By Ellie Winninghoff
How do you develop a rural economy that is 90% covered with trees and includes 4,613 islands, but which has no major corporations, lousy soil and an inhospitable climate much of the year?
In l977, when Ron Phillips started Coastal Enterprises Inc., or CEI, a Wiscasset, Maine-based revolving loan fund and community development finance institution (CDFI) to support low-income people in Maine, the state was like a "third world country" based on natural resources and extractive industries with "less value-added than you'd like to see," he has said.
CEI currently has $792 million in assets under management and is one of the most sophisticated and pioneering impact investors in the country. Its do-good tentacles reach from Millinocket, Maine to Lopiwa, Hawaii Island.
With a focus on start-ups and small growing businesses, especially those involved in fisheries, farms and forestry, its triple bottom line innovations include things like FISHTAGS, which commit borrowers to collecting biological data in order to help manage sustainable fisheries.
CEI is also lauded for its StartSmart program, which has helped Somali refugees and immigrants to establish farms and a low-income farmers' market in Lewiston, as well as other businesses in the burgeoning Muslim communities in Lewiston and Portland.
Loans range from less than $25,000 to more than $25 million, and like other community development finance institutions, CEI has a heavy emphasis on technical assistance to its borrowers. But it takes that a step further by developing a more holistic sector approach involving investments in production capacity, market opportunities, infrastructure, and policy development.
"We pride ourselves on due diligence here, and we look at what needs to change to make proposals stronger," says Gray Harris, CEI's director of sustainable agriculture. "There is a commitment in this shop to have someone who can take the time to work with the people in [each of these sectors] to strengthen them so that they are viable sectors moving forward."
Accredited investors can participate in the fund's CEI Notes, which pay rates ranging from 2% to 3.5% for three to ten years. CEI is rated AAA-3 by CDFI Assessment and Rating Systems (www.carsrating.net), or CARS, and the minimum investment is $5,000. Recent investors have included the Ford, MacArthur, Kellogg, Kresge, Annie E. Casey and FB Heron foundations.
Working Waterfronts
Initially established to help add value in natural resource sectors, CEI made its first real mark in l979 with a $300,000 investment in Boothbay Region Fish & Storage Inc. The only refrigerated space available to local fishermen, it was slated for sale for tourist-related development after it burned. Saving "the Freezer," as it was called, became a community effort to preserve traditional livelihoods and the working waterfront, and it presaged some of CEI's heralded work to come.
Maine's fisheries represent $750 million in annual state revenues and support 35,000 jobs. But according to the Island Institute in Rockland, Maine, there are only 20 miles of working waterfront among the 5,300 miles of coastline in the state of Maine. Much of it has been sold for residential use, vacation homes and other types of tourist development at prices that lobstermen can no longer afford.
"You need a lot of infrastructure on all these peninsulas and islands, and the ability to land lobster up and down the coast is critical," says Hugh Cowperthwaite, CEI's fisheries director. "You can't have all these small boats running to Portland or driving to Portland. It just doesn't make sense."
In 2003, CEI played a role in the early development of a first-of-its-kind conservation easement in York, Maine. Easements are the legal removal of a right of use, and conservation easements generally protect wildlife habitat and recreational land by eliminating development rights.
Historically, most conservation easements in Maine were "forever wild," meaning all economic use of the land was strictly prohibited. In this case, however, the easement was used to protect the economic use of the land by preserving the "working" nature of the waterfront.
In York, the 2,290-square-foot Sewall Bridge dock was situated on one-sixth acre, and its purchase by two lobstermen gave one of them (also a wholesaler) a place to buy the catch from 14 other lobstermen. The negotiated price of the property was $710,000, its value at "highest and best use." In this case, that meant development as residential or tourist-related property.
The lobstermen paid $300,000. The York Land Trust, with donations and a $150,000 loan from CEI, paid $410,000 for the development rights and placed a conservation easement on the property. The lobstermen own the property, but there is a covenant in the deed restricting its use to commercial fishing even if they sell it in the future.
CEI helped form the Maine Working Waterfront Coalition that lobbied the state to fund additional working waterfronts with public investments, and Maine's voters have overwhelmingly approved bond funds to acquire additional development rights based on the York model. CEI administers the program, which has allowed nine fishermen's co-ops, three municipalities, a land trust and an historical society, among others, to preserve 24 additional working waterfronts from Harpswell and Boothbay to Vinalhaven and Isle au Haut.
Real estate notwithstanding, lending has always been the backbone of CEI's fisheries program, which it administers through its Fisheries Revolving Loan Fund. Since l979, it has made 215 loans to the industry totaling $14.4 million–gap financing that has leveraged an additional $50 million from local banks. About half those loans have gone to harvesters, 12% to seafood processors and the rest to shore-side suppliers, wholesalers, and for infrastructure.
Forestry And Recreation
But while CEI's strategy has always involved supporting entrepreneurship and local enterprises rather than attracting big business to the state, the downside was the inability to do impact investing on a larger scale. During the l990s, a group of CDFIs led by CEI's CEO Ron Phillips developed the New Markets Tax Credit (NMTC) concept to spur investment in distressed communities. Authorized by Congress and allocated by the Treasury's CDFI Fund, NMTCs allow investors to reduce their basis by 20% to 25% and thereby increase returns.
Through CEI Capital Management LLC (CCML), its for-profit subsidiary, CEI has $778 million in investment capacity, making it the largest NMTC allocation in the country. It has completed 68 of these complex multi-million projects, with about one-quarter of them in Maine.
Projects it has invested in have ranged from cellulosic ethanol production and zinc hazardous waste recycling to a eucalyptus plantation and veneer mill-both in Lopiwa, Hawaii Island. And they encompass nearly 2.5 million acres of timberland committed to sustainable forestry.
"We're very careful not to tie up a forest so there's no access to traditional local community uses," says CCML CEO Charles J. Spies III.
Case in point: The 2009 purchase of about 22,000 acres surrounding the town of Grand Lakes Stream in Maine's Washington County by the Lyme Timber Company allowed for both forestry and recreation through a working forest conservation easement. Lyme also donated 132 acres to the town to develop light industry and low-income housing.
With a year-round population of 120, the town's entire industry consists of sporting camps and guides. So when a special town meeting was called to commit the taxpayers to this project with a $10,000 donation to the Down East Lakes Land Trust to purchase and manage the easement, the residents voted to quadruple the donation to $40,000.
"This was a huge commitment for our small town to make," says Louis Cataldo, a Maine guide and a first selectman in Grand Lakes Stream. "Beautiful water for our clients and land to hunt on is a critical part of our operation here. If we lost that, it would definitely, definitely affect us negatively."
A former investment banker, Ellie Winninghoff is a writer and consultant specializing in impact investing. Her writing about impact investing is linked at her blog, www.DoGoodCapitalist.com and she can be reached at: ellie.winninghoff (at) gmail (dot) com.
