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The NCUA Board’s Emerging Redesign

Since Todd Harper moved from a minority board member to chair in February, board members have become more vital in overseeing agency activities.  Their increasing dialogue and comments at public meetings, if followed through, could be a harbinger of greater NCUA accountability to the credit union system.

In theory, the board should be the true point of connection with, and representative of, the best interests of credit unions and their members.  In practice, chairman of different backgrounds, parties and ambitions have acted as the sole leader for the agency.  Some have openly stated and/or acted as though credit unions have no role in the agency’s spending, its problem solving, or its management priorities.

Some non-chair members have occasionally treated their status as a part time job, a public sinecure requiring only visibility at board meetings, like credit union volunteer directors.  That does not seem to be the case now.

Three Diverse Backgrounds

The opportunity for a more vibrant, effective board comes from the very different experiences of each member.

Kyle Hauptman, vice chairman is the newcomer and “outsider.”  No credit union background, a professional career in finance, he brings the ability to see the industry from an objective point of view.  To become a quick learner, his first decision was to find a senior advisor who had a deep knowledge of credit unions from outside NCUA and government.

Chairman Harper is the “insider.” He describes himself as the first NCUA staff person appointed to the board having served as Chairman Matz Senior Policy advisor and PACA director from 2011-2017.  He references his time as a hill staffer working on financial legislation and draws parallels with FDIC to support his views. Although his term has expired, he continues in place until his successor is appointed.

The board “veteran” is Rodney Hood who served on the NCUA board from 2005-2009 and was reappointed by President Trump again in 2019.  His positions are influenced by the priorities he promoted as Chairman from 2019 through January 2021.  However, as he is no longer in that priority setting role, his perspective from his earlier tenure seems to increasingly inform his approach.

The Signs of Change

Board decisions are usually determined in advance, or else not placed on the agenda.   Therefore, the discussion around reports, the dialogue with staff and the comments related to the agenda become more informative than formal policy votes.

The “Veteran”

For example, Hood has presented statements about his focus going forward.   He has used the phrase “evidence based” judgments versus relying on forecasts of future “facts.”   In reference to the corporate crisis which broke in his first tenure, he cited the virtue of “patience” as an important lesson when making consequential decisions in uncertainty.

He has commented on the agency’s management of the level of cash in the operating fund:

I will be asking tough–albeit fair– questions about the Operating Fund carryover balance

In my view, his most consequential statement in the May board meeting came during the request for credit union comments on the NOL level in the NCUSIF.  His words:

Again, Mr. Chairman, we must recognize that our model is a very different premium model than the FDIC’s model.  Credit unions are legally committed and bound to update a large majority of the fund’s equity contribution. Credit unions today provide the bulk of the capital contributions that are the basis of the fund’s soundness.  It’s a cooperative insurance system that we run at the NCUA.

This was a statement that every credit union would agree with. The fact is that credit unions legally stand behind the fund, not the government. More importantly it came during a week in which the chairman had endorsed legislation to change the NCUSIF’s cooperative model to be more like the FDIC.

The “Outsider”

Kyle Hauptman presents his topics in a more Socratic dialogue with staff. Several meetings ago, he referenced discussions during a credit union meeting indicating credit unions felt inhibited about critiquing examiner conduct.   He asked if it were proper for credit unions to record their meetings.  Staff waffled.   He then opined he thought it would be OK.

From his first board meeting he repeated his view that the agency is spending members’ money.  That NCUA has a fiduciary responsibility for these funds and should not be holding excess balances that credit unions can use more effectively making loans.  He stated the regulator should not have an “itchy trigger finger” when it comes to making decisions costing credit unions.

He has requested staff to enhance communication of board decisions with credit unions, preferably on the website.  One example was the process for distributing dividends from the AME surplus; and in May, how credit unions can present their views on the proper level for the NOL.

Perhaps the most heartening discussion in May was on the seemingly arcane rule for derivatives.  The back and forth with staff on the role of derivatives and later, on the changing reference rate for LIBOR, demonstrated a knowledge of financial markets that is very rare at the board.

