Amid signs that federal pandemic assistance funds have not reached businesses that need them the most, Sen. Brian Schatz (D-Hawaii) this week introduced legislation creating a new $2 billion emergency fund for Community Development Financial Institutions.
The legislation, S. 4430, would automatically provide capital for CDFIs during a natural disaster or economic crisis. The legislation is cosponsored by nine Democrats and Independent Bernie Sanders of Vermont.
“By creating a crisis fund for CDFIs with automatic triggers, we can quickly provide aid to the people and small businesses that need it most,” Schatz said.
Any CDFI applying for funds from the program would have to commit to spending 90% of the funds in areas affected by the emergency, according to the legislation. The bill also sets aside 30% of the crisis funding for minority CDFIs.
The Credit Union National Association and the National Association of Federally-Insured Credit Unions have endorsed the legislation.
“Sen. Schatz’s legislation to create a CDFI Crisis Fund will ensure that CDFI credit unions can get much needed resources to our most vulnerable communities, reducing the pain experienced as the result of any number of disasters,” CUNA President/CEO Jim Nussle said.
CUNA officials noted that as of July 13, there were 331 CDFI credit unions across the country.
Schatz’s legislation comes as the New York Federal Reserve Bank issued a report questioning whether the coronavirus crisis Paycheck Protection Program loans have reached communities that need them the most. The bank reported that between February and April, Black-owned businesses declined 41%.
While 15-20% of the Black-owned businesses received PPP loans—not much different from the national business estimate—there were significant variations among counties. For instance, only 7% of the firms in the Bronx, N.Y., received PPP loans and 11.6% of the businesses in Wayne County, Mi. received them. Both have large numbers of minority-owned businesses.
“This [report] shows the disturbing relationship between high geographic incidence of COVID-19 and the economic health of Black-owned businesses,” said Claire Kramer Mills, assistant vice president at the New York Fed. “These firms had weaker financial cushions, weaker bank relationships, and preexisting funding gaps prior to the pandemic. COVID-19 has exacerbated these issues and businesses in the hardest hit communities have witnessed huge disparities in access to federal relief funds and a higher rate of business closures.”