Gates, p. 74.

143 Gates, pp. 68–69. Replication of this model could requireclarifying legislation, depending on the legal definitions andrestrictions for nonprofit corporations found in state laws.

Assessment of RSOP and CSOP Models

Each of these conceptual models requiresadditional research to determine the legal, politi-cal, and economic challenges associated withimplementation. While not insignificant, many ofthese challenges could be addressed throughenabling legislation, as occurred with other innova-tive investment tools, such as mutual funds, REITs,and ESOPs.

Using these ownership models would increasethe opportunities for residents to own an equitystake in local businesses and provide an alterna-tive mechanism for raising capital. If the modelwere tied to a community building IDA or othersaving/investment mechanism, it would leverageadditional financial resources and allow a largernumber of resident investors to participate.

Risk:Resident investment in the stock of any com-pany includes an element of risk. Risk levelsmay be higher with newer companies that donot yet have an established track record oraccessible financial information. As describedearlier, the issue of risk is one that is inherentin all forms of investment. Selling shares at adiscount to resident investors would mitigatethe risk, but it would not eliminate it. ROMsare meant to offer an expanded “menu ofopportunity”; i.e., greater choices for commu-nity residents to be able to build individualand family assets. The choice of whether totake a risk is ultimately up to local residents,guided by sound financial information andadvice.

Incentives for businesses to adopt ROMs:Another obstacle to advancing these models isthe lack of tax or other public policy incentivesfor companies to make stock available to com-munity residents. ESOPs, for example, triggersignificant tax advantages in some cases, pro-viding a key motivation for companies to pur-

sue them.144 They include advantages directlyto firms that set up ESOPs and to employees inthe way that stock options are taxed.145 Withsufficient tax inducements, companies may beopen to establishing RSOPs and CSOPs innegotiating a community benefits package withlocal government and/or community represen-tatives, in return for special tax advantages,incentives, or services from the public sectorand/or local foundations.

The definition of beneficiaries :As is true for all models, the identification oftarget beneficiaries is a challenge. For exam-ple, should the beneficiaries of this ROM strat-egy only be low-income/low-wealth residentsin the community or should all community res-idents benefit? And how should “community”be defined—is it just the immediate neighbor-hood surrounding the business, a number ofneighborhoods, or the entire city or county?As is the case with many of the models pro-posed in this report, the answers to many ofthese questions should be resolved as the mod-els are explored and developed by local com-munity builders.

Support infrastructure:A major challenge for community builders,funders, and other stakeholders interested inadvancing these and other ROM models isbuilding an infrastructure of support for resi-dent investors. These supports include accessto information, education, and professionaladvice about the businesses so that they canmake informed investment decisions.


144 While some of the ESOP incentives have been weakened overtime, “they allow companies to borrow money and repay it in pre-tax dollars. They provide a way for owners of closely held busi-nesses to sell all or part of their interests and defer taxation on thegain.” For more information, see the National Center for Employ-ee Ownership website, http://www.nceo.org.

145 See Margaret M. Blair and Douglas L. Kruse, “Worker Capi-talists? Giving Employees an Ownership Stake,” BrookingsReview, Fall (1999): 24. Blair and Kruse argue that the only sig-nificant tax benefit to establishing an ESOP currently is the spe-cial tax treatment of stock options.

Cooperative Ownership Models

A cooperative is an autonomous association ofpersons united voluntarily to meet their commoneconomic, social, and cultural needs and aspi-rations through a jointly-owned and democrati-cally-controlled enterprise.146

The cooperative sector comprises a large andgrowing sector of the U.S. economy. The firstcooperative was established in the United States in1752, when Benjamin Franklin formed thePhiladelphia Contributionship, for the Insurance ofHouses from Loss by Fire.147 In 1844, membersof a cooperative in Rochedale, England articulateda set of cooperative principals which set the stagefor the modern cooperative movement. Today theworldwide cooperative sector includes over 48,000cooperatives, with combined annual revenuesexceeding $150 billion.148 These cooperativescomprise over 120 million members in the UnitedStates alone. The industry is divided into threeownership categories: worker-owned cooperatives,consumer-owned cooperatives, and producer-ownedcooperatives.

Cooperatives operate according to a commonset of principles, adopted by the InternationalCooperative Alliance in 1995. They include: vol-untary and open membership; democratic membercontrol; member economic participation; autonomyand independence; education, training, and infor-mation; cooperation among cooperatives; and con-cern for community.

The cooperative sector is important to theROM discussion in that many of the businesseswithin the sector embody key ROM characteristics:financial benefits, voice, and ownership. Accord-ing to the National Cooperative Business Associa-tion (NCBA), the cooperative model embodies thefollowing aspirations:

A cooperative operates for the benefit of itsmembers. These member-owners share equallyin the control of their cooperative—they meet atregular intervals, review detailed reports, andelect directors from among themselves. Thedirectors in turn hire management to managethe day-to-day affairs of the cooperative in away that serves the members’ interests. Mem-bers invest in shares in the business to providecapital for a strong and efficient operation. Allnet savings left after bills are paid and money isset aside for operations and improvements arereturned to co-op members.149

Worker ownership models include an array ofstructures with varying degrees of financial bene-fits, voice, and control on the part of workers. Atone end of the spectrum are worker cooperativesthat are democratically organized on the basis ofone-member, one-vote. At the other end are cer-tain types of ESOP companies that operate as tra-ditional, top-down corporations with a tokenamount of stock available to employees. This sec-tion includes examples of different types of workerownership and their relationship to a comprehen-sive community development strategy.


146 “Cooperatives Are…Cooperative Business in the UnitedStates,” National Cooperative Business Association (NCBA)brochure, undated.

147 Ibid.

148 “NCB Co-op 100: National Cooperative Bank Presents Amer-ica’s Top 100 Co-op Companies,” brochure, undated.

149 Ibid.

Employee Ownership

Worker-OwnedCooperativexxxxx

Worker-owned co-ops enable workers to con-trol their workplace and obtain financial benefitsas shareholders of the business. The membershipelects the board of the co-op, and the boardappoints the general manager. While worker co-ops are relatively simple to set up and provide taxbenefits, they are not widely used.150 They repre-sent a largely untapped potential in communityeconomic development and revitalization and havemuch to offer ROM research and practice.

In Employee Ownership: The Vehicle for Com-munity Development and Local Economic Control,Megson and O’Toole succinctly describe how work-er co-ops operate:

Profits are allocated to each member at the endof each year on the basis of either the number ofhours worked or salary. In addition, a propor-tion of the profits is allocated to a commonaccount to provide the co-op with some cushionagainst future losses. Generally, only a portionof the profits allocated to each member will

actually be distributed to that member. Theremainder is allocated to his/her “internal capi-tal account,” a funding account the memberretains within the co-op. Losses are similarlyallocated to members. In this way, the wealthgenerated by the co-op and its employees isretained in the co-op to increase the capitalbase, net worth, and borrowing power.

A member’s share of the value of the co-opis reflected in the balance of his/her capitalaccount. When a member leaves, he or she isable to reclaim this value from the co-op. Inpractice this value represents the member’s shareof the book value of the co-op rather than themarket value. In the event that a co-op is ter-minated, debts are paid off first, then the inter-nal capital accounts are paid off, and any sur-plus is distributed among the membershipaccording to a predetermined formula outlinedin the bylaws.151

Only a subset of worker-owned co-ops—those thattarget low-income/low-wealth community resi-dents—can be classified as ROM models. Follow-ing are examples of such models.


150 Megson and O’Toole, p. 5

151 Ibid.


152 Information for this description was derived from a telephoneinterview with Avis Ransom of R&B Unlimited, Inc., March 2001.

SSC Employment AgencyBaltimore, Maryland

SSC Employment Agency, Inc., is a worker-owned cooperative temporary agency, based in Bal-timore, Maryland, that was established in 1997.Guided by a commitment to providing optimumemployment opportunities to its workers and givingthem a direct stake in client satisfaction, SSC beganwith ten workers drawn from a pool of those consid-ered the hardest to employ. In 2000, SSC placedsome 260 workers in jobs, mainly in Baltimore’shospitality industry.

In addition to client satisfaction, SSC’s missionis to give its workers both ownership and voice in theagency. After 160 hours as employees, workers are

eligible to apply to become members of the coopera-tive. If the cooperative board, made up of otherworker-owners, approves their application, a $100membership fee is deducted from their paychecks.Currently, SSC has seventeen worker-owners whoreceive dividends from the company’s profits andelect the company’s board of directors.

Jobs range from janitorial and job-site cleanupto assembly and light clerical. Assignments encom-pass one-event placements, such as a football gamewhere workers might be employed as stadiumcleanup crews, to office assignments that last severalweeks at 40 hours per week. A local business man-agement and development firm, R&B Unlimited,Inc., provides management assistance to SSC.152


153 Rebecca Bauen, “Las Flores Metalarte: Creating CommunityJobs in Puerto Rico” Case study (Boston: ICA Group, 1995), p.16.

154 Ibid., p. 8.

155 Information for this example was derived from the followingsources: Rebecca Bauen, former staff member of the ICA Group,telephone interview, March 2001; Jaime Pfeiffer, Metalarte CEO,telephone interview, March 2001; and Bauen, “Las Flores Meta-larte.”

Las Flores MetalarteCoamo, Puerto Rico

Metalarte is a worker-controlled, democratical-ly-run producer of household furniture and woodand Formica kitchen cabinets. Established 25years ago as a social action project through the ini-tiative of local residents and a priest, Metalarte islocated in Coamo, Puerto Rico, 70 miles southeastof San Juan.

Since its modest beginnings, Metalarte hasmushroomed into “one of the largest and most suc-cessful furniture manufacturers on the island.”153

Both worker-owners and community representativessit on the board of directors and influence how thecompany is run, an arrangement that contributes toLas Flores’ strong roots in the community. “Withone vote each, workers elect board members whodecide the future direction of the firm and determinehow profits are used. They hold a general assembly

of all workers that meets once a year and elect theboard of directors every two years. Eight workersand five community representatives comprise theboard, and [the] CEO holds a nonvoting seat.”154

The company currently employs 180 worker-owners. A new worker at Metalarte has a one-yearprobationary period, after which he or she becomesa full owner-member with voting rights. Currentlyall profits are reinvested into the company.

Metalarte has several facilities in Coamo thattotal 140,000 square feet of space and is buildingan additional 35,000-square-foot building to housethe heart of the operation, the cutting and process-ing area. The company’s clients include the HomeDepot in Puerto Rico; a number of small family-owned furniture stores throughout the island, andseveral furniture stores in the Virgin Islands.155

EmployeeStock Ownership Plan (ESOP)xxxxx

Employee Stock Ownership Plans (ESOPs)enable employees to own all or part of a company’sstock. ESOPs are used widely by U.S. companiesand are an important model for distributing owner-ship. According to surveys, as many as one-thirdof large corporations in America now offer stockoption plans to all or most of their employees.156

The National Center for Employee Ownership esti-mated in 1996 that over ten thousand corporationshad ESOPs, covering almost 9 million employ-ees.157 Major ESOP companies include UnitedAirlines, where its 85,000 workers own 55 percentof the stock; and Hallmark Cards, whose 22,000employees own at least one-third of companystock.158

Integrating ESOPs with a place-based commu-nity building strategy creates a powerful tool.Megson and O’Toole describe the range of ESOPsin the following way:

…ESOPs that provide “first class” employeeownership and pass voting rights through totheir employees are generally controlled on thebasis of one-share, one-vote. Consequently,long-serving employees who have accumulatedmore capital, and therefore more shares, willget more votes than a new employee. A smallnumber of “democratic” ESOPs are controlledon the basis of one-member, one-vote.

…Profit is allocated to the members in the formof new stock and dividends on the stock themembers already hold.

…Ownership of the value of the company istypically acquired in two ways. When employ-ees borrow money to purchase a company, theyreceive their ownership over time in the form ofstock allocations as the loan is paid off. Inaddition, they may receive additional stock astheir share of the profits generated by the com-pany. The company’s stock is valued annually,which ensures that the employees do receive theadvantage (or disadvantage) of changes in themarket value of the company. When a personleaves an ESOP company, he or she can eithersell their stock on the open market (in the caseof a publicly traded company) or sell it back tothe company for cash. In ESOP companies thatwish to remain owned and controlled by theirwork force, the stock of people leaving the com-pany must be repurchased by the company.159


156 Margaret M. Blair and Douglas L. Kruse, p. 23.

157 Jeff Gates, The Ownership Solution (Reading, MA: Addison-Wesley, 1998), p. 60.

158 Ibid., p. 61.

159 Megson and O’Toole, p. 6.

ESOPs can come into being through differentprocesses: ESOPs can be used as a successionstrategy for a firm whose founder is retiring orwhose initial equity investors need an exit strategy.ESOPs can also be used as an equity-raising strat-egy for a company that is expanding but may notbe able to raise sufficient capital through othermeans. In addition, workers can develop a newESOP company. In this scenario, local communi-ty-based organizations can play a role in capitaliz-ing the company and getting it off the ground.Once the company is stabilized and making a prof-it, ownership can be transferred to the employ-ees.161 The ICA Group in Boston has been a keyforce behind this approach.

Finally, employees can purchase an existingcompany that the owners wish to sell (an “employ-ee buy-out”). In these cases, ESOPs are some-times used as an alternative to bankruptcy, whichoften poses challenges to the new owners. Workersbuy the company in order to retain their jobs andgain some measure of control of their workplace.The following example describes an employee buy-out of a financially solvent company.

First enacted in 1973, U.S. tax policy facilitat-ing the formation of ESOPs has been an importantfactor in their expansion. Tax benefits include thefollowing:

• When a company borrows money to set upan ESOP with company stock, it gets a taxdeduction for its payments of both principaland interest.

• The capital gains tax from a sale of stock toan ESOP can be deferred.

• Employees do not have to pay taxes on stockheld in an ESOP until the holdings are paidout upon termination or retirement.

• In “S” corporations, the ESOP does not haveto pay taxes on its share of the company’sprofit. Hence, if the ESOP owns 100 per-cent of the company’s stock, the companywill not have to pay corporate taxes at thefederal level.160


160 Megson and O’Toole, Appendix III.

161 The preceding discussion of ESOPs is based on Megson andO’Toole, pp. 8–10.

162 The description is based on an account in the ICA Group’sMay 2001 newsletter and a telephone interview with AndrewWeaver, ICA Group Senior Business Consultant, May 2001.


Normandeau AssociatesBedford, New Hampshire

Normandeau Associates is an environmentalconsulting firm based in New Hampshire with nineregional offices. Its 130 employees include waterquality and natural resource scientists and techni-cians who work with industry and governmentalagencies to minimize the environmental impacts ofnew construction. Current company projects includethe evaluation of a “fish friendly” turbine designedto improve the survival of young salmon at the Bon-neville Dam in the Pacific Northwest and the devel-opment of a 100-acre wetland mitigation site toreduce the environmental impact of a highwayexpansion in New Hampshire. Founded in 1970,the company was later acquired by the ThermoElectron Corporation, which subsequently elected tosell the company.

In July 2000, with the help of Boston’s ICAGroup, the employees of Normandeau Associatessuccessfully purchased 80 percent of their company:Senior managers put up capital to buy 17 percent ofthe company, and the ESOP secured a loan to buy

63 percent, giving the employees ownership of 80percent of the company. The remainder is held byan outside investor and Thermo-Electron. TheESOP will eventually purchase the equity owned bymanagement and outside investors, making Nor-mandeau a 100 percent employee-owned company.

Normandeau employees participate in the com-pany in various ways. As shareholders, they electthe board of directors. They also exercise their own-ership and governance rights through the ESOPAdvisory Committee, the body that advises the trustthat holds the workers’ shares. On issues requiringa shareholder vote, there is “pass through” voting;that is, the trustees are obligated to vote as directedby the worker-shareholders. In addition, Norman-deau is exploring avenues to increase worker partici-pation in routine operations and management.Employees have already received training on how tointerpret the value of their internal accounts overtime and how this is related to company perform-ance.162

Related Enterprise Share Ownership Plan (RESOP)xxxxx

Building on the ESOP concept, Related Enter-prise Share Ownership Plans (RESOPs) provideownership opportunities for a broader array ofstakeholders than the employees of one firm.163 ARESOP enables a firm’s suppliers and distributorsto gain an ownership stake in the firm. The modelhas been applied in Jamaica, as described herein,where the firm’s suppliers and distributors weresmaller, more marginal businesses. Providingthese micro-entrepreneurs with an ownership stakein the larger firm helped to stabilize their financialposition.

The RESOP model is relevant to ROMs sinceit expands ESOPs beyond workers to a broader setof beneficiaries. Workers become owners in aRESOP based on their employment in the primarybusiness or based on their relationship as suppliersor distributors to the business. The ownershipstake provides opportunities to accumulate capitaland exercise control of the business.

Currently, a RESOP is not a geographicallybased model. A community-oriented model couldbe developed and could include incentives forownership by community-based organizations pro-viding education, training, placement, or otherservices to the business.


Jamaica BroilersJamaica

Jamaica Broilers is the largest chicken process-ing operation in Jamaica. It relies on a network ofpredominantly small family farmers to raise thechickens and on another network of small truckingcompanies to take the processed chickens to super-markets. When a foreign investor made the decisionto withdraw his 25 percent stake in the company inthe 1970s, Jamaica Broilers secured a loan to buyhis shares. The company also used some of the loanfunds to help upgrade the operations of the farmersand the truckers it depended upon.

The loan was the basis for establishing aRESOP. The company repaid the loan through itsearnings. To aid in repayment, employees partici-pated in a payroll deduction arrangement while thetruckers and the farmers had a small amountdeducted from each invoice they presented to thecompany for payment (e.g., the value of two chick-ens). The employees, farmers, and truckers werecompensated with company stock. As the loan wasrepaid, the shares became owned by both the compa-ny’s employees and by its network of contract farm-ers and truckers.164

Assessment of Employee Ownership Models

Not all employee ownership models are ROMs,but most exhibit a large number of ROM criteria.Although employee ownership models do not nec-essarily target beneficiaries geographically, manyhave most of their members in a fairly small geo-graphic area. Worker ownership models providepotential financial benefits to participating work-ers, but those benefits are not guaranteed sincethey are tied to the company’s health.

As described, worker ownership models varywidely in the level of voice, ownership, and controlthat workers are able to exercise. “True ‘first class’employee ownership is where the employees own amajority of the corporation and exercise their rightsas owners to control the corporation.”165 As of1992, workers owned a majority of the voting stockin about 1,000 ESOPs in the United States; ofthese, about one-third are democratically organ-ized.166

The examples highlighted in this section meetROM criteria and offer important lessons regardingexpansion and replication of the models in a waythat targets residents of low-wealth communities.Furthermore, all of the models offer important les-sons regarding the many ways that public policycan be used to advance innovative ideas and prac-tices.


163 This description of the RESOP models is summarized frompoints made in Gates, pp. 71–73.

164 Ibid, pp. 72–73.

165 Megson and O’Toole, p. 3.

166 Len Krimerman and Frank Lindenfeld, eds., When WorkersDecide (Philadelphia: New Society Publishers, 1992), p. 6. Theauthors cite the National Center for Employee Ownership for thisfigure.

Producer Cooperatives167

Producers, individually or as a group, own andoperate cooperatives that provide members withexpanded marketing and production capacity.Many smaller producers lack the production vol-ume to do direct business with wholesalers andretailers of their products. Through their coopera-tives, producers can market their products effi-ciently and meet consumer demand. Producercooperatives in the United States that are mostrelated to ROMs are primarily found in rural com-munities.

AgriculturalCooperativex

The most common form of a producer coopera-tive is the agriculture cooperative. According tothe National Cooperative Business Association(NCBA), there are over 4,000 agricultural coopera-tives in America with almost 4 million members.In recent years, consolidation in the industry hasreduced the overall number of agriculture coopera-tives.168

Agricultural co-ops fall into three generaltypes: marketing cooperatives, where member/own-ers collectively market their produce; supply coop-


Indian Springs Farmers Association Hattiesburg, Mississippi

The Indian Springs Farmers Association wascreated in the early 1980s as a marketing and buy-ing co-op of fruits and vegetables. It emerged fromthe informal efforts of twelve farmers to collectivelysell watermelons in several large cities. “The fivegoals of the Indian Springs Farmers Associationwere first defined as: (1) raise the standard of livingamong small farmers who are members of the coop-erative, (2) increase income received from crop pro-duction, (3) cut transportation costs to get productsto market, (4) expand marketing capabilities, and(5) create new job opportunities.”171

Today, the cooperative has 48 producer-ownersof varying production capacities. The cooperativemarkets a wide range of fresh produce, includingturnips, collards, squash, bell peppers, watermelon,and cucumbers. Its customers include Kroger’s in

Nashville and Louisville as well as Winn Dixie.Along with servicing these large retail grocers, thecooperative continues its direct sales of producethrough churches in Chicago and other major citiesin addition to participating at the New OrleansFarmers Market.

Recently, the cooperative won a contract valuedat $400,000 to sell cucumbers to a firm that sup-plies pickles to Burger King. The one-year contractwill more than double co-op sales and representsabout three million pounds of cucumbers or the pro-duction from 200 acres. Indian Springs is alsoexploring possible diversification into processing asa way to add value to its products. Indian Springsis a member of the Mississippi Association of Coop-eratives as well as the Federation of Southern Coop-eratives.172

eratives, where they pool resources to purchasesupplies and services; and service cooperatives,where member/owners work together to provideservices. They are organized into three operationalsub-categories: centralized co-ops, where membersare individual producers; federated co-ops, or“regionals,” where two or more cooperatives aremembers; or mixed cooperatives, where individualproducers and cooperatives are members.

Agricultural co-ops help farmers and otheragricultural producers pool their resources toincrease capacity to produce, market, and distrib-ute their products. Members benefit fromeconomies of scale, collective learning, and greaternegotiating power in the marketplace.

As cooperatives, they embody democratic prin-ciples in all aspects of their operations: they arecontrolled by member/owners who elect the boardof directors through a democratic, one-member/one-vote process. The responsibilities ofthe board include budgeting, hiring, policy over-sight, and decision-making regarding the distribu-tion of profits.

While agricultural cooperatives comprise thelargest segment of the cooperative sector and alarge segment of the agriculture industry, not all ofthem can be classified as ROMs because they donot all target low-wealth community residents asprimary beneficiaries. The agricultural co-opmodel that is most relevant to the ROM discussionis serving small family farmers in low-wealth ruralcommunities.

Agricultural cooperatives enable small farmersin low-wealth communities to overcome their isola-tion through developing linkages outside the imme-diate area, increasing their access to advancedtechnology, work-force training, adequate capital,and markets.169 In this way, co-ops help farmersincrease the yields and profitability of theiracreage and represent a strategy to help themmaintain the security of their land tenure. Main-taining land tenure is particularly critical to blackfarmers in the South: the number of blacklandowners has declined from about 100,000 own-ing six million acres in 1969 to fewer than 19,000owning under 2.5 million acres today.170


167 Sources for this section include the National CooperativeBusiness Association website at http://www.ncba.org and theCooperative Life website athttp://www.cooplife.com/coopstoday.htm.

168 This discussion draws on information in “Agricultural Cooper-atives,” NCBA brochure, undated.

169 “Why Cooperatives and Rural Development?,” Journal ofCooperative Development, 1, no. 3 (1999): 10.

170 “What is the Federation of Southern Cooperatives/Land Assis-tance Fund?,” Journal of Cooperative Development, 2, no. 2(2000): 3.

171 Paul Darby, “Indian Springs Farmers Association is helpingsmall farmers reach new heights,” Journal of Cooperative Develop-ment, 2, no. 2 (2000): 5.

172 This description is based on an article authored by Paul Darbyin Journal of Cooperative Development, Spring 2000.

CraftCooperative173xx

Craft cooperatives are designed to help indi-vidual and family craft producers work collectivelyto get their products to market. According to theNational Cooperative Business Council, servicesprovided by craft co-ops may include any of thefollowing: market research, merchandising, cata-logue sales, sales representation, or retail andwholesale operations.

