Robert Rubin's Urban Crusade

The ex-Treasury Secretary is turning his talents to the inner city. He's heading one of America's least-known but most powerful urban organizations.
by | August 2000

One spring day five years ago, when Robert Rubin was still settling in as U.S. Treasury Secretary, he made a trip to a place where global monetary power brokers usually don't venture. He went to the South Bronx. Like most visitors there since the 1970s, Rubin expected to see rubble-strewn streets lined with the shells of burned-out buildings. And like anyone who has gone lately, he found something drastically different from what he expected. "I saw block after block after block of renovated and new housing," Rubin says. "I was astonished."

When Rubin resigned as Secretary last year, he stepped immediately into a swarm of speculation over where he would go next: The International Monetary Fund? The World Bank? The Federal Reserve? Rubin didn't dismiss any of those possibilities. But he kept thinking about the South Bronx.

He had gone there in 1995 as the guest of a relatively obscure nonprofit called the Local Initiatives Support Corporation, known as LISC. It was the first time that Rubin had come into contact with LISC. It was also his first encounter with community development corporations--the grassroots activist groups that are at the center of urban revival in New York and all over the country. CDCs are staffed mostly by inner-city residents, some of them poor people. But the money that keeps many of them going comes largely from LISC.

Rubin didn't go back to the South Bronx during his tenure in the Clinton cabinet, but his one visit made a deep impression on him. And when he finally returned to private life last summer, it wasn't to accept an offer from government or Wall Street. It was to become chairman of the board of LISC.

For that organization, Rubin's arrival was unquestionably a crowning moment. Over 20 years, it has with little fanfare evolved from an upstart with $10 million in capital into a multi-billion dollar community development colossus. Last year alone, LISC pumped over half a billion dollars into neighborhood development groups and their projects. Yet for all this rapid growth, LISC remains relatively unknown to the public. Today, LISC is perhaps the most powerful force in America shaping the future of inner cities. Still, even specialists in urban development often know very little about it.

That will change. Rubin's near-celebrity status both in Washington and on Wall Street is already raising LISC's profile substantially. And the significance of his decision will have repercussions well beyond the boundaries of LISC itself. In a way, it serves to confirm the strategy of the 30-year-old CDC movement, the neighborhood-based effort built in large part on confidence that depressed areas can be rebuilt from within--from the ground up.

For all the signs of progress, however, in the South Bronx and dozens of other communities, doubts about the LISC/CDC approach persist. Urban theorist David Rusk, for one, calls the revival that impressed Rubin in the South Bronx a "Pyrrhic victory," and treats similar projects elsewhere as expensive showpieces that merely mask a depressing reality. LISC money and neighborhood activism can make an area such as the South Bronx bloom, critics say, but step beyond the borders of the subsidized project, and conditions are as bad as ever. Indeed, they argue, the condition of the American inner city as a whole is no better than it was when LISC started. It may be worse. "The neighborhood organizations have seized victory from the ashes," Rusk says, but the victory "will be completely undone."

Rusk's barbs come from the political left. But there are echoes of them on the right, as well: Howard Husock, of the conservative Manhattan Institute, complains that LISC's massive investment in tax- exempt affordable housing erodes the tax base and creates disincentives for poor people to move up and out of the inner city. "The South Bronx might have been rebuilt in an even better way, and the tax base might have been better off," he argues, if LISC had not existed.

Criticism like that aside, however, LISC's catch has emboldened believers in the community development movement throughout the country. That Robert Rubin would lend LISC his name and credibility says to them that the movement--or the industry, you might say--has finally come of age. "It elevates the whole field," says Michael Rubinger, LISC's president and the man who lured Rubin on board. "He brings LISC and the whole community development field to a new consciousness among people who may have never heard of it."

LISC's fundamental role in the inner city can be stated in one sentence: It is there to bolster the CDCs. These small nonprofit groups began forming in the 1960s, some growing out of religious congregations, others starting as block clubs or simply as groups of friends who cared about their community's future.

