Nightmare on Main Street: tech comes to town

Nightmare on Main Street: tech comes to town

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We love working in Oakland. It’s the scrappy city by the bay. It’s one of the most diverse cities in the nation, it has the best weather in the bay area and it’s alive with creativity and culture.  From the bustling Chinatown to the industrious Jack London District to the quiet of the hills, Oakland is an incredible place to work, live and play.

Even when it wasn’t  trendy to do so the President of Cutting Edge Capital, John Katovich, raised his family in Oakland and has been involved in so many active ways to strengthen it’s local economy over the years. When our lease came up for renewal we searched across the east bay, but ultimately decided we wanted to stay in Oakland, stay downtown, and be a part of Oakland’s newest chapter. Signing a new lease wasn’t easy, or cheap. Our rent increased 24% to stay in downtown, a place that just a decade ago was begging to find tenants to fill office space. But the times have changed: gourmet restaurants, hip co-working spaces, breweries, locally sourced retail and upscale coffee shops abound. The din of construction is constantly in the background as buildings are bought, improved and filled at top dollar. Oakland is for sure an exciting place to be, but the changes are also terrifying. What will happen to the communities that have been here for generations? Will locals be able to find jobs, or will they be pushed out like so many communities across the country affected by gentrification? Will incoming middle and upper class residents understand the landscape, the culture and the history of the place they are flocking to? With increased rents for businesses, will goods and services be priced so high that “old” residents can’t afford them anymore?

Shortly after we signed our lease renewal the news broke that Uber purchased the old Sears building a few blocks away … for over $120 million dollars. Naturally this has started a wave of questions and concerns about the changing business landscape of Oakland. As large companies choose to relocate to the sunny side of the bay we wonder has the gentrification nightmare truly arrived on Main Street? Can we grow a strong middle class for residents that already live in Oakland? While there are a lot of reasons to fear these changes we see some hopeful signs that Oakland can respond to these challenges in a more thoughtful and intentional way.

We recently sat down with the Democracy Collaborative and were inspired by their approach to strengthen local supply chains as a direct response to the challenges of rapid growth. Recognizing the inequality in gentrified growth models (to play you have to have a four year degree, at least), they explore ways to build resilience, equality and opportunity for economically marginalized communities. They forge alliances and communication between experts, researchers, policymakers, community foundations, businesses, local leaders and grassroots organizations to build the local work force to supply services and goods to large “anchor” institutions (think local government, universities, and hospitals). As stated by the Democracy collaborative they are working with these anchors in “making a commitment to consciously apply their long-term, place-based economic power, in combination with their human and intellectual resources, to better the long-term welfare of the communities in which they are anchored.”

 

Funding the Food Commons

Funding the Food Commons

By Andy Bamber

Over the last century, multinational food corporations and agribusinesses have come to dominate the global food system at an astonishing rate. In a recent report, Oxfam International points out that for a world of 7 billion people, 500 companies control 70 percent of food choice, with the top 10 companies by annual revenue controlling nearly every grocery store brand we know (see infographic below).

10 corps food info graphic

Using cheap fossil fuels, these food behemoths race around the globe distributing their barely recognizable “food” everywhere from Costco to chain supermarkets and convenience stores (and yes, even the local, organic groceries of the world). This model works well if giant multinationals can easily shift funds across the globe and avoid paying taxes that help support local government needs, while at the same time reducing their costs and increasing their supply of unhealthy foods—all in the name of maximizing shareholder value. In the process, however, an untold amount of fossil fuels have been used up and converted into atmospheric carbon, natural aquifers have been depleted, human labor has been exploited, and obesity and diabetes are now at epidemic levels.

Raising the specter of a corporate-controlled world in which sustainably produced food is nowhere to be had, a dozen or so other multinationals, Archer Daniels Midland, Cargill, Del Monte, Monsanto, Smithfield Foods, and Tyson Foods being the best known among them, now control everything from the global seed supply to agricultural inputs and entire markets for agricultural commodities supported by sophisticated supply chain distribution models. It is no accident that only 3 percent of food eaten by Americans today is grown within 100-200 miles of where people live.[1]

While these and further disastrous outcomes of the global food system seem inevitable, they are not a foregone conclusion. As demonstrated by initiatives such as AOTM, the agriculture-of-the-middle movement to save and expand the number of small and mid-sized family farms, the popularity of farmers markets and Community Supported Agriculture (CSA’s), and the burgeoning “new economy” movement, a more localized approach has begun to take root, albeit at a scale dwarfed by the global food system. Still in their early infancy, these initiatives are fueled not only by a desire for good and sustainably produced food but also by their goals to end chronic diseases and deteriorating environmental conditions, and by tapping into the growing realization that old economic paradigms are leading to an unprecedented concentration of wealth and power that is destabilizing to society as a whole.

