Mechanics Bank has signed the agreement to purchase the full $3 million issue of Social Impact Bonds (SIBs) that Richmond Community Foundation (RCF) will use to acquire, rehabilitate and sell blighted homes throughout the city of Richmond. It’s the first time SIBs have been used for this purpose.
“Mechanics Bank jumped at the opportunity to participate in this innovative program,” says Ken Russell, the bank’s CEO. “Not only is it in keeping with our long history of innovations in finance, but it also is in keeping with our community banking mission. With our deep ties to the Richmond community spanning more than a century, we welcome the chance to give back to a city that helped us get established.”
“We appreciate Mechanics Bank’s willingness to step up and partner with the Richmond Community Foundation,” says Richmond Mayor Tom Butt. “This is the right solution for dealing with long term blighted homes in Richmond. Banks often stand by and abandon their own blighted homes in our community. Mechanics Bank is doing something different with this innovative effort.”
Social impact bonds blend private investments and charity to effect social change. Investors provide low-interest loans to non-profits to fund programs designed to address social issues. If the programs succeed and earn a profit as a result, the profits are both recycled to fund continuing work and used to repay the investors. Investor profits usually are capped, and are not guaranteed by taxpayers. They are paid solely from the revenues generated from the sale of the rehabilitated properties.
“There are many abandoned houses in the City of Richmond which are in need of rehabilitation and a deserving owner,” says Rauly Butler, Executive Vice President of Mechanics Bank. “Each abandoned house costs the city upwards of $7,000 per year in abatement costs and robs the city of much needed property tax revenue. These homes also create blight for neighboring homes and can lower property values for neighbors as well. Partnering with the RCF will create a win for all parties involved; the city will reduce its costs and increase its revenues, the RCF will help SparkPoint graduates achieve their goal of home ownership, the neighborhoods will have blighted properties removed, and the Bank will benefit from a thriving community.”
RCF, which has initiated and supported a number of programs aimed at youth and families, will manage the SIBs program from start to finish. In addition to the benefits of cleaning up blighted properties, the program would provide an advantage to first time homebuyers in Richmond, giving them a chance at affordable housing in a region notorious for bidding wars that squeeze out low and moderate income buyers. Families who graduate from the First Time Homebuyers Program offered by SparkPoint Contra Costa, a financial literacy program, will have the first opportunity to purchase the homes when they are ready for resale. Other economic benefits built into the program include a commitment to use local contractors for the renovation, and a partnership with the City’s RichmondBUILD job training program, which could boost Richmond’s employment.
Even Home Depot is getting into the act, agreeing to provide preferred pricing on building supplies used for the project.
”It’s hard to overstate the potential impact of this program on our community,” says Jim Becker, President and CEO of the RCF. “We can’t wait to see the first homes renovated, and expect to celebrate the first completion and sale in early 2016.”
“On behalf of the Foundation and the City, we appreciate Mechanics Bank’s willingness to step up,” says John Knox, an attorney at Orrick, Herrington & Sutcliffe, LLP and Richmond native, who originally proposed the program and has provided pro bono legal support as bond counsel for the project. Mechanics Bank is helping the Richmond Community Foundation provide a solution that has the potential to bring substantial, city-wide benefits while protecting taxpayers from liability.”
The project team has identified 10-15 initial properties, the majority of which are located in the Belding Woods, Iron Triangle, Pullman, Santa Fe and Coronado Neighborhoods, to launch the program.
C. J. Johnson, Chief Financial Officer of Mechanics Bank, said the investment is unusual for the bank but in keeping with its mission. “SIBs may not provide the strongest financial return in the short run, but they’re an investment in the future of our community that pays dividends in far more important ways than cash,” he says. “Everyone in the bank is proud to be a part of this.”
About Mechanics Bank
Mechanics Bank, established in 1905, is an independent, full service community bank. With more than $3 billion in assets, it is the largest bank headquartered in the Bay Area’s East Bay region. Its 30 branch offices throughout Northern California provide a highly personalized relationship banking experience that includes consumer and business banking services, commercial lending, cash management services, and comprehensive trust and wealth management services. Member FDIC and Equal Housing Lender. For more information go to http://www.mechanicsbank.com.
About the Richmond Community Foundation
The Richmond Community Foundation is a nonprofit organization that works to build the capacity of the Richmond community by serving as a Community Leader, Collaborator, and Broker, and by leveraging assets of all kinds in order to create and sustain a strong, healthy city.