The “Insider”

Chairman Harper has continued to put forward his views while at the same time affirming some of the comments of his fellow board members.  He supported a “look back” to assess the agency’s management of the corporate crisis.   He concurred with Hood’s description of the NCUSIF as a cooperative fund.  There appears to be no opposition to increased director reliance on actual facts versus that is the way we have always done it; for historical evidence versus hypothetical models.

His challenge is whether he can move on from his tenure with  Chairman Matz when she declared that “credit unions did not represent their members,” had “no interest in the agency’s budget,” and that as an independent agency, it “was not good government for the people who are regulated trying to participate in the budget making process of the regulator.”

The Big Test Coming Up

The most important issue on the horizon is how the board will respond to the comments submitted by credit unions on the maximum level of the NOL in the NCUSIF.

That cap now is 1.38, a result of decisions made in 2017 when the TCCUSF fund was merged with the NCUSIF.  From then till today, is the first time in the history of the fund, that the NOL has been set above 1.3% of insured shares.

This 2017 decision was preceded by a request for comments on the board’s merger proposal.  The two-person board received 663 comments during the 45 days provided.  The NCUA staff stated in its summary of comments that only 12 credit unions appeared to support the agency’s plan.  That is 98% were opposed.

A focus of the critiques was the false modeling to justify the NOL increase to 1.39%.   Credit unions universally opposed this action, yet NCUA changed not a thing from the original proposal.  Credit unions spoke, but NCUA did not listen.  Even when presented with facts that contradicted the agency’s financial assumptions.

A long analysis of this event is reported in Time for Real Credit Union Disruption.

Unity, Not Uniformity

Unity is not the same as uniformity. NCUA board members have different competencies and points of view.  Unity relies on reconciliation of differences, not giving them up. This is done by uniting around what is held in common. Hopefully, that core is deciding for the best interests of credit unions and their members, not NCUA, or even a specific political philosophy.

A pragmatic, fact-based approach can create unity for the NCUA board’s most critical decisions.  That could transform the board into  a true asset for credit unions that continues to appreciate not diminish in value.

 

 

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An Emerging Board Design at NCUA?

A critical factor in credit union success is the board’s role.   Credit unions fail when boards are weak.  Board recruitment becomes static, CEO succession plans are lacking, and longevity, not oversight, the primary qualification for renomination.

In a credit union it is the responsibility of the CEO to develop the board as an asset of the organization.  There is no such direct responsibility for NCUA’s board. The three members are often selected by different administrations; political connections, not credit union knowledge, is the deciding factor in who is appointed.

If the NCUA’s board is to be an asset, it will require the efforts of individuals chosen with different skill sets, backgrounds and possibly differing views on the regulator’s role, to make it so.

The Current Situation

The current NCUA board is showing signs of designing a role that could be much different than in past years.  By leadership style and bureaucratic habit, the NCUA chairman often operated as the final authority with the board expected to follow along, even with a 2-1 vote.

An Initial Example of Board Redesign

A critical organizational skill is learning from the past, not in the that’s-the-way-we-always-done it, but a willingness to evaluate the effectiveness of critical decisions or agency processes.

In the February meeting all three board members agreed that a “look back” on the entire corporate resolution process could be helpful. What can be learned from this event in which projected losses in the billions and caused five corporates to be liquidated?

Today the surpluses are over $6 billion and four of the corporate’s shareholders will receive all (and two a bonus) or a significant portion of their membership capital shares.  This change of fortune in the tens of billions by itself would justify a reassessment.

The Value of Reviews

Effective board oversight can improve the agency’s capabilities going forward.   Transparency is enhanced and responsibility better understood.

A minor example of the benefit of the board’s public role is how the agency reports its management of the NCUSIF investment portfolio approaching $20 billion.  This interest revenue is the primary income source for the fund and its financial model.

At a time of an historically low Treasury yield curve in December, the question was posed, What is the NCUSIF’s IRR Policy?

Just 45 days later February 16, 2021, the NCUA’s investment committee invested $600 million for seven years yielding .90%, seemingly oblivious to the recent uptick in rates and the increasing talk of inflationary pressures.