There are now roughly 3,600 CDCs nationwide. More than 800 of them are subsidized by LISC in one way or another. When one of them is short-staffed, LISC will bankroll a new employee. If computers seem necessary to boost productivity, LISC will spot the cash. Fledgling CDCs depend on LISC to hire consultants, and they fall back on the expertise of LISC staff to guide them through complex real estate deals. And in the inner city, where those deals invariably involve cobbling together money from public and private sources, LISC's money is often the first in, serving to calm other investors and push a project out of the starting gate.

Financially, LISC plays the role of a middleman. Community development corporations are long on energy and short on cash. On the other side of the spectrum are corporate America and the foundation establishment. They have the money to offer CDCs, but they are too far from the grassroots to know where their investments will make the most difference, or to sort out which CDCs are most capable of getting results. LISC does that job for them, connecting boardrooms with neighborhood basement offices. It collects money from thousands of funders, and places it with favored CDCs in the form of loans, grants and equity in individual development projects.

The concept of a so-called urban "intermediary" sprang out of the Ford Foundation in the 1970s. At the time, the federal government was retreating from inner cities and the first community development corporations were attempting to fill the void. Ford money was backing about a dozen CDCs whose work seemed promising. But these groups were small, unsophisticated and eternally strapped for cash. Ford wanted to strengthen the local organizations into a more institutionalized force for bottom-up urban renewal. It also hoped to extract financial support from the private sector in a more systematic way. In 1979, LISC got off the ground with $10 million and a staff of 10.

In devastated communities such as the South Bronx, there was no shortage of work for LISC to pay for. But the thing that LISC and most CDCs latched on to first was housing. In the South Bronx, CDCs renovated dozens of crumbling tenements. On Charlotte Street, which had become a national symbol of urban blight, they cleared away the rubble and built suburban-style ranch houses with lawns and picket fences. Housing projects gave community groups their first opportunity to finance a deal and jump through the associated political hoops.

One important advantage of the housing strategy was that LISC could show its funders the tangible fruits of their investment. "Housing is visible," says Mitchell Sviridoff, one of LISC's founders and its first CEO. "Housing was the most effective way to demonstrate that something could be done to improve the appearance and quality of life in these communities."

Over time, many came to know LISC as essentially a private housing agency. That reputation only deepened after 1986, when Congress created a tax credit to encourage construction of more rental housing for low- and moderate-income residents. LISC saw this as a potential boon for CDCs. It formed a subsidiary that markets the tax credits to banks and other investors, freeing up billions of dollars for the local groups to spend on housing construction. In all, LISC has now aided in the construction of 100,000 units of low- and moderately- priced housing. In places such as the Bronx, whose residents had fled like refugees from a war, all this construction has made a big difference: After a sharp decline, the population of the Bronx is now actually increasing.

For corporations and philanthropists who want to invest in inner cities--or for banks who are required to by the Community Reinvestment Act--LISC provides a safe channel for doing good. In return for the money, LISC steers its contributors away from the occasional bad-apple group with a reputation for waste or corruption.

"If you think about all of the community development organizations around the country, there's no other central way to get to them," says Michael Pitchford, with the Bank of America's community development branch. "LISC can do things that we can't do as easily, in terms of reaching out to CDCs." It is a role that must be played with discretion and sensitivity. It is also a position of enormous--and essentially unaccountable--power.

In the past few years, with corporate money pouring into community development and the number of CDCs exploding into the thousands, LISC has expanded rapidly as well. In addition to its New York headquarters and Washington, D.C., policy office, LISC now has program offices in 38 cities and a staff of 600. It has funneled some $3 billion into inner cities, which it says has been leveraged to generate another $4 billion from other sources. LISC is not the only intermediary doing this kind of work on a national level--the Enterprise Foundation, started by the late developer James Rouse, is similar to LISC in its focus and mission. But LISC is the oldest, and by far the largest, player in the game.

What may be most remarkable about this organization is how little media attention it has attracted. That's partly because of the naturally ambiguous role of any middleman. But it also reflects the inability of the Washington press corps to realize that urban renewal could be taking place without a major new federal initiative. "It was never announced at the White House that little groups would fix America," says Paul Grogan, LISC's president for 13 years and now head of government relations at Harvard University. "There were benefits to this. Early on, CDCs were not subject to completely unrealistic expectations. And the relative anonymity of their work allowed groups to get some accomplishments under their belt, so that by the time Robert Rubin or Bill Clinton got interested in this, it was already a full-blown national movement."

