Fall 2000 F E D E R A L R E S E R V E B A N K O F B O S T O N No. Thirty

F e a t u r e 2How Local Regulations Can Help Meet Our Housing NeedsGretchen Weismann and Maggie Adams of NortheasternUniversity’s Center for Urban and Regional Policy analyze howbuilding codes and zoning regulations affect housing costsand impede the construction of affordable housing. They alsoprofile successful regulatory practices around the country.

P r o d u c t i v e P a r t n e r s h i p s 1 0A Progress Report of Insurance IndustryInvestorsLife and property and casualty insurers have been formallyacting as community economic developers since legislationpassed in 1998. Andrea Luquetta of the MassachusettsAssociation of Community Development Corporations sum-marizes a report documenting their progress to date.

E n t e r p r i s i n g 1 4Conference Highlights: Faith-BasedEconomic DevelopmentA review of the national conference hosted by the BostonFederal Reserve Bank that brought over 600 people togetherwith the goal of energizing and educating practitioners offaith-based economic development.

A r o u n d N e w E n g l a n d 1 8Producing Skilled Labor: How theWorkforce Investment Act WorksMaine and Rhode Island have taken different tacks imple-menting the federally created Workforce Investment Act.Kathleen Gill profiles the state programs.

C o m p l i a n c e C o r n e r 2 1Regulations P, Z, and the ESIGN ActPrivacy of consumer financial information, credit card disclo-sures, and the major provisions of the ESIGN Act are all dis-cussed by Anthony Ricko, Federal Reserve Bank of Boston.

by Gretchen Weismann andMaggie Adams

Northeastern University’s Centerfor Urban and Regional Policy

How Local Regulations Can Help Meet

Our Housing Needs

In the Boston metropolitan area, as in

other parts of the country with tight

labor and housing markets, housing

costs have increased dramatically—

especially in terms of land, labor, and

financing costs. While a limited sup-

ply of land and inflation in cost of

materials are responsible for part of

this increase, government regulations

also have an impact.

This article will outline the role of

state and local regulations in creat-

ing economic barriers to new hous-

ing construction and will identify

the potential for effective housing

strategies through regulatory reform.

In particular, we concentrate on pos-

sible changes to zoning ordinances

and building codes as a means of

reducing development costs (thereby

facilitating affordable housing

development), improving adminis-

trative efficiency, and achieving liv-

able communities. We provide back-

ground on the development of state

and local housing regulations as a

way to understand the goals of

reform. Then, we offer a snapshot of

local and national efforts that can

serve as housing policy models.

3 c & b

Regulatory ReformGoals

Livable communities begin withgood housing. Although eachcommunity has distinctive fea-tures and opportunities, the vital-ity of any community dependson its ability to provide bridgesto a wide range of cultural,social, and economic opportuni-ties. Development should beinclusive, recognizing that everycity and town has a range ofhousing needs and preferences. Itshould also offer numerousopportunities and public spacesfor interaction. The placementand design of housing shouldcomplement the distinctive char-acteristics of a community.Zoning for moderately high den-sities and diverse land use rein-forces rather than detracts fromthe existing strengths of a com-munity. It cultivates neighbor-hood livability.

As a purely social measure,reforming building codes toencourage renovation of existingbuildings would be a huge stepin the fight against sprawl.Increasing density by developingand rehabilitating mixed-income,mixed-use housing protects thenation’s cities and towns fromthe harm sprawl brings—unem-ployment, higher crime rates, andlack of civic participation. This iscrucial for inner-city residents,who see resources and jobs locat-ing ever farther away.

The regulatory reform the Centerfor Urban and Regional Policysuggests includes both substan-tive changes—for example, zon-ing overlay districts to encouragea variety of building types—andprocedural changes to make the

Court includes Title V (1995),governing septic systems, and theCommunity Preservation Act(2000), which allows local gov-ernments to raise fees on record-ed deeds to preserve open spaceand develop affordable housing,among other policy objectives.

Still another aspect of the regula-tory process, community review,has been the center of mediaattention, as Boston createsdevelopment plans for its SeaportDistrict waterfront. This type ofreview is hardly new. The BostonZoning Code adopted in 1964 wasbased entirely on the city’s urgentneed to stimulate economicgrowth.2 Therefore, it abolishedheight limits established in 1924and applied a uniform set of sub-urban-style controls. When thezoning process failed to producean adequate mix of residentialhousing among the high rises andcopious commercial growth, themayor instructed the city’s plan-ning and development agency,the Boston RedevelopmentAuthority, to promote more bal-anced growth and protect the dis-tinct character of the neighbor-hoods. Thus Boston’s more com-prehensive zoning code, of whichseveral articles are still underreview, was designed to promotecommunity participation, preser-vation, and enhancement of thepublic realm; protection of resi-dential neighborhoods; and con-trolled economic growth.

The important point of this histor-ical information is that zoningordinances and building codes arenot static. As regulations aremeans rather than ends, the realquestion raised by them is: Whatdo citizens expect from their citiesand towns?

Origins

In Massachusetts, regulation ofthe building process began withthe first generation of Puritansettlers struggling to coexist withthe rugged landscape. In 1649the General Court passed an ordi-nance declaring that all buildingsshould be made of brick, a pre-ventive measure against fire. Thispractical legislation has been fol-lowed by decades of revision inbuilding codes and zoning regu-lations designed to accomplishmultiple public goals, rangingfrom health and safety concernsto what are considered accept-able paint colors for one’s seven-teenth-century historic residence.

A model zoning-enabling act wasimported from Germany in the1920s and, with encouragementfrom the U.S. Department ofCommerce, was immediatelyadopted by local municipalitiesacross the country. The typicalzoning ordinance specified segre-gated uses in order to separateindustry, commerce, and residen-tial living spaces, with the ideathat this type of subdivision wouldprotect residential spaces fromindustry. By 1966, zoning prac-tices were so popular that “thou-sands of local officials regard[ed]zoning as the greatest municipalachievement since the perfectionof public sanitary systems.”1 Intime, the regulatory environmentwas influenced by local, state, andfederal government.

The urban renewal process in the1950s increased federal fundingfor housing programs and, withit, regulations over the type andlocation of new development,favoring single-family suburbanstarter homes over multifamilybuildings such as duplexes andtriple-deckers. The 1970s envi-ronmental movement bredanother kind of regulation andmarked the advent of the envi-ronmental impact review. Thisarea of land-use regulation con-tinues to evolve. Some of thecurrent legislation to emergefrom the Massachusetts General

“As a purely social measure, reforming build-ing codes to encourage renovation would bea huge step in the fight against sprawl.”

4 c & b

40B), under which local zoningboards of appeal may approvecomprehensive building permits(CP) authorizing subsidized hous-ing so long as the “need” forhousing outweighs any validplanning objections to the pro-posal, including health, design,or open space.

The CP process allows developersto file a single application, ratherthan follow the conventional andtime-consuming process. If a zon-ing board of appeal fails toapprove a comprehensive permit,it can be further appealed tothe state’s Housing AppealsCommittee, which through 1994upheld the local rejection of hous-

the original examiner at thebuilding department. The mini-mum time frame for this processis three months, although no timelimit is specified. In the simplestcase a builder will need as manyas nine permits to get started.

One exception to the hegemonyof local control predatesthe Zoning Act. In 1969,Massachusetts became the firststate to pass legislation thatoverrode local zoning in order tofacilitate the construction of low-and moderate-income housing.Chapter 774 of the Acts of1969 created the MassachusettsComprehensive Permit Law (com-monly referred to as Chapter

current system more responsiveto the goals outlined above. Tomeet these goals, local and statebuilding codes should be amend-ed, permitting and inspectionservices speeded up, governmentfinancing mechanisms stream-lined, and zoning laws revisited.These changes will reduce thetime and cost of producing hous-ing without compromising safetyor environmental quality.

How Regulations Workin Massachusetts

While the Massachusetts buildingcode (780 CMR) is establishedand promulgated by the statethrough the State Board ofBuilding Regulations andStandards, it is implemented bythe Commonwealth’s 351 citiesand towns along with a numberof related statewide codes, localzoning ordinances and bylaws,and permitting processes. Underthe Zoning Act of 1975, citiesand towns have wide discretionto enact local zoning regulationsthat will “encourage the mostappropriate use of land” and pro-mote “a balance of housingopportunities,” with the authorityto enforce these regulationsthrough local planning boards.

