`Social bank' boosts local development

WHETHER the task is restoration of a row of brownstones in Boston or new housing for farmworkers in Salinas, Calif., adequate funds and financial know-how are the crucial ingredients. Without them, the best-motivated plans can founder. Those key ingredients are what the private, non-profit Local Initiatives Support Corporation (LISC), headquartered in New York City, is designed to supply. And supply them it has -- to the tune of some $100 million, invested in 700 projects in 30 US cities over the past five years.

To a degree, LISC has stepped in where the federal government has exited, helping neighborhoods and communities address such problems as deteriorating housing and flagging industry. ``We're in a period when institutions like LISC . . . have a uniquely large role to play, because of the federal withdrawal,'' says Paul Grogan, the organization's president.

In essence, LISC acts as a broker. It brings together neighborhood groups (usually referred to as community development corporations, or CDCs), local financial institutions, local government agencies, and its own fund of investment dollars contributed by some 350 foundations and corporations. LISC lends money to the neighborhood groups spearheading a development, as well as matching the money put up by private donors, often local charitable foundations.

Mr. Grogan's staff of 20 ``program officers'' travels to various areas where strong neighborhood development groups want to rehabilitate housing, build new apartments, or foster more local industry. These staffers, who bring financial and planning backgrounds to their jobs, work with neighborhood people to guide and coordinate the multitude of arrangements needed to launch such a project.

But at five years of age, with a thick file of successes at hand, LISC faces a challenge. Can it accelerate its work? Can it ``bring to the table more resources for this activity?'' asks Grogan.

So far, he says, the organization's work has been ``very much an experiment.'' A lot has been done, he says, ``but the breakthroughs are going to occur in whether we succeed in scaling up the level of activity around the country.'' He calls this the ``demonstration phase.'' The more successes LISC chalks up -- financially sound low-cost housing, for example -- the easier it will become to persuade people and institutions that this kind of approach to community revitalization works, he says.

Avis Vidal, a professor of city and regional planning, heads a panel of scholars from Harvard's Kennedy School of Government that is doing an assessment of LISC. She sees ``lots of energy coming to LISC'' because of ``the vacuum'' left by federal cutbacks. She quickly adds, however, that the ``volume of resources'' this private agency can bring to community renewal is ``nowhere near comparable to cuts in the federal budget.'' Still, through LISC, ``people see the possibility of establishing a very different model of how development and redevelopment might get done in low-income communities,'' she says.

Concerning the need to expand LISC's activities, Dr. Vidal observes that the agency has reached the point where ``it can't continue to go around to the same donors over and over.'' Foundations, in particular, are going to want to move on to other things. LISC must develop ways of bringing in new money, she says.

Grogan has sketched out one response to this need: the creation of a secondary market for the type of low-interest development loans the organization makes. Under this proposal, LISC would spawn a subsidiary agency to market its loans to corporate investors -- insurance companies, for example -- who are looking for ways of aiding community development without incurring the financial risks of direct start-up loans.

Since LISC would be offering only its mature loans, those tied to projects that are already up and running, the risk to investors is minimized. Companies willing to participate wouldn't be in it for the money -- since LISC loans are at below-market interest rates -- but for the ``social investment aspect,'' says Grogan. He's confident that many corporations will be drawn by the aura of civic responsibility that such investment bestows.

Money from the loan sales, of course, would become added capital for further community development efforts. A move into this kind of financial dealing would develop LISC along the lines of private capital markets, where ``the selling of paper to bring more money to the table'' is an everyday occurence, notes Grogan. Dr. Vidal views it as ``one way to maintain and expand LISC's volume of activity.''

It's possible to view LISC, she adds, as a ``social bank'' with many ``windows'' offering ``different kinds of money.'' The secondary loan market would be a new window, as would direct grants to help neighborhood development groups simply get off the ground.

At present the agency works primarily with local groups that have already shown some staying power. This is part of the ``conservatively run portfolio'' which Grogan says is central to LISC's ability to attract contributors. He notes that critics sometimes refer to the organization as ``no-risk LISC,'' particularly when it comes to proposals to stimulate the development of small businesses in depressed areas. The odds against success in that kind of endeavor are substantial, says Grogan, while housing projects have good track records.

Vidal points out one irony in LISC's short history: its lack of even ``a tiny bit'' of financial support from the Reagan administration.

``In many ways this administration kind of missed the boat,'' she says, since LISC embodies a number of values ``completely consistent'' with administration philosophy: relatively low costs, an emphasis on self-help, local control, and strong involvement by the private sector.

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