Community Bank Issues 1st Loan
With the air of contestants who have parlayed their consolation prize into a grand jackpot, local officials Tuesday ceremoniously launched the Los Angeles Community Development Bank, a federally funded, locally created lending institution designed to bring jobs and prosperity to some of the area’s most impoverished neighborhoods.
The announcement of the bank’s first loan--to a 150-employee garment manufacturing firm in South-Central Los Angeles--came 18 months after Los Angeles lost out on a lucrative federal aid package, an “empowerment zone†designation, to help the nation’s most destitute communities.
“Your best victories [can] come after defeat, if you’re cool and bright about it,†Mayor Richard Riordan told a news conference inside the bank’s new South-Central Los Angeles headquarters.
When the Clinton administration in December 1994 chose other cities over Los Angeles for inclusion in the empowerment zone program--a program begun in response to the 1992 rioting after the verdicts in the Rodney G. King beating case--Riordan’s then 6-month-old administration took much of the heat.
But Housing and Urban Development officials urged the city, along with the county, to set up an organization that would make jobs-generating loans in areas often eschewed by commercial lenders. HUD would provide economic development grants plus loan guarantees as seed money.
Still smarting from the loss of $350 million in social services grants and tax incentives, the City Council joined Riordan and county officials in embarking on the bank’s creation.
Today, with $430 million in federal grants and guarantees--plus $310 million in lending commitments from commercial institutions--the bank is increasingly viewed as a key testing ground for the Clinton administration and the business-oriented Riordan’s theories about how to turn around decaying neighborhoods.
The bank expects to loan $1 billion over the next 10 years, initially providing co-loans with other institutions. Soon it expects to add other programs--commercial loan guarantees, business and technical support, “micro-loans†of $2,500 to $25,000, commercial real estate loans and venture capital. All will be aimed at generating jobs for residents in or near the designated neighborhoods.
In theory, the jobs will get money circulating in these neighborhoods and improve the tax base to pay for social services, parks and police.
Riordan said Tuesday that the bank is a “tool to create quality jobs, opportunity and hope†in communities that he said have been “too long neglected†by City Hall. The bank “will be lending money to businesses that have been left out of the loop†and denied access to capital because they are considered risky enterprises in areas with high commercial failure rates.
Councilman Mike Hernandez, who shepherded the proposal through a skeptical City Council, said the bank, while not representing as much as the city plans to invest in its airport expansion, harbor and other projects, nonetheless “can make a difference.â€
“This bank has a lot of hope for [the city], but it’s not going to be easy,†Hernandez said.
No one knows that better than Gilbert Ray, the attorney with a prestigious downtown law firm who donated his services to head the months-long effort to establish the bank. The effort included an inches-thick document creating the independent institution that had to be OKd by city, county and HUD officials. The bank now has a 15-member board of directors and C. Robert Kemp, a veteran of community and economic development projects in Los Angeles and Washington, as its first chief executive officer. While it remains independent of the city, county and HUD officials who authorized it, the board must report to them regularly on its progress.
“We had a vision that was in conceptual form only, and we are to make nontraditional loans, some of them highly risky, with the expectation that they will be repaid,†Ray said Tuesday.
“But if we don’t take the risks, we’d be out of business--there would be no reason for us to exist if all we did was what the commercial [lenders] do,†Ray said after the news conference.
Some of the disappointment that erupted when the city failed to win an empowerment zone designation was echoed at the news conference.
Councilwoman Rita Walters said she was “delighted this is off the ground.†But she pointedly noted the lack of money for much-needed social services even as she profusely thanked the Clinton administration for its generosity on the bank program. She made no reference to Riordan, who led efforts to get the bank.
Clinton administration officials and Riordan have said that a large part of the bank’s appeal is its intention to “empower†neighborhood residents to keep the momentum going once government aid has dried up.
No one seemed happier, though, than George Akers and Manuel Burgess, whose Trinity Knitworks received the bank’s first loan. Forty-six more loan applications are “in the pipeline,†CEO Kemp said, and the board was expected to approve at least one or two more at its Tuesday night meeting.
Begun as Drasin Knitting Mills Inc., the company has operated in Los Angeles since 1954 but was going to be closed because the retiring owners could not find a buyer.
“Everybody was going to lose their jobs,†said Burgess, who began as a garment cutter there 22 years ago and rose to operations manager.
He and Akers, whose clothing firm had done business with Drasin for years, decided that they would try to form a new company to replace the dying one. The owners liked the idea, but Burgess and Akers needed capital. The $700,000 from the bank and the private lender will enable the partners in the new firm to buy Drasin’s capital assets, save all the jobs and expand the line of clothing.
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The Bank at a Glance
The mission of the Los Angeles Community Development Bank is to promote investment and bring jobs to some of the area’s most destitute neighborhoods.
CAPITAL AVAILABLE: $740 MILLION
* $115 million in federal economic development grants
* $315 million in federal loan guarantees (secured by future social services grants)
* $310 million in lending commitments from commercial banks
AREA SERVED
* Communities totaling 19 square miles, including Pacoima, Boyle Heights and parts of downtown, South-Central Los Angeles, Watts, Firestone and Willowbrook.
LOAN PROGRAMS
* Co-loans with commercial and community lenders
* Commercial loan guarantees
* Business and technical support
* Small loans ranging from $2,500 to $25,000
* Commercial real estate loans
* Venture capital
Source: Community Development Bank
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