Equity, Philanthropy and Democracy in Hazelwood

As I have written about before, I had a great opportunity a few years ago to participate in The Funders’ Network PLACES Fellowship class, which brought together mid-career philanthropy professionals from all across the country for a year of learning and reflection. I wrote the below essay about a trip to Pittsburgh, PA in late 2015 about the tension between philanthropy and democracy.

Definition of equity plural  eq·ui·ties

  1. 1a: justice according to natural law or right; specifically:  freedom from bias or favoritism b:  something that is equitable
  2. 2a: a system of law originating in the English chancery and comprising a settled and formal body of legal and procedural rules and doctrines that supplement, aid, or override common and statute law and are designed to protect rights and enforce duties fixed by substantive law b:  trial or remedial justice under or by the rules and doctrines of equity c:  a body of legal doctrines and rules developed to enlarge, supplement, or override a narrow rigid system of law
  3. 3a: a right, claim, or interest existing or valid in equity b:  the money value of a property or of an interest in a property in excess of claims or liens against it c:  a risk interest or ownership right in property d:  the common stock of a corporation [1]

On a warm fall morning, we left Downtown Pittsburgh aboard a coach bound for Hazelwood, an older industrial neighborhood tucked into a bend of the Monongahela River. In the 1950s, Hazelwood teemed with nearly 39,000 residents, many employed in the steel industry. However, the Hazelwood Coke Works, Pittsburgh’s last mill, closed in 1998. Hazelwood is now home to several thousand residents.  Approximately one quarter live in poverty. The last public elementary school was shuttered in 2006.  Housing values are severely depressed, with the median sale price having fallen to $5,700. Many homes are in need of repairs costing far beyond the fair market value of the property.

Pittsburgh itself is known a city on the rise, with development capital flowing in and around the region as easily as the currents through its rivers. Our attention turned to Hazelwood as the intended beneficiary of a nearly $1 billion dollar investment.  The Hazelwood Coke Works brownfield is slated for transformation into Almono – a sustainable, mixed-use mega-development named for the Allegheny, Monongahela and the Ohio rivers that define the city.  (Almono was renamed Hazelwood Green in 2017).[1]

Nearby neighborhoods such as East Liberty are already experiencing tremendous economic growth. An incoming wave of development has resulted in displacement of longtime lower income residents and entrepreneurs.[2] My Uber driver described how he could no longer afford the rent for his clothing shop in East Liberty and now he just drives for Uber all the time.

As a redevelopment project, Almono is noteworthy – it was launched by four of Pittsburgh’s largest foundations, Heinz, Benedum, McCune and R.K. Mellon. These four foundations are using their tremendous asset base to invest in this real estate redevelopment project in order to spur economic revitalization for the surrounding community.

My group, made up of mid-career philanthropy professionals, was there to consider two questions: (1) Can this seemingly inevitable pattern of displacement and gentrification be disrupted? and (2) Can the resulting economic growth be harnessed to capture benefits for the local community?

Local foundation staff and leadership expressed an earnest desire to partner with the neighborhood. The Heinz Endowment’s strategy involves improvements to existing housing stock, investments in education, support for local entrepreneurs, commercial corridor site control, and regular meetings with community residents.  It is making creative grants to generate sustainable revenue streams for community building work. For instance, the Heinz Endowment made a grant to a local community development corporation to purchase a building, which would then be leased to a high performing charter school which had been recruited to the neighborhood. The rent payments would serve as a long-term income stream for Hazelwood’s community development corporation, while at the same time filling a gap in access to high-quality education.

Throughout our visit, the word “equity” kept bubbling up. The first definition of equity in the Merriam-Webster dictionary calls to mind justice and fairness on a grant scale. Underlying the Heinz Endowment’s investment is a deep interest in expanding economic opportunity for longtime residents, a goal closely tethered to this definition. However, this visit also brought us to confront the classic legal definition of equity: ownership stakes in a company.

Exactly what type of relationship was being entered into between philanthropy and community in Hazelwood?

The relationship that institutional players seem to be after in Hazelwood is that of a partnership. A common refrain of the powerful institutions was that they wanted to be viewed as an equity partner with the neighborhood. Philanthropy is taking positions on deals that ostensibly benefit community, while regularly affirming: “We will get paid only when the neighborhood gets paid.”

This merits a closer look.

At the core of any partnership is a contract. It would be unthinkable for the four foundations to form a legal entity for the development of Almono, come to an agreement on the distribution of profits and losses and cement the division of control, without forming a contract.  There was undoubtedly a relationship building phase prior to the agreement’s execution. The ability to form a contract, or a “meeting of the minds,” between two independent parties, requires that each party have something of value to exchange. There is always a determination of worth involved. If there is no possibility of negotiating terms prior to signing, it is considered a contract of adhesion. Contracts of adhesion are only possible when there is such unequal negotiating power between the two parties that the less powerful party is forced to take whatever is offered and give whatever is demanded. The common example for such a contract is a credit card agreement. Attempts to negotiate terms can often result in a dead end. It’s worth noticing that gifts and grants are sort of like that, too. While it does take place occasionally, it’s not typically built in to the arrangement for beneficiaries to negotiate the terms of grants or gifts. But, which paradigm should serve as the basis for the relationship that philanthropy seeks to enter with community?  What does it take to really have a partnership?

