May 7, 2004 - From the May, 2002 issue

L.A. Community Development Bank:

The riots of 1992 provided the impetus for the creation of the Los Angeles Community Development Bank. Now six years after opening shop, the LACDB has invested $130 million to foster businesses in underserved Central, South, and East Los Angeles communities. Despite the successes, the LACDB has had its share of growing pains. Recently, the Los Angeles City Council rejected the LACDB's latest business plan and asked for a revision. This rebuff comes on the heels of HUD's 2001 audit of the LACDB. In the midst of all of this activity, William Chu, the LACDB's Executive Director, sat down with MIR to discuss the challenges and opportunities facing the bank going forward.


William Chu

Mr. Chu, MIR has covered the L.A. Community Development Bank since its inception. Since that time, the bank has been challenged by a number of hurdles-organizational and otherwise. It's been 10 years since the riots made this bank a reality. In light of that anniversary, let's start by having you detail the Bank's successes over the past 6 years.

In the 6 year history of the Los Angeles Community Development Bank (LACDB), approximately $130 million has been provided to 245 entrepreneurs and businesses in Central, South and East Los Angeles. Because of that assistance, more than 3,100 jobs have been created for local residents.

One of those successful projects is Chesterfield Square. LACDB provided the initial funding of $15.5 million development on 23-acres in South Los Angeles. Chesterfield Square is the largest retail-commercial development tbe built in South L.A. in the past decade. The development houses several retail amenities, including a Home Depot, Food 4 Less, RadioShack, Starbucks and McDonald's, just to name a few. Because of that investment, over 500 jobs have been created for local residents.

In Pacoima we have another success story in the Gold Graphics Manufacturing Company. It was devastated by the 1994 earthquake, but with funding from the LACDB, the company's business has quadrupled and it has grown from a staff of 70 to 170. It is now one of the largest employers in the city of Pacoima.

South Coast Metal Finishing is another successful partnership that the Bank is involved in. Our funding has allowed them to increase their output 5-fold, translating into an increase in sales from $800,000 to $4 million. Because of that partnership, South Coast Metal was just recognized by Inc. Magazine as one of 100 Fastest Growing Inner City Companies in the United States.

And last but not least is the Vermont-Slauson Shopping Center. We have provided $2.5 million in development capital to aid in the construction of a new shopping center in South Central Los Angeles. When complete, that shopping center will include a 50,000 sq. ft. Supermarket and create approximately 150 new jobs for local residents.

Let me focus this discussion with a quote from LACDB Boardmember Denise Fairchild. In a June 2001 interview with MIR she said, "If the bank had a broader community perspective, it definitely could have expanded its portfolio and its vision of what it could do." You're an experienced banker, how would you correlate the mandate, mission and structure of the bank with its ability to accomplish its mission as it stands today?

The most important thing to remember is that the LACDB was formed as a private venture to help revitalize the underserved communities of Los Angeles. However, that is a burden no single agency can carry alone. The task is simply too large. And it is unfair to expect a solitary entity like the LACDB to create miracles for communities that the city and private investment have neglected for decades.

To overcome that barrier, we need to be able to partner with other agencies in our area of service-CRA, Housing Dept., the MTA, etc.-so that we can provide the kind of results that our mandate requires. That kind of partnership will allow us to better leverage public funds.

We've tried to partner in the past and regardless of the success of those partnerships we've maintained contact with those agencies. But what we are finding is that the challenge of public-public partnerships is oftentimes much more difficult than public-private partnerships because of the enormous coordinating efforts.

And how has that inability to effectively cooperate impacted your ability to fulfill your mandate. You allude to the difficulties. But what real challenges does it provide the bank? And how did it lead to the HUD audit?

In terms of the audit, HUD's Office of the Inspector General contacted the city and the LACDB in early 2001 to initiate a preliminary review of certain complaints that were forwarded to a local congressional office. The bank has complied with the HUD audit requirements and it is my understanding that the audit is now being wrapped up. However, since we are still awaiting the final report, I can't comment on the particulars of the audit itself.

With regard to the second part of your question, our biggest challenge currently is access to capital. We've learned a lot in the past 6 years, but we are still a company in its infancy stages and there is an enormous amount of investment still needed in the L.A. community.