Craft cooperatives help member/owners toimprove their efficiency of production and productquality, along with providing joint opportunities foreducation, training, and professional growth. Theymay be local or regional, and they are particularlyknown for meeting the needs of low-income/low-wealth producers and among minority, rural, andsenior communities (hence their particular rele-vance to ROMs). Regional cooperatives are usual-ly formed to pool resources to cover the costs ofmarketing, training, or other professional services.

Assessment of Producer Co-op Models

The primary purpose of a producer cooperativeis to serve its members as producers, rather thaninvestors; hence, they are not structured to producea return on investment. But by increasing the prof-itability of individual producers, they do in facthelp member/owners to build their financial assets.Furthermore, as is true for all cooperatives, themodel embodies ROM criteria in terms of voice inthe decision-making process.

The producer co-op model is particularly rele-vant to the ROM discussion wherever it can beapplied to serving low-income/low-wealth residentsin disinvested urban, rural, and tribal communi-ties. For example, it has direct applicability forenabling small micro-entrepreneurs to increasetheir sales, marketing, and distribution capacity.Producer cooperatives also provide a way to aggre-gate demand for technical assistance that is costeffective for community development intermedi-aries and other professional service providers.


173 Information for this description was summarized from “CraftCooperatives,” NCBA brochure, undated.

174 Information for this description was derived from a telephoneinterview with Rennie Miller, Freedom Quilting Bee manager,March 2001, and from the Freedom Quilting Bee website athttp://www.ruraldevelopment.org/FQB.html.


Freedom Quilting Bee Alberta, Alabama

Initiated in 1966 during the civil rights era, theFreedom Quilting Bee is a handcraft cooperativelocated in the small rural town of Alberta. TheQuilting Bee originated as a creative response to theretaliation of white landowners against blacks whoparticipated in civil rights and voter registrationactivities. Civil rights participants, often localfarmers, were sometimes put off their lands or drivenfrom their homes, and the Quilting Bee representeda strategy towards economic independence forfinancially strapped residents.

The group specializes in top-quality, traditionalquilts and provides the machinery, fabric, and mar-keting infrastructure for its members. Members sewquilts for minimum wage and then receive a shareof the cooperative’s profits. The cooperative member-ship is currently ten women.

The activity level of the cooperative is variable.In 2000, the group sold 100 quilts, mostly inresponse to special orders. Freedom Quilting Bee isa member of the Federation of Southern Coopera-tives and works with the Rural Development Leader-ship Network.174

Aggregation and Networking among Cooperatives

Regional Cooperative Networkxxxx

Networking among cooperatives represents anessential element of their development. Coopera-tives are strengthened both by creating links ofeconomic exchange between one another andthrough regional support organizations. According

to William Foote Whyte and Kathleen King Whyte:The long-run prospects for a cooperative tryingto survive in a sea of private enterprises are verypoor. One aid to survival is to group coopera-tives so that they can exchange services andshare expenses….[A] financially successfulcooperative can stimulate the creation of cooper-atives in fields that support the interests of boththe parent cooperative and one another.175


Mondragon Cooperative CorporationBasque Region, Spain

Mondragon Cooperative Corporation (MCC) isan integrated cluster of cooperative companies inthe Basque region of Spain with over 30,000 work-ers and over six billion dollars in annual sales.Known throughout the world, MCC consists of 86production cooperatives, averaging several hundredmembers each, that make products ranging fromautomotive parts to domestic appliances to prefabri-cated homes; 44 educational institutions; sevenagricultural cooperatives; 15 building cooperatives;several service cooperatives; a network of consumercooperatives with 75,000 members; and the system’sbank, Caja Laboral Popular.

Mondragon’s roots go back to 1956 when fiveengineers formed a small business to produce oilstoves. Its evolution into the powerful regional clus-ter that it is today was based on the original own-ers’ commitment to aggregation and integration

among newly forming cooperatives. “When [thefounders] needed further capital for expansion, theyformed a bank following the same principles ofcooperative ownership. As each enterprise becamesuccessful and grew, it divided and subdivided tocreate a complex of interrelated worker-owned enter-prises that is still growing….Although the founders…were attracted to the democratic principles of thecooperative business tradition, they were realistic.They recognized the weakness of traditional cooper-atives in their tendency to be isolationist and mar-ginal in the main economy. To prevent debilitatingfragmentation in their new enterprises, they insistedthat each of the new businesses they set up wouldremain linked as associated cooperative businesses.To this day, unity is maintained through interlinkedboards and joint agreements.”176

This integrated network enables each individualenterprise to remain small and yet enjoy the advan-tages of economies of scale.177


Federation of Southern Cooperatives

The Federation of Southern Cooperatives wasestablished three decades ago to meet the needs oflow-income/low-wealth rural communities andcooperatives in the southern United States in train-ing, technical assistance, and advocacy. Foundedby community organizations and leaders emergingfrom the civil rights movement of the 1960s, theFederation has helped to build a community-basedmovement of organizations “experienced in fightingexploitation and knowledgeable in the tools, tactics,and techniques needed to help people build theirown property and progress.”178 Membership isspread across ten southern states from southern Vir-ginia to east Texas and includes seventy cooperativegroups and 20,000 farming families.

The Federation supports the development ofagricultural cooperatives and credit unions andassists black family farmers with land retentionthrough helping them develop alternative agricul-tural and forestry enterprises to sustain land owner-ship. Specifically, the Federation helps memberswith cooperative purchasing and marketing mecha-nisms that allow smaller producers to have theeconomies of scale and market impact of bigger pro-ducers. It also provides technical assistance indeveloping alternative crops, such as vegetables andfruits, where there is more potential for profit on thesmaller farm acreage held by Federation members.

Another key focus of the Federation since itsinception has been the introduction of “valueadded” agriculture that enables producers of a com-modity to become the supplier of an end-use prod-uct. The Federation facilitated direct links betweena number of black farmers raising vegetables andurban consumers; in addition, one cooperative inparticular began bundling its firewood in order tosell it directly to individual customers. The Federa-tion also offers training in farm management, busi-ness planning, and financial analysis that, alongwith its technical assistance, is designed to helpsmall farmers make their land as productive andvalue generating as possible.

In addition to working directly with members,the Federation advances a public policy agendaaddressing the needs of its low-wealth constituency.In the 1980s, the Federation developed the basicoutline of a “Minority Farmers Rights Bill” to assistpeople of color family farmers across the nation.The Federation sponsored a Caravan of Black andNative American Farmers to Washington, DC, inSeptember 1992, which included demonstrations atstate capitols, the U.S. Capitol, and at the U.S.Department of Agriculture. Through these effortsand in collaboration with other groups, the Federa-tion succeeded in having portions of its advocacyagenda incorporated in national farm legisla-tion.179

177 Ibid.

178 Retrieved from http://www.federationsoutherncoop.com.

179 Information for this description was derived from a telephoneinterview with John Zippert, Director of Program Operations forthe Federation for Southern Cooperatives, June 2001, and fromthe Federation’s website athttp://www.federationsoutherncoop.com.

175 William Foote Whyte and Kathleen King Whyte, MakingMondragon Work: The Growth and Dynamics of The Worker Coop-erative Complex (Ithaca, NY: Cornell University, 1991), p. 293.

176 Greg MacLeod, From Mondragon to America: Experiments inCommunity Economic Development (Sydney, Nova Scotia: Univer-sity College of Cape Breton Press, 1997), p. 20.

Networking allows cooperatives to share train-ing, suppliers, distribution, marketing, and finan-cial services that they would not be able to affordindividually, thus achieving important efficienciesand benefits of scale.

The two examples emphasize the importance oftwo types of cooperative networks. Spain’s Mon-dragon system represents a model of growththrough horizontal exchange rather than verticalhierarchies, illustrating the advantages of sharinggoods and services among autonomous organiza-tions at the regional level.180 In the southernUnited States, the Federation of Southern Coopera-tives functions as an effective support and advoca-cy organization for cooperatives and small familyfarmers in underserved, low-wealth communities.

Assessment of the Cooperative Network Model

Cooperative networks hold special significanceas ROM models. By achieving efficiencies andeconomies of scale otherwise unavailable to indi-vidual co-ops, they enhance the financial assetdevelopment of members. Based on their demo-cratic structure, cooperative associations also pro-vide members with opportunities for voice beyondtheir local community, a particularly importantbenefit for traditionally marginalized and under-served residents. Further, cooperative associationsboth honor and build upon the conception of place.Individual cooperatives maintain their local char-acter and focus that benefit resident members, andconcurrently, through associating with similar enti-ties, they are able to reap the benefits of operatingat a regional scale.

Public Enterprise with Resident Dividends

Government entities are vested with theauthority to establish for-profit business ventureswith the goal of generating revenues for govern-ment operations and services. Municipally ownedbusinesses such as telecommunications networks,as well as casinos owned and operated by tribalgovernments, are notable examples.

It is less common for a government entity toactually allocate a portion of the proceeds from itsbusiness operations to its constituents. In a devel-opment particularly relevant to the ROM discus-sion, the State of Alaska established a businesscorporation that pays citizens dividends generatedby the investment of state oil revenues. Each resi-dent receives an equal-sized dividend based on hisor her status as a “shareholder” in the state and itsnatural resources. Along the same lines, sometribal governments make direct “per capita” pay-ments to tribal members from gaming revenuesbased on each member’s status as a stakeholder inthe tribe and its business ventures.

Payment of dividends to residents from a gov-ernment-initiated profit-making venture clearlymeets the criteria of financial asset development.Payment is based on residency or tribal member-ship and gives beneficiaries an ownership stake ingovernment-sponsored development activities.Such an arrangement also meets the criteria ofvoice: Alaskans can shape how the PermanentFund works through the power of their votes, andtribal members generally participate in decisionsabout how to distribute gaming revenues.


180 Ibid., p. 296.

181 Information for this example has been summarized from twosources: Alaska Permanent Fund Corporation, Frequently AskedQuestions at http://www.apfc.org/indexinc.cfm?p=faqindex.cfm& andEric Laursen, “The 20-Year Gusher” in Asset Development Interna-tional, 1998, athttp://www.assetpub.com/archive/ps/97-02psfeb/feb97PS28.html.


Alaska Permanent FundAlaska

The Alaska Permanent Fund began operationsin 1976. Its original charge was to invest a portionof the royalties and other fees that the state collect-ed from oil companies drilling on its public lands.The Fund was created by state constitutionalamendment and ratified by voters.

The Alaska Permanent Fund Corporation,guided by a six-person board of trustees appointedby the governor, invests Fund assets in stocks, bonds,and real estate. Although the Fund is best knownfor its dividend payments to Alaskan citizens, its ini-tial focus was simply to preserve the fruits of thestate’s oil wealth for future generations. TheAmendment stipulated that at least 25 percent ofeach year’s oil royalties must go to the Fund, whichwas later raised to 50 percent for fields drilled after1980. The first deposit of dedicated oil revenues($734,000) was placed in the Fund in early 1977.

Governor Jay Hammond and the state legisla-ture established the dividend program in 1982.Since then, the Fund has made an annual paymentto every Alaskan residing in the state for at leastone year (including children). In 1984, each resi-dent received just $331.29; in the year 2000, eachresident received $1,963.86. The amount of the div-idend varies each year based on the Fund’s perform-ance that year and for the four previous years. As ofJune 2000, total assets of the Fund exceeded $28.1billion.

The dividend program has not been withoutcontroversy. Opponents argue that the funds wouldbe better used to bolster the state’s operating budget.Current forecasts indicate that the state’s oil rev-enues will taper off over the next twenty years,resulting in a severe impact to the state budget,which receives 50 percent of its income from oil rev-enues. Alaska is further constrained in its income-generating capacity because it abolished its incometax in 1980. Annual budget deficits are alreadyfrequent occurrences.

Some Alaskans propose capping the dividendpayments so that more of the Fund’s returns can beused to underwrite education or rebuild infrastruc-ture. Proponents of capping see this as a strategy torelease funds for governmental purposes withoutincreasing the tax burden. Others favor a return ofthe income tax rather than drawing on the Perma-nent Fund. They emphasize the important role ofthe dividend in helping low-income Alaskansacquire subsistence assets such as fishing boats andsnow plows and creating college savings accountsfor their children. A proposal from the mid-1990scalled for a constitutional amendment to set up aneducational endowment financed by the Fund. Dis-cussion and debate continue on these themestoday.181

Assessment of Public Enterprise Model

Dividend payments from public enterprises isa promising model that brings together the ROMprinciples of building financial assets and voice ina place-based context. At the same time, thepotential for controversy and politicization is high-er than with other ROMs, partly because govern-mental entities are directly involved in the owner-ship structure. Governments involved in dividendpayments face the challenge of balancingenhanced asset development for individuals on theone hand, with funding collective services and pro-grams on the other.

These debates are playing out in Alaska, asdescribed, as well as in Indian tribes with gamingoperations. Nearly 200 tribal governments havegaming operations and of those, just 47 make percapita payments to tribal members.182 Whilemany tribal members support per capita payments,some tribal leaders argue that per capita paymentshave not been successful in fostering asset devel-opment and that gaming revenues are better spentproviding basic services such as roads, electricity,and other infrastructure.

Other tribal leaders and advocates raise con-cerns that per capita payments highlight inequitiesamong tribes as well as contribute to misconcep-tions of Indian gaming in general.183 Still, mosttribal gaming operations are not yet making a prof-it. In this often politically charged context, thosedefending the rights of tribal governments to owngaming operations are encouraged that some tribalgovernments are using gaming revenues to endowtribally-controlled foundations specializing in edu-cation and youth development.

To advance the model, government entities willneed to be innovative in leveraging economicdevelopment potential to create opportunities andbenefits for community stakeholders. Furthermore,individual asset development activities need not bepitted against collective public services in aneither/or dichotomy. In both the Alaska and thegaming cases, dividend payments are just one useof the revenues generated. In Alaska, approxi-mately 20 percent of the state’s total oil earningshave gone into the Permanent Fund, with the restgoing to other uses. Just 4 percent of Indian gam-ing proceeds were allocated for direct payments totribal members.184


182 National Indian Gaming Association website at http://www.indiangaming.org.

183 In the case of extremely successful casinos, individual divi-dends can approach $1 million per year.

184 According to the National Indian Gaming Association, in1994, the most recent year for which data are available, 53 per-cent of gaming revenues were allocated to tribal investments; 13percent to education and social services; 13 percent to non-gam-ing capital construction; 8 percent other; 5 percent land acquisi-tions; 4 percent to direct payments to tribal members; 3 percentpayments to government agencies; 2 percent health care and 1percent charitable contributions.

Concluding Comments:Business Development

The wealth of experience described in thissection provides a strong foundation for developingand expanding ROMs in the business arena.Grassroots efforts such as the B.I.G. Wash laundro-mat exemplify the resourcefulness and creativity ofresidents in raising equity capital for, and launch-ing, an enterprise that meets a local need.Through its long and varied history, cooperativeenterprise in all its forms has a key role to play inbuilding resident equity and has particular poten-tial in combination with place-based communitydevelopment/community building approaches. Anumber of expanded ownership concepts areredefining ownership based on one’s relationship toa firm as consumer, supplier, distributor, or neigh-bor. Additional discussion and practice, in combi-nation with public policies supporting some ofthese approaches, will expand the toolkit of busi-ness-related ROMs.


of loans and equity products that they offer to indi-viduals, businesses, and institutions.

Two types of CDFIs are highlighted in this sec-tion as being particularly relevant to the ROM dis-cussion: community development credit unionsand a model promoted by the federal Departmentof Housing and Urban Development (HUD) in themid-1990s called “Community and IndividualInvestment Corporations (CIICs).” Though distinctin their approaches, both of these models illustratehow residents are being offered a direct ownershipstake in community-based financial institutions.

CDCUs and CIICs exemplify work underway totackle the challenges associated with resident own-ership that can be expanded to a broader range offinancial institutions, including those that mustmeet obligations under the Community Reinvest-ment Act (CRA).


185 University of California at Davis, Center for Cooperatives,“What is a Co-op?” at http://cooperatives,ucdavis.edu/what/credit.html.

186 CDFI Coalition website at http://www.CDFI.org.

187 Information for this description provided by Michael Chan,Board President, Northeast Community Credit Union, telephoneinterview, March 2001.

Financial I n s t i t u t i o n sa n dResident Ownership

The 1990s saw the consolidation of a new sec-tor of community building intermediaries, com-monly known as Community Development Finan-cial Institutions (CDFIs). CDFIs include commu-nity development banks, community developmentcredit unions, nonprofit loan funds, micro-enter-prise loan funds, and community development ven-ture capital funds. CDFIs contribute to low-income/low-wealth communities through the kinds

C .

Community Development Credit Unions

Community Development Credit Unions(CDCUs) are geographically based ownership mod-els “organized in predominantly low-income com-munities. In addition to providing for consumerneeds, they have an explicit mission of communityreinvestment and revitalization.”185

CDCUs have the following characteristics.

• “They are financial cooperatives owned andoperated by lower-income persons.

• They promote community ownership ofassets and savings and provide affordablecredit and retail financial services to lower-income people with special outreach tominority communities.

• They are federally and state regulated andinsured by the National Credit UnionAdministration.

• Their capital sources include memberdeposits and limited nonmember depositsfrom social investors.

• They offer consumer banking services (e.g.,savings accounts, check cashing, personalloans, and home rehab loans).”186


Northeast Community Credit UnionSan Francisco, California

Northeast Community Credit Union was char-tered in 1981 in San Francisco’s Chinatown neigh-borhood. The credit union began with assets of$24,000, with headquarters consisting of a sharedoffice above a restaurant. Northeast originallyworked closely with social service agencies as itsclient base. Today, Northeast has two branches, onein Chinatown and one in the Tenderloin neighbor-hood, with assets totaling some $7.1 million.

Northeast serves a diverse population. Themajority of its 1,200 members are of Chinesedescent, including both recently arrived immigrantsand those whose families have been in Californiafor several generations. The Tenderloin branchmembers are predominantly African American, fol-lowed by whites and Vietnamese. According to

Northeast’s President of the Board, Michael Chan,some of the Tenderloin branch members are amongthe homeless population.

Northeast has a tiered dividend system thatpays interest at close to market rate, unusual for aCDCU of a relatively small size. For deposits of$100–$1,000, members receive dividends of two per-cent. Northeast pays dividends of 4.5 percent ondeposits of $10,000 and above. This strategy hasprovided an incentive for area residents to save atthe credit union and has helped provide Northeastwith greater capital for its lending programs. Lend-ing products include small business loans, secondmortgages, first mortgages for first-time homebuy-ers, consumer loans, auto loans, personal loans, andcredit restoration loans. Northeast has been active invarious community initiatives, including a financialliteracy program for residents of area women’s shel-ters, and is in the process of launching its first IDAprogram.187

CDCUs provide loans in the following cate-gories: unsecured, share-secured, personal, smallbusiness, home equity, mortgage, automobile, agri-cultural, and credit consolidation.188 The modelemerged in the 1930s and 1940s, largely in impov-erished black communities in the South. Duringthe War on Poverty in the 1960s, the Office of Eco-nomic Opportunity, working in partnership with theCredit Union National Association, spearheadedthe establishment of additional credit unions.Many of these failed, in part because they did notemerge from community-based efforts and did notbecome part of the community fabric. During theensuing decades, there was a consolidation withinthe CDCU industry; some credit unions mergedand others closed their doors. At the same time, anumber of new CDCUs initiated operations thatwere more closely tied to the community.189

According to John Isbister in Thin Cats: TheCommunity Development Credit Union Movement inthe United States, “…[M]ost recently, the charter-ing of new CDCUs has begun again, and interest-ing innovations in cooperative community financeare springing up around the country.”190 Todaythere are approximately 200 CDCUs in the UnitedStates.191

Assessment of the CDCU Model

CDCUs are relevant to ROMs in that they areinstitutions committed to community development,committed to serving low-income residents, andcontrolled by community residents. Often, they arefilling unmet market demands by providing theonly banking services available to low-income/low-wealth residents in their communities.

CDCUs deviate from the ideal ROM primarilybecause they are not designed to provide signifi-cant financial returns to individual investors. Theprimary goal of CDCUs is to provide access tocredit by directing resident deposits back into thecommunity. Financial benefits for member-share-holders are further limited by the challenges ofbanking in poor communities that have led manycommercial institutions to abandon these areas.

According to John Isbister, CDCUs have rela-tively high operating expenses and they devote ahigh proportion of their income to reserves in orderto compensate for loan defaults, leaving them withsignificantly less to return to their members in div-idends.192 This dynamic mitigates the directfinancial benefits—lower costs for banking servic-es, the payment of dividends, and earnings on theirsavings deposits—that would otherwise be ableavailable to CDCU members as owners of the insti-tution. At the same time, many CDCUs do paydividends that are comparable to market interestrates paid on savings accounts at mainstreamfinancial institutions. In addition, CDCUs provide


188 North Carolina Minority Support Center, “What are CreditUnions” at http://www.ncmsc.org.

189 The preceding history summarizes a number of points made inJohn Isbister, Thin Cats: The Community Development CreditUnion Movement in the United States (Davis, CA: University ofCalifornia Center for Cooperatives, 1994), pp. 62–65.

190 Isbister, p. 75.

191 Figure from National Federation of Community DevelopmentCredit Unions, telephone interview with Cliff Rosenthall, Execu-tive Director, May 2001.


tional infrastructure and support for asset accumu-lation on the part of low-income residents. Finally,some 15 CDCUs have developed youth outreachprograms that promote financial literacy and skillsfor young people.195

Although CDCUs do not represent a significantreturn on investment model, with the proper sup-port they could offer greater financial benefitsthrough increased earnings on deposits, lowercharges for banking services, and increased divi-dends. The key to CDCUs’ helping residents toaccrue financial assets appears to be increasedaccess to capital. CDCUs face a challenge inamassing sufficient capital because they rely large-ly on the deposits of low-income residents. Clientsmaking smaller deposits require comparable levelsof banking services as those making largerdeposits; yet they provide less capital for the bankto lend.196

CDCUs currently get supplementary capitalfrom social investors as well as loans/grants frompublic sources, such as state funds and the nation-al CDFI Fund. In North Carolina, for example,“CDCUs were able to more than double small busi-ness lending through state-funded economic devel-opment deposits.”197 Policies that result in greatercapital support for CDCUs would enable them toexpand their loan portfolios and receive interest ona greater number of loans, thus increasing fundsavailable for operating expenses and possibly fordividends.

indirect financial benefits to residents in that theyoffer an alternative to the exorbitant rates thatcheck-cashing outlets charge for basic bankingservices.

In terms of resident voice, “CDCUs are non-profit financial cooperatives owned and operatedby low-income persons.”193 Member-owner statusis obtained by making a deposit. CDCUs operateas other cooperatives on a one-person, one-votebasis. Members elect the board of directors thatsets institutional policy. CDCUs, therefore, havesignificant relevance for ROMs in that they offerboth voice and ownership for low-income residentsin an institution dedicated to investing in the com-munity.

CDCUs are a place-based, resident-controlledinstitution and function as important vehicles forcommunity lending and revitalization. While manyCDCUs provide loans for “personal” uses such asauto purchase or debt consolidation, their portfo-lios also include significant levels of businessloans. “Business loans can help to transform acommunity by providing decent jobs to low-incomepeople and by giving people an ownershipstake.”194

In addition, CDCUs contribute to resident-directed investment by keeping money in, ratherthan draining it out of low-income communities ashas occurred historically with some corporatefinancial institutions. A number of local CDCUshave initiated IDA programs, thus providing addi-


193 The Coalition of Community Development Financial Institu-tions, Comparison of Community Development Financial Institu-tion Types at http://www.CDFI.org/cdfitype.html.


