By Howard Wial, Senior Vice President and Director of Research, Initiative for a Competitive Inner City, November 2020
The development of under-resourced communities and communities of color is a moral and economic imperative. It is a moral imperative because systemic racism and concentrated poverty impede the ability of community members to gain income and build wealth, denying them equal opportunity and dignity. It is an economic imperative because high unemployment and concentrated poverty waste human resources, reducing the nation’s standard of living and quality of life. The challenges of the current moment underscore these imperatives. The coronavirus and its economic fallout have disproportionately harmed the health and livelihoods of low-income people and people of color.[i] Small businesses owned by people of color have been hit especially hard,[ii] putting the goal of closing the nation’s racial wealth gap further out of reach. The Black Lives Matter movement has drawn national attention to the persistence of systemic racism, not only in policing but throughout American society.
For these reasons, it is especially important to examine President-elect Joseph Biden’s community development agenda. Although Biden’s plans for fighting the coronavirus and spurring macroeconomic recovery have been the headline-grabbing policy issues during the last week, his plans for helping low-income people and people of color build income and wealth and improve their communities deserve equal attention. Drawing on information from his campaign website, this policy brief summarizes the president-elect’s key community development policy proposals.
Biden’s overall approach to community development embodies four general principles:
These principles resemble those of the Obama Administration, and some of Biden’s proposals mark a return to Obama-era spending and regulatory priorities that President Trump reversed. Others, however, break new ground.
The remainder of this brief shows how Biden’s policy proposals in 14 major community development policy areas reflect these principles. The majority of Biden’s proposals concern support for small businesses, especially small disadvantaged businesses. This suggests that Biden believes strengthening those businesses is key to revitalizing under-resourced communities.
Create a better-targeted Paycheck Protection Program. The Paycheck Protection Program (PPP) that expired earlier this year provided a lifeline to many small businesses during the early stages of the coronavirus pandemic but it also left many behind. Small businesses that lacked relationships with participating lenders or information about how to navigate the application process had difficulty obtaining loans through the program. Some were unable to obtain loans at all.[iii] At the same time, loopholes in the law enabled some larger businesses to obtain PPP loans.
Biden advocates a new round of PPP lending targeted toward small businesses. He would reserve half of all PPP funds for businesses with 50 or fewer employees and provide technical assistance to help small businesses apply for funding. To monitor the extent to which small businesses, especially those owned by women and people of color, were receiving loans, he would create a weekly dashboard showing which businesses were obtaining PPP funds and include a breakdown of businesses by the owner’s race and gender.
Fix some major flaws in the Opportunity Zone program. Opportunity Zones, created as part of the Tax Cuts and Jobs Act of 2017, are the major community development initiative of the Trump administration. The program lacks critical safeguards to ensure that investments are made in the under-resourced communities that needed them, that they meet the priorities of community residents, that they prioritize operating businesses over real estate, and that basic information about investments and their impacts are publicly disclosed.[iv] Early evidence suggests that the program is primarily funding real estate projects rather than operating businesses and that the sponsors of the types of projects for which Opportunity Zones are intended are having difficulty connecting with QOFs.[v]
Biden advocates regulatory changes that are intended to fix some of the program’s major flaws. He would create incentives for Qualified Opportunity Funds (QOFs) to partner with nonprofit and community organizations to produce a community benefit plan for each investment, have the Treasury Department review Opportunity Zone benefits to ensure that they are producing economic, social, or environmental benefits to low-income communities, and require QOFs to disclose information about investments and their benefits to local residents.
Expand small business technical assistance. The coronavirus crisis has exposed the inadequacies of the nation’s fragmented small business technical assistance system. Although there are many organizations that help small business owners obtain basic services and knowledge, business owners have trouble navigating the system, determining what kinds of assistance they need, and obtaining services at affordable prices. The federally funded Small Business Development Centers (SBDCs) go only part of the way toward filling this gap.