One such approach that sits at the intersection of these trends and promises to deliver more sustainable and equitable outcomes when compared to the global industrial food system is the Food Commons, a California-based 501(c)3 non-profit organization. Now in its fourth year, the Food Commons envisions an interconnected food system consisting of regional food networks that integrate production, aggregation/processing, distribution, and retail functions. Using a “commons” approach—the idea that some forms of wealth (e.g., air, oceans, wildlife, timber, etc.) must be protected and managed for the good of all—the Food Commons seeks to put in place the necessary physical and organizational infrastructure to bring about wholesale change in the way healthy food is produced, bought, sold, and distributed, while ensuring living wages and benefits for all who are involved.

Based on the building block of the foodshed,[2] the Food Commons aims to establish a diversified network of regional food systems designed to meet local needs through a non-profit trust, a community corporation, and a community investment fund. In this unique organizational structure, the Food Commons Trust will acquire and steward foodshed assets, the Food Commons Fund will raise capital for foodshed enterprises, and the Food Commons Community Corporation will build and manage foodshed-based infrastructure, facilitate the logistics of aggregation and processing, and engage in wholesale and retail distribution. Meanwhile, a cooperative federation of regional Food Commons, located throughout out the world, will support the regions through information sharing, training, fundraising, and technical assistance (see below for a graphic).

Food Commons structure graphic

As explained in Food Commons 2.0, a 2011 concept/strategy paper of the project, the Food Commons will produce the following outcomes:

  • Make healthy and sustainably produced food accessible and affordable to all.
  • Enable food enterprises within and across foodsheds to efficiently produce and exchange goods and services that meet high common standards.
  • Capture benefits of scale in infrastructure, asset management, financing, information systems, marketing, and learning, while preserving local identity, ownership, control, diversification, and accountability.
  • Transparently and equitably distribute common benefits along the value chain from farmers, ranchers and fishers, to distributors, processors, retailers, workers, consumers, and communities.
  • Harness underutilized foodshed assets, and protect and steward those assets for current and future generations.
  • Foster and celebrate regional foodshed identities that generate widespread consumer awareness, participation, and buy-in.
  • Create a wealth of new small businesses and jobs, and build a skilled and respected 21st-century food system workforce.

The projected cost of developing each Food Commons region will vary based on local conditions such as the availability of underutilized assets that can be redeployed, the availability of existing entities (e.g., farmers and distributors) ready to participate in the Food Commons value chain, and the scope and scale of the enterprises developed. Starting from scratch, the capital requirements for land, buildings, development fees, equipment, and start-up and working capital could approach $100-$250 million for each Food Commons region. With assets already in place, development costs would be considerably lower. The Food Commons predicts that it could reasonably capture 25% of the $100 billon market for regional food. Assuming a total domestic food economy of $1 trillion, this translates into 2.5% of the overall food economy, making the Food Commons a $25 billion enterprise that is fairly distributed to all connected to it.

There are currently Food Commons systems in various stages of development in Fresno, California; Atlanta, Georgia; and Auckland, New Zealand. The Food Commons will use Direct Public Offerings, or DPO’s, to raise capital from the communities in which it is creating regional food systems. DPO’s allow both wealthy and non-wealthy investors (so-called “accredited” and “unaccredited” investors by the SEC) to invest, advancing the egalitarian vision of the Food Commons model. This eliminates the need for the Food Commons to make difficult choices in order to meet the expectations of a few profit-driven shareholders, further laying the infrastructure for a new food system with a different set of governing and operating principles.

At the Food Commons Convocation in July of 2014, the participants expressed a keen interest in launching the first Food Commons DPO in Fresno. Fresno, a city and county beset by extreme poverty in the heart of the most productive farmland on earth (a problem created largely by the global food system), would be well-served by a large-scale fund raised from both wealthy and non-wealthy investors, dedicated solely to the vision of a healthy, just, and localized food system.