February is the last investment report issued by NCUA. The March NCUSIF update included no transaction information.  With over $800 million in additional 1% deposits now in hand, it is highly likely that there have been subsequent investments.  Is the committee using judgment or just locked into a pattern of laddering investments whatever the outlook for rates?

A $16.8 Million Loss of Income

We know that less than 60 days after this February investment was made, the cost of this decisions versus waiting for another month or two to see the direction of interest rates.

With the 7 year treasury now running .40 basis points higher, the lost revenue versus investing  60 days later is $2.4 million per year, or $16.8 million over the seven year life.  The foregone revenue from just this short pause, would be $850K, an amount recovered in four months from the higher yield.  The security purchased in February will remain under water, less than book value, if rates do not return to the levels at the time the investment was made.

The Board as an Asset

The board is not making investments, but it should have a way of monitoring decisions especially in uncertain or unprecedented times.  Timely transparency, both for the board’s oversight role and credit union confidence in the fund’s management, enables both outcomes.

All three board members bring different experiences, capabilities, and points of view to their role.   Even if there are individual policy differences, that should not prevent all having a common goal of making the NCUA board a source of agency strength and of pride for credit unions.

I will describe tomorrow some encouraging signs of a more deliberate and substantive role emerging from recent meetings.

 

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Updating Cicada Coop about Credit Unions and NCUA

Yesterday I described the return of Cicada Coop , a life-long credit union fan after 17 years of living “off the grid” underground, so to speak.

Before entering hibernation, Cicada Coop had marveled at the industry-regulatory mutual efforts. In the 2003 NCUA Annual Report he kept, examples included lowering costs of regulation, joint collaboration in planning, transparency in all aspects of expenses including the Overhead Transfer Rate, OTR as a just a few of many examples.

Two Videos Showing NCUA’s New Stance Towards Credit Unions

The cicada and I went inside. I shared two videos of the NCUA chair testifying before Congress in July 2015 to dramatize the change from the cicada’s last appearance. The first excerpt is the agency’s view of its obligation for transparency with credit unions. The Chair explains that an external OTR study by Price Waterhouse recommending more transparency and industry input was redacted by the General Counsel as a “trade secret.” The chair also says putting the agency’s budget on the web “would not be effective” in improving communications with credit unions.

This is the full, live five-minute exchange:
(https://www.youtube.com/watch?v=CiPgW1mgDw8)

The second five-minute video includes several surprising assertions about credit unions and the agency’s relationship to them. Two comments by the chair are “credit unions are not interested in NCUA’s budget” and “credit unions do not represent their members.”

Perhaps the greatest contrast to the environment in 2004 was the statement by the chair that “it is not good government to have the people who are regulated trying to participate in the budget making process of the regulator.”

The Congressman described her position on NCUA’s budget process as, “Self serving, crazy talk.”

This is the exchange: (https://www.youtube.com/watch?v=z-__EgfM2vA)

Coop Cicada’s Questions

My friend’s question is what happened during these 17 years we cicadas are underground? Why the change in NCUA’s view of its responsibility to credit unions?

My quick answer was leadership, especially by the NCUA board. Once a leader decides to limit transparency and accountability and assert independence from the industry, the culture becomes part of the bureaucracy. Individuals become comfortable away from public scrutiny and resist change.

Cicada pondered whether this breakdown in mutual efforts could be overcome. My reply was good leadership willing to disrupt accepted ways could start the process. Also knowing the past, just as he read from the Report, helps everyone understand what is lacking in present circumstances.

Ultimately however change must be collaborative. Because discerning what is best is always hard. The effort must be done together. Like the strategic planning process he described in 2004.

“So do you think credit unions will be here 17 years from now, when my family and friends return?” Cicada asked.

That depends. Coops will be here because they embody some of the best instincts of the human spirit. As for NCUA, that is an open question.

With that, Coop Cicada went up the tree to create the next generation of his species. A process loud and exuberant. Maybe there is a lesson from nature for those without a 17-year horizon.

