by Lynn Adler and Jim Mayer
Producers of Faith, Hope and Capital
My name is Ron Phillips. I went to Union Theological Seminary in New
York and studied history and economics. Actually, I intended to study
more philosophy and theology and get involved in that kind of exposure
to what human society is all about. But the concept of justice and economics
kept kind of pressing in on that whole matter to the point where I got
very interested in what we call, today, community development.
talk a little bit about the economic problems that Maine faces.
we started Coastal Enterprises in 1977, I would characterize the economic
problems facing Maine as very much the same problems that third world
countries face, being a natural resource state, being based on more
extractive industries with less value added than you'd like to see.
Maine really faced the question of how does it create a vibrant local
business economy to market its products at competitive prices, and with
value-added to those products. Back in the 70s, Maine was really at
the much lower end of the spectrum in terms of per capita income and
also in terms of wage structure as compared to national averages.
in the early days, there were a lot of experiments, I guess, and mistakes?
we don't think of those as mistakes. This field was very young. As you
know, in the mid 60s Title Seven legislation of the Equal Opportunity
Act authorized establishing CDCs--Community Development Corporations--around
the country in urban areas and rural communities that were of low income
to help these communities develop assets, mainly in businesses, housing
and commercial real estate types of enterprise. So, ten years later,
when CEI was organized, it was a young field. The religious institutions
on the national level were trying to allocate resources to create housing,
set up business enterprises, and make deposits in credit unions. But
many of these early efforts, both with churches and even with government--particularly
with government, in fact, where most of the money was--and with foundations
as well, were really trial and error. They were learning opportunities--we
don't think of them so much as mistakes--learning opportunities on how
to take money from one place and invest it and loan it and manage it
to create a project that would be sustainable and enduring. And we had
our share of those kinds of learning opportunities. Early on, we were
focused on natural resource industries, the fishing industry. In fact,
in the background right here is one of our early projects. It's a very
successful business venture that supports the Southern Maine fishing
fleet with ice and fuel and other kinds of services. But, we did get
involved--and still are--in the small family farm movement. We tried
to set up and support a marketing co-op which didn't succeed; we were
involved in various fisheries cooperatives which also didn't quite make
it; but a lot of things did come out of that period and we're doing
much better today.
we talk about why some of those earlier experiences didn't succeed?
RP: A lot
of good reasons why. Doing any kind of business is very difficult in
the first place. Anyone who owns or operates or started a business and
has survived that process knows full well how difficult it is. We came
at that effort more with a lot of idealism--thinking that the idea would
carry itself-- than with some of the nitty gritty of how you operate
a business day by day. Clearly, management is always a major issue in
any business, and if you're learning how to manage and have to learn
too much, it might get away from you. And probably the second issue
is that in our field we don't have the capital resources to necessarily
follow through or make adjustments as easily. We have to be successful
right off. You don't get a second chance. So, management and capital
tend to be the two issues that lead to mistakes. LA: How have you addressed
that problem? RP: What we've built up--and a lot of organizations now
that are managing loan funds or investment funds at the local level
have actually built up--is a parallel program that we think of as "technical
assistance." This means that a business that is coming forward to borrow
funds is actually involved in a relationship with a business counselor,
or even the loan officer, in trying to put together their plan and their
cash flow in a way that makes some sense. So the issue really doesn't
become one of just credit alone or access to credit, which we know is
an issue--it really begins with the technical aspects of owning and
operating a business, and the kind of assistance that can reduce the
chances of failure down the road.
RP: I think
we're counseling right now at Coastal Enterprises somewhere in excess
of a thousand small businesses a year and most of those businesses aren't
actually looking for capital. They're actually looking for the human
skill of capital rather than the actual cash side of the equation. And
that kind of investment, in human skill and knowledge and management
ability, is really the primary issue we think that businesses face.
After you've accomplished that, then capital is obviously required to
go through with that project.
talk a bit about your job creation work.
RP: In all
of our work, our aim at Coastal Enterprises is to create economic opportunity
for people with low incomes. When we look at investing in a business,
we're looking for a percentage of the jobs to actually be reserved,
or targeted for people of low incomes. We work a deal out with the business,
the manager, and the owners of the companies to work with us in that
regard and we have very positive results around that. So we make a loan,
we target jobs within that company, and we work with the local welfare
offices or employment training programs to recruit potential employees
into those jobs. In the current climate of welfare reform, the issue
of jobs has again surfaced as a critical need for people who are going
to be transitioned from welfare to the workplace--some forcefully. So
we need to figure out what kind of jobs are we talking about here. Some
philosophies say any kind of job really will count--just to get people
into the job market--and maybe there's some value to that. In our case,
we think we ought to be really trying to identify quality jobs. When
we think of a quality job, we're talking about an hourly wage or a salary
wage that is going to be a livable and decent wage for a family. And
we also mean benefits--health benefits have to go with that, and to
some extent some support for childcare. In Maine, we estimate that the
livable wage is somewhere around eleven dollars and fifty cents an hour.
It's really a target for us to try to achieve that with many of the
companies we're investing in or making loans to.
LA: Do you
see banks as part of the problem or part of the solution?
banking industry for us is a critical part of our work and so we have
to maintain relationships with banks and try to partner with them on
many of our deals. That's where more of the capital is, so that's a
fact that we begin with. In fact, we have four bank members on our board
of directors, to give you an idea of how we try to create that relationship.
