The What and How of Capacity Building: LISC, HUD Section 4 and Helping Community Organizations Build Muscle
Since the inception of the HUD Section 4 program in the early nineties, LISC has disbursed nearly $350 million in Section 4 grants to our partner organizations on the ground. We dug into how community groups can grow and flex new muscles with these targeted injections of funding, and look at how it’s assisted three CDCs in Phoenix to take their work to the next level.
Above: Newtown CDC geared up to develop the elegant, affordable "Micro Estates" community in Tempe, AZ with the help of a LISC Section 4 grant.
Organizations, like people, go through seasons of change and growth. To effectively carry out a core mission they must adapt to shifting conditions and emerging needs and opportunities. And during these learning phases, an organization can benefit profoundly from some extra support.
For the hardworking local groups that create affordable housing and drive community development across the country, that extra assistance often comes from a key capacity-building program of the U.S. Department of Housing and Urban Development (HUD), commonly known as Section 4.
First authorized in 1993, HUD Section 4 money is awarded annually on a competitive basis to three national intermediaries—Enterprise Community Partners, Habitat for Humanity, and LISC—which in turn fund capacity-building grants to community development corporations (CDCs) and other local nonprofits.
Since 1994, LISC has distributed some $343 million in Section 4 funds, spreading the grants across a nationwide footprint through its 38 local offices and rural program serving 48 states. In an average year, LISC makes grants to more than 250 local organizations, often as part of a long-term working partnership that also includes technical assistance from LISC staff or consultants and other, program-related financing.
A flexible tool to equip community builders
Section 4 doesn’t go directly into construction projects or service provision. Instead, it’s that hard-to-find money to pay for vital but generally low-profile activities that don’t tend to generate revenue. Section 4 facilitates organizational and community planning and organizing. It’s used to bring on new staff or hire consultants. It supports improvements to a CDC’s back-office capabilities so it can streamline operations or compete for funds from new sources.
Enjoying rare bipartisan support in Congress, Section 4 makes efficient use of federal resources. In keeping with program requirements, LISC matches Section 4 dollars on a three-to-one basis, and for each Section 4 dollar they receive, grantees aim to leverage ten dollars in other public and private investments.
The strategic grants typically come into play during inflection points for an organization, says Vanessa Ryan, LISC vice president of grants and contracts management. “You have new baby startups that need support just to grow and to stabilize,” she explains. “Then you have groups that have been around a really long time but might be going through a transition—housing or economic instability, say, or critical disruptions brought on by COVID. We’re giving those organizations grants so they can respond and sustain their work. The third category is when the organization is doing something to diversify their business line, broaden how they’re impacting the community. We can help them take the work to a new level.”
The specific capabilities that a CDC needs vary across time and by location. Section 4 can be applied flexibly to match those needs. So, for example, New York City groups may require specialized skills in preserving existing affordable units, says Ryan, while Detroit CDCs focus on renovation and infill developments. LISC has deployed Section 4 to buttress efforts in economic development, creative placemaking, and community health. In rural America, LISC Section 4 grants have helped groups gear up for wildfire and drought mitigation, for instance, and to network with like-minded organizations dispersed across large distances.
Section 4 in the Valley of the Sun: three examples
In the Phoenix metropolitan area, LISC Phoenix and its on-the-ground partners are deploying Section 4 to promote capacities in transit-oriented development, taking advantage of a light-rail system developed over the last 14 years that connects Phoenix with neighboring Tempe and Mesa. And they are working to literally hold space for low- and moderate-income residents and people of color amid the area’s rapid population growth and supercharged real estate market.
“Just as it has for going on 30 years,” says LISC Phoenix executive director Terry Benelli, “Section 4 is helping us strengthen our network of partners here in the Valley so we can accomplish more for the communities we care deeply about.”
Trellis
Trellis, formerly Neighborhood Services of Phoenix, was founded in 1975. LISC Phoenix has supported the organization’s capacity building and housing development since its own inception in the early ‘90s. Trellis specializes in homeownership, with an in-house mortgage lending arm, homeownership counseling, and a traditional focus on scattered-site infill development of affordable single-family homes for sale.
In 2017, LISC Section 4 allowed Trellis to hire a project manager with the requisite development expertise to take on higher-density, multi-family projects. “We really wanted to get to a larger scale, serve more people, and reach deeper affordability,” says Joel McCabe, Trellis vice president and COO.
This new position, since made permanent and funded by other means, helped make possible Trellis’s first attached, multi-family project, consisting of 20 townhomes near the light rail in central Phoenix. Trellis@Colter opened in July 2021. In late 2021 Trellis broke ground on its first Low-Income Housing Tax Credit (LIHTC) project. The 43 units of Trellis@Mission will be set aside for families earning no more than 60 percent of area median income, with an innovative lease-to-own component that allows tenants to put down roots and build equity.