If we are to imagine a contractual relationship here, there is a ready template: the community benefits agreement. But there is no community benefits agreement between the neighborhood and these developers. The foundations involved in Almono are making the investment in an attempt to push the boundaries on what a development project can do for a community. The need to extract benefits from a developer seems less necessary when that developer is a group of charitable foundations that stand ready with other grants and investments yet to come.

However, there is something in the DNA of contracts that deserves a second look. Embedded within the concept of an equity partnership is also the concept of joint risk. Equity partners come to decide that the potential upside is so strong that they agree to risk their assets together. Before they commit, the parties conduct due diligence. They negotiate terms.  They employ a variety of mechanisms to isolate risks and protect other assets.  Contracts undergird this form of partnership.

Consider the risks to residents.

As demand increased in East Liberty, rents and property taxes rose, resulting in the displacement of families and the breaking up of so many of the invisible human webs that run through, over and around a community. These connections sustain the people of a given place. While it is clear that the foundations involved in Almono have the best interests of the residents at heart, they are still unleashing economic forces that are fundamentally indistinguishable from the forces unleashed in East Liberty.  Most philanthropies have had experiences in which our most well-researched and well-intentioned strategies fail to deliver expected results. What recourse does the community have if these strategies fail? Have the residents been able to adequately consider the risks prior to engaging in such a partnership? And if they had, what protections would they have negotiated?

For parties to consider risk, it must mean that there is something of value at risk of being lost. Typically, we are talking about traditional assets. What are the assets of a community that has experienced significant disinvestment? Some would look at the economic realities of Hazelwood and determine that, with the median home price under $10,000, there are certainly few assets here to consider. There is nowhere to go but up.

Perhaps we need to look towards another definition of the word “equity” to find the seeds of a more fitting relationship.  According to Merriam Webster definition (2)(c), equity is: “a body of legal doctrines and rules developed to enlarge, supplement, or override a narrow, rigid system of law.” Historically speaking, a set of equitable doctrines could be employed by courts when the available legal remedies were inadequate to address the situation at hand. Equitable doctrines in the law can also ascribe value to things that do not have value in the traditional system. Hazelwood residents may not have much in the way of traditionally recognized assets, such as net worth or property, but what they do have is a tight-knit community and a status quo, which for many people, works because they know how to work it. Low-income residents know how to access the resources they need to survive and even thrive.  This network of human relationships in a community is an asset. Its existence means you know that the person across the street may be able to watch your child while you head to a job interview. It means that you have access to a car when you need it because your cousin lives around the block.

Regardless of the fact that philanthropy frequently considers the taking of bold risks to be a valuable exercise, as a low-income resident, there is also value in knowing how things work within your neighborhood and household economic systems. Before the neighborhood economy is buffeted by new forces – before rents and property taxes begin to rise – has philanthropy paid enough attention to the ways in which it might help mitigate to these risks? And if it had, would it be willing to put a commitment in writing? If you are a long-time resident of a marginalized community with little connection to a large downtown foundation that has only recently expressed an interest in your community, “just trust us,” does not seem good enough.

We ignore the hidden assets of a community at the peril of our own bold investments. What happens to philanthropy professionals if the risks they take don’t yield the outcomes they are seeking? Many can chalk their failures up to experimentation. But what happens to the family which, as a result of gentrification, has been forced to move to a new neighborhood, with even fewer public goods and assets, disconnected from trusted friends, neighbors and allies, as a result of a philanthropic investment?  Underneath all of this is this fundamental question: What is the correct way for philanthropy to exist in relationship with its intended beneficiary communities?

If philanthropy is truly interested to get beyond the benefactor/beneficiary relationship and enter into partnership with community, then its practitioners may need to radically reimagine everything about the standard approach.  The process of entering into a contract allows for deliberation, trade-offs, compromise and agreement.  It allows a community and its residents to sit across a table and say, “I have value and assets to contribute. I face risk to those assets and require certain things before I give you my partnership.”

Besides the law of contract, there is another place to look as philanthropy charts a new course – democratic practice.  If a municipality was to enter into a deal with a developer, and give tax breaks, land, or some other benefit, and there were negative results, elected officials are held accountable by voters.  Charitable assets are an extension of the public coffers by way of tax policy. Yet, there is virtually no method for the public to hold philanthropy accountable for investments that have poor impact or negative consequences. Charitable dollars are invested without the benefit of any democratic process whatsoever.   Scholars such as Rob Reich, co-director of Stanford University’s Center on Philanthropy and Civil Society, have rightly highlighted the risks philanthropy may pose to a democratic society, where public good is increasingly determined on a private basis.

At a time when power is increasingly being concentrated amongst a smaller and smaller group at the top, it’s time for philanthropy to evolve – and to allow citizens and residents more power – both in decision-making and accountability. Democratic practice in the United States has been eroding, and it should be viewed as moral obligation of philanthropy not to hasten its decline. Philanthropy should take every opportunity to shore up and expand participatory democracy. Place-based philanthropy may even find greater impact when it works with citizens who have become activated as participants – and full partners – in community transformation.

[1] https://www.nextpittsburgh.com/city-design/massive-almono-mega-development-gets-new-name-public-space/

[2] http://www.post-gazette.com/local/city/2015/12/27/East-Libertys-celebrated-revival-is-forcing-longtime-low-income-residents-to-move-Penn-Plaza-is-ground-zero/stories/201512240008

 

[1] http://www.merriam-webster.com/dictionary/equity

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