Biden proposes to increase federal spending on small business technical assistance to create a national network of small business assistance providers that relies heavily on a public-nonprofit partnership model. He would fund nonprofit incubators and innovation hubs that provide free assistance to small businesses (including shared office and manufacturing space; business coaching; opportunities to collaborate with national laboratories and commercialize federally funded research; legal, human resources, accounting, regulatory compliance, and other services). These organizations would assist individual small businesses for a period of up to two years. New hubs would be co-located with SBDCs, Historically Black Colleges and Universities (HBCUs), Tribal Colleges and Universities (TCUs), and Minority-Serving Institutions (MSIs). Biden would also offer new federal grants to public community colleges and two-year HBCUs, TCUs, and MSIs to offer one-semester business development classes.
Improve and expand government procurement opportunities for small disadvantaged businesses. Biden would use federal procurement as a means of creating more business opportunities for small disadvantaged businesses that offer high-quality jobs. He would do by directing more federal procurement spending toward those businesses and by using regulation to improve the quality of jobs offered by federal contractors and to shift some non-federal procurement toward those businesses.
Specifically, Biden would require 15 percent of federal procurement spending to go to small disadvantaged businesses (up from the current 5 percent goal) and enforce existing federal law that requires federal contractors to subcontract to those businesses. To provide more opportunities for small businesses to bid on federal contracts, he would conduct a government-wide review of contract bundling (the practice of putting multiple small contracts out for bid as a single unit, which can make it difficult for small businesses to bid). Biden proposes to create incentives for state governments and private businesses to contract with small disadvantaged businesses and require U.S.-based international development organizations to increase international contracting opportunities for businesses owned by people of color. To improve the quality of jobs offered by federal contractors, he would require all companies receiving federal procurement contracts to pay a minimum wage of $15 per hour, provide paid leave and fair scheduling and overtime, and guarantee their employees the choice of whether or not to unionize.
Direct other federal spending toward under-resourced communities. In addition to setting more ambitious federal procurement targets for small disadvantaged businesses, Biden would direct federal spending in general, and infrastructure spending in particular, toward under-resourccd communities. He would require 10 percent of spending on all federal programs to go to neighborhoods that have had poverty rates of at least 20 percent for at least three decades. His ambitious infrastructure plan includes a goal that 40 percent of the benefits of investment in clean energy and energy efficiency, transportation, affordable housing, workforce development, environmental remediation, and clean water infrastructure go to disadvantaged communities.
Expand Community Development Financial Institution capacity. Community development financial institutions (CDFIs) are an important source of loans for homebuyers and (to a lesser extent) small businesses in under-resourced communities, many of which have no bank branches. Biden proposes to double their direct federal funding and expand their capacity to offer small business loans, including micro-loans for startups. Using a partnership model, he would also create an “innovation fund” from which groups of CDFIs, cities, or nonprofits may seek funding for small business lending programs that disproportionately benefit businesses owned by people of color.
Strengthen the Community Reinvestment Act. Research has shown that the Community Reinvestment Act (CRA) increases bank lending to small businesses in low-and moderate-income neighborhoods.[vi] Biden would reverse the Trump administration’s regulatory changes, enacted earlier this year, that weakened the law’s impact. In addition, non-bank lenders are becoming increasingly important sources of capital in under-resourced neighborhoods but are not currently covered by the CRA. Biden favors expanding the CRA to include mortgage and insurance companies in addition to banks.
Expand the Minority Business Development Agency. ICIC’s analysis of Census Bureau data show that Black people, who are 13 percent of the U.S. population, own only 2 percent of businesses with employees.[vii] The Department of Commerce’s Minority Business Development Agency (MBDA) is the only federal agency devoted to assisting businesses owned by people of color but its authority has been too restricted and its funding too low to enable it to play an important role in increasing small business ownership by people of color.
Biden favors increasing the MBDA’s funding and expanding its authority. In addition to increasing the MBDA’s overall budget, he would provide it with $5 billion per year in lending and investment authority for minority-owned businesses and infrastructure benefiting communities of color. He also proposes to give the agency the authority to offer new business development grants and to coordinate all federal agencies charged with reducing barriers to federal procurement for under-represented groups. To increase the agency’s stature, he proposes to make the MBDA director an assistant secretary in the Commerce Department.