195 National Federation of Community Development CreditUnions, Outreach at http://www.natfed.org/outreach.html.


197 North Carolina Minority Support Center website athttp://www.ncmsc,org.

Community and Individual Investment Corporation (CIIC)

The Community and Individual InvestmentCorporation (CIIC), introduced in 1996 by HUD,demonstrate how residents can gain an equitystake in financial institutions in their community.HUD’s goal was to: “…demonstrate the feasibilityof new, community-oriented financial institutions…owned by the residents of selected Empower-

ment Zones (EZs), Enterprise Communities (ECs),and other eligible communities.”198

CIICs allow community builders to developresident-owned financial institution that would pro-vide access to capital in inner-city communities. Itwas assumed that the role of a CIIC would varyfrom that of a “retail lender,” making loans directlyto borrowers, to that of a “wholesale lender,” pro-viding patient capital, loan guarantees, etc.,depending on local demand and marketconditions.199


City First Bank of Washington, DC

City First Bank of DC is a community develop-ment bank that opened its doors in 1998. It pro-vides credit and financial services to individualsand businesses in the District’s lower-income, under-served areas. City First Bank is unique in that itwill eventually enable area residents and businessesto control the bank through owning shares of stock.

The bank originated through a small group ofindividuals who were concerned about the scarcityof banking services for smaller businesses in the Dis-trict of Columbia’s distressed areas. Once the groupdetermined that it wanted to start a bank and had

incorporated, it responded to the CIIC fundingopportunity through HUD. City First Bank received$3.5 million in EDI grants and $5 million in Sec-tion 108 loan funds.

While City First Bank is in a stable financialposition, banks generally take several years toachieve profitability. In the interest of supportingasset building and wealth creation for local resi-dents, the board has elected to delay offering resi-dents stock until the bank becomes profitable, whichcould be as early as 2002. In order to reach low-income residents, the board may conduct a grass-roots campaign through community-based organiza-tions to promote the stock offering.203

The model was designed to both build assetsfor low-income residents and provide them with astronger voice in running an institution dedicatedto community development.

Owning assets gives people a stake in the future.Through the CIIC, the federal government willjoin with local residents and their city govern-ments to create resident-owned financial institu-tions which make business and developmentloans in inner-city communities. The CIIC pro-vides a model that draws on the lessons learnedfrom the past and incorporates them into a newparadigm of community self-reliance and inno-vation. The principles behind this approach areimportant: integrate local residents in the mar-ket economy; fully engage participants in bothits risks and its potential rewards; and buildcommunity through economic incentives.200

In the 1996 fiscal year, HUD set aside up to$20 million in Economic Development Initiative(EDI) funds for CIICs. In the Notice of FundingAvailability, applicants were given a 10-point pref-erence if their CDFI proposal included the resident

ownership of the institution. In December 1996,HUD awarded funds to establish CIICs in threeEmpowerment Zones in Washington, DC; Balti-more, Maryland; and in rural Mississippi.201 How-ever, only one recipient, City First Bank in Wash-ington, DC, has been successful at moving themodel forward.

In Baltimore, the CIIC did not succeedbecause the community board of Baltimore’sEmpowerment Zone was not strongly supportive ofthe resident share ownership concept.202 Thefunds awarded to form that CIIC were neverexpended. In Mississippi, a necessary prerequisitefor establishing the CIIC was the state’s providingSection 108 loan guarantees. Because of previousventure failures, the state was reluctant to take therisk of using its loan authority as a guarantor forthe HUD funds, and the effort was halted.

In subsequent years, HUD no longer devel-oped and funded the CIIC model. Congress failedto fund EDI grants to HUD, which had combinedSection 108 loans with EDI grants to lower the costof capital to CIICs so that the return to residentinvestors would be greater.


198 Department of Housing and Urban Development (HUD),Office of Community Planning and Development, The Communityand Individual Investment Corporation: A guide to a new economicpartnership between citizens, government, communities and the pri-vate sector (Washington, DC: Office of Community Planning andDevelopment, 1996), p. 1.

199 Ibid.

200 Ibid.

201 HUD, “Mrs. Clinton Joins HUD in Launching New Communi-ty Empowerment Banking Initiative to Revitalize ImpoverishedAreas,” Press release, December 19, 1996.

202 The following account of the outcomes of the three CIICawards and other characteristics of the CIIC concept is based on atelephone interview with Michael Freedberg, Senior Policy Ana-lyst in HUD’s Office of Policy Development and Research, March8, 2001.

203 This information is based on a telephone interview with PeggyDelinois, General Counsel of City First Bank, January 2001, andan article by Gwendolyn Flowers, “What Can We Expect fromCommunity-based Lending for the District of Columbia,” Ameri-can Economic Review 189: 2 (1999): 367–371.

Assessment of the CIIC Model

Proponents of the CIIC argued that it couldprove to be a lucrative investment for low-wealthresidents because of their expanded access to capi-tal and the quality of the proposed investments.CDCUs, on the other hand, were not set up aslucrative investments for residents, but rather as away to recycle resident deposits to the community.Furthermore, CIICs differed further from creditunions in that they would have an “IDA feature,”whereby resident investors could borrow up to ninetimes the value of their shares in the bank for pur-poses of education, homeownership, or businessdevelopment. This unique feature would serve asa mechanism for residents to leverage their sharesin the CIIC for further asset development.

Concerns were raised about the regulatorystructures governing the CIIC model. Because oftheir unique nature, CIICs would not fall undereither the Securities and Exchange Commission orthe Federal Deposit Insurance Corporation.Michael Freedberg, Senior Policy Analyst at HUD,recalls that there were “several layers of security”regarding the CIIC and that it would be regulatedby the local government, community developmentblock grants, and HUD itself. Provisions were tobe put in place so that in the event of losses, com-munity shareholders would be the first to be paid(i.e., those with Class A stock).

A key challenge to the CIIC model is that itfaces a long-time horizon before it will produceprofits for resident owners. By design, the CIICmodel serves less profitable markets, with the goalof filling demand that is not being met by the pri-vate sector. Given low profit margins, the profitpotential is less—and time horizon longer—thanfor other forms of financial institutions. Further-more, as with other ROM models, the design,development, and implementation of the legal andorganizational structure necessary to offer equity toresident owners are challenges faced by the CIICmodel. These challenges include the need to cre-ate education, outreach, and financial literacyservices to adequately address the needs of poten-tial investors. Risk is also relevant to investmentin a CIIC.

The original CIIC concept embodies all of theROM criteria. It includes opportunities for resi-dents to leverage economic activity to produce res-ident benefits. It targets low-income/low-wealthresidents and enables them to be owners in finan-cial institutions. It builds residents’ financialassets, while giving them opportunities to have avoice—as shareholders—in policy and operationaldecisions. Further analysis of the model’s short-comings—and evaluation of its success in the CityFirst Bank example—would be helpful for expand-ing and replicating this model.


Concluding Comments:Financial Institutions

The credit union and CIIC models are promis-ing ways to expand the ownership of community-based financial institutions to residents. WhileCDCUs are not designed to serve as lucrativeinvestments for their individual member-owners,their relevance to ROMs will expand as theydemonstrate an ability to pay dividends that arecompetitive with—or superior to—interest ratesoffered at commercial banks.

City First Bank is significant as the nation’sfirst community development bank that includesresidents as stockholders. Key outcomes to moni-tor that would offer tremendous value to futurereplication of the model include assessing thereturns on investment that shareholders derive andwhether being involved as shareholders serves toincrease members’ engagement in neighborhooddevelopment and organizing.


Community Land Trust

Community Land Trusts (CLTs) facilitatehomeownership for low-income/low-wealth peoplewho would not be able to afford it by other avail-able means. CLTs also contribute to neighborhoodaffordability and stability by removing land fromthe speculative market.

“Community land trusts are democraticallycontrolled nonprofit organizations that own realestate in order to provide benefits to local commu-nities—and in particular to make land and housingavailable to residents who cannot otherwise affordthem.”206 Traditionally, CLTs have been used tomaintain housing affordability for low-wealth resi-dents of target communities. “Sometimes CLTsbuy undeveloped land and arrange to have newhomes built on it; sometimes they buy land andbuildings together.”207 CLTs maintain ownershipof the land while residents own the buildings andother structural improvements on the land.



205 For a detailed description and case studies of two leadingstrategies to provide homeownership opportunities for low-incomepeople—community land trusts and limited equity co-ops, seeCharles Geisler and Gail Daneker, eds., Property and Values:Alternatives to Public and Private Ownership (Washington, DC:Island Press, 2000), and Allan Heskin and Jacqueline Leavitt,eds., The Hidden History of Housing Cooperatives (Davis, CA:Center for Cooperatives, University of California, 1995).

206 Institute for Community Economics (ICE), “An Introduction tothe Community Land Trust Model,” undated.

207 ICE, “Introducing Community Land Trusts,” booklet, 2000.

208 Institute for Community Economics (ICE), “Community LandTrust Activity in the United States,” data sheet, 1999.

209 Institute for Community Economics, “Designing a Resale For-mula,” in The Community Land Trust Legal Manual, ed. KirbyWhite (Springfield, MA: Institute for Community Economics,forthcoming).


211 This description is from the Institute for Community Econom-ics website at http://www.iceclt.org/clt/cltprofiles.html.

D .

Home Equity:Expanding Equity-Building O p p o r t u n i t i e s

Homeownership has long been understood tobe the major source of wealth among Americanfamilies. As documented by Michael Sherraden atWashington University, huge disparities existbetween the net worth of homeowners and rentersacross the country.204 Strategies to increase home-ownership rates among low-income families haverecently been an important focus of the communitydevelopment field; this focus has assisted many tobecome first-time homeowners.

It is beyond the scope of this report to reviewthe existing body of literature regarding low-income homeownership opportunities.205 This sec-tion, however, provides a scan of strategies toexpand home equity-building opportunities to abroader array of low-wealth community residents.These models, especially community land trustsand limited equity housing co-ops, go the greatestdistance in providing home equity opportunities forthose who would not otherwise be able to affordthem and, at the same time, contribute to stabiliz-ing housing markets and neighborhoods. TheHUD Section 8 Homeownership Program offers aunique example of a government-subsidized effortto enable low-wealth families to accumulate assetsin the form of home equity.

As of mid-1999, there were 90 operating CLTsin the United States that included a total of 4,778housing units. CLTs reach low-income residents:half of all CLT residents earn less than 50 percentof area median income, and 40 percent are at51–80 percent of the median.208

The CLT ground lease governs the price atwhich buildings and improvements in the CLT maybe resold. The ground lease includes a “resale for-mula” that places limits on the resale price of adwelling unit.

Underlying the CLT approach to resale formu-las is a fundamental distinction between twosources of appreciation. One source is the dol-lars, materials, and labor that the owner investsin the home over time to develop or improve it.The other source is a variety of social and eco-nomic factors that are beyond the control of theindividual property owner: changes in the levelof private investment in the surrounding neigh-

borhood; public investment in streets, sidewalks,streetlights, parks, schools; changes in trans-portation patterns [etc.]….Value produced bythe homeowner is allocated to the homeownerand adds to the owner’s equity. Value producedby other social and economic factors is retainedby the CLT for the continuing benefit of thecommunity.209

CLTs are democratically controlled organiza-tions. Members include both CLT residents andothers in the community who may wish to join.Members have a voice in the operation of the CLTin their ability to elect and/or serve on the board ofdirectors. Most boards are comprised of directorsrepresenting three different constituencies: repre-sentatives of homeowners and tenants who live onthe CLT’s land; representatives of individuals whoreside in the CLT’s target community who do notlive on the CLT’s land; and representatives ofbroader public interests.210


Burlington Community Land TrustBurlington, Vermont

One of the largest and most influential Commu-nity Land Trusts is located in Burlington, Vermont,a university town of about 40,000 on the shore ofLake Champlain. Since the early 80s, economicgrowth and progressive public policies, combinedwith an attractive setting, have made Burlington anincreasingly desirable—and increasingly expen-sive—place to live. With active support from citygovernment, BCLT was established in 1984 to pro-duce and preserve affordable housing for local resi-dents.

In sixteen years, BCLT’s holdings have grown tonearly 500 units of housing, including single-fami-ly homes, housing cooperatives, condominiums, and

varied rental options. In the process, BCLT has hada major impact on conditions in a low-incomeneighborhood, while expanding housing opportuni-ties for low-income people in that neighborhood—and in outlying suburban areas as well.

All of BCLT’s housing is affordable, not just forthe first residents but for all residents thereafter.BCLT Director Brenda Torpy says, “We’re oldenough to have had a number of resales, and we’veseen it really work. The second time around wedon’t need any additional government subsidy andwe typically serve a lower-income family. We’redoing that at the same time that the seller is takingequity with them and has had all the tax benefitsand all the security that homeownership offers.”211

Assessment of the CLT Model

The CLT model meets a range of ROM criteria:It leverages community development to benefitlow-wealth residents; it offers ownership, voice,and financial returns to resident investors. Thedegree to which each of these criteria is highlight-ed varies, according to local adaptations of the CLTmodel, as described next.

CLTs provide opportunities for permanentlyaffordable homeownership, but the trade-off is thatresidents do not get the maximum equity out oftheir property. They do, however, build equity bypaying down a mortgage rather than renting and,under most resale formulas, by receiving a signifi-cant share of their home’s appreciating value.Resale formulas seek to strike a balance betweenmaintaining affordability for future buyers and pro-viding the homeowner with a fair return on invest-ment. The most limited formula possible wouldallow the seller to recoup no more than his/her ini-tial capital investment.

Although CLT resale formulas come in manyvarieties, the most commonly used are those thatare based on changes in the appraised value of thehouse. In many of these, the sellers of CLT homesreceive 25 percent of the increase in the appraisedvalue over the homeownership period, but someappraisal-based formulas go as low as 20 percentand a few go as high as 50 percent. (The BorealisCommunity Land Trust in Fairbanks, Alaska, forexample, has a 50 percent resale formula.)212 Bylimiting the seller’s equity, the CLT is able torepurchase the home at a below-market price andto resell it to another low-income or moderate-income family at a price it can afford.

CLTs that are more focused on the preservationof affordable housing for future lower-income buy-ers utilize a more restrictive (lower) formula, andCLTs wishing to support accrual of equity to theseller use a higher formula. To encourage longevi-ty, some CLTs offer an incrementally larger resaleformula the longer the tenure of the resident in theunit.

CLTs thus offer residents a voice in the poli-cies and practices of the land trust. CLTs provideopportunities for individual homeownership andsome equity building as part of a community-con-trolled initiative.

For low-income communities suffering from dis-investments…the primary goal [of CLTs] is tosustain owner-occupancy and prevent a returnto absentee ownership. For communities whereproperty values are rising…the primary goal isto limit resale prices so the homes will continueto be affordable for lower-income households.213

In addition, individual CLTs have beeninvolved in a diverse array of community buildingactivities. For example, the community land trustin Concord, New Hampshire, is working with theNeighborhood Reinvestment Corporation on anIDA program to help families save for homeowner-ship. North Camden CLT in New Jersey has spear-headed a comprehensive community planning ini-tiative. Durham Community Land Trust in NorthCarolina provides construction job training forcommunity residents. The Burlington CommunityLand Trust has been a mainstay of the city’s Enter-prise Community, cleaning brownfield sites, devel-oping community facilities for various social serv-ice organizations, and redeveloping abandonedcommercial buildings. OPAL Community LandTrust in Orcas Island, Washington, is activelyinvolved with open space planning and preserva-tion.214


212 Jeff Yegian, ICE Technical Assistant, telephone interview,February 2001.


214 Julie Orvis, Network/Events Coordinator, Institute for Commu-nity Economics, telephone interview, March, 2001.

Housing Co-ops

Housing co-ops represent an extensivelyapplied and well-developed model for buildinghome equity through group ownership. There areapproximately one million cooperative housingunits in America today.215 Not all housing co-opsare ROM models because they do not all targetlow-income/low-wealth residents; but housing co-ops geared to low-wealth residents are an impor-tant element of the ROM framework because theyprovide home equity opportunities to those thatcould not otherwise afford them, thereby increasingneighborhood affordability and stability.

Residents of a housing co-op share ownershipof the building through purchasing stock in thecooperative corporation.

Upon purchasing stock, the tenant-stockholdersigns a perpetual lease that gives the tenant-stockholder a legal and an exclusive right tooccupy a dwelling unit as long as all obliga-tions to the cooperative are met….By alteringthe basic legal and finance structures, manydifferent types of housing cooperatives can bedeveloped.216

Housing co-op models most relevant to theROM discussion are presented below.

Limited Equity Housing Co-ops

Limited Equity Housing Co-ops (LEHCs) makehomeownership affordable to low-income people bylimiting the maximum price at which membershares in the co-op can be sold. When a memberwishes to leave the co-op and sells his/her shares,restrictions on the value are built into the transac-tion by corporate bylaws. These restrictions con-sider the inflation index, value of improvements,mortgage amortization, and maximum interestrate.217

LEHCs represent an ownership model that,similar to community land trusts previously dis-cussed, “unbundles” the package of rights com-monly attributed to ownership. While the owner isable to enjoy most ownership rights such as hous-ing stability, control over the property, and abilityto pass the property on to heirs, the owner’s right toresell the unit at the highest price the market willbear is restricted.218 Restricting the resale pricethrough limiting the value of the co-op sharesmaintains affordability for the next lower-incomebuyer.


215 National Cooperative Business Association website,http://www.ncba.org.

216 Ibid.

217 Herb J. Cooper-Levy, “Limited Equity Housing Co-ops,” man-uscript, undated.

218 Cooper-Levy refers to the “bundle of rights” concept in hisessay, “Limited Equity Housing Co-ops.” For more detail, seeDavid Abromowitz, “Essay on Community Land Trusts,” inCharles Geisler and Gail Daneker, eds., Property and Values:Alternatives to Public and Private Ownership (Washington, DC:Island Press, 2000). Abromowitz attributes the following “bundleof rights” to the traditional notion of ownership: “the right toexclude others, the right to sell the property when and to whomthe owner chooses, the right to profit from its sale, the right toenjoy the property, the right to develop or change it, the right tominerals beneath its surface, and the right to the air and sunlightoverhead.”

Assessment of the LEHC Model

LEHCs represent a strategy both to build equi-ty and to keep neighborhoods affordable, but theyplace greater weight on preserving affordabilitythan they do on enabling residents to accrue equi-ty. While low-wealth people benefit significantlyfrom LEHCs, LEHCs’ primary value lies in makingmost of the benefits of homeownership available tolow-wealth residents, rather than actually fosteringwealth accumulation.

LEHCs are relevant to the ROM discussion inother ways. Besides the fact that they fit all of theROM criteria, there is some evidence that limitedequity co-ops result in greater community prideamong residents, as well as a sense of empower-ment and security. LEHC residents also take bet-ter care of their units and have higher levels of sat-isfaction.219 More research is needed to assesswhether these benefits are widespread and, in par-ticular, the extent to which they apply to LEHCswhose members are predominantly very low-income residents.

Leasing Cooperative

“A leasing cooperative leases the propertyfrom an investor on a long-term basis, sometimeswith an option to buy. The residents operate theproperty as a cooperative.”220 In instances whereownership of the property is not possible or afford-able, a leasing cooperative may be an acceptablealternative. Leasing cooperatives are relevant toROMs in that they increase the control of low-income/low-wealth residents over their living con-ditions and sometimes lead to ownership opportu-nities without the need for a down payment orfinancing.


219 See William M. Rohe and Michael A. Stegman, “ConvertingPublic Housing to Cooperatives: Lessons From Nashville,” inAllan Heskin and Jacqueline Leavitt, eds. The Hidden History ofHousing Cooperatives (Davis, CA: Center for Cooperatives, Univer-sity of California, 1995), pp. 105 and 106. Rohe and Stegmancite the following works in their discussion of social benefits oflimited equity cooperatives: J. Birchall, Building Communities theCooperative Way (London: Routlege, 1998); Kegan Paul, Coopera-tive Housing: A Handbook for Effective Operations (Ann Arbor,Michigan: Midwest Association of Housing Cooperatives, 1997);W. Peterman and A. Young, Alternatives to Conventional PublicHousing Management Technical Report No. 1-91 (Chicago:Voorhees Center for Neighborhood and Community Improvement,The University of Illinois at Chicago, 1991); S. Franklin, “Hous-ing Cooperatives: A Viable Means of Home Ownership for LowIncome Families,” Journal of Housing 38 (1981), no. 7: 392-398;and J. Leavitt and S. Saegert, From Abandonment to Hope: Com-munity Households in Harlem (New York: Columbia UniversityPress, 1990).

220 NCBA website at http://www.ncba.org.

121 This account of leasing cooperatives is summarized from atelephone interview with Herb J. Cooper Levy, September 2000.

122 Herb J. Cooper Levy, “Leasing Cooperatives”, manuscript,undated.

123 Information for this section was summarized from Departmentof Housing and Urban Development, “Section 8 HomeownershipProgram; Final Rule,” Federal Register, 24 CFR Parts 5, 903 and982, September 12, 2000, at http://www.hudclips.org/sub_nonhud/cgi/pdf/22829a.pdf, and froma telephone interview with Michael Dennis, HUD, March 2001.

124 These housing authorities had expressed interest in the pro-gram after HUD published the proposed rule in April 1999. HUDallowed them to proceed, using demonstration authority. The hous -ing authorities participating in the demonstration include Syra-cuse, Burlington, Philadelphia, Charlottesville, Las Vegas, andYonkers.

125 Michael Dennis, HUD, telephone interview, March 2001.

126 Department of Housing and Urban Development, “Section 8Homeownership Program; Final Rule,” Federal Register, 24 CFRParts 5, 903 and 982 , September 12, 2000,http://www.hudclips.org/sub_nonhud/cgi/pdf/22829a.pdf.

12X See Chapter III, page 24 for details.

Assessment of the Leasing Cooperative Model

A major benefit of leasing cooperatives is thatthey are better able than LEHCs to take advantageof the low-income housing tax credit. A frequentscenario is that an investor will use the tax creditto start an affordable housing project and lease theproperty to tenants with an option to buy. The ten-ants form a cooperative corporation and operate theproperty as a cooperative. Over the 15-year taxcredit compliance period, the tenants build equityas they pay the lease (1/15 of the purchase price is“set aside” each year as the lease is paid). Oncethe 15-year tax benefit period is over, the originalinvestor often has no more interest in owning theproperty and sells it to the tenants.221

A well-crafted lease agreement is an essentialtool toward the goal of residents eventually becom-ing owners of the property. Key provisions includea lease term that coincides with the term of the taxcredit and a mechanism to transfer ownership ofthe property to the co-op under specified terms.222

Section 8 Homeownership Program

The Section 8 Homeownership Program,designed by HUD and implemented by local hous-ing agencies, provides income assistance for fami-lies to make the transition from rental housing toacquiring their own homes.223 Effective as ofOctober 2000, the program operates similarly toSection 8 rental vouchers. The housing agencyprovides monthly assistance for mortgage payments(rather than rental payments) and thus facilitatesaccumulation of home equity for low-income fami-lies. The program is optional for housing agenciesand does not involve approval of additional fundsfor homeownership. Rather, the housing agencyhas the option to provide homeownership assis-tance using its existing voucher funds.

While the program is relatively new, some fif-teen housing agencies began homeownership assis-tance earlier as part of a limited demonstrationprogram.224 Initial information indicates that,often because of poor credit history, it takes signifi-cant time for a family to close on a home. Eight ofthe housing agencies involved in the demonstrationhave had at least one closing to date.225

The program provides monthly mortgage assis-tance according to a formula based on the differ-ence between the “total tenant payment” and thestandard mortgage payment. Total tenant paymentis defined as “the higher of the minimum rent, 10percent of monthly income, 30 percent of monthlyadjusted income, or the welfare rent.”226 To par-ticipate, families must meet eligibility require-ments regarding minimum income and a history offull-time employment. Families are also requiredto undergo homeownership counseling covering theareas of budgeting and money management,obtaining credit and financing, negotiating the pur-chase price of a home, and finding a home. Localhousing agencies are free to include additionalrequirements, such as enrollment in the five-yearFamily Self-Sufficiency Program.227


221 This account of leasing cooperatives is summarized from atelephone interview with Herb J. Cooper-Levy, September 2000.