Planning Boards, often staffed bypart-time volunteers, can adoptadditional regulations that affectthe design and dimensions ofstreets, passageways, and build-ings, so long as they are consis-tent with local bylaws or ordi-nances. Planning boards are alsoresponsible for interpreting build-ing codes, establishing adminis-trative reviews, conductingreview processes, checking per-mits, and approving final plans.

In the city of Boston, if a projectis not “as of right”—if it requireszoning relief or a variance—thedeveloper may bring the decisionto the city’s board of appeal with-in 45 days. If the appeal is grant-ed after a public hearing, a copyof the decision ordering changesor granting relief is returned to

“...when renovating existing buildingsin Massachusetts, developers have todeal with not one but nine governmen-tal bodies.... They must go to eachagency separately and determine theappropriate standards.”

ing plans in only 9 of 154 rulings,or 6 percent. As of 1999, an esti-mated 20-25,000 units were builtin at least 171 municipalitiesusing the CP process—approxi-mately 21 percent of all unitsadded between 1990 and 1997.3

While Chapter 40B has undoubt-edly been successful in creatingadditional low- and moderate-income housing units, locallyadopted regulations to spurhousing may not always work intandem with the state’s legisla-tion. For example, nothing inthe law encourages developersto follow locally selected pat-terns of density or dwelling type

and, in fact, the economics ofthe subsidy often recommend alow-density location.4 Thisstands in stark contrast to rec-ommendations for mixed-income, mixed-use developmentand reduces the effectiveness ofproactive planning effortsamong local actors.

The Costs ofRegulation

• Administrative inefficiencies

In cities and towns across theregion, housing developers beginprojects with the understandingthat they will have to request awide range of variances, but theyare not allowed to do so untiltheir development projects havebeen reviewed and rejected by thelocal planning board. Regulationsthat generate frequent variancerequests may signal that codeprovisions are unnecessary orunreasonable. Major sources ofdelay and cost are the uncoordi-nated and fragmented quality ofproject review and the limited

review capacity of inspectionstaff in smaller municipalitiesthroughout the region.

For example, when renovatingexisting buildings in Massachu-setts, developers have to dealwith not one but nine govern-mental bodies, including theState Board of BuildingRegulations and Standards, theArchitectural Access Board, theMassachusetts Fire ServiceCommission, and the Board ofState Examiners of Plumbers andGasfitters, among others.Developers and building ownershave no clear guide to what isnecessary to renovate their build-

ings. They must go to eachagency separately and determinethe appropriate standards. Inaddition, if any detail in the ren-ovation process requires interpre-tation beyond the law, localinspectors must go to the statelevel for an answer—often tomore than one state body. Such afragmented process not onlywastes construction time anddrives up the costs of the projectas a whole, it suggests that thecodes themselves are arbitrary.

• Limiting building types

Zoning laws often restrict the useof land, reducing the overall sup-ply of potential housing parcels.Strict separation of land useoften prevents housing develop-ment above commercial spaces inthriving retail areas. Zoning thatmakes it difficult to convert for-mer industrial properties limitsthe ability of existing metropoli-tan centers and suburbs to adaptto changing economic needs andconditions. Young families, stu-dents and singles are increasing-ly likely to work at home and to

want social activities and eco-nomic opportunities nearby.Zoning practices that limit densi-ty and make it more expensive tobuild in town centers also keepelderly residents from convenientaccess to health care and socialservice networks.

In Massachusetts, a developer isrequired to conform an existingbuilding to the standards for newconstruction when the purpose ofthe construction is to change thebuilding’s original intent. Inother words, if a former ware-house, factory or office buildingis going to be converted into res-idential use, it is required to be“modernized” using new con-struction codes. An appealprocess is available for develop-ers who wish to challenge thenew construction codes’ applica-tion but the appeal itself addssignificant time—and therefore,cost—to the project.

Living in adapted commercialbuildings is an increasingly pop-ular choice for urban dwellers;warehouses converted to artists’lofts provide the most commonexample. Throughout Boston,hundreds of existing propertiescould be converted to residentialuse if regulatory barriers did notadd excessive time, cost, andadministrative headaches to theprocess. Of the 495 abandonedbuildings the Department ofNeighborhood Development list-ed in 1999, nearly 30 percentwere commercial or mixed-useproperties restricted from effi-cient conversion to residences.Policies that provide incentivesfor Boston’s commercial propertyowners to redevelop their build-ings could significantly increasethe city’s supply of housing.

• Unplanned growth

Local zoning restrictions andbuilding code requirementsimpose additional costs by con-tributing to sprawl. Between 1950and 1990, the amount of devel-oped land in the Commonwealthincreased at a rate greater than sixtimes population growth, sending

“Throughout Boston, hundreds of existingproperties could be converted to residentialuse if regulatory barriers did not add exces-sive time, cost and administrativeheadaches to the process.”

6 c & b

people farther and farther out intogreenfields, increasing traffic con-gestion and pollution, and requir-ing enormous infrastructureinvestment. To counter this trend,45 communities in Massachusettshave recently adopted explicitgrowth-rate bylaws that limit newconstruction to 50 units per year.Six communities have adoptedregulations making it impossibleto build multifamily housing inany form.5

Zoning bylaws in already built-up areas deter construction ofsmaller homes or multifamilyhomes such as triple-deckers,exacerbating sprawl. Floor-to-area ratios and setback require-ments reduce the overall floorspace that can be built on a sin-gle plot of land. If existingbuildings could be rehabilitatedin creative ways, the need fornew construction and the devel-opment of open space wouldboth decrease.

Impact

The greatest cost of regulation isthat many families are unable toafford housing. Some studiesindicate that zoning and otherland-use controls can add asmuch as 50 percent to the cost ofcertain housing developments.Indeed, the MassachusettsExecutive Office of Administra-tion and Finance recentlyreleased a policy report, BringingDown the Barriers: ChangingHousing Supply Dynamics inMassachusetts, arguing thatzoning laws and land use con-trols have had a dramaticupward effect on housing pricesin the Commonwealth.

Not In My Backyard, a HUDreport on regulatory barriers toaffordable housing, is cited asevidence that 20 to 35 percent ofhousing price increases in somecommunities can be attributed toexcessive regulation.6 The reportfound that the adverse impacts ofsome laws—including zoning andbuilding code regulations thatrestrict the construction of medi-um-density, multifamily, single-

room-occupancy apartments, andaccessory apartments—could begreatly reduced without sacrific-ing the key benefits of such laws.Much of the regulatory savings,however, derive from permittingthe construction of smaller andless luxurious apartments.

The National Association ofHome Builders, a professionalassociation concerned with gov-ernment regulation in the hous-ing industry, polled builders in42 markets around the countryabout their experiences with reg-ulatory authorities from the timeof land purchase to the time offinal home sale. They found thatabout 10 percent of the cost ofbuilding a new home could besaved by using a streamlinedprocess. In particular, encourag-ing coordination among permit-ting agencies and establishingspecific approval-process timelimits would help cut costs.

Suggestions forRegulatory Reform inGreater Boston

A number of regulatory reformsshould be considered for theGreater Boston metropolitanarea. To support the creation of“communities within communi-ties,” cities and towns shouldemploy zoning techniques thatfoster increased densities in “vil-lage” centers, allowing multifam-ily home development on lotsthat are currently zoned exclu-sively for single-family homes orfor commercial use. To respondto the area’s changing demo-graphics and lifestyles, munici-palities should issue permits toallow accessory apartments,“live-work” spaces, and housingthat is mixed in with commercialand industrial buildings.

To expedite the construction ofmultifamily housing, cities andtowns could provide permits forspecific models of multifamilydwellings, which could then beawarded to developers “by right”rather than on a time-consum-ing, case-by-case basis.

