The Courage to Profit From Failure

Community-development corporations have made a huge difference in the lives of people in economically distressed urban and rural areas. Yet in recent years, more than a dozen established — and seemingly successful — organizations in cities from New York to Chicago have either gone out of business or been seriously weakened. Many others are walking a thin green line, underfinanced and lacking adequate general-operating support.

Unfortunately, we have heard very little about those problems. Are community-development corporations profiting from the lessons learned from those failures and difficulties? More significantly, why have foundations, especially those that support community-development organizations, not sponsored any evaluations of failed or troubled community efforts?

The truth of the matter is that many foundations are reluctant to throw a critical light on some of their favorite programs. They seem to be acting more like boosters than serious advocates interested in assessing and improving their grantees’ performance.

Perhaps the most surprising of the community-development failures was the collapse in 1997-98 of Eastside Community Investments, in Indianapolis. With a multimillion-dollar budget and more than 80 employees, E.C.I. had gained a national reputation for redeveloping its neighborhood, building and rehabilitating hundreds of moderately priced housing units, starting up business enterprises, and running innovative social programs. Not only was E.C.I. the much-heralded darling of city administrators and foundation supporters like the Lilly Endowment, but its executive director, Dennis West, was hailed as a visionary leader and became an ambassador for community development on the conference circuit.

Yet despite warnings of financial danger before it crashed, the organization continued to operate outside of public scrutiny or foundation oversight. Just before the group’s troubles were admitted officially, the executive director resigned and left town, leaving his colleagues and the board to cope with a financial and organizational disaster.

Fortunately for E.C.I., city government and the Lilly Endowment pumped in a good deal of money to save the organization and its programs. The board and a reorganization team helped to cut down the size of the organization and to sell off or transfer most of its business ventures and programs. Although E.C.I. continues to manage a substantial number of rental units, it is only a shadow of its old self.

During 1998 a local code of silence seemed to prevail regarding the fate of E.C.I. The Indianapolis Business Journal ran a story in May, but few people in the non-profit world knew that the organization was in trouble. Questions about E.C.I.’s woes were met with shrugs — or with the words “I don’t know.” Indeed, only very recently did the journalist Carol Steinbach, in the March/April issue of the national publication Shelterforce, finally draw some critically needed attention to the topic.

When I asked some people close to the Lilly Endowment in 1998 why the foundation had not appointed a team of outside evaluators to write a case study about E.C.I. that might provide helpful lessons to other community-development organizations, I was told that the foundation wasn’t interested in raising the visibility of an Indianapolis problem. Whether such comments accurately reflected the mindset of Lilly, the fact is that the foundation, after almost two years, has yet to commission a study or release a report. The city, too, appears to have opted to sweep the E.C.I. problems under the rug.

Other facets of community development similarly have gone unexamined. After the demise of the late developer James Rouse’s local for-profit corporations that were established — in part with foundation money — to provide a way to finance the Enterprise Foundation’s housing program for people with low incomes, no foundation was willing to support an evaluation of that failure. Nor have any foundations ever been willing to underwrite a major analysis of the Low Income Housing Tax Credit, which is a major source of revenue for subsidized housing.

It is ironic that the organizations with a real stake in the future of community development are hesitant to give it a critical look. Those include the large national foundations — such as the Annie E. Casey, Fannie Mae, Ford, and John D. and Catherine T. MacArthur Foundations, and the Pew Charitable Trusts — as well as the large non-profit organizations that finance and support community-development activities. As a foundation executive told me, “They don’t want to look at it. They’re afraid of what they’ll find.”

Community-development corporations deserve better from their financial backers. They need the truth about what works — and about what mistakes they need to avoid.

Foundations, which are increasingly spouting the rhetoric of evaluation, should put up or shut up. They should no longer avoid those assessments that may reveal failures but nonetheless are of critical significance to non-profit endeavors such as community development.

Or is it that foundations themselves are in desperate need of evaluation?

Pablo Eisenberg is senior fellow at the Georgetown University Public Policy Institute and vice-chair of the National Committee for Responsive Philanthropy. He is a regular contributor to these pages.