222 Herb J. Cooper-Levy, “Leasing Cooperatives,” manuscript,undated.

223 Information for this section was summarized from Departmentof Housing and Urban Development, “Section 8 HomeownershipProgram; Final Rule,” Federal Register, 24 CFR Parts 5, 903 and982, September 12, 2000, at http://www.hudclips.org/sub_nonhud/cgi/pdf/22829a.pdf, and froma telephone interview with Michael Dennis, HUD, March 2001.

224 These housing authorities had expressed interest in the pro-gram after HUD published the proposed rule in April 1999. HUDallowed them to proceed, using demonstration authority. The hous -ing authorities participating in the demonstration include Syra-cuse, Burlington, Philadelphia, Charlottesville, Las Vegas, andYonkers.

225 Michael Dennis, HUD, telephone interview, March 2001.

226 Department of Housing and Urban Development, “Section 8Homeownership Program; Final Rule,” Federal Register, 24 CFRParts 5, 903 and 982 , September 12, 2000,http://www.hudclips.org/sub_nonhud/cgi/pdf/22829a.pdf.

227 See Chapter III, page 24 for details.

HUD anticipates that most participants will becurrent recipients of Section 8 rental assistanceand that the prospect of Section 8 homeownershipassistance will have a positive impact on lender’sdecision to provide a mortgage. The family is alsofree to complement Section 8 homeownershipassistance with subsidized home financing underCommunity Development Block Grant (CDBG)funding or other programs. Homeownership assis-

tance has a time limit of fifteen years for familieswith a mortgage of twenty years or longer and tenyears for families possessing a mortgage with aterm under twenty years.228 For a family buyinginto a housing cooperative, the program worksslightly differently; it assists those acquiringshares in a cooperative for the first time (i.e., first-time homebuyers), and also those families whoalready own shares in a housing cooperative.


Homeownership Assistance Program,Burlington Public Housing AuthorityBurlington, Vermont

The Burlington Housing Authority initiated itsSection 8 Homeownership Program in November1999 under the HUD interim rule. To date sixteenfamilies have purchased homes and forty-six otherfamilies are in the pipeline. Those families thathave closed receive monthly income assistancetowards their mortgage payment. To qualify, fami-lies must be at 40 percent of area median income.Families usually take about six months from enter-ing the program to closing on a house.

The Housing Authority contracts out with thelocal Homeownership Center for the homeownershiptraining portion of the program. The Homeowner-ship Center, funded through the National Reinvest-ment Corporation, provides orientation, an in-depthworkshop, and one-on-one counseling to prospectivehomebuyers. The Center also assists the families incleaning up credit problems, which have proven tobe the primary barrier to homeownership for manyfamilies.229

The Burlington Housing Authority’s Section 8Homeownership Program also provides an exampleof synergy among various local initiatives withROM characteristics. Half of the families who haveclosed on homes have purchased them in theBurlington Community Land Trust, which providesa grant of $26,000 to income-eligible familiestowards homeownership in the land trust. A numberof families in the Section 8 Homeownership Pro-gram also participate in an IDA program at a localcredit union, which has helped them accumulateenough savings for the down payment. Others haveused savings from their escrow account accumulatedas part of the housing authority’s Family Self-Suffi-ciency program. Additionally, participants haveobtained low-interest loans and grants for downpayment and closing costs from a local communitydevelopment credit union and the HomeownershipCenter.

Assessment of the Section 8 Homeownership Program Model

A strength of this model is that it enablesrecipients of Section 8 rental vouchers to transferrental payments into home equity, enabling them toown assets and giving them greater voice, as home-owners, in decisions related to their community.

The Section 8 Homeownership Program hasnot yet been implemented on a broad scale, andHUD is synthesizing results from the initialdemonstration program. These results will proveimportant in identifying barriers and solutions foradvancing the model.

Concluding Comments: Expanding Home Equity Opportunities

The home equity models examined in this sec-tion are relevant to the ROM discussion in thatthey offer yet another avenue for low-wealth com-munity residents to gain an equity stake in theircommunity. By providing asset-poor residents withshared and incremental ownership opportunities,these models help to move them from renters tohomeowners. Home equity models offer low-wealth families housing affordability, economicsecurity, roots in a community, and avenues forbroad engagement in the community’s develop-ment.


228 HUD’s final rule makes exceptions on these term limits forelderly and/or disabled families.

229 Information for this example was summarized from a telephoneinterview with Emily Vaupel, Homeownership Coordinator,Burlington Public Housing Authority, March 2001.

General Stock Ownership Corporation

The General Stock Ownership Corporation(GSOC), described by Jeff Gates in the The Owner-ship Solution, is a conceptual model aimed at cap-turing resident benefits from natural resources.

Ownership [would be] based on geography orcitizenship….A GSOC could readily be adaptedto “owner-ize” government-owned naturalresources such as mining deposits or drillingrights located on public land….The scope ofparticipation in a GSOC need not be nationalor even statewide; it could be regional or evencommunity-based. For instance, a GSOC couldbe used to create community-wide individualownership of a local industrial or business park.Some GSOC shares could be allocated to fundeducation or infrastructure….The GSOC’sunusual blend of individual ownership andcommunity-wide participation makes it easilyadaptable to situations in which people wish tohave a shared stake in the development of com-mon resources.230

Gates cites a version of GSOC legislationenacted into federal law in 1978 that allows astate-chartered corporation to operate tax free if itincludes the state’s citizens as shareholders andpays 90 percent of current earnings to those share-holders. An effort was made to use this legislationin Alaska to acquire a stake in the TransAlaskaPipeline Service Corporation; however, the AlaskaPermanent Fund was established instead.231

If the GSOC model were applied to low-wealthurban, rural, and tribal communities that includeor are adjacent to natural resource assets, it couldhave major implications for asset building amonglarge numbers of low-wealth residents and familiesthroughout the country.


230 Gates, pp. 75–77.

231 Ibid., p. 76.

E . Natural Resources:Capturing and Preserving Value for Residents

Natural resources are a source of enormouswealth that rarely benefits those residents of theareas from which they are extracted. Around theworld, examples abound of resource-rich areaswhere community residents live in poverty. Theconcept of connecting the development and stew-ardship of natural resources to resident benefits isnot new, but it has not yet been widely applied.

The domestic model most often cited is that ofthe Alaska Permanent Fund, which enables resi-dents to receive dividends from the state’s oil rev-enues. In addition, several innovative conceptualmodels with relevance to resident ownership mech-anisms are herein explored.

(Readers should consult the previous discus-sion of the Alaska Fund in the section “PublicEnterprise with Resident Dividends.”)

http://www.cfed.org/sustainable_economies/common_assets/equity_globewarm.html.

Fair Exchange Fund

The Capital Ownership Group, an informal“online think tank” funded by the Ford Founda-tion, has generated proposals to broaden ownershipof public resources to residents. A concept putforward by Deborah Olson and Alan Zundel is theFair Exchange Fund:

This proposal offers a way to promote bothwealth creation for families and protection ofpublic resources at the same time. It’s based onthe principle that when business extracts natu-ral resources, uses up clean air or water, receivestax abatements, or enjoys other public subsidiesor contracts, it should provide a fair exchangeto the public. It’s a matter of quid pro quo,which in Latin means “this for that.” We pro-pose this fair exchange be a provision of corpo-rate stock. The stock would be placed in non-governmental community trust funds, with indi-vidual accounts for families. Since all taxpay-ers have made the investment in companies, allshould get some benefit. The community trustcan reinvest in the community, and pay out aportion to citizens. At one blow, this structurewould deter local governments from competingfor corporate location, build a diverse stockportfolio for every citizen, and secure a vote incorporate decisions by a diverse citizenry.232

Like the GSOC model, the Fair ExchangeFund offers a strong conceptual framework forleveraging natural resource assets in low-income/low-wealth communities to benefit commu-nity residents. A Fair Exchange Fund could pro-vide mechanisms to build the assets of communityresidents directly, as matching funds for a commu-nity building IDA, or through other wealth-build-ing strategies. Furthermore, it could be structuredto give voice to community residents.

Sky Trust

The Corporation for Enterprise Development(CFED) has been working on the concept of a “SkyTrust,” a permit system for taxing carbon emis-sions. According to the model, companies thatrelease carbon into the air would pay a fee to theSky Trust. Those effected by the carbon emissions;i.e., all citizens, would receive a dividend.

The Sky Trust is modeled after the Alaska Per-manent Fund. It would sell a graduallydeclining number of carbon emission permitsand divide its income equally among all Ameri-cans.233

In effect, the concept places a value on theatmosphere’s capacity to receive and store carbonemissions. Companies needing to avail themselvesof that capacity would pay. Those affected by theatmosphere’s diminishing capacity would receivecompensation. Proponents argue that a Sky Trustwould be a more equitable way of addressing pol-lution than current regulations and would providegreater incentives for reducing emissions.234

While not targeted to low-wealth communityresidents, the Sky Trust concept could provide amechanism to leverage natural resources to benefitlow-wealth individuals and families in a way thatgives representatives of low-wealth residents avoice in decision-making.


232 Deborah Olson and Alan Zundel, “A Half-Dozen Bold NewIdeas for Spreading Capital Ownership,” 1999, posted on the Cap-ital Ownership Group website at http://www.cog.kent.edu.

233 From “You Deserve Dividends,” http://progress.org/cd26.html,no date.

234 The description of Sky Trust was summarized fromhttp://www.cfed.org/sustainable_economies/common_assets/equity_globewarm.html.

Concluding Comments:Natural Resources

Many low-wealth communities hold naturalresource assets that represent a source of valuethat could be leveraged—through development orpreservation; but traditionally this value has beencaptured by outside investors and/or developers.The natural resource models explored in this reportare not exhaustive and could be augmented byresearch on model from other countries, but theydo offer promising examples for application in low-wealth communities across the United States.


The preceding section has highlighted innovativemodels for building resident ownership. Takingthese models to scale in a way that produces clear,measurable, and sustained benefits for communityresidents requires a community infrastructure.This infrastructure would enable local groups todraw on a menu of strategies and approaches andto move them forward at the local level—fromdesign, to development, to implementation, and,ultimately, to scale.235


235 Note that the authors build on the discussions from previoussections. Where there is repetition, it is meant to give readerscontext for the discussion that follows.

Models and Infrastructure

Infrastructure:Opportunities and Challenges to AdvancingResident OwnershipMechanisms

Following are suggestions to address thesecapacity concerns. The components of infrastruc-ture examined include the systems that have sup-ported and continue to support the growth andexpansion of the following movements: coopera-tives (co-ops); community development corpora-tions (CDCs); comprehensive community buildinginitiatives; community development financial insti-tutions (CDFIs); and individual asset buildingefforts, as represented by individual developmentaccounts (IDAs). These approaches overlap andintersect considerably and were selected becausethey include existing, or have the potential to sup-port, ROM models.236 Collectively, they representa significant segment of the community revitaliza-tion sector, and they have characteristics, asdescribed in the Models section, that make themconducive to incorporating ROM approaches.

This snapshot of the community revitalizationinfrastructure is by no means exhaustive. It aimsto offer readers a sense of the opportunities fromwhich to build and it argues that ROMs shouldbecome an integral part of—rather than an addi-tion to—this existing infrastructure.


236 The order of the descriptions follows a rough chronology of theemergence of the movements.

Demand: Capacity Challenges

Interviews with over 75 key informants at thelocal and national levels demonstrated strong andgrowing interest in community ownership concepts,strategies, and models. They also revealed wide-spread concern—at the national and local levels—about the capacity of community-based leaders andinstitutions to move these strategies forward with-out additional resources, technical assistance, andsupport.

Detailed in the next chapter, “Perspectivesfrom the Field,” common neighborhood organiza-tional capacity issues raised by intervieweesinclude a lack of information, models, financialresources, technical support, and political power toadvance resident ownership mechanisms at thelocal level. Resident capacity concerns pointed tothe need for an array of support services including,but not limited to, outreach/education about alter-native investment options, financial education, andongoing professional advice about risks and poten-tial rewards related to different types of ROMs.

education to advance the cooperative move-ment.238

Cooperative Works is a “unified system ofcooperative development centers and developmentpartners, cultivating cooperation as a cornerstoneof prosperous, sustainable communities.”239 Start-ed by the NCBA in 1988 and funded by the U.S.Department of Agriculture, the network includes16 centers that provide technical assistance to co-ops nationwide. The network is focused primarilyon agricultural co-ops, but many of them also workin urban communities.240

The National Cooperative Bank, based inWashington, DC, provides a range of financialproducts and services to cooperatives throughoutthe nation. It was chartered by Congress in 1978.In 1981, it was restructured to become a privatefinancial institution that is owned by its member-borrowers. Its activities are focused on commer-cial, real estate, small business, and nonprofitlending. It also offers capital market and deposito-ry services.241

The ICA Group is a primary provider of tech-nical assistance to the cooperative movement inurban areas. Founded in 1978, ICA provides arange of assistance for businesses, workers, andcommunity groups to build worker-owned coopera-tives. ICA offers business and legal guidance,financing, and work-force education to a diversecross-section of new and existing cooperatives,covering a wide range of industries in the publicand private sectors.242

Regional co-op associations, national associa-tions, and intermediaries targeting specific sectorsprovide another layer of support for co-ops. Forexample, the Federation of Co-ops for the NorthEast supports a cross-section of cooperatives in thenortheastern United States.243 The cooperativehousing sector is supported by the National Asso-ciation of Housing Cooperatives, the CooperativeHousing Foundation, the Center for Housing andTraining, and other intermediaries already refer-enced.244


237 “Cooperatives Are…Cooperative Business in the UnitedStates,” National Cooperative Business Association brochure,undated.

238 “The NCBA Fund: Promoting and Supporting Cooperatives inthe United States and Around the World,” NCBA pamphlet,undated.

239 NCBA 1999 Annual Report.

240 Herb J. Cooper-Levy, Cooperative Works, interview, Washing-ton, DC, December 2000.

241 “NCB Co-Op 100,” undated brochure.

242 “Introducing the ICA Group,” ICA Group brochure, undated.Also, Jim Megson, President and Executive Director, ICA Group,telephone interview, January 2001.

243 Lynn Benander, CEO of the Cooperative Development Insti -tute, telephone interview, February 2001.

244 “Housing Cooperatives: Cooperative Business in the U.S.,”undated NCBA brochure.

Potential Supply:The Existing I n f r a s t r u c t u r e

ROMs and the Cooperative Movement

A cooperative is an autonomous association ofpersons united voluntarily to meet their commoneconomic, social, and cultural needs and aspi-rations through a jointly-owned and democrati-cally-controlled enterprise.237

Cooperatives, both in the United States andoverseas, are supported by a fabric of technicalassistance providers and associations. Key ele-ments of the national infrastructure are describedbelow.

The National Cooperative Business Associa-tion (NCBA), the trade association for the entireco-op industry, was founded in 1916 as the Coop-erative League of the USA (CLUSA). Its mission isto support and advance “all forms of cooperativeenterprise.” The NCBA Fund supports the growthof cooperatives in the United States and abroad,both through funding cooperatives directly andthrough supporting education, training, and public

Building from the Successes

The cooperative movement represents one ofthe oldest and largest institutional embodiments ofthe ROM criteria: a structure that provides owner-ship, voice, and benefit for members. Yet themovement has been historically disconnected fromthe national community development movement.One factor that has clearly influenced the separatepaths of development is that the U.S. co-op indus-try has been primarily a rural phenomenon, whilecommunity development, historically, has beenmore focused on inner-city, urban communities,with some major exceptions.

According to many key informants, anotherreason for the disconnection is the dearth of fund-ing for inner-city cooperative development.245

While the federal government has played a largeand an historic role in the development of rural co-ops, both in the United States and abroad, littlepublic support has gone to the development of co-ops in urban areas. Hence, few U.S. cooperativesare owned and operated by low-income/low-wealthresidents of inner-city neighborhoods. At the sametime, there are growing exceptions to this rule,such as SSC Employment, described previously inthe Models section.

Implications for Emerging ROM Approaches

The size, diversity, and reach of the coopera-tive movement offer immense opportunities toadvance concepts of community ownership in low-income communities in America. According to theNCBA, co-op values are as follows:

Cooperatives are based on the values of self-help, self-responsibility, democracy, equality,equity, and solidarity. In the tradition of theirfounders, cooperative members believe in theethical values of honesty, openness, socialresponsibility, and caring for others.246

These values parallel ROM criteria, strategies,and approaches, as do the international coopera-tive principles listed in the Models section: volun-tary and open membership; democratic membercontrol; member economic participation; autonomyand independence; education, training, and infor-mation; cooperation among cooperatives; and con-cern for community.

Although the industry has not traditionallybeen a leader in community revitalization in inner-city communities, efforts are underway to buildstronger linkages. For example, the NCBA recent-ly began to develop an initiative focused on sup-porting the expansion of urban cooperatives in col-laboration with other stakeholders.247 A recentissue of the Journal of Cooperative Developmenthighlights the relationship between cooperativesand community development. In that journal RoyPriest, president and CEO of the National Con-gress for Community Economic Development(NCCED), writes:


245 Per interviews with Lynn Benander, Jim Megson, and J.Phillip Thompson, February 2001.

246 “Cooperatives Are…Cooperative Business in the UnitedStates,” National Cooperative Business Association brochure,undated.

247 Herb J. Cooper-Levy, interview, Washington, DC, December2000.

Cooperative development is not an approachthat is well understood by many of the nation’sCDCs. As the CDC industry gains strength andcapacity, and organizations like the NationalCooperative Business Association continue topromote best practices, it is likely that we willsee more cooperative development.248

In the same edition, Terry Simonette, Presidentof NCB Development Corporation, notes:

We are pleased that community-based organiza-tions and cooperatives are becoming more andmore closely aligned….Community-basedorganizations have turned to the cooperativemodel as a business model to be used in a widerange of circumstances.249

Building resident ownership presents a viableintersection between the co-op movement andpractitioners of community development. The co-op movement has historically advanced mecha-nisms that embody the ownership criteria advancedby ROMs. Broadly defined, the industry includesa breadth of expertise on ownership mechanismsnot found elsewhere in the contemporary communi-ty development movement. It also has connectionsto various industries that could help advance resi-dent ownership concepts and approaches. Apply-ing the technical expertise and political clout ofthe co-op movement—in the United States andabroad—could have far-reaching implications forthe future of resident ownership strategies.

ROMs and the CDC Movement

As described earlier, since the 1960s, commu-nity development corporations have played a lead-ership role in the community developmentprocess.250 In recent decades, the CDC industryhas grown and diversified, making great strides ascommunity-based developers of housing and realestate in low-income communities. However, thefocus of the CDC movement has not gone unques-tioned, especially as many CDCs came to be seen,over time, as developers of housing (places) andnot of people.

Today, many CDCs are grappling with pres-sure, from residents and funders alike, to be moreengaged in comprehensive community buildingefforts.251 Some are community builders in theirown right; others maintain their focus on project-based development. Regardless of the approach ofindividual organizations, as the CDC infrastructurecontinues to flourish, these ubiquitous entitiesoffer promising opportunities for the advancementof resident ownership concepts and strategies.


248 Roy Priest, “Cooperative Approaches to Community EconomicDevelopment,” Journal of Cooperative Development, Fall (1999):14.

249 Terry Simonette, “The Power of Cooperating with Community-based Organizations,” Journal of Cooperative Development, Fall(1999): 15.

250 In the 1960s, the Title VII program offered federal funding tosupport the establishment and operation of a select group of com-munity development corporations.

251 See Christopher Walker and Mark Weinheimer, CommunityDevelopment in the 1990s (Washington, DC: The Urban Institute,1998), pp. 73–87.

ROMs: A New Opportunity for CDCs to Build Stronger Ties to Community Residents

ROMs offer CDCs a unique opportunity toimprove their connection to residents and otherinstitutions in their communities in a way thatbuilds on CDC strengths. Such a connectionwould be mutually beneficial. If CDCs offer resi-dents an equity stake in their development proj-ects, residents are more likely to have a vestedinterest in the success of the projects and in build-ing the capacity of the CDC. As an alternative tooffering equity themselves, CDCs can also serve asequity brokers, applying their real estate knowl-edge and experience to ensure that residents arepartial owners of economic development projectsadvanced by the public and private sectors. Bothof these roles would produce new forms of socialcapital within the community and increase the visi-bility of CDCs as community builders capable ofbrokering benefits and opportunities for communityresidents.

CDC engagement in community building activ-ities has produced mixed results to date, with suc-cesses primarily in the areas that build on theexisting social capital of CDCs.252 While manyCDCs are being challenged to assume a centralrole in comprehensive community building efforts,they have been particularly successful in commu-nity building linked to housing development; com-munity planning; some aspects of community facil-ities development; and, in some cases, communityorganizing.253

High-performing CDCs acquire substantialamounts of social capital in their developmentactivities. In pursuing community buildingactivities, CDCs draw on these sources and workto raise the social capital of their neighbor-hoods. Most capable CDCs reasonably shouldtake on expanded roles in community planning,

community facilities development and mostforms of community organizing—so long asexternal funding is sufficient to supportthem.254

Advancement of resident ownership opportuni-ties would be uniquely suited to the social capital,skills, and experiences of CDC staff and boardmembers. CDCs have the social capital—ties toeconomic actors including individuals and institu-tions within and outside of the target communi-ties—that could be highly valuable for developingthe mechanisms and support structures to enableresidents to accrue benefits through economicdevelopment. These stakeholders include finan-cial and real estate experts, public- and private-sector investors, local elected officials, laborunions, and other institutional actors, all of whomoffer critical expertise for brokering wealth withinthe targeted communities. CDC staff and boardmembers have the skills and experience necessaryto tailor ROMs appropriate to the specific politicaland economic circumstances of the local communi-ty. They are also likely to have the political expe-rience and connections necessary to take advan-tage of existing or emerging policy opportunities.

The Existing CDC Infrastructure:Challenges and Opportunities

In 1970, the National Congress for CommunityEconomic Development (NCCED) was formed as atrade association to advance the concerns and pri-orities of a burgeoning movement. Today, theNCCED represents more than 3,600 CDCs. It sup-ports the industry by providing information, educa-tion, research, conferences, special projects, andpolicy advocacy.255


252 Ibid., pp. 72–88.

253 Ibid.

254 Ibid., p. 75.

255 NCCED website, www.ncced.org.

Formed in 1991, the National CommunityDevelopment Initiative (NCDI) provided a majorboost to the CDC industry. NCDI has broughttogether 18 private foundations and one federalagency (HUD) to invest substantially in the com-munity development industry through capacitybuilding and technical assistance. Channeledthrough two national intermediaries, the Local Ini-tiatives Support Corporation (LISC) and the Enter-prise Foundation (Enterprise), these funders havemade a major commitment to building the infra-structure of support for CDCs in 23 cities.256

According to Community Development in the1990s—an assessment of NCDI, the number of“capable” CDCs grew substantially between 1991and 1997, catalyzed by an influx of resources,expertise, and technical assistance to support CDCprojects and organizational structures.257 Thisgrowth was attributable to a number of factors,including over $250 million invested by the Initia-tive. The evaluation of the NCDI efforts demon-strated that large levels of private and publicinvestment can have a substantial impact on build-ing local capacity and on the infrastructure of theindustry. At the same time, the field cannotassume that these levels of investment will contin-ue to support the capacity of a large and growingnumber of CDCs.

