From White House to a Dream House, a Flow of Funds to Lift Communities

Crack and guns and teenage pregnancies haven’t been conquered, but the news from the cities isn’t all bad. Joel Garcia and his family testify to that.

Until last spring, Garcia, his wife, Marta, their two teenage daughters and their baby girl all squeezed into a timeworn two-bedroom apartment in East Boston, a neighborhood just north of Logan Airport. Now the Garcias can spread out: They own their home on East Boston’s Prince Street.

Garcia, who emigrated from Mexico 10 years ago, works nights as a waiter in a Boston hotel; his wife works days as a health aide in a senior citizens’ center. He still seems amazed to find himself in this bright and airy row house with three bedrooms, an elegant bay window, hardwood floors, a spacious kitchen and a porch in the back that overlooks a small yard.

“I feel like rich people,” Garcia said brightly one cloudy morning last week. “The [older] girls, right now, they have their own rooms, and we live here much better, because before they were sharing.”

The Garcias’ good fortune is also good news for Prince Street. The house where they now live had been a dilapidated eyesore that dragged down the entire block. Then the building was bought and renovated by NOAH, a nonprofit community development corporation working to stabilize this weathered working-class community where young Latina mothers buy ices on the street from old Italian men, and Taqueria Cancun serves up lunch just down the block from Frankie’s Cleaners.

Sitting in his new home, Joel Garcia doesn’t think of himself as a pioneer, but he is on the front lines of a transformation in urban policy--one the Clinton administration is about to offer a substantial boost.

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NOAH (Neighborhood for Affordable Housing) renovated the Garcias’ home with money from the Boston Community Loan Fund, a nonprofit lending group that extends money to community groups working in some of Boston’s most distressed neighborhoods. The fund was founded in 1985 by a small group of activists who had been pressuring banks to lend more in poor neighborhoods; it opened its doors with assets of $3,500.

But DeWitt Jones, a 39-year-old Cape Cod native who has directed the fund since its founding, has steered the group toward steady growth. The fund has attracted investments from hundreds of individuals, churches, foundations and banks; with the money it has provided 122 loans across Boston to community development groups building affordable housing in low-income neighborhoods and to small neighborhood organizations operating such services as day-care centers and shelters for homeless families.

Today the fund has $7 million in assets and provides a lifeline to neighborhood groups that banks consider too risky. Yet the loan fund’s default rate is just .5%--comparable to any well-managed bank--largely because its borrowers tend to view themselves not as creditors but as collaborators in its effort. “You die to try to pay this loan back so this organization can continue,” said Ann Beckert, the program administrator for a shelter that turned to the loan fund after no bank would finance their plan to build a longer-term home for battered women.

The Boston loan fund is one of dozens of small, entrepreneurial community development financial institutions--banks, credit unions and loan funds--that have sprouted in some of America’s most barren neighborhoods in the past decade. On Wednesday, President Clinton will give them a measurable hand-up: Administration sources say he is planning to announce about $35 million in federal grants and loans for community lending groups working in distressed neighborhoods. The Boston loan fund is expected to be among the 30 recipients--all of which must match the federal money dollar for dollar with local investments.

Together with community development corporations like NOAH, these local lending operations and the foundations and banks that support them are quietly building what amounts to “a veritable revolution in urban policy,” said Richard P. Nathan, the director of the Rockefeller Institute of Government at the State University of New York.

The men and women running NOAH and the Boston loan fund, and their analogues around the country, are infused with that quintessentially American combination of idealism and pragmatism: They are creative, clear-eyed and tenacious--committed to rebuilding blocks house-by-house and neighborhoods block-by-block. Rather than demanding large social programs, these groups pursue a vision of urban renewal grounded in bottom-up revitalization, neighborhood control and partnership with the private sector. They see Washington as neither an enemy nor a deliverer but as one of many assets to be mobilized.

“We don’t want direction from Washington,” said Elyse D. Cherry, a real estate lawyer who serves as president of the Boston loan fund’s board. “We absolutely believe it has to be community-directed. We need Washington to support the effort. But then they need to get out of the way and let us build.”

From equal parts necessity and inclination, Clinton’s urban policy has paralleled this grass-roots revolution. With the funds available for direct federal investment in cities declining, the administration has focused its energy on increasing the flow of private investment and lending into low- and moderate-income neighborhoods.

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One tool has been Clinton’s empowerment zone program, which provides substantial tax incentives for entrepreneurs to relocate in inner-city areas. Even more important, bank regulators and the Justice Department have put sharp new teeth into both the fair-lending laws and the Community Reinvestment Act, which requires banks to serve the communities where they are located.

These efforts have produced head-turning results. Today the Treasury Department is expected to release figures showing that the number of mortgages granted to African American borrowers increased nearly 70% from 1993 through 1995, while lending increased nearly 48% to Latinos and just under 26% in low-income neighborhoods. Those are numbers worth remembering the next time a politician declares the futility of federal efforts to help poor communities.

The assistance for community-development financial institutions that will be announced later this week opens another channel for irrigating low-income neighborhoods with new investment.

This channel won’t be as large as Clinton proposed while a candidate in 1992. Budget pressures forced him to scale back the program--known formally as the Community Development Financial Institutions fund (CDFI)--when Congress finally approved it in 1994. And, after initially attempting to kill the fund, the Republican Congress last year forced the president to reduce it again.

But in the hands of these civic entrepreneurs, even the modest $35 million in new federal aid (plus $15 million in grants to encourage commercial banks to invest in the community lenders) can leverage many times its weight in new activity. At the Boston Community Loan Fund, Jones says the half-million-dollar capital infusion they have requested from the federal government will ultimately support $10 million in new lending. Eventually that will mean more families like the Garcias will own homes they never imagined within their grasp.

And that will mean stronger neighborhoods. It is common now in Republican circles to contend that the key to reviving low-income communities is social capital--voluntary, civic and church associations that not only provide services but fortify moral order. Yet in the neighborhoods where Jones makes his loans, it is clear that social capital cannot be built without investment capital.

Capital investment creates ownership, and ownership in turn inspires social investment. Homeowners and small-business owners are the prime candidates to enlist in the little platoons that make neighborhoods work: crime watches and PTAs and cleanup details. Like trees on a hillside, local ownership offers a source of stability for neighborhoods battling through heavy weather.

Neither private investment nor civic engagement is a panacea for poor neighborhoods confronting family breakdown, crime and the flight of jobs. But Clinton’s initiative to strengthen the community lending institutions working to reclaim these streets represents the best kind of federal support: money that sets in motion activities whose ultimate success still depends on marshaling local resources and commitment.

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“Federal programs change a lot,” said Kirsten S. Moy, a former investment executive who directs the CDFI program in the Treasury Department. “We are trying to build institutions that will be out there in the community long after there is a CDFI fund or not.”

The Washington Outlook column appears here every other Monday.