Related Links

• Barriers to Rural Investment
• The Philanthropy Gap in Rural America
• Financing Rural Development

Transcript

Tim Sablik: My guests today are Emily Corcoran and Jen Giovannitti. Emily is the senior manager of regional and community analysis at the Richmond Fed. Jen is the president of the Claude Worthington Benedum Foundation, a regional philanthropy organization focusing on West Virginia and southwestern Pennsylvania. Thank you both for joining me.

Emily Corcoran: Glad to be here, Tim.

Jen Giovannitti: Thanks for hosting us, Tim.

Sablik: Today, we're going to be talking about the challenges rural communities face when it comes to accessing investment capital. You both recently wrote a Regional Matters article on this topic, and we're going to dive deeper into your findings in this conversation.

Let's start by examining community development finance in general. What are some of the reasons communities might need to raise capital, and what are some of the common sources of that capital?

Corcoran: First of all, community development finance is a very broad term that captures many, many sources of funding that support strong local economies, in particular, local economies that have experienced some level of underinvestment or disinvestment over time.

Any number of players within a community might seek capital that we would think about as community development finance. For example, you can think about a local government working to redevelop a stretch of their historic downtown, or a nonprofit organization that's working to finance a new community center, or even a small business owner who is seeking a loan through their local bank or their local credit union. These are all within the universe of community development finance.

Public, private, and philanthropic resources all contribute to community investment, including federal and state funding programs, bank financing — including that motivated by the Community Reinvestment Act — and capital provided by community development financial institutions [CDFIs], foundations and other organizations.

Giovannitti: Small communities have the same big dreams as their urban counterparts. They may need to raise capital for all the things Emily just mentioned: real estate projects or programs that may be in the health or education space — think afterschool programs — or even for recreational needs like public spaces.

Communities need all of these tools at their disposal. Their needs to raise capital are very similar to larger communities. We just have to remember that local governments and nonprofits in rural areas are working on a shoestring budget.

In terms of the sources of capital, common sources of capital to our nonprofits are state and federal grant programs. They also are very successful, often, with state line-item funding in the annual budget of their states. And then, of course, there's philanthropy. In addition, there are partnerships with CDFIs and universities that are important because they can leverage other kinds of funding support.

Sablik: Differences between rural and urban communities are something that is of great interest to the Richmond Fed and its research team. Emily, how do the financing experiences of rural communities differ from urban ones?

Corcoran: Every community is different, so I will be generalizing here.

The Richmond Fed's work with rural communities in the Fifth Federal Reserve District led us to identify several barriers to investment. We think about these barriers in two buckets: supply-side barriers that affect the supply of capital available to a community and demand-side barriers that affect the degree to which a community is positioned to seek investment dollars.

On the supply side, rural areas may face limited financial resources, a lack of coordination of public investment programs, or a limited number of funders within their community. On the demand side, there may be fewer projects that are ready for investment due to capacity limitations in rural areas. There could be smaller investable projects that still require the same amount of work as larger projects, a perceived higher-risk environment, and other challenges to making projects that we would call "investment ready."

Giovannitti: Emily summarized that really well.

Across the board, small communities have smaller tax bases, they have less staff, they have fewer able partners, and they have less flexibility in how they finance their projects. Even with that being the case, in our experience at Benedum, rural communities are generally more creative on projects. They tend not to overbuild their projects. They are better stewards of the funding they receive. They collaborate with a greater diversity of partners to get things done — they kind of have to do that. This is how they adjust themselves to overcome some of the demand-side challenges.

I'd say on the supply side, philanthropy is one source of community capital. The Benedum Foundation believes in directly investing in local leaders at local nonprofit organizations. Nonprofit leaders bring us specific goals for their communities and they share projects that they think can help advance larger strategies. So, we might fund downtown redevelopment through a building project, or maybe it's even just part of a project. We may fund a small business program. We might fund something in a community center or a program at a health clinic.

Sablik: We'll come back to talking about nonprofit funders in a moment. But I wanted to ask about another potential source of funding, which are federal programs. There are hundreds of federal public programs aimed at meeting the financing needs for rural economic and community development. What are some of the challenges that rural communities face when it comes to accessing these programs?

Corcoran: Honestly, Tim, your question referenced one challenge — hundreds of different federal programs. That is an incredible degree of complexity.

Urban areas also face a complex array of federal economic and community development programs, but the landscape of funding programs is more complex for rural areas. There are more potential programs and generally little or no coordination between programs, funders, and communities. Each program has its own application process, its own requirements, its own funding use restrictions.

Simply navigating that complexity can be a significant barrier to entry for rural communities. That's actually something we hear from rural community leaders in the Richmond Fed's outreach a lot, just a sense of we don't know where to start or we didn't know where to start when we were starting this project.

In the case of federal funding programs, I would say that availability of resources does not necessarily guarantee access to those resources.