In the early days, however, it was not as simple to assume that banks
were going to be part of our work. First of all, you had to be taken
seriously; you had to truly be a player, so to speak, in the financing
market. Typically, when they decided that you might be a resource, you
would get a deal referred to you that actually was not really doable
or bankable even from our standpoint. So it took some time. But now
I think we're very much integrated with the banks and they do see us
as an important part of what is needed typically when you look at a
business. We call it the gap financing kind of area.
you were going into areas where banks would not go.
and Coastal Enterprises' job, as a development finance intermediary,
is to take funds from different sources--from the government, the USDA,
Small Business Administration, or private foundations like the Ford
Foundation or Mac Arthur Foundation--pool these funds and manage them
and make loans and investments in businesses. As we do that, we are
typically providing subordinated debt. We are in businesses that don't
have enough collateral to secure a bank loan, so in effect we're providing
the gap portion of the financing in concert with the bank.
did your relationship with banks evolve?
RP: We now
have good partnerships with banks, in some innovative ways. But, there
was a point in our history, when we started out, where banks were not
present at all. In fact, they were very suspicious of this kind of work.
For example, we got involved with childcare development in Maine, which
is now more of an accepted need and is understood better by the banks.
But at the time we got involved, that was a perfect example of where
banks saw this is not a bankable kind of operation. Today, there is
a lot of different perspective on that. I think the Community Reinvestment
Act, developed in the late 70s, laid the ground to get the attention
of the banks. I think that Coastal Enterprises in Maine has been at
the cutting edge of new market opportunities and that's actually been
really the signature of Coastal Enterprises. We've been able to look
at sectors, whether economic sectors or populations of people and say,
"Look there's some opportunities here if you start working with this."
A notable one is women in business. We got into that market in the mid-80s.
That was not even being talked about in Maine, let alone, nationally.
Today, I think you can hear and read in USA Today that women may in
fact soon be the majority of business owners. So it's a market that
banks are into now in terms of their special outreach and products.
With the banks, in fact, we've been able to get them to go a step further
with our equity fund. We set up a venture capital fund--it's a limited
partnership--and several banks in Maine have been investors in it, with
Key Bank of Maine being the lead investors. So today it's quite different
than the days of old in terms of our partnership. I think when we tally
up the amount of money that banks have put into projects that we've
financed, we're close to $120,000,000 worth of bank financing participation
with CEI and banks.
made a lot of loans to people in the fishing industry.
fishing industry was really CEI's flagship project in the early organizing
days. In the late, 70s we were involved in natural resource industry
development. We looked at that area generally as a way to focus our
efforts on value-added so as to create more employment, and obviously
more value to the natural resource product that was going out of Maine,
whether in farm products, wood products, and particularly fish products.
At that time, we estimated that only fifteen percent of the fish landed
in Maine was actually being processed in Maine. This created a framework
for us to look at how we could work with that industry and grow it to
a more value-added type of activity. So we got involved in a strategy
to actually make investments in small-scale fish processing cooperatives
or community-owned fish processing plants. The first was in Bar Harbor
and then we did a second one out in Vinyl Haven. We've made investments
in the area and a great success story has been the Portland fish pier
where in the early 80s a tract of land was taken over so that private
businesses could come in and set up some operations. This has been a
great boon to the industry as a whole. Of course the whole idea of the
fishing industry has taken a turn for the worse in some ways in recent
years because stocks have been dramatically depleted in the Northeast
fishing grounds. That certainly will have a continuing effect on the
Maine fishing industry. It also raises the issue for any of us in any
economic sector that we're involved in, particularly with natural resources,
on what sustainability is about and what sustainable yields are about
and how to better manage the resource. We feel in Maine that we have
actually a sustainable fishery to some degree. The boats are smaller,
they switch to different species; they can follow more naturally the
different cycles of reduction. This has been an industry that we want
to actually protect in terms of that capacity. So hopefully we'll be
able to survive the downsizing that is going on. Some fisherman in Maine
are selling boats or getting out. We ourselves are trying to support
either that activity or continued investment in the industry around
alternative species that may perhaps provide some income during this
period. One of them happens to be the cape shark, which is pretty prolific
in the waters off Maine.
your view of the history of the CDFI movement?
community development movement really has its roots in the 60s and in
the whole Civil Rights Movement. At least from my perspective, that's
a good part of what gave rise to a lot of community-based organizations
that are trying to get resources from one place and put them into places
which need them in order to enhance the living environment or the job
environment of those communities. And this is in rural areas as well
as in urban areas. The Community Development Corporation then set the
stage in the 60s for what has evolved as a much more widespread industry.
Community Development Credit Unions came out of that period, too, and
so those have been useful mechanisms to create capital in communities
for families to help them in their credit needs. Later on, we saw the
rise of what we think of now as microloan organizations, which are really
focused almost exclusively on very small loans, very small amounts of
capital--as low as five-hundred dollars. And that's a burgeoning and
flowering sector that we're looking at. The Community Development Loan
Fund program also started to come out of the 60s where private lenders--individual
donors and church organizations--gave funds to, or made low interest
loans to community development loan organizations, and those were almost
strictly privately funded versus any government funds. Then the concept
of community development banks started to come with the advent of South
Shore which had been busy trying to integrate some of these functions
and there have been several of those that have developed in the country
since that period. Putting all this together, a new concept emerged
a few years ago which we think of as the Community Development Financial
Institutions program and this is really a set of organizations that
virtually exclusively do financing. They don't play up the technical
assistance components of their work, if they do that at all, nor do
they play up any kind of policy work or targeted economic sectors. It's
really strictly a banking type of operation. So that type of discipline
has now brought us full circle between the CDCs of the Civil Rights
and the early organizing days--which is much more holistic in terms
of its approach to community--over to the Community Development Financial
Institutions, which is much more focused on the discipline of lending.
Putting all that together, we've got one hell of an industry.