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CDC Fiscal Health - where are we, where are we going?

March 1st, 2010 by Joe Kriesberg

Last Friday, at an event hosted by the Boston Foundation, the Community Development Innovation Forum released a new study by the Non Profit Finance Fund that looked at the fiscal health of the CDC sector.

Bill Pinakiewicz from NFF, highlighted the key findings of the study, including:

* Taken as a group, the twenty-six organizations represented in the study have become financially more vulnerable from 2003 thru 2008.  That means that the financial challenges facing community development corporations predate the 2008 recession.

* Unlike private real estate companies, CDC financial performance was not demonstrably better during the hot real estate market in the middle of the decade due to program limits on rents and profits, leaving little cushion when the market collapsed in 2008.

* The study did not find a significant difference among small, medium and large CDCs in terms of recent financial performance.

* CDCs were impacted by multiple factors – homeownership projects that came on line as the market collapsed, rental developments that were stalled or yielded inadequate fees, existing portfolios that generate little to no net cash flow to the CDC, cuts in government, foundation and corporate funding, and rising costs. The study period also covers the first five years following the elimination of the state’s CEED program, which had provided flexible funding to CDCs for more than 20 years.

* While all of the participating CDCs provided audits that fully comply with GAAP there is clearly a wide variation in financial reporting practices across the field that make it difficult to aggregate and compare data among CDCs.

We then heard from a panel including Geeta Pradham from the Boston Foundation, Jeanne Pinado from Madison Park DC, Phil Giffee from NOAH and Paul Juraschek the CFO at JPNDC.  The panelists pointed out that not all CDCs are struggling financially and that the true financial health of a CDC can sometimes be hard to discern from consolidated financial statements that include real estate properties and the core organization. The panelists described some of the tough decisions that CDCs have had to make to deal with the financial stress, including shutting down programs and laying off staff. They also noted that small changes in the real estate finance system with respect to developer fees, cash flow distribution and other rules could significantly improve CDC fiscal health and stability. There was also broad agreement that more consistency in financial reporting and more opportunities for CFOs and Executive Directors to learn from each other would be valuable.

MACDC, LISC and other partners in the Innovation Forum intend to follow up the study by renewing our efforts to improve the real estate finance system, to begin implementing Strength Matters in Massachusetts, to expand peer learning opportunities among CDCs, to support collaborations, mergers, and other ways to improve operating efficiency, and to continue researching trends to determine whether we are making progress in the coming years.

The structural flaws in the way that real estate is financed make it difficult for mission driven organizations to succeed, and this report underscores that point. Real estate development is a high risk economic activity and the affordable housing financing system makes it difficult for that risk to be adequately rewarded for mission driven organizations while not shielding them from the negative consequences of failure. It is also clear that the way all non profits are financed creates inherent challenges, including government contracts with little overhead, private philanthropy that is highly restricted and a lack of unrestricted operating funds that allow nonprofits to invest in organizational infrastructure, capacity building, research and development, and innovation. 

To me, a core problem is that too many funders are looking to simply buy services from nonprofit organizations at the lowest possible price and too many nonprofits play into this game at their own financial peril. Instead, we need more funders to think not just about the immediate program or project, but how their investment in that program or project will help the organization achieve lasting, sustainable community impact over the long term.

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Making Connections – In Israel

February 18th, 2010 by Joe Kriesberg
Joe with activists in Yaffo

Last month I had the opportunity to travel to Israel as part of the Jewish Community Relations Council’s Learning Exchange Program. The program was for non profit leaders in Boston and included a tour of Israel and then a three day seminar with nonprofit leaders from Boston’s sister city of Haifa. The program gave us an opportunity to learn about Israel, with a particular focus on how non-profit social justice and community service organizations are working to build a stronger civil society in that country. Our peers in Haifa will be visiting us in Boston in May as part of the program.

The trip was fascinating and eye opening as we had the opportunity to meet with a diverse group of people, including Palestinians activists in East Jerusalem, Government officials from the Foreign Ministry, leaders of nonprofit organizations, representatives from mainline Jewish Organizations, educators, and Arab leaders from inside Israel. As a Jew, a life-long Zionist, and someone who has visited Israel many times as a tourist and to see family, it was an entirely new experience to travel with a group of mostly non-Jews and to meet such a cross section of Israeli society. I alternatively felt sadness and joy, defensiveness and pride, confusion and insight, frustration and hope.  And sometimes, I felt all of those things at the same time!

Perhaps the most interesting aspect for me was to meet with community development advocates in Haifa and Tel Aviv. In Haifa, I met with leaders in the Hadar neighborhood, a diverse, historic and struggling neighborhood in the heart of the city. Hadar used to be the economic center of Haifa, but much of the middle class has left. The neighborhood is now home to a mix of long time Israel residents (called Veterans), recent Jewish immigrants from the former Soviet Union and Ethiopia, Arabs and migrant workers from Asia. Many of the buildings are in disrepair and there is a need to attract more families to the area. The neighborhood has many of the same qualities of diverse neighborhoods in Massachusetts, but it also struggles with finding ways for a diverse population to live together with respect and peace.