All communities should beencouraged to identify andrezone publicly owned land aswell as vacant or neglected prop-erty. To expedite development ofbuildings that fit the communi-ty’s character, municipal govern-ments should identify parcels forbuilding and establish clear, pre-scriptive standards for housingdevelopment in advance ofspecific project proposals.Developers who meet these stan-dards should be allowed access tothe properties and a streamlinedapproval process.

In some cases, cities and townscan simplify the administrativeprocess by creating a reviewcommittee that looks at proposalsbefore they are sent to the plan-ning board. Ideally, all cities andtowns would designate a localhousing official to shepherd theprocess of development at thelocal level.

The Commonwealth should enactlegislation to mandate “ApprovalRules” that would require citiesand towns to review develop-ment plans in a timely manner.Development plans that meet thecommunity’s residential housinggoals and zoning requirementscould be approved without theexplicit consent of a local plan-ning body if it failed to act with-in a specified time period. Inaddition, developers of infill pro-jects (redeveloping deterioratedor abandoned lots) who submitcomplete development andfinancing plans should be enti-tled to “fast-track” approvals thatcomplement the time frame spec-ified in the “Approval Rules.”

Finally, to encourage cities andtowns to adopt inclusionaryhousing, the Commonwealthshould pass statewide legislationthat provides legal protection tomunicipalities choosing to adoptinclusionary housing practices.

Best Practices

Throughout the country, citiesand towns are creating and mod-ifying regulations to assist devel-

7 c & b

opment and rehabilitation ofhousing in order to further theirgoals for community and eco-nomic development. Here aresome regulatory and zoningpractices that Greater Bostonshould consider emulating.

• Building Codes and

New Jersey encourages the adap-tive reuse of existing buildingsby establishing predictable coderequirements and maintainingthat developers should not haveto undertake additional workoutside the scope of their proper-ty improvement, as long as safe-ty is not compromised. The NewJersey Division of Codes andStandards asked themselves this:If a building has already provento be sturdy enough to survivedecades of use, are specificdimensions in the code for newconstruction necessarily saferthan the architectural quirksmany old buildings contain?Historic preservation advocatesapplauded the “rehab subcode”measure, maintaining that thesame details new codes try tostandardize—variations in win-dow, staircase and door size,building materials, and setbackfrom the street—are what makeup the unique character of citiesand towns. The program hasachieved remarkable success—garnering a $100,000 award fromthe John F. Kennedy School ofGovernment’s Innovations inGovernment Program and enjoy-ing a 50 percent increase in reha-bilitation work across the state.

Also in New Jersey, a “cookbook”system of code books aims tomake rehabilitation work as clearand concise as possible. In states

like Massachusetts, the cookbooksystem would prevent developersfrom gathering codes from vari-ous organizations and digestingthem separately. Specific codebooks are used to explain every-thing developers will need to

know about complying with thecurrent codes—no more, no less,and all in one easy-to-read for-mat. An up-front understandingof everything that rehabilitating aspecific building entails encour-ages more developers to take onurban renovation projectsbecause they know there won’t behidden costs or wasted time.

In another example, the City ofSan Jose’s Department ofHousing formed a HousingAction Team, which includesstaff from the city’s housing,planning, building and codeenforcement, public works, andfire departments, to providehousing developers with oneplace to go for all necessary per-mits. Furthermore, the city hasdeveloped a rating system forfunding rental developments thatgives the highest scores to devel-opers who meet city housing pri-orities for affordable housing.Affordable housing is developedwithin walking distance of exist-ing or planned light rail lines andin close proximity to employers.For every dollar in city funding,more than four dollars have beenleveraged to produce 6,000 newunits of affordable housing and2,000 rehabilitated units.

To help other communitiesstreamline their building codes, anew International Building Code(IBC) is currently being written,with John Terry, one of the cre-ators of New Jersey’s rehab sub-

code, serving as committee chair-man. The IBC will use the best ofcurrent building codes andshould be available within twoyears for use by jurisdictionsacross the country. States inter-ested in reforming their buildingcodes may want to take a look atthe work the IBC is doing—wait-ing for this new code may takeonly as much time (if not less) ascreating new codes from scratch.

• Zoning

Zoning reform is also a criticalstep in the development of newhousing opportunities. Accordingto a recent study of zoning in theNew England region, 118 com-munities in Massachusetts, orone-third of all cities and townsin the state, have adopted zoningprovisions to encourage theinclusion of affordable units aspart of their residential develop-ment strategy. Even inMassachusetts, where Chapter40B has offered a state-supportedprocess for developers interestedin affordable housing, 1 percentof housing production since 1990has been in developments relyingon local zoning measures fortheir approval (7 percent of thetotal statewide production ofsubsidized units).7 The most suc-cessful inclusionary zoning pro-visions (in terms of effectivenessat expanding housing opportuni-ties) are those that are tailored toand supported by the community,apply to the type of residentialdevelopment that is likely to beconstructed, and provide clearlegal and technical direction.

The City of Cambridge hasrecently taken steps to amelioratethe impact of a soaring housingmarket. It passed a zoning ordi-nance to help the city takeadvantage of infill propertiesand, more significantly, the rede-velopment of warehouses andcondominium buildings in for-mer industrial and transitionzones. As an example of one ofthe Commonwealth’s strongerlocal inclusionary housing mea-sures, the city mandates that inall new or converted residential

“States interested in reforming their build-ing codes may want to take a look at whatthe IBC is doing—waiting for this new codemay take only as much time (if not less) ascreating new codes from scratch.”

8 c & b

Streamlined Processes

developments of 10 or more unitsor 10,000 square feet, 15 percentof the units must be affordablefor at least 50 years and must beof exactly the same quality andsize as the market-rate units.

To make the developments finan-cially solvent and to compensatefor the added regulation, the cityallows a 30 percent densitybonus—allowing an additionalnumber of market-rate units tobe built on-site equal to thenumber of affordable units thatare created. According to officialsfrom the city’s planning depart-ment, residents laud the ordi-nance because it creates afford-able units without additional cost(the administration of the pro-gram was absorbed by the exist-ing planning department) andproactively manages growth bybuilding in places that are likelyto be developed anyway.Developers can also live with theordinance because it is explicitand yet flexible—preventing thekind of extensive, litigious, andcostly negotiations observed inother communities. To date, 27units have been created withanother 150 in the pipeline.

There are also many other types ofzoning provisions that canaddress a lack of housing supply.In 1988, San Rafael, Californiachanged their local zoning toencourage affordable housing andan appropriate jobs-housing bal-ance by reducing the amount ofparking required for each apart-ment constructed in a designatedarea. In addition, housing devel-opment is permitted anywhere indowntown areas, in conjunctionwith any other type of develop-ment. Ten percent of new housingmust be affordable under the“workforce housing” plan, and thecity provides a density bonus todevelopers who add additionalaffordable housing units.

Important zoning reforms arealso happening in Texas. To con-struct housing around an urbanor town center in the City ofAustin would have required atleast 30 variances. To avoid this,

the city adopted a new zoningoption called a “TraditionalNeighborhood District.” Underthis new option, three types ofdevelopment are specified:neighborhood centers thatinclude commercial, retail, andresidential mixes; mixed residen-tial areas of single-family,duplex, townhouse, and multi-family dwellings along withsmall-scale commercial; and sin-gle-family housing subdivisions.To encourage use of TraditionalNeighborhood Districts, the Citywaives a portion of park landdedication fees and expedites siteplan review procedures.

The town council of Chapel Hill,North Carolina passed a “smallhouse” ordinance this year seek-ing control of housing size anddevelopment costs. Under thetown’s regulations, developersmust limit the size of 25 percentof the units of multifamily devel-opments to no more than 1,100square feet.

Conclusion

In the Journal of Real EstateDevelopment, Phil Herr, a localexpert on zoning, contests thenotion that housing priceresponds easily to regulatorychange. He writes, “While it iscommonly asserted that land costis the central problem of housingaffordability, and that muchmore generous zoning densityrules are the key to resolution,the problem is much more com-plex.”8 He recommends carefuldesign and understanding of thedistinctions among regulationsthat facilitate housing affordabil-ity, provide incentives for its pro-duction, or require its inclusion.

