Defining Community Development in Order to Fund It

The U.S. is dotted with community development corporations that were founded in the mid-20th century to improve economic conditions and quality of life in neighborhoods that had been disinvested from. But over time the structure of these organizations has become more formal. And in some locations, access to funding and recognition has become tied to these organizations’ certifying as community development corporations (CDCs).

Some in the field say there are some benefits to formal definitions, such as better access to funding and better visibility for CDC-identifying organizations.

Amber Stewart, the program director for South Carolina Association for Community Economic Development (SCACED), which helps certify CDCs in the state, points out that becoming formalized was supported by local groups themselves. “Groups said ‘We want to be formally recognized. We do great work in our community, and we want the state to support that,’” she says. “[Definitions] came out of it.”

But does this change affect an organization’s identity or its mission to serve communities as its original organizers intended a few decades ago?

What Is a Community Development Corporation?

Though the definition of community development is often debated, in general a community development corporation is a nonprofit organization that aims to revitalize communities that have historically struggled through a range of systemic issues like disinvestment and high levels of poverty. Many CDCs throughout the country work to develop affordable housing and also support small businesses and job training. These organizations are not government entities or agencies, but many do work closely with official agencies to better address the needs of the community that they serve.

Many of these organizations have grassroots origins in urban communities and were working to address racist policies from the 1940s and 1950s that hurt and displaced predominantly communities of color. The structure of these groups often took a bottom-up approach and they were led by members of the affected neighborhood or community, often volunteers, in hopes of fixing issues that those discriminatory policies caused.

Over time—especially in the early 2000s and onward—many organizations have evolved from being informal grassroots groups to becoming highly structured official nonprofits. Whereas many organizations began with groups of volunteers or small teams, many now rely on paid staff with community members taking roles on the board. For example, the Point CDC in New York City was founded in the early 1990s with the goal of supporting community housing. Throughout the years, the organization has since added more services and education, like community events, nature related classes, and arts programing.

CDCs have mainly been self-identifying groups; there isn’t a national tax category or register that distinguishes these entities from nonprofits more generally. (Though HUD does have a definition of a “community housing development organization” that must be met to access certain housing funds.) CDCs haven’t been represented by a national organization since the National Congress for Community Economic Development (NCCED) was dissolved back in 2006. At that time, the group estimated that there were over 4,600 community development corporations throughout the U.S., WHYY reported in 2014. And though these groups are no longer represented by a larger national organization, many do work with regional, state, or citywide associations, which themselves are represented by the Community Opportunity Alliance (COA, formerly NACEDA). The Grounding Values in Research project, carried out by COA and the Urban Institute, estimates that there are currently about 6,200 community-based development organizations in the country. This definition is somewhat broader than what many consider to be CDCs, encompassing, for example, local Habitat for Humanity affiliates.

Formalizing the definition

Since the late 1990s, Philadelphia, Massachusetts, and South Carolina have created formal definitions for CDCs. They have done so to establish parameters around who can apply for grants and tax credits that are targeted to support community development.

The city of Philadelphia offers a tax credit to local businesses that donate to qualifying CDCs. (Nonprofit intermediaries and organizations that work to implement healthy food initiatives also qualify.) Qualifying CDCs must be formal nonprofits with either budgets of at least $100,000 or a documented $100,000 match to the funds they will receive. They must promote “economic development in economically distressed neighborhoods of Philadelphia,” with economic distress defined as including but not limited to “high unemployment, vacant commercial and/or industrial properties, or . . . deferred public or private maintenance to commercial areas of a neighborhood,” and economic development defined as “increasing economic opportunity for residents, retaining, growing, or attracting business, or retaining or creating permanent jobs in the identified area.” They must have (and at renewal be making progress on) a five-year plan, and have prior experience or have engaged employees or consultants. There is typically more demand for the tax credit than funding available.

South Carolina–based CDCs must undergo a statewide certification process to get access to certain state funding. SCACED, a membership association that works with economic development organizations, helps to conduct the certifying process in the state, and took part in crafting the definition. South Carolina identifies a CDC as a tax-exempt nonprofit whose mission is to “enhance the economic opportunities of the people in the community served” by supporting small businesses and developing affordable housing in low-income areas. It requires that CDCs have their “activities and decisions initiated, managed, and controlled by the constituents of those local communities,” and specifically exempts organizations whose only activities are housing development or technical assistance to other organizations.

“We look at who sits on their board. . . . They may not have that law degree or that be that accountant . . . but residents should be representatives and have just as much buy-in and power in the decision-making process,” says Stewart, the program director for SCACED.

As in Philadelphia, becoming certified allows South Carolina CDCs to benefit from a tax credit given to taxpayers who invest in them or give them cash donations. Jamilla Harper, the chief operations officer at Metanoia, a CDC in South Carolina that develops affordable housing, says that the organization can draw in a little under a million dollars from funding in about three years thanks to that tax credit. Without that source of funding, it would take more work and time to raise that amount for Metanoia’s operations and programs.