Look at Chicago's South Shore Bank-the eminent economic development bank in the country. While they are currently an extraordinary model to mirror our own operations, they went through a similar tumultuous formation period 30 years ago when they were in their infancy. But they survived and they've done very well since then.

The L.A. Community Development Bank has made mistakes. But we've learned from them. And I think our challenge now is to continue learning from those mistakes, find better ways to access both the capital and the communities that need revitalization and continue to work toward our mandate of revitalizing L.A.'s forgotten communities.

Partly because of those mistakes the City Council has denied your initial business plan and forced you to come back with a new draft. Give our readers a sense of why they rejected the plan and what lessons have been learned.

In part, I think that the plan was denied because of what the city considers a lack in jobs held by empowerment zone residents. With the $100m in grant funding, those dollars were specifically earmarked for loan and investment allocation to businesses located in the empowerment zone.

No additional funding was set aside for LACDB to develop the necessary programs, such as job training, to assist the businesses in identifying empowerment zone residents for the jobs that they've created. With adequate funding we could employ strategies to assist our borrowers.

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Also, keep in mind, we've made some significant strides in meeting the job creation numbers. To date we have executed contracts with borrowers that have resulted in the creation and/or retention of more than 3,100 jobs for local residents. That‘s approximately 84 percent of the HUD requirement. Over 60 percent of those jobs have gone to low-to-moderate income residents.

You have repeatedly stated that you believe the future of your organization lies in partnering with other public and private agencies. But, given the rumors currently circulating that the CRA would like to take over the bank, what do you expect in your deliberations and negotiations with the City Council?

I don't see that as a problem. We would like to work more with the agencies within the city of Los Angeles, particularly the CRA. So I don't see that as a problem. I see that as moving in the right direction.

Again in that interview with Board member Fairchild, she stated that you were, " not only well grounded in the banking business, but you also have the heart to be the cheerleader and the community partner that the bank so desperately needs." In light of rumors, audits and hurdles you have had to deal with since your hiring, is heart enough?

It is a difficult task, but one thing I've learned is to be patient. You can't get things done overnight. Work on your problems and gradually correct what you can correct and move on. That is the lesson I've learned. And that is the way to rebuild credibility.

But the L.A. Times on March 26th said "[T]he Bank's continued survival is unlikely." Is there enough time to gradually rebuild credibility?

I cannot predict what the city officials will do. But the bottom line is that we've learned our lesson, we've grown, we're focused on bringing credibility to this agency and we're moving in the right direction.

At some point we must be allowed to stop defending the past actions of the bank and be allowed to focus on the present and future of the organization. Just like an infant, as you grow up you make mistakes. In order to be able to overcome those mistakes you must be allowed to focus on the job in front of you. We can't be focused on the past, we can't continue to defend what happened in the past, we must be allowed to focus on the future. That's our goal!

And from my view, there is a great need for an institution like the Community Development Bank in Los Angeles. The only way we can begin to address the underserved communities of L.A. is if we are allowed to push forward and achieve our mission. If we are allowed to do that, we can be the agency that everyone envisioned 6-years ago.

Does the Council's quick action to approve a new Downtown redevelopment zone give you hope that they can focus on the future? What is the relationship between that action and your mission?

The approval of the Downtown Redevelopment Area provides a true opportunity for the LACDB to work with another agency and leverage public dollars. Again, we still have $200 million of federal guarantees that are unused. Here is an opportunity to really link the goals of two powerful agencies and push forward a holistic mission for community revitalization.

A year from now if we come back, what do you hope to have accomplished?

I would like to relate that more businesses have been assisted and more jobs have been created for the residents of L.A.

And do you believe that that kind of progress will satisfy the Los Angeles City Council?

That's our mission and that's as far as the LACDB can go-job creation and the provision of capital and/or long-term financing to needy communities. Anything else is not under our mandate and is out of our control.

Would you change that mission if you could? If you were the architect of the bank on day one, knowing what you know today, would you change the structure and relationships that formed the present day institution?

I would make sure that everyone involved in the creation of LACDB understood the rules of the game. That was a problem with the original architects of the bank, they simply didn't understand the scope and breadth of the actual rules they were approving. In order for an agency like the LACDB to work effectively, everybody needs to be on the same page.

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