How SC could help minority businesses
Published in The Greenville News, on May 20, 2020
The COVID-19 pandemic is ravaging the health, social fabric and economies of our communities, our country, and in fact the world.
Two very powerful revelations have occurred: The virus is having a disproportionate effect on communities of color due to widening racial health disparities. And systems and policies that perpetuated the racial health and wealth gap still exist and are contributing to this injustice.
Congress passed three major pieces of legislation providing more than $3 trillion in stimulus and relief to help prevent the country from slipping into a recession and help unemployed workers to financially survive. This lifeline could mean the difference between a low-income family being able to stay in their home and becoming homeless; or a single mom being able to feed her family and her family starving because the local food bank ran out of food.
The aid packages are a good first step, but the administrative systems charged with getting these dollars into the hands of the most vulnerable are missing the mark.
Case in point: The first deployment of the Paycheck Protection Program (PPP) showed that multimillion-dollar corporations with strong balance sheets were able to secure tens of millions of dollars intended for very small “momand-pop” type businesses. This prompted Congress to dedicate $60 billion of the second round of CARES Act funds for the PPP program to assist financial institutions that work more closely with minority borrowers, such as credit unions, minority depository institutions (MDIs), Community Development Financial Institutions (CDFIs), certified development companies (CDCs), and microlenders. The entire package of funding for this round of PPP totals $310 billion. As a result, the PPP is expected to run out of money in the coming days.
When it comes to businesses owned by people of color, disparities still exist. According to Ashley Harrington of the Center for Responsible Lending, 40% of businesses owned by people of color have been or will be shut out of the PPP.
The South Carolina Association for Community Economic Development offers a couple of recommendations to help with the equitable deployment of capital.
South Carolina should designate some of the $12 million it will receive in COVID-related community development block grant (CDBG) dollars to fund a capital access fund.
Small businesses, especially minority businesses, are challenged in accessing capital. The COVID-19 recovery CDBG funds could be focused on microenterprise businesses (those having five or fewer employees) to ensure these “mom-and-pop” shops have access to capital they need.
South Carolina could also deploy these funds through certified community development financial institutions (CDFIs), which are certified by the US Treasury Department and the SC Department of Commerce.
One easy lift would be for the SC General Assembly to provide additional allocations to the SC Community Development Tax Credit, which provides private donors and investors a state tax credit of up to 50% for contributions to and investments in state- certified CDCs and CDFIs.
The program is a vital public-private partnership that leverages a modest public investment to attract private sector participation. This spring, a team of MBA students from MIT Sloan School of Management found that in 2019 every $1 in state investment attracted $2.60 of private participation. So $1 million in state tax credits leveraged $2.6 million in private funds that created 40 local jobs, 5 new small businesses, trained 180 workers, and developed 47 housing units in South Carolina.
There is legislation (S.879) in the SC Senate that would provide $2 million in CD Tax Credit allocation in 2020, $3 million in 2021, and $3 million each year through 2023.
Bernie Mazyck is president and CEO of the South Carolina Association for Community Economic Development.