“That [funding] is critical to bridge some of the gaps . . . in terms of being able to pivot and support future-oriented aspirations of the community,” Harper says. The tax credit “incentivizes major gifts to the organization and to any CDC. Someone [who] may already be willing to give a gift, they might be willing to give a larger gift because of this tax credit.”

Massachusetts passed its law with certification standards for CDCs in 2010. According to a guide from the Massachusetts Association of Community Development Corporations (MACDC), a CDC in the commonwealth is defined as a nonprofit that focuses on specific economically disadvantaged communities, with a purpose to “engage local residents and businesses” on “projects and activities which develop and improve urban, rural and suburban communities in sustainable ways that create and expand economic opportunities for low- and moderate-income people.” Like South Carolina, Massachusetts requires that low- and moderate-income people are “meaningfully represented on the board of directors of the corporation.” Rick Sauer, the executive director of the Philadelphia Association of Community Development Corporations, says he understands that in practice the state interprets that to mean that the board should be representative of the class and racial diversity in the neighborhoods served.

Massachusetts’s certification is also designed to give access to a tax-credit funding stream. The Community Investment Tax Credit, which gives taxpayers a 50 percent credit on their liability for donations to eligible organizations, raised over $98 million for community development between 2016 and 2022. 

Benefits of Definitions

Sauer says that having a formal definition means that government agencies can understand how to distribute tax benefits and other forms of funding. “You do want to make sure that organizations that the funding was being targeted for . . . are legit organizations [and that] they’re meeting a certain base level threshold of criteria,” he explains.

Sauer says that he finds Philadelphia’s definition relatively flexible and supportive of the grassroots origins of an organization and its mission, even if that means a group has to become more formal to support the expansion of operations over time.

In Massachusetts, housing advocates worked with the state housing department and community affairs department to create the criteria for the certification program. Emily Haber, the CEO of the Massachusetts Association of Community Development Corporations, which was involved closely in that process, says that as community needs change over time, it’s important for community organizations to shift. “There’s a whole host of things that they do that require a certain level of sophistication around managing difficult funding sources,” Haber says. “In some cases I think you need a certain level of systems in place to manage those kinds of resources, and not get yourself in trouble.”

Sauer says he thinks Massachusetts could be a guide for how to define CDCs to get them better access to funding while encouraging community representation. He said that the clear definition and explicit inclusion of the mission of working with underrepresented groups meant that organizations were easily identified, and had access to resources. “[Massachusetts was] very thoughtful about how they put that together,” he says.

Frank Woodruff, the executive director of COA, says that having definitions for community development corporations could mean more visibility and support for organizations that identify as CDCs. “Benefits to the organizations themselves [include] that they can easily point to a field that they belong to,” he says.

Woodruff says that he’s been aware of bills in the past in several more places, including California, to define what CDCs are. He says that the formalization and professionalization of CDCs as a field is similar to any entity that began as a community group and grew into a more official organization. This may sometimes include having more people on staff with advanced degrees, versus the groups of primarily volunteers that launched the CDC decades ago. Like Haber, Woodruff also says that the shift in community needs over time means there needs to be a combination of community volunteers and professional staff that have years of experience.

This isn’t always easy. “Once an organization or an entity starts orienting its business practices and governance around definitions of a funder . . . that process can lead to some tensions,” Woodruff acknowledges. “Particularly if the definition isn’t done well.”

Stewart of SCACED admitted that the state’s certification guidelines have sometimes left out organizations that thought they should qualify. At least, she notes, applicants who have been denied can reapply after less than a year.

A Different Tax Credit Approach

New Jersey’s Neighborhood Revitalization Tax Credit Program, or NRTC, is a statewide program that provides businesses a 100 percent tax credit for funds that are used to support nonprofits that create revitalization plans for communities in need. Those organizations must put at least 60 percent of that funding toward affordable housing development and economic development activities.

Though this tax credit also funnels significant funding to CDCs, the state chose not to define what a CDC is. Instead the state takes applications to the program, and focuses on the ability to plan and carry out the required revitalization plans, in order to allocate the credit.

“The groups that are approved, tend to produce. I think that’s the biggest testament to [the program],” says Brad Harrington, the neighborhood programs administrator at the New Jersey Department of Community Affairs. “What the NRTC calls for is pretty comprehensive. It’s definitely [for] an organization that has staffing and can last year after year to affect neighborhood revitalization.”

Nina Rainiero, director of communications at the Housing and Community Development Network of New Jersey, an organization that works with CDCs as well as other housing-related nonprofits that might not identify as CDCs, says the NRTC is working well; in fact, supporting and expanding it is a top advocacy priority for the group this year. “We are urging state legislators to double that tax credit in this upcoming budget,” she says.

Staying True to Mission

The need to get certified and formalized to get access to a tax credit has not kept groups like Metanoia from drawing input from the residents of the cities and neighborhoods that they work with, says Harper. The organization says it aims to build with the community and not for the community. “At the CDC, we . . . provide insight to larger systems around what it takes to not just develop for development’s sake,” she says, “but develop with intentionality around the people who have been living there.”