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| 3:01 a.m., Oct. 28, 2009 | ||
Beyond filling gaps: Philanthropy moves to guiding economic developmentBy Sherri Begin Welch
Crain's Detroit Business | ||
With its well-known troubles and lesser-known assets, metro Detroit is the perfect laboratory for economic development work, say local and international foundations working in the region. “Detroit faces a lot of problems now, but we also think there's potential for real innovation and progress working with people in the region and other philanthropic partners,” said Rick McGahey, director of impact assessment and former program officer in the New York-based Ford Foundation's economic development unit. Ford Foundation offered one of its largest-ever economic development grants — $25 million — to spur additional foundation investment in an initiative to help restore Southeast Michigan to a leadership position in the global economy. The Battle Creek-based W.K. Kellogg Foundation provided the match for the grant, and eight others chipped in the difference between 2006 and early 2007 to establish the $100 million New Economy Initiative of Southeastern Michigan, the largest foundation-led economic development initiative in the country. Other funders were: the Detroit-based Community Foundation for Southeast Michigan, Southfield-based Max M. and Marjorie S. Fisher Foundation, Detroit-based Hudson-Webber Foundation, Miami-based John S. and James L. Knight Foundation, Troy-based Kresge Foundation, McGregor Fund in Detroit, Flint-based Charles Stewart Mott Foundation and Skillman Foundation in Detroit. “I've been part of collaboratives, but at the (NEI) scale, and that quickly was amazing,” said Kellogg Foundation President Sterling Speirn. The New Economy Foundation itself is not going to fix the Detroit-area economy, said David Egner, executive director of the New Economy Initiative and president of the Hudson-Webber Foundation. Instead, it's making grants to stimulate the economy, change the culture and spark innovation. If successful, it is expected to be a case study in future foundation collaboration. “The conditions in southeastern Michigan are perfect for seeing what works here and then bringing it to scale, replicating it in a way that can impact the economy in measurable ways,” he said. So far, NEI has spent just under $25 million in grants. Those have gone toward, among other projects, an effort to develop Detroit's New Center as a global center for arts and design, to develop a system to place 25,000 students in internships while they attend college in Michigan in the hopes of keeping them in the state, to accelerate research at Michigan's public universities into new startups and to supporting programs to jump-start entrepreneurship and help auto suppliers diversify. NEI has developed long-term metrics to gauge its progress, things like business startups and job creation, per-capita income and educational attainment. No time for small steps NEI was created before the huge drop in the economy, but it was clear to everybody that something large in scope was needed, said Mariam Noland, president of the Community Foundation for Southeast Michigan. “Philanthropy alone couldn't fill the gaps we were starting to see in the needs of the community.” One of the reasons foundations traditionally have been reluctant to get involved in economic development is because it typically is driven by the private sector, said Kresge President Rip Rapson. “When you look at broad trends of investment and capital, it's hard to know how a philanthropic enterprise moves markets,” he said. Foundations have tended to fill in the gaps that the markets leave, Rapson said. For example, if traditional lending dries up, foundations have helped with funding for community development. But with an even more severe breakdown of traditional market mechanisms and bleak prospects for business, foundations saw the need to get more heavily involved in targeted economic development, Rapson said. The economic picture of Southeast Michigan — based on unemployment, population contraction and real estate values — isn't pretty. While the nation's unemployment rate hit 9.8 percent in September, Michigan's rate remained the highest in the country at 15.2 percent, according to the U.S. Department of Labor Bureau of Labor Statistics. Both Wayne and Macomb county's unemployment for August was 18 percent, while Oakland reported 14.9, and Washtenaw 9.5 percent. The Southeastern Michigan Council of Governments this summer estimated that Detroit had a population of about 830,000, down from 1.8 million in the 1950s. Meanwhile, real estate foreclosures are chipping away at the local tax base. According to data obtained from the Detroit Office of Foreclosure Prevention and Response in August, Detroit now has an estimated 78,000 vacant dwellings, up 32,000 in the past three years. Regional county governments are projecting Southeast Michigan's real estate market will lose around $20 billion, or 10 percent, of its aggregate taxable value, in 2010. But Southeast Michigan also has unparalleled assets, Egner said. There are opportunities to leverage those strengths into programs that will improve the economic conditions in ways that can be measured, long-term. The region's assets include: three tier-one research institutions within 75 miles of each other, the “greatest supply chain management program in the world,” with 300,000 logistics jobs in the region, unparalleled manufacturing capacity, the busiest U.S. trade border crossing, a fifth of the world's fresh water supply and North America's third largest concentration of creatives crossing sectors, including music, engineering and architecture. Detroit is still one of the largest cities in the country. But unlike some of its landlocked peers, it has an abundance of land, said Kellogg's Speirn. The underused areas with vacant buildings present opportunities for looking at how Detroit shrinks or reconfigures its footprint. Economic development is not a core focus area for the Detroit-based McGregor Fund, “but we wanted to participate in the NEI because it's very important work. Our board (felt) ... it was important that all of the (largest) local private funders step up if others nationally were being asked to,” said President David Campbell. Skillman Foundation President Carol Goss said NEI's leadership structure and targeted focus are unique. Some foundations have always funded community development corporations, for example. But NEI “is very targeted to transform the (local) economy ... by looking at major things, including entrepreneurship and talent development and changing the culture” to value learning, work and innovation,” Goss said. Tapping local, national leaders NEI is housed at the Community Foundation for Southeast Michigan. The initiative's 20-member governing board is chaired by local business and arts leader Steven Hamp and includes representatives from all of its funders and other community and business leaders. Hamp is principal of Hamp Advisors L.L.C. and former president of The Henry Ford. NEI benchmarked the Fund for our Economic Future, a northeastern Ohio effort that has brought in more than $55 million from more than 100 organizations, individuals and foundations, including the Cleveland Foundation and the George Gund Foundation. NEI also began talking with economic experts such as Bruce Katz, vice president and founding director of the Metropolitan Policy Program at the Brookings Institution, and benchmarking other economic development efforts. The Southeast Michigan initiative spent nearly a year and a half crafting a strategy so that its grants would not “vanish without a trace,” Ford's McGahey said. Every foundation has its own mission and requirements for grant reports, yet the NEI funders have willingly accepted a single report from grantees. Foundations have a role to play in economic development not only from funding “but also (through) catalyzing activity with other regional partners,” said Doug Stewart, executive director of the Fisher Foundation. “NEI foundations aren't simply collaborating ... and putting together one set of criteria. There's also a lot of partnership with the nonprofit groups actually doing the work, as opposed to funders just making a decision and handing it down.” Egner said as the work continues, the NEI is even accelerating the payouts. “There's more opportunity and greater need,” he said. 
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