Boston's $1 million seed sprouts $3 million in urban aid

Boston, to some, is a city of posh office towers, a $1 billion annual construction boom, and a thriving economy. To others, it is a wasteland of urban blight, boarded-up storefronts, and struggling shops.

But if proponents of a unique program have their way, this perennial gap between the crisp, new downtown skyline and the desolate fringe of aging neighborhoods may be closing.

The program: the Neighborhood Commercial Development Bank, which trains the resources of four major banks, the city government, and federal funds on the decaying spokes around the city's central hub.

The goal: stabilize and improve the local economy by helping the small grocers, haberdashers, and restaurateurs remain in business -- and by brightening up the look of the neighborhoods as well.

The attraction: loans for facade improvements (at the almost forgotten rate of 6 percent) and for purchase and rehabilitation of property (at two-thirds of the prime rate) for merchants in nine hard-hit business districts.

The design of the plan, say city and bank officials, is unlike others around the nation. They agree that there are plenty of loan programs where the risk is shared by a city, the US Small Business Administration, and local banks.

This one, however, uses a $1 million federal block grant, funneled through the city, to reduce the interest rate on private loans by the banks.

The result: $1 million will "leverage" another $2 million from the banks, producing a program totaling $3 million.

But according to the city's neighborhood development coordinator, John Weis, "It's not just a $3 million loan program." It brings together the public and private sector, he says, in a way that allows the city to accomplish its social goals while giving the private market a larger role.

That role includes the actual making of the loan. In other programs, the government is a loanmaking agency. That, says Mr. Weis, is "an absurdity -- they don't make loans well."

Here, for each $3 lent by one of the banks, he says, the city will deposit $1 in an interest-free account in that bank -- for what he describes as a "subsidy deposit" that brings down the interest rate. The city, pre-screening the applicants, achieves its goal of neighborhood improvement by directing the flow of the money. The banks make the loan -- and take the risk.

But how do the banks benefit?

Robert Stearns of the flagship First National Bank (participants in the program along with the Shawmut Bank, the NEw England Merchants Bank, and the State Street Bank) notes that "we end up making loans at what would generally be somewhat below the market rate," giving up income in the short run. In the long run, however, he says it should "build the marketplace."

It also helps the banks (sometimes accused of lofty isolation in their downtown towers) toward their goal of more active participation in the community. "This program would not have happened 10 years ago," says Weis, who notes that government cuts have compelled innovative relationships between the public and private sectors.

Another spur was the realization that the city has poured money into housing, infrastructure, and services of the city's diverse business districts -- without fostering the businesses themselves.

Inquiries about the program have been numerous -- although in at least one area, the run-down Fields Corner in Dorchester, the merchants remain skeptical.

"The interest [rate] is still high," says Arthur Kaplan, standing behind the counter of his delicatessen across from the broken windows and boarded-up storefronts of the once- elegant Liggett Building. He says he would have to quadruple his business to make up the cost of even a low-interest loan.

Other merchants agree, expressing doubts that the program will generate enough new business to make the loans affordable. Some see it simply as a beautification program. Others worry that the benefits will flow to developers outside the city.

But city officials point out that Fields Corner, in particular, is the beneficiary of a new $600,000 sidewalk lighting and landscaping project, and that two city-owned buildings (including the Liggett Building) are receiving some $1.5 million in renovation. They also point to a new parking lot coming next summer, and note that a movie theater (taken by the city as a tax foreclosure) recently was sold at auction for the surprisingly high sum of $250, 000.