Effects of the Pandemic: Early Perspectives from Organizations Serving LMI Communities
The Federal Reserve has been tracking the impact of COVID-19 on marginalized communities to help inform recent responses to the crisis. Information gleaned from stakeholders through outreach calls focused on the impacts in economically marginalized communities, which, even when the macroeconomy is doing well, experience higher levels of unemployment, housing and food insecurity, and poor public health outcomes, among other conditions. This blog summarizes some of the emerging impacts of COVID-19 in LMI areas. In any economic downturn, low-income people and places feel the effects more deeply, and take the longest to experience recovery. Many of our contacts have noted the disproportionate impact of the pandemic on these populations, from both health and economic standpoints.
Observations from our CDFI contacts
Nonprofit organizations are an essential part of the delivery system of key services in LMI communities. Community development financial institutions (CDFIs)1 are often the financial conduit to bring needed services to LMI communities, providing technical assistance to borrowers, and helping to extend credit in LMI areas for everything from consumer loans and mortgages to commercial and residential developments of all sizes. Even in periods of macroeconomic growth, CDFIs’ perspectives are especially important to the Fed’s efforts to promote the flow of capital and credit to low-income communities. In the current context, CDFI leaders are focused on issues emerging in the sectors they serve including: small business, social services, housing, and healthcare, among others.
Funding and financing non-profits
While banks do quite a bit of community development lending and investment, banks often lend and invest in low-wealth communities through financial intermediaries that are better equipped to service more risky, idiosyncratic and less profitable loans. CDFIs play an important role in helping to channel financial resources into and through a complex network of nonprofits whose missions and revenue sources are highly varied and susceptible to impacts of the pandemic. These nonprofits include food pantries, shelters for victims of domestic violence, and services to the homeless, veterans, and people with disabilities as well as important cultural institutions like museums, theaters, and art galleries.
The impacts of the pandemic and the challenges faced by many nonprofits are as varied as the organizations themselves. Some nonprofits have seen a dramatic increase in demand for their services (food pantries, shelters, and relief agencies) while social distancing guidelines have led to a sharp reduction in both volunteer and paid labor and the capacity to respond to their clients most in need. Some organizations are even concerned that pay-for-performance metrics tied to both philanthropic and government funding programs will not be met due to reduced or curtailed services. Cultural organizations that tend to rely on foot traffic, ticket sales, and attendance for revenue have been closed due to stay-at-home orders. It remains unclear when and to what extent social distancing orders and guidelines will be loosened and then how long it will take for patrons to feel comfortable to return.
CDFIs provide a unique view into the sources and uses of funding being deployed in response to the pandemic, as well as concerns about the ability of these organizations to survive and continue to provide vital services that will support an equitable recovery. For example, CDFIs with investments in cultural organizations, often collateralized by performance or gallery space, also find themselves challenged to preserve these important community assets, even as the organizations struggle to retain staff.
CDFI leaders raised concerns about a wide range of organizations across many industries, including:
Child care: Child care facilities are largely empty at the moment due to stay-at-home orders. Given that quality childcare is an acute need in LMI areas, CDFIs, and their funders, are working to ensure that these facilities – and the jobs they provide – will still be available post-crisis.
Small businesses: Contacts at CDFIs, chambers of commerce, and economic development groups express deep concern about the conditions of small businesses, especially those that offer discretionary goods or services and/or are located in LMI communities. Estimates regarding the scale of businesses that will not reopen vary widely. A contact in Milwaukee estimated that 20-25 percent of independent restaurants in the city would not re-open. Many contacts noted that while small business clients need financial assistance now, they will also need competent, crisis-focused technical assistance to survive through to a recovery.
Housing: The sudden loss of employment and income is forcing difficult choices between buying essentials and making rent mortgage payments. Even relatively early in the crisis timeline (late March to mid-April), CDFIs that finance rental housing reported that requests for deferrals or other forms of relief from their borrowers was increasing.
CDFIs that finance single-family mortgages generally offer housing counseling to borrowers, both pre-purchase, and to prevent default report being overwhelmed with borrowers seeking help. CDFI leaders also stress that retaining staff skilled in housing counseling is critical to maintaining the health of their portfolios, now and during an eventual recovery.
Public health: Contacts in or affiliated with health care systems expressed concerns about the financial condition of the health care industry, as a result of the increased costs related to COVID-19 combined with the decline in revenues as elective procedures were abruptly put (and remain) on hold. Contacts reported that the situation was particularly dire for rural health systems, and ‘social safety net’ providers, such as federally qualified health centers that serve low-income and uninsured populations.
Compounding the financial challenges, many smaller clinics and hospitals are also coping with shortages of personal protective equipment (PPE) and other essential equipment, and face potentially extreme capacity issues if a surge of the pandemic reaches their region. Hospitals in rural communities can become quickly overwhelmed with even a relatively small number of cases. Contacts reminded us a variety of institutions provide critical health care ranging from hospitals and clinics to nursing homes, long-term care facilities, and even homeless shelters. Contacts warned that these places – their workforce, as well as residents/patients – were particularly vulnerable due to a lack of PPE and other supplies. As PPE manufacturing capacity was becoming constrained and supply chains are disrupted, many were concerned about how PPE would be distributed amongst all institutions. Contacts also reminded us that many health care jobs are relatively low-wage, often held by women and/or minorities. A lack of adequate PPE create personal health risks on-the-job, and of spreading the virus in their communities.
Our public health contacts have been surprised and to some degree encouraged by the fast uptake of telemedicine, given that the CARES Act contains provisions for reimbursement. But the shortage of broadband capacity poses a real obstacle to uptake in both rural and poor urban places.
Access to broadband and technology: Issues with broadband capacity were mentioned in many contexts aside from telemedicine, including remote learning as more and more classrooms are moved on-line. Contacts at a major affordable housing lender and a large foundation working to organize emergency funding streams (separately) noted that many households with school-age children simply do not have computers or other technology, and their learning will have been set back significantly by the time they can return to school. Telecommuting for workers fortunate enough to work from home most often requires reliable Internet access, as does remote access to unemployment benefits and SBA relief programs.
Responding to the crisis: CDFIs with large regional or national networks are working to assemble grant and relief funds both for nonprofit clients and smaller CDFIs, recognizing that small CDFIs are particularly vulnerable to downturns in their portfolio at the same time they are vital to the network of community finance. Philanthropic partners are responding by extending loan terms, providing operating support, and having the capacity to look beyond the crisis to the sustainability of the CDFI industry as a whole.
Our CDFI contacts, along with others from the nonprofit sector, have stressed that many nonprofits lack a relationship with a financial institution beyond a business checking account, which has hampered their access to early rounds of government relief. While nonprofit organizations are eligible for the Paycheck Protection Program (PPP), uneven cash flows and government reimbursements, among other attributes, make underwriting unfamiliar to commercial lenders.
As a result, in part, of the information gathering taking place through the Chicago Fed and the other 11 Reserve Banks, the Fed’s Board of Governors announced efforts to expand the PPP to include nonbank lenders, and CDFIs in particular.
CDPS will continue to provide periodic updates based on our outreach efforts.