The Center for Urban andRegional Policy agrees.Regulatory reform alone will notsolve this region’s housingaffordability problems. But it laysthe groundwork for creatingaffordable housing and repre-sents a commitment to the richinfrastructure of existing com-munities. Most urban advocateswould not automatically consider

building codes and zoning to betools for promoting urban rein-vestment and increasing the sup-ply of affordable housing, butnuts-and-bolts processes oftenmake the biggest difference inthe overall picture.

About the AuthorsGretchen Weismann is a seniorresearch associate at NortheasternUniversity’s Center for Urban andRegional Policy. She managed andco-authored A New Paradigm forHousing in Greater Boston, pre-pared for the Roman CatholicArchdiocese of Boston. This reportcan be accessed on the Center’sweb site at www.curp.neu.edu.

Maggie Adams is the managingeditor of the Center’s web sitewhich is updated biweekly andspotlights Greater Boston’s plan-ning iniatives, community activi-ties, and ongoing research projects.

1.

2.

3.

4.

5.

6.

7.

8.

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Richard Babcock. The Zoning Game.(Madison: University of WisconsinPress, 1966).

Linda Mongelli Harr and HomerRussell. “The Power of Zoning.”Urban Land, October 1993.

Citizens’ Housing and PlanningAssociation. “Using Chapter 40B toCreate Affordable Housing inSuburban and Rural Communities ofMassachusetts.” October 1999.

Philip B. Herr. “Partners in Housing:The Massachusetts Experience.” TheJournal of Real Estate Development,Vol.5, No.1, 1989.

Executive Office of Administrationand Finance. “Bringing Down theBarriers: Changing Housing SupplyDynamics in Massachusetts.” PolicyReport Series No. 4, October 2000.

Anthony Downs. “The Longer View:Regulatory Barriers to AffordableHousing.” APA Journal, Autumn,1992.

Philip Herr & Associates. “Zoning forHousing Affordability.” Study pre-pared for the Massachusetts HousingPartnership Fund, March 28, 2000.

Philip B. Herr. “Partners in Housing:The Massachusetts Experience.” TheJournal of Real Estate Develop-ment,Vol. 5, No.1, 1989.

A Progress Report of Insurance Industry Investors

pro

ductive

pa r tnershi p

s

10 c & b

by Andrea Caliz Luquetta

wo years have passedsince the Massachu-setts Legislature andGovernor established“An Act Insuring

Community Investment and theEquitable Taxation of InsuranceCompanies in Massachusetts.”This legislation provides the firststate mandate directing insur-ance companies to invest in com-munity development efforts.Specifically, the act directsMassachusetts-based life andproperty and casualty insurancecompanies to capitalize twoinvestment initiatives at a rate of$20 million annually for fiveyears. Insurers that do not partic-ipate become ineligible for sig-nificant tax relief estimated to beworth $50 million annually tothe industry. In addition, compa-nies based outside ofMassachusetts are encouraged toparticipate by an additional taxcredit of 1.5 percent of theamount invested.

The passage of the legislationmarked a victory for organiza-tions such as the MassachusettsAssociation of CommunityDevelopment Corporations

T (MACDC), the MassachusettsAffordable Housing Alliance(MAHA), and the Organizationfor a New Equality (ONE). Forover eight years, these organiza-tions worked diligently with leg-islators and the insurance indus-try to increase investments inlow- and moderate-income(LMI) communities.

The performance of the LifeInsurance Investment Initiative(The Life Initiative) and theProperty and Casualty InsuranceInvestment Initiative (PCI) thusfar has proved that the insur-ance industry can find andinvest in critical communitydevelopment efforts throughoutMassachusetts. Already, over$66 million has been committedto community development ini-tiatives; one-third of the com-mitments have already beenreceived and are being used byrecipients. The large volume ofearly commitments recognizesthe strong need within the com-munity development field forthese resources.

Industry participation, however,has lagged somewhat behind

legislative expectations. Whileall of the largest life insurancecompanies are participants inthe Life Initiative, the PCI hasreceived less investment thanexpected by the legislation.Though PCI staff are working toincrease the rate of capitaliza-tion by 2003, they expect toattract a total of only $85 mil-lion—$15 million less than wasintended by the legislature.

Many of the larger property andcasualty companies still havenot invested in the PCI. As aresult, they are not eligible forthe intended tax benefit. Inaddition, no out-of-state insur-ers have participated in eitherInitiative. Their financial partic-ipation in this program wouldmake them eligible to receive a1.5 percent tax credit on premi-ums paid in Massachusetts.

With the capital currently avail-able, Charles Grigsby and SusanSchlesinger of the Life Initiative,and Stacey Townsend and RufusPhillips of PCI have successfullyidentified over 36 communitydevelopment investment oppor-tunities in various regions of the

This is a summary of progress and recommendations byAndrea Caliz Luquetta of the Massachusetts Association ofCommunity Development Corporations. MACDC issued thefull report, entitled “Insuring the Future of ourCommunities: The First Progress Report on theMassachusetts Insurance Industry Investment Initiatives,”in November 2000.

Andrea Caliz Luquetta is Director of Housing andCommunity Reinvestment for the Massachusetts Associationof Community Development Corporations. Andrea advo-cates on behalf of MACDC’s 67 members throughout theCommonwealth for improved resources from the financialservices sector for affordable housing development. She isalso on the Board of the Massachusetts Community andBanking Council. Andrea co-authored an article in theWinter 1999 issue of Communities and Banking discussingthe then-new insurance industry community reinvestmentlegislation, its background and prospects.

11 c & b

Commonwealth. Observation ofthese first commitments indicatesthe following:

• Of the committed capital ($66million), 45 percent is for devel-opment of affordable housingopportunities for LMI house-holds, 29 percent is to promotebusiness and economic develop-ment programs, and 26 percent isto finance community revitaliza-tion and services, such as healthcare and child care centers.

• Community development effortsin Greater Boston and WesternMassachusetts have each received18 percent of the funds commit-ted. Central Massachusetts hasreceived 7 percent of the capital,Southeast Massachusetts 4 per-cent, and Northeast Massachu-setts 2 percent. Over 51 percent ofthe funds are going to organiza-tions with a multi-regional ser-vice area. Because most of thesecommitments have not yet closed,it is currently difficult to evaluateactual geographic distribution.

• Large volumes of funds havebeen committed among regionalnetworks where both the need for

capital and the infrastructure touse it are strong. For example,affordable housing commitmentsare concentrated among appli-cants based in and/or serving theGreater Boston area, which hasboth a severe lack of affordablehousing and a strong network ofdevelopers and advocates.

• Seventy percent of the $66 mil-lion has been committed to inter-mediary community developmentfinancial institutions. The remain-ing capital has been committed toorganizations that directly servelow- and moderate-income andminority communities.

• Over 80 percent of the capitalhas been committed in the form ofloans. These loans typically offerlower rates and/or more flexibleterms than might otherwise beavailable. The Initiatives have alsomade equity investments and sec-ondary market purchases. Theseinclude unprecedented commit-ments to purchase below-market-rate mortgage loans and small-business loans, and an equitycommitment to support venturefinancing of businesses servingLMI communities.

In compliance with legislativerequirements, each Initiativenamed two community represen-tatives to its investment commit-tees. The PCI appointed CharlesClark, a community developmentlender at Citizens Bank and chairof the board of BostonCommunity Capital, for a one-year term and Chris Sikes,Executive Director of the WesternMassachusetts Enterprise Fund,for a two-year term. The LifeInitiative appointed Allan W.Blair, President and CEO of theEconomic Development Councilof Western Massachusetts, for atwo-year term and Willie Jones,Senior Vice President andDirector of the Southeast Regionfor The Community Builders, Inc.for a one-year term.

This year, the Initiatives alsobegan hosting their legislativelymandated public meetings ineach of the five geographicregions of Massachusetts.Through October 31, 2000, bothInitiatives have held meetings inWestern, Central, Southeastern,and Northeastern Massachusetts(only Greater Boston remains).

continued on page 13

12 c & b

Fast Facts

Full capitalization ($100 million) ofThe Life Initiative is expected in2003 and $85 million capitalizationis expected for The Property andCasualty Initiative in 2003.

Included in the funds’ community andbusiness investments are affordablehousing, both rental and homeowner-ship; job creation; community ser-vices; small businesses; and minority-and women-owned businesses.