CDC Infrastructure:Implications for ROMs

Supported by the NCCED, NCDI, and othercapacity-building efforts, local communities havesucceeded at building and supporting the CDCindustry in the arenas of housing, economic devel-opment, and community building. These successesoffer promise for CDC expansion into the arena ofROMs, as long as they are provided with appropri-ate levels of investment and technical assistance.However, supporting and promoting CDCs to play arole in advancing resident ownership mechanismswould require new resources, expertise, and invest-ment. The uncertain future of these resources begsthe question of the capacity of CDCs to move intonew arenas. The resources question poses chal-lenges to a CDC role.258

At the local level, many CDCs have builtand/or strengthened connections to community res-idents in recent years, but others still struggle toaddress community concerns about their accounta-bility to resident priorities and concerns. In theshort term, this local skepticism could hamperefforts to advance ROM concepts within the exist-ing CDC infrastructure. In the long term, success-ful promotion and implementation of ROM strate-gies and approaches could help to mitigate, or evenreverse, this skepticism, thereby advancing a newfrontier for community building.

At a policy level, the experience and connec-tions of CDCs provide a significant base toadvance incentives and opportunities for ROMs.Intermediaries engaged in policy advocacy to sup-port and expand funding for community revitaliza-tion/reinvestment have recently provided a majorboost to policies and programs. These intermedi-aries, along with other local and national faith-based and labor organizations, can advance ROMconcepts through public policy at national, region-al, and local levels.259


256 Walker and Weinheimer, pp. 2–4.

257 The evaluation team conducted research in 1996 and 1997 toassess progress made since 1991, using a standard set of “systemperformance indicators” to measure progress.

258 Walker and Weinheimer, p. 99.

259 A short list of national intermediaries who are focusing atten-tion—and working collaboratively—on community building policyissues include: The Center for Community Change (CCC), theDevelopment Training Institute (DTI), the Enterprise Foundation,the Leadership Conference on Civil Rights (LCCR), the Local Ini-tiatives Support Corporation (LISC), the National CommunityBuilding Network (NCBN), the National Congress for CommunityEconomic Development (NCCED), the National Community Rein-vestment Coalition (NCRC), the National Low Income HousingCoalition (NLIHC), PolicyLink, and many others.

ROMs and the Community Building Movement

Decades of struggle to address inequity in low-wealth communities across America have demon-strated that just as the causes and effects of pover-ty are diverse and multifaceted, the solutions mustbe equally complex. This insight has led commu-nity leaders, residents, community developers, fun-ders, technical assistance intermediaries and—more recently—policy makers to support compre-hensive community building efforts across thecountry. The current environment offers a uniqueopportunity to advance the notion of resident own-ership through the community building movement.

Community building has many definitions, allof which capture its integrated and holisticapproach to addressing poverty. According to theNational Community Building Network (NCBN), acommunity building approach includes the follow-ing eight principles:

Integrating community development andhuman services strategies; forging partnershipsthrough collaboration; building on communitystrengths; starting from local conditions; foster-ing broad community participation; requiringracial equity; valuing cultural strengths; andsupporting families and children.260

Community building seeks to address thecauses and effects of poverty—not in isolation fromone another—but as part of a broader civic under-taking. As such, community building aims to bringtogether a range of stakeholders—from the non-profit, corporate, public, and philanthropic sec-tors—with community residents, to build a newdialogue about how to build healthy and sustain-able communities.

Community builders believe that revitalizationmust be led by neighborhood residents, workinghand-in-hand with institutions located in, serving,and having an impact on their communities. Thesepartnerships connect the actions, interests, andpriorities of residents with the power and structureof institutions in a way that holds institutions moreaccountable to residents. Community builders areexplicit in their efforts to strengthen the connectionbetween the well-being and agency of communityresidents and the functioning of the places inwhich they live and work. And they are clearabout the need to link improvements in place toopportunities for people, the residents who livethere.


260 Junious Williams, Jessica Pitt, and Lillian Yee, A Survey ofSelected National Organizations Providing Support to the Commu -nity Building Field (Oakland: Urban Strategies Council, 1999).

Community Building Infrastructure and ROMs

A community building approach lays thegroundwork for multi-stakeholder problem-solvingand requires an enormous commitment of time,energy, and resources. The requisite level of com-mitment has been and remains a challenge to thesuccess of community building initiatives under-way. The advancement of a comprehensive arrayof resident ownership mechanisms would strength-en the role of community residents—transformingthem from stakeholders to stockholders in localeconomic institutions—and in this capacity, mayhelp to strengthen community building efforts over-all.

As documented in a 1999 report, Strengthen-ing the Capacity of Community Builders, and asubsequent convening on the subject, intermedi-aries, funders, evaluators, and researchers havebegun to seek ways to meet the infrastructureneeds of the burgeoning movement.261 A centralcomponent of the community building infrastruc-ture is the National Community Building Network.NCBN was established in 1993 when an array ofcommunity building initiatives—including thosesupported by the Ford, Casey, and RockefellerFoundations came together to advance the field ofcommunity building.262 In 1996, NCBN included40 members from 27 cities;263 by the close of2000, it included more than 500 members.

Comprehensive community building initiativescan provide infrastructure to design, develop, andsupport ROM tools and approaches in a way that isresponsive to local demand. In such initiatives,stakeholders include but are not limited to: com-munity residents, community-based developers,faith-based institutions, service providers, commu-nity development intermediaries, private philan-thropy, private-sector investors and developers,and business and government leaders. Advancingresident ownership concepts and strategies at thelocal level requires that each of these voices bepart of the discussion. ROM models would bestrengthened by their application in multi-facetedcommunity building efforts.

If a local community building initiative wantedto develop a community building trust (CBT) andleverage resources into a community building IDA(CB/IDA), for example, it would require the expert-ise of a host of local stakeholders: community resi-dents and leaders, local community developmentcorporations, community development financialinstitutions, real estate experts, and analysts.

At the national level, these stakeholders mayneed to call upon the Local Initiatives SupportCorporation (LISC) and the National Congress forCommunity Economic Development (NCCED) fortechnical assistance and/or recommendations; theCommunity Development Financial Institution(CDFI) Coalition and/or the CDFI Fund for techni-cal advice and guidance; the Corporation for Enter-


261 Junious Williams, Jessica Pitt, and Lillian Yee, P.5. Intermedi-aries included in the report were as follows: Aspen Roundtable;Chapin Hall; Development Training Institute; EZ/EC Consortium;the U.S. Department of Housing and Urban Development; MDRC;National Community Building Network (NCBN); PolicyLink; Pro-gram for Community Problem Solving; Urban Institute/NationalNeighborhood Indicators Project (NNIP); and Urban StrategiesCouncil/Community Building Support Center (CBSC). The reportnotes, however, that the study includes a “limited and highlyselective number of organizations,” p. 3.

262 NCBN Website, www.ncbn.org.

263 Joan Walsh, Community Building and the Future of UrbanAmerica (New York: Rockefeller Foundation, 1997), p. vi.

prise Development (CFED) for assistance on theIDA component; and the Institute for CommunityEconomics (ICE) for advice on appropriate landacquisition strategies. Making these connectionscould build new forms of social capital at the localand national levels important to the advancementof ROMs and further strengthening of the commu-nity building movement.

The design, development, and/or implementa-tion of ROMs as part of community building initia-tives will take a strong commitment to buildinglocal capacity. It will require a substantial, long-term commitment of financial resources to supportspecific types of organizational and individualcapacity building at the local level. It will alsorequire significant resources for the national infra-structure to support and connect local practition-ers. Some degree of the necessary technicalexpertise already exists among segments of com-munity builders, but other expertise will be neededthrough the engagement of individuals and institu-tions not conventionally seen as part of the com-munity building dialogue.

ROMs present both a challenge and an oppor-tunity for community builders. They offer commu-nity builders an opportunity to reach out to newstakeholders and to make them partners in a newarena of community building discussions and ini-tiatives. But the same opportunity is a challengein that community builders will need to frame themechanisms in a way that offers benefits for allparties. Given years of experience in identifyingpoints of common self-interest among diversestakeholders, many community builders are wellpositioned to take on this challenge. Others willneed guidance and support to engage new commu-nity building allies that can help to advance equitybuilding for residents.

ROMs and the CDFI Industry

CDFIs are private-sector financial intermedi-aries that address the unmet financial needs of res-idents and institutions in low-income/low-wealthcommunities. The CDFI sector includes for-profitand nonprofit institutions that make loans andinvestments considered “unbankable” by main-stream institutions.264

More than 460 CDFIs currently work in com-munities located in all 50 states. CDFIs areundertaking a range of financial services, includ-ing grants, loans, equity investments, deposits, sav-ings accounts, technical assistance, and financialliteracy.265 Collectively, CDFIs have loaned andinvested $5 billion in underserved markets.266

The CDFI IndustryOffers Opportunities to Advance and Support ROMs

Many categories of CDFIs are well suited bothto model ROMs and to provide technical assistanceto community-based institutions and communityresidents seeking to develop and/or to gain accessto equity-building opportunities. ROM modelscould be expanded, replicated, taken to scale, andconnected to other community building effortsthrough support from the CDFI industry.

Key informant and field interviews identifiedthe need for specific financial and market expert-ise to support model development and design ofROMs. They also identified the need for financial


264 The term CDFI covers a variety of financial institutions,including: community development banks, community develop-ment credit unions, nonprofit loan funds, micro-enterprise loanfunds, and community development venture capital funds. CDFICoalition website at www.cdfi.org/about.html.

265 Ibid.

266 Ibid.

planning, analysis, advice, and ongoing consultingfor community residents seeking to gain access toemerging models. Different institutional typeswithin the CDFI industry are suited to meet thisdemand. Community development loan funds andcommunity development venture capital funds, forexample, can offer expertise to community buildersabout commercial investment opportunities; marketconditions for different industries; and risks andrewards for various types of investments andinvestors. Community development credit unionsand IDA programs already offer residents financialtraining/education, planning, and assistance asrelates to their participation in various types ofROM initiatives.

The CDFI industry could provide research,outreach, education, and technical support to com-munities seeking to advance ROM models. CDFIconnections to the private sector—as investors,lenders, and board members—provide a bridgebetween community residents and stakeholders inthe private sector that is critical to the design,development, and advancement of ROM strategiesand approaches. The expertise and guidance ofCDFI staff could also help to mitigate risks andmaximize rewards available to resident investors ina community development projects.

If CDFIs were engaged in the development ofROM models in the context of local communitybuilding initiatives, it would help to strengthenthose efforts by creating relationships—new formsof social capital—between the financial sector andcommunity builders.

Infrastructure and Support for CDFIs:Challenges and Opportunities

A large and growing infrastructure has beendeveloped to support the CDFI industry. TheCoalition of Community Development FinancialInstitutions, or “the CDFI Coalition,” was formedin 1992 to serve as the voice of the CDFI industry.With a primary focus on industry-wide policydevelopment and advocacy, the Coalition includes11 member organizations representing a nationalnetwork of CDFIs.267 Working through the Coali-tion, members build the infrastructure of theindustry, at the local and national levels, throughpublic information and education, outreach, advo-cacy, and other policy-related activities. TheCoalition serves as a clearinghouse for informationabout the industry, making information available tocommunity leaders, public officials, academia, andthe general public.268

Resources for the CDFI industry are augment-ed by the federal CDFI Fund. Created in 1994and housed in the U.S. Department of the Treasury,the CDFI Fund promotes access to capital andlocal economic development growth by investingdirectly in and supporting CDFIs. To become eli-gible for support from the CDFI Fund, CDFIs mustmeet the following certification criteria:

• Primary mission of financial institution is topromote community development;

• Serves distressed area or target population;

• Provides financial products and developmentservices (TA, etc.) as primary business activ-ity;

• Provides development services in conjunc-tion with loans and investments;

• Maintains accountability to target market;and

• Is a nongovernment entity. 269


267 See CDFI Coalition website at www.cdfi.org/aboutus.html.

268 Ibid.

269 Ibid.

The CDFI Fund expands the lending, invest-ment, and financial services provided to under-served markets across the country. In fulfilling itsmission, the Fund has invested $300 million inCDFIs since 1996.270

The National Community Capital Associationis another association representing the CDFIindustry.271

The National Community Capital Association isa national membership organization of commu-nity development financial institutions. Nation-al Community Capital’s member CDFIs providecapital, technical assistance, and developmentservices to support the revitalization of economi-cally disadvantaged urban, rural, and reserva-tion-based communities across the UnitedStates. National Community Capital also rep-resents more than 200 Associates—organiza-tions and individuals that support NationalCommunity Capital’s mission.272

Members of the National Community CapitalAssociation include community development creditunions, community development venture capitalfunds, micro-enterprise lenders, and communitydevelopment loan funds.

Opportunity to Advance ROMs in Collaboration with the CDFI Industry

The CDFI industry offers a network of opportu-nities to implement various types of ROM models.It also offers vehicles to advance the concept ofresident ownership of community assets in the pol-icy arena. Given their capacity to link private-sec-tor and community interests, CDFIs have, to date,enjoyed strong bipartisan support among policy-makers. This support has enabled the movementto expand—in size and capacity—irrespective ofchanging political leadership. Furthermore, inrecent years the industry has demonstrated itspower to advocate for the needs and priorities of itsmembership. This power is a direct function of thetrack record of industry leaders in successfullyaddressing inefficiencies in domestic capital mar-kets at the local level, in directing public attentionto local successes, and in building bipartisan sup-port for these efforts.273

As the CDFI industry’s advocacy role andsphere of influence have expanded, so too have itssocial capital connections. These connectionscould help build an understanding of how that var-ious resident ownership models offer mutual bene-fits for community residents and private- and pub-lic-sector stakeholders.


270 See CDFI Fund website at www.treas.gov/cdfi.

271 The Association was established in 1986 as the NationalAssociation of Community Development Loan Funds (NACDLF)but voted in 1997 to change its name.

272 See www.communitycapital.org.

273 The bipartisan credentials of the industry were demonstratedby the fact that the bipartisan agreement about the New Mar-kets/Community Renewal Act resulted in the tax credit portion tobe administered by the CDFI Fund, within the Department ofTreasury. For more information, see Chapter II. Background: His-torical Perspective and Literature Review” and the “Models” sec-tion of this chapter.

ROMs and Individual Asset Building/Individual Development Accounts

The focus of this section is not intended toexclude alternative or emerging approaches toindividual asset accumulation. Rather, it providesa starting point from which to examine opportuni-ties to advance ROM models within the largernational dialogue about individual asset accumula-tion strategies.

The IDA movement began to take hold in the1990s, advanced by a variety of academic, inter-mediary, and practitioner proponents.274

IDA InfrastructureOffers Opportunities to Advance ROMs

The movement could be expanded and diversi-fied to include a broader menu of opportunities forresident savings and investment linked to commu-nity planning and development. This expansionwould benefit from the existing networks of IDAprograms, financial institutions, and other stake-holders. It would also benefit from the variousforms of financial education and assistance provid-ed to current IDA account holders and from thesocial capital that has been developed among IDAprogram proponents, host financial institutions,and investors.

Expanding IDAs to include resident ownershipmechanisms is likely to require additional linkagesto more specialized forms of technical support (toassist community-based institutions in programdesign and development); market expertise/risk

assessment/investment counseling (to educate andregularly update residents about the risks/rewardsof various types of ROM investment opportunities);and community planning (to ensure that new mod-els, like community building IDAs are fully inte-grated into broader community planning efforts).This expansion would benefit by building upon andstrengthening the existing overlap between theshared membership and infrastructure of the IDAmovement and the community building movement.

Infrastructure of Supportfor the IDA Sector

The growth of the IDA sector has been fueledby early success in using public policy to takelocal successes to scale. In 1997, the Corporationfor Enterprise Development (CFED) initiated theAmerican Dream Demonstration, a nationaldemonstration project to design, implement, andadvance IDA programs based in 14 organizationsacross the country.275 Though the demonstrationis scheduled to run through the end of 2001, earlydocumentation of success—by the close of 1999more than 2,000 participants had opened savingsaccounts, with savings averaging $33/month276—laid the foundation for taking the concept to scale.

In October 1998, bipartisan support for nation-al IDA legislation led to the creation of the AssetsFor Independence IDA Program (AFI). The multi-million-dollar program dramatically increased theavailability of resources to the growing cadre ofIDA programs. According to CFED estimates, withthe passage of the AFI Act, IDAs would reach40,000 to 50,000 working-poor Americans.277


274 For more detail on the evolution of the movement, see ChapterII.

275 See Saving Patterns in IDA Programs: Down payment on theAmerican Dream Demonstration/A National Demonstration of Indi-vidual Development Accounts (St. Louis, MO: Center for SocialDevelopment, George Warren Brown School of Social Work,2000).

276 1999 Annual Report, Corporation for Enterprise Development,p. 4.

277 Ibid.

Lessons for ROMs from the IDA experience

As previously discussed, the IDA movementwas uniquely successful in rapidly moving throughthe various phases of development: from concept,to design, to implementation, and, finally, to scale.This success can be attributed to many factors:

• The timeliness of the concept: a growingbody of research was revealing a wide andgrowing wealth gap in America despite theera of sustained prosperity;

• Early and documented success of the nation-al demonstration project;

• An intersection of interest in the conceptfrom foundations, financial institutions (sub-ject to CRA requirements), policy makers,and community builders; and

• Bipartisan support for the concept of individ-ual savings tied to financial education as anew approach to poverty alleviation.

The development of ROM strategies andapproaches can draw lessons from the IDA move-ment which demonstrated that, if given adequateincentives, low-income individuals will accrue sav-ings to invest in their futures. Furthermore, someof the current models for resident investment,using IDA accounts, are already implicitly linkedto resident ownership of assets in local communi-ties, including home purchase and micro-enter-prise development.

IDA advocates have established policy prece-dents to the advancement of ROMs. First, theyhave been able to leverage growing concern aboutthe wealth gap to draw connections between thesubsidy of middle-class investment and the lack ofequivalent incentives available to low-income/low-wealth individuals. Second, they have set a prece-dent of how philanthropic and public support canbe used to subsidize potentially risky investments.Homeownership and micro-enterprise investmentshave a strong degree of risk related to real estateand business markets. That private foundations,the public sector, and individual donors haveaccepted these risks—and related rewards—asacceptable for IDA investments lays importantgroundwork for the advancement of ROMs.


At the local level, community building initia-tives provide an ideal venue to advance ROM con-cepts in a way that is inclusive of the requisitelocal stakeholders. At the national level, advance-ment of ROM strategies would require supportfrom all of the infrastructure elements describedherein. For example, the NCDI infrastructure oflocal CDCs and national technical assistance inter-mediaries offers a promising base from which toexpand capacity for designing, developing, andimplementing ROMs directly linked to local hous-ing and economic development efforts. The broad-based infrastructure of CDFI and IDA stakeholdersoffers a web of opportunity to leverage public andprivate support for ROM models in the policyarena. The huge network of cooperatives associat-ed with the NCBA offers opportunities to advancethe concepts—and new community building rela-tionships—within rural communities, the businesscommunity, and with stakeholders in other coun-tries.


Bridging Supply and Demand: Assessment of F i n d i n g s

The preceding overview of the support infra-structure for a variety of important community revi-talization strategies indicates many opportunities tobuild ROM models. However, given the fact thatthe contemporary infrastructure in most areas isunable to meet local demand for current projects, itwould be unreasonable to assume that ROM con-cepts and models could simply be adopted as anadditional realm of activity without additionalresources and support. Furthermore, many of theROM models presented in this report wouldrequire very specialized forms of technical assis-tance that may not yet exist within the contempo-rary networks of nonprofit intermediaries.Advancement of these models may require thatlocal practitioners obtain appropriate expertisefrom the private and/or public sectors.


278 John Elberling, Executive Director, TODCO, San Franciscointerview, February 2001.

C o n c l u s i o n s

The infrastructure of support—at all levels of com-munity planning and development—is as importantto building resident equity as the models them-selves. As one interviewee noted, without ade-quate infrastructure, ROM models “join the heapof good ideas,” never implemented.278

The implementation of ROM models requiresresources, and it requires a commitment by allstakeholders. Planning for ROMs should engageresidents early in the process so that they canselect, shape, and develop models that are appro-priate to local circumstances. To engage at thislevel, residents must be able to make informeddecisions and community-based institutions musthave the capacity and resources they need to sup-port active and informed decision-making.

ROM mechanisms—and the requisite infra-structure—will differ, in response to local condi-tions and priorities. It is important in thinkingabout the ROM infrastructure that it be developedin a way that is organic—that grows out of the con-stellation of opportunities, needs, assets, and lia-bilities unique to each locality.

This chapter summarizes feedback on theresearch framework and findings. The feedbackwas solicited through a number of avenues, includ-ing key informant interviews with local and nation-al stakeholders; review and discussion of theresearch at a national symposium held April 10,2001, in Washington, DC (attended by intervieweesand other stakeholders), and written and verbalfeedback from interviewees and meeting partici-pants.

This chapter is organized into three sections:interview highlights, a discussion of policy oppor-tunities, and next steps. Each section pulls fromall of the above-mentioned sources to provide adeeper understanding of the economic and politicalcontext for developing ROMs at the local andnational levels, and of the next steps needed tomove forward with ROM design, development, andimplementation.

Perspectives from the Field

121

Chapter IV

Reaction to Framework/Conceptual Approach

A majority of interviewees speaking from anational perspective reacted positively to the fram-ing of the research. Most felt that it represented atimely departure from traditional approaches toeconomic and community development. Theythought it posed a challenge to traditional localeconomic development strategies that focus onbusiness and real estate development without spe-cific mechanisms to ensure that residents benefitfrom development.

At the community level, most intervieweeswere interested in the general concept of residentownership, but many were skeptical about theirown organizational capacity—or the capacity oforganizations in their communities—to move for-ward on individual strategies, given competingdemands on their time, skills, and resources. Mostfelt that the framing represented a significant shiftfrom traditional community development strate-gies—focused on housing, job creation and access,and social services—and that it would consequent-ly require significant resources, technical assis-tance, and support to implement.

Interviewees working in rural communitiessupported the approach in theory but argued thatthe dearth of investment in many rural areas madeit difficult to pay attention to building equityinstead of strategies focused on affordable housing,employment, or service delivery.

Many interviewees saw the opportunities forresident ownership to be most relevant to commu-nities that were experiencing some form of rein-vestment. They argued that private- and public-


279 See Appendix A for a list of interviewees.

Interview H i g h l i g h t s2 7 9

Overview

The research process included interviews withover 75 stakeholders at the local and national lev-els. At the local level, interviewees included staffof community-based organizations, communitydevelopment corporations, comprehensive commu-nity building initiatives, service providers, commu-nity development financial institutions, and localfoundations. At the national level, intervieweeshave included representatives of organizationsfocusing on community development and commu-nity building in urban and rural communities,national civil rights organizations, foundations,academia, the public and private sectors, labor,and other membership organizations. Key findingsand highlights from these interviews follow.

sector interest in their communities offered oppor-tunities to leverage economic benefits for low-income/low-wealth residents. Others argued thatonce reinvestment is sparked and gentrificationand displacement of long-term, low-income resi-dents begin, it is too late to begin asset accumula-tion strategies. These interviewees argued thatresident ownership mechanisms must be in placeprior to gentrification. Still others argued that theROM approach is relevant to communities at allphases of the reinvestment spectrum, from commu-nities with little investment to those experiencingrapid revitalization.

One interviewee expressed strong disagree-ment with the idea that residents should be ownersof development in their communities. She arguedthat it is private-sector investors, not residents,who are putting their assets at risk by investing inthe development process; thus they, not residents,should receive the rewards of their investment.She argued that rather than having an “equitystake” in the literal sense, residents should besupported to be active participants in the planningprocess.

Several interviewees commented on the focusof the research on individual versus collectiveasset building. One interviewee noted that byexcluding community-based institutions as ownersof community assets, the research was not payingenough attention to a rich infrastructure and bodyof emerging ownership models. Another intervie-wee noted that community-based developers have avested interest in preventing resident ownershipstrategies because it could circumvent their insti-tutional role in the development process.