I also toured Yaffo neighborhood of Tel Aviv. Yaffo used to be an independent city until 1948 when Israel won its independence. Before 1948, Yaffo was home to 100,000 Arabs, but after the war only about 4,000 remained as the rest fled to other towns in Israel, Jordon, Egypt Lebanon, and elsewhere.  Those who remained were allowed to live as tenants in buildings that were now owned by the Israel government. However, those tenant rights do not extend to the 3rd generation and now, 60 years later, many of these families no longer have the legal right to remain. Market forces are also driving out many families as Yaffo sits directly on the Mediterranean Sea and new homes can cost several million dollars each. A group of Jewish and Arab residents, lawyers and planners are fighting to prevent displacement and widespread gentrification and to retain the Arab culture and history of the City.

Community Development work is hard in Massachusetts but the challenges in Israel are even harder as they exist within a broader conflict and tension. While Arabs are full legal citizens, they attend separate schools, and often feel apart from the Israeli culture and society. On many occasions, we heard Arab people say that they want their history and story heard and recognized, even if it can’t be changed.

There are no CDCs in Hadar, Yaffo or anywhere in Israel.  Local community groups provide many of the services that CDCs provide here in Boston, but non-profit organizations are not yet in the housing and redevelopment business and there is a growing desire to create community-led institutions that can lead positive development, build affordable housing, renovate dilapidated properties, preserve tenancies, and help some tenants become homeowners.

Activists in Hadar, Yaffo and elsewhere are looking to the United States for lessons.  A team of 15 Israeli activists, lawyers, scholars and government officials visited Boston last week to learn more about the community development system here in Massachusetts.  They met with several MACDC members and allies to learn about our system and to begin thinking about how to develop their own in Israel. Judging from the discussions we had, I think we helped inspire them to move forward with building a non-profit affordable housing and community development sector.

As for the broader conflict, I won’t try to say anything profound or insightful. I don’t think 12 days in Israel qualify me to offer anything new to what has been said by others more knowledgeable. However, on a personal level I left feeling optimistic because I had the great privilege to meet many brave people – Jews, Arabs and Palestinians -- who yearn for peace, who want to live together with dignity and justice for all, and who are dedicating their lives to creating a new reality for their children.

If you want to see some of my pictures and learn more, join me for a brown bag lunch at the MACDC office, 15 Court Sq. on Wednesday, March 3 at 12:00pm.

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Welcome to my new blog!

January 21st, 2010 by Joe Kriesberg

After a couple of years of cajoling and encouragement from friends and colleagues, and a few months of my own contemplation and procrastination I have decided to venture into the blogosphere. My hope is to offer some ideas, information, and insights that will be of interest to community developers and their partners in Massachusetts and perhaps around the country. I welcome your feedback and comments as I hope this blog becomes a vehicle for sparking conversation and debate about key issues in our field.

Right now I am reading a very interesting book called Start Up Nation: The Story of Israel’s Economic Miracle by Dan Senor and Saul Singer. I started reading the book because I am in Israel for the rest of January with a Jewish Community Relations Council (JCRC) delegation of non-profit leaders. We will be meeting with our counterparts in Boston’s sister city of Haifa and around the country, including some affordable housing advocates. I’ll be writing more about that later.

But right now I am really enjoying this book. While it is providing me with good context for my trip, it also has very relevant lessons for the work we are doing in Massachusetts with our Community Development Innovation Forum. You see, it turns out that Israel is the world’s leader in innovation and entrepreneurial activity – especially in the high-tech, biotech and smart energy fields.  The authors explore the cultural and environmental factors that support so much innovation. According to the authors, it flows from such factors as a lack of hierarchy, a willingness to challenge conventional wisdom, a propensity to argue, debate, question and challenge authority, and an ability to see failure as learning step toward success rather than a reason to quit. In short,  it requires “chutzpah!”  Innovation has also been spurred by necessity (lack of natural resources, constant threats, economic and political isolation in the region) immigration, universal military service, and a strong commitment to education.   Entrepreneurialism is produced “when people can cross boundaries, turn societal norms upside down, and agitate in a free market economy … to catalyze radical ideas.”  The biggest obstacle to such innovation it turns out is “order. A bit of mayhem is not only healthy, but critical.”

Of course, there must be some balance. Israeli entrepreneurs benefit from “stable institutions and the rule of law,”  but also from Israel’s “nonhierarchical culture where everyone in business belongs to overlapping networks produced by small communities, common army service, geographic proximity and informality.”

When we are at our best, I think the community development field shares many of these attributes and characteristics. But I do worry that sometimes  we are afraid to challenge conventional wisdom, our own customs and practices, or powerful authorities, including funders and government officials. There may be a tendency to think that all of us should do the same thing or pursue the same solutions. We are often quick to judge and criticize those who try things differently. Too often we are afraid to acknowledge something has failed and when we do see failure we may see that as a permanent taint rather than a learning opportunity. In our desire for scale, efficiency, and an orderly delivery system, will we stifle the very innovation we need to achieve our ambitious goals?

My own sense is that we are all going to have to get more comfortable with disruption, confusion, disagreement, failure, and a bit of chaos if we are serious about creating a culture of innovation in our field. 

What do you think? Do you want to argue with me about that? Either way, post your comment!

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