Rubin's arrival at LISC did more than generate optimism about rising prestige. It brought expectations that his clout both in Washington and on Wall Street--where he headed the investment firm of Goldman Sachs--would be a boon to fundraising. LISC officials expressed the hope that Rubin would not only pump more cash out of the usual suspects--mostly banks--but also use his reputation to get retailers, technology companies and media conglomerates on board. "There's a lot of untapped territory in corporate America that Bob Rubin can help us mine," says LISC president Rubinger.

Since then, there have been occasional complaints that Rubin hasn't been as aggressive on the fundraising front as they had hoped. Then again, LISC isn't the only job Rubin has taken on. It was the first one he accepted after leaving the Cabinet, but in the months since he took it, he has also signed on with the financial-services giant Citigroup, where he is adviser to the chairman.

Rubin and LISC found each other at a time when the organization and the CDCs it serves are changing--moving beyond their early housing focus to a broader slate of community-building activities. In recent years, critics have charged that LISC was too preoccupied with housing, that people living in CDC apartments also needed places to shop and work, and places to leave their children for the day. This is a side of community development, as LISC has found, that can be quite a bit more difficult than building houses.

One of the major areas of LISC expansion has been retail development. In the 1960s, supermarket chains across America rode the exodus from city to suburb, leaving those who stayed behind to shop at expensive corner markets. LISC, through a subsidiary called the Retail Initiative, is helping CDCs to lure supermarkets back.

In Harlem, for example, LISC rescued a flagging effort to bring a grocery store to the ailing 125th Street commercial corridor. LISC recruited a well-established CDC, the Abyssinian Development Corporation, and kicked in $4.5 million worth of equity and loans to grease the deal. The project hit a number of snags, from trouble assembling the land to ethnic political rivalries. But after a seven- year battle, the effort paid off: a 53,000-square-foot Pathmark opened in April 1999. The average shopper there spends less than the typical suburban customer, but the population living in the immediate vicinity of the store is huge. The Harlem Pathmark turned a profit early on, which is rare even for supermarkets in wealthy suburban areas.

LISC is involved in about 20 other inner-city supermarket deals around the country. Now it is looking for ways to nurture small businesses as well. A pilot project in New York aims to get local entrepreneurs to open franchise units in the inner city. The effort has had some limited successes, such as the opening of a Sterling Optical store and the expected arrival of a family-style restaurant in Harlem. But it has been slow going, not because the financing isn't there but because it has been difficult to find local entrepreneurs interested in opening up the businesses.

Child care is another new direction. As the 1996 federal welfare law takes full effect, parents are being forced to go to work or lose their benefits. But many depressed areas lack child care facilities to accommodate working parents. For several years, LISC has been working with CDCs on an ad-hoc basis to build new child care centers. Now, LISC is pulling together a more systematic approach that puts it more directly in the position of political advocate.

The state of Connecticut sought to address the child care crunch by selling bonds to finance new day care centers, and having the centers themselves pay off the bonds with their revenues. LISC argued that child care in poor areas is too much of a small-margin business for the new centers to carry all that debt. They persuaded the legislature to pay for an average of 80 percent of the debt on as much as $40 million worth of bonds, enough to build care centers for 3,000 children. LISC is touting the Connecticut law as a national model, and it is plotting a legislative push in other states--Oklahoma appears next--to address the child care issue.

Grocery stores and child care centers are still largely "bricks and sticks" projects. While they have launched LISC beyond its traditional focus on housing, they are still designed to show private investors tangible and relatively quick results. Recently, LISC has begun diving into "softer" community initiatives, dealing with the less tangible problems of crime and overall quality of life.

In 1995, LISC began partnering with CDCs and police departments in Seattle, Kansas City and several other cities on a community policing project. The effort initially foundered: In Seattle, for example, police and the International District CDC viewed each other with suspicion, and the clashing cultures at first prevented much from happening. Over time, however, the ice melted, and the partners took aim at crime hotspots in the neighborhood. They cleaned up a transient camp under a highway that had been the source of local crime. When a Vietnamese restaurant became a hub of gang activity, they persuaded the restaurateur to sell to a new owner who remodeled the place and eliminated the gangs.

