Rural Spotlight: A Path to Redevelopment in West Virginia

Introduction

Community development financial institutions (CDFIs), including loan funds, banks, credit unions, and other financial institutions, share an institutional mission to provide affordable lending to low- and moderate-income individuals and communities. The U.S. Department of the Treasury administers federal loan funds to CDFIs to generate economic growth in distressed communities. Federal funds, along with private sector capital, enable CDFIs to promote access to credit, affordable housing, equitable health care access, place-based revitalization, and more. They are a vehicle to increase investment in businesses and infrastructure that can attract population, create jobs, and grow the economy, making them potentially pivotal to rural geographies. This Rural Spotlight features the success of Woodlands, a CDFI and real estate developer serving north-central West Virginia.

Economic Development and the Potential Impact of CDFIs

In 2019 (the most recent data currently available), certified CDFIs in the United States managed over $173.8 billion in total assets, and their net worth was nearly $25 billion. Recently, in response to the COVID-19 pandemic, CDFIs have armed themselves with a growing array of investments through public and private programs intended to promote an equitable recovery for consumers, small businesses, and communities.

Beyond increasing their capacity to lend and invest, these resources allow CDFIs to deliver needed services for workforce development, affordable housing, and entrepreneurship to increase economic mobility opportunities for vulnerable households and communities.

Research from Opportunity Finance Network, a national CDFI membership association, revealed that nearly 40 percent of all CDFI lending occurs in persistent poverty areas, which are places where at least 20 percent of the population has been in poverty for the last 30 years. The work of rural CDFIs aims to boost the local economy in these high poverty areas by attracting businesses and commerce to create a sense of place where people want to live, work, and play. This can be a particular challenge in more isolated areas, where utilities, roads, and broadband infrastructure may need updating. In such circumstances, CDFIs may be instrumental in bringing together regional partners to assess, plan, and address these issues through redevelopment efforts to “de-isolate” the community.

Still, the capital stacks for rural redevelopment projects are complicated and require CDFIs to creatively leverage place-based tools, including Opportunity Zones, Historic Rehabilitation Tax Credits, and Low Income Housing Tax Credits. The Treasury Department’s CDFI Loan Fund also offers several CDFI programs to support economic development in distressed communities.

• The CDFI Bond Guarantee Program authorizes approved Qualified Issuers (CDFIs) to issue bonds, giving them access to inexpensive, long-term capital to prompt revitalization. Since the inception of the program, distressed communities have been guaranteed $1.7 billion in bonds, with $100 million in fiscal year 2020.
• The New Markets Tax Credits Program authorizes Certified Community Development Entities to allocate tax credits to the private sector to attract investment. According to a 2020 Treasury Department financial management report, New Markets Tax Credit investments are projected to invest over $706 million in low-income nonmetropolitan counties.
• Recently, the Treasury Department awarded $1.25 billion to 863 CDFIs through its CDFI Rapid Response Program. Prior to that, the Treasury Department invested $9 billion in CDFIs and minority depository institutions through the Emergency Capital Investment Program.

Learn more about community and economic development capital flows by census tract.

Rural CDFI Operations

In Fifth District communities, there are 100 CDFIs certified by the CDFI Fund, including seven in West Virginia. According to the Federal Reserve’s most recent CDFI Survey, the majority of Fifth District respondent CDFIs’ service areas include rural geographies (81 percent).

Responses to the survey from CDFIs that serve exclusively rural populations across the country (referred to here as “rural CDFIs”) provide a glimpse into how these institutions serve their communities. In a past survey in 2019, 57 percent of 97 rural CDFI respondents said that small business finance was their primary or secondary line of business, followed by 39 percent in residential real estate finance and 34 percent in consumer finance.

Rural CDFIs largely reported that demand for their services was growing in 2019, and according to responses to the 2021 survey, demand continued to grow during the pandemic. In 2021, nearly 80 percent of 52 rural CDFIs reported taking on new small business, consumer, or residential real estate customers since March 2020. While rural CDFIs saw a boost in clients across the board, most saw new customers seeking small business lending (particularly those seeking Paycheck Protection Program (PPP) financing and other pandemic relief programs).

The 2019 survey asked CDFIs about leveraging Opportunity Zones (OZs), a place-based initiative meant to attract investment to disinvested areas. Nearly half of surveyed rural CDFIs reported conducting some activity regarding OZs. Forty percent trained their staff about OZs, while another 25 percent provided external education to their communities. Although only three rural respondents had either developed a Qualified Opportunity Fund or attracted investment from one, a handful more hoped to do the same in the future.

The Woodlands Story

City of Elkins in Randolph County, West Virginia, provides an example of a CDFI harnessing its resources and capacity for redevelopment. Founded by U.S. Senators Henry Davis and Stephen Elkins in 1890 as a railroad, coal mine, and timbering industrial town, Elkins has grown to a city of about 7,000 people. Because of its proximity to the Monongahela National Forest, this “gateway” community’s local economy is centered around tourism and outdoor recreation, and further bolstered by drivable access to adjacent metros. 

Woodlands Development Group and Woodlands Community Lenders are anchor institutions headquartered in Elkins to promote housing development and neighborhood improvement, downtown redevelopment, community facilities and planning, and small business lending. Woodlands Development Group, a nonprofit community development corporation, was established in 1996 for real estate development. Woodlands Community Lenders, a CDFI, was established in 2012 to support access to capital. Collectively referenced as Woodlands, both entities primarily serve Barbour, Tucker, and Randolph counties, but their work extends into much of north-central West Virginia. Woodlands’ capacity as a real estate developer and CDFI is pivotal. It serves as an essential intermediary to help small towns like Elkins leverage federal, state, and local financing. By 2018, Woodlands estimated that it had financed $2.3 million in economic activity, resulting in 72 business loans, 132 jobs, and redevelopment of 85,000 square feet of community space.