Strengthen Small Business Administration support for small disadvantaged businesses. The Small Business Administration (SBA) guarantees bank loans to small businesses, including PPP loans, and administers other small business support programs. In addition to ensuring “adequate” SBA funding, Biden proposes to strengthen two SBA programs designed to assist small businesses located in low-income communities and those owned by people of color. He would make permanent SBA’s Community Advantage loan program, which provides capital to small businesses in underserved communities through CDFIs and other mission-driven lenders. He also favors expanding SBA’s section 8(a) contracting program for small disadvantaged businesses, increasing the length of time a business may participate in the program, helping graduates transition out of the program when their eligibility expires, and requiring disclosure of the demographics of participating business owners.
Expand tax credits that support small businesses located in low-income communities. Research shows that he New Markets Tax Credit has been successful in encouraging private investments in operating businesses and real estate in low-income communities[viii] and in helping improve neighborhood conditions in those communities,[ix] Biden advocates expanding the credit and making it permanent.
The State Small Business Capital Initiative provides federal funding to state programs that expand capital access for small businesses. Biden proposes to extend the Initiative through 2025, double its funding, and direct it to target small businesses in low-income communities.
Provide universal broadband. The coronavirus crisis has shown that broadband service is essential to full participation in today’s economy and full access to essential educational, health care, and public services. Without broadband, remote schooling and telemedicine are inaccessible during the crisis, access to information about essential government services is limited, and working from home is impossible for most workers whose jobs enable them to work remotely. After the crisis subsides, the need for broadband will not. Yet, as ICIC research has shown, residents of high-poverty neighborhoods and neighborhoods, whether located in cities, suburbs, or rural areas, are less likely to have broadband access than residents of low-poverty or predominantly white neighborhoods.[x] To eliminate this gap in access, Biden favors federal support for universal broadband.
Increase Manufacturing Extension Partnership funding. Despite the large manufacturing job losses of the first decade of this century, manufacturing remains an important source of high-wage jobs for workers without bachelor’s degrees,[xi] including residents of under-resourced communities. The Manufacturing Extension Partnership (MEP) Program, part of the Commerce Department’s National Institute of Standards and Technology, helps small and medium-sized manufacturers become more productive and competitive. Research has shown that the program increases productivity and employment in firms receiving services from the program.[xii]
Biden would quadruple MEP funding. Some of the additional funding would go toward helping small and medium-sized manufacturers compete for Buy American contracts and modernize.
Expand workforce development programs, including those that involve businesses, and improve job quality. Biden’s approach to workforce issues is designed to meet employers’ needs for skilled workers who do not have bachelor’s degrees, help those workers gain more skills, and improve the quality of jobs available to them. To achieve those goals, Biden would rely on a combination of increased funding, new public-private-nonprofit partnerships, and regulation.
To help workers gain more skills, Biden favors guaranteeing up to two years of tuition-free community college or other high-quality training program and allowing students to use Pell Grants and other aid to cover expenses other than tuition and fees. He also supports giving states incentives for community colleges to collaborate with community organizations to provide wraparound services to students. (The latter are especially important for low-income students.)
To identify and meet employers’ skill needs more directly, Biden would fund workforce partnerships between businesses, unions, community colleges, state and local governments, and universities. This partnership model builds on the sectoral workforce partnership policies that, as of 2017, existed in 32 states.[xiii] Biden also proposes to increase federal funding for high-quality apprenticeships, including those jointly run by unions and employers (another form of workforce partnership). In addition, he would fund pre-apprenticeship programs to provide the additional preparation and support that some workers, especially some workers of color and some from low-income communities, need to enter and succeed in apprenticeship programs.
Finally, Biden advocates policies to raise wages for low-wage workers and close the racial wage gap. He favors a federal minimum wage of $15 per hour, up to 12 weeks of paid family and medical leave and up to seven days of paid sick leave for all workers, enhanced protections against employment discrimination, and legislation to make it easier for workers to join unions. Research suggests that policy changes such as these are likely to benefit low-wage workers and workers of color disproportionately.[xiv]
Combat housing discrimination. Exclusionary zooming and land use policies, racial discrimination in lending and real estate brokerage, and the continuing effects of historic redlining policies are among the types of systemic racism that are responsible for maintaining concentrated poverty and racial segregation in under-resourced communities.[xv] Biden proposes a multi-faceted regulatory approach to combat these practices. He would require states receiving Community Development Block Grants or Surface Transportation Block Grants to develop inclusionary zoning strategies, prohibit lending practices that have racially disparate impacts, require local governments receiving federal housing funds to identify and address policies with racially disparate impacts (restoring an Obama Administration rule), restore the Consumer Financial Protection Bureau’s authority to enforce settlements against discriminatory lenders, create a national standard for housing appraisals and train appraisers to eliminate implicit biases and create a credit reporting and scoring division within the Consumer Financial Protection Bureau as an alternative to private credit bureaus whose credit-scoring algorithms have racially disparate impacts.
