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ILE Lecture: The Reinvestment Fund's Nowak Touts Community Investment, High-quality Governance

March 03, 2011

Jeremy NowakBy Sophie Jeewon Choi C’13

Jeremy Nowak, president of The Reinvestment Fund (TRF), a community development financial institution, addressed faculty, students, attorneys and community members gathered in Penn Law’s Levy Conference Room March 2, kicking off 2011’s Law and Entrepreneurship lectures presented by Penn Law’s Institute for Law & Economics (ILE).

Nowak reflected on his fund’s 25 years of community investment and addressed the core issues of community development. He opened his talk by outlining The Reinvestment Fund's work; TRF currently manages $700 million and has invested more than $1 billion, which represents about $3.5 billion worth of real estate deals for small businesses and community facilities. It also provides public policy analyses, a massive geographic information systems database, and direct real estate development in several states, including Pennsylvania, New Jersey and Washington, DC.
 
Through real estate deals and projects, TRF has financed close to 20,000 housing units, has lent capital to major charter schools, funded inner-city and rural commercial space, invested in renewable energy and helped create close to 50,000 jobs. “So what’s the problem?” Nowak asked, moving on to discuss the core issues that TRF tackles.
 
Nowak highlighted Philadelphia’s obsolete real estate: “What’s really clear about places like Philadelphia is that these are places that had, for a variety of reasons, up to the first half of the 20th century, what I think of as a kind of a monopoly status,” he said.
 
“To some extent, one of the interesting problems about places like Philadelphia is that it created a political culture around that monopoly status.” According to Nowak, during the second half of the 20th century, when that monopoly status broke down, Philadelphia developed a large discrepancy between its select vibrant areas and other obsolete areas of the city.
 
In introducing a solution to this problem, Nowak differentiated The Reinvestment Fund's approach from a traditional focus on simply finding areas with competitive advantage, and noted, “The question is not simply what is possible in terms of these places growing, but if places can grow, how do you do it in such a way that creates value for places that seem to have limited value, places with heightened regional distress or places where high populations of low- or moderate-income people with limited capacity live.”
 
According to Nowak, the challenge for a distressed city is to balance growth and equity, especially in today’s complicated global economy. Therefore, for TRF, he said, the issue is to find solutions at the local level given the set of dynamics and restraints at the national and global levels.
 
From Nowak’s perspective, the foremost necessity in finding these solutions is high-quality governance. “What I mean by high-quality governance is high quality public goods that are reasonably priced,” he said, adding, “In the absence of those goods, it is very difficult over the long term to sustain economic growth.” Whether these goods are schools, public safety or transportation, investment in the provision of these goods is crucial to a city’s development, he explained.
 
To emphasize the economic potentials of such basic public goods, Nowak presented statistical examples of TRF’s quantitative analyses of the goods’ values. Nowak expanded on the success of Mastery Charter Schools, the nation’s most effectively managed network of inner city schools that he founded and finances.
 
Describing the nationwide movement in improving education, he explained, “Basic to this whole effort is the idea that great inner city schools don’t have to wait until poverty is solved.” For Nowak, the key to successfully turning around a low performing school is effective management with high levels of discipline and accountability. Giving examples of successful turn around schools, he emphasized, “You find what works, and build in scale what works.”
 
The Reinvestment Fund’s job, Nowak noted, is to analyze the cities that lack the development of these basic goods. “The idea is that you’ve got limited public resources, and you’re trying to get private resources into these places,” Nowak explained. TRF determines where to invest and why by analyzing data about cities the way businesses analyze information about stocks and bonds.
 
TRF then makes investments accordingly, in various places including small businesses like local supermarkets, which provide high quality public goods at competitive prices.  “The point I’m trying to make is that there is a market out there for high-quality goods, that works in terms of both the social issues that we care about and the entrepreneurial issues that make them sustainable,” Nowak concluded.
 
Elizabeth Hein, L’12, said of Nowak’s talk, “I’ve been hearing about The Reinvestment Fund for years, through people who work in non-profit areas. I’m glad to finally have been able to hear what he has to say.” She added, “It [TRF] is not without problems, but it’s brave work he is doing.”
 
Audience member attorney Sean Brennecke of Bouchard Margules & Friedlander commented, “The idea of investing money in cities, especially in areas at risk, is something that should resonate in everyone. To see something like this growing from a relatively modest beginning into a successful organization is amazing.”