When policymakers want to help people with low incomes get a mortgage, they typically offer some kind of subsidy or boost the flexibility of the underwriting guidelines.
This week, the Federal Home Loan Bank of San Francisco will pioneer a radically different approach: It will try to turn more Americans into homeowners—not by giving them a break but, instead, by catalyzing the creation of good jobs in their communities.
“What we’re doing is getting at the root cause” of why buying a house remains out of reach for many families, says Larry Parks, the senior vice president of external, legislative, and regulatory affairs at the bank, a cooperative that gives its member financial institutions inexpensive loans and risk-management tools so that they, in turn, can increase the availability of mortgages and stimulate community development. “We’re changing the thought process.”
At the center of it all is a Quality Jobs Fund, which the bank established after years of research and rumination by donating $100 million to the New World Foundation.
New World will disburse money from the fund to nonprofit and for-profit “intermediaries” that promise to spur employment in areas that badly need it. The foundation will identify and select these organizations. They include job-training programs, social enterprises that aim to improve economic opportunities in disadvantaged neighborhoods, and entities that foster employee ownership.
The first payout will be formally announced on Friday: $5 million to the Central Valley Fund, which provides capital to small and midsize businesses, mostly in poorer and underserved regions of California and the West.
A GRAND EXPERIMENT
It isn’t easy to be part of this grand experiment. The jobs eventually generated can’t be like those held by many millions of workers today, with lousy pay, no healthcare coverage or retirement security, and no prospect for advancement.
Even with the unemployment rate at just 4.1%, “we have a jobs crisis in this country,” says Colin Greer, president of New World.
Indeed, the “Quality” in the fund’s name is not some empty adjective. Using criteria from the Aspen Institute, recipients must rigorously track whether the jobs produced come with wages of at least $15 an hour, decent benefits, and the chance to climb a career ladder.
“They’re looking for more workforce metrics than what is usual,” says José Blanco, a partner at the Central Valley Fund. Rather than see this as a burden, however, Blanco believes that it can inspire all of the companies in his portfolio to do right by their workers and thereby build better businesses. “It’s win-win,” he says.
Among the companies with this mindset is Initiative Foods, based in Sanger, Calif. The baby food manufacturer is using $5 million in debt and equity financing from the Central Valley Fund to buy new factory equipment. The expansion will lead to 30 or more jobs that—because of the high-tech nature of what’s being installed—will pay much more than the positions the company has had in the past.
Employees are “going from being unskilled labor, taking a pouch or a jar and putting in a box, to working with robots,” explains John Ypma, Initiative’s founder and CEO.
In fact, Ypma’s goal is to train his people so well, they won’t just operate the equipment; they’ll be able to fix it if something malfunctions. “We want them to go from being simple button-pushers to being able to troubleshoot the machines,” he says. Accordingly, the average hourly wage for one of these new jobs will be about $20, along with medical, dental, and life insurance. The old jobs have paid about $9 an hour.
If the Quality Jobs Fund winds up realizing a return on this or any other investment, it will use the proceeds to make grants to human-services nonprofits in the local community.
BOLSTERING THE DOUBLE BOTTOM LINE
In most cases—such as with a job-training program—the fund doesn’t expect any monetary return. But that doesn’t mean it is just giving money away. If an organization can’t meet the quality-job milestones that are set by the fund, it will have to pay back what it received. “We’re looking at the double bottom line” of social impact, Parks says.
The bank was led to this strategy through a lot of listening. In 2016, it held a series of roundtable discussions with business and labor leaders, educators, government officials, and nonprofit executives in five cities in its territory: Las Vegas, Phoenix, Los Angeles, Oakland and Sacramento, Calif.
Several important themes emerged. One was that each job market has its own nuances—and so finding intermediaries that are well versed in the situation on the ground will be essential to success. “There’s not a cookie-cutter template we can use,” says Greg Seibly, president of the bank.
Another was that many businesses would love to meet the quality-jobs standards that the bank is encouraging, but they just don’t have the resources to do so. “Lack of access to affordable capital,” the Aspen Institute noted in a white paper it prepared for the bank, “hinders the growth capacity of moderate-sized employers in job-intensive middle-income . . . sectors.”
Not that it necessarily takes huge sums to make a difference. Greg Moore, the former editor of the Denver Post, who moderated the roundtables, recalls several business owners who spoke of needing just a few hundred thousand dollars to launch a new line and hire, say, 10 more people into good jobs. But the only way to get the money was to relinquish substantial control of their company to a venture capital or private equity firm.
“A little bit of cash can go a long way,” says Moore, “but you don’t want to give away half your business.”
CHANGING THE CONVERSATION
Of course, even with $100 million to spend, the Quality Jobs Fund won’t be able to affect very much in the scheme of things. In the context of an economy where states and cities alone spend some $50 billion a year on job creation—albeit, not always efficiently or effectively—the bank’s effort is tiny.
But for those at the bank, New World, and the Aspen Institute, the real point is to prove—with hard data—that you can’t strengthen homeownership and form stable communities over the long run without supplying an ingredient that is now missing in far too many places: good jobs.
“We’re not going to solve every problem,” says Parks, “but we can lay a blueprint.” Adds Seibly: “Ultimately, it’s about changing the conversation.”
In a sense, the bank already has. The $100 million was allotted from more than $1 billion in legal settlements with financial institutions that the bank had sued for misrepresenting the quality of residential-mortgage-backed securities that it had purchased before the industry began melting down in late 2007.
Back then, in order to buy a house, it wasn’t difficult for someone to get what became infamously known as a NINJA loan–“no income, no job, and no assets” required. Helping people go from “no job” to a “quality job” is quite a step forward.
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