President-elect Biden’s community development agenda is wide-ranging and ambitious. Much of it is supported by research evidence. However, the composition of the Senate, which won’t be known until January, makes Biden’s ability to implement many of his proposals uncertain. Proposals that rely on new funding or on new legislation to create regulatory authority require the approval of Congress. Because there appears to be bipartisan interest in a new round of coronavirus small business assistance, disclosure of information about Opportunity Zone investments, and perhaps infrastructure investment, Biden’s plans for new spending or regulation in these areas have a chance of being enacted. The fate of his other major spending initiatives as well as of such initiatives as raising the minimum wage and expanding the CRA to cover non-bank lenders, will likely depend on which party controls the Senate.
Yet there is still much that Biden can do through executive action to redirect existing funding, create partnerships, and regulate. At least some of Biden’s proposed policy changes to Opportunity Zones, small business technical assistance, federal procurement, geographic targeting of federal spending, CDFIs, the CRA, the MBDA, SBA, and housing policy do not require congressional approval. These are the parts of the Biden community development agenda that are most likely to be implemented.https://www.urban.org/urban-wire/covid-19-racial-health-disparities-highlight-why-we-need-address-structural-racism.
[ii] The number of active Black business owners fell by 41 percent, the number of active Latinx business owners by 32 percent, and the number of active Asian business owners by 26 percent between February and April 2020, while the total number of active business owners fell by 22 percent. Robert Fairlie, “The Impact of COVID‐19 on Small Business Owners: Evidence from the First Three Months After Widespread Social‐Distancing Restrictions,” Journal of Economics and Management Strategy, vol. 29 (2020), pp. 727-740, https://onlinelibrary.wiley.com/doi/epdf/10.1111/jems.12400.
[iii] For evidence that the PPP generally improved small business survival and employment, see R. Glenn Hubbard and Michael R. Strain, “Has the Paycheck Protection Program Succeeded?” NBER Working Paper 28032 (Cambridge, MA: National Bureau of Economic Research, 2020), https://www.nber.org/system/files/working_papers/w28032/w28032.pdf; Alexander W. Bartik et al., “The Targeting and Impact of Paycheck Protection Program Loans to Small Businesses,” NBER Working Paper 27623 (Cambridge, MA: National Bureau of Economic Research, 2020), https://www.nber.org/system/files/working_papers/w27623/w27623.pdf. However, the smallest businesses lacked information about the application process and, as a result, were less likely to apply and to have their applications approved. See John Eric Humphries, Christopher A. Neilson, and Gabriel Ulyssea, “Information Frictions and Access to the Paycheck Protection Program,” Journal of Public Economics, vol. 190 (2020), 104244, https://reader.elsevier.com/reader/sd/pii/S0047272720301080?token=90006B71FD8EDE40025FDD5EEABEF6072C5DB7123872DD9E6D17AED6588E906D972C6AFA07447CA915EB5624D60E7E36. Businesses with stronger pre-existing connections to banks were also more likely to have their applications approved. See Bartik et al, “Targeting.”
[iv] See Howard Wial, “What It Will Take for Opportunity Zones to Create Real Opportunity in America’s Economically Distressed Areas” (Boston: Initiative for a Competitive Inner City, 2019), https://icic.org/wp-content/uploads/2019/04/ICIC_OZ_PolicyBrief.pdf. .
[v] See Brett Theodos et al, An Early Assessment of Opportunity Zones for Equitable Development Projects (Washington: Urban Institute, 2020), https://www.urban.org/sites/default/files/publication/102348/early-assessment-of-ozs-for-equitable-development-projects_1.pdf.
