How Community Foundation Santa Cruz County injected $2 million+ into their local community with a mission-aligned investing tool
Across the United States, community foundations like Community Foundation Santa Cruz County (CFSCC) play a pivotal role in identifying and solving community problems for millions of local residents.
In the face of complex and large-scale social, environmental, and economic challenges, foundations today are tasked with a paramount question for 21st-century philanthropy: how can foundations leverage the full weight of their resources to not only act as a catalyst for transformation in their own community but provide a model for economic prosperity beyond their region’s borders. Namely, an economy marked by equitable opportunities for all that will successfully cultivate and sustain well-being for future generations and our planet — no small task.
A local step toward mission-aligned investing
Community Foundation Santa Cruz County, founded in 1982, embraces the opportunity to bring together generous people and innovative tools to solve persistent community challenges. In 2015, CFSCC examined its role as a catalyst for change and the tools to further its mission. Their Board of Directors saw an opportunity to move beyond the foundation’s traditional grantmaking strategy to make place-based investments in community projects with locally-traceable low-interest loans. In 2015, the Board shifted 20% of their socially responsible investment portfolio, about $2.6 million at the time, towards local impact investments. The loan strategy was the foundation’s opportunity to dip their toe into an emerging practice that was quickly gaining national attention, mission-aligned investing.
What was the benefit of this new strategy? For CFSCC, the clear benefit was getting the foundation’s current assets off the sidelines in a way that aligned with organizational values. By converting passively invested capital into active loan capital, the foundation was able to leverage more resources in support of their place-based mission. If managed well, CFSCC could perpetually continue their loan practice with an expanding pool of capital from the returned principal and interest.
Beyond catalyzing capital in a new way, CFSCC demonstrated their capacity for proactive innovation, deeper community engagement, and a stronger voice in the regional impact agenda. By taking a calculated risk, the foundation stretched the boundaries of traditional philanthropy and illuminated a new pathway for achieving local impact.
Investing beyond the prototype
In 2017, CFSCC hired Susan True as its CEO. Susan had led other nonprofits in the county and was keenly aware of the need for more capital to support game-changing social venture projects. Additionally, she earned her master’s at Stanford’s Graduate School of Business where she focused on impact investments, social entrepreneurship, and innovation. Susan was eager to get the investment vehicle working in her community. With approved capital ready to be deployed, Susan quickly set the wheels in motion, “There are many persistent needs in our community, and the solutions are far beyond the scope of grantmaking alone. By joining strategic local investments with our grantmaking, we can make a dent in issues like preserving agricultural lands and ensuring our local workforce can get into the housing market.”
With clear direction from its board and CEO, CFSCC went to work, harnessing its network, enlisting Community Capital Advisors to identify a pipeline of loan candidates, and proceeding with a series of new loans into the community. It created the Community Investment Revolving Fund to invite donors to co-invest in the loan program and see the eventual repayments recycled for new local initiatives. In the spring of 2018, the new fund attracted the attention of a local high-impact donor who shifted $1.5 million from a Donor Advised Fund to CFSCC in support of local loans. The landmark gift meant significant increases to loans deployed locally. This year, the foundation will make three loans, at a total of $3 million, which include:
A $1,000,000 investment in affordable housing as part of a partnership with San Francisco-based startup Landed, Inc. and Santa Cruz County Office of Education. The program provides half of the down payment on a home, up to $120,000.00 per family, in exchange for a portion of the appreciation or depreciation in the value of the home when it is sold. Eleven local teachers have already had offers accepted on homes and received down payment assistance within the first few months since Landed launched in Santa Cruz County in April 2017.
A $1,050,000 investment into Aptos-based California FarmLink will provide direct loans for beginning, immigrant and other underserved farmers with limited resources. By serving farmers who are often under-capitalized, FarmLink builds a diverse and sustainable farming community and food system that includes women, people of color, and immigrants. Staff and business advisers provide one-on-one technical assistance, workshops, connections, resources, and other solutions to support borrowers who would otherwise have difficulty securing financing due to limited business history and other factors. The investment supports the next generation of Central Coast farmers and creates a pathway for low-income families to build wealth while increasing the acres of sustainably farmed land.
New Way Homes
New Way Homes will receive $350,000 to address the insufficient local housing supply that adversely affects the lives of local middle and low-income families. New Way Homes aims to fill the gap in affordable and workforce rental housing and combat the rapid rise in median rent costs in the region, without relying on government subsidy. The New Way Homes fund, backed by mission-aligned landowners and local investors including Santa Cruz County Bank and Dignity Health, has plans to develop lower cost units, mostly for rent, near jobs, to improve the diversity, environmental sustainability, and economic vitality of the region. Funds will support initiation and pre-development work on a Santa Cruz County-based housing development project.
The loans in CFSCC’s portfolio are a reminder that community foundations enjoy special latitude in their approach to solving community issues. In Santa Cruz County, they’re taking an entrepreneurial approach – seeing community philanthropy choices on a spectrum of risk and opportunity, and choosing to invest where other funders or lenders may steer clear. By bringing more resources to bear on stubborn issues like affordable housing and economic mobility, the foundation gains a better chance to make a more significant dent in local issues. It’s about enhancing the ability to make change, which is fundamental to community foundations across America.
Joining a National Conversation
U.S. foundations, at eighty-six thousand plus strong, collectively manage more than $800 billion in assets. Yet, private foundations are only required by law to spend 5% of those assets annually on their missions. Community foundations and donor-advised funds have no such requirement. In practice, foundations often spend their annual earnings from their pool of investment assets, which are traditionally invested to maximize growth for the foundation’s long-term viability. Sometimes, ironically, foundations are invested in ways that conflict with their grantmaking strategies (think, for example, of an environmental foundation whose endowment has investments in fossil fuels).
Stories of those who have begun practicing mission-aligned investing, like the Heron Foundation's 100% endowment strategy or Ford Foundation's $1 billion commitment to mission-related investments, roll easily off the impact investing enthusiast’s tongue. And for good reason. Mission-aligned investing encourages foundations to explore how all of their assets are being leveraged to achieve their mission. Moreover, it’s not merely a theoretical exercise. Foundations are practicing, sharing learnings, and growing tools - screens for negative investments, reallocation of fixed investment assets to start a community loan fund at zero or low interest, alignment of 100% your endowments towards mission, and the list goes on.
Giants like Heron, Ford, Gates, and the MacArthur Foundations may be often-cited models, but it’s important to note the chorus of community foundations that are joining to pave the path. Community Foundation of Santa Cruz County has a decades-long commitment to making Santa Cruz County a better place to live for the 250,000+ residents that inhabit it. With a $3.8 million allocation from their investment portfolio into impact investments, CFSCC’s pot may be comparatively small, but the team is thinking big for their local community today and generations to come.
“Our role is to accelerate solutions to local problems, and complex challenges need creative solutions, says True, “mission-aligned loans expand our toolbox and our ability to make Santa Cruz County an opportunity-rich place for all.”