Why communities must come first

The government has been taking extraordinary measures to support the financial system and the economy during the coronavirus pandemic, but the low income communities that are hardest hit during a crisis are often the last to get help. With the news that the first round of $350 billion to support small businesses has run out, this concern is especially urgent.

In Michigan, where I live, the city of Detroit has been especially affected, accounting for half of the coronavirus deaths in the state thus far. While 40 percent of such deaths have been African Americans, they constitute only 14 percent of the state population. To that end, Governor Gretchen Whitmer has launched a task force on racial disparities to come up with recommendations for action. The programs put in place to date have the prospects of helping many individuals, but low income households and small businesses serving distressed communities most likely will be the last to get aid. That is because all the support structures that others take for granted often are missing for these individuals and small businesses.

More than 8 million households in the United States lack any savings or checking account, according to government data. As a result, they have no easy way to get faster access to the cash assistance promised by the government, which is up to $1,200 for each adult and $500 for each child depending on income. Many people are already having to wait too long to get relief, but the unbanked are going to have to wait even longer, up to a few months perhaps, to get a paper check. Then they are going to have to make it to a check casher and pay a high fee simply to access such funds.

Or imagine you are a small business with less than $1 million in sales. You are frustrated and shut out of the Main Street lending program created by the Federal Reserve. Just as well, the many thousands of small businesses in our country, which already have such limited access to bank loans as it is, are now being told by those banks they approach that they cannot get access to the new Paycheck Protection Program. How can we solve this?

Let us start by putting communities first. We can get aid to communities faster by working through community development financial institutions. Over a thousand of them across the country have a history of serving low income households, small businesses, and nonprofit organizations. The Treasury Department also has a historical track record of getting funds to community development financial institutions. Hope Credit Union in the Mississippi Delta is stepping up, providing relief to households and loans to small businesses, but it and other community development financial institutions are too strapped to reach everyone in need amid this crisis.

Congress should quickly provide $1 billion in new funding for community development financial institutions to assist with providing new loans and grants to neighborhoods across the country. The Federal Reserve and the Treasury Department should then create a liquidity program focused on community development financial institutions, just as they have done for the biggest players in the system. With such liquidity, these community development financial institutions could then lend to small businesses.

Finally, we need to fix the payment system so that low income households can get ready electronic access to their funds when they need them. They should not have to pay such expensive check cash fees or wait days for a check to clear at their bank. We have the technology to do this today, but we need the political will and regulatory structure to make that happen.

These steps will not end the crisis or reboot the economy once we have a coherent strategy to ensure public health, but they will help decrease the enormous financial damage borne by our most vulnerable communities.

Michael Barr is the dean of the University of Michigan Gerald Ford School of Public Policy. He is a former senior official at the Treasury Department.