Photo by Thomas Hawk via Flickr

The Dollars to Shape Cities

The scale of the challenges facing cities is bigger than any public sector can handle. Here’s a look at different sources of private-sector capital, and the new and unexpected ways communities can access that capital.

Story by Oscar Perry Abello

Published on

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The more you go to city council hearings, town halls or other forums where cities are discussing affordable housing, economic revitalization or environmental sustainability, the more you hear it — like the refrain of a classic song that everybody seems to know, even if it’s not their favorite. It goes something along the lines of “the public sector will have to play a role, but it won’t be enough.”

The scale of the challenges at hand are just bigger than any public sector budget can handle — meanwhile, the private sector controls the lion’s share of capital.

But “the private sector” isn’t a monolith. There are different pools of capital with different constraints and means of accessing them. Below, we’ve compiled the basic facts about the main “buckets” of private sector capital, along with examples of how those in cities have gained access to them to meet the scale of the challenges they face.


Perhaps the most familiar to everyone. Individuals, as well as institutions, hold savings deposit accounts or certificates of deposit at banks or credit unions, which are chartered by the federal government or by state governments and which are usually insured by the federal government.

Commercial banks in the U.S. currently hold around $12 trillion in deposits, while credit unions hold $1.2 trillion in deposits.

Banks and credit unions use deposits to fund the loans they make, as well as to invest in regulator-approved financial instruments such as conventional stocks and bonds, as well as more exotic or sophisticated products

Banks currently hold around $9.4 trillion in loans, while credit unions hold around $1 trillion in loans.

Under the Community Reinvestment Act, passed in 1978, banks have an obligation to meet the credit needs of the communities where they do business. But banks also experience pressure from shareholders to seek higher returns by investing in more sophisticated financial products.

According to the latest available data from federal regulators, banks reported making $96 billion in community development loans throughout the U.S. in 2017. That includes loans to build or preserve affordable housing or revitalize commercial or industrial property.

Northwest Bank, in the Pacific Northwest, provided a letter of credit to a commercial property on the east end of Portland (pictured in the heading above), allowing residents around the property to buy ownership shares for as little as $10 a month.

Retirement Savings

Retirement savings mostly come from individual retirement accounts, 401k or 403b accounts with matching dollars from employers, and public and private pension funds.

Retirement assets in the United States total $28.3 trillion, according to the Investment Company Institute.

Most retirement savings are aggregated into mutual funds, bond funds, money market funds or other pools, each with a target level of risk and financial return. Firms that select investments for each pool can range from large Wall Street firms to smaller “boutique” shops.

Retirement savings are typically invested in the stock market, or the bond market. A smaller slice goes into real estate or commodities (oil, coffee, timber, etc.).

The Reinvestment Fund (which financed the project pictured in the heading above) is one of several community development lenders that are now accessing the bond markets. These community development lenders, all nonprofit organizations, have issued $300 million in bonds and counting since 2017.

Worker cooperatives are accessing capital through networks of financial advisors whose clients want their retirement savings to do more than just earn the maximum financial return.

Community Preservation Corporation, a community development lender, has had a decades-long arrangement with New York City and New York State to manage the investment of public pension fund dollars into affordable housing.

Insurance Companies

Insurance policyholders pay trillions of dollars a year in premiums to companies selling health insurance, life insurance, car insurance, property insurance and other forms of insurance. After paying out claims, subsidizing administration and operations, and paying any dividends to shareholders, the companies can invest any cash left over.

Insurance companies currently hold around $6.5 trillion in investments and cash, according to the National Association of Insurance Commissioners.

Insurance companies manage some of their investments internally, but they also farm out a lot of investment management to many of the same mutual funds, bond funds and other funds containing retirement assets.

Since most insurance companies can predict with reasonable certainty how much they’ll have to pay out in any given year, they typically prefer safe, predictable investments such as bonds. There are $41 trillion in the U.S. bond market — much of that coming from overseas investors.

