Mark Ridley-Thomas: Bank CDCs Offer New Hope for Urban Vitality

The creation of a Bank CDC could be one of the most important public-private ventures in the history of Los Angeles. This is not an exaggeration: throughout the nation, Bank CDCs have proven successful as sound business for banks and tools of revitalization for communities.

For the participating banks, Bank CDCs, when designed carefully can produce good returns on equity investment, increase lending business, address federal reinvestment requirements, and improve community relations. On the public benefit side, the mandate that Bank CDCs be tar­geted to low- and moderate-income areas or small businesses helps revitalize communities. These mutual interests and benefits can make this model work far better than public-private partnerships of the past.

Creating a Bank CDC

During March, the LACRC and the Federal Reserve Bank of San Francisco held a successful conference exploring the creation of a Bank CDC in Los Angeles. Members of the LACRC will now identify a niche for a Bank CDC and determine its focus.

As the city begins to consider the merits of Bank CDCs, I hope it will incorporate the following features:

1)    Targeting Bank CDC efforts to South Central Los Angeles

Almost all of the public testimony leading up to the formation of the LACRC Committee focused on the problems of South Central Los Angeles. The City Council’s intent in establishing the LACRC group was very clear — the initial focus of any pilot project should be in the South Central community.

In addition to fulfilling the Council’s intent, this geographical focus would fit the general federal regulatory requirement of having Bank CDCs focus on community needs.

Because the city is placing business development resources into this area, a Bank CDC would supplement other efforts and would not be going it alone. Equity and debt financing is important for growing companies which want to capitalize on the low rents and land costs available in South Central.

2)    Addressing Housing Rehabilitation

The Richmond Community Development Corporation is noted for its impressive accomplishments in attacking a Richmond, Virginia problem that is also a Los Angeles problem — the blight of abandoned and dilapidated single-family homes that drag down the quality of community life.

Though equity financing for businesses is important, Bank CDC work in the rehabilitation and resale of residential property is equally important.

According to Building and Safety Department staff, there are 1,041 vacant and vandalized properties in the city. These are eyesores in the community and invite crime in the middle of family neighborhoods. The approach of buying a house, rehabilitating it, and selling it to a new homeowner provides a deep level of involvement which is important in making the project a success. Housing problems in the City of Los Angeles are serious and a Bank CDC effort would be welcome to attack the housing crisis.

3)    Economic Development

In addition to our housing needs, the City also has a severe need for business development and the jobs that it creates. If we face the choice of one or the other in creating a Bank CDC, I believe that an economic development CDC is the most appropriate for now.

Economic development is one of the critical issues facing communities like South Central Los Angeles. The area is lagging behind other parts of the city because many banks and businesses have pulled out. In an area targeted by the LACRC, there are only 19 banks and savings and loans compared to 133 check cashing establishments.

The LACRC heard testimony from many small minority-and women-owned businesses indicating that it was difficult to obtain loans to start or expand businesses. A Bank CDC for economic development would be ideal since banks could pool resources to provide loans which would be less risky than those delivered by an individual bank. This lending will contribute substantially to the economic revitalization of communities such as South Central Los Angeles.

4)    Location

While a centralized downtown site may have some appeal, I would hope that a Bank CDC would be located within the target area. The prevailing feeling in many communities is that banks do not have a physical presence in their neighborhoods: that by itself says the most about their commitment to serve. A Bank CDC located right in South Cen­tral Los Angeles could help reverse that perception. The Financial Resource Center — another of the LACRC’s 12 proposed programs — could be located in South Central together with the Bank CDC.

The Role of the City

City government can play an important role in the creation of a Bank CDC. Development projects being financed by the Bank CDC could get special expediting through the city permit process. The city has a formalized method of expediting projects which have important public benefits such as producing jobs. We also have city funds available for economic development and housing which might be useful as supplemental funding for a Bank CDC.

In some states, special legislation was enacted to facilitate the establishment of Bank CDCs. I am also willing to work regularly with the State Legislature and the California League of Cities in pushing through any needed state laws.

Bank Disclosure Ordinance

Aside from the Bank CDC issue, the City Council has recently been pursuing other legislation on banks and community reinvestment. In November 1991 I introduced a proposal to establish a new linked banking policy for the City of Los Angeles. The purpose is to use a bank’s performance in addressing credit and service needs in all areas of the city as a factor in determining where to place city banking services.

An ordinance to implement this program was passed by the City Council during March. The three key provisions of the ordinance are:

• Banking institutions seeking city business must disclose housing, consumer, and business lending activity by census tract through an annual filing fee with the City Treasurer.
• On an annual basis, the City Treasurer will evaluate the information submitted by the banks and then rank banks according to their performance in meeting credit and service needs throughout the City of Los Angeles. The rankings and the evaluation will be made available to the public.
• The City Treasurer will be required to consider the evaluation and rankings as a factor in the choice of banking institutions with whom the city conducts banking transactions. Adherence to sound fiscal practices and applicable law will still remain as overriding requirements.

This proposal is designed to encourage bank services to all communities by rewarding institutions which present strong evidence of serving community needs everywhere.

Since the city has an investment portfolio of about $2.6 billion, we have strong leverage. I will be working with the City Treasurer’s office to assure that the system of collecting information and evaluation is fair, streamlined, and avoids unnecessary paperwork.

Conclusions

Now that Los Angeles has a linked banking policy, the city’s banking business has moved into line with our goals of serving community needs throughout the city.

The logical next step would be the creation of a focused, innovative Bank CDC, a tool that can provide a “win-win” solution for banks and for Los Angeles communities.

Mark Ridley-Thomas is the Los Angeles City Councilman for the Eighth District.