Falling short—business development, housing, and job creation in Empowerment Zones

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With no clear benchmarks by which to judge its success, it’s hard to find evidence that the EZ made a dent in poverty in Minneapolis, or has even gotten a few licks in. Job creation is a tangible goal. Project proposals aiming for job creation specify the number of jobs to be created for EZ residents, and reports say how many jobs have been created. Despite its importance, job creation has been an elusive goal. The EZ “Success Stories” brochure showed that Minneapolis ranked dead last in job creation among the 15 cities awarded the program the same year, losing out to cities like Knoxville, Tennessee that received fewer EZ dollars.

This is the second in a series of four articles on the Minneapolis Empowerment Zones. The ten-year Empowerment Zone program began in 1999, with grants to 15 large cities to attack poverty in specific zones within the cities. There are large zones in north and south Minneapolis, as well as a small one in northeast that has had only one project built.


Many of the Minneapolis EZ-assisted businesses failed to produce their projected job numbers. In 2003, the EZ awarded $500,500 to the Neighborhood Development Center for renovating the Antiques Minnesota building into a business center serving Lake Street’s Latino community. The proposal projected creation of 104 jobs, but delivered only eleven, according to HUD’s 2007 report on Minneapolis Empowerment Zones. EZ funding for the Park Plaza apartments in 2000-2001 included a program that was projected to train 17 residents for jobs. Only two were trained, and neither was placed in a job. The Whittier Community Development received EZ money to support an emerging business center. The center was projected to create 14 jobs, but actually produced none.

In many of the cases in which jobs have been created, the ratio of dollars invested in the project to number of jobs created has been dismal. In 2000, the zone pumped $300,000 into a developer to renovate the Coliseum building on Lake Street and 27th Avenue, a building that then housed a Latino social service agency and a Denny’s restaurant. According to the EZ 2007 annual report, the project created three jobs.

Another goal, increasing the percentage of homeowners and affordable homes in the zone, has been equally elusive. Empowerment Zone staff failed to respond to questions about how “affordable housing” is defined when investing in housing projects. The only available data was found in EZ annual reports to HUD, which showed mixed results.

In 2001, the Midtown Urban Village received $250,000 in EZ funds. The original plan called for building 170 units. By the end of 2006, the project was classified as complete, with only 71 units built. About ten of the 71 housing units created were designated for sale to households earning less than 80 percent of the Metropolitan Median Income (MMI). Only three of these ten were designated for households earning less than 60 percent of the MMI.

On the other hand, a more modest project, the Hope Community Court, received $80,000 in EZ funds to support the building of ten housing units in the Phillips neighborhood – six rental and four to be sold. By the end of 2005, all ten units had been built and either sold or rented.

Around $1.6 million of the original $28.9 million grant was dedicated to an affordable housing trust fund, and another million dollars was reserved for a homeownership initiative. This initiative included a mix of educational programs and construction of homes for sale to EZ residents. The educational component was carried out by a handful of non-profits and government entities, including the Minneapolis Public Housing Authority and the Hmong American Mutual Assistance Association, whose executive director Xang Vang sits on the EZ governance board. Construction for four homeownership projects—Ripley Gardens, Heritage Park, The Wellstone, and the Midtown Exchange—will not be complete until 2009. The 2007 HUD report on the Empowerment Zone shows planned construction of 41 units, with 14 completed as of the report date. The report also shows 329 EZ residents “served” by the homeownership programs. “Service” includes education and outreach.

Midtown Global Market

The zone’s flagship project on the south side, the Midtown Global Market, has been the most heavily promoted re-development to take place on Lake Street in recent years. The original proposal awarded a $1.425 million package to develop a proposed Great Lakes Center, “a mixed-industry job center that will create 4,000 jobs, house a daycare center, and provide job training on-site,” according to the EZ Web site. Over the course of the project, the city foreclosed on developer STA Associates and the Great Lakes Center never materialized.

When the project finally got off the ground with a new developer, Ryan Construction, the job program was scrapped. The YWCA-managed daycare was moved down the block into a newly-constructed building in the Abbot Northwestern Hospital complex. Its program director, Jim Nicholie, says the center tries to cater to neighborhood residents, with Spanish and Somali language programs, but childcare rates are now “typical and high,” thanks to funding cuts at the state legislature that eliminated their sliding-scale fee program.

Midtown Global Market, the ethnic food mall that replaced the Great Lakes Center, has brought shoppers from outside the neighborhood into the area, and has “empowered” the mostly immigrant and minority-owned businesses that populate the shopping center by leasing them high-priced storefront space. The majority of the jobs created are in food service and security. Since many of the businesses moved there from previous locations, it is not clear how many of the jobs are new. Most of the tenants have trouble breaking even, according to the September 2006 meeting minutes from the Empowerment Zone (EZ) Governance Board. Board members mulled over the fact and voted to contribute $50,000 to a loan fund for keeping tenants afloat.

