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Speaking of the Economy
Speaking of the Economy -  Deborah Markley
Speaking of the Economy

Sept. 22, 2021

Community Foundations: Problem Solving at the Local Level

Topics: Community Investment, Rural Communities
Audiences: Community Advocates, Community Investors, General Public
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Deborah Markley discusses how community foundations support capacity building and development to improve the well being of rural communities. Markley is senior vice president of LOCUS Impact Investing.

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Charles Gerena: I'm Charles Gerena, online editor for the Research Department at the Federal Reserve Bank of Richmond.

Thank you for listening to "Speaking of the Economy." You can find past episodes on the Richmond Fed's website or Apple Podcasts. And, starting this fall, look for us on other podcast platforms when we expand our distribution. We'll also have a new look to show off.

My guest today is Deborah Markley, senior vice president of LOCUS Impact Investing. While the organization is based in Richmond, Virginia, Deborah provides consulting services across the country for place-focused philanthropic organizations, including community foundations. This is the topic of our conversation today.

I should also mention that Deborah shared her 35 years of experience as part of a panel discussion at the Richmond Fed's Investing in Rural America conference in 2019.

Thanks for joining us, Deborah.

Deb Markley: It's really good to be here, Charles.

Gerena: I'll start the way I often do by taking a step back. For those who are unfamiliar with the term, what is a community foundation? How does it differ from private foundations?

Markley: A community foundation is a public, grant making charity that focuses on improving the lives of people who live in a particular geographic area. There's over 750 community foundations across the country, serving as small a unit of geography as an individual county. There are also foundations that serve multi-county regions like the [Community Foundation in Western Carolina] here in my home state of North Carolina. There are even statewide foundations [like] the Nebraska Community Foundation that serve the whole state.

They're different from private foundations in that they bring together financial resources [and] assets from individuals, families [and] businesses in a community to support the ongoing and pressing needs and opportunities that exist in that community. Over time, we've seen them move from being primarily focused on their donors and their donor interests to thinking about themselves as community leaders, using their tools to address the most critical community issues, working hand in hand with a range of community partners and the residents in their community on issues as diverse as affordable housing, childcare, education [and] even inclusive economic development.

Gerena: You used the word "support." Oftentimes, people assume that word refers to financial support. One might think that all it takes is pouring a lot of dollars into a community to make it better. But isn't it a bit more involved than that?

Markley: Absolutely.

If it only took money, I think we'd be in a less difficult position in many communities, especially rural communities. But it takes so much more than financial capital to create a prosperous and equitable community, whether we're talking about a rural place or a more urban community.

Just to name a few other things, it takes strong social capital — the relationships and networks between people and organizations in a place that really help to build trust and a common vision for the future. It also takes strong and what I would describe as innovative leadership — people who can really imagine a different future and bring others along to make that into a reality.

It takes a really intentional commitment to equity and the engagement of people that are most affected by change, whether it's positive or negative — a commitment to do "with" the people in a community, not "to" them.

I think most importantly, though, it takes hope — a vision, a belief that your community can look different in the future. I think this is particularly important in rural places that have been acted upon by so many other forces. It's tough for people who've been down and haven't had a lot of control over their future to have that sense of hope. Without that, it's just hard to see the path ahead or a different path forward.

Gerena: Deborah, much of what you describe sounds like it could be put under the category of "capacity building." What role do community foundations play in that?

Markley: My colleague, Janet Topolsky at the Aspen Institute Community Strategies Group, often refers to community foundations as the most flexible form of nonprofit organization. I really think that that's true.

Community foundations are really known primarily in their communities as grant makers. They're the ones that provide grants to nonprofits or work with the United Way and somehow use their assets and make grants that allow things to happen. That's the most obvious form of capacity building, Charles.

For example, the Hutchinson Community Foundation, they serve Reno County in Kansas. They made a grant to support the capacity and the operations of an organization called Startup Hutch that is focused as an entrepreneurial support organization on helping people who want to start and grow a business in downtown Hutchinson. That's one way that they're using grant making dollars to build capacity.

The community foundations also have a lot of convening power to build stronger leadership capacity in their community. Just two quick examples of that. The Community Foundation of Greater Dubuque in Iowa brought community residents together a number of years ago to hold conversations about race and inclusion. These were topics that no other organization in the community was in the right position to address. The community foundation had the respect and the trust to be able to step into and hold those conversations, use that convening power. More recently, the Norton County Community Foundation, a very rural community foundation in far northwestern Kansas, convened their private in-home childcare providers and the school system to begin to have a conversation about their rural childcare problem. Again, that was not a conversation that the school superintendent was in a position to convene very readily. The community foundation could play that role, bring those partners together. Some good things came out of that conversation.