While the current “cheap and fast” global food system threatens our future as it churns away unsustainably on fossil fuel inputs, the Food Commons will usher in a new economic paradigm and a resilient food system by diversifying the number of individuals and businesses participating in food supply chains, providing communities with opportunities to invest in and control their own food security, and increasing consumer choice and access to foods produced in accordance with commonly shared principles of fairness, sustainability, and public accountability.[3]

 


[1] Food Commons 2.0, a 2011 concept/strategy paper of the National Food Commons.

[2] According to Food Commons 2.0, this is defined as follows: “The area of land and sea within a region from which food is produced in order to deliver nutrition to a population base. A local or regional food system includes all the inputs, outputs, and processes involved in feeding the population within a foodshed. Note that the foodshed concept does not obviate the goal or need to export or import food outside of a region.”

[3] Food Commons 2.0.

Direct Public Offerings for Healthy Communities

Direct Public Offerings for Healthy Communities

Guest post by John Katovich on Stanford Social Innovation Review

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Dysfunctional public and private capital markets benefit traders, speculators, and financiers more than companies and communities; direct public offerings provide a capital funding solution that benefits everyone.

Once upon a time, capital markets had meaning—before their soul was lost to an über-financialized economy that spiraled away from its purpose as classically defined: the efficient transfer of wealth from an individual’s savings to companies for development of research, products, and services.

It’s become hard to find much that fairly fulfills that function of fueling the entrepreneurial spirit. Except for a brief window when an IPO price may have connection to the value of a company and before other xmodgames begin (for example, running up its value for the “pop” in price on the first day of trading, “dark pools” that avoid transparent markets, or anonymous high-frequency front-running), exchanges look more like legitimized gambling with excess volume disguised as liquidity. For whom does the opening bell toll today?

Please continue to read the full post on SSIR’s website.

Regulatory Issues for Local Currency: A Meeting in the Berkshires

Regulatory Issues for Local Currency: A Meeting in the Berkshires

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I recently traveled to South Egremont, Massachusetts, to discuss policy and regulatory issues with a small group of local currency advocates.  South Egremont is the home of the Schumacher Center for a New Economics, the organization that launched BerkShares, one of the best-established local currencies in the world.

With growing attention to cryptocurrencies like Bitcoin, local currencies need to be aware of the laws and regulations that may affect them.  Unfortunately, it’s not always clear which laws and regulations apply.

One of the laws that might apply to local currencies is the Bank Secrecy Act.  This federal law requires that “Money Services Businesses” register with the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury and comply with various recordkeeping and reporting requirements.  The purpose of the law is to prevent money laundering and the financing of terrorism.  The idea is that businesses that handle money can be used for these purposes so they are required to report “suspicious activity,” among other things.

It is difficult to determine whether a given local currency falls within the definition of a Money Services Business.  On March 18, 2013, FinCEN issued guidance in an attempt to clarify the application of the Money Services Business rules to alternative currencies.  The guidance leaves more questions unanswered than it resolves.

What is “Virtual Currency?”

The FinCEN guidance defines a virtual currency as “a medium of exchange that operates like a currency in some environments, but . . . does not have legal tender status in any jurisdiction.”  Note that the definition is not limited to the normally understood meaning of “virtual” – “existing or occurring on computers or on the Internet.”[1]  Thus it seems that even a paper currency like BerkShares could be considered virtual currency under the Bank Secrecy Act.

This is in contrast to the IRS’s recent definition of virtual currency as “a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value.”

What is Convertible Virtual Currency?

According to the FinCEN guidance, the Money Services Business regulations only apply to a convertible virtual currency.  What does “convertible” mean, according to FinCEN?  It means having an equivalent value in real currency (e.g., U.S. dollars) or acting as a substitute for real currency.  This is a very broad definition of “convertible” – it is hard to imagine a currency of any kind that does not act as a substitute for real currency.  Otherwise, what is the point of having a currency?

So does this mean that all participants in a local currency program have to register as a Money Services Business?

No. The FinCEN guidance states that “users” of virtual convertible currencies do not have to register as Money Services Business.  What is a “user?”  A user is a person that obtains virtual currency to purchase goods and services.

However, anyone (individual or entity) that falls within the definition of an “exchanger” or an “administrator” of a virtual convertible currency may have to register as a Money Services Business.