While EZ Director David Fey claims the Global Market is one of the Empowerment Zone’s greatest successes, he says there isn’t separate data on how many jobs the project has created, or how many of those would be defined as “living wage.” The Global Market has not come close to the originally-funded program goal of creating 4,000 living wage jobs in the city.

North Side

The Empowerment Zone leveraged more than $5 million, more than for any other project, to create Heritage Park, converting a former public housing project into a mixed-income blend of rental housing, owner-occupied homes, and senior-citizen housing. Most of the funds went to a large St. Louis-based company called McCormack Baron Salazar that advertises itself as “the nation’s leading for-profit developer of mixed-income urban neighborhoods.” The project was funded in 1999, but according to a 2002 City Pages article it was still “years behind and tens of millions of dollars short.” The developer’s lethargy in constructing the for-sale homes forced the city to step in and appoint its own consortium of developers. In the end, Twin Cities Habitat for Humanity, which never received any of the EZ funds for the project, stepped in to fulfill the EZ board’s promise of keeping 15 percent of the homes as affordable housing.

A third zone in southeast Minneapolis never materialized. The Southeast Minneapolis Industrial Area (SEMI) was meant to create technology jobs for empowerment zone residents in a partnership with the University of Minnesota. In 2004, one million dollars in funding intended for the area was re-directed towards the Northside Redevelopment Initiative. No projects have been built in the SEMI area.

Only one project was funded in the Northeast Minneapolis Empowerment Zone, In 2001, the EZ awarded $150,000 for renovation of an art studio with artists’ lofts. In a June 19, 2001 discussion, Havey told EZ governance board members this was the only application received for Central Avenue, and that it would support the arts district. The discussion did not address how the project would advance the EZ goal of poverty eradication, and Havey now says he no longer remembers the project.

Slim Pickings for Small Business

Out of the money that has been awarded in the last nine years, the lion’s share has gone to development firms, to large, established non-profits such as the YWCA, and to public or quasi-public bodies such as Neighborhood Development Corporations.

In 2002, the board announced that $1 million of the program’s budget would be freed up for loans and technical assistance to small businesses in empowerment zone neighborhoods.

The following year the Governance Board voted to limit its small grant program to non-profit businesses, and added additional requirements. Henceforth, funded organizations would have to leverage their own funds to match the empowerment zone dollars on a one-to-one basis. Groups that received funds would also need to have at least a year of operating experience. The decision found critics from among the board’s own ranks, particularly among the appointed community representatives. One member, Osman Sasarheed, told the board members in several meetings that the requirement to match funding effectively shut out start-up, immigrant-owned businesses from gaining a foothold in the neighborhood. Havey had no comment on why the board shifted the focus of the small grant program.

In 2005, then-director Jonathan Palmer responded to critics in an on-line posting that said, “What we have funded are places like Café Tata Bunna, El Amin’s Fish House, Lucille’s Kitchen, the Franklin Bakery, Siyeza and a host of others.” Of the businesses named, Cafe Tata Bunna was given $30,000 loan in 2002. In 2005 it was shut down by the state for failure to pay sales tax or file tax returns. Lucille’s Kitchen received a $25,000 loan at the end of 2003 but still closed in 2004. Siyeza, a frozen foods manufacturing company on the north side, was given $164,000 in EZ loans in 2002, before being sold to DPI, a Canadian frozen foods firm, in 2004. The loan was forgiven. Another small business, Barbara’s Salon, failed soon after receiving only $5,000 of a requested $25,000 loan.

The Franklin Bakery received a $300,000 loan through the American Indian Neighborhood Development Corporation (AINDC) whose director, Theresa Carr, is on the EZ Executive Committee. The Franklin Bakery was one of the EZ success stories, according to HUD reports, creating 116 jobs for EZ residents and 167 jobs for non-EZ residents.

Instead of going to small businesses, much of the money that hasn’t gone directly to developers has filtered back into the city budget. Funds have gone to law enforcement efforts like the national Weed and Seed program and a north side probation center developed by the Jordan Area Community Council, a group Palmer headed before his stint as Empowerment Zone director. Money has also gone to supplement the city’s libraries and public schools. Most of the money channeled back into the city’s coffers—almost $5 million—has gone to the city’s Department of Community Planning and Economic Development (CPED). Fey claims that CPED doesn’t keep any of the money but immediately channels it back into the community through development projects.

The TC Daily Planet’s four-part series takes an in-depth look at the Minneapolis Empowerment Zone project. Next up: the color of funding.

Part 1 – Public money for private business: $78 million in bonding for a project that promises to employ seven Empowerment Zone residents.
Part 2 – Falling short—business development, housing, and job creation: Out of the money that has been awarded in the last nine years, the lion’s share has gone to development firms and large, established non-profits.
Part 3 – The color of funding: Since its inception, the program has caused bitterness among some neighborhood activists, who say it hasn’t directly benefited the African-American communities it was intended to serve.
Part 4 – All power to what people? Concerns over cronyism, accountability: While seven of the members selected by the City Council are required to be residents living inside the empowerment zone, many have questioned whether this truly amounts to community representation.

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