What is the Cost of NOT Investing in Distressed Neighborhoods?

V.2, N.42

Greetings from San Antonio, Texas, where I was attending the most recent Neighborhood Economics conference. The big question on the minds of the 350 attendees was how local investment could unbend the daunting curve of inequality in the United States. 

In the final session on the main stage, conference co-organizer Kevin Jones asked me: “Why should we invest in every neighborhood in a community?” Here’s a summary of my response:

One unique virtue of local investing is that it offers social as well as personal financial returns. We know that a community with a critical mass of healthy local businesses grows income, wealth, and jobs. That pays off to local investors in the form of better community services and lower taxes. We might quibble about what your social return might be from any specific local investment, but we know it’s not zero.

The best local investments, however, are often not just in the wealthy zip codes in a metropolitan area. I believe the mother lode of unrealized opportunities is in neighborhoods that are economically worse off. Why? Because an investment dollar in the hands of a low-income entrepreneur in an underfinanced neighborhood will make the most significant difference in a regional economy. That dollar will be stretched further, address deeper needs, and fill a gaping hole of demand for smart investment.  

Still, I appreciate that the well-heeled skeptic, unmotivated by compassion or justice, will want to know more numbers on the rate of return: “What’s in it for me? What’s the payoff for investing in a community that was once officially redlined to discourage any investment whatsoever?”

Here’s a simple answer. No matter where you live or how high the walls around your gated community, inequality nearby imposes huge social costs on your life. 

• More inequality means more crime, more police, and more security expenditures for your walled community, more alarms for your cars, and more guards for your kids.

• More inequality means more toxins, more air pollution, more stormwater run-off from largely unregulated brownfields, and more heat islands in your city, killing off trees, animals, and pollinators, all of which you will have to pay for to remedy.

• More inequality means more people are unwell, crowding emergency rooms, filling hospitals, and imposing huge medical bills on local government budgets.

• More inequality means more deaths of despair from suicide, drug overdoses, and alcohol-related diseases, making labor more scarce and production more costly.

• More inequality means more homelessness in your public spaces, discouraging people from buying from your local businesses and scaring off would-be tourists.

• More inequality means more people are vulnerable to viruses and other epidemics—and disease vectors do not respect walls or borders.

• More inequality means more hungry children, unable to learn well, who grow up to be less productive workers in factories and offices.

• More inequality means more social spending to address all the above (however inadequately), which will raise your taxes.

• More inequality means more civil strife, more distrust, more corruption, and less innovation.

• More inequality means greater political polarization, which means the empowerment of radical movements you detest and white supremacy movements you can’t defend.

• More inequality in your community means, in short, significantly lower quality of life, even for the wealthy.

What’s the point of a 20% private rate of return when it results in misery for you, your kids, your friends, and your neighbors?

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There were lots of other interesting conversations at the conference that I’ll share in upcoming issues of The Main Street Journal. Here are a few previews:

• Mark Elsdon spoke about his new book, Gone For Good, which documents that America will likely lose 100,000 church buildings over the next ten years. An estimated 91% of the uses of these buildings are civic, not religious, and each church contributes an average of $4 million of economic activity annually. Local investors should begin to purchase and conserve these important community assets.

• There are now 50 mission-driven Perpetual Purpose Trusts (a type of Employee Ownership Trust) increasingly vesting ownership not just in employees but also in contractors and other stakeholders critical to a company’s success. In the United Kingdom, smart tax policies have led to the creation of 6,000 Employee Ownership Trusts.

• David Erickson of the Federal Reserve explained how trillions of federal dollars expected in the coming years to support local energy, health, and business policies could be used to expand local ownership. For example, 40% of the half trillion dollars committed to communities under the Inflation Reduction Act must go to low-income neighborhoods.

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And here are some other news you will find in today’s issue:

• ImpactAlpha reports on several intriguing new models for employee ownership. A company called Vyld, for example, which is radically redesigning the tampon, has a novel “steward-ownership” structure.

• A Forbes op-ed (Forbes!) makes the case for an ownership society.

• The Wall Street Journal recently profiled Destin Jenkins, a Stanford history professor who has shown how the municipal bond market is skewed to disadvantage communities of color.

• In the Nonprofit Quarterly, Jessica Norwood explains how community investment has been at the root of African-American business success.

If you’re still hungry for more, please subscribe to the MSJ Extra! through this handy link.

~ Michael Shuman, Publisher

NEWS

• Investing in the Ownership Economy, ImpactAlpha (January 26)

• What Will It Take To Build An Ownership Economy? Forbes (February 6)

• Taking on Racism in the $4 Trillion Muni-Bond Market, The Wall Street Journal (February 15)

• Black Entrepreneurs and Collective Action, Nonprofit Quarterly (February 15)

WHAT YOU MISSED IN LAST WEEK’S MSJ EXTRA!

In our last issue, Michael Shuman interviewed Jenny Kassan, who is widely known as one of the most thoughtful securities attorneys in the country focused on grassroots investment. A graduate of Yale Law School, Jenny was co-founder of Cutting Edge Capital (recently renamed Pathlight Law) and now runs her own firm called The Kassan Group. She has written dozens of articles on securities law, but the best entry point into her thinking is her book Raise Capital on Your Own Terms (Berrett-Koehler, 2017).  

MHS: The latest statistics on investment crowdfunding (thanks to Reg CF) are that more than 1.5 million Americans have invested over $2 billion in 6,000+ companies through investment crowdfunding. That sounds like a great success. Do you agree? Do you see investment crowdfunding continuing to expand?

JK: The percentage of the US population that has invested in an investment crowdfunding campaign continues to be very tiny. I would like to see everyone with money investing at least a small percentage of their portfolio in businesses that are not on Wall Street.