Reaction to Models280

Reactions to the models under investigationwere broad and varied. Interviewees commonlystated that their experience with resident owner-ship approaches was limited to homeownership,small business and micro-enterprise development,and/or IDA strategies. At the local level, home-ownership strategies were the most commonapproach to building resident equity. But mostinterviewees expressed interest in learning aboutnew models and approaches that could leverageeconomic development to benefit more communityresidents.

The concept of a community building RealEstate Investment Trust (CB/REIT) evoked stronginterest among many interviewees at the locallevel. They were intrigued by the idea of buildinga portfolio of local real estate assets in which localresidents could have an equity stake. In consider-ing the concept, interviewees quickly pointed toimportant nuances that would need to be assessedby local practitioners. Key issues raised includedthe challenge of creating a neighborhood-focusedportfolio that still diversified risk; concerns thatthe REIT investment could fuel additional gentrifi-cation and displacement; and concerns about com-munity control over the long term.

123A PolicyLink Report | Chapter IV: Perspectives from the Field |

280 Readers should refer to the previous chapter for descriptionsof the models discussed with interviewees.

The notion of a value recapture trust and/or acommunity building trust that would capture fundsfrom local development to support direct economicgains for residents received enthusiastic support,particularly among respondents grappling withstrong reinvestment pressures and the phenomenonof displacement in their communities. Local prac-titioners who were familiar with IDAs wereintrigued with the concept of using the resultingincome streams to provide matching funds for acommunity building IDA, as a way of building res-ident assets and supplying a source of funds forinvestment in other types of resident ownershipmechanisms.

Many agreed that gaining access to propertywas a critical first step in empowering communityresidents and institutions in a new role as ownersof assets in their communities. They argued thatacquiring property posed huge challenges inappreciating real estate markets. For example,many interviewees expressed interest in the com-munity land trust model but thought that the modelmight be best applied to communities that are notalready facing gentrification and displacementpressures. One interviewee noted that savvy prac-titioners could take advantage of fluctuations anduncertainty in local real estate markets to buildresident and community assets over the long term.

The response to the models among nationalrespondents was equally varied. Most respondentswere intrigued by the assortment of models underinvestigation but were familiar with only a few or asubset of them. Most interviewees acknowledgedthat common approaches—homeownership andbusiness and/or micro-enterprise development—were important but insufficient to address theneeds of very low-income and low-wealth commu-nity residents. Most agreed with the project’s goalof increasing the menu of opportunities to serve across-section of residents in low-wealth communi-ties.

Many national interviewees saw the need fordiscussions among the different stakeholdersinvolved in asset building strategies as one way tobuild a movement for resident ownership. Forexample, interviewees noted how developers ofemployee ownership models, including workercooperatives and employee stock ownership plans,could be more connected to the work of communitydevelopment corporations or to comprehensivecommunity building initiatives. Similarly, it wasargued that the community development creditunion movement could greatly contribute to andbenefit from a broader discussion about residentownership mechanisms.

Along the same theme, some intervieweesnoted opportunities to strengthen the dialogueamong urban and rural developers of successfulownership strategies. They argued that practition-ers engaged in the development of rural coopera-tives saw emerging opportunities to work in collab-oration with groups in urban areas. At the sametime, rural communities were seeking to expandand strengthen models, such as individual devel-opment accounts, that are stronger in urban areas.Still other interviewees, at the local and nationallevels, were more interested in prioritizing thedesign, development, and implementation of newmechanisms—community building IDAs, commu-nity building REITs, and resident stock ownershipplans—than in efforts to expand mechanismsalready in use.

The need to identify funding streams to sup-port resident investment in these new mechanismswas an important theme raised in the interviews.Without dedicated resources, these strategies willbe irrelevant to low-income and low-wealth resi-dents who do not have the resources to invest.


Community Development and Individual Asset Building

For most interviewees at the national level,leveraging individual and family asset accumula-tion opportunities through the community develop-ment process was a logical nexus of activity. Someargued that one cannot improve the lives of low-income/low-wealth community residents withoutpaying attention to asset poverty. They saw eco-nomic development at the local and regional levelsas an important opportunity to leverage public andprivate assets to build community and individualassets. One interviewee articulated the need for awhole new way of thinking, with resident owner-ship opportunities included in each step of localeconomic development planning.

At the same time, one interviewee raised anote of caution about linking individual assetbuilding strategies to community development. Henoted two strains of success in the communitydevelopment movement in recent years: thegrowth of mechanisms that provide wealth-buildingopportunities for individuals (IDAs) and the growthof community-based financial institutions that areaccessible to community residents; offer special-ized expertise; and are willing to accept lower ratesof return on capital in order to ensure communitybenefits (CDFIs). He argued that trying to connectlow-income/low-wealth residents to communitydevelopment investment opportunities would belinking them to high-risk, low-return investments.

At the local level, most interviewees notedtheir current emphasis on income-focused strate-gies, to make the point that a movement to assetbuilding approaches would be a significant shift.Some were considering or undertaking IDAapproaches but most noted limited local capacityto take on asset accumulation strategies beyondhomeownership, given limited time and resources.

Significance of Ownership:Ownership and Civic Engagement

The question of how and whether ownershipleads to increased civic engagement was dis-cussed. At the local level, many interviewees feltthat ownership was integral to civic participation,asset building, and community building efforts, butthat community residents had constantly been frus-trated in their past efforts. They argued that givingresidents an ownership stake in community devel-opment gives them a whole new perspective aboutthemselves and their communities. Others felt thatownership was more significant for its symbolicvalue, for the “sense” of ownership that it offerscommunity residents.

Interviewees speaking from a national perspec-tive noted that ownership is significant in manyways. Ownership—both historically and current-ly—is fundamental to wealth building because it isthrough ownership that people accumulate wealth,power, and control in the United States. Othersargued that ownership is empowering in other,equally fundamental ways because it enables peo-ple to be “future-oriented.” They argued thatbuilding assets gives people a sense of hope and awill to make positive changes in their lives, theirfamilies, and their communities. Finally, theyargued that ownership gives people a sense of enti-tlement that results in a stronger desire to engagein the political process.

Many felt that, even though the connectionbetween ownership and participation had not beenwell researched, the anecdotal evidence was strongenough to suggest a clear connection. They point-ed to the need to conduct evaluations of currentefforts. Others noted that it is not “voice,” per se,but the degree of decision-making authority andcontrol offered by participation that was importantto ownership. They felt that the research needed topay attention to the degree of participation offeredto residents in each mechanism.


Tension Between Individual and Collective Ownership Strategies

Many interviewees at the local and nationallevels pointed to a tension between individual andcollective ownership strategies. Some stressed theimportance of community ownership in terms ofworking towards collective, as opposed to individu-alistic, goals. But they also acknowledged that col-lective approaches do not adequately address theissue of individual and family asset poverty; nor doindividual asset building strategies necessarilyexclude collective ownership. Still others notedthe importance of expanding the ownership base,through whatever means, to ensure that economicand political institutions are more democratic andaccountable to citizens.

Some interviewees argued that individualwealth-building strategies are actually a communi-ty building strategy since they produce economicstability for individuals and families resulting inmore stable communities. Furthermore, othersargued, limiting ownership to collective strategieswas “paternalistic” in that it would limit assetbuilding opportunities for individuals and families.They argued that middle- and upper-income fami-lies have multiple opportunities to build assets,often supported by government incentives, in avariety of investment vehicles; but these sameopportunities are not accessible to low-wealth indi-viduals. Expanding investment opportunities tolow-wealth investors would be one of many ways toincrease opportunities to build financial assets.

Many articulated the need for dual or hybridstrategies that build both resident and collectiveownership. Where such approaches are not feasi-ble, it was argued, choices between them should bemade at the local level, in the context of localneeds and priorities.

Capacity and Infrastructure Issues

Most interviewees noted that issues pertainingto the local capacity and the infrastructure toadvance resident ownership models were of para-mount importance to ROM development.

Organizational Capacity

Community-based respondents felt that thelocal organizational capacity to take on residentownership mechanisms is limited. Community-based organizations are already stretched to theircapacity. Few could undertake new strategies,especially ones that would demand additionalexpertise and resources. Even if resources wereavailable, some interviewees felt that the additionof new strategies would detract from work alreadyunderway.

If they could obtain the resources necessary totake on these new approaches, many local practi-tioners wanted to develop the necessary real estate,legal, and negotiating expertise since these skillswould be applicable to other community projects.In some cases, interviewees expressed openness tousing outside experts—especially in situations thatrequired specialized technical assistance—butsome had a preference for developing in-housecapacity.

Key national intermediaries noted a growingdemand for resident ownership opportunities fromcommunity development practitioners at the locallevel, but they echoed their concern about the lack


of resources available to develop, support, andadvance these models. Many argued that the exist-ing infrastructure of community-based developerswas not strong enough in most communities to takeon these new strategies. Others argued that thecapacity existed but that it needed to be expanded;i.e., local communities would require a largeamount of resources and technical assistance toadopt the concepts. One interviewee noted theneed for technical expertise that currently does notexist in the community development arena. Shesuggested the possibility of local practitioners get-ting resources to hire this specialized expertise onan as-needed basis.

Resident Capacity

Local practitioners were concerned about theneed for additional support to enable residents toplay a leadership role in the design, development,and implementation of resident ownership mecha-nisms. Many argued strongly for the fact that ifthese mechanisms were to be successful, theirdevelopment had to be led by residents. Theyacknowledged that currently most residents do nothave the information, skills, and resources theyneed to develop and implement the concepts. Pro-posed remedies included outreach, education,training, and greater access to information aboutfinancial, real estate, and other markets.

Most interviewees at the national level felt thatthere would be a need for aggressive education—ofresidents, practitioners, and the general public—ifthese and other alternative development conceptswere to be fully developed and implemented.

Playing the Inside and Outside Game

One interviewee argued that to be effective,advocates need to play an inside and outside game.They need to be at the table when decisions werebeing made but also to have a base and an organiz-ing capacity to be able to sway decisions going inthe wrong direction. Being “inside” players, heargued, gives communities a lot of leverage in thedevelopment process, especially given the largeamounts of financing at stake in local redevelop-ment projects. The problem, he noted, was thatcommunity leaders were often afraid to be on theinside.

Other interviewees saw the “outside” game asthe crucial, and often undervalued, ingredient ofsuccess. They pointed to the critical importance ofcommunity outreach, education, and organizing inorder to advance resident ownership concepts andapproaches at the local level. Several intervieweesexpressed frustration with the reluctance on thepart of foundations to support organizing and advo-cacy. They argued that resident ownership con-cepts could not be advanced without first buildinga political constituency and that many of thesemodels could not be implemented without politicalbattles. Funders, they argued, needed to acceptthis fact from the beginning if they were going tosupport the development of resident ownershipmechanisms.


Risk and Reward/Risk Mitigation

The framing of the research and the types ofmodels under investigation raised concerns aboutrisk from many interviewees. One intervieweeargued that the resident ownership approach posedchallenges because of the particularly high levelsof risk associated with real estate and businessinvestment. Given meager assets, he felt thatinvestment in secure instruments—FDIC-insuredsavings accounts—was a safer option. He arguedthat this point is especially relevant since commu-nity development projects pose an even greaterrisk to investors than other types of commercialdevelopment.

Others felt that the choice should be left toresidents, but they should have options. Severalinterviewees observed that in the investmentprocess, potential reward is directly related to risklevels. Risk is inherent to any and all forms ofinvestment—including homeownership and smalland micro-enterprise business development.These interviewees argued that decisions aboutwhat is an acceptable risk should be left to resi-dents, provided there was appropriate informationand advice available to help guide decision-mak-ing. Several observers noted that low-income/low-wealth residents are not necessarily adverse to tak-ing risks; one observer noted that poor people takehuge risks every day of their lives, so why shouldthey be prohibited from risk-taking—and thepotential rewards—in the investment arena.

One interviewee noted that asset buildingshould be thought of as acquiring a form of eco-nomic security. He noted that only when peoplehave money in the bank that they feel secureenough to take the types of risks necessary to buildassets.

Many people noted that the key issue was notwhether low-income/low-wealth individuals shouldhave opportunities to invest—and take risk—buthow to maximize risk-mitigation measures thatwould make that risk manageable. Risk manage-ment and mitigation efforts, it was argued, have along history in public policy and could be adaptedto provide some level of protection for low-wealthinvestors.

Getting Community Stakeholders to the Table

Several interviewees pointed to the need forcommunity residents and organizations to enterinto strategic partnerships with local government toleverage public policy and public-sector resourcesto obtain ownership opportunities. One intervie-wee argued that playing this role required thatcommunities have access to the information andtechnical expertise needed to make strategic deci-sions about land-use planning and land acquisi-tion. Another noted the need for communityroundtables as a forum for collective decision-mak-ing about economic development projects in thecommunity and in the region. These roundtableswould need to be supported by appropriate levelsof real estate, legal, and financial expertise, butwould be led by local residents.


The Role of Private Philanthropy

Several interviewees highlighted the impor-tance of support and leadership for the advance-ment of resident ownership mechanisms from thephilanthropic sector. They argued that supportshould be in the form of resources for research,technical assistance, local capacity building, andinvestment in innovative strategies. In addition,many argued that foundations could offer leader-ship by supporting local developments and creat-ing incentives for public and private stakeholdersto partner with community-based organizations andresidents.

One interviewee noted that foundations arerestricted in terms of how they can support some ofthe mechanisms explored in the research. Forexample, some foundations have considered sup-porting land banking as a way to advance assetbuilding opportunities, but they are constrained bytheir legal status, which limits their support to“charitable giving.” This interviewee pointed tothe need for further exploration of these limitationsto develop better support for advancing differentresident ownership mechanisms.

Summary

The preceding comments and insights includekey themes for a rich conversation about strategiesto advance individual and collective ownership ofcommunity assets. This conversation, to someextent, is already underway in the communitydevelopment field. Strategies to expand the con-versation are described in the next section.


Alternative Government Roles in Advancing ROMs281

Government can play multiple roles in advanc-ing resident ownership mechanisms. These rolescan include government as:

Research and development (R&D) source or knowl-edge builder: Federal, state, and local govern-ments can support the design, development,implementation, and evaluation of ROMs.

Action supporter: The public sector can subsidizeaction at the local level with grants, tax incen-tives, and other support mechanisms to buildthe capacity of local institutions to developROMs.

Attention focuser: By drawing public attention toinnovative strategies and models, governmentcan help build public support for ROMs.

Regulator: By enforcing legal obligations, such aslocal zoning bonuses or other incentive provi-sions and the federal Community Reinvest-ment Act (CRA), private investment could bechanneled into projects supporting residentownership mechanisms.


281 This framework was based on comments by Xavier de SouzaBriggs, Associate Professor, the John F. Kennedy School of Gov-ernment, Harvard University, as described at the PolicyLink ROMSymposium on April 10, 2001.

Policy Opportunities and Challenges

This section summarizes ideas about ways touse public policy to implement resident ownershipconcepts and mechanisms. These ideas emergedfrom the interview process and the April 10, 2001symposium. Where relevant, information, exam-ples, and data have been added to the statementsand assertions of interviewees or meeting partici-pants.

Overview

Most interviewees and symposium participantsacknowledged that ROMs, alone, will not necessar-ily move people from poverty to economic opportu-nity, but they are part of a continuum of strategiesto increase options for people to save and invest tobuild their economic security.

In order to bring resident ownership mecha-nisms into the public dialogue, interviewees andsymposium attendees pointed to the central role ofpublic policy. They identified a range of publicpolicy levers—at the local, regional, state, and fed-eral levels—to support ROM development. Theselevers provide opportunities to take existing strate-gies to scale through expansion or replication; sup-port the testing and evaluation of new strategies;and create an environment—at all levels of eco-nomic development planning and decision mak-ing—that is supportive of innovative approaches.

Policy Opportunities at the Federal Level

The Tax Code

Interviewees and meeting participants identi-fied tax policy as an important tool to advance resi-dent ownership mechanisms. The tax structure haslong been used to provide asset building opportu-nities to middle- and upper-income taxpayers.282

The elements of this asset-building policy frame-work (home mortgage interest deductions, thereduction and gradual elimination of estate taxes,individual retirement account incentives) offerprecedents for extending asset building opportuni-ties to low-income/low-wealth populations but,until recently, have not been the focus of an organ-ized advocacy effort.

As noted by many interviewees, the time isripe for such an effort. In recent years, public sup-port for mechanisms to enable poor families toincrease their savings has grown, as demonstratedby bipartisan support for IDA policy. The recentpassage of the refundable child care tax credit forlow-income families indicates public recognition ofthe need for low-wealth families to have equitableaccess to benefits already offered to middle- andupper-income taxpayers.

These policies have laid the groundwork toadvocate for using public funds to further subsidizesavings and encourage investment by low-income/low-wealth individuals. Interviewees andmeeting participants saw multiple opportunities tobuild from the base of bipartisan support for IDAs,to push for policy measures to facilitate community

investment by low-income/low-wealth residents.Such advocacy efforts could be supported byrecent data.

Historically, part of the rationale for policiessuch as lower capital gains and estate taxes wasthat they encouraged savings and investment byupper- and middle-income taxpayers fueling eco-nomic growth. From an economic standpoint, itwas argued, poor people were less likely targets ofthese policies because they were more likely tospend tax savings on consumption, rather than sav-ings and investment. But recent data from theFederal Reserve and the Center for Social Devel-opment (CSD) in St. Louis contradict these argu-ments in a way that could support advocacy aroundthe macro-economic benefits of saving and invest-ment policies targeting poor families.

The recent Federal Reserve study showed thatbetween 1992 and 2000, the savings rate of thewealthiest 20 percent of Americans dropped from10.6 percent to negative 2.1 percent, while the sav-ings rate of the poorest 20 percent increased by 3.3percent.283 While the Fed study did not examinethe response of low-income taxpayers to wealthincreases, recent CSD research data on the savingpatterns of low-income participants in IDA pro-grams indicate that “the very poorest save almostas much as others (no statistically significant dif-ference). In other words, the very poorest are sav-ing at a much higher rate (that is, savings com-pared to income) than others.”284

This research could help advocates to make acase for the macro-economic value of creating poli-cies to encourage savings and investment amonglow-income and low-wealth individuals. Such poli-cies are critical to build the supply of capital nec-essary, at the local level, to make resident owner-ship mechanisms available to low-income/low-wealth investors. Furthermore, public subsidywould help to increase the supply of capital avail-able for local economic development efforts, asdescribed below.


282According to the Center for Social Development, the federalgovernment provides over $200 billion per year on tax breaks,with over 90 percent benefiting households earning over $50,000per year. Center for Social Development, Washington Universityin St. Louis, Missouri, at http://gwbweb.wustl.edu/Users/csd/press/clinton.html.

283 “The Richest 20% of Americans Did Most of the SpendingFueling Late ’90s Boom,” by Joseph Rebello [Dow JonesNewswires], The Wall Street Journal, Tuesday, May 8, 2001, p.B7A.

284 See CSD website:http://gwbweb.wustl.edu/Users/csd/press/clinton.html.

Past and Present Federal Policy Levers

Research participants pointed to numerousopportunities to advance policies that are support-ive of resident ownership mechanisms at thenational level. Some pointed to missed opportuni-ties in the past, including successive rounds ofEmpowerment Zone legislation and the discussionaround “new markets” legislation. Whereas bothsets of legislation have provided public subsidy forprivate-sector investment in low-wealth neighbor-hoods across America, they have included fewlevers to ensure that community residents are ben-eficiaries of that investment.

For example, successive rounds of Empower-ment Zone legislation included provisions toencourage local hiring, but the concept of residentownership was never included as part of the legis-lation. One interviewee noted that the idea wasfloated early in the legislative process but neverreceived much support. Another interviewee notedthat the reason for this missed opportunity was theabsence of an organized constituency pushing forits inclusion. Both emphasized how these “nearmisses” offered lessons regarding ways to advanceresident ownership mechanisms in the future.

Another federal policy that research partici-pants saw as providing opportunity for residentownership was the Community Renewal Tax ReliefAct of 2000. This will provide tax incentives andregulatory relief for community revitalizationefforts. One of the central elements of the Act isthe New Markets Tax Credit, a measure designedto encourage new investment in low-income andlow-wealth neighborhoods.285 The credit provides

an incentive to encourage individuals and institu-tions to invest in a broad range of assets—fromretail and manufacturing businesses to communityfacilities, schools, and day-care centers.

According to the legislation, the tax credit isavailable to investors who purchase equity in a“qualified community development entity” (CDE)with at least 85 percent of the CDE funds used for“low-income community investment.” While thelegislation includes no mention of resident owner-ship opportunities, it does not prohibit the inclu-sion of ROMs through the regulatory process orthrough the activities of emerging CDEs. Forexample, Treasury Department criteria for theselection of CDEs—entities designated by Trea-sury as eligible to allocate the new tax credits—could encourage inclusion of specific mechanismsfor resident ownership. Alternatively, CDEs couldbe encouraged—with public or philanthropicincentives—to sell a portion of the equity in localenterprises to local residents, over time.

Ongoing implementation and monitoring of theCommunity Reinvestment Act (CRA) was anotherfederal policy lever identified by numerousresearch participants. One interviewee highlightedopportunities emerging from the expansion of glob-al investment in REITs as an opportunity to advo-cate for resident ownership mechanisms.286 Heargued that global financial institutions are facingincreased pressure to meet CRA obligations and,as a result, are investing in REITs that are activein low-wealth communities. He maintained thatthis trend creates opportunities to leverage privatesector capital into community building REITs or tooffer mainstream REITs ways to include opportuni-ties for resident investors.


285 For a thorough description of the New Markets Tax Credit por-tion of the Act, see Stockton Williams, “The New Markets TaxCredit: A Promising New Tool for Community Revitalization,”Community Investments, April 2001, pp. 3–5.

286 REITs are described in “Chapter III. Models and Infrastruc-ture.”

Policy Opportunities at the Local Level

Interviewees and the symposium participantssuggested using tax increment financing, CDBGfunds, local tax credits and rebates, loan guaran-tees, land write-downs, zoning bonuses, direct sub-sidies, legislative measures, and code enforcementmechanisms to leverage funds and create incen-tives for including ROMs in local developmentprojects.

Partnerships between cities and communitieswere identified as an important element foradvancing new models. For example, local devel-opment incentives could be used to encourageinvestors to work with local government and com-munity-based institutions to create resident owner-ship opportunities. Furthermore, if they aredesigned with attention to the interests of multiplesets of stakeholders, resident ownership mecha-nisms can offer opportunities to build newalliances among diverse local constituencies.These alliances present new opportunities forpushing elected officials to support ROMs.

Many interviewees noted, however, that localelected officials will not advance ROMs unlessthey understand how and why it is in their interestto do so. They noted that the stakes are high in thelocal development process because of the ability ofdevelopment deals to generate wealth—for devel-opers, investors, corporate retailers, and other

stakeholders who are also large contributors topolitical campaigns.

One solution to gaining support from electedofficials is building a broad-based constituency.This requires organizing, education, and outreachto local residents so they understand the potentialbenefits of leveraging policy opportunities. Anoth-er solution is to build multi-stakeholder coalitions.For example, an IDA that is supported by a fund-ing stream from a local development project offersresources for residents to invest in local economicdevelopment efforts while, at the same time, pro-viding a new source of capital for local businessesand developers.287 This type of mechanism couldbe appealing to local elected officials who want tosupport a development project but face oppositionfrom low-wealth constituents and local businesses.

One interviewee noted that incentives for localgovernment usually work better than mandates.Such incentives could come from state or federalpolicy, or they could be offered by private philan-thropy.

