Tackling the Racial Wealth Gap
Maryland is not immune from the persistent racial wealth gap that exists in this country and that holds back our communities from being as prosperous and thriving as they could be. This racial gap has a persistent negative effect not just on some communities, but on our economy as a whole – and we must confront it head-on. As Comptroller, Brooke will use her seat to convene stakeholders, thought partners, and government officials to implement strategies that challenge the gap and begin to undo decades of systemic racism in our housing and business sectors so that every community in Maryland has the chance to reach its full potential and our economy can grow and thrive.
Small businesses employ 47% of the U.S. workforce, create two-thirds of net, new jobs, and can provide important pathways to economic mobility and stability for all Marylanders, including for communities of color, via business ownership and employment. Today, however, Marylanders are struggling to access capital, and especially entrepreneurs of color are struggling to access capital, grow, and create jobs compared to their White counterparts. In 2018, just 5% of loans in the U.S. Small Business Administration’s main loan guarantee program went to Black-owned businesses and just 9% went to Hispanic-owned businesses. Black and Brown businesses are also less likely to access financial support from friends and family and are woefully under-represented in venture capital and equity markets. These businesses are far more likely to fail in the face of financial strains, as has been demonstrated by the pandemic. Close to half, or almost 24,000 small businesses in Maryland are Black-owned businesses. The Federal Reserve Bank of New York reported that from February to April the number of Black businesses declined by 41%, indicating significant risks to sustained Black-owned business success in Maryland.
Maryland Entrepreneurs of Color Venture Fund & Investor Tax Credits
Startup companies rely on early seed stage funding to bring a product or service to the market. At this stage, companies are typically not generating income and can therefore not repay loans. They rely on venture capital investors who take an ownership stake in the company and friends and families who can extend capital on flexible terms. Due to a range of obstacles, from discrimination to the racial wealth gap, Black and Brown business owners do not have access to this type of capital at the same rate as their White counterparts. After completing a disparity study to demonstrate need, Brooke will advocate for creating ahe MD Entrepreneurs of Color Venture Fund to be capitalized with a small percent of the state retirement system’s private equity portfolio and invest in seed stage and early stage companies in Maryland owned by entrepreneurs of color. In coordination with the new fund, the State of Maryland could expand the successful Cyber and Life Science investor tax credits to include venture capital and equity investments in any Maryland company owned by a person of color, with enhanced tax credits for investors investing in businesses located in distressed communities. Read more about Brooke’s plans for supporting small business.
Maryland First-Loss Guarantee Small Business Loan Program
The vast majority of small businesses, especially Main Street and industrial and manufacturing firms, are not in a position to access equity capital and instead seek bank loans and business credit cards after exhausting funds from friends, family, and personal savings. Mainstream banks and financial institutions base loan and credit card determinations on credit score and collateral availability, as a way for them to mitigate against risk. With lower credit scores on average and limited collateral availability, Black and Brown businesses struggle to access these products. Alternative lenders, such as online lenders, community development financial institutions, and microlenders are more likely to extend capital to these businesses, but often at very small loan amounts that make it difficult for businesses to grow. The State of Maryland has the tools in the form of programs like the Maryland Industrial Development Finance Authority, the Maryland Small Business Development Finance Authority, the Neighborhood BusinessWorks Program, and the Video Lottery Terminal Fund to work alongside alternative lenders by guaranteeing first losses and enabling these lenders to make larger loans. Maryland could use these programs to launch a first-loss guarantee loan program for alternative lenders. Rather than using these various programs to make direct loans as they are currently used, the State would guarantee the first 20 percent of losses for all loans made to businesses owned by economically or socially disadvantaged and especially those living in low-income census tracts. All loans that a given lender makes to qualified businesses would form a loan portfolio for purposes of this program, and the State would reimburse lenders for all of this portfolio’s losses up to 20% of the portfolio’s total value. Traditional banks, community development financial institutions, online lenders, microlenders, and other certified lenders would be allowed to participate. This program would be jointly managed by the Departments of Commerce and Housing and Community Development whose existing programs would be used as the guarantee pool. The Comptroller’s office would audit and monitor the program to ensure it is being implemented effectively and meeting loan targets. Read more about Brooke’s plans for supporting small business.
Monitoring Banks’ Small Business Lending
Over the last decade, banks operating in the State of Maryland have significantly increased their deposits while cutting back on small business loans. A recent report, for example, demonstrated that in Baltimore bank deposits nearly doubled from 2007 to 2016, reaching $26.5 billion, while the ratio of small business lending to deposits plummeted. If banks that take deposits in Baltimore had maintained the same ratio of small business loans to deposits in 2016 as in 2007, an additional $400 million of small business loans would have been made in 2016 in Baltimore, alone. Local and regional banks such as Howard Bank and Columbia Bank have a small business loan to deposit ratio of more than 6%, while larger banks like Bank of America, M&T, and Wells Fargo have a loan to deposit ratio of less than 1%. In an effort to encourage banks to increase their loan to deposit ratios, the Comptroller’s Office will track and publish these data at the individual bank level on an annual basis, and will work with banks through the Comptroller’s local offices to connect them with prospective small business borrowers. Read more about Brooke’s plans for supporting small business.
Setting Ambitious Procurement Targets & Creating Procurement Centers
Procurement can be a valuable mechanism for leveling the playing field for Black and Brown-owned businesses. As Comptroller, Brooke will use her seat on the Board of Public Works not only to ensure that we are meeting all MBE targets, but also to ensure our procurement regulations are resulting in best value for the state – not just the lowest price. Examining contracts and understanding not only what is being built but who is doing the building will be something Brooke takes seriously. State agencies will review current procurement goals for minority-owned businesses and look to increase these goals. To make contracting with the State of Maryland more accessible to Black and Brown-owned businesses, the Comptroller will establish Procurement Centers in local offices to assist businesses with necessary certifications and bidding on State contracts. The Procurement Centers will actively recruit small businesses in their regions, connect them directly with state government procurers and create a robust mentor-protégé program with procurers and larger state contractors. Read more about Brooke’s plans for procurement reform.
- Brooke sponsored legislation requiring planning commissions to include goals, plans, and objectives required to address the need for affordable housing within a county.
- Brooke sponsored legislation to deconcentrate poverty by prohibiting a person from refusing to sell or rent a dwelling to a resident because of their source of income.
- Brooke sponsored legislation repealing restrictions on Marylanders with felonies from accessing cash assistance or food stamps.