Archive for February, 2013

Severe budget cuts to kick in tomorrow

Economists are predicting that economic growth is on the rise this quarter, with the housing market doing better, hiring up, and increased consumer spending. Last week’s initial unemployment claims decreased by 22,000 from the previous week. For the past three months, employers have added 200,000 jobs per month— up from the average of 150,000 for the previous three months.

While the economy isn’t growing at a stellar pace, these are at least some signs that it is inching forward. But even these small rays of hope will be eliminated if Congress does not make a deal on the sequester, or the $1.2 trillion in spending cuts over 10 years, slated to take effect starting midnight tonight. These will be across the board, impacting programs and services from the gamut of federal agencies. So while there are some signs of our economy slowly (very slowly) improving, the sequester could send us spiraling back into recession. In addition, there is a threat of the federal government shutting down at the end of March.

As we’ve blogged about before, sequestration would have significant impacts on small businesses, particularly those that contract with federal agencies. CBS reports that 20 percent of defense contracts and 35 percent of defense sub-contracts are given to small businesses. Even though the sequester hasn’t taken effect yet, the uncertainty that small businesses have faced for months have let to layoffs and cutbacks. In total, two million jobs could be lost due to these budget cuts– and one million of those will be from small businesses.

The White House has also released state-by-state analyses of the impacts of the sequester. Although the full extent of the cuts are expected to occur over 10 years, the impacts will be felt starting this year. There are several impacts listed in the fact sheet, but some of them are:

  • Loss of $5 million in primary and secondary education funding, which translates to 350 teacher and aid jobs at risk.
  • 1,150 fewer work-study jobs for low-income college students.
  • Loss of $83,000 in funding for job search assistance and placement, which translates to over 15,000 fewer people getting served.
  • Loss of child care assistance for 1,300 disadvantaged and vulnerable children.
  • Loss of over $1.5 million to provide meals to seniors.

These are just some of the impacts that will be felt in North Carolina, in addition the national impacts that will affect everyone. The clock is ticking.



February 28, 2013 at 11:10 am

Is small business lending in NC doing better than the nation?

The Federal Deposit Insurance Corporation released data on bank statistics yesterday, showing a continuing trend of sluggish small business lending nationally. reports that while commercial and industrial loans increased by 12 percent from 2011 to 2012, small business lending (here defined as loans under $1 million) only saw a meager 0.4 percent increase.

In North Carolina, the FDIC data show that small business lending has not kept pace with commercial and industrial lending overall; however, it has seen a much bigger increase than the national average.  Commercial and industrial loans issued by North Carolina banks increased 13 percent between 2011 and 2011, and loans under $1 million increased 5 percent. The data for very large banks (those with assets over $1 billion)  mirror this trend.

Despite the gap– small business lending is still lagging behind lending overall– this is significantly better than the national statistic. The question is, why? We continue to hear from our borrowers that accessing bank loans is still difficult, even for those who may have had bank loans in the recent past. More research would need to be done in order to figure out what is driving this data, however we have a couple of theories.

First, bank consolidation has meant that the operations of the large banks have become more concentrated. North Carolina has seen a significant number of bank mergers, and several of the major national banks are headquartered here. The FDIC only measures loans made to U.S. addresses– it does not distinguish whether or not the loans made by NC banks are to addresses within the state. It could be, therefore, that while banks are issued from bank locations in NC, the loans are actually to borrowers elsewhere.

Second, there is the question of who the banks are lending to. As we showed in our analysis of small business lending in NC, while large banks had a vast majority of lending resources, they were concentrating those resources on upper- and middle-income areas. We also had commented on a study by the National Bureau of Economic Research, which found that many more small businesses than originally though were accessing bank capital to finance their ventures. What the study also found, however, is that gender and race had an impact on a small business owner’s ability to secure outside capital.

As already mentioned, more research would be needed to answer these questions. If North Carolina is, in fact, doing better than the nation, it is important to ask why and find out who is benefiting. Digging deeper into the data may reveal that while small business lending is increasing, those who have historically faced barriers to accessing capital continue to do so.




February 27, 2013 at 11:59 am

Affordable child care important for workers and businesses alike ran a column yesterday by a local entrepreneur on the importance of child care to workers and small businesses. Rhonda Abrams, the president of a small business called The Planning Shop, which provides training and instruction for small businesses on developing business plans, strategies, and other topics related to entrepreneurship  writes about the crisis of child care  and the need for her workers– and the workers of other small businesses– to be able to access quality, affordable care for their children. Not only does this help out families, it also enables workers to stay at their jobs, reducing turnover and the loss of valuable employees.

