Commercial Stabilization projects face two different but related financing challenges:
1Financing the planning and community organizing process, and
2Financing bricks and mortar development and support of commercial properties.
Funding Planning and Organizing
Any inclusive community process requires some level of ongoing staffing to keep residents and merchants involved and informed. Even relatively inexpensive activities like organizing cultural events, planting new street trees, and designing street banners still cost money.
Public Sector Funding
Win-Win Funding
It's in local governments' interest to fund commercial stabilizaiton work: they reap the benefits of increased sales taxes, as well as reduced maintenance and policing costs.
The most obvious source of funding for this kind of work is local governments. It's in their interest: they benefit from increased sales taxes when a neighborhood improves and bear the cost of increased maintenance and policing costs when a neighborhood declines. Cities can provide grants to community organizations to manage these initiatives through their general fund budgets or with federal Community Development Block Grant funds.
One common challenge is identifying the appropriate place in the local government budget for this kind of grant. A broad stabilization initiative serves the interests of many city departments, including public works, economic development, community development, police, and perhaps even parks. The organization leading the initiative would ideally receive funding from at least one of these departments, and may have to mix and match.
Another potential source of local government funding is tax increment financing (TIF). TIF funds are generated when property tax revenues increase in a targeted redevelopment area. The increased income is set aside to finance further improvements. In the early years of a new TIF district, commercial stabilization initiatives offer an inexpensive way to generate noticeable improvement while also building the kind of community consensus that can guide larger scale investment toward more equitable projects. TIF funds have generally been used to finance large scale physical redevelopment projects, but increasingly, local governments recognize that these large projects are not generating sustainable change and often hurt low-income families more than they help, and so may be open to other options.
Business Improvement Districts (BID)
A BID is a special tax district in which businesses or property owners in a specific area vote to add an additional fee to their tax bill to fund specific services over and above what's publicly available—from parking to street cleaning to safety patrols. A BID is simply a way of raising money. Whether that money is used to harm or help local residents comes down to who controls its expenditure.
In Oakland's Fruitvale District, the Unity Council led a campaign to enact a BID which is now providing $250,000 per year. These funds all flow directly to the Unity Council, which uses them to hire a team of "Fruitvale Ambassadors" to clean and monitor the safety of the commercial district. Most of the ambassadors are participants in the Unity Council's welfare-to-work training program. In Berkeley's Elmwood district, BID funds are controlled by a nonprofit board that includes residents and are used exclusively to support the preservation of the neighborhood movie theater.
Business Improvement Districts and the Homeless
BIDs have a somewhat controversial history in urban neighborhoods. A number of BIDS have been accused of funding efforts to sweep homeless and poor people from commercial districts and many community advocates have come to equate BIDs in general with the worst practices of a few of them. Homeless advocates and the ACLU filed suit against several BIDs in Los Angeles charging that the private security firms that the BIDS have contracted with are regularly violating the civil rights of poor people through harassment and physical abuse. But the whole story on BIDs is more complex, as the Los Angeles Coalition to End Hunger and Homelessness found when they interviewed low-income residents in several of LA's BID districts. While they found many examples of security firms breaking the law and violatin ghte rights of area residents the Coalition also found, to its suprise, that the majority of low-income resdents were able to identify specific ways in which they benefited from the improved cleanliness and safety that the BIDs provided. More constructive BIDs have responded to the presence of the homeless in commercial districts by developing innovative parnerships to provide better and more coordinated homeless services. A report by the International Downtown Association documents some of the more successful partnerships.
Foundations
A growing number of private foundations are funding commercial stabilization work, often as part of a broader "comprehensive community initiative." They are more likely to be interested when the local government is actively partnering in the process and allowing the community to have a real say in how public funds are invested. This funding continues to be very difficult to come by, however, and few foundations have special funding dedicated to commercial stabilization. There is no comprehensive list of foundations interested in commercial districts but the Neighborhood Funders Group is a network of foundations that support comprehensive neighborhood improvement efforts. A list of its members can be found here.
Community Fundraising
Another common source of funds for commercial stabilization projects is community fundraising. Programs like Adopt-a-Block involve regular voluntary contributions from local businesses and residents who support neighborhood improvement. Well-managed special events and cultural festivals can also raise significant amounts of money. Generally, however, these community fundraising efforts are used to supplement rather than to substitute for government and foundation funding.
Financing Commercial Development Projects
The growth of CDCs and other nonprofits as developers of affordable housing has led to the development of an entire industry of community development financial institutions and related public sector programs. The Bay Area office of the Local Initiatives Support Corporation publishes a Directory of Financing Sources for Commercial and Mixed Use Projects. Some of the sources listed are specific to California but many are national including:
Office of Community Services. A program of the US Department of Health and Human Services, the OCS provides grants to support projects that provide employment opportunities in low-income communities, including commercial development. Grants tend to be about $10,000 per job created.
Section 108 Loans. Local governments can make loans which are guaranteed by the federal government by pledging the city's future CDBG grant funds as security.
Economic Development Initiative . A program of the US Department of Housing and Urban Development (HUD), the EDI can provide grants of up to $1 million to projects that are also receiving Section 108 loans and are likely to create a significant number of jobs for low-income people.
Tax Increment Financing. TIF funds are generated when property tax revenues increase in a targeted redevelopment area. The increased income is set aside to finance further improvements. (See above.)
Community Development Financial Institutions . CDFIs often provide below-market-rate loans for commercial projects. For example, the Local Initiatives Support Corporation manages a fund called the Retail Initiative which provides higher risk equity funding for nonprofit-sponsored supermarket developments in low-income communities.
Program Related Investments. Larger foundations will sometimes make very-low-interest loans to community projects, especially in neighborhoods where they are actively making grants.