[vi] See Lei Ding, Hyojung Lee, and Raphael Bostic, “Effects of the Community Reinvestment Act on Small Business Lending,” Federal Reserve Bank of Philadelphia Working Paper 18-27 (Philadelphia: Federal Reserve Bank of Philadelphia, 2018, revised 2020), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3295495. A similar result has been found for small businesses located in neighborhoods of color. See Timothy Bates and Alicia Robb, “Has the Community Reinvestment Act Increased Loan Availability Among Small Businesses Operating in Minority Neighborhoods?” Urban Studies, vol. 52 (2014), pp. 1702-1721.
[vii] ICIC analysis of 2018 American Community Survey data (population) and 2017 Annul Business Survey data (business ownership).
[viii] See Martin D. Abravenel et al., New Markets Tax Credit (NMTC) Program Evaluation Final Report (Washington: Urban Institute 2013), https://www.urban.org/sites/default/files/publication/24211/412958-New-Markets-Tax-Credit-NMTC-Program-Evaluation.PDF.
[ix] See Matthew Freedman, “Teaching New Markets Old Tricks: The Effects of Subsidized Investment on Low-Income Neighborhoods,” Journal of Public Economics, vol. 96 (2012), pp. 1000-1014.
[x] See Peter Eberhardt et al., Not the Great Equalizer: Which Neighborhoods Are Most Economically Vulnerable to the Coronavirus Crisis? (Boston: Initiative for a Competitive Inner City, 2020), https://icic.org/wp-content/uploads/2020/04/ICIC_Coronavirus_EconVul_Brief_web.pdf.
[xii] See Mark A Ehlen, “The Economic Impact of Manufacturing Extension Centers,” Economic Development Quarterly, vol. 15 (2001), pp. 36-44; Ronald S. Jarmin, “Evaluating the Impact of Manufacturing Extension on Productivity Growth,” Journal of Policy Analysis and Management, vol. 18 (1999), pp. 99-119; Eric S. Oldsman and Christopher R. Heye, “The Impact of the New York Manufacturing Extension Program: A Quasi-Experiment,” in Philip Shapira and Jan Youtie (eds.), Manufacturing Modernization: Learning from Evaluation Practices and Results (Atlanta: School of Public Policy and Economic Development Institute, Georgia Institute of Technology, 1997).
[xiii] Bryan Wilson, Sector Partnership Policy: 50-State Scan (Washington: National Skills Coalition, 2017), p. 4, https://www.nationalskillscoalition.org/resources/publications/file/Sector-Partnership-Scan-1.pdf. Current law allows but does not require states to use their federal workforce development funds for such partnerships. However, because there are other workforce development activities on which states are required to spend those funds, federal funding is not currently sufficient to support a national system of workforce partnerships.
[xiv] On the role of the minimum wage in reducing the racial wage gap, see Eliana Derenoncourt and Claire Montialoux, “Minimum Wages and Racial Inequality,” Quarterly Journal of Economics, forthcoming, https://gspp.berkeley.edu/assets/uploads/research/pdf/Minimum_Wages_and_Racial_Inequality.pdf. On the role of unionization in reducing the racial wage gap, see Jake Rosenfeld and Meredith Kleykamp, “Organized Labor and Racial Wage Inequality in the United States,” American Journal of Sociology, col. 117 (2012), pp. 1460-1502, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4300995. Research shows that Latino workers, immigrant workers, employees of small businesses, and low-wage workers are especially likely to lack paid sick days, suggesting that paid sick leave would disproportionately benefit them. See Institute for Women’s Policy Research, Paid Sick Days Access and Usage Rates Vary by Race/Ethnicity, Occupation, and Earnings, IWPR Briefing Paper #B356 (Washington: Institute for Women’s Policy Research, 2016), https://iwpr.org/wp-content/uploads/2020/08/B356-paid-sick-days.pdf.
[xv] See Peter Eberhardt, Howard Wial, and Devon Yee, The New Face of Under-Resourced Communities (Boston: Initiative for a Competitive Inner City, 2020), especially p. 9 and accompanying references.