Banks play key role in push to eliminate food deserts

A small Chicago grocery chain rehabilitates a vacant strip mall in an area lacking food stores. In western Massachusetts, a popular food cooperative plans a second location in a rural town to reduce customer travel time. A twice-expanded Houston food bank gives groceries away to needy families hit hard by this year’s devastating winter storms.

What these stores and pantries have in common is that they give their communities a source of fresh, healthy food.

The other thing they have in common is that they exist because of a multipronged, decadelong effort by the federal government, community development financial institutions, banks and others to expand healthy food access and reduce the footprint of “food deserts” — areas all over the country where the building blocks of a nutritionally adequate diet are not easily accessible.

There is evidence that these efforts are making a durable impact on the dual issues of food insecurity — defined as inability to afford the food one needs — and the prevalence of food deserts. But the pandemic has laid bare how serious these problems are.

Feeding America, a national trade group for food banks and pantries, estimated that more than 35 million Americans experienced food insecurity in 2019 — a 20-year low. But in 2020 that number jumped to more than 42 million.

The problem was urgent enough for President Biden to sign an executive order on Jan. 22 increasing Supplemental Nutritional Access Program benefits by 15% for families with children, one of his first actions as president.

“They are in this situation through no fault of their own,” Biden said at the signing ceremony. “It’s unconscionable.”

But in many communities hard hit by the pandemic, there are innumerable barriers to even accessing the kind of varied and healthy diet — fruits, vegetables, fresh meats and grains — that prevent chronic or acute illnesses, such as diabetes, hypertension, stroke, heart disease and even cancer.

“You can give people resources to buy fruits and vegetables, but if they can’t get to a grocery store, I think your impact is going to be greatly diminished,” said Brian Lang, director of the Food Trust’s National Campaign for Healthy Food Access, based in Philadelphia.

One of the biggest barriers is the physical proximity to a grocery store, and the amount of time and effort required to get to one.

“Due to socioeconomic issues in certain underserved markets, people have transportation challenges,” said Brian Misenheimer, senior vice president of National Cooperative Bank, a $3 billion-asset, mission-based lender headquartered in Arlington, Va. “A prime example is there’s a community that has a river. The grocery store is within a mile as the crow flies, but it’s five to seven miles away by roadway. The only way to get there if you don’t have a car is public transportation, and public transportation closes at 5 p.m. How do you get to the grocery store?”

Creating food oases

In 2006, Mari Gallagher, a Chicago-based researcher and consultant, partnered with LaSalle Bank (later acquired by Bank of America) to study the public health effects of food deserts in the Windy City. It measured the distance between every city block and both the nearest grocery store and nearest fast-food restaurant, and then compared food choices available to health outcomes in those neighborhoods.

Gallagher said rather than rely on the infrastructure of a government program, food retailers and banks “could make their own rules and be more independent.”

“Nobody goes where no one is already,” Gallagher said. “But people misunderstand. They think, ‘Well, groceries would go into a market if there was money there. If there was no grocery there, there must not be any money to make.’ And that’s not always correct.

“It’s like the joke where two economists are walking down the street and one says to the other, ‘Hey, isn’t that a $20 bill we just passed on the sidewalk?’ and they keep walking and the other guy says, ‘No, if that was a $20 bill, somebody would have picked it up already.’ ”

Banks play key role in push to eliminate food deserts

Starting about 15 years ago, states like Pennsylvania established healthy food financing initiatives, and then in 2010, the Obama administration announced a national Healthy Food Financing Initiative. These programs were designed to use various public-private partnerships to foster the creation of new access points to healthy food options in places that don’t have them.

The efforts include grants and financing through state and local governments, as well as federal incentives under the New Markets Tax Credit Program. That program, which began in 2000, awards funds to community development entities to attract bank financing and investment and spur projects in low-income areas. That program was modified in 2011 to include areas considered by the Department of Agriculture to be food deserts as part of its criteria for designating which areas qualify as “highly distressed” and therefore prioritized for program assistance.

Under the NMTC framework, small-bank loans combine with tax credit-based investments from larger banks to create a capital pool to fund important projects that might not otherwise be built in areas in the greatest need. And that framework has funded projects across the country aimed at expanding food access and strengthening regional food systems.

For NMTC projects approved by the CDFI Fund, a large bank is given a tax credit for making an initial investment in a store project. That capital typically accompanies a direct loan from a smaller bank to help cover additional project costs.

