Local Initiatives Support Corporation CI Report – Final

What has been most instrumenta to your progress?

Structured engagement with and among local neighborhood development organizations in Opportunity Zones; built stronger relationships between the neighborhoods and LISC.
Since funding was available to provide to the neighborhood organizations, local leaders were able to dedicate more staff and volunteer time to engage in this project. One staffed organization leveraged other funds and completed an in-depth survey of priorities and needs of neighborhood residents and business owners. They even did some door-to-door surveying during the pandemic. The results set priorities that will inform the city and local project developers.

Convening these identified neighborhoods as a project advisory group built shared knowledge about Opportunity Zone potential, as well as the growth of Impact Investing possibilities. Attendees also provided feedback on neighborhood views of impact priorities. LISC then used these to inform the developers reticent to engage directly. This deepened the already strong relationships LISC had with those communities.

As a result, LISC was better able to demonstrate its unique role as the information bridge between neighborhoods, developers and city leaders.

Deepened relationships with developers interested in Duluth.
LISC was able to deepen engagement and monitoring of a development project pipeline, thanks in part to the processes and tools created by the contractor, Cogent Consulting. By completing informational interviews about projects with developers, LISC staff built rapport and trust with them, and we were able to bring new resources to the projects. LISC was also able to bring developers better information about community priorities, and began to act as advocates on with the city and local communities on their behalf in some cases. LISC became a trusted ally and voice on their behalf to communities.

These closer relationships also provided a much clearer understanding of why many developers were reticent to engage in community dialogues—projects were always in a state of flux until all the funding, government approvals, and final constructions bids were completed. The past three years made this even more complicated: COVID impacts increased construction costs for construction due to supply chain disruptions and workforce challenges.

Shifting to broadened capital source exploration, to Impact Investing: Opportunity Zone linked capital did not play out as envisioned in the 2019 legislation. There was great enthusiasm early on for Opportunity Zones (OZ) and the related new access to capital gains investments. Many entities in Minnesota tried to create ways to assist in access to that new form of capital. However, they abandoned the work after finding it was too difficult and too expensive to build the necessary legal and administrative systems. There were also low levels of investor interest in using aggregated funds; investors chose specific local projects that had their own OZ mechanisms instead. That change significantly limited the accessibility of OZ linked capital gains reinvestments for smaller scale or lesser-experienced developers. In the end, we are aware of only one Duluth based project that used that kind of capital. With that awareness, and our consultants’ expertise, LISC staff shifted focus to build knowledge about the broader and faster growing impact investment source of capital. Then they educated local institutions as well as developers about it as well as about possible local sources.

Key lessons learned

We were wrong about developers’ interest in engagement. We began the innovation project with an assumption that developers would be open to engaging with neighborhood residents if there was a well-framed structure for those conversations. We realized this assumption was wrong after a year of work. We pivoted, moving to build confidential relationships with developers and positioning LISC as the voice on behalf of neighborhoods conveying their priorities as appropriate. In addition, as that confidential trust was built, LISC became a resource and added ways to gain the funding a project needed.

We gained a much deeper understanding of our unique role in Duluth. In addition to providing financial resources to projects, we were reminded of our strengths as an intermediary organization. This work gave credence to LISC’s critical role as bridge between four worlds that do not understand each other well, operating very differently and do not talk to each other: community development organizations, private developers, foundations, and city leaders. LISC was able to educate each entity about the others. In addition, with the bridge role more clearly defined, the city of Duluth expanded its engagement with LISC. Ultimately, this resulted in the creation of a Housing Trust Fund.
LISC’s expanded role also led to a more formal way to incorporate community input into development projects. We created a process to identify and work with neighborhood leaders in under-invested parts of the city to better understand community needs and wants. Based on our neighborhood-level work, we developed a tool to match-make communities and developers. Zeitgeist, Eco3, and community leaders of the Riverfront neighborhood have been our partners in this; and work is ongoing.

Reflections on the community innovation process

The process of iteration visualized in the diagram is a good reflection of our experience. We did experience the ideation, testing, issue refining and testing again shown in the diagram. Much of this stage revisiting was stimulated by changes in the environment that blocked traditional ways of engaging community, such as in-person group planning and collective innovation thinking. Since we knew this work was intended to be an innovation process, all during the work we were able to pivot, try again and explore new approaches rather than abandoning it because our assumptions in the beginning were not right. That approach of trying, rethinking, and trying again became part of the way LISC engaged with its partners, enabling communities to explore ways to gather and communicate information.

Other key elements of Community Innovation

The fast-changing environment from 2019-2021 was a huge barrier to progress and to innovation. Environmental factors are not shown on the diagram, but were huge forces to attend to during this project. The times were full of dramatic changes in all aspects of our lives, but we believe being strongly aware of changes in the environment, politics, sector ecosystems and using that to stimulate new creativity was also critical to our success. This project began in 2019, just as there were growing changes and challenges. The deep national political tensions and antagonisms were reflected in our daily lives as political differences between neighbors and even within families shut down creative conversations that would otherwise result in neighbors working side by side to address local needs. COVID-19 stay at home requirements shut down all traditional ways of engaging our communities, and video meetings did not achieve the same quality of engagement. The murder of George Floyd and the resulting call for racial reckoning opened calls for change in Duluth too. This environment required constant rethinking of our processes, and new approaches to community engagement.

Progress toward an innovation

Our work on this grant positioned us as a trusted intermediary to strategically meet new and existing needs and resulted in the following successes that we will continue to drive forward:
1. LISC’s roles were better understood by all the actors in economic development work in Duluth. We are seen as a community convener, a resource for developers, an information bridge between disconnected sectors.
2.The Duluth Housing Trust Fund, formed at the end of 2021, was strongly informed by this work. This is an $18M fund that will combine public and private resources to generate 400-800 units of housing.
3.Community priority projects that addressed empty or underutilized buildings, like the Duluth Armory, are being addressed by developers who are committed to neighborhood revitalization.
4.We received a $1.3M DEED Grant to revitalize economic corridors hit hard by the COVID-19 pandemic. LISC was seen as a trusted partner lead this multifaceted change effort. Impact investing will be an important part of our work.
5.LISC strengthened its organizational commitment to diversity, equity, and inclusion.

What it will take to reach an innovation?

What’s next?

While our anticipated outcomes for OZs shifted as the realities about them and how investors in Duluth approached them became clearer; exploring OZ possibilities resulted in greater community engagement and informed our work with developers. This led to us having social impact investing as a major part of LISC’s work plan for 2022. These lessons learned will have a positive impact as we implement new initiatives like our recently received $1.3M MN DEED Main Street Economic Revitalization grant to assist Duluth’s economic recovery from the impacts of COVID-19. This work has also shifted the way we approach foundations. In the past we sought funding from foundations only for operations. We have realized there are other funding sources we can pursue. We are realizing that we can lead an effort with an investment initiative that also provides operating support. The HTF is an excellent example of this: combining public, private and philanthropic resources to meet housing needs. Work through the Bush Foundation grant opened our eyes to the possibility of leveraging resources in this way. This has increased the scale of projects we can undertake, increasing our impact.

If you could do it all over again…

We were strongly connected to the community from the onset of our work, and this project further strengthened that. Our relationships with developers took longer to bridge. It took us a while to understand the barriers to our relationship with developers. If we had known early on what developers’ biggest concerns were we would have changed our approach. Their primary concerns were that they did not want to inadvertently create community resistance to their projects due to changing information, and they were very concerned about competition learning about what they were doing.

One last thought

Ultimately, we expanded our approach from being OZ specific to focusing on social impact investing, or investing that yields financial return and greater community good. Exploring OZs has led to LISC being able to work strategically with investors on projects like bringing the Duluth Armory back to life (an initiative that is currently underway, though technically not an OZ project); working with Family Rise Together on their housing program; informed our work in creating the Duluth Housing Trust Fund; and led to a more formal way to incorporate community input into development projects. We created a process to identify and work with neighborhood leaders in under-invested parts of the city to better understand community needs and wants. Based on our neighborhood-level work, we developed a tool to match-make communities and developers. Zeitgeist, Eco3, and community leaders of the Riverfront neighborhood have been our partners in this; and work is ongoing.