An exchanger is someone engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency.

An administrator is someone engaged as a business in issuing (putting into circulation) a virtual currency, and who has the authority to redeem (to withdraw from circulation) such virtual currency.

An administrator or exchanger that (1) accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency for any reason must register as a Money Services Business (unless an exemption applies[2]).

What does “transmit” mean?  It means “sending” the virtual currency from one person to another location or person by any means.  In other words, if the administrator of a virtual currency allows transfers of value between persons or from one location to another, it is transmitting the currency.

Questions Left Unanswered

What does it mean to be “engaged as a business” in exchanging or issuing virtual currency?  If the organizer of the local currency is a nonprofit organization that does not earn any revenue from the activity, does this mean that the organizer is not covered by the definition of an exchanger or administrator?

What exactly does “transmit” mean?  If the organizer of the local currency issues paper currency to local banks and the banks exchange the paper currency for U.S. dollars, is the organizer “transmitting” currency?

Other Regulations

Unfortunately, the Bank Secrecy Act is not the only law that may apply to local currencies.  There are also state money transmitter laws, state laws regulating the issuance of currency, tax requirements for the use of local currencies, and possibly more.

Stay tuned as we, and our colleagues at the Sustainable Economies Law Center (see their CommunityCurrenciesLaw.org web site for more information), continue to work on these vexing issues!

 


[1] Merriam-Webster.com

[2] Exempt organizations/people include providers of delivery, communication, or network access services used by a MSB; payment processor to facilitate the purchase of, or payment of a bill for, a good or service through a clearance and settlement system by agreement with the creditor or seller; bank clearance and settlement systems; physical transporters of currency such as an armored car; those who accept and transmit funds as an integral part of the sale of goods or the provision of services.  31 CFR § 1010.100(ff)(5)(ii)(A)-(F).

 

Signs of a Growing Trend: Community Investing

We are often asked whether we think Community Investing (meaning investing by non-wealthy, non-professional investors in their own geographical communities or interest-based communities) is a growing trend.  It’s hard to find concrete data on this, but there are lots of signs that indicate growing interest in Community Investing.

1. Media coverage – we saw lots of media stories about Cutting Edge Capital and our clients in the last several months in publications like

The New York Times

PBS

Reuters

Sustainable Business

Crowdfund Beat

Shareable.net

Social Venture Network

Atlanta Journal Constitution

St. Louis Post Dispatch

Philly.com

Central Valley Business Times

L.A. Business Journal

San Francisco Business Times

Inside Bay Area

and quite a few more!

2. Our Community Capital (CoCap) conference sold out even though it was held on Labor Day!  Check out the videos from the event.

3. Increasing numbers of webinars are being devoted to the topic, like this one for example:

Community Resilience Chats

4. States are adopting crowdfunding exemptions to promote intrastate capital raising campaigns – Michigan and Wisconsin crowdfunding exemptions are the most recent to be signed into law

5. Self-directed IRAs growing

Custodians that manage self-directed IRAs for clients looking for an alternative to Wall Street have been growing fast.

For example, in 2005, Millennium Trust Co., handled about $733 million in self-directed IRA assets; today, it administers $6.1 billion and Pensco Trust’s self-directed IRA assets increased almost seven-fold in five years.

How you can help!

Contribute to this growing trend and check out community investing opportunities at CuttingEdgeX.com!

CoCap – The Community Capital Symposium

CoCap – The Community Capital Symposium

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Don’t miss this great event on September 2, Labor Day, in Oakland, California!

In partnership with SOCAP, an annual conference dedicated to increasing the flow of capital towards social good, we are proud to present CoCap – the Community Capital Symposium being held the day before SOCAP.

The Symposium is being sponsored by Cutting Edge Capital, the Local Investing Resource CenterHUB OaklandSustainable Business Alliance (a BALLE network), and Springboard Innovation.

Come learn about how communities can invest their money in local, social, and sustainable businesses.

We will be exploring the emerging world of Direct Public Offerings, local investing clubs and networks, crowdfunding, and other ways that communities can unlock previously inaccessible sources of local, grassroots capital.

Whether you are a business owner interested in raising money in your community, or a saver, investor, or community member that wants to learn about putting money to work locally, you will find plenty of inspiration, tools, and connections at the Community Capital Symposium.  Please join us!

Click here for more information or to purchase tickets!