Common fund investments includemortgage debt, senior loans, subor-dinated loans, credit enhancements,equity, and pooled securities.

Qualifying applicants must servelow- and moderate-income house-holds or communities. Low- andmoderate-income households aredefined as earning under 60 and 80percent of area median income,respectively. Low- and moderate-

income communities have a medianincome of less than 80 percent oftheir metro area as defined by HUD.A community may also qualify if ithas an unemployment rate higherthan the statewide average or if ithas been designated an EconomicTarget Area, Enhanced EnterpriseCommunity, or Empowerment Zone.

Other states, including California,New York, Ohio, and Pennsylvania,are looking at the Massachusettsmodel to involve insurance compa-nies in community development.

Each Initiative is relying on thecommunity development experienceof its staff for guidance. The LifeInitiative calls on Grigsby’s experienceas Boston’s Director of NeighborhoodDevelopment after a career in commu-nity development and urban planning,and on Vice President SusanSchlesinger, who is a former Assistant

City Manager for the City ofCambridge and has a background inaffordable housing and planning.Stacey Townsend, Executive Directorof The Property and CasualtyInitiative, has a commercial lendingbackground and has worked with theMassachusetts Business DevelopmentCorporation. Vice President RufusPhillips has worked for theMassachusetts Housing FinanceAgency and with a for-profitdeveloper of affordable housing.

For more information, contact:The Life Initiative 420 Boylston Street Boston, MA 02116(617) 536-2850

The Property and Casualty InitiativeOne Arcadia StreetDorchester, MA 02122(617) 282-6228

Life insurance and property andcasualty insurance companies inMassachusetts have expandedtheir investment array by provid-ing funding for low- and moder-ate-income community develop-ment. Following 1998 state legis-lation calling for “communityinvestment and the equitabletaxation of insurance compa-nies,” Massachusetts insurancecompanies have pooled theirresources to capitalize The LifeInsurance Investment Initiativeand The Property and CasualtyInsurance Investment Initiative(see Fast Facts for details). Thesefunds invest in low- and moder-ate-income communities both forcivic and for financial results.

Senior Vice President and LifeInitiative Fund Manager CharlesGrigsby believes that his privateand for-profit organization isdistinct because it commits to a

variety of community develop-ment projects and because theInitiatives are flexible in their

financing. Neither Initiative isrequired to specifically allocateits funding to one area of com-munity development, so eachfinances as directed by theirrespective investment commit-tees. In addition to investingdirectly throughout theCommonwealth, each Initiativecan also route financing throughsmaller loan funds and interme-

diaries, thereby strengtheningtheir capacity.

The life insurance companies havehad some experience with com-munity reinvestment through theMassachusetts Capital ResourceCompany, formed by the lifeinsurance industry in 1977 to pro-vide capital to local communities.The Property and CasualtyInsurance Companies, however,are in new territory. As RufusPhillips, Vice President of theProperty and Casualty Initiativeexplains, there are more smallproperty and casualty insurersworking in Massachusetts thansmall life insurers. Despite thenewness of community develop-ment investing, coupled with thedifficulty of involving numeroussmall operations, the PCI is proudof committing $22 million infunds in its first year of operation.

—Kristin Kanders

“Initially the insurance compa-nies were cautiously optimistic,but now they seem pleased bythe progress we are making andthe impact their capital isalready having.”

—Charles Grigsby

Insurance Investing Overview

“Two importantissues must alsobe addressed with-in the next sev-eral years.

The first is thetension betweenthe Initiatives’desire to revolvetheir capital amonga variety of invest-ments within atwo- to four-yearlife span and theneed of manycommunity devel-opment efforts forlong-term capital.”

eral years. The first is the tensionbetween the Initiatives’ desire torevolve their capital among avariety of investments within atwo- to four-year life span andthe need of many communitydevelopment efforts for long-term capital. A related dilemma,given the current rate of commit-ments, is that relatively littleadditional capital will be avail-able for investments beyond thefifth year of capitalization.

We encourage the Initiatives tomake strategic long-term commit-ments and to reserve a portion oftheir capital for short-termrevolving use. In addition, theInitiatives should explore oppor-tunities to grow capital throughadditional investments by domes-tic and out-of-state insurersbeyond the minimum requiredamounts and the initial five years.Overall, the InsuranceInvestment Initiatives have beena success. Massachusetts hasbecome the first state in thenation to attract a significantvolume of capital for communitydevelopment from the financialservices industry beyond thebank-CRA model. Much of theMassachusetts insurance indus-try has expanded its investmentportfolio to include communitydevelopment efforts that provideboth a social and a financialreturn. The Initiatives’ continuedsuccess may well help strengthenthe viability of communitydevelopment investments amongother sources of capital, such asinvestment firms. While continu-ing to monitor this model’s suc-cess, thinking should turntoward increasing insurer invest-ments directly into communitydevelopment efforts and plan-ning the program’s expansion.

For a copy of the report, contact: Andrea C. LuquettaMACDC99 Chauncy StreetBoston, MA 02111(617) 426-0303andreal@gbls.org

13 c & b

continued from page 11

The Initiatives have also generat-ed other press and publicitythrough events and mediareports. More public outreachand interaction is needed though,particularly to attract investmentopportunities in Northeast andSoutheast Massachusetts.

The Initiatives could take severalsteps in this regard. First, theyshould take advantage of broad-based umbrella organizations andtrade associations to spread infor-mation about the Initiatives ascapital sources. They should alsoappoint additional communityrepresentatives to the investmentcommittees, in order to benefitfrom a broader variety of com-munity interests and expertise.

The Commissioner of theMassachusetts Division ofInsurance (DOI) is in a uniqueposition both to monitor theimplementation of the Initiativesand to help increase public edu-cation about them. For example,without violating its role as theregulator of financial health ofthe industry, the DOI could dis-seminate information about theInitiatives through its websiteand ask for public input regard-ing the Initiatives’ activities.The Initiatives should also con-tinue to offer creative financingmodels and encourage creativecommunity development strate-gies. For example, the PCI com-mitment to invest in BostonCommunity Capital’s secondventure fund will help BCC tocontinue serving a largelyuntapped market and providemuch-needed equity to business-es in low- and moderate-incomeareas. Similarly, the LifeInitiative’s commitment to pur-chase Soft Second first-timehome buyer mortgages will helpincrease the capacity of areabanks to continue originatingsuch mortgages beyond thosecurrently being provided.

Two important issues must alsobe addressed within the next sev-

n September 18 to 20,2000, the FederalReserve Bank of Boston

and 24 collaborating organiza-tions hosted “A National Faith-Based Community EconomicDevelopment Conference:Engaging the Black Church.”The conference, held at theBoston Park Plaza Hotel,brought together a nationalaudience of 600 attendeesincluding pastors, church offi-cials, nonprofit communitydevelopers, financial serviceproviders, government officials,academics, and others. One ofthe conference goals was toenhance participants’ knowl-edge of available resources toassist them in expandingopportunities for economicdevelopment and capital accu-mulation in impoverished andunderserved communities.

In her opening remarks, Cathy E.Minehan, President and ChiefExecutive Officer of the FederalReserve Bank of Boston, told thegroup that the Federal ReserveSystem recognizes the impor-tance of collaborative partner-ships. She noted other projectsthe Federal Reserve Bank ofBoston has been involved in,such as expanding access tohomeownership for low- to

moderate-income individuals inmetro Boston and Rhode Island,expanding business opportuni-ties for minority entrepreneurswith major corporations in theBoston area, and creating multi-bank lending consortiums inMaine and New Hampshire toprovide debt and equity financ-ing for affordable housing.President Minehan described thefaith-based conference as anextension of those types of part-nerships and said that the con-ference should “foster the shar-ing of knowledge, experiences,and best practices among someof the nation’s most skilledpractitioners in community eco-nomic development.”

