Test Concept Aims to Close Cleveland’s Wealth Gap and Build Inclusive Economy
Among the deleterious consequences of systemic racism is the wealth gap that persists throughout the United States, with the net worth of a white family being, on average, nearly 10 times greater than that of a Black family.
According to the Federal Reserve Bank of Cleveland, myriad factors contribute to the wealth gap, including disparities in education, wages and access to opportunity and capital. The wealth gap is also “a result of low levels of local ownership and significant undervaluation of assets – including housing and businesses – in predominantly Black communities.”
These troubling trends persist and are compounded when residents are excluded from development decisions in their neighborhoods. Not only can this lead to displacement and disenfranchisement from the political process, but it significantly undercuts residents’ opportunities to benefit from future growth.
The Fund for Our Economic Future, along with a host of local and national partners, is exploring a promising model to increase local ownership and decision-making: a Community Investment Fund. The term Community Investment Fund (CIF) encompasses various legal structures which allow for the aggregation of capital from residents to cooperatively purchase assets in their neighborhood. These include but are not limited to community real estate investment trusts (REITS), pooled income funds, charitable loan funds, and qualified Opportunity Zone funds.
In 2020, the Fund began working with Metro West Community Development Organization and others to design a CIF, focusing on the Clark-Fulton neighborhood on the near west side as an initial place to test the concept. While many neighborhoods across the region can benefit from resident ownership and increased decision-making authority, the Clark-Fulton neighborhood has the leadership, market momentum and diverse population that make it an ideal locale for the first application of such a vehicle in Northeast Ohio.
Recent investments in the area are driving rapid changes. The MetroHealth System, the neighborhood’s anchor institution, has committed $1 billion to a campus transformation and recently Clark-Fulton was named one of three Cleveland neighborhoods that will receive a share of $9 million in investment from JPMorgan Chase. Furthermore, the Cleveland Mayor’s Neighborhood Transformation Initiative, a multifaceted investment strategy spearheaded by the city administration, is expected to invest over $4 million in the community over the next two years.
Home to 30,000 residents, the neighborhood is racially, ethnically and socioeconomically diverse. Thirty-eight percent of residents are Latinx and 18% are Black. Nearly 44% live below the poverty line, and nearly half of all residential parcels in the community went through tax or mortgage foreclosure in the last decade.
For the Clark-Fulton neighborhood to put equitable development at the forefront, existing residents must have a tool that allows them to influence the type of investment and development coming to the community and financially benefit from the growth that results.
The design of a CIF requires technical understanding, community engagement and stakeholder alignment. The product must meet rigorous investment standards. It must also be culturally competent and reflect the unique needs of resident investors and the neighborhoods they seek to influence.
The Fund has pulled together a group of local and national experts to assist in this work, including the team behind Nico Echo Park in Los Angeles as well as Seventh Hill LLC, the firm that worked with residents on recommendations to develop West 25th Street as a walkable, transit-supportive, mixed-use corridor. Additionally, this work is being supported by The Kresge Foundation, which has developed a “community of practice,” which includes the organization that developed the East Portland Community Investment Trust, to share learnings and advance the concept nationally.
“One of the most powerful ways for prosperity to be shared in an economy is for low-income households to have an ownership stake in rising property values,” said Elwood Hopkins, presidential fellow at Kresge and managing director of Emerging Markets Inc., in a recent post on the Kresge site about this work. “And as we confront an imminent post-COVID land grab, the potential for these [models] is magnified.” (Check out Mr. Hopkins’ comprehensive overview of the rise of neighborhood investment trust models and their potential in a recent piece in the Stanford Social Innovation Review.)
If executed well, this initial CIF could create an avenue for residents of this neighborhood and others across Northeast Ohio to have a real ownership stake and benefit from the upside of growth – necessary conditions for the regional economy to be truly inclusive.