Local economy preservation fund proposal goes to Biden administration
A plan for local economy preservation funds that would “save local businesses at scale” that would otherwise be casualties of the economic damage done by the CIVID-19 epidemic was delivered on November 19, 2020 to the Biden-Harris transition team by The Democracy Collaborative and the Council of Development Finance Agencies.
The plan is contained in a two-page concept paper that responds to a request from the transition team for President-elect Joe Biden to Toby Rittner, the CEO of CDFA, for ideas that the incoming administration could use to repair the devastation communities have experienced because of the pandemic.
The paper notes that since the pandemic began raging in March in the U.S., 3.3 million businesses have had to close their doors at least temporarily, and there are reports that more than 100,000 have since closed permanently. More closings could follow, “taking with them tens of millions of jobs” and costing cities their engines of prosperity. What’s left could be snapped up by vulture investors and corporate acquirers, sparking a wave of consolidation that would lead to “asset stripping, job losses, and a massive increase in wealth and income inequality.”
Local economy preservation funds “would enable equity investments in local companies that were viable pre-COVID and will be viable afterward, place them in a holding company, and provide an exit to community ownership in the recovery – with emphasis on ownership by people of color, employee ownership, or local ownership that stays local.”
According to the concept paper, states and cities could receive money to establish the funds in three ways: from the federal government through direct appropriations, through the Federal Reserve’s municipal liquidity facility, and through private capital facilitated by Small Business Administration loan guarantees..
“Small businesses would apply to receive equity investments from the LEPF to remain in operation and be held in the LEPF until they are viable and ready to exit,” according to the paper. “To ensure firms remain locally owned and in the public interest, LEPFs would only exit small businesses to local owners, prohibiting flipping to absentee investors or corporate acquisitions.”
In addition to local ownership, the funds could be used to boost businesses owned by employees, women, people of color, veterans, or by publicly run or community-based enterprises.
In an October poll by The Democracy Collaborative and YouGov, 70 percent of respondents said the government should help keep small businesses from shuttering instead of being acquired by big business. Asked about Local Economy Preservation Funds, over half supported such funds administered at the local and state level; a narrower majority supported this at the federal level.
Following the November paper, CDFA continued to work with TDC to advance the idea of LEPFs within the Biden-Haris administration in a February 2021 report on development finance policy priorities.