Community Development Bank Takes Important Step
Directors of the emerging Los Angeles Community Development Bank, under pressure to open the doors of the massive jobs-stimulating institution, on Tuesday will announce the hiring of a veteran community and economic development leader as the bank’s first chief executive.
The selection of C. Robert Kemp as chief executive officer comes nearly 1 1/2 years after Los Angeles officials and the Clinton administration set out to boost the economies of the city’s poorest neighborhoods.
“Kemp has very solid credentials and is an excellent choice for the first CEO of the country’s largest and most extensive community development banking endeavor,” said attorney Gilbert T. Ray, chairman of the new bank’s 14-member board of directors.
Leaders of the efforts to get the bank off the ground had wanted to include its main location and its first loan or two in Tuesday’s announcement. But they acknowledged late last week that those will have to wait. The agreement to lease a South-Central headquarters building still is being finalized, and the first loan announcements are probably “a few weeks” away yet, according to board spokesman Robert Alaniz.
Kemp’s selection, however, is a key development, enabling the bank to hire staff and take other steps toward opening its doors, Alaniz said.
The community leaders tapped by city and county officials to bring the lending institution into existence have been charged with putting together a mechanism unique in its scope and complexity. Born in controversy, the bank’s formation, and the time it has taken, have been watched across the region’s political spectrum with a strong mixture of hope and skepticism.
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“This is a unique project,” Ray said recently in outlining some of the formation’s key steps. They included buffering the bank from political influence while providing public accountability, choosing a broadly representative board, and designing lending and other financial aid programs that would stimulate jobs in the neediest areas while protecting the investment of millions in taxpayer dollars.
“The goal is create good jobs and have a sustainable, long-term impact” in neighborhoods where poverty has had a long, seemingly intractable hold, Ray said. “I think it can be done, but it will take time.”
The bank can make direct loans, pick up part of the interest costs, pay for land or improvements, and make equity investments in promising enterprises. It also can help community groups provide such services as housing and child care in the designated areas. Funds must go to enterprises that want to open or expand in neighborhoods where at least one-fifth of residents meet federal poverty standards, and a majority of the jobs created must go to residents of those areas.
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Three sponsoring government agencies--the city, the county and the U.S. Department of Housing and Urban Development--have a stake in the project. The Clinton administration, hoping the project will be a high-profile proving ground for its favorite anti-poverty approach, has kicked in $430 million: $115 million in grants and $315 million in HUD loan guarantees. (Future federal social services grants to the city and county would be used to repay Washington if the bank fails, upping the pressure on its officials to ensure it does not.)
Private, commercial institutions, which will be co-lenders with the community development bank when it rolls out the first phase of what is to be a broad range of financial assistance programs, have agreed to lend up to $210 million initially, bringing the bank’s total start-up pool to $640 million.
The new institution will work with community economic development organizations and other groups and private lenders to provide low-interest loans, technical assistance, venture capital and other programs. It will not offer such traditional banking services as checking or savings accounts or car or personal loans. All its activities will be centered on bringing jobs to troubled pockets of Los Angeles, from Pacoima through Watts, almost 20 square miles altogether.
Bitterness and controversy spawned the bank in December 1994, when Los Angeles was passed over in the big-city competition for lucrative packages of grants and tax credits in the federal “empowerment zone” program. The program grew from the federal response to the 1992 Los Angeles riots, and the city’s failure to win a zone designation touched off finger-pointing and recriminations between Mayor Richard Riordan’s office and council members representing communities in the zone.
Riordan was so upset that he refused to join President Clinton’s celebratory conference call announcement with mayors whose cities had won the designation or had received other aid commitments widely regarded as “consolation prizes.”
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The Clinton administration encouraged the city and the county, which had a small part of the areas included in the unsuccessful empowerment zone application, to set up a lending institution for those communities. Instead of a 10-year program of $100 million in social services grants and $250 million in tax incentives for businesses to locate or expand in zone areas, the two local governments could get $115 million in economic development grants and considerably more in loan credits.
“They were unsuccessful [in efforts to get] $350 million over 10 years, and now they’re getting $450 million in year one,” Andrew Cuomo, HUD assistant secretary for community planning and development, said in a recent interview. “If that’s losing, I’d like to lose like that once in a while.”
Amid still-smoldering resentments over the loss of the first grant, the city embarked on the community development bank project, which it had expected to be set up by the summer of 1995. As the months passed and other cities got their projects underway, concerns about Los Angeles’ bank efforts began surfacing.
“Get Bank’s Doors Open,” urged the headline of a Los Angeles Business Journal editorial in February. The editorial took aim at Riordan, whose administration had spearheaded the drive for the bank, including lining up the pro bono organizational services of several legal and business experts.
“While we agree that selecting the most qualified, competent people to operate and manage this vital institution is crucial, we also believe those federal dollars should already be flowing into our community,” the editorial said, urging the mayor to devote more of his energies to getting the bank’s doors open and less to trying to lure a professional football franchise.
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Rumors began circulating through City Hall that HUD was balking at granting the bank the scores of rule waivers needed to give the bank needed flexibility and efficiency. HUD officials insisted the waivers were in place and reflected in the thick legal document setting up the bank’s organization and defining its relationships with the agencies that created it.
Cuomo said HUD was eager from the start to give Los Angeles the latitude it needed but had to be sure that federal taxpayers’ money would be protected, especially given the unusually large sum that the bank would have access to from the start.
“The trick was in designing regulations to satisfy all three needs--jobs for these communities, flexibility for the bank and protection for the taxpayer,” Cuomo said, adding that he believes all the concerns have been satisfied.
None of this is lost on Ray, who with the rest of the board has had to balance the pressure to open against taking the time needed to do it well.
“The bank will be evaluated over the long term. It is critical that it be organized right,” Ray said.
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In the meantime, bank leaders have been holding community meetings in the areas it will serve, seeking co-lenders and searching for a director and headquarters.
The announcement of the CEO selection may help assuage concerns about progress toward opening the bank.
Kemp headed the Opportunity Funding Corp. in Los Angeles and Washington for 17 years. The organization helps generate investment capital and loans for projects in low-income and minority communities. He also served on the Virginia Housing Development Authority, a public mortgage finance agency. In the late 1970s, he was a special assistant in the Commerce Department and was executive director of the Interagency Council for Minority Business Enterprise.
In addition, Kemp for a time headed the local Economic Resources Corp., which led development of the Watts Industrial Park and the Watts Shopping Center, the first major commercial development undertakings after the 1965 Watts riots. He holds a master’s degree in business administration from UCLA.
