Politics Mondays: In Support Of The Congressional Black Caucus and HR 4197

On Thursday morning, I had the opportunity to participate on a conference call with members of the Congressional Black Caucus (CBC) regarding their Hurricane Katrina bill, HR 4197, "The Hurricane Katrina Recovery, Reclamation, Restoration, Reconstruction and Reunion Act of 2005." According to a recent press release, the act, introduced on November 2, 2005 by all 42 members of the Congressional Black Caucus, "emphasizes two critical objectives the CBC and many others have considered most important since Hurricane Katrina -- the desire to see the Gulf Coast restored fully and the desire to see the residents of the Gulf Coast reunited with their families."

There are twelve sections of the bill, covering the following areas: 1) Victim Restoration Fund 2) Environmental Provisions 3) Health Provisions 4) Housing and Community Rebuilding Provisions 5) Education Provisions 6) Voting Rights 7) Financial Services Provisions 8) Extended Opportunity and Small Business Provisions 9) Tax Provisions 10) Bankruptcy 11) Miscellaneous Provisions 12) Eradicating Poverty.

I have gone through the entire bill. Its breadth and depth is impressive. And if anyone still maintains the idea that Hurricane Katrina was a local or regional crisis, the scope of this bill should easily dispel such notions. The hurricane and its mishandling are a national crisis, in need of a national solution – federal, state, local, public and private in nature. There are only a handful of items that I think the bill or strategy to pass it lacks. I will mention only a few of these items at this point, all in the context of supporting the legislation, even as it is currently written.

First, the bill could have included language to establish a new coordinating authority with the specific responsibility of handling the integration of evacuees into new communities. This idea comes to us courtesy of economist Reuven Brenner, who in September, as part of a several day, running e-mail dialogue with myself, my older Brother, and money manager Stephen Shipman, suggested that some of the lessons of history, in nations such as Israel (which as a nation of 5 million absorbed 1 million immigrants in a short period of time), could be instructive in handling the Katrina crisis. Mr. Brenner suggests that a "Ministry" be specifically given the mandate to help evacuees and the communities they have gone to. He strongly warns that this Katrina Ministry be given only a two-year mandate, as not to encourage the formation of a new bureaucracy; and that it be charged only with specific areas of responsibility: 1) Schooling 2) Retraining 3) Relocation Assistance 4) Financing. In light of the problems experienced in communities such as Baton Rouge, Louisiana; Houston, Texas; and Jackson, Mississippi a strong case can be made for a temporary local institution, backed by the federal government, with the power to focus narrowly on the problem of integration in the local school system, economy, and society. The Ministry could serve as a clearing house for private and public agencies, and in a sense solve the problem of intermediating and aggregating human, financial and physical capital in the public and private sector – matching people, talent, opportunities, and resources. In the area of employment, matters are especially bleak, with the Economic Policy Institute reporting last week that the rate of unemployment for Black and Hispanic evacuees is 42%.

Secondly, the bill could have included a provision that would have facilitated a greater role for private equity and venture capital in the economic redevelopment of the Gulf Region. The cover story of the November issue of Black Enterprise is "Why Black Business Must Rebuild New Orleans." In making its case, the article raises concerns about the challenges that face Black businesses in a rebuilding effort (bold emphasis is mine):

Although rebuilding New Orleans should give the economy a boost, the question at hand for black entrepreneurs is whether African American businesses will get a shot at the billions in reconstruction contracts that will be doled out and whether the black customers will come if they build it. One need only look at the demographics of the Mississippi Delta to see how many African Americans have been affected. Pre-Katrina, the black population in Louisiana was 32.5%; it was close to 66% in New Orleans. In Mississippi and Alabama, blacks made up 36.3% and 26% of the population, respectively, according to the Census Bureau. That’s roughly 3.6 million African Americans.

Scores of black businesses have been wiped out as a result of Katrina. In Mississippi alone, more than 2,000 black-owned businesses were severely affected by the hurricane, and these firms generated sales and receipts of $126 million, according to the Economic Policy Institute. Louisiana had some 20,000 black companies that generated nearly $886 million that were affected. The vast majority of these are small businesses, and it is likely that most won’t open their doors again, leaving thousands jobless. Skyrocketing fuel prices, resulting from a slowdown in oil out of the Gulf, will affect companies across the board.

In the short term, the effects on black businesses are obvious: the immediate devastation of businesses and the complete loss of markets. There’s likely to be a significant change in New Orleans’ demographics. Many suspect that after rebuilding, it will no longer boast such a black population. The impact on black businesses in the gulf will be "dire," says Eugene Cornelius Jr., district director for Louisiana Office, U.S. Small Business Administration. "It will mean devastation to the African American business community in New Orleans as we know it." Long-term, in the region as a whole, more than 60,000 black-owned businesses generating $3.3 billion a year could potentially be impacted.

