Wednesday Oct 04

COMMUNITY DEVELOPMENT CORNER - Community Benefits Agreements at the Forefront of Anti-Gentrification Initiatives

If gentrification is the bogeyman in today’s community development advocacy circles, community benefit agreements (CBAs) appear to be the elixir, or at least one of them. Gentrification, of course, is little more than the current name for a process of uneven development that has long plagued our cities and metropolitan areas.  And today many responses have been proposed and most have been tried. That list includes but is not limited to: inclusionary zoning, community land trusts, shared equity investments, transit-oriented development, location efficient mortgages, rent control, anchor institutions, housing decommodification, tenant opportunity to purchase, right to return, right to counsel, and more. One tool that has become particularly popular in recent years is community benefits agreements (CBAs). 

CBAs have become increasingly popular in part because they call for specific, publicized dollars and programs for traditionally marginalized communities negotiated by members of those communities.  For example, the National Community Reinvestment Coalition (NCRC) and its members have negotiated billions of dollars for a variety of mortgage, small business, and community development loans since 2016. (More on NCRCs CBAs below).

No official definition of CBAs has been promulgated though several have been offered that focus on a common set of policies, practices, and goals. (A quick and fairly accurate one can be found on CHATgbt but that is not relied upon here!)  Good Jobs First offers a particularly concise description.  It begins by referring to CBAs as legally enforceable contracts signed by community groups (sometimes including labor unions) and a developer that spells out the benefits to be provided to the community as part of a specific project.  They are negotiated before the developer seeks approval of relevant permits, subsidies, zoning and other regulatory changes.  The primary benefit to developers is that with support of the community members it will be easier for them to clear the zoning, regulatory, and related hurdles they have in getting their projects off the ground. Specific benefits often included in the agreements are first source hiring commitments whereby local residents will have the first opportunity to apply for new jobs, job training for local residents, affordable housing set-asides, targeting local small businesses instead of national chains for retail space, green environmental provisions (e.g. demolition of highways and redevelopment of vacated land, utilization of fuel efficient vehicles), park development, day care centers, and other amenities desired by local residents.

NCRC and its member organizations have followed this basic model as its CEO Jesse Van Tol told me in a May zoom call. NCRC staff and member organizations research local lending data and identify local needs and service gaps. They focus on financial institutions that are proposing mergers, acquisitions or other changes that, under the Federal Community Reinvestment Act, regulators are supposed to evaluate in terms of their impact on local communities when reviewing bank applications for those changes. Failure of financial institutions to ascertain and respond to local community credit needs can result in such applications being delayed or denied, costing those financial institutions substantial revenue.  Based on that research and legal requirements, NCRC approaches selected financial institutions, a process which has led to agreements with 27 bank groups negotiated by approximately 300 of NCRCs member organizations totaling $639 billion in cities across the country.  Among the lenders involved are Wells Fargo, US Bank, Morgan Stanley, PNC Bank, TD Bank, and several others.  Elements of these agreements include mortgage loans for home purchase and improvement, small business loans, opening new branch banks, community development loans for affordable housing preservation and commercial/retail development, support of philanthropic and charitable donations, employment and supplier contracting opportunities for diverse populations, environmental and social impact lending and more.  All are focused on low-and moderate-income communities, communities of color and other traditionally marginalized groups. Of course, these financial institutions would have made some of these investments in the absence of the agreements.  NCRCs Van Tol estimated, however, that about 20% of these dollars, or more than $127 billion, constitute new dollars that would not have been invested but for the CBAs.

Not every agreement pans out.  In 2017 NCRC entered into a sweeping five-year $16.5 billion agreement with Cleveland-based KeyBank which at that time was negotiating a merger with First Niagara Bank, a merger that was approved in part because of the commitments KeyBank made in the CBA.  It included specific mortgage and small business lending commitments, community development and philanthropic goals, agreement to stop financing CASH America’s payday lending business and more.  But NCRC determined that KeyBank was not keeping its commitment and in 2022 it walked away from the ongoing discussions with the lender.  NCRC reported that after the merger was approved KeyBank significantly reduced its share of home purchase lending to low- and moderate-income borrowers after promising to increase its share of lending to those borrowers. NCRC also reported that KeyBank had the lowest percentage of mortgage originations to black borrowers among the 50 largest mortgage lenders.

KeyBank’s regulator, the Office of the Comptroller of the Currency (OCC), is currently evaluating KeyBank’s performance in meeting its obligations under the CRA. NCRC has asked OCC to lower the bank’s CRA rating.  Financial institutions covered by the CRA receive one of four ratings when they are evaluated: Outstanding, Satisfactory, Needs to Improve, and Substantial Noncompliance.  KeyBank currently has an Outstanding rating and NCRC is calling for a reduction to Needs to Improve.  A downgrade can damage a lender’s reputation since the rating is public, lead to more frequent regulatory exams, and more importantly result in a delay or denial of regulatory approval of future changes it would like to make in its operations (e.g., opening or closing branch banks, mergers, acquisitions).  For example, according to Van Tol mergers where the acquiring bank has an Outstanding rating tend to get approved faster and those with a Needs to Improve or Substantial Non-compliance rating are not permitted to open new branches. He expects the OCC evaluation will be completed and its decision to be announced in early 2024.

There are no magic bullets and CBAs are certainly not a cure-all for gentrification, displacement, and other associated costs of uneven development. There may be questions as to how well the community members of the negotiating team in fact represent the community.  This leads to the question of whether the negotiated benefits are necessarily those the community prioritizes.  Another question is whether this process yields more than what could be achieved through conventional planning and development practice.  Perhaps most important is just how effective are the enforcement provisions of the contract.  If either party does not meet their obligations, what is the vehicle for accountability?  NCRC’s struggles with Key Bank are illustrative.

The devil is often in the details.  CBAs offer great potential and have yielded many benefits.  Community engagement in local planning and development is built in from the start.  Specific, concrete goals and real dollars for the community are publicly identified and pursued.  Developers lower their transaction costs by facilitating permitting and related processes.  Jurisdictions enhance their tax bases.  “Win-Win” is a phrase that is thrown around a lot.  CBAs have delivered at least some wins and offer potential for more.

Gregory D. Squires is a Research Professor and Professor Emeritus in the Department of Sociology at George Washington University