Giovannitti: There may be hundreds of programs and it seems like opportunities abound. But, in reality, restrictions apply in these programs that make communities ineligible for one reason or another, and that is not talked about very much.

A significant barrier that we hear about regularly is in the cash match requirement that most federal grant programs contain, especially when it comes to community and economic development grants. Small communities simply can't come up with hundreds of thousands of dollars in cash match, so often they don't even apply even though they are aware of the federal program and they may be eligible. Benedum, as a regional foundation, often gives grants just for the cash match requirement. This evens the playing field for rural communities, in our mind, so that they can compete in the first place and put their applications in.

The other challenge is time and staff. These federal applications are no joke. As Emily mentioned and just explained, they are complex, they are highly competitive, and they take a lot of time to prepare. Imagine yourself working for a small nonprofit or a small city where you wear 10 different hats and you have no extra time or capacity to basically neglect your other duties [and] devote significant hours of writing in the preparation of a federal grant. None of these small communities have in-house, full-time lawyers, never mind a staff grants department like their competing large cities have.

Another challenge comes after a federal grant is awarded. A community works hard, they plan out a project, they align their partners, they develop a strategy, they even raise additional funds, and they apply for a grant. Then they get this magnificent grant and totally new challenges arise for them. They have to scale up their staff. They have to spend money that they don't have on startup costs. It can take months for the federal reimbursements to come back into the community, into that nonprofit. Sometimes it requires bridge loans just to keep the organization afloat during these times.

I don't want it to sound like all federal agencies are slow to reimburse. But it's a legitimate issue that we see in philanthropy.

Sablik: As you mentioned, given all these difficulties, philanthropic foundations are another important source of community financing. What does the supply of that type of capital look like in rural places?

Corcoran: Jen will have a really good perspective on this.

I'll just say that there is a well-documented gap between philanthropic funding in rural places and urban places. Our listeners should know that you, Tim, wrote an in-depth article on the philanthropy gap in rural America for the most recent issue of the Richmond Fed's Econ Focus magazine. I really encourage folks to give it a read at richmondfed.org.

As you wrote in your article, we know that the need is there. According to 2023 research from the U.S. Department of Agriculture, about 85 percent of the 318 persistent poverty counties in the U.S. were outside of metropolitan areas. But we also know that the supply is largely not there. Philanthropic spending has become increasingly urbanized. USDA research from about a decade ago estimated that rural places only receive maybe about six to seven percent of grant funding from large philanthropic organizations, despite one fifth of the population living in rural areas nationwide.

A colleague of ours at the Federal Reserve Board of Governors, Andrew Dumont, is working with USDA researchers now to update that work. That work will be released later this year, but Andrew did share with us in your article, Tim, that preliminary findings show a decrease over the past decade. At this point, maybe about three percent of philanthropic dollars are now flowing to rural areas.

Giovannitti: Oh, it's so crushing. Thank you for elevating that research, Emily.

The Federal Reserve has become a really valued thought partner in putting data around the flow of philanthropic dollars. Awareness on this issue is just greatly needed.

First, let's recognize that foundations provide one of the most sought-after forms of capital for communities. Grant dollars from philanthropy are fast, they're flexible, and they're free. But the total supply of foundation dollars, as you just said, are very low. So regional, place-based funders like the Benedum Foundation are critical sources. But we are a small player when it comes to the overall supply of capital. That said, Benedum grants close to $20 million a year to a very focused region, so we feel we can still make a difference.

Sablik: All of these supply-side challenges and hurdles make the process of assembling capital for a rural project more challenging. Communities might need to seek funding from many different sources to assemble the resources they need.

As you also discussed in your article, there's also the demand-side aspect. Even if capital were readily available, there's barriers to how rural communities position themselves to take advantage of those investments. Could you explain what some of those demand-side barriers are?

Corcoran: The demand-side barriers that make capital access challenging for rural communities include things like staff capacity and time, as well as just the physical and logistical realities of operating in a rural area.

On that first point, in the Richmond Fed's work with rural communities, we frequently hear about the many roles that rural leaders juggle. They wear many hats. These leaders are deeply committed to their communities, but juggling different roles within a community also leaves precious little time to navigate the complex realities of economic and community development. Without dedicated economic and community development staff, it can be particularly challenging for a community to navigate the resources available.

On top of that, you just have to recognize that rural places often look different than urban areas in terms of physical topography and infrastructure. The land itself can just add time and complexity to what is already a complex process.

Giovannitti: These barriers limit how many people are experienced in grant writing, experienced in overseeing federally funded projects, and have the time and resources to devote to what we would consider new projects that can build a community. Philanthropy can fill gaps in projects with a large capital stack need, or even provide some of the matching dollars for large federal grants like I mentioned that can be transformational in a small community.

West Virginia was awarded one of the biggest Build Back Better grants in the nation. The ACT Now Coalition, led by a coalition of small nonprofits in the southern coalfield region of West Virginia, beat out a field of strong projects around the nation. This is what rural leaders and rural communities have in them when given the chance.