Most of the Woodlands’ primary service area has lower median household incomes and higher poverty rates than the state overall. According to 2015-2019 five-year estimates, the median income for the three-county service area ranged from $38,459 in Barbour County to $49,118 in Tucker County, while the overall state median income was $46,711. (See Appendix.) Poverty rates follow a similar pattern: Barbour County has the highest poverty rate at 20.8 percent, compared to 18.5 percent in Randolph County, 12.5 percent in Tucker County, and 17.6 percent in the state overall. There is a persistent poverty census tract in Elkins in Randolph County.

Woodlands leverages mechanisms to address poverty and disinvestment in Elkins, including residential and commercial revitalization and capital access. Here are some of the CDFI’s best practices.

• Convenes regional organizations, business leaders, and banks to execute economic development plans. Woodlands is a member of the 10 community Mons Forest Towns Partnership (MFTP), created to enhance the regional economy while preserving quality of life, history, and natural resources. This is possible through partnerships with the U.S. Forest Service, the U.S. Department of Agriculture Rural Development, and West Virginia University.
• Partners with banks to leverage capital for businesses. Local banks partnered with the CDFI to provide the U.S. Small Business Administration PPP loans and offer loan deferrals to local businesses during the pandemic.
• Partners with other CDFIs and other alternative financing entities. Woodlands collaborates with the Natural Capital Investment Fund on the Mon Forest Business Initiative, which also provides small businesses eCommerce Transition Assistance to build digital platforms. Woodlands is also a member of the Fahe Network of Appalachian organizations that invests in rural residential and commercial redevelopment. It is a founding member of the West Virginia Loan Fund Collaborative, which has spurred small business lending in the state since 2011.
• Leverages place-based incentives. There are currently 737 Opportunity Zones (OZs) across the Appalachian Region, representing 8.5 percent of the designated OZs nationwide. A recent Fed podcast describes Woodlands’ historic redevelopment of the boutique Tygart Hotel in an OZ along the riverfront in downtown Elkins. Opportunity Appalachia, a Forbes OZ 20 Catalyst, selected the project to boost job creation, deepen business support, and attract place-based investment to distressed communities.
• Serves as lender or real estate developer. Woodlands’ dual capacity is unique to many rural CDFIs. Coupled with its ability to assemble innovative financing packages, the CDFI has enabled construction of senior housing, rehabilitation of residential units, revamp of downtown commercial space, and remediation of potentially contaminated properties through the West Virginia Department of Environmental Protection Brownfield Assistance Program.

Learn more about Woodlands’ two signature projects, The Golden Rule in Belington, West Virginia, and Tygart Hotel along the Elkins riverfront. 

Many rural CDFIs persist despite the enduring challenges they encounter, such as a risk averse investment culture, out-migration of residents, small entrepreneurship ecosystems, and high turnover of traditional financial institution lenders. For CDFIs like Woodlands that are committed to rural revitalization, the pandemic has precipitated some unexpected silver linings for the small towns they serve. The federal urgency to deploy capital to prevent small business closures and the accelerated passage of community and economic development policies to sustain state and local economies during the pandemic has created conditions that could be shifting in favor of CDFIs.

One example is the passage of West Virginia’s permanent State Historic Rehabilitation Tax Credit, SB344, which provides owners and developers another tool to preserve the state’s 168 historic districts. For Woodlands, it provides a capital source to layer on top of other sources that address blight from vacant or dilapidated buildings. It also increases the flexibility for construction financing and leverages more private investment, particularly for long-term projects that require patient capital. This is essential when risk tolerance is low, social return on investment is a priority, and financial returns may take some time.

There is more potential good news for small town commercial revitalization hoping to attract new businesses. In 2020, there was a 16 percent increase nationally in new high-propensity business application filings during the pandemic compared to the prior year. This subset of businesses is earmarked by the U.S. Census Bureau for being more likely to remain active within months of a new filing and to create jobs. These more probable, stable businesses could strengthen entrepreneurial ecosystems in small towns. New firms, along with existing employer firms operating in thin, rural labor markets, may now be able to recruit from a more geographically expansive talent pool for jobs, to the extent that remote and hybrid work models are an option. Telecommuting may also increase the feasibility for women to participate in the labor force and slow out-migration from rural areas to more populous job centers. Soberly, these effects are dependent upon digital connectivity, a challenge in more isolated rural areas.

Conclusion

Recognizing the importance of CDFIs to promote and sustain economic development in distressed places has increased since the onset of the pandemic. For rural CDFIs, place-based revitalization continues to be a priority. These anchor institutions can engender regional collaboration to enhance quality of life, develop safe, affordable housing for residents, and support business growth that in turn can create and retain jobs for rural households. Nimble and trusted CDFIs stimulate and leverage commitments from public and private investors to finance projects that further preserve the history and character of places while promoting healthy local and regional economies.

Appendix

The following section includes demographic and economic data for Woodlands’ service area, which covers the West Virginia counties of Barbour, Randolph, and Tucker.

Demographic and Education Statistics

Sources: U.S. Census Bureau Vintage 2020 County Population Totals, American Community Survey 2019 5-Year Estimates; authors’ calculations.

Employment Statistics

Sources: U.S. Census Bureau, American Community Survey 2019 5-Year Estimates; U.S. Bureau of Labor Statistics Local Area Unemployment Statistics; authors’ calculations.