Overview: Anchor Institutions

Anchor institutions are nonprofit institutions that once established tend not to move location. Emerging trends related to globalization—such as the decline of manufacturing, the rise of the service sector, and a mounting government fiscal crisis—suggest the growing importance of anchor institutions to local economies. Indeed, in many places, these anchor institutions have surpassed traditional manufacturing corporations to become their region's leading employers. If the economic power of these anchor institutions were more effectively harnessed, they could contribute greatly to community wealth building. The largest and most numerous of such nonprofit anchors are universities and non-profit hospitals (often called "eds and meds"). Over the past two decades, useful lessons have been learned about how to leverage the economic power of universities in particular to produce targeted community benefits. Prominent examples from the university and hospital sectors include:

  • Catholic Healthcare West (CHW), a large hospital non-profit based in San Francisco, has productively leveraged capital to make community investments. Beginning in 1992, CHW's Community Investment Program began providing low interest rate loans to nonprofit organizations. By 2006, CHW had lent over $49 million to 88 nonprofits and over 60 percent of these loans had been repaid. 
  • The University of Pennsylvania, which has shifted over 10 percent of its annual expenditures to purchasing locally, thereby injecting an estimated $80 million into the West Philadelphia economy in 2006-2007. Penn aims to increase this amount to $120 million by 2010.
  • The Henry Ford Hospital in Detroit provides incentives to managers to hire locally and has set in place a policy to pay local vendors in advance to provide working capital. The hospital expanded this initative in 2010 by partnering with two other local anchor institutions, Detroit Medical Center and Wayne State University, and has already seen an impact of $400,000 in redirected purchasing to local businesses.
  • The Duke-Durham Neighborhood Partnership Initiative, which has invested more than $2 million in an affordable housing loan fund to promote home ownership and community stabilization.
  • The University of Southern California, which has instituted a program to increase employment from neighborhoods immediately surrounding its campus. In one recent period, one out of every seven applicants for staff positions was hired from the seven zip codes nearest the campus.

These best practices can be extended and adopted to other types of nonprofit anchor institutions such as cultural institutions (e.g., museums and community arts centers), libraries, hospitals, community foundations and other locally-focused philanthropies, faith-based institutions (such as churches, mosques, and synagogues) and community colleges. Indeed, never has the economic role of these institutions been more important. Universities alone now spend $350 billion annually and have a total endowment of over $300 billion. Nonprofit hospitals own assets in excess of $600 billion and enjoy annual revenues greater than $500 billion. Nationwide, foundation assets exceed $650 billion.

Such funds, if more clearly focused on local community wealth building, could have a considerable economic multiplier impact, particularly since an ironic effect of globalization has been to increase the relative weight of services vis a vis manufacturing in the economy and hence make local economies more important — a phenomenon often known as localization. As New York Times columnist Paul Krugman has noted, "Although we talk a lot these days about globalization, about a world grown small, when you look at the economies of modern cities what you see is a process of localization: A steadily rising share of the work force produces services that are sold only within that same metropolitan area."

Anchor institutions - with the proper incentives and motivation - have the economic potential to leverage their assets and revenues to promote local private sector development through such means as:

  • Directing a greater percentage of their purchasing power toward local vendors based in the community.
  • Hiring a greater percentage of their workforce locally.
  • Providing workforce training for people needing assistance in the community.
  • Incubating the development of new businesses, including social enterprise among nonprofits.
  • Serving as an advisor or network builder.
  • Leveraging real estate development to promote local retail, employer-assisted housing, and community land trusts.
  • Using pension and endowment funds to invest in local job creation strategies and to provide community venture capital for nonprofits, entrepreneurs, and employee-owned firms.

This link between anchor institutions and community wealth building is not merely theoretical. Many churches, for instance, have long sponsored and raised funds for community development corporations (CDCs). Indeed, according to the 2006 census conducted by the National Congress for Community Economic Development, 24 percent of all CDCs—roughly 1,100 total, nationwide—are faith-based.

Anchor institutions can also provide capital or low-interest loan financing to community development financial institutions (CDFIs). Harvard, for instance, in 1999 provided $20 million in low-interest loans to Boston-area CDFIs. Indeed, a large section of the CDFI industry was started with faith-based capital. CDFIs have also received substantial foundation PRI (Program Related Investment) loan support.

To date, however, only limited attempts to fully incorporate anchor institutions in community wealth building have taken place. One effort now underway is in Cleveland, Ohio, where the Cleveland Foundation has initiated an anchor institution strategy involving universities, hospitals, and cultural institutions in the city's University Circle area. The program will lead to anchor-funded initiatives aimed at employer-assisted housing, improvement of local public schools, and a range of community wealth building efforts. The Ford and Casey Foundations are now working to catalyze an anchor institution program involving “eds and meds” in Camden, New Jersey. Important foundation-initiated, city-focused networks, such as Living Cities and CEOs for Cities, are taking the first, tentative steps to explore anchor institution strategies. The time, in other words, would seem to be opportune for the development of new across-the-board approaches.