National Cooperative Bank made a roughly $10 million loan under an NMTC structure to help finance the $25 million purchase and renovation of a vacant grocery store in Chicago’s South Shore neighborhood. Local Market opened in December 2019.

The city promised another $10 million through its Tax Increment Financing program, which allocates property tax increases toward redevelopment. Helping to round out remaining costs was equity from PNC Financial Services Group through the New Markets Tax Credit program.

The tax-credit investment typically funds 20% to 25% of project costs.

“The New Market Tax Credit program is meant to support and subsidize financing gaps such as those in real estate and equipment financing,” said Kevin Goldsmith, the managing director of community development tax credits for JPMorgan Chase. Over the past five years, the bank has invested in over $330 million of NMTC financing to support food access through projects such as grocery stores and food banks.

The predominantly Black neighborhood where Local Market is based, next to the University of Chicago and Hyde Park, had been without a full-service grocery store for nearly seven years after the former Dominick’s chain closed, according to Eva Jakubowski, an owner of the Chicago-based Shop & Save chain that owns and operates the store.

“Where we’re located within South Shore, there are still a lot of people who walk to grocery stores or use public transportation, which of course makes it that much more difficult to do your everyday grocery shopping if you don’t have a car and you’re dependent on other people to take you,” Jakubowski said.

“What our store makes the biggest impact on is the local community members that truly depend on a local neighborhood store for their everyday shopping,” she said. “There are a lot of senior citizens within this community; there are a lot of young families as well.”

Projects like the Local Market often involve multiple lenders and sources of capital. That is partly because grocery stores are a low-margin business. One bank often is unable to finance the full amount particularly in communities without much retail development.

“With financing for a startup grocery store in these underserved markets, the capital stacks are complex with many stakeholders,” said Misenheimer. “They’re heavily negotiated between all parties involved. You have to have people who know what they’re doing to come together to put these deals together. There’s often a lack of tangible collateral available in the project.”

And there is evidence that these efforts are making a difference. In 2019, $600 million in funds allocated through the NMTC went to projects with a healthy food component, making up 22% of the total funds awarded by the tax-credit program. That was up from just 3% in 2008 and 7% in 2010.

“As the federal government put their thumb on the scale and tried to support efforts to expand access to healthy foods, the community development industry generally reacted and there was more grant funding available for these projects,” said Paul Anderson, who helps oversee research efforts for the New Markets Tax Credit Coalition. “That really moved the needle in terms of pushing more organizations to finance grocery stores, food banks and other things that expand access to healthy foods.”

But advocates like Lang say that while NMTC-funded projects and other initiatives have undoubtedly made progress, he says there is still more work to be done — particularly to expand healthy food access in communities of color.

“I don’t think we can quite say that every American has access to affordable and nutritious food,” Lang said.

Urban versus rural access

Food deserts may be thought of as an urban issue, but more rural communities also lack access to healthy food, and the public-private partnership model has been making progress in those places as well.

River Valley Co-op is a community-owned nonprofit that operates a full-service grocery store in Northampton, Mass., about 100 miles west of Boston. It broke ground last year on a new store in adjacent Easthampton, a former mill town.

“It’s a changing and dynamic community,” Dorian Gregory, who is president of the co-op board, said of the new store location. But Easthampton is still overshadowed by larger communities nearby and has few grocery options for residents, forcing them to shop elsewhere.

Co-ops like River Valley view their mission both as providing an affordable fresh food option and promoting the regional food economy by utilizing local food producers.

“The co-op is trying to do grocery better. A lot of that has natural and organic elements to it,” said Matthew Sosik, CEO of Hometown Financial Group, which owns the $1.6 billion-asset Easthampton Savings Bank. He has shopped at the Northampton store. “They’re trying to raise the standard. You’re not going to go to River Valley Co-op and buy processed foods.”

A direct loan from Easthampton Savings Bank, help from a consortium of local community development entities, and an NMTC investment by Capital One financed the roughly $20 million project for the Easthampton store, which is slated to open in June.

“By opening the store in Easthampton, we’ll make the store closer to people who were already shopping with us and make it much easier for many more people to shop with us, and make it possible for our local vendors that we work with, to grow their business,” said Rochelle Prunty, the co-op’s general manager.

The effort to expand retail options in food deserts has coincided with a trend in several communities to localize the food supply chain.