Boston’s Mayor Thomas Menino,who also addressed the gathering,told the audience that faith-basedorganizations are the “new energywithin our cities, as they are theones who are now making thingshappen.” Mayor Menino wasespecially proud to note theinvolvement of the faith commu-nity in Boston’s redevelopmentefforts, specifically the city’sGrove Hall, Dudley Street, andBlue Hill Avenue areas. Prior tobeing elected mayor, he had rec-ognized that millions of dollarshad been spent to compile studiesof these areas. Upon becoming

mayor, he vowed that there wouldbe no more studies and instead,the community and faith-basedorganizations would be encour-aged to work on redevelopment.

Renowned author, economist,and president and CEO of LastWord Production in Washington,DC, Dr. Julianne Malveauxtreated the attendees to a spirit-ed and engaging presentationon the new economy and itsimpact on various communities,and especially the African-American community. Dr.Malveaux informed the audi-ence that not everyone was ben-efiting from the new economy.She said, “The new economywas shaped by the proliferationof technology and globalization.But while it has been stated thatour country will need half a mil-lion new systems engineers inthe next ten years, there willalso be a need for half a millionhome health aides.” She saidthat these aides are usuallywomen of color who earn mini-mum wage and are not in syncwith the new economy. Dr.Malveaux suggested that African-Americans, Native Americans,Latinos, and low-income peoplewere unprepared to take advan-tage of the changes brought bythe new economy.

Conference Highlights:

Faith-Based EconomicDevelopment

by Anitt Wilkinson

O

15 c & b

According to Dr. Malveaux, themost important issue forAfrican-Americans in this eco-nomic expansion is the increas-ing wealth gap, which existsbecause “African-Americans

on the partnership aspect of eco-nomic development; and (d)bringing morality and balance tothe profit model, by encouraginglocal entrepreneurs to providefair rates of return.

doing business. He added thatthe paradigm shift has movedfrom “our historical dependenceon the social-political to a moreeducation and economic-focused paradigm.” He alsonoted that some individuals dis-count these changes becausethey are afraid of change.

In addressing the faith-basedcommunity’s role in thesechanges, Dr. Flake told the audi-ence that the faith-based com-munity is viewed by many asthe entity in touch with thereality of everyday life and,therefore, it should be involvedin improving reality. He notedthat some leaders do not recog-nize the resources available tothem and the potential theypossess. Dr. Flake told the audi-ence that “our perception ofwhat is available to us is notoften seen in the reality of whatit is; we see what is as beingforever and permanent whileothers see what is as being whatwill be once it has beenchanged....” Before concludinghis speech, Dr. Flake challengedthe audience to view theirattendance at the conference asGod’s way of calling on them todeal with shifting paradigms.

On the following day, Bishop Dr.Harold Calvin Ray, Chairmanand CEO of the National Centerfor Faith-Based Initiative andSr. Pastor of Redemptive LifeFellowship in West Palm BeachFlorida, told the group that afaith-based initiative was in hisview, “a much deeper, muchstronger, much broader avenuethan anything people are think-ing today.” He explained, “Weare not talking about havinganother cycle of grants, anothercycle of handouts, we are talk-ing about birthing our own bil-lion-dollar economy and doingwhat we need to do ourselves,and then partnering with thevarious avenues and fundingstreams...We have to deal withthe community, the family, theculture and the values....”

16 c & b

Cathy Minehan and MayorMenino chat beforeaddressing the audience.

have not fully participated inthose engines of economicexpansion--that is, they do nothave the savings and investmenttools that are necessary to doso....” Dr. Malveaux also drewthe audience’s attention to the“unprecedented” levels of spend-ing occurring in our economy,with household debt reachinghistoric levels and 1.3 millionpeople declaring bankruptcy in1997 and 1998. In explaininghow the faith-based communitycould begin to educate their con-gregations about some of theseissues, Dr. Malveaux noted thatfaith-based organizations couldstart with the following actions:(a) anchoring conversationsabout money, so that money isnot seen as the root of all evil;(b) teaching people about finan-cial literacy and providing vehi-cles for savings, investment,education, homeownership, andcapital formation, (c) insisting

Rev. Dr. Floyd Flake, former U.S.Congressman and Senior Pastorat the 12,000 member AllenAfrican Methodist Episcopal(AME) Church in Jamaica, N.Y.(one of the largest privateemployers in Queens), talkedabout the new paradigm shifttaking place throughoutAmerica. He explained, “Therehas been a major paradigmshift, but all too often our lan-guage seems to suggest that weare lost in a vacuum, a vacuumthat for many is 35 years old, aswe merely continue to repeatthe messages of the 1960s with-out recognition and realizationthat the ‘60s are indeed over.We continue the same languageof victimization that oftentimesbrings us to a place where wedon’t realize that within us,there is the capability to makechange.” Dr. Flake said that newmodels are available in oursociety, as well as new ways of

One of the goals of this confer-ence was to draw people’s atten-tion to the power and influencethat our faith-based communitiespossess and their ability to influ-ence change. It is the hope of the

All attendees were also able tolisten to and ask questions of twopanels. One panel discussion wason predatory lending and theother featured funding for faith-based projects. For the electivesessions, conference organizerswere careful to provide a widerange of workshop sessions thatwould address the conferenceparticipants’ varied levels ofexperience. Among the specificconference modules were the fol-lowing: building congregationalvision and capacity for wealthcreation in community economicdevelopment; accessing tradi-tional and alternative funding forfaith-based wealth-generatingmodels; creative funding strate-gies for faith-based initiatives;building a community’s econom-ic assets and human resources;and mastering the mechanics ofexecuting successful strategies.In all there were nine differentworkshops among which partici-pants could choose; here are afew selected synopses.

Workshop presenter ThomasBailey, Vice President andcofounder of StrategicIntervention, Inc., encouraged hislisteners to think about theirorganization’s current situationand vision. He discussed how tobuild community support andcommitment for a leader’s visionand how to plan strategically forfuture goals. Mr. Bailey intro-duced the group to three stagesof strategic planning: definingthe organization’s values, vision,and mission; aligning the organi-zation’s programs, products, andservices to its mission; and, posi-tioning the organization to play apivotal role in changing the faceof the community. His workshopencouraged critical thinking andhis exercises and handouts gavethe group a means of assessment.

Reverend Mark Whitlock II,Economic Development Officerof First AME Church in LosAngeles, shared the FAMERenaissance Center model foreconomic development with

attendees of his workshops. Rev.Whitlock, in explaining that theRenaissance Center is a businessincubator, talked about what thecenter does and how it is suc-cessful in supporting small busi-

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Conference Co-Chairs Reverend Ray Hammond, M.D. (left)and Reverend Wesley Roberts, Ph.D. welcome the audience.

nesses. He showed how businessincubators affect a community,citing a 1997 study funded bythe U.S. Department ofCommerce finding that firmsgraduating from incubators havean 87 percent success rate andthat 84 percent remain in theirlocal communities. He alsoshared insights on how otherfaith-based organizations couldemulate the FAME model.

Tina Z. Moore, Director ofAdministration and Developmentfor Windsor Village UnitedMethodist Church in Houston,began her workshop by allayingpotential fears about faith-basedorganizations becoming involvedin financial matters. Referring topassages in the Bible aboutmoney and debt, she highlightedthe Bible’s perspectives on theseissues. Then she worked with thegroup to name different kinds ofdebt, highlighted some decision-making rules for borrowing, anddiscussed numerous fundingsources for faith-based initiatives.

Federal Reserve Bank of Bostonand its partners that the informa-tion and tools learned will enablethe participants to go out and bevoices of change in their commu-nities. Judgements about theconference’s success will ulti-mately depend on the collabora-tions that are formed to imple-ment change. Plans are currentlyunder way at the Federal ReserveBank of Atlanta to host a seriesof faith-based conferences dur-ing the fall of 2001.

The Federal Reserve Bank ofBoston would like to thank itssponsors, speakers, and work-shop presenters, for their time,effort, and commitment in mak-ing this national conferencesuch a success.

About the AuthorAnitt Wilkinson is a CommunityAffairs Analyst at the Federal ReserveBank of Boston. She helped to coordi-nate the national Faith-BasedEconomic Development Conference.

Since the early 1960s a series ofnational initiatives have shapedthe employment and traininglandscape. The ManpowerDevelopment and Training Actof 1962 led to theComprehensive Employment andTraining Act of 1973 and theJob Training Partnership Act of1982. In 1998, the WorkforceInvestment Act was signed intolaw, beginning a new era inworkforce development.