Until recently, the state of California had a program to promote and monitor insurance company investments in affordable housing, clean energy, women- and minority-owned startups and other socially beneficial projects. At the state’s last count, insurance companies had $21.85 billion invested in qualified projects across California. The program expired at the end of 2016 and has not been resurrected by or replicated in any other state.

Prudential, the insurance and financial services giant, made a seed investment into a fund that will help finance stormwater retention improvements to properties in Washington, D.C. That fund invested in the project pictured in the heading above.


University and foundation endowments come from their founders and have been supplemented over the years by donors and benefactors as well as each endowment’s’ own annual investment returns.

Foundations hold $890 billion in their endowments, while universities hold $547 billion.

By IRS regulations, private foundations must spend at least five percent of the value of their total endowments every year. The other 95 percent gets invested, typically in the same manner as retirement assets or insurance company dollars. Community foundations and universities don’t have to follow the same rule, but they often do as a rule of thumb.

Beginning in 1968, the Ford Foundation pioneered the use of “program-related investments,” or loans at below-market interest rates made in accordance with a foundation’s stated mission, which count as part of a foundation’s annual five percent.

New Day Chester, a local artist-led organization revitalizing an arts corridor (pictured in the heading above) in Chester, Pennsylvania, got a program-related investment from the Barra Foundation, a small foundation based in the Philadelphia suburbs.

Program-related investments helped seed the San Francisco Housing Accelerator Fund, providing access to capital at interest rates that make it financially feasible for nonprofit organizations to acquire and preserve the affordability of buildings that would have otherwise been flipped into luxury housing.

Donor-Advised Funds

Increasingly popular, donor-advised funds are like mini-foundations for people who don’t have the time or resources to set up their own family foundations. Donors make a contribution to their fund (which they can’t take back), receive the charitable tax benefit right away, and then decide later where to grant those dollars.

In 2016, there were around $85 billion held in nearly 285,000 donor-advised funds. In that year, donor-advised funds made nearly $16 billion in grants, while taking in an additional $23 billion from donors.

Donor-advised funds are sponsored by public charities, such as a community foundation or other registered public charities. Some of the largest sponsors are those associated with large financial services firms. In 2016, Fidelity knocked off United Way as the top annual recipient of charitable donations in the United States — thanks to its affiliated donor-advised fund sponsor vehicle.

While money is sitting in donor-advised funds, waiting to be granted out, it gets invested in various ways. Some get placed into the same mutual funds alongside retirement assets, insurance company dollars, and endowments. Some also goes into accounts at local banks or credit unions.

The Central Valley Community Foundation recently moved $2.6 million in deposits from donor-advised funds and other benefactors into a new account at Self-Help Federal Credit Union, helping the credit union’s Fresno branch (pictured in the heading above) fund first-time homebuyer loans and car loans for underserved populations.

The Philadelphia Foundation recently pledged to move $30 million in assets under its management (including donor-advised funds) into the PhilaImpact Fund, which will be used to finance community development projects in the Philadelphia area.

Benefit Chicago is an initiative combining donor-advised fund dollars managed by the Chicago Community Trust with a program-related investment from the MacArthur Foundation to finance community development around Chicago.

What’s Next?

None of these sources of capital can replace the public sector. In most of the stories featured, some type of public funding or subsidy is also present. But these sources of capital aren’t going anywhere any time soon.

The newly passed Opportunity Zones tax incentive has created a new channel for private sector investment that is already attracting billions of dollars of potential capital to be invested in low-income census tracts. Whether that investment actually benefits the 35 million residents of the 8,700 designated Opportunity Zone census tracts remains to be seen, but it is one more bucket to add to this list.

This article is part of The Bottom Line, a series exploring scalable solutions for problems related to affordability, inclusive economic growth and access to capital. To stay informed on the latest regarding Opportunity Zones or how cities are accessing any of these pools of capital in support of equitable development, affordable housing or environmental sustainability, subscribe to our monthly Bottom Line newsletter. The Bottom Line is made possible with support from Citi Community Development.

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Oscar is Next City's senior economic justice correspondent. He previously served as Next City’s editor from 2018-2019, and was a Next City Equitable Cities Fellow from 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha and Fast Company.

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