People of color, particularly from Black- and brown-majority communities, have accounted for significantly higher COVID-19 related deaths; the survival rates of their businesses are positioned to follow a similar trajectory. Before the World Health Organization deemed the coronavirus a pandemic, Black businesses were already reeling. Black entrepreneurs are denied bank loans more than twice as often than their white peers — 53 percent to 25 percent. And people of color pay higher interest rates on average than their white peers — 7.8 percent to 6.4 percent. In addition, Black firms’ vulnerability is made evident by who was able to weather the 2008 Recession. About half of Black businesses survived, compared to 60 percent of white-owned firms, according to US Census research.
The federal government is apparently ignoring the realities of business owners of color. In order to facilitate response efforts for COVID-19, the US Department of Labor suspended “all affirmative action obligations of supply and service and construction contracts.” Meanwhile, the staggered, insufficient federal rollouts of multiple legislative relief spending packages, including the Payroll Protection Program, left out too many firms owned by people of color to say that it focused on racial equity.
If there’s to be any truth to the idea that we are all in this together, then city and state governments must step up now to accelerate efforts that address racial equity. In particular, city leaders, who see inequities up close, have resources that can be deployed to address acute emergent needs while addressing longstanding disparities.
Funds for new businesses
Cities should create impact investment funds to support new businesses. Present-day homes in Black neighborhoods are priced 23 percent lower than equivalent homes in comparable white neighborhoods, amounting to as much as $156 billion in lost equity across the country, according to Brookings research. Entrepreneurs from these communities have fewer financial resources to start or sustain a business. In “The Public Wealth of Cities,” Dag Detter and Stefan Fölster propose the adoption of Urban Wealth Funds, which operate as publicly owned private equity funds based on existing investments by the city. Enhancing this idea to include an explicit commitment to businesses owned by people of color is a step toward closing the gap in access to capital and will see a return on investment for the city as well.
Tax incentives and onramps to quality jobs
The magnitude of the COVID-19 crisis will permanently shutter a significant number of businesses, triggering demand for training programs that will serve as onramps back into the workforce. Entrepreneurs who have been out of the traditional job market (think: the owner of your favorite taco truck for the last 10 years) will need jobs to get their feet back under them. With a recession looming, cities and states must leverage or create incentives such as an inclusive human development or worker-training tax credit, modeled on the R&D tax credit, to compel companies to train and place workers of color. For example, Michigan’s New Jobs Training Program provides pathways for community college districts to enter into agreements with employers to fund education and training for workers.
Contracting with Black- and brown-owned businesses
City governments can also bolster resilience for Black- or brown-owned businesses by adopting procurement processes that facilitate inclusion. For example, in New Orleans, where Black residents make up a majority of the population but have been historically passed over in local government-contracting jobs, leaders are making commitments to underserved populations. The regional transit authority chose to invest simultaneously in its infrastructure and business owners of color by pledging that a minimum of 31 percent of its federally provisioned grants would go to contracts with certified minority-owned businesses throughout the area.
Building a pipeline of diverse fund managers
Municipal governments control large sums of capital in the form of pensions for public employee groups like the police and fire departments, developed and undeveloped real estate, public utilities, air rights, and other captive city-related funds and public assets. But globally, women and people of color manage less than 2 percent of capital. Diversity in asset management leads to diversity in investment, such as investments in the AssistHer Emergency Relief Grant from Texas Woman’s University and the Urban Wealth Funds. Cities should demand that oversight of funds and assets maintain at least 30 percent representation from women and people of color.
The coronavirus pandemic is elevating everyone’s understanding of how profoundly interconnected we are as a society. When our neighbors are sick, we are at risk. And yet the inequities of those most impacted show that we are not, in fact, in this together. The federal government’s abdication does not preclude municipal leaders from flattening the curve without sacrificing Black and brown lives. Taxpayers deserve a better federal response. And, cities must leverage the policies under their respective control to provide much overdue lifelines to the most entrepreneurial segment of the US population, Black and brown Americans.
Andre Perry is a fellow at the Brookings Institution and author of “Know Your Price.” Nathalie Molina Niño is an investor, entrepreneur, and author of “Leapfrog: The New Revolution for Women Entrepreneurs.”