The Need for a New Type of Development Intermediary

Several interviewees and symposium partici-pants argued that it is not enough to offer opportu-nities for residents to benefit from economic devel-opment. Instead, new types of economic institu-tions and structures are needed to ensure that resi-dents are beneficiaries and partners in the devel-opment process. One meeting participant gave theexample of the role that labor plays in the econom-ic development process in other countries toemphasize the point. For example, labor-spon-sored venture capital funds account for more thanone-third of all institutional venture capital inCanada.288 Targeted tax incentives are used toretain capital in communities; that capital is inturn used for economic development activities andquality job creation.289


287 See the IDA discussion in the Models chapter for details.

288 See Sherman Kreiner, with assistance by Kenneth Delaney,“Labor-Sponsored Investment Funds in Canada,” athttp://www.uswa.org/heartland/7canlsif.htm.

289 Manitoba’s Crocus Fund is a labor-sponsored fund that focusesspecifically on employee ownership. It was established by theManitoba Federation of Labor in 1993 and currently has $200million in assets. Crocus uses provincial and federal tax creditsto give employees an incentive to invest their retirement savingsin a fund that uses the capital locally. For investing in the CrocusFund, individuals receive a 15 percent provincial tax credit and a15 percent federal tax credit, to a maximum of $750 based on aninvestment of $5,000. From “Thinking Globally, Acting Locally:Promoting Employee Ownership at the Subnational Level,” Reporton the Capital Ownership Group Subnational Discussion Group,John Logue, Moderator, at http://cog.kent.edu/PapersMay2001/Subnational.html.

Paying Attention to Private Sector Interests

Many interviewees emphasized the importanceof private sector participation in, and support of,resident ownership mechanisms (ROMs). In orderto engage the private sector in the development ofROMs, symposium participants agreed that themechanisms need to be described in a way thatspeaks to the interests of the private sector anddeveloped to address their concerns.

An example of such a private sector benefitwas discussed at the symposium. In the MarketCreek Plaza development in San Diego, California,the development took only nine months to obtainpublic approval for a zoning change, a process thatusually takes two to three years.290 For develop-ers, time is money, and a reduction in an approvaltimeline translates into significant cost savings. Inthe Market Creek example, these savings werelargely attributed to resident support for thedeal.291

Private sector support could also be gainedwith evidence that resident ownership reduces therisk to investors because residents have a vestedinterest in both the success of the business and theprotection of its assets. In one story, recounted byinterviewees, a local business with resident ownerscontinuously avoided the vandalism and burglaryinflicted on other businesses in the community as adirect result of resident ownership.

Symposium participants agreed that in theabsence of hard data, these and other stories pro-vided strong anecdotal evidence of the value ofresident ownership mechanisms for business own-ers, investors, and other private and public sectorstakeholders.


290 See “Chapter III. Models and Infrastructure” for details.

291 Presentation by Jennifer Vanica, Executive Director of theJacobs Family Fund at the PolicyLink Resident Ownership Mech-anisms Symposium, April 10, 2001, Washington, DC.

292 The poll was conducted by Peter D. Hart Research AssociatesInc., in consultation with Eugene Steuerle, senior fellow at theUrban Institute. The poll was conducted from March 20 to 22,2001, among 810 registered voters and included a margin error of+/- 3.5%.

Building Public Support for ROMs

Using public dollars and legislation to encour-age the large-scale implementation of ROMs willrequire the support of a broad cross-section of thepublic. It will require building understanding ofthe economic and social value of these mecha-nisms, and it will require concentrated effort tomaintain support over the long term.

At the local level, outreach to and education ofcommunity stakeholders is a critical element ofdesigning and developing ROMs. Broad-basedlocal support is critical to navigating ROM modelsthrough the policy process and to building supportamong elected officials, the media, and the generalpublic. Building public support requires educa-tion and outreach to a broad cross-section of possi-ble stakeholders, including public officials, privatesector groups, associations of community develop-ers, civil rights organizations, labor, and organizingnetworks. It will also require documentation anddistribution of success stories so that the publicbecomes familiar with the concepts and learnsabout their economic, political, and social value.

Recent research highlights new opportunitiesto build public support for asset building strate-gies. According to a poll conducted by HartResearch, in collaboration with the Urban Insti-tute, “Americans’ priorities for the federal govern-ment in general and for the tax cut in particularextend beyond aiding average or middle-class tax-payers and include a strong resolve to assist peoplefacing difficult economic circumstances.”292 Thepoll found that two-thirds of the electorate, includ-ing 71 percent of Democrats and 63 percent ofRepublicans, agreed that it is very important thatPresident Bush and Congress “do more to help

those trying to work their way off welfare.”293 Thisgeneric support could be tapped to advance resi-dent ownership mechanisms.

Philanthropy and Policy

Interviewees identified many roles for privatephilanthropy in advancing ROMs in the policyarena. These roles include:

• Providing support for a public dialogueabout the value of resident ownership mech-anisms and about ways to use public policyto encourage innovative approaches;

• Supporting documentation and independentevaluation of ROMs;

• Supporting education, outreach, and organiz-ing to build public support for these mecha-nisms among diverse stakeholders;

• Playing an informal role as brokers of newpartnerships between the private sector andcommunity-based institutions;

• Taking on a more explicit leadership role asdevelopers, rather than just funders, of resi-dent ownership strategies; and

• Investing in projects offering resident owner-ship opportunities.

Examples of previous foundation-led efforts tohave an impact on community development policyinclude the National Community Development Ini-tiative (NCDI) (described in the Infrastructure sec-tion of Chapter III) and the Funders Network forSmart Growth (FNSG), a national network of foun-dations supporting research and practice aboutpolicy issues related to smart and equitable region-al development.

Summary

Developing and implementing resident owner-ship opportunities in communities across the coun-try will require a combination of innovative prac-tice and supportive policy. The policy process canbe used to bring diverse stakeholders to the tablearound a common agenda and to build publicawareness of the economic and social benefits ofsupporting resident ownership of communityassets.

Public policy can be used to provide newopportunities to develop ROM models or it can beused to increase the scale and impact of existingmechanisms. To be effective, resident ownershipmechanisms must be developed in a way thataddresses the priorities and concerns of multiplestakeholders. In order to sustain these efforts overthe long term, these stakeholders—the private,public, and nonprofit sectors working in partner-ship with community residents—must be able tosee a mutual benefit in joining together in newtypes of economic, social, and political relation-ships.

These mutual benefits must be built into acommon “story” about the purpose, goals, and eco-nomic, social, and political value of ROMs, a storythat must be told in a way that reaches beyond thedirect and immediate beneficiaries of the mecha-nisms and that helps build broad-based publicsupport for ROM development and implementa-tion.


293 Memorandum issued by Peter D. Hart Research Associates,Inc., April 24, 2001.

Connecting to the Field and Supporting Models

Participants acknowledged the need to ensurethat the report was grounded in—and responsiveto—the social, economic, and political realitiesfaced by diverse communities. In order to sharethe models—and to refine the insights about theirapplicability—many participants articulated theneed to take the findings “on the road.” Thisapproach would test the relevance of individualmodels to different communities and flesh out keyissues and concerns at the local level.

Symposium participants had an opportunity tohear directly from participants of four local initia-tives that are covered in this report, includingB.I.G. Wash and City First Bank in Washington,DC; SSC Employment in Baltimore, Maryland; andMarket Creek Plaza in San Diego, California.Upon learning about the successes—and chal-lenges—faced by the models, participants agreedthat these models should be supported, expanded,and replicated.


294 See Appendix A for a full list of symposium participants.

Next Steps

This section is largely drawn from discussionsabout next steps among the participants of theApril 10, 2001 symposium.294 The discussiontook place after participants had assessed and cri-tiqued the draft research findings. Next steps wereframed as ways to move from research to action.

Additional Research

Participants suggested research that was need-ed to supplement the findings of this report. High-lighted in Chapter I, additional research is neededabout:

• The link between resident ownership andcivic engagement;

• Risk/reward/risk mitigation strategies;

• Local demand for resident ownership mecha-nisms;

• Impact, scale, and effectiveness of models;

• Development of local assessment tools;

• Individual policy tools and opportunities;

• Rural issues and priorities; and

• Models from other countries.

Building Connections

A recurring theme focused on the need tostrengthen connections among practitioners of thevarious strategies covered in this report. Manyparticipants noted that the daily challenges ofdeveloping individual strategies, such as coopera-tives, community development credit unions, orcommunity land trusts, often leaves practitioners ofone approach isolated from the developers andimplementers of others. Participants discussed theneed for new opportunities for dialogue and infor-mation sharing—at the local and national level—where strategies can be discussed in a comprehen-sive manner that enables practitioners to learnfrom one another.

Broadening the Conversation

To build an understanding and a broader baseof support, participants agreed on the need toinclude a more diverse set of stakeholders in thediscussion about ROMs. Proposed additionsincluded representatives from labor, government,the private sector, community residents, environ-mentalists, foundations, and academic institutions.In addition, the inclusion of unlikely allies—developers and financiers—was proposed. Orga-nizing networks were also identified as key con-stituents for developing these models, given theneed to build a culture of trust at the communitylevel. Tapping into these networks would requirebringing organizers to the table early in the ROMdevelopment process and backing their efforts tobuild community understanding and support.

Developing an Action Agenda

Participants agreed that a priority is develop-ing short- and long-term agendas for advancingmodels at the local, regional, state, and nationallevels. They noted that the short-term agendashould seek to leverage immediate opportunities toadvance resident ownership mechanisms throughexisting policy levers and funding streams.

In addition, symposium participants agreedthat attention must be paid to the development ofa longer-term agenda that builds from the conceptsembodied in this report. In the long term, expand-ing and replicating ROMs so that they are benefit-ing large numbers of residents of low-income andlow-wealth communities would be one step towardsstrengthening democracy and building broad-basedcivic engagement.

Communications

Participants agreed that many of the storiesthat were covered in this report and presented atthe symposium need to be further documented.These stories capture the challenges—and theopportunities—faced by practitioners seeking toimplement resident ownership mechanisms. Thestories capture the spirit and rewards of residentownership—for their local developers, funders,beneficiaries, and supporters. They bring to lifewhat ownership means for individual investors andstakeholders. Participants agreed that these sto-ries need to be documented in a way that is under-standable to and shared with a broad range ofreaders.


Strategies to Deal with the Urgency of Displacement

During the course of the meeting, participantsexpressed a common sense of urgency about theissue of low-income/low-wealth residents beingdisplaced from their communities because of risingproperty values. All agreed on the need for strate-gies that could be implemented, in the near term,to ease displacement pressures. This concern ledto discussion about how to move some of the mod-els from research to implementation quickly.

The discussion also produced acknowledgmentof the fact that many of the mechanisms describedin this report might mitigate against displacementin the future, but since they would take time todesign and implement, they should not be seen asanti-displacement strategies. Instead, many partic-ipants noted that other tools were being developedto provide communities with strategies that couldbe used to inform the development of a rapidresponse to displacement pressures.295

Learning from Global Policy and Models from Abroad

During the course of the day, several partici-pants drew attention to the impact of global policyon domestic models. It was noted that global tradeand investment policy can have an impact on assetbuilding opportunities in the United States.

Participants also noted that models and poli-cies from other countries could inform the domes-tic discussion or could be applied to communitiesin the United States. Participants also pointed tolessons to be learned from ROMs promoted bynongovernmental organizations, environmentalists,and other stakeholders abroad.

Summary

The symposium closed with general agreementon the relevance of resident ownership conceptsand mechanisms to the community developmentfield and to the work underway in communitiesacross America. Most participants expressedinterest in continuing to work collectively to fur-ther research and understanding of the variousmechanisms highlighted in the report and toexplore policy strategies for broadening andstrengthening the use of ROMs.


295 One such resource, the “Beyond Gentrification Toolkit,” isavailable at the PolicyLink website at http://www.PolicyLink.org.

Out of the diversity of approaches explored inSharing the Wealth, a number of ingredients rele-vant to the planning, development, implementa-tion, and operation of ROM models emerges. Thischapter highlights those ingredients. It also high-lights additional points to consider regarding waysto increase the effectiveness of ROMs in movingpeople from poverty to opportunity, while buildingstrong healthy communities.

Conclusion:Findings and Closing Comments

139

Chapter V

Key Ingredients for Developing Effective ROM Models

While ROMs are widely varied in terms ofdesign and approach, key ingredients can be liftedup that have helped the models to meet the goalsdescribed above. Both the ingredients and thebroader points of consideration, described below,were extrapolated from interviews with practition-ers and resident leaders actively involved in devel-oping ROMs, as well as from symposium partici-pants and other key informants in the researchprocess. The interviews revealed that planning,implementation, and operation of ROMs require:

1. Ongoing and meaningful resident education,participation, and leadership;

2. Access to high-quality technical support;

3. Adequate funding and financing for planningand implementation;

4. Active engagement in the political process;

5. Strong accountability systems; and

6. Finding ways to tell the story.


F i n d i n g s

Sharing the Wealth explores a heterogeneousmix of resident ownership mechanisms developedfor different types of communities facing differentsets of challenges and opportunities. All of theROMs seek to achieve a mixture of the followinggoals:






1. Ongoing and meaningful resident education,participation, and leadership

Whether the targeted economic activityinvolves the development of a shopping center,the expansion of a business, or the creation ofa community land trust, the inclusion of resi-dent ownership mechanisms requires early,active, and ongoing engagement of a broadcross-section of community residents. ROMscan be initiated and led by different types ofstakeholders—a group of neighbors, a localfoundation or an organizing group—and theycan take a variety of forms; but residentengagement and leadership are critical ingre-dients.

Several ROM practitioners noted that trulymeaningful engagement requires openness andflexibility on the part of the initiative’s propo-nents since initial conceptions and prioritiesmay change radically as more residents weighin and shape the model’s development. Forexample, designing ROMs involves a numberof decisions and choices about targeted benefi-ciaries; voice/representation of owners andother residents; accessibility to a broad, orlimited, base of residents; balancing individualasset building and collective ownership, andother issues. Conducting an open process—which maximizes engagement by a large cross-section of community residents—helps toaddress these structural issues, build trust,and address controversy at the front end of theplanning process. One ROM developer notedthe value of an open and inclusive process,particularly in racially/ethnically diverse com-munities where different groups have not hadprevious experience working together on acommon project.

Early and meaningful participation canbuild a “sense of ownership” that goes beyondthe technical ownership opportunities offeredby the ROM itself. According to several ROMdevelopers, when residents see themselves asowners, as leaders, and/or as partners in thedevelopment process, they are more vested inthe outcomes of the development. Even if theydon’t decide to invest in the project, this broadsense of ownership expands the base of sup-port enabling the project to navigate theinevitable stumbling blocks that impede theROM’s development. One practitionerinvolved in a worker cooperative noted thatdeveloping a sense of ownership and trust fromthe beginning meant that workers held eachother responsible for their performance andthat this was essential to the cooperative’s suc-cess. Others noted the value of this early basebuilding in terms of gaining the political powerneeded to usher a project through the publicapproval process.

Many ROMs involve technical real estateor business concepts unfamiliar to communityresidents and organizations. Crafting struc-tures and mechanisms to educate residentsabout the technical aspects of developmenthelps to build their capacity to make difficultdecisions. One ROM initiative makes it apractice to review and explain pro-formas indetail at community meetings in order to makedecisions about trade-offs in the developmentprocess. This type of education and informa-tion sharing enables residents to learn aboutthe financial ramifications of their choices sothat they can make informed decisions. It alsoenables them to be more effective advocatesfor their communities in other developmentplanning because they have a better grasp ofcomplex development schemes and of the pri-orities/concerns of other stakeholders.

141A PolicyLink Report | Chapter V: Conclusion |

2. Access to high-quality technical support

The design, development, and implementationof ROM models require specialized technicalexpertise in a mix of finance, real estate, cor-porate law, and tax accounting. Some ROMdevelopers have been able to acquire theresources necessary to hire specialized expert-ise and have used it to shape the project. OneROM initiative benefited from four years of probono legal assistance regarding the creation ofvehicles to develop neighborhood economicwealth. Other initiatives have benefited fromthe active engagement of a community devel-opment corporation or from working withnational intermediary organizations that arehighly skilled in all aspects of developing aparticular model, such as community landtrusts, worker cooperatives, IDAs, or communi-ty development credit unions.

3. Adequate funding and financing for planningand implementation

Whether adapting an existing model or design-ing a new one, ROM development involves asubstantial commitment of time and resourcesby a number of players at the local level.ROMs are not generic instruments. They mustbe adapted to meet local needs and priorities,and this adaptation will incur costs.Resources are needed to engage specializedtechnical expertise, to ensure ongoing andmeaningful community engagement, and toprovide resident education and training.

Successful ROM planning and operationoccur when funders are engaged early and canprovide resources for diverse phases of theproject including: community outreach andeducation; design and/or application of theappropriate model; education and training ofresidents; technical assistance; networkingamong ROM developers; documentation andevaluation; and public relations.


4. Active engagement in the political process

Politics is a part of all local economic develop-ment activity. Just as private developers, busi-ness owners, and local financial institutionsare active players in the political process, sotoo are successful developers of ROMs. Manyinterviewees noted the need to be prepared toorganize, advocate, and negotiate in the politi-cal process. They emphasized the needs to beproactive in engaging diverse constituenciesand to prepare for opposition.

According to many of the interviewees, thefirst step in this process is building a strongand an organized base of resident supporters.Additional steps include cultivation of electedofficials, public agency staff, academics, themedia, and other civic leaders who can articu-late the value of the model in public discourse.Most of the developers of ROM modelsdescribed in this report reached out to localelected officials in their planning. Someworked with academic institutions to gatherdata necessary to make a case for the ROM tothe public and private sectors; others workedclosely with the local media to ensure thattheir story was being told in a way that builtpublic support.

In several of the examples explored in thisreport, policy issues arose that could haveblocked the development of the ROM, but theywere overcome through the involvement of res-idents and/or community-based institutions inthe political process. In others, resident back-ing helped to build the political support need-ed to move a project through the approvalprocess.

5. Strong accountability systems

According to many practitioners and otherinterviewees, the credibility of ROM modelswill depend, in the long run, on effective andtransparent monitoring and evaluation systemsdemonstrating measurable outcomes. Manypractitioners noted the need for resources toconduct evaluations to produce credible dataabout the effectiveness of their strategies.While some were proceeding without evalua-tion mechanisms in place, many were seekingresources to include them in their operations.

6. Finding ways to tell the story

Most of the practitioners interviewed recog-nized the value of their ROM story in terms ofbuilding financial, political, and public sup-port; fundraising; and sharing lessons learned.Few had the time or resources to document theprocess along the way. Many leaders of thehighlighted examples were actively seekingassistance to develop such a communicationseffort.


Maximizing Outcomes

To increase the effectiveness of ROMs asstrategies that help to move people from poverty toprosperity in strong healthy communities, the fol-lowing points should be considered.

+ ROMs will have a greater impact if they arepart of comprehensive community planningefforts.

ROMs will be most effective in supportingsolutions to complex poverty issues if they areconnected to broader community planningefforts. For example, in most cases, ROMsoffer long-term opportunities to build individ-ual and family assets. They do not offer stop-gap solutions to imminent displacement of low-income/low-wealth residents, nor do they offeraccess to services and/or job opportunities.These community-building strategies are allintegral to addressing poverty and should beundertaken hand-in-hand with ROMs.

If ROMs are included as one strategy with-in a multi-faceted community developmenteffort, they can be designed in a way that iscomplementary to income- or service-basedstrategies.

+ Community-based organizations are integral tothe design, development, implementation, andmanagement of successful ROM models.

While the targeted beneficiaries of ROMs areresidents, these mechanisms cannot be imple-mented in isolation from community-basedorganizations (CBOs) that are representative ofand accountable to resident groups. CBOs arecritical to leading and supporting the design,development, implementation, and monitoringof ROMs. CBO roles can include:

• Leading or managing the design and devel-opment of the ROM;

• Providing support services to enable resi-dents to gain access to ROMs (e.g., educa-tion, training, outreach);

• Representing resident stakeholders in part-nerships with developers, investors, and thepublic sector.

In addition, CBOs can be part of a broaderstrategy to expand the base of ownership ofcommunity assets. CBO ownership and stew-ardship of real estate, local businesses, finan-cial institutions, and natural resources can andshould be seen as complementary to direct res-ident ownership.


+ Public policy measures will be needed to pro-duce large-scale benefits from ROMs.

While promising, the ROM models describedin this report are currently operating at a scalethat will not have a measurable impact onpoverty in the United States. Expanding theimpact of ROMs will require a new policy dia-logue. It will require the implementation ofsupportive policy measures—to provideresources and incentives, to overcome barriers,and to build political will—at all levels of gov-ernment. It will require building publicunderstanding of the benefits of ROMs and thepublic will to support their development incommunities nationwide.

+ Low-income/low-wealth residents will requiresubsidies to gain access to some ROMs.

It is important to recognize income and wealthvariations in low-income/low-wealth neighbor-hoods when developing ROM strategies. Theultimate value of ROMs lies in their ability toassist “those left behind” to accumulate assetsand become stakeholders in their communities.To meet this goal, ROMs must be designed ina way that maximizes their accessibility to thecommunity residents with the lowest level ofincome and wealth. Such accessibilityrequires consideration of various forms of sub-sidy to maximize opportunities for low-wealthinvestors.

Some such strategies—leveraging public,private, and philanthropic resources—are ref-erenced in this report. They will require fur-ther research to determine which types of sub-sidy would be most applicable to differentforms of ROM models.



Closing C o m m e n t s

Resident ownership mechanisms, alone, willnot lift people out of poverty, but they can be partof the solution—one that builds economic securityfor poor families and gives them choices abouttheir future.

Resident ownership mechanisms offer solu-tions for building collaborative, community build-ing approaches to development that produce win-win solutions for all stakeholders in the develop-ment process. In recent years, private sectoractors have recognized the rewards of investmentin urban and rural communities. In future years,with the help of ROMs, they will realize the valueof including residents as partners in and stewardsof their investments.

Leveraging community economic developmentactivity to build the financial assets of communityresidents opens up a new frontier of practical andpolicy solutions to moving low-income/low-wealthindividuals and families from poverty to prosperity.Along with an emerging cadre of asset buildingstrategies, ROMs promise to contribute to buildingstrong and healthy individuals and families whilesimultaneously building strong and healthy com-munities.