I hope investment crowdfunding continues to expand. I worry that the goal we hoped to achieve when we started advocating for the change to the law in 2010—namely, to make supportive, right-fit capital accessible to small local businesses—remains elusive. Instead, the industry seems to be focusing more and more on serving high-growth tech startups that hope to attract venture capital and be the next unicorn.

We need to make sure that the 99% of businesses not on the venture capital path get the support they need to be successful. This shift will likely require support from philanthropy, government, and impact investors.

MHS: Do you see some specific rule changes that could boost the use of the crowdfunding tool in the way we had first envisioned?

JK: Yes, definitely. Here are some of the things I would like to see changed: First, don’t require GAAP-compliant financial reports for companies raising small amounts. These reports do not add much value for investors and represent a big barrier for underresourced small businesses. Second, provide a user-friendly way for issuers to submit their annual reports. Third, allow nonprofit investment funds to raise money under the crowdfunding regulations.

PARTNER NEWS & VOICES

• Equal Exchange Featured Among New Impact Offerings, Superpowers for Good (February 19)

• Neighborhood Economics: Cultivating Black Entrepreneurship, The Mindful Marketplace (February 16)

• SOCAP24 Accepting Session Idea Submissions, SOCAP Global (February 15)

• Natural Investments: Sustainable Investment Firm Becomes a Perpetual Purpose Trust, ImpactAlpha (February 13)

• Project Equity: An Exit Strategy Every Business Advisor Should Know About, Forbes (February 13)

• Crowdfunding & SBA Lending, Crowdfund Better (February 6)

• Reflections on Employee Ownership, Transform Finance (January 30)

NEW INVESTMENT OPPORTUNITIES

Our complete list of recently posted investment opportunities has moved to MSJ Extra! As a teaser, here are a few offerings from our list. (Please note that our listing of these opportunities is not an endorsement, and remember that all investments are risky, so click on the hyperlinks and read all the details carefully before investing.)

• Joyhound Beer Company (Baltimore, MD; Black-owned business), Mainvest

• Swelter Coffee Roasters (El Cerrito, CA; women-owned and zero-waste business), Honeycomb

• Zette (San Francisco, CA), Wefunder

LOCAL ECONOMY FUNDS HIGHLIGHT

• Can Commercial Corridors + Broad Ownership Build Community Wealth Without Displacement?, ImpactAlpha (February 22)

NOTABLE NEW RESOURCES

• 2023 Impact Report, Honeycomb Credit (February 15)

EVENTS

• Moving Minds & Money to Transform Arts & Culture Investment - In-Person Event (Philadelphia, PA). March 8. Register here.

• Community Investment Funds - Virtual Event. March 14, at 2 pm ET. Register here.

• SuperCrowdBaltimore - In-Person Event (Baltimore, MD). March 21. Register here.

• Investment Crowdfunding Demystified - Virtual Event. March 26, at 2 pm ET. Register here.

• Works For All: Cincinnati's Co-op Economy - Virtual Event. March 29-31. Register here.

• Move Your Money Month - April 1 - 30. Sign-on here.

ICYMI

• The Case for Rewards-Based Crowdfunding, Michael Shuman

• Organic Valley Co-op’s Carbon Payments for Farmers, Co-op News

• Solidarity Economy Courses, Creative Study

JOBS BOARD

• Black Farmer Fund: Development & Investor Relations Director

• Just Economy Institute: Fellows

• Just Futures: Coalitions & Worker Power Manager

• Mission Driven Finance: Business Development and Partnerships Senior Director and Senior Data and Analytics Engineer

• Shelterforce: Board Members

• US Federation of Worker Cooperatives: Development Director

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SOME OF MSJ’s VINTAGE ISSUES

• Does Your Community Want Its Own Home-Grown Investment Fund?

• Crowdfunding Is Working for Women and Minority Entrepreneurs

• 36,000 Funds or Bust! 💥

• Ring in the New Year with “Bank of Dave”

About The Main Street Journal

The Main Street Journal aims to catalyze the movement of $50 trillion from Wall Street to Main Street to facilitate economic development and economic justice. It’s sponsored by the National Coalition for Community Capital, with grants from the Heron Foundation, Wallace Global Foundation, and the Bondi Foundation. We welcome feedback about everything, from our design to content. Also, we welcome suggestions of other groups to involve as partners and additional information to include. Please send ideas to Jen Risley at jen@main-street-journal.com. 

Our Team:

• Michael Shuman – Publisher

• Jen Risley - Editor

• Jessica Landman - Strategic Advisor

PARTNERS

Abrams+Angell | American Independent Business Alliance | Candide Group | Community-Vision Solutions | Council Fire | Crowdfund Better | Crowdfund Capital Advisors | Democracy Collaborative | Exit to Community Collective | Fair Food Network | Impact Finance Center | ImpactPHL | Initiative for Local Capital | Institute for Local Self-Reliance | The Kassan Group | Mission Driven Finance | National Coalition for Community Capital | Natural Investments | Neighborhood Associates | Neighborhood Economics | New Majority Capital | Next Egg | Nonprofit Quarterly | Ownership America | Ownership Matters | Partnership for Southern Equity | PathLight Law | Project Equity | Project for Public Spaces | Prospera Partners | Raise Green | Revalue | Schumacher Center for a New Economics | Shelterforce | Slow Money | SOCAP | Sun Valley Institute for Resilience | The Super Crowd Inc. | Transform Finance | Uwharrie Bank | Village Well | Zebras Unite

We welcome any nonprofit or for-profit committed to local investment as a partner. If your organization is interested, please contact Jen Risley at jen@main-street-journal.com.