The Workforce Investment Act(WIA), which became effectivein July 1999 after five years ofnational debate, makes substan-tial changes in employment andtraining service delivery sys-tems. The purpose of the legisla-tion is to create a single, stream-lined system from the 60 to 70federal job-related programsthat currently exist. In addition,it aims to include a private-industry voice in job trainingactivities. Finally, the WIA man-dates that program administra-tors use private training pro-grams, instead of developingstate-sponsored programs.

The structure of the training pro-gram’s administration has also

Connecticut Maine Massachusetts New Hampshire Rhode IslandVermont Connecticut Maine Massachusetts New Hampshire RhodeIsland Vermont Connecticut Maine Massachusetts New HampshireRhode Island Vermont Connecticut Maine Massachusetts NewHampshire Rhode Island Vermont Connecticut Maine MassachusettsNew Hampshire Rhode Island Vermont Connecticut MaineMassachusetts New Hampshire Rhode Island Vermont ConnecticutMaine Massachusetts New Hampshire Rhode Island VermontConnecticut Maine Massachusetts New Hampshire Rhode IslandVermont Connecticut Maine Massachusetts New Hampshire RhodeIsland Vermont Connecticut Maine Massachusetts New Hampshire

Producing Skilled Labor: How the Workforce

Investment Act Worksby Kathleen Gill

changed under the WIA. ThePrivate Industry Council govern-ing structure of the Jobs TrainingPartnership Act (JPTA) is replacedwith a system of Local WorkforceInvestment Boards, aimed atincreasing accountability andcoordination. Private-sector rep-resentatives chair the boards withmembership drawn from busi-nesses, education institutions,labor organizations, and commu-nity-based organizations. Thelocal boards report to a StateWorkforce Investment Boardcomposed of the governor, twomembers from each chamber ofthe state legislature, and repre-sentatives of business, labor orga-nizations, chief elected officials,state agency heads, and others, asdesignated by the governor.

In a major departure from thecompartmentalized JTPA employ-ment and training delivery sys-tem, the WIA requires that aOne-Stop delivery system beestablished in each local area.The One-Stop concept was estab-lished under an earlier piece ofnational legislation and foldedinto the WIA. One-Stop CareerCenters focus employment andtraining activities in the area and

are intended to attract the com-munity at large. Under the newWIA definition, those eligible fortraining services include theunemployed and the underem-ployed. Underemployed workers-those not earning sustainingwages-may train for better-pay-ing professions while continuingto work.

The key principles of the WIA asspecified by the U.S. Departmentof Labor are as follows:

• Streamlined services • Universal access • Increased accountability• New roles for local boards• State and local flexibility• Improved youth programs.

Within the WIA’s structuralrequirements, states are encour-aged to create the best systemfor their needs and use flexibili-ty in designing Career Centers.Some states have folded WIACenters into community collegesor the Department of Labor;other Centers share space withunemployment offices. Maineand Rhode Island provide exam-ples of different methods ofimplementing the WIA.

18 c & b

AArroouunndd NNeeww EEnnggllaanndd

Maine

Maine has taken an energeticapproach to implementing theWIA. While most states in NewEngland have reaped employ-ment benefits from the country’seconomic expansion, many ofMaine’s rural areas have notfared well. The timber, paper andshoe industries that were majoremployers in western Maine haveshrunk and unemployment inMaine’s western regions is muchhigher than in coastal areas--referred to as the Gold Coast.

One of the state’s first steps wasto confront the public relationsproblem resulting from its unem-ployment offices and job serviceprograms being housed in unde-sirable properties. Instead ofusing existing facilities to createOne-Stop sites, Maine investedin new buildings located inshopping malls and other non-traditional locations to providebetter community access. Thestate currently has at least oneCareer Center in each county.Bryant Hoffman, ExecutiveDirector of Local Workforce Areaof Central Maine, believesimproving the physical struc-tures has had a significantimpact on people’s perceptions.

The Career Center’s services aredivided into several categories.The most basic type of service isaccess to the computer databaseof job openings. All Maine resi-dents are welcome to use thecomputers to view jobs availablein their field. A second set of ser-vices include an intake service toevaluate the job-seeker and busi-ness skills training programs,addressing topics such as accu-rately reading employmentadvertisements and dressing forbusiness. Maine’s Career Centershelp people learn to budget andprovide a referral service forclients who want counseling. Forexample, if a young, singlemother living in poverty wantscounseling, the center might callupon an organization calledWomen, Work and Learning to

provide those services. To facili-tate this service exchange, theCareer Centers coordinate (some-times by committing officespace) with the Bureau ofRehabilitation Services, whichworks with people who havebarriers to employment.

Because WIA legislation encour-ages active communication withthe business community as wellas the job-seeking community,Maine’s Career Centers havedeveloped a set of programs tosolicit employers as customers.Mr. Hoffman says that businesseswill provide further training topeople if the Centers can guide

them to potential employees.Businesses, says Hoffman, “willenfranchise people because thereisn’t anyone else to do the work.”Using a brand-new approach toattract job seekers and businesscustomers, the Maine CareerCenter recently participated in abusiness expo in Augusta. Bydisplaying its services, the Centertried to encourage business aswell as employee interest.

Another new business-orientedprogram begun by the MaineCareer Center is called RapidResponse. After a businessannounces a layoff, the CareerCenter holds a seminar at the

The Career Center in Lewiston, Maine,has a modern reception area fashionedafter a business office, computers withtouch screens for easy access to thejobs database, several conferencerooms, and a private area for one-on-one career counseling.

19 c & b

business site to assist employees.The Career Center tries to haverecruiters from other businessesat the seminar so that workerscan begin the transition to otheremployment. The Center pro-vides information about avail-able services and how to usethem. This partnership with busi-nesses reducing workforce andthose looking for employeesserves the business communityand the workers.

Maine’s additional employerassistance programs funded bythe WIA have been implementedthrough the Department ofLabor and the Bureau ofEmployment Services.

The Training Initiative is one suchprogram. Sponsored by theGovernor’s Office, it provides par-tial reimbursement of employers’training costs when they hire newemployees or improve their work-ers’ skills. To be considered eligi-ble, the business must pay wagesequal to at least 85 percent of theaverage wage for that occupationin the labor market. For companieswith more than 25 employees,they must also contribute at least50 percent of the premium cost ofemployee health insurance. Otherprograms include theApprenticeship Program, whichreimburses employers for up to 50percent of the cost of hiring an eli-gible job seeker, and the BusinessVisitation Program, which sendsCareer Center workers to localbusinesses to discuss the CareerCenter’s services and provide afree business evaluation.

Rhode Island

When the WIA was enacted,Rhode Island was already operat-ing four of six planned One-StopCenters. As in Maine, RhodeIsland remodeled its facilities.The offices were shut down andrebuilt or, in some cases, movedto more convenient sites andredesigned to be user friendly.The staff was retrained and theoffices computerized. The newoffices, located in Pawtucket,

Providence, Warren, Wakefield,West Warwick and Woonsocket,are known as netWORKri.

Rhode Island has incorporatedemployer services representa-tives as the link betweennetWORKri offices, the StateDepartment of Labor, and theemployer community. These 12representatives connect busi-nesses to the One-Stop system.Richard Beneduce, ChiefAdministrator of the StateWorkforce Investment Officesays, “Basically we have twocustomers, the job seeker andthe employer.”

Because the WIA prevents LocalWorkforce Investment Boardsfrom providing training directly,the boards must contract withtrainers and educators. The WIAalso requires that job seekershave training and a choice ofprovider institution. To facilitatethis process, Rhode Island hasdeveloped an “Eligible TrainingProvider List.” Providers oftraining in high demand occu-pations apply for acceptancethrough the Local Boards andthen the State Board. When jobseekers are selecting trainingprograms, they are providedwith information on individualprogram results such as thenumber of students served andthe numbers of students whohave completed the program,got jobs, got jobs related to thetraining, and were retained inemployment for at least sixmonths after they left the pro-gram. Information on each pro-gram’s cost and length is alsoprovided. Then, local One-StopCenters work intensively withclients to ensure that they selectappropriate training programs.