Coop Cicada sheds his shell to prepare a new long-term plan.
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Timeless Wisdom: Updating the Federal Credit Union Act

“Our Act lingers from the time of the paper ledger and wire tugging switchboard operator. We need to modernize the Act . . . and at the same time re-emphasize and recodify just what the first Act meant in 1934: that Americans are savvy enough and community-spirited enough to have and to run self-help cooperative not-for-profit financial service organizations-of no matter what size-that benefit those who join and serve. And on account of that purpose and structure of these organizations, no tax need be levied.”

Ed Callahan, Callahan Report 1990

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Questions from Cicada Coop, a Life-long Credit Union Member

Yesterday I began a conversation with a bug I had not seen for 17 years. My cicada colleague is unusual in that he was also a credit union member. A real fan of co-ops. His whole family had joined two decades earlier; all 10,000 located at Wilson Lane.

The Credit Union NCUA Relationship in 2004

His first question upon this reincarnation was how were credit unions doing? Specifically, he wondered if the mutual relationship between his coops and NCUA had continued.

From his backpack he pulled the 2003 NCUA Annual Report and began to quote from it as a reminder of what intra-industry efforts looked like back then.

Among the items he showed are the following excerpts from the Report.

Budgeting and Efficiency

“Last year NCUA continued its emphasis on accountability within the agency’s budget process conducting its third Annual Public Forum and Budget Briefing resulting in stakeholders have a better understanding of the agency’s budget and operations. The efforts put forth . . . have resulted in a more effective, efficient federal agency.

Among the notable accomplishments achieved are a reduction in staffing levels from the all-time high of 1,049 employees in 2000 to the 2004 budget level of 963, the reallocation of resources which included closing of one regional office and relocating another at as savings of $27 million over the next ten years. These are important ongoing internal agency initiatives that will continue to have high priority in 2004 and beyond.” (Pg. 5)

Cost Control and Transparent Operations Are Key

“The 2003 budget was $887,500 less than the approved 2002 budget.” (Pg. 8)

Overhead Transfer Rate

“NCUA remains committed to increased transparency in operating the agency. . .First in November 2003 the NCUA Board overhauled its method of calculating and assessing the overhead transfer rate. Calculated annually the new method is more comprehensive. The formula has been expanded to take more factors into account, providing greater equity and accuracy in calculating and allocating costs.

Second, the NCUA Board held its third public budget briefing and encouraged public attendance and comment. This open budget process serves to underscore NCUA’s continued recognition the responsibility to share all material budgetary considerations with agency stakeholders.” (Pg. 9)

Strategic Leadership Summits

“Each January the Office of Strategic Program Support and Planning (OSPSP) plans and executes NCUA annual strategic leadership summit. . . OSPSP conducted several stakeholder panel discussions during the 2004 summit to gain insight from various perspectives on issues and concerns facing the industry. Panels included CEOs from small and mid-to-large credit unions, certified public accountants, credit union consultants, and third-party service providers.” (Pg. 18)

My Response

I told Cicada Coop all the examples he chose had taken a U-turn while he was away. As evidence I said a recent NCUA Chair had declared in congressional testimony that: “An independent regulator is not answerable to the entities it regulates.”

He did not believe there could have been such a turnabout. He cited other examples of mutuality such as the six consecutive dividends from the NCUSIF to credit unions from 1995 through 2000. So, I said, come on inside and I’ll show you the videos.

Tomorrow I will share these videos and what I believe caused this rupture. And then his family’s reaction to this changed environment.

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A Brief Motivational Speech for Credit Unions-For Anytime

Leadership involves passion. That is the ability to motivate listeners to rise above matters of the moment to strive for greater success.

The skill is rare. It must speak to the heart and the head, ideally with humor.

One person who achieved this art was a former high school football coach who years later became Chairman of NCUA. Whenever Ed Callahan spoke, he would often end his talks with a rouser. It was a throw back to the halftime coach’s exhortation to go out and win the game.

I miss this communication mastery in today’s credit union world. It is more than a celebration of financial accomplishments. It is a spirited message that uplifts by affirming belief in and ambition for the future of the cooperative system.

Then I found a 1994 VCR video that captured the feeling of this endless opportunity to serve people in what the speaker asserts is the “best movement in the world-second to none.”