Another LISC-inspired soft-side effort is under way in Chicago, where four CDCs are developing "quality of life" plans. The CDC in one South Side community made a health survey part of its plan. Its neighborhood is within two miles of three major hospitals and clinics, yet it is statistically the sickliest in Chicago. It has never been clear whether the source of the problem is poor transportation, bad hospital management, or simply the failure of families that qualify for Medicaid to enroll in the program. The survey is meant to answer these questions. "We'll have some capacity to do something about it if we know what things to go after," says Bill Jones, head of the Fund for Community Redevelopment and Revitalization, the local CDC.

As LISC moves into these new areas, it is creating some friction with the CDCs. LISC's relationship with neighborhood groups has always been a little awkward, given its dual roles as both funder and adviser. Some CDCs complain that LISC is too dependent on fickle corporate interests that shift with the wind. "These big intermediaries get a hot new topic every couple of years, and then you as a nonprofit in the field are often forced to bend to their wishes," says a senior official with one CDC that works with LISC. "You do cartwheels to please them, and then they're off to the next hot thing."

To some degree, that tension is natural. Nobody in any industry likes to have to deal with a middleman. Some CDCs are growing so large that they wonder whether some day they won't have to. One of the older ones in the South Bronx, known as the Mid-Bronx Desperadoes, now has 72 employees, a budget of $12 million and manages three-dozen buildings. "I don't want to be a foundation junkie," says MBD's president, Ralph Porter, expressing his desire for self-sufficiency. But the group's operating margins are still too slim. "If I had the ability to fund my own development department or accounting department," Porter says, "why would I ask LISC for help?"

The newer and smaller CDCs don't even dare to ask such questions. Without LISC or other intermediaries, some would never blossom into much more than plucky block clubs. Alex Schwartz, who studies housing and economic development at New School University, has analyzed community development organizations in New York. "If you compare CDCs where LISC and Enterprise operate with CDCs in places where they don't, there's a huge difference," Schwartz says, pointing to LISC's extensive involvement with CDCs in New York City. "Upstate, you don't see the same level of scale."

But the greatest challenge LISC faces may be one that it has always faced: how to measure results. Its broad goal for the CDC movement-- building capacity--is vague and hard to quantify. Traditionally, LISC has expressed its impact in terms of dollars invested and units of housing built. But those are rough measures, and they are especially unhelpful in gauging the softer community-building activities.

In 1998, the Urban Institute studied LISC and Enterprise Foundation efforts in 23 cities. The study found CDC capacity growing strongly by a number of measures. The number of CDCs in those cities capable of producing more than 10 housing units per year grew from 104 in 1991 to 184 in 1997. And there were an increasing number of "top-tier" CDCs with consistent production records, strong internal management and diverse funding sources. But the study still fell far short of measuring the effect LISC or the CDCs were having on overall community life.

Kansas City's LISC office is trying to develop new measures that will track success in the softer areas. It plans to monitor not only how well CDCs manage themselves but also how they affect the quality of life in their communities. Indicators of community health--housing values, crime statistics, school delinquency, and residents' net worth--will be assessed on a neighborhood report card. Funding for CDCs will eventually be tied to these measures.

That could be trouble for some CDCs. Urban theorist Rusk, in his recent book, "Inside Game, Outside Game," analyzed Census data for the Bronx and 33 other neighborhoods where the nation's "best" CDCs operate. What he found was that, despite the activists' best efforts, the communities were gradually falling further behind regional income levels and losing real buying power. According to Rusk, the problem is that inner-city residents are isolated from the regional economies surrounding them, and the CDCs are powerless to deal with that larger problem. "It is like helping a crowd of people run up a down escalator," Rusk wrote. "No matter how fast they run, the escalator comes down at them faster and faster."

It is possible, on the other hand, that the new Census data will produce evidence of the turnaround whose existence Rusk doubts. At any rate, that is what Robert Rubin expects. In his view, it takes little more than a walk through the South Bronx to show that real progress is taking place, and that it didn't come from Washington. "The notion of having community neighborhood leadership driving activity is inherently very sensible," Rubin says. "I was not aware of that until I went to the Bronx."