Once residents have selected atraining program, the state allo-cates a certain dollar amount perstudent for the selected trainingprogram. Rhode Island caps thetraining budget at $4,000 perstudent and then provides avoucher. The dollar amount isbased on the cost of a two-year

community college program.Recently, Rhode Island has beenconcentrating its training dol-lars on software and other com-puter-related training.

Conclusion

The Workforce Investment Acthas already accomplished its firstgoal of creating a centralized,coordinated system of One-StopCenters where both the unem-ployed and the underemployedhave training opportunities. Theconfusing bureaucracy job seek-ers faced in years past is elimi-nated by the One-Stop system.The WIA has also stopped the re-creation of the wheel, by gettinggovernment out of the job-train-ing business. Private trainingoffers some assurance that theskills developed will be mar-ketable, because if a programisn’t useful, lack of demand willclose the program.

Since the Act has been in effectfor less than a year, the CareerCenters have not yet producedmeasurable results. However, theeconomy’s need for trainedworkers and the collaborativenature of the WIA suggest thatOne-Stop Career Centers maysucceed in providing businesseswith the skilled workers theyneed and employees with theopportunity they desire.

About the Author

Kathleen Gill is a CommunityAffairs Specialist with theFederal Reserve Bank of Boston.

Sources

1.2.3.4.5.

6.

7.

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www.networkri.orgwww.state.nd.us/wiawww.usworkforce.orgwww.mainecareercenter.comNational Cities Weekly, Nov.30, 1998 v21 i48 p6National Cities Weekly, August10, 1998 v21 n32 p6National Journal, Sep 19,1998 v30 i38 p2162

ComplianceCornerLooking at changes affecting Regulations P and Z

Understanding the new ESIGN Act

by Anthony Ricko

Q. What are the main require-ments of the new Regulation P?

A. Regulation P implements theprovisions of the Gramm-Leach-Bliley Act that establish compre-hensive protections regardingprivacy of consumer financialinformation. Regulation Pbecame effective November 13,2000 and compliance with theregulation is optional until July1, 2001. The final rules imposethree main requirements asestablished by the Act:

• Financial institutions must pro-vide notices to customers abouttheir privacy policies and prac-tices, describing the conditionsunder which they may disclosenonpublic personal informationto nonaffiliated third parties;• Financial institutions mustprovide annual notices of theirprivacy policies to their currentcustomers; and • Financial institutions mustprovide a reasonable method forconsumers to “opt out” to pre-vent the disclosure of nonpublicpersonal information to nonaf-filiated third parties.

Q. Does the new privacy lawcover all individuals?

A. The law applies only to infor-mation about a consumer, defin-ed as any individual who obtainsor has obtained a financial prod-uct or service that is to be usedprimarily for personal, family, orhousehold purpose. Accordingly,business customers of a financialinstitution are not covered.

Q. If an individual has bothconsumer and commercialaccounts and he elects to opt outof having his personal informa-tion shared, can a financial insti-tution share personal informa-tion obtained in connection withthe commercial account?

A. As mentioned above the pri-vacy regulation only applies toconsumers. Accordingly, theindividual’s opt-out has noimpact on the individual’s com-mercial account and that infor-mation may be shared.

Q. Does a financial institutionthat does not share customerinformation with nonaffiliatedthird parties still have to complywith the privacy regulations?

A. Yes. All financial institutions must comply with the privacyregulations regardless of their

information-sharing practices. Ifa financial institution elects notto disclose nonpublic personalinformation to nonaffiliatedthird parties, it need not provide“opt out” notices to its cus-tomers. The financial institution,however, must still provide ini-tial and annual privacy policynotices to all of its customers.

Q. Must a financial institutionpost privacy notices in its mainor branch offices?

A. The privacy regulations donot require a financial institu-tion to post its privacy policy inany of its physical locations.The regulation does require eachfinancial institution to provideany required privacy policies andopt-out notices so that each con-sumer can reasonably be expect-ed to receive actual notice inwriting or, if the consumeragrees, electronically. The regu-lation also provides that merelyposting policies or notices in abranch or main office does notmeet the test of reasonableexpectation of actual delivery.

Q. Are there any exceptions tothe opt-out notice provisions ofthe regulation?

21 c & b

Regulation P: Privacy of Consumer Financial Information

A. The final regulation containsexceptions that allow financialinstitutions to share nonpublicpersonal information with cer-tain nonaffiliated third partieswithout having to provide thenotice of the right to opt out.One exception allows financialinstitutions to share informationwith a nonaffiliated third partythat performs services for orfunctions on behalf of the finan-cial institution. This includes themarketing of the financial insti-tution’s products or services.Other exceptions include disclo-sures in connection with servic-ing, processing or maintainingthe consumer’s account. Otherexceptions include those for dis-closures necessary to administeror enforce a transaction, to pro-tect against fraud and other lia-bility, and to the extent specifi-cally permitted or required byother laws.

Q. How does the new privacyregulation affect the Fair CreditReporting Act (FCRA)?

A. The FCRA has not changed.Under the FCRA a financialinstitution could be considered a“credit reporting agency” if itshares certain information withaffiliates and does not provideconsumers with a notice and theopportunity to opt out of theinformation-sharing. TheFederal Reserve and the otherbank and thrift regulators issuedproposed regulations on October20, 2000, that implement thenotice and opt-out provisions ofthe FCRA. The proposed rulesare intended to minimize thecompliance burden on banks bymaking the notice and opt-outprovisions consistent with theprivacy regulations.

Regulation Z: Truth inLending Act

Q. Are the credit card disclosurescontained in Regulation Z subjectto any type-size requirements?

A.Regulation Z was amended onSeptember 27, 2000 to enhancethe consumer’s ability to noticeand understand the cost informa-tion that must be disclosed forcredit card applications andsolicitations. Compliance withthe amendments is mandatory asof October 1, 2001. Under thefinal rules the Annual PercentageRate (APR) for purchases must bein at least 18-point type. Thefinal rule also provides that cred-it card disclosures must be “read-ily noticeable” as well as “rea-sonably understandable.” As totype size, the final rule providesthat disclosures are deemed to be“readily noticeable” if they arein at least 12-point type.Disclosures printed in less than12-point type do not automati-cally violate the standard; how-ever, disclosures in less than 8-point type would likely be toosmall to satisfy the standard.

Electronic Signatures inGlobal and NationalCommerce (ESIGN) Act

Q. What are the major provi-sions of the ESIGN Act?

A. In June 2000, Congresspassed the ESIGN Act, which waseffective October 1, 2000. TheAct permits institutions to satisfyany Federal law requirement thatinformation be provided to aconsumer in writing by providingthe information electronicallyafter obtaining the consumer’saffirmative consent. Before con-sent can be given consumersmust be provided with informa-tion regarding:• The right to receive disclosuresin paper form;• The right to withdraw consentto have records provided elec-tronically and the consequencesof doing so;• How the consumer may obtaina paper copy upon request; and• The hardware and softwarerequirements for access to and reten-tion of the electronic information.

Q. How does a consumer con-sent to receive informationelectronically?

A. The consumer must consentelectronically or confirm consentin a manner that “reasonablydemonstrates that the consumercan access information in theelectronic form that will be usedto provide the information that isthe subject of the consent.” If theinstitution implements changesto hardware or software require-ments that may prevent the con-sumer from obtaining access toor retaining electronic informa-tion, consumers must be notifiedof the new requirements andallowed to withdraw consentwithout charge.

Q. How does the ESIGN Act impactthe interim rules under RegulationsDD and E regarding the electronicdelivery of disclosures?

A. The ESIGN Act grandfathersexisting agreements between aconsumer and an institution todeliver information electronically.On or after October 1, 2000, how-ever, institutions must complywith the ESIGN Act when enteringinto new agreements with con-sumers for delivery of informationelectronically. Accordingly, theinterim rules under RegulationsDD and E do not apply to agree-ments between a consumer andinstitution regarding electronicdelivery of information on or afterOctober 1, 2000.

About the AuthorAnthony Ricko is a bank examin-er with the Federal Reserve Bankof Boston.

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Communities and Banking

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