Finally, community foundations, again, using their flexibility can help to launch or incubate programs. If there's no one else in the community able to step into a gap that exists in the ecosystem, if you will, community foundations can do that.

One example of that is the [Stanislaus Community Foundation] out in California. They've done this in two ways. One [is] with a cradle-to-career partnership in education. They brought people together, they helped to form this partnership, but it has taken its own life, if you will, in ownership with the other partners in the region. [Two,] they did a similar thing with the launch of a community development corporation in the community. So, again, another way that community foundations can build capacity [is] not just with their grant making, not just with their convening power, but by being able to incubate something that the community really needs.

Gerena: It sounds like they play lots of important roles, for sure.

In addition to awarding grants to support nonprofits, I understand that community foundations play a more direct role in redevelopment and revitalization efforts. But isn't the funding they offer quite small relative to other sources?

Markley: I would describe the grants and loans that community foundations make as catalytic. It's not about the size of the grant or the investment. It's about the foundations using that asset to step into a capital gap that helps to unlock the capital of other organizations in the community.

Let me give you two examples. I'll go back to [the] Hutchinson Community Foundation in Kansas. They helped to get workforce housing, a pocket development, in their downtown by providing a loan alongside of the community bank to make the development happen. This was a loan that was lower interest rate, subordinate to the bank. It wasn't much in terms of the percent of the overall project to get these 16 townhomes built. But they wouldn't have been built without the community foundation stepping into that role. So [with] a small amount of money, the community now has 16 townhomes. They restored a blighted lot in their core downtown area to build that. And it wouldn't have happened without that small injection of capital by the community foundation.

Another example from Indiana, the [Community Foundation of Grant County] used a deposit in a local credit union to guarantee a set of loans to individuals who would have had to turn to payday lenders. These are low-income families that, when they're faced with a financial crisis, would typically go to a payday lender and pay exorbitant rates of interest. This allowed them to go to the credit union, guaranteed by the community foundation, so those small loans could go out and [borrowers] could keep more of their hard-earned dollars. Again, it wasn't a lot of money on the part of the community foundation, about $250,000. But that money unlocked a lot more lending on the part of the credit union.

That's what I mean by catalytic. It's really not the size. It's how catalytic can this capital be.

Gerena: Tell me more about the concept of "local impact investing" and how it can frame the grants like the ones you described and loans made by community foundations.

Markley: Impact investing, in general, is a broad field. We define local impact investing as investing into local businesses, nonprofits, [and] other organizations with the expectation of some financial return but also significant community benefit. Often, the financial return is what we call concessionary. It's at a lower interest rate [and] a longer term to make it easier for someone to pay back the loan.

A community foundation is willing to do this kind of concessionary loan, to accept a lower financial return, because they're going to see community benefit. It could be affordable childcare slots, or workforce housing in the downtown area, or new businesses on Main Street.

When a community foundation becomes a local investor in this way, they're practicing local impact investing. They're reinvesting into their communities capital that right now is invested in Wall Street in more traditional financial instruments. They're bringing dollars that they've received from the community through donations back into that community in the form of investments.

Local impact investing is a growing practice by community foundations. But there's so much more impact that can be achieved by growing this movement. It's part of what we really want to see happen among community foundations is the growth of them as community investors.

Gerena: Great.

Give me an example of a community foundation you have worked with recently that has made such an impact. What were the keys to its success?

Markley: We've worked with so many and we get passionate about them all, so it's hard to pick one. But I'm going to focus on the Topeka Community Foundation in Kansas. This is a foundation that has had a very neighborhood focus to its work.

They started by looking at data in their community that showed health disparities. The health inequities in certain neighborhoods were just overwhelming. They recognized that poor health outcomes were being driven as much by your zip code and where you lived as by other genetic and more health-related factors. So they've focused their convening, their grantmaking, their leadership on trying to address health inequities in certain neighborhoods.

But if they did that, they started to realize they were never going to be able to "grant their way out" of these circumstances. The need was too great. They needed more than just the grant dollars that they had available.

They did two things. One was to begin to partner with other community organizations to begin to play a stronger role in economic development and [two], more recently, [was] to become a community investor. The foundation recently made its first local impact investing to help the only childcare center in this targeted neighborhood get off the ground, and they've got a couple more investments in the pipeline already.

