Fresh Resources in Wake of U.S. Cuts : Loan Pool for Poor Areas Created
Two prominent foundations and four of the nation’s biggest insurance companies are to announce in New York today that they will invest in a newly created national marketplace for loans to impoverished communities.
The new development tool--in a time of deep federal cutbacks to poor neighborhoods--will give mayors, community groups, corporations and foundations important fresh resources to attack problems of poverty.
Formation of the Local Initiatives Managed Assets Corp.--a national market for loans to blighted areas--will be announced at a news conference in Manhattan. Business leaders, community organizers, foundation executives and the mayors of Boston, Philadelphia and Chicago are scheduled to attend.
The initial investors in LIMAC are Cigna Corp., the Prudential Insurance Co. of America, Aetna, the Metropolitan Life Insurance Co. and the Ford and MacArthur foundations.
Loans to Be Purchased
LIMAC will serve as a loan pool. It will purchase loans for housing and development made to community-based organizations across the country. Thus, lenders to local groups will have new money to reinvest, increasing their resources. Fresh funds will flow more quickly into economically depressed areas. Some urban experts believe that the new mechanism could serve as a model for a new generation of social investment.
LIMAC will start with initial capitalization of $9 million provided by its sponsors. But it is anticipated that the money made available to communities will be far greater than the initial amount.
“It is similar to the private real estate market. When you get a mortgage from a bank, the bank often sells it to the national secondary market,” said Paul S. Grogan, president of the Local Initiatives Support Corp., LIMAC’s sponsoring organization. “We are bringing a practice common to home mortgages to the high-risk and non-standardized area of loans to community development corporations.
‘Concrete Step’
” . . . I think this is the beginning of a privately sponsored urban development bank,” Grogan said in an interview with The Times. “The notion of an urban development bank or a national social investment bank has been talked about for a long time. This is a concrete step in that direction.
“We’ll try to emulate the way capital markets operate in the U.S. to invest in these high-risk, blighted areas.”
The creation of LIMAC will give corporations and foundations low-risk participation in a pool of loans to high-risk areas. Thus, instead of lending directly to individual projects that could encounter financial troubles, LIMAC will offer a way to make social investments without serious monetary dangers. Investors in the loan pool will receive 7.5% interest on the loans they buy.
Over two decades, the technology to help poor areas has grown dramatically as community groups and their support systems have become more sophisticated.
$9.35 Million Donated
In 1980, the Local Initiatives Support Corp. was established with $9.35 million in donations from the Ford Foundation and six private companies. Its objectives were to raise corporate and foundation funds and to supply technical and financial expertise to locally run community development projects across the country.
The corporation’s record of success has been dramatic. More than 375 businesses and foundations have contributed more than $100 million through LISC to rebuild neighborhoods in such places as the South Bronx, Cleveland’s Hough section, the Liberty City area of Miami, Chicago’s West Garfield Park section, Washington’s H-Street corridor, sections of Boston, Pittsburgh’s North Side and in other cities. The results have been new affordable housing, rejuvenated commercial areas and fresh job opportunities.
In Chicago, with LISC’s backing, 13 corporations invested $6.4 million to start the Chicago Equity Fund, whose goal is to create more than 500 new units of affordable housing each year. The Boston Housing Partnership, which was created with LISC’s help, has sponsored rehabilitation of 735 units of affordable rental housing.
Programs in California
In California, LISC sponsors programs across the state. Seventy-nine LISC loans and grants totaling almost $8 million have aided 41 community organizations in 24 cities and towns. Those funds have generated more than $30 million in additional investments from public and private sources. LISC has aided the Los Angeles Community Design Center, a nonprofit organization that helps to package real estate development projects for other nonprofit groups. LISC has worked with the Skid Row Development Corp. to acquire and renovate a 66,000-square-foot industrial building.
In LISC’s six years of existence, it has made $43 million in grants and low-interest loans to community development corporations, and that money has attracted more than $360 million from public, private and foundation sources--an eightfold leveraging factor. LISC has a 1% rate of losses on its loans.
The Ford Foundation will announce $7.1 million in additional funds Wednesday to support LISC’s work. The foundation also will commit $1.65 million to LIMAC for capital and a partial guarantee for any losses to the loan fund.