You may not need your morning coffee after listening to this minute and a half excerpt. It is a momentary summing up during a lending seminar by Rex Johnson. His persuasive tone and style undoubtedly owes a debt to the Southern Baptist preaching from his upbringing.

He wants credit unions to “get rid of the box” when making loan decisions and to exercise creativity serving members in “these difficult times.”

The message sounds just right for today and maybe all time.

https://youtu.be/WMBRunsCVGw

 

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So You Want to Change the World

This is the season for graduation addresses.  A congratulatory pep talk by a distinguished speaker to students ending their time of institutional learning for real world lessons.  The following are excerpts from a 2016 commencement message by Eva Braun a faculty member at St John’s college in Santa Fe, New Mexico.

To clarify the credit union relevance, I might title this portion:  Local in Worldly Coordinates, Grand in Human Scope

“All over the country, speakers who accepted the invitation to talk to you on this last and first day soon began to agonize about a fit subject for this great moment So we call for aid on whatever power will come. As for me, I remembered a recent conversation, with one of our graduate students. I’ll transcribe it from my memory, abbreviated.

Student: “How will my St. John’s education help me to do what I want?”

Me: “And what’s that?”

Student: “I want to change the world.”

Me: “For the better?”

Student looks totally abashed; I’m a bit abashed as well, for being a smart-aleck. But he took it well, and the ensuing conversation was illuminating to both of us.

At this point, I want to assure you that at a thousand schools this May speakers will be alluding to this conversation. They will bid the graduates “Go forth and change the world,” or, “Go forth and make a difference.”

A language Tutorial

I say, let us have a little last-moment language tutorial. Let us, Johnnie-fashion, analyze the sentence “I want to change the world.”  I, in all candor, will try to show that “I want to make a difference, I want to change the world” aren’t very sensible sentences. So here goes.

This announcement has three parts: first, I want; second, to change; third, the world.

So, first, “I want.” “I want” is about me, and if what I want is to be a “difference-maker,” it’s about my self-satisfaction. Recall yourselves as Juniors, when you struggled with Kant on morality. No one expected you to get it all. As regards Kant, this much may have stuck: He thinks that doing right is not doing what you want, but what you ought; and that, in fact, the only proof of your doing as you ought is that it hurts some, (so) that your mere wanting is thwarted. So when it’s the world I’m planning to change, maybe “I want” should yield a little to “I should.”

Second, “change.” Why exactly “change”? There are many other modes of action beside this current mantra. There’s protecting and maintaining, activating and fulfilling, restoring and reviewing. Talk of mere change is just terminally vague babble—vague promise and vague threat. Its antidote is specific thinking expressed in adequate language. That very requirement, thoughtfulness and its articulation, was an explicit aim of the Program, to which you devoted the last four years.

Third comes “the world.” It’s a big space in which to thrash about. In choosing it as the venue of my action, I’ve pretty much committed myself to the silliest of all maxims of action—another current mantra. It goes: Only if x happens, can y occur. Filling in the most common variables for this formula: “Only if the world changes radically, can little kids learn to love reading,” in other words, never guaranteed. The implied lesson is: Forget about “the world”—stay local and avoid stymieing preconditions.

What is Good?

And now the usually missing fourth part to the saying “I want to change the world,” namely, “for the better.” Your four years with us were, I think, above all intended to give you a head start in answering for yourself the most crucial of human questions: What is good? For making anything better without a view of good seems to me just groping in the murk of possibility.

. . .you’ll recognize two of the ways that the Program and the College were meant to help you with making the here better now. One was that we hope you would find in your reading the elements of your own firm view of what is good universally and therefore what is better in particular. This crystallization is surely still in process for many of you. Much more will go into it than what you learned here, but that learning will be the informing reference of your experience. That ability to specify the universal is the second of the two ways our Program readied you for great deeds.

Now, in the spirit of that specificity, I owe you an example of what I think of as actual action, local in worldly coordinates but grand in human scope.