A couple of the keys to their success were that they did a lot of good work in getting their board members to be proponents. Local impact investing is a different way of thinking about how you manage your assets. They spent a lot of time bringing other foundations in to talk to their board, so that this was not just something that a couple of staff members were in favor of doing. As a result, the community foundation has really become a trusted partner with leaders in the community as well as residents in the targeted neighborhood. They're having an impact by using all of their tools: grant making, convening, and, now, local investing.

They're really listening to residents and following the lead of organizations that are deeply rooted in these communities. They're not pushing this now. They're able to respond to people who are coming and bringing ideas and potential opportunities to them. It's been a wonderful evolution to see in their community leadership role but also in their community investor role in these neighborhoods.

Gerena: Thank you for sharing that example. It's a great illustration of the concepts that you talked about.

Looking forward, what will be the opportunities in investing in rural communities? What will be the challenges?

Markley: I think the opportunities are almost as varied as the rural places themselves. I do think there are a few unique to rural opportunities that we're going to see on the horizon.

One — and this comes from a lot of work that we've been doing in the Appalachian region — is climate and alternative energy solutions. For investors that really care about putting their money in ways that are going to be addressing climate crisis issues, there are new companies in rural places that are providing energy alternatives that really present some opportunities to these investors, if we can aggregate some of those opportunities and lift them up. So I think that climate and energy solutions is an important sector, along with other sectors like food and ag.

Coming out of the pandemic, the fact that the way we work has fundamentally changed permanently, in terms of our ability to work remotely, has some important implications for rural places. It's become so much easier and more accepted to work remotely. That means that people can choose where they live. They can say "I want to live in a place, I want to raise my family in a place, and I know I can bring my job with me."

Rural areas that think about the assets they have that can cater to those remote workers, I think, are putting themselves in a better position to receive investment. That means not just things like infrastructure and broadband, but really thinking about "What are the assets we have in this community that we can use to grow our economy over time? What are our historic assets and cultural assets and natural assets?" I think it's really an opportunity for rural places to take a more asset-based approach to who and what they are, and let that tell the story of why it's a good place to be as a remote worker.

Finally, so many rural investments are not going to be addressed with traditional solutions. It's not going to be the bank coming in and making a loan to let something happen. We're going to have to think differently and more creatively about where the capital comes from, for a lot of the reasons we've talked about.

There are capacity issues in rural places that are going to have to be addressed with capital. I think rural regions that have built strong social networks and relationships are going to have an advantage.

Being built in central Appalachia [is] Invest Appalachia, a blended capital fund. It's bringing together both grant dollars and investment dollars to advance opportunities in that region. Invest Appalachia would not have happened without the social capital and networks that have been built in that region for a decade or more.

Those are just a few opportunities I see in rural places. Yes, there are challenges. [Laughs]

Gerena: What about those challenges there?

Markley: I don't think we can overlook them, first of all.

Scale is one that comes to mind. Rural is, by definition, less dense. It's more spread out. That's what makes people love rural places but also makes it harder from an investor perspective to achieve the scale of impact that I think a lot of investors are looking for. It's easier to impact a large number of people when you put an investment into an urban core [and] a lot harder to do that in a smaller rural county. That scale challenge is going to be with us always.

I think another is more of a challenge of perception, and that's the perception of risk. People perceive that investments in rural are riskier, and that may or may not be the case. Even when that's not true, overcoming the perception that it is true is a real challenge.

It's a challenge that things like the Community Investment Guarantee Pool, our organization is the program manager of that, [can address.] A number of national funders and guarantors have come together to try to create a different model and to test the assumption that things in rural places are riskier. We need to overcome that perception.

Rural places also have very thin and often non-existent markets. This is another way of talking about capacity limitations. It's hard to get housing built in rural places, for example, when you don't have for-profit or nonprofit developers. Your appraisal system just doesn't work quite as well because you haven't had much new housing built in the last decade or two or three in some places. We have to pay attention to those markets and figure out ways to overcome some of those market limitations before we can even begin to think about lifting up investments.

I do think that if you can name a challenge, you can try to address them through partnership and creativity. I think that's where community foundations come in.

In all of these examples that I've shared, community foundations are stepping into roles that no one else is willing to step into, especially in rural places. What we need more than anything is an organization that can step into these capacity gaps, bring people together, cobble together the range of tools that are needed to make something happen. I think that's where community foundations bring so much to the table.

Have they realized their full potential? I don't think so yet, but we're getting there.

Gerena: Well, Deborah, thank you so much for taking the time to share these insights into community foundations.

Markley: Very happy to be here, Charles.

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