In the Build Back Better grant, Benedum got out of its own comfort zone and did something we'd never done before. We committed $2 million in cash match in order to give that project the greatest chance of success because we believed in that entire coalition, all of those nonprofits.

Sablik: One of the other things that philanthropy can do — and Benedum, in particular, does — is fund efforts to build capacity in rural communities to help overcome some of these demand-side challenges. Could you share some examples of this?

Giovannitti: Capacity takes a lot of shapes. When organizations are growing — say a nonprofit is taking on more work — Benedum might give a grant that includes funding for a new staff position and we'll do that for a few years. We do this to build capacity because organizations can't just add staff without knowing how they're going to pay for it. Yet they are driven to take on projects that the current staff — small as it usually is — does not have the time or the capacity to add to their current workload. They need a partner like Benedum so that they can dream big and get through what we would see as some of the growing pains of an organization that's scaling.

Another example is that Benedum gives small grants to nonprofits to hire grant writers or hire experts that are knowledgeable on certain federal grants or federal topics. These experts are sometimes needed to write successful grants. We might pay for the increased audits needed by the nonprofit because these are requirements of the grant. These are costs incurred before the application on one of these aspirational federal grants is even submitted.

Sablik: This is also an area that the Richmond Fed is interested in, both in terms of research and also in the work being done with the Richmond Fed's Rural Investment Collaborative. That's something we've discussed on this show before.

Emily, could you remind us how the Rural Investment Collaborative is working to address some of these capital supply and demand barriers, and even the capacity issues that Jen mentioned?

Corcoran: On the demand side, thinking about community capacity building, the Rural Investment Collaborative brings together community leaders in small towns and rural areas across the Richmond Fed's district. These leaders go through a training curriculum called the Community Investment Training as well as some other programming to help build their expertise in community and economic development and in project financing. As we've said, you need a deep amount of expertise to even know where to start for some of these projects. So, we want to provide training and education to help build that capacity.

On the supply side, the Rural Investment Collaborative works with national and regional funding organizations to help increase the availability of and access to the funds needed for Community Investment Training graduates to then move their projects forward. The collaborative also has a capital development workgroup, which Jen is part of, that brings together funders like the Benedum Foundation to help think through and really understand viable, creative solutions to the barriers that funders face when it comes to rural investment.

I should say, too, that the Richmond Fed partners with rural hubs, Invest Appalachia, and many, many other organizations to make the Rural Investment Collaborative happen. It is truly a collaborative effort.

Sablik: So, from all this work — the Rural Investment Collaborative is now entering its second year — do you have any tips or lessons that you've learned that you could share with rural communities who are looking for ways to overcome funding barriers?

Corcoran: Absolutely. I'll raise up two themes that we hear pretty frequently from the Richmond Fed's engagement with rural communities.

The first is the importance of partnerships, coalition building, and leadership development. We hear again and again about how critical it is to develop strong relationships and leadership within a community to move substantial investment projects forward. As we mentioned, investment projects take significant time, significant expertise. Getting the right local players involved — including local business leaders, community and nonprofit leaders, local government, local funders, community members — that can all make a difference. Build a team with strong leadership and a shared vision.

The second is leveraging and building on existing community assets. Every community has assets, whether we're talking about natural resources, natural beauty, cultural or historical significance, or something else. Everyone has something to build on.

These two themes have been strong through lines raised up by speakers at the Richmond Fed's annual Investing in Rural America conference over the years. They've also been themes for the participants in the Rural Investment Collaborative. Essentially, work together and play to your strengths.

Sablik: Jen, do you have any advice for funders who may be interested in making more of an investment in rural communities?

Giovannitti: Yeah, I sure do.

Benedum has 80 years of experience making grants in a very rural area throughout West Virginia and southwestern Pennsylvania. Please know: rural communities are rarely a bad investment. Our grantees embody all of the things that make for an interesting and successful investment for a foundation. They don't overbuild their staff or their projects, which is a risk in a lot of urban areas. They collaborate among large regions and with very diverse stakeholders, not always easy to do. They are not afraid to take on new things that require new learning from them. And, they tend to scale their work, which is what foundations want — we want to be first money in so that things can scale. Lastly, they treat everything they do with a healthy dose of frugality.

Funders need to be accessible to them, and they need to be willing to take risks and chances with them. We know we have to bring more partners into rural communities as part of our collective duty to serve them.

Rural communities have been losing access to resources for generations. I'm talking about hospitals closing. I'm talking about banks leaving. I'm talking about schools failing. I'm talking about small downtowns that are struggling. The supply of diverse capital is low and projects are expensive, yet I think this discussion has shown that the demand is extraordinary and the outcomes can be extraordinary as well.

Sablik: Emily and Jen, thank you both for joining me today.