Local Action-Grand in Human Scope

Most of you will, I’d guess, work in an office at some point. Proper offices have water coolers, Xerox-rooms, galleys with hot-plates. People spend as much time there as they dare. So post a note: “Would you be interested in reading some poetry together during lunch hour? I propose Wallace Stevens’ ‘Sunday Morning.’ Copies are on the counter. Let’s meet next Wednesday in Room 666. Bring your lunch, I’ll bring cookies. Expertise inessential. Signed…” If no one turns up, which is unlikely, keep trying. Something will come to pass.

Before I finish, I need to say that what I’ve done here isn’t quite right: I’ve told you what’s what and you’ve sat silent, except perhaps for an occasional guffaw. All my points were left unquestioned—deep metaphysical maxims such as cookies being essential to meetings and expertise inessential to poetry, and large practical claims, such as local happenings having more actuality than global commotions. Don’t let it happen to you very often, though these occasional one-way ritual performances are also necessary to human life.

So then: I wish you a life of genuine action and of actual happening, a life of as much happiness as you know what to do with—and a bit more. Go forth, find a place you can love, and help to make it “what it was always meant to be.” Go forth and change the world—for the better.”

 

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A Terrific First Quarter & MiraculousTwelve Months for Credit Unions

One year ago March 2020, a national emergency and economic lockdown was declared to deal with the Covid 19 pandemic.

What followed was the sharpest one quarter GDP contraction and highest jump in unemployment in history.  No one knew how long or how serious the total disruption of all areas of human activity would be.

Today the recovery trends in the economy and society at large are well underway.  Credit unions are both examples of this incredible turnaround as well as enablers who assisted members through this period of  uncertainty.

Last week’s Trend Watch analysis of March 31, 2021 data by Callahan and Associates, was positive on every front for the cooperative system. Buoyed by a first quarter GDP gain of 6.4%, major balance sheet growth results were in the high teens.

The 19.1% annual asset growth was the fastest in memory, propelled by a 23.1% share increase.  This share deluge led to a 57%, 12-month leap in the investment portfolio. All 64 slides in Trend Watch can be viewed here.

What About Capital Ratios?

The following slide shows the most recent five years relation between capital growth, ROE, and assets.

The divergence between these two growth trends from their long-term historical relationship resulted in a small year over year decline in the net worth and capital ratios. Overall the industry remains very well reserved with a 10% net worth ratio and over $200 billion in total capital.

The Cooperative Capital Formula: Revenue Flows and Retained Earnings Grow

This small change should not concern for two reasons listed below. For the first 90 years the cooperative measure of reserve adequacy was based on a “flow” concept for capital creation. That is credit unions were required to set aside 10% of revenue until the capital/risk assets ratio reached 4%. Then this formula was reduced to 5% of revenue until a 6% ratio was reached.

When PCA was implemented by the 1998 Credit Union Access Membership Act, this measure of capital adequacy was changed from a “flow” measure to a “stock” concept imposed by Prompt Corrective Action ratio benchmarks. A 7% net worth ratio is now rated well capitalized.  Revenue was taken out of the capital assessment.

The first reason:  as shown below the “flow” into retained earnings measured by ROA exceeded 1.03% for the quarter. This is the first time since December 2012 this rate of net income has been reached. Credit unions have no access to outside capital. Retained earnings, their source of capital, is once again trending upward.

The second reason: credit unions managing 98% of the systems assets meet or exceed the 7% well capitalized PCA benchmark.

Many slides in the Trend Watch deck demonstrate sound trends with delinquency lower, tons of liquidity, and refinancing volumes and lower fees helping members save money. An outstanding first quarter for what appears to be a breakout year for the economy.

Credit union performance with their focus on members’ well being are an untold story of this recovery.   Hopefully this extraordinary collective outcome will be recognized by all as affirmation of cooperative design and purpose.

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A Case Study of an Industry Collaborative Initiative

 Earlier this year I described a trifecta opportunity for credit unions.   The three challenges were:

  • Tapping the entrepreneurial interest of the current college generation;
  • Supporting new credit union charters to plant  seeds for future relevance and growth;
  • Providing leadership to prioritize opportunities for those left behind (DEI) due to historical inequalities.

