Since its inception in the late 1960s, the community development corporation (CDC) industry has grown dramatically, totalling 4,600 CDCs in 2005, according to a census conducted by the National Congress for Community Economic Development (NCCED). The survey also showed that cumulative CDC housing production increased from 650,000 units in 1998 to 1,252,000 in 2005.

But trends suggest the growth of CDCs and the resources they access are slowing down significantly. The number of CDCs grew at an annual rate of just over 3 percent from 1998 to 2005, compared to a growth rate of 11.5 percent during the 1990s. The slower growth of CDCs in the past few years correlates to the funding environment. Federal funding for community development, which represents the single largest source of dollars, has declined, and is likely to continue to do so. The NCCED census showed that in 1998, 46 percent of CDCs received state dollars; that figure was down to 38 percent by 2005. To expand or even maintain their housing and other community development activities, CDCs need to build capacity in a tighter financial environment.

Given their reduced access to financial support, it makes sense for CDCs to revisit their vision and mission. It’s difficult for mature and stable organizations to be open to this. Organizations with long-term board and staff members often try to preserve their past and a culture that once helped the organization grow, but could now be very outdated. Merger discussions create the space to explore new directions while validating effective policies and initiatives and help participants understand that a new entity will be positioned to respond to new community priorities.

CDCs often have a relatively low profile in their communities, and key leaders and constituents may be unaware of what they have accomplished. CDCs are not well branded, which hampers their ability to raise different types of funding. A merger process gives them the opportunity to increase their public visibility through discussions with diverse stakeholders, and new materials and logos generate greater interest. CDCs can also enhance their political influence through the merger process, since the new organization is likely to have greater resources and more constituents.

Organizations that merge can build their capacity by drawing from their respective strengths and sharing certain administrative, financial and program functions. An organization with a larger staff can have more specialized functions, resulting in improved efficiency. Merging can also cut some of the duplication that exists with two organizations. This leads to increased economies of scale and reduced administrative costs, an important consideration given how hard it can be to raise core operating support.