This is a particular challenge for female workers. Abrams cites that nationally, 64 percent of mothers with children younger than 6 years old are in the labor force. In North Carolina,  median full-time earnings for women is $37,199, according to the American Community Survey.  Child care costs in North Carolina, however, average between $6,000 for family care to almost $9,200 at a child care center, depending on the age of the child. This is a range of 16 percent to almost 25 percent of the median earnings.

As child care costs continue to rise, parents struggle to be able to afford quality care– often having to use several different child care providers to cover a full-time work week. This is also a particularly acute problem for low-income families, for whom child care subsidies are the key to  being able to find a job and stay in a job. But as WRAL reported recently, cuts to child care funding has meant that many families will lose their subsidies.  In Wake County alone, a $1.9 million cut in funding meant that 750 termination  notices were sent to families who were receiving child care assistance for kids between 81/2 to 12 years old.

As Abrams says in her column

Small businesses all over the country lose terrific workers every day because of the lack of good child-care options, and some of the best and brightest women have dropped out of the workforce.

Ultimately, helping parents care for their children while they work is an economic development issue. It affects workers, productivity, employee turnover, and job security. It also impacts the children who are not provided a stable and quality environment during their parents’ working hours. Economic development is not just about creating jobs or growing businesses; it is also about creating the supports to workers and businesses to help make them both viable.

February 26, 2013 at 11:04 am

Parents Polled About Causes of Child Obesity

NPR, the Robert Wood Johnson Foundation, and the Harvard School of Public Health recently conducted a poll to focus on what type of health decisions are made in American households on the average weekday evening.  The poll was attempting to answer why one in every three American kids are overweight or obese.

The answer, they found, was not that parents did not know that children needed healthy foods and exercise.  In fact, 95% of parents said it was important or very important to eat and exercise in a way that helps their child maintain a healthy weight. Most of the reason chopped down to how parents handled the day-to-day grind of preparing foods.  Up to 73% of parents reported that the children just liked the taste of foods that lead to unhealthy weight gain, and thus they ate the food.  The other reasons amounted to the inability to find the money or time to purchase and prepare healthy foods.

And the community environment and development had a large part to play in this situation.  The poll shows that around 25% of people reported that there were unhealthy food options that are close by, while healthy options were either not available or priced out of the family’s budget.  Additionally, when it came to walking and exercising in the community, over 20% were concerned about the safety of their children in exercising outside.

This all confirms the premise of the CDFI Fund’s Healthy Food Financing Initiative, that we need to reinvest in our communities to promote the accessibility and innovation in new ways to prepare and distribute healthy food options.  The families in our communities know and want their children to grow up healthy; eating the right foods and getting enough exercise.  However, we have systematic issues that are arising that are making it harder than necessary for these working families to make these decisions.  Through promoting new innovation in this field, and encouraging small businesses to help families meet their needs, we can encourage a healthier community to grow.

February 25, 2013 at 12:28 pm

What $1.2 trillion in cuts means for small business

The Washington Post’s “On Small Business” blog has such a great analysis of what sequestration will mean to small business that we’re just going to re-post their findings here.  In order to avoid devastating budget cuts at the start of the year, Congress decided to kick the can down the road and delay taking any action until March 1. Now that date is just around the corner and unless Congress acts this time, $1.2 trillion in federal budget cuts over the  next decade– again, known as “sequestration” or the “sequester”– will go into effect. This will have massive impacts across the board, and will probably even send us spiraling back into recession. No doubt this will affect businesses both large and small, but there will be particular impacts on small businesses  Looking at data from the Internal Revenue Service , the U.S. Census Bureau, the Small Business Administration, and various other sources, the Washington Post found that $1.2 trillion in cuts would equal:

• The capital needed to start 40 million new businesses (average cost of $30,000).

• More than enough to cover the payrolls for every small business in the country for six months (total $2.1 trillion annually).

• Enough money for every small employer in the country to add five new $40,000-a-year employees for a full year (6 millionsmall employers).

• More than the combined taxes to be paid this year by every filer under the IRS’s Small Business and Self-Employed division (about 40 percent of $2.9 trillion, or $1.16 trillion).

• Triple the total amount of venture capital investments made so far this century ($423 billion since 2000).