An example combining all three elements was Gary Perez’s efforts as CEO of USC Credit Union to create a project to charter student led credit unions at the 107 historically black colleges and universities across the country.

Recently I found the following program that would seem to be an ideal way to meet all three opportunities.   And maybe jump start Gary’s efforts.  It reads as follows:

 Student Internship Program 

The OCDCU 2000 College Student Summer Internship Program was the most successful to date. The program creates partnerships between low-income designated and other credit unions (large or small) and college juniors and seniors to train and develop a pool of potential future credit union managers. The students selected are business, finance, or marketing majors. 

 With technical assistance grant stipends, the 2000 summer intern program matched 29 college student interns with 58 different credit unions. Stipends provided the interns totaled $72,500 in 2000 compared with $67,500 in 1999 for 27 students. 

Source:  pg. 16 NCUA 2000 Annual Report

 Wouldn’t a relaunch of this joint initiative now be a powerful signal of the credit union system’s responsiveness to today’s special challenges? Especially in an increasingly tight labor market?

 

 

 

 

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A Cooperative DEEP In Formation

A CEO recently shared his response to the question: What are you optimistic about for the future of credit unions?

My optimism lies with the “human spirit” in us all.  We believe that our communities need new solutions.  We believe that local is the best place to start new initiatives that count on people as the capital.  We believe that volunteers are our most critical resource.  We believe that we must forge relationships as the bond for problem solving.  We believe we are the catalyst to securing our families and communities futures.  

This answer was inspirational, but was it realistic?  Then I learned of the efforts to launch a new coop called The Deep Grocery.coop.

It is a worker-owned grocery cooperative dedicated to bringing to the East Oakland community fresh organic produce and general food items, education on a healthy food choice, and local control.

The Year-long Effort to Launch

I talked with one of the four lead organizers Erin Higginbotham.  All are college graduates with backgrounds in education, technology, food and restaurants and one with a food coop.  They live in the community they serve.   The effort evolved from conversations with their neighbors including a survey and an Instagram post seeking participants.

A model for their vision was Mandela Grocery Cooperative serving West Oakland.  In 2020 the organizers began training with this established firm.   From that experience the group tested their products at farmer’s markets.   In December, they began crowd funding to raise capital.   Almost $100,000 was collected from grants, community donations and local support to begin the first steps of their independent launch, an online grocery service operating from a commercial kitchen. Additional plans include converting a shipping container into a functional store prior to finding a brick-and-mortar location.

The produce listed on their web site is from local farmers.  Through trial and error, they have learned how to meet the community’s needs while also trying to educate the buyers on healthy food choices.  They have begun filling online orders and are seeking a site for a store/ community center that will be welcoming and inviting.

Why a Coop?

I asked why the group choose a coop structure.  Erin replied “it was all about our neighborhood, to spark entrepreneurs and to give everyone a voice.  We want to empower and impact the whole community.” Only one organizer had experience with this option.

They work with a local branch of Provident Credit Union which has always been “super responsive and helpful.”  By the end of the year, they want to expand the number of East Oakland families served, attract more people to better food options, and promote local participation in this alternative economic system. DEEP is an acronym for “Deep East Oakland Empowering People.”

Acta Non Verba, a local 501 C3, has been a sponsor.   “Actions not words” is a fitting description as these organizers learn by doing and visiting other coops.

The Key to this Effort

This startup demonstrates the critical nature of the “human spirit” at the heart of heart of every coop and a key factor in credit union expansion.  Will they succeed in their efforts to create a Mandela grocery clone in East Oakland?

I go again to the words of the CEO above:

Everyday new leaders want to step up, seeking new ways to address old problems.  They do so in the face of pressure, in the face of economic times, in the face of community challenges, and not based on the personal financial motivations.

It is far different, far harder for both the volunteer and the needy consumer-owner searching for their community’s best options than it is for paid professionals to run an existing solution.

Coop professionals must support these people’s efforts with the balance, creativity, and respect for their drivers as artfully as we can.  

His response to the question of whether this startup, or any coop, will endure is: People are why I am optimistic about the future.