(I) Interviewees for ROM research

(P) Participants in the April 10th ROM meeting in Washington, DC

Steve Adams (I)Formerly Vice President

and Director of ResearchInstitute for a Competitive Inner CityBoston, Massachusetts

Zita D’Azalia Allen (P)Senior Communications AssociatePolicyLinkNew York, New York

Gar Alperovitz (I, P)Lionel R. Bauman Professor of

Political EconomyDepartment of Government and PoliticsUniversity of MarylandCollege Park, Maryland

Carl Anthony (I, P)Program OfficerCommunity & Resource Development UnitThe Ford FoundationNew York, New York

Research Interviewees and Symposium Participants

147

Appendix a

(I) Interviewees for ROM research(P) Participants in PolicyLink April 10th ROM symposium in

Washington, DC

Laura Arce (I)Policy AnalystDemocratic CaucusWashington, DC

Tosun Aricanli (I)ProfessorSouthern New Hampshire UniversitySchool of Community Economic

DevelopmentManchester, New Hampshire

Robert Bach (P)Deputy Director, Working CommunitiesThe Rockefeller FoundationNew York, New York

Elinor Bacon (I)CEONational Capital Revitalization CorporationWashington, DC

Bill Barnes (I, P)Director of Research & Program

DevelopmentNational League of CitiesWashington, DC

Michael Barr (I)Visiting FellowEconomic Studies DepartmentThe Brookings InstitutionWashington, DC

Syd Beane (I)Senior Community Development SpecialistCenter for Community ChangeSan Francisco, California

Larry Beeferman (I, P)DirectorAsset Development InstituteCenter on Hunger and PovertyBrandeis UniversityWaltham, Massachusetts

Judith Bell (P)Vice PresidentPolicyLinkOakland, California

Lynn Benander (I, P)CEOCooperative Development InstituteGreenfield, Massachusetts

Sheri Dunn Berry (I)Executive DirectorNCBNLos Angeles, California

Betsy Biemann (I)Program OfficerThe Rockefeller FoundationNew York, New York

Angela Blackwell (P)PresidentPolicyLinkOakland, California

Edward Blakely (I, P)Dean, Milano Graduate SchoolNew School UniversityNew York, New York

Xavier de Souza Briggs (I, P)Assistant Professor of Public PolicyKennedy School of Government,Harvard UniversityCambridge, Massachusett



Washington, DC

Rita Bright (I, P)ManagerB.I.G. Wash/Columbia Heights/

Shaw CollaborativeWashington, DC

Joe Brooks (I, P)Director of Capacity Building and

Civic EngagementPolicyLinkOakland, California

Roberta Brooks (I, P)ConsultantFormerly Regional Director,

Congresswoman Barbara Lee’s officeBerkeley, California

Liz Butler (I)Director of Special ProgramsNational Congress for Community

Economic DevelopmentWashington, DC

M.C. Canlas (I)Community OrganizerWest Bay Philipino Multi-Service CenterSan Francisco, California

Ada Chan (I, P)Program ManagerMission Economic Development

AssociationSan Francisco, California

Michael Chan (I)Board PresidentNortheast Community Credit UnionSan Francisco, California

Don Chen (I, P)DirectorSmart Growth AmericaWashington, DC

Ray Codey (I) Director of DevelopmentNew Community CorporationNewark, New Jersey

Ray Colmenar (P)Senior Program AssociatePolicyLinkOakland, California

Dalton Conley (I)Associate Professor of SociologyDepartment of Sociology & The Center for

Advanced Social Science ResearchNew York UniversityNew York, New York

Herb Cooper-Levy (I, P)Executive DirectorRobert Pierre Johnson Housing Development

CorporationArlington, Virginia

Steve Dawson (I)PresidentParaprofessional Healthcare InstituteBronx, New York

Frank DeGiovanni (I)Director of Economic DevelopmentThe Ford FoundationNew York, New York

149A PolicyLink Report | Appendix A: Interviewees and Participants |

Peggy Delinois (I, P)General CounselCity First Bank of DCWashington, DC

Carla Dickstein (I, P)Senior Officer of Research and

Policy DevelopmentCoastal Enterprises, Inc.Wiscasset, Maine

Hattie Dorsey (I, P)President & CEOAtlanta Neighborhood Development

PartnershipAtlanta, Georgia

Allen Edson (I, P)Executive DirectorWest Oakland/

7th Street McClymonds InitiativeOakland, California

Daniel S. Ehrenberg, Esq. (P)Deputy General CounselNeighborhood Reinvestment CorporationWashington, DC

John Elberling (I, P)Executive Vice PresidentTODCOSan Francisco, California

Jed Emerson (I)Senior Fellow, The William &

Flora Hewlett FoundationLecturer, Stanford UniversityPalo Alto, California

Jim Field (I, P)Program DirectorCommunity Renewal SocietyChicago, Illinois

David Fike (I)Vice President and Dean of

Academic AffairsHoly Names CollegeOakland, California

Robert Friedman (I, P)ChairCorporation for Enterprise Development

West - CFED WestSan Francisco, California

James O. Gibson (P)Senior FellowCenter for the Study of Social PolicyWashington, DC

Luis Granados (I)Executive DirectorMission Economic Development

AssociationSan Francisco, California

Michael Grupe (I)Vice President & Director of ResearchNational Association of REITsWashington, DC

Anne Habiby (P)Executive Vice PresidentDirector of Research and StrategyInstitute for a Competitive Inner CityBoston, Massachusetts

James Head (I)PresidentNational Economic Development and

Law CenterOakland, California

Kara Heffernan (P)Program AssociateThe Ford FoundationNew York, New York



Washington, DC

Wade Henderson (I, P)Executive DirectorLeadership Conference on Civil RightsWashington, DC

Bruce Herman (I)Executive DirectorAFL-CIO Working for America InstituteWashington, DC

Albert Butch Hopkins (I)President and CEOAnacostia Economic Development

CorporationWashington, DC

Ted Howard (I, P)DirectorCivil Society/Community Building

InitiativeUniversity of MarylandCollege Park, Maryland

Young Hughley, Jr. (I)Executive DirectorReynolds Town Revitalization CorporationAtlanta, Georgia

Maurice Jones (I)Venture Philanthropy GroupArlington, Virginia

Dr. Sokoni Karanja (I)President & CEOCenter for New HorizonsChicago, Illinois

Brad Karrer (P)Funds ManagerCooperative Development FoundationWashington, DC

Thomas Kingsley (I, P)Principal Research AssociateMetropolitan Housing & Communities

Policy CenterThe Urban InstituteWashington, DC

Ellen Lazar (I)Executive DirectorNeighborhood Reinvestment CorporationWashington, DC

Daniel Leibsohn (I)ConsultantEconomic DevelopmentSan Francisco, California

Don Marcos (I)Executive DirectorSOMA Employment CenterSan Francisco, California

Dwayne Marsh (P)Program AssociatePolicyLinkOakland, California

James D. Mather (I) Vice PresidentBank of AmericaCommunity Development BankingOakland, California

Theresa Mayberry-Dunn (P)Casey FellowThe Annie E. Casey FoundationBaltimore, Maryland

Heather McCulloch (P)Senior Program AssociatePolicyLinkOakland, California


Michelle McDonough (P)Community Planning ConsultantFannie Mae FoundationWashington, DC

Joe McNeely (I, P)PresidentDevelopment Training InstituteBaltimore, Maryland

Jim Megson (I, P)PresidentICA GroupBrookline, Maryland

Angela Moore (I)Vice President of Membership ServicesChicago Association of Neighborhood

Development Organizations (CANDO)Chicago, Illinois

Bob Moore (I, P)Executive DirectorColumbia Heights CDCWashington, DC

James Mumm (I)Senior OrganizerOrganization of the NortheastChicago, Illinois

Jessica Gordon Nembhard (I, P) Research DirectorThe Democracy CollaborativeUniversity of MarylandCollege Park, Maryland

Melvin Oliver (I)Vice President, Asset Building and

Community DevelopmentThe Ford FoundationNew York, New York

Sarah Page (I, P)Executive DirectorInstitute for Community EconomicsSpringfield, Massachusetts

Larry Parks (I)Senior Vice PresidentExternal and Legislative AffairsFederal Home Loan Bank of San FranciscoWashington, DC

Jaime Pfeiffer (I)DirectorLos Flores MetalarteCoamo, Puerto Rico

Lorette Picciano (I, P)Executive DirectorRural CoalitionWashington, DC

Roy Priest (I, P)President & CEONational Congress for Community Economic

DevelopmentWashington, DC

Delphine Pruitt (I)Senior Affordable Housing

Business ManagerThe Fannie Mae CorporationPasadena, California

Avis Ransom (I, P)Executive DirectorRegional Worker Training Center

(R & B Unlimited)Baltimore, Maryland

Lisa Robinson (P)Consultant to PolicyLinkDavis, California



Washington, DC

Victor Rubin (P)Director of ResearchPolicyLinkOakland, California

Jeff Ruster (P)Deputy Assisant Secretary for Economic

DevelopmentU.S. Department of Housing and Urban

DevelopmentWashington, DC

Pam Salsedo, IDA Collaborative (I)Formerly Director of Asset Building

ProgramsEast Bay Asian Local Development

Corporation (EBALDC)Currently Director of Membership ServicesCalifornia Community Economic

Development Association (CCEDA)Oakland, California

Mark Schmidt (I)Director of Governance and Public PolicyOpen Society InstituteNew York, New York

William Schweke (P)Senior Program DirectorCorporation for Enterprise DevelopmentDurham, North Carolina

Elliott Sclar (I, P)Director & Professor, Urban PlanningColumbia UniversityNew York, New York

Sally Scott (P)Program OfficerThe Goldseker FoundationBaltimore, Maryland

Ann Sherrill (I, P)DirectorBaltimore Neighborhood CollaborativeBaltimore, Maryland

Kris Siglin (I)Vice President, PolicyThe Enterprise FoundationWashington, DC

Ralph Smith (I)Vice PresidentThe Annie E. Casey FoundationBaltimore, Maryland

Michael Springer (I, P)Office of Economic PolicyU.S. Department of the TreasuryWashington, DC

Ben Starrett (I, P)Executive DirectorFunders’ Network for Smart Growth and

Livable Communities,Collins Center for Public PolicyMiami, Florida

Ayse Can Talen (P)Senior DirectorCommunity Development ResearchFannie Mae FoundationWashington, DC

Anthony Tansimore (P)Vice PresidentRegional and Community InitiativesThe Fannie Mae FoundationWashington, DC

Alicia Taylor (I) Administrative DirectorRural CoalitionWashington, DC


Amy Tharpe (P)DirectorKnowledge InitiativeThe Fannie Mae FoundationWashington, DC

James Thomas (I, P)Executive DirectorEmergency Services NetworkOakland, California

J. Phillip Thompson (P)Department of Political ScienceColumbia UniversityNew York, New York

Dale Thomson (P)Formerly, Department of Housing and

Urban Development (HUD)Currently at Wayne State UniversityCollege of Urban, Labor, and

Metropolitan AffairsDetroit, Michigan

Mike Tierney (I)Senior Vice President, Field OperationsLocal Initiative Support CorporationWashington, DC

Cate Toups (P)Senior Research FellowInnovation, Research and TechnologyThe Fannie Mae FoundationWashington, DC

Jennifer Vanica (I, P)Executive DirectorJacobs Center for Nonprofit InnovationSan Diego, California

Emily Vaupel (I)Homeownership Program CoordinatorBurlington Housing AuthorityBurlington, Vermont

Olin Webb (I)Executive DirectorBayview AdvocatesSan Francisco, California

Marcus Weiss (I, P)PresidentEconomic Development Assistance

ConsortiumBoston, Massachusetts

Marva Williams (I)Vice PresidentWoodstock InstituteChicago, Illinois

William Julius Wilson (I)ProfessorMalcolm Weiner Center for Social PolicyJFK School of GovernmentHarvard UniversityCambridge, Massachusetts

Steve Yank (P) Program AnalystU.S. Department of Housing & Urban

DevelopmentOffice of Policy Development & ResearchWashington, DC

Mtamanika Youngblood (I)PresidentHistoric District Development CorporationAtlanta, Georgia

John Zippert (I)Director of ProgramsFederation of Southern CooperativesEpes, Alabama



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Assets vs. income

• “Assets refers to the stock of wealth in ahousehold. In contrast, income refers to theflow of resources in a household, a conceptassociated with consumption of goods andservices and standard of living.”296

• “Tangible assets are legally held and includephysical property as well as rights that func-tion in much the same way as physical prop-erty.”297

• “Intangible assets are more nebulous, notlegally held, and often based imprecisely onindividual characteristics or social and eco-nomic relations.” Intangible assets includeaccess to credit, human capital, cultural cap-ital, informal social capital, formal socialcapital, and political capital.298

Glossary

163

Appendix c

296 Michael Sherraden, Assets and the Poor (Armonk, NY: M.E.Sharpe, 1991), p. 5.


298 Sherraden, pp. 103–104.

Community and Individual Investment Cor-poration (CIIC)Refers to a 1996 HUD initiative involving theestablishment of resident-owned financialinstitutions in Empowerment Zones and Enter-prise Communities that would provide accessto capital in inner-city communities.299

Community BuildingRefers to an evolutionary approach to commu-nity development that involves comprehensiverevitalization efforts that build explicit link-ages between place-based (development ofphysical places) and people-based (providingopportunities for individuals) strategies toaddress poverty.

Community Building Individual DevelopmentAccount (CB/IDA)Refers to a possible expansion of the existingIndividual Development Account (IDA) con-cept. A CB/IDA is a ROM model that wouldallow account holders to invest either all or aproportion of IDA savings in a broader array ofcommunity assets such as existing or expand-ing businesses or real estate development proj-ects.

Community Building Real Estate InvestmentTrust (CB/REIT)Refers to a ROM model that adapts a realestate investment trust such that low-income/low-wealth residents would own sharesin a portfolio of properties as a way to gain anownership stake in local or regional real estatedevelopment.

Community Building Trust (CBT)Refers to a community-controlled trust thatwould receive a portion of the profits from adevelopment project(s). A CBT would includecommunity residents as owners and sharehold-ers in the trust, enabling them to have a voicein the policy and operational decisions relatedto the trust and to accrue financial benefitsfrom development proceeds.

Community DevelopmentRefers to “a concerted effort by public and pri-vate actors to stimulate financial, social, andhuman capital investment in low-incomeneighborhoods.”300

Community Development Block Grant(CDBG)Refers to a federal program that began opera-tion in 1975 and is run by the federal Depart-ment of Housing and Urban Development(HUD). CDBG funding can be used for abroad range of community development activi-ties, including neighborhood revitalization,economic development, and improved commu-nity facilities and services.301


299 Department of Housing and Urban Development (HUD),Office of Community Planning and Development, The Communityand Individual Investment Corporation: A guide to a new economicpartnership between citizens, government, communities and the pri-vate sector (Office of Community Planning and Development,1996).

300 Christopher Walker and Mark Weinheimer, Community Devel-opment in the 1990s (Washington, DC: The Urban Institute, 1998),p. 16.

301 Center on Budget and Policy Priorities website athttp://www.cbpp.org.

Community Development Corporation (CDC)A CDC is a nonprofit corporation set up underSection 501(c)(3) of the Internal RevenueCode. “CDCs are formed by residents, smallbusiness owners, congregations, and otherlocal stakeholders to revitalize a low- and/ormoderate-income community. CDCs typicallyproduce affordable housing and create jobs forcommunity residents. Jobs are often createdthrough small or micro business lending orcommercial development projects. SomeCDCs also provide a variety of social servicesto their target area.”302

Community Development Credit Union(CDCU)Refers to a financial cooperative owned andoperated by lower-income persons that pro-vides affordable credit and retail financialservices to low-wealth communities.303

Community Development Financial Institution (CDFI)Refers to private sector financial intermedi-aries that aim to address the unmet financialneeds of residents and institutions in low-income/low-wealth communities. CDFIsinclude community development banks, com-munity development credit unions, nonprofitloan funds, micro-enterprise loan funds, andcommunity development venture capital funds.

Community Equity Mechanism (CEM)Refers to a PolicyLink term for an array ofstrategies that enable low-income/low-wealthresidents to gain access to opportunities andbenefits from regional economic activity.Examples of CEMs include mechanisms thatenable low-income/low-wealth residents toconnect to suburban jobs or seek communitybenefits from public subsidies of development.A resident ownership mechanism is a form ofcommunity equity mechanism.

Community Land Trust (CLT)“Community land trusts are democraticallycontrolled nonprofit organizations that own realestate in order to provide benefits to local com-munities—and in particular to make land andhousing available to residents who cannot oth-erwise afford them.”304

Community Reinvestment Act (CRA)“The Community Reinvestment Act is intend-ed to encourage depository institutions to helpmeet the credit needs of the communities inwhich they operate, including low- and moder-ate-income neighborhoods, consistent with safeand sound banking operations. Enacted byCongress in 1977 (12U.S.C. 2901), the CRArequires that each insured depository institu-tion’s record in helping meet the credit needsof its entire community be evaluated periodi-cally. That record is taken into account inconsidering an institution’s application fordeposit facilities, including mergers and acqui-sitions.”305

Cooperative (Co-op)“A cooperative is an autonomous association ofpersons united voluntarily to meet their com-mon economic, social, and cultural needs andaspirations through a jointly-owned and demo-cratically-controlled enterprise.”306

165A PolicyLink Report | Appendix C: Glossary |

302 National Congress for Community Economic Development(NCCED) website at http://www.ncced.org.

303 CDFI Coalition website at http://www.CDFI.org.

304 Institute for Community Economics (ICE), “An Introduction tothe Community Land Trust Model,” pamphlet, undated.

305 Federal Financial Institutions Examination Council (FFIEC) athttp://www.ffiec.gov/cra/history.htm.

306 “Cooperatives Are…Cooperative Business in the UnitedStates.” National Cooperative Business Association (NCBA)brochure, undated.

Customer Stock Ownership Plan (CSOP)Refers to a conceptual model whereby cus-tomers would own shares in a business theypatronize. “The goal of the CSOP is to craft acapital structure that will capture some portionof that value for those whose patronage main-tains that value.”307

Corporation for Enterprise Development(CFED)“The Corporation for Enterprise Developmentpromotes asset-building and economic oppor-tunity strategies—primarily in low-income anddistressed communities—that bring togethercommunity practice, public policy, and privatemarkets in new and effective ways.”308 CFEDhas played a major role in setting up Individ-ual Development Account (IDA) programsacross the United States in partnership withcommunity-based organizations.

Development Supported Individual Development Account (DS/IDA)Refers to a conceptual ROM model that wouldexpand the existing Individual DevelopmentAccount (IDA) concept so that IDA matchingfunds would be supplemented by proceedsfrom local real estate development projects.

Earned Income Tax Credit (EITC)The Earned Income Tax Credit (EITC) is a taxreduction and wage supplement for low- andmoderate-income working families. Enacted in1975, the EITC is administered by the federalgovernment through the income tax system andcan provide a cash refund even to familieswhose incomes are so low that they do not owetaxes.309

Economic Development Initiative (EDI)Signed into law in 1994, the Economic Devel-opment Initiative of the federal Department ofHousing and Urban Development “promotesthe use of grant funds in tandem with the Eco-nomic Development Loan Fund (Section 108).”The EDI’s central purpose is to subsidize loanguarantee funds as a way to assist localities incarrying out economic development activitiesleveraging public and private dollars.310

Employee Stock Ownership Plan (ESOP)Refers to a plan that enables employees to ownall or part of a company’s stock. Depending onhow they are organized, ESOPs provide vary-ing degrees of ownership and control on thepart of workers.

Empowerment Zone (EZ)Refers to a component of the federal Depart-ment of Housing and Urban Development’s Ini-tiative for Renewal Communities, Empower-ment Zones, and Enterprise Communities.Beginning in 1994, the Initiative seeks tofacilitate “the investment necessary for sus-tainable economic and community develop-ment” in designated urban and rural areasthrough federal grants, tax incentives, andpartnerships with government, for-profit, andnonprofit entities.311


307 Jeff Gates, The Ownership Solution (Reading, MA: AddisonWesley, 1998), p. 73.

308 http://www.cfed.org/about/summary.html.

309 Center on Budget and Policy Priorities website athttp://www.cbpp.org/11-4-00sfp.pdf and Center for CommunityChange website at http://www.communitychange.org.

310 Federal Department of Housing and Urban Development web-site at http://www.hud.gov/cpd/edi.html.

311 Federal Department of Housing and Urban Development web-site at http://www.hud.gov/offices/cpd/ezec/about/ezecinit.cfm.

Equitable DevelopmentA PolicyLink term that refers to a practicaland policy framework that aims to engage anddirect market forces to benefit low-income/low-wealth residents and communities. It includesmultifaceted strategies designed to ensureindividual and community benefit from neigh-borhood improvement; support meaningful res-ident participation in decision-making; andintegrate people-oriented services with place-oriented neighborhood and regional develop-ment.

General Stock Ownership Corporation(GSOC)Refers to a conceptual model “in which owner-ship [in a corporation] is based on geographyor citizenship.”312 While there are no existingexamples of a GSOC, “the GSOC’s unusualblend of individual ownership and community-wide participation makes it easily adaptable tosituations in which people wish to have ashared stake in the development of commonresources.”313

Individual Development Account (IDA)An IDA is an incentive-based savings accountfor low-income people designated for the pur-poses of home purchase, education, and busi-ness development.314

Institute for Community Economics (ICE)“ICE, founded in 1967, is a national organiza-tion that promotes the just allocation ofresources in communities in ways that addressthe needs of low-income families. Throughtechnical assistance, financial support, andadvocacy, ICE builds the capacity of a nationalnetwork of community land trusts (CLTs) andother locally controlled organizations for per-manently affordable housing and communityeconomic development.”315

Limited Equity Housing Co-op (LEHC)Refers to shared ownership of a building by itsresidents where affordable membership pricesfor resident-owners can be maintained by con-trolling the maximum price at which member-ships can be resold.316

National Congress for Community EconomicDevelopment (NCCED)“The National Congress for Community Eco-nomic Development (NCCED) is the tradeassociation and advocate for the community-based development industry. Founded in1970, NCCED represents over 3,600 commu-nity development corporations (CDCs) acrossAmerica.”317

National Cooperative Business Association(NCBA)Founded in 1916, the National CooperativeBusiness Association (NCBA) is a nationalcross-industry membership and trade associa-tion representing cooperatives—over 100 mil-lion Americans and 47,000 businesses rangingin size from small buying clubs to businessesincluded in the Fortune 500.318

167A PolicyLink Report | Appendix C: Glossary |

312 Gates, p. 76.

313 Ibid., p. 77.

314 Corporation for Enterprise Development (CFED) website athttp://www.cfed.org.

315 ICE website at http://www.iceclt.org/about.html.

316 Herb Cooper-Levy, “Limited Equity Housing Co-ops,” manu-script, undated, p. 1.

317 NCCED website at http://www.ncced.org/aboutncced/.

318 NCBA website at http://ncba.org/intro.cfm.

Real Estate Investment Trust (REIT)Refers to a corporation or business trust thatowns a portfolio of income-producing proper-ties.

Resident Ownership Mechanism (ROM)Refers to a PolicyLink term for strategies andtools to enable low-income/low-wealth resi-dents to gain an ownership stake in the revital-ization of their communities.

Resident Stock Ownership Plan (RSOP)Refers to a conceptual strategy whereby resi-dents would hold shares in businesses thatserve the community but are owned and oper-ated outside of the community.

Social CapitalRefers to “norms, shared understandings, trust,and other factors that make relationships feasi-ble and productive.”319 Measures of socialcapital within a community development con-text include “(1) individual capacities (e.g.,neighborhood leadership, individual’s techni-cal and organizational skills); (2) internalneighborhood organizational capacity (e.g., thecapacity of newly organized CDCs to under-take real estate development projects); and (3)network or ‘linkage’ capacity.”320

Temporary Assistance for Needy Families(TANF)Congress created Temporary Assistance forNeedy Families (TANF) as a replacement forthe Aid to Families with Dependent Children(AFDC) program which it ended in 1996 aspart of the welfare reform package. TANF pro-vides capped funding to states in the form of ablock grant. “Each states determines whichfamilies will be served, the type and level ofassistance they will receive, the requirementsfamilies must meet to be eligible for aid, andthe length of time families may receive assis-tance.”321

Value Recapture“Value recapture is any activity that redirectsmarket-generated funds in a revitalizing com-munity for the benefit of existing communityresidents.”322

Value Recapture Mechanism (VRM)Refers to specific tools and strategies thatchannel market-generated funds into “activi-ties that benefit residents, either individuallyor collectively.”323

Value Recapture Trust (VRT)“A value recapture trust is a real estate-basedapproach that identifies and secures strategicproperties throughout the neighborhood andplaces these properties or the revenue generat-ed from them into some form of trust, revenuesfrom which are used for the benefit of the com-munity.”324

Worker CooperativeRefers to a 100 percent employee-owned com-pany that is democratically organized on thebasis of one-member, one-vote.


319 Ronald Ferguson and William T. Dickens, eds., Urban Prob-lems and Community Development (Washington DC: BrookingsInstitution Press, 1999), p. 5.

320 Ross J. Gittell and Avis Vidal, Community Organizing: Build-ing Social Capital as a Development Strategy (Thousand Oaks,CA: Sage Publications, 1998), p. 25.

321 Brookings Institution website at http://www.brook.edu/wrb/publications/pb/pb01/pb01.htm.

322 Fannie Mae Foundation, Value Recapture Mechanisms (AnnualHousing Conference binder, 2000), p. 3. Used with permission.

323 Ibid., p. 3.

324 Ibid., p. 12.

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