SAN DIEGO - The "smart growth" movement to curb suburban sprawl by refocusing on inner-city redevelopment has become an issue in some of the country's top political races - including the presidential one. But it is hardly a new one to community banks.

"Emerging neighborhoods in inner cities have always been the market of community banks," said Robert Lang, director of urban and metropolitan research at the Fannie Mae Foundation. "But now, since it's politically popular, everyone is for smart growth. Community banks are just happy that their work is being validated by the smart-growth movement."

Several states have adopted smart-growth policies, and Vice President Gore has incorporated many of the concept's themes in his bid for the White House.

Most of the political action has centered on attempts to reduce freeway congestion. Mr. Lang said larger banks have been instrumental in these efforts by supporting "in-fill" development, both in middle-class urban neighborhoods and in suburbs.

These projects contain a mix of office, retail, and housing and are typically near public transportation hubs.

Community banks, on the other hand, focus more on reinvigorating older urban neighborhoods.

Liberty Bank and Trust, a $180 million-asset bank in New Orleans, has been helping to spruce up the Big Easy for nearly 30 years, said Alden J. McDonald, president and chief executive officer.

"About 10 years ago we saw a deterioration taking place in the community that we serve," Mr. McDonald said. "We thought it was very important to begin looking at developing a way to do something to rehabilitate vacant housing units."

Liberty started a homebuyer program so successful that the bank became the region's top lender of FHA and VA homeowner loans.

"As a result, other financial institutions got involved, and now we're not No. 1 anymore," Mr. McDonald said. "But it was great, because the whole community came together."

Reinvesting in beleaguered neighborhoods makes economic sense for the entire area, he added.

The decay in such districts "begins eating everything that surrounds it," and the community at large is harmed because vacant properties cease to generate tax revenues.

"People don't want to have their place of business next to a property that is very much in disrepair," Mr. McDonald said. "It's really important for financial institutions to help solve this problem by putting a lot of properties back into commerce."

First Tuskegee Bank over the last 30 years helped to rebuild Tuskegee, Ala., and the $67 million-asset bank is now helping the neighboring city of Montgomery put together a redevelopment plan for its downtown, said Lawrence Cole Jr., president and chief operating officer.

"Economic redevelopment is an opportunity for job creation," Mr. Cole said. "From the bank's point of view, those are potential customers that we could attract."

South Shore Bank of Chicago made a name for itself by revitalizing urban neighborhoods. It had $40 million of assets in 1995 when it took over a failing bank on the city's South Side; now it has $950 million of assets and eight branches in the Chicago area.

One of South Shore's most successful efforts is its multifamily mortgage program, said Anne Arvia, the bank's interim chief operating officer. "The borrowers are mom-and-pop businesses that rehab older properties and then rent them out," she said. "Most of the rents are at market rate, so there is not a lot of subsidized housing, which is extremely good for the community."

Community banks are a perfect fit for the needs of inner-city communities, said Joe Lynch, vice president of Economic Innovation International, a Cambridge, Mass., facilitator for nonprofit economic development groups.

He said community banks tend to understand these neighborhoods more, and that customers in poorer neighborhoods are more trusting of banks that have originated in their backyard.

Larger banks, though, are stepping up lending in poorer neighborhoods, Mr. Lynch added. Giants like Bank of America Corp. and Wells Fargo & Co. have started major initiatives aimed at reinvigorating smaller businesses in urban areas across the country.

Many larger banks carry out their inner-city lending plans through partnerships with community banks, because they already know the market, said Robert M. McGill, president and CEO of $35 million-asset Neighborhood National Bank in San Diego.

"We're appropriate vehicles to get them into the inner city without all of the brick-and-mortar costs of putting a branch of theirs in these neighborhoods," Mr. McGill said.

Neighborhood National is in negotiations with several larger banks, including Bank of America, Wells Fargo, and Union Bank of California, to fund a $25 million commercial development in southeast San Diego by the Jacobs Family Foundation.

The smart-growth movement could be especially useful in attracting more equity funding to the inner city, said William Jones, developer of a $100 million mixed-use redevelopment project in the City Heights section of San Diego.

"Generally speaking, lenders are very interested and able to make loans in urban neighborhoods," Mr. Jones said. "What is lacking is the presence of Wall Street-type investors pulling in equity. Without equity, lenders are not able to make loans to help fulfill the smart-growth objectives."

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