“There is this process now of creating stronger local food systems that are decentralized from the larger national food system,” said Donna Leuchten Nuccio, senior director for healthy food access at the Reinvestment Fund, a CDFI based in Philadelphia. “There’s more opportunity for food systems investment that we’ll probably see pop up in small-business lending activity at both banks and CDFIs.”

River Valley Co-op works with about 240 local food vendors. In financing the second store, the co-op collected $5 million in personal loans from about 300 of its member-owners.

“It’s food and the vision for an alternative, more locally based food system and more people-based local economy,” said Prunty. “For some people, the co-op is about access to the kind of healthy food that they need for them and their families at a fair cost. For others it’s about the fact that we buy food from their neighbors and we’re supporting their families.”

‘Doing God’s work’

The Reinvestment Fund in 2010 began researching a way to define and delineate food deserts — or what it terms Limited Supermarket Access, or LSA, areas — the USDA has a similar definition that also incorporates income levels in its analysis. The Reinvestment Fund found in 2011 that 8% of Americans — some 24.6 million people — lived in LSA areas. But in their most recent 2018 analysis, that number had dropped to 5.6% of the population — or 17.6 million Americans. That means 7 million people have access to healthy food that wasn’t there a decade ago.

And the NMTC program is not limited to retail grocery stores. Many projects include community centers that offer area residents healthy food, and about 20% of all food-related NMTC projects through 2019 were for food pantries or community food nonprofits.

Two such projects were related to an expansion of the Houston Food Bank — the largest food bank in the country, serving 159 million meals over the past year. The food bank was put through a particularly critical test in February, when a brutal winter storm left millions of people without water and power across Texas and left many more families in need of food.

On a visit to the state, President Biden visited the food bank to highlight its disaster relief efforts.

“They’re doing God’s work,” Biden said, according to press reports.

And regulators have found other ways to incentivize banks to finance that work. In 2020, the Office of the Comptroller of the Currency published a rule revising how the agency enforces the Community Reinvestment Act, a 1977 law that requires banks to make investments in low- and moderate –income areas they serve.

That new rule included a non-exclusive list of specific activities that can earn a bank credit, including investing in an opportunity fund financing a grocery store in a low-to-moderate-income “opportunity zone.” A bank can also receive credit for lending to a farm “to construct a building from which to sell produce.”

That small change can make it clearer to banks that financing these kinds of projects can benefit their business even if it isn’t routed through the New Market Tax Credit.

“I believe that our new rule is more explicit about these activities being eligible for CRA even if they didn’t have a New Market Tax Credit attached to them,” said Barry Wides, the OCC’s deputy comptroller for community affairs.

Bryan Toft, the chief revenue officer at the $1.6 billion-asset Sunrise Banks, said the St. Paul, Minn., institution, which is also a CDFI, has financed projects in food deserts primarily through the NMTC. But there are also other avenues, he said. For example, the bank helped put together a non-NMTC deal to finance the construction of a market serving St. Paul’s Hmong community with 250 vendors.

“As the type of bank we are, given our social mission, even without New Markets we put together deals using [Small Business Administration] programs or other nonprofit gap finance lenders,” Toft said.

‘Everybody needs to eat’

The Food Trust’s founder, Duane Perry, was formerly the head of the merchants’ association at Philadelphia’s Reading Terminal Market. He became familiar with shoppers from Black neighborhoods who came to the market “because their neighborhoods had no grocery stores,” Lang said.

The Food Trust, Reinvestment Fund, then-state Rep. Dwight Evans (who is now in Congress) and other stakeholders helped create the Pennsylvania Fresh Food Financing Initiative in 2004. It helped support 88 projects before ending six years later.

As part of the program, the Reinvestment Fund used a portion of grant money from the state to reduce credit loss reserves for banks willing to invest in grocery projects. Other states created their own food financing initiatives, including California, New Jersey and New York.

But Lang said several communities are still working out how to bring a grocery store to an underserved area, and the grocery gap has been magnified by the pandemic and the national dialogue on racial equity.

“With the protests over racial injustice over the summer, people started to dig into what issues besides police brutality were impacting quality of life in urban areas, people once again came across grocery store access as being one of these quality-of-life issues,” he said.

“Everybody needs to eat. Everybody needs a grocery store. Certainly the challenges that everybody had getting groceries at the dawn of the pandemic hammered a lot of this home for people — why it was important to have a grocery store in your community.”

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