After the Storm

Community Investing Aids Gulf Coast

Even before Hurricane Katrina's floodwaters hit the Gulf Coast last summer, the region was suffering economically. But the one-two punch doled out by Katrina and then Hurricane Rita literally wiped out thousands of promising small businesses—and the jobs that went with them—all the way from Texas to Alabama. While state and federal authorities are still scrambling to clean up the physical mess left in the storms" wakes, several socially responsible community investment projects are helping shoulder the daunting burden of getting the local economy back on its feet.

© Elizabeth Prager

The Calvert Foundation, launched as an independent nonprofit in 1995 by the pioneering mutual fund of the same name to stimulate investment in needy communities, has risen to the challenge by offering a Gulf Coast Recovery Initiative Note that channels money to local nonprofits overseeing micro-credit, low-income housing, small business and other community development initiatives in the devastated region.

Deterring Carpet Baggers

"We had fears that a new kind of "carpet bagger" would come into this distressed region and start buying it up at bargain prices and displacing communities that have lived there for many years," says Sheri Berenbach, executive director of the Calvert Foundation. "To avoid this kind of predatory approach, we knew it was important to involve local community organizations in the decision making and to make sure that financing gets to those typically outside the mainstream."

Calvert's notes function like a Certificate of Deposit (CD) investment account, paying up to two percent interest (although investors can forego the interest so as to leverage the investment further). Unlike bank loans, which are insured by the FDIC, the Calvert Foundation's notes are backed by its own loan loss reserves as well as $12 million in collateral. These guarantees, coupled with the foundation's successful track record, mean investors won't lose their shirts by ponying up cash for the effort.

"Community investment is all about channeling capital to disadvantaged communities and to working through local nonprofit organizations that are accountable to the neighborhoods they serve," says Berenbach. "The Gulf Coast Recovery Initiative is one of the few instances in which an investor can channel their dollars directly to the people who need assistance most to rebuild their lives and to start anew."

Meanwhile, the CRA Qualified Investment Fund, the nation's largest mutual fund of community development investments, has earmarked $100 million in assets—almost 15 percent of its total holdings—for investments that finance redevelopment of the Gulf Coast region affected by the hurricanes. Fund managers position the initiative as a complement to donations and volunteer efforts already underway to assist victims.

"Charity is an important first step after a disaster like Hurricane Katrina," says Barbara VanScoy, portfolio manager for the fund. "But the reality is that what these communities really need to get back on their feet are major investments in infrastructure, housing, small businesses, schools and other vital community services," she adds.

In order to protect the contributions of investors, CRA's Gulf Coast fund is conservative by design, limiting its investments to safe bets such as mortgage-backed securities, taxable municipal bonds and Small Business Administration loans with secure credit ratings. Individuals can purchase shares in the fund through their financial advisors or through mutual funds such as Charles Schwab, Fidelity or TD Waterhouse.

CDs that Make a Difference

Another way for concerned investors to participate in the economic recovery of the region is by investing in the Hurricane Relief Certificates of Deposit (CDs) offered up by the Mississippi-based Hope Community Credit Union. Hope is using the accumulated deposits, which yield interest payments as high as two percent, to provide flexible financing terms to help affected low-income families rebuild their homes, businesses and lives.

Additionally, Hope has partnered with the Enterprise Corporation of the Delta—a community development loan fund serving economically distressed areas of Arkansas, Louisiana and Mississippi—to leverage $15 million in investment capital from six major corporations active in the region to make loans to struggling Gulf Coast service, retail, construction, health care, manufacturing and real estate businesses that would otherwise have a tough time qualifying for traditional financing. Besides the unquantifiable social return, the participating corporations also qualify for tax credits under the federal New Markets program that encourages community development in distressed areas.

While a full economic recovery from the devastation wrought by Hurricanes Katrina and Rita may be many years away still, community investment efforts such as these are providing important footholds for individuals and businesses eager to start over. If these initiatives can play a significant role in jumpstarting the regional economy, then the concept will surely spread far and wide.

RODDY SCHEER reports on green money issues from Seattle.