By late September, minority business owners across the Gulf Coast claimed they were being shut out of the rebuilding process and contracts were being doled out to white business owners who had longstanding connections with federal officials. Also posing a challenge to black business owners is that there are few black businesses of scale that can handle such daunting projects. It’s the proverbial catch-22; black-owned firms need to be large enough to handle these projects but they need the business to get to that scale.

The crux of the "access to capital" problem facing Black business is described in the final paragraph of what was just quoted. First there is the problem of obtaining access to capital from the government in the form of federal contract opportunities. The CBC bill, HR 4197 has some excellent provisions in it which seek to adequately address this challenge. And the relentless focus of Congressman Bennie Thompson of Mississippi on the problem of discrimination in Katrina-related contracting has been important in highlighting this issue. But contracts are not enough to solve the enormous size of the problem facing Black businesses in the Gulf Coast (and elsewhere for that matter.) As Black Enterprise accurately notes, "there are few black businesses of scale that can handle such daunting projects." But what the magazine is incorrect in, is the emphasis it places on a solution to this problem when it writes, "It’s the proverbial catch-22; black-owned firms need to be large enough to handle these projects but they need the business to get to that scale." Wrong. It is not business through commerce that these relatively smaller-scale businesses need, it is capital, through investment, and specifically the variety that is available in venture capital and private equity. Certainly many Gulf Coast businesses should be encouraged to submit joint bids in pursuit of specific contracts. Their unity in numbers through collaboration can make up some of the deficit these businesses have in scale when compared to their White counterparts, but these businesses need and deserve financing to grow their businesses and to even have their mergers and acquisitions financed at the scale necessary for them to compete not just for contracts but market share and future business.

Unfortunately, HR 4197, as it is presently comprised, does not have any of the provisions, similar to those contained in President Clinton’s New Markets Initiative that would have facilitated private equity and venture capital in the Gulf Coast Region. President Clinton’s initiative provided for the creation of New Markets Venture Capital Firms which authorized the SBA to ‘match’ in loan guarantees $150 million for every $100 million in private equity raised. In addition to this pool of $250 million, $30 million in technical assistance was made available to small businesses. A possible improvement or compliment to HR 4197 would be the enhancement of, or special application of the government’s existing Small Business Investment Companies (SBICs) program. The Small Business Investment Company (SBIC) program, part of the U.S. Small Business Administration (SBA), was created in 1958 to fill the gap between the availability of venture capital and the needs of small businesses in start-up and growth situations. According to information on the program, "It’s a little-known fact, but the federal government is the largest single investor in U.S. private equity funds. At the end of FY 2003, SBA had close to $5.5 billion invested in 435 funds, plus another $3.7 billion in available commitments. Together with private capital topping $12 billion, the program totals over $21 billion in private equity capital dedicated to America’s entrepreneurs." Well, what better place to apply this program - attract venture capital and private equity to the Gulf Coast for minority-owned businesses and have it matched by government investment and loan guarantees? The program seems perfectly suited for the small businesses that are Black-owned in the region. According to the official description, SBICs must be privately managed, for-profit investment companies formed to provide equity and/or debt capital to U.S. small businesses. All that is needed is for an experienced team of private equity managers to secure minimum commitments from private investors of either $5 million (for a debenture fund) or $10 million (for an equity fund) and for every $10 million in private equity, SBIC licensees are eligible to receive up to a $20 million SBA commitment (2:1 public-private leverage), substantially enhancing prospective portfolio returns. The total size of an SBIC typically ranges from $30 million to $170 million and SBICs may only invest in "small businesses" defined as: net worth less than $18 million and prior two years’ average after-tax income less than $6 million. Interestingly, there have been charges of discrimination associated with the SBIC program. The CBC could play a leading role in reforming the program and giving it an enhanced role, pouring capital into the Gulf region.

Thirdly, HR 4197, needs and deserves mass support if it is to become the law of the land. So, far, the bill has mainstream and Black establishment support, counting the NAACP and Urban League as supporters. But that support has to be complimented by a mass mobilization that makes the case locally and places pressure on as many members of Congress to support the bill as possible. To that end, the newly established Millions More Movement (MMM) should weigh the merits of this bill and seriously consider the possibility of supporting the bill and mobilizing its registered membership and supporters around a campaign for its passage. The unity of the 42 members of the CBC co-sponsoring this bill sets a beautiful example for Black organizations and individuals who made a public display of unity on October 14th,15th, and 16th in Washington, D.C. In the official written listing of the issues it supports, the Millions More Movement, under Political Power, writes: "The Millions More Movement is the political voice of the poor and disenfranchised. We are resolved to take an independent political path in order to achieve political power. The Millions More Movement will be an organized political force of consequence in America and all over the world."

In addition to the issue of Political Power, the Millions More Movement has taken up the issue of Economic Development, officially putting forth the intention, "We will establish a Black Economic Development Fund, with the support of millions, to aid in building an economic infrastructure. We