• The capital you would need to make 150,000 start-up investments, based on the average venture capital deal during that period ($8.1 million).

• More than the total amount of lending to small businesses in the first half of 2012 ($1.17 trillion) and four decades worth of SBA-backed loans (about $30 billionannually).

• The cost of covering the health insurance premium for every small business employee in the country for five months (average cost of $4,260 for individual coverage).

• More than three times the total amount of goods and services exported by small and mid-sized businesses each year ($380 billion).

• Enough money to power the SBA on its current budget for more than a thousand years (2013 budget request is $948 million).

Of course, in reality, the entire $1.2 trillion– if saved– would not be devoted entirely to small businesses. Nevertheless, this is truly staggering and shows just how much money $1.2 trillion really is.  Even saving a fraction of this funding would be significant for small  businesses.

For more details on the broader impacts of the sequester, see here for four charts that illustrate the impacts. Sadly, many in Congress are acting like the sequester is unavoidable. Rather than trying to stop it from happening– or even working toward a compromise– they’re working to protect their own districts.  Seems like they’re missing the forest for the trees. Still, Congress has about a week to act. Let’s hope that our elected officials can save us from getting into another economic hole before then.

February 22, 2013 at 9:44 am

Payday lending might be back in NC

Payday lenders have been illegal in North Carolina since 2001, but recently there has been a proposed bill to reverse this and make it legal for payday lenders to operate in our state again.  As Progressive Pulse describes it, payday lending

… is the pernicious practice of making short-term loans (typically of a week or two in length) to desperate people at effective annual interest rates of several hundred percent.

This is a very dangerous possibility for North Carolina. Payday lending is marketed to people who are looking for a quick fix for an immediate financial problem, but what actually happens is that people end up in a cycle of loans that they are ultimately unable to pay. The Center for Responsible Lending explains that these lenders are specifically located in low-income neighborhoods, targeting those who are most vulnerable and least able to climb out of these predatory cycles. The graphic below clearly articulates the cycle and problems with payday lending.

Re-introducing payday lending would not help individuals and communities who are already struggling financially. In fact, it could make the economic outlook for many people worse. We reported yesterday about the wealth gap  between whites and minorities, and the link between unemployment and the ability to create generational wealth. And we have blogged about the uneven economic recovery, in which some communities have lagged far behind others and in which income inequality has continue to grow. Payday  lending would only exacerbate these trends, by opening up the door for desperate people to dig themselves further into a financial hole. Rather than taking us backward, our state’s decision makers should be focusing on policies that help to strengthen– not deplete– communities’ resources, wealth, and health.

February 21, 2013 at 11:05 am 1 comment

Impact of Unemployment on Wealth Retention in Black Communities

As we have covered in the past, this economic recovery has not affected all communities equally.  The general fact is that the recovery is helping those high earning families, while failing to help the lower-income and minority communities. In fact, the recession caused the wealth gap between whites and minorities to increase by 20%, as reported by the Pew Research Center.  This drop caused the largest wealth gap since the government began tracking this information. 

The enormity of the wealth gap is in part due to the compound effect unemployment is having on our minority communities.  Thanks to the Bureau of Labor Statistics, we can see that this recession has left more minorities unemployed than whites.  As of the most recent numbers released for January 2013, the unemployment rate for Blacks was 13.4%, where the white unemployment rate has dropped to 7.0%.  Over the last year, the unemployment rate for Blacks is usually about 6% higher than for whites.

Due to this inequity in the unemployment figures, Blacks are more likely  to have needy relations than whites.  One recent study found that “Middle-income blacks are more than twice as likely as middle-income whites to have a poor sibling and more than four times as likely to have parents below the poverty line.”   This same study found that Black households are more likely than White households to give money to struggling relatives, and as they earn more money they give a higher proportion of their income to their needy family and community.

Thus, even when Blacks can find the opportunity to succeed and generate wealth, this wealth is usually used to help support their families in ways that are not demanded of white families.  A lack of generational wealth significantly stops the ability of individuals to reinvest into their communities and/or start a business. In fact, the U.S. 2012 Economic Census reports that 60.3% of small businesses are funded at least in part by personal savings.  Without this personal wealth, Blacks small business owners and community leaders are left without the capital necessary to assist their communities; exactly what is necessary to start creating wealth and end the current unemployment gap.

February 20, 2013 at 12:56 pm

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