City Council OKs Proposal for Community Development Bank

The Los Angeles City Council on Thursday gave its unanimous blessing to a proposal to use federal grants and loan guarantees for a pioneering community development bank aimed at bringing in new jobs and boosting the economies of the city’s poorest neighborhoods.

In signing off on the application to be submitted today to the U.S. Housing and Urban Development Department, the council agreed to use up to $315 million in loan guarantees and an additional $100 million from an already promised federal Economic Development Initiative grant to capitalize the bank. When those funds are combined with monies from private financial institutions, the bank could have half a billion dollars or more to help entrepreneurs and community organizations willing to invest in distressed communities.

The project was launched by Mayor Richard Riordan’s office after the Clinton Administration in December turned down Los Angeles’ bid to become an “empowerment zone” city, which would have netted it a generous package of social service grants and tax breaks.

The bank proposal, hammered out by a committee of council members, the mayor’s office and private attorneys and business finance people who donated their services, represents the city’s plan for the $100-million grant, its “consolation prize” after losing out in the fierce competition for empowerment zone designation.

Riordan, who has made revitalization of the city’s sagging economy one of his top priorities, hailed the council vote as “a major step forward to stimulating our city’s business development efforts in Los Angeles’ most economically disadvantaged areas.”

Although HUD has worked closely with Los Angeles on the bank proposal and has assured the city that its application will be approved, many thorny details remain to be worked out before the bank can open its doors late this summer. They include the appointment of a board of directors, development of loan criteria and creation of mechanisms to ensure that the bank serves those who need it most while protecting the public funds entrusted to it.

Should the bank fail, the federal government would seek repayment of the loan guarantees by subtracting the debt from the city’s share of future Housing and Community Development block grants. Those are the city’s main source of funds for social service programs in needy areas.

The bank proposal is “breaking new ground,” Chief Legislative Analyst Ron Deaton told the council, noting that no other community economic development bank in the country is exactly like the one Los Angeles is planning.

Councilman Mark Ridley-Thomas, a member of the ad hoc committee overseeing the development bank project, won council approval for his motion to appoint a negotiating team to fashion a comprehensive agreement between the city and the bank. That key document must address the remaining issues, he noted.

Hernandez noted that Bank of America has pledged $50 million toward the project and other private institutions are expected to follow suit.