Around the same time it was branching out into new development approaches, Section 4 helped Trellis to engage consultants and hire a commercial-corridor manager to develop a program for revitalizing the McDowell Road business district, a strip of small businesses, many owned and operated by people of color and immigrants, that is home to Trellis headquarters.
More recently, a LISC Section 4 grant has helped Trellis engage consultants and study ways to acquire commercial property in the district for a small-business incubator space, and to help legacy businesses buy their buildings so they can’t be displaced by spiraling rents. Already Trellis has connected a couple of businesses with LISC small business loans to do just that.
Newtown Community Development Corporation
Tempe-based Newtown Community Development Corporation has worked closely with LISC Phoenix since Newtown’s startup in 1994. Originally concentrating on advocacy, with the help of Section 4 capacity building Newtown became a CDC and established its Community Land Trust (CLT) in 2001. Newtown acquires and renovates single-family homes, adds them to the CLT, and sells them at below-market prices to income-eligible homebuyers. The CLT retains ownership of the land, so homeowners can accrue equity while Newtown keeps resale prices affordable for future buyers.
The model works and will continue, says Newtown executive director Stephanie Brewer, but escalating property values have made it important to innovate, too. “Because of the HUD regulations on what we can buy a house for, we are getting priced out of markets here in the Valley,” she says. “So we realized we need to start building units. And we didn’t want to build just single-family homes, because the Valley has plenty of those. We wanted to create new products.”
That’s why in 2014, Newtown received Section 4 funds to hire an architectural firm to host community charettes. The input gathered from residents and plans that followed helped Newtown decide how to use an infill parcel near the bustling campus of Arizona State University.
Later, Section 4 enabled Newtown to bring on a seasoned community development professional who spearheaded the organization’s first new build. Nestled on less than an acre in north Tempe, Tempe Micro Estates consists of thirteen 600-square-foot loft-style homes organized around a communal courtyard with kitchen gardens and fruit trees. Fully occupied by new owners, half this workforce housing is reserved for households earning 80 percent of AMI or below, and all the homes are part of Newtown’s land trust.
That development position, catalyzed with Section 4 dollars, is now funded with Newtown resources. This augmented organizational capacity is helping the CDC take on its second new build, 20 townhomes in a multi-use development on the border of Tempe and Mesa (more on that below), and a third in a small community southwest of Phoenix, Gila Bend, which lost 34 housing units last year in catastrophic flooding.
Copa Health
Copa Health is a Mesa-based organization that cares for people with disabilities, whether developmental, intellectual, physical, or related to serious mental illness. It runs a handful of integrated clinics combining behavioral and primary health care. It offers day programs and in-home services, along with job opportunities at a local retirement community, sports concessions, and a cookie company. And Copa has developed and owns housing for the people it serves, including small group homes and a complex for seniors built with HUD Section 202 funds.
But Copa recently ventured into new territory, seeking to develop a LIHTC property of about a hundred units, with a quarter set aside for people with disabilities and the rest available to any who qualify by income. The vision for the four-lot vacant site near the light rail in Tempe’s La Victoria (Victory Acres) neighborhood also includes Newtown’s townhouses, with the apartments located on busy Apache Boulevard and the lower-density homes blending into the historic Mexican-American community.
In May, Copa won a city request for proposals for the site over larger developers experienced in LIHTC, in part thanks to vigorous community engagement funded by LISC Section 4.
Copa Health’s foray into affordable housing, says Norm Duvé, the group’s vice president for marketing, is motivated by its “people first” ethic, a desire to serve local folks, including many of its own employees, who are struggling to afford rent. Copa’s plan is to bring a clinic to the development where neighborhood residents can get care, and open a café there that will be a convenient place to pick up a healthy sandwich—and offer jobs to both Copa’s service population and other residents of the area.
Listening to the residents of La Victoria was an indispensable early step in Copa’s planning, an engagement process begun some eight months before the group won the right to develop the site. The neighborhood has been severely underserved over the years, and harmed by official actions like the late-twentieth-century construction of a highway that tore it in two.
Copa used much of its LISC Section 4 grant to enlist a small local organization, RAIL CDC, whose personnel are bilingual, culturally connected, and specialize in getting people talking through walking audits and informal gatherings.
RAIL, with Duvé and LISC staff participating at times, learned of specific concerns that residents see as priorities, like getting a traffic light to stop the zooming traffic kids face while trying to cross a highway overpass, or restarting a popular annual soccer tournament. The team is at work on both those issues.
Accruing capacity for collaborative action
Section 4 won’t put shovels in the ground for Copa’s ambitious project. But as in most community development efforts across the U.S., the federal program’s influence is substantial.
Quietly, over many years, Section 4 capacity-enhancing grants have helped to shape the particular competencies of all the participating organizations, including RAIL, Newtown, and Native American Connections, a longtime LISC partner that will play a role in managing the Copa LIHTC development.
“I believe that our Section 4 grant kind of jumpstarted our effort, made it easier to hit the ground running,” says Copa’s Duvé. “And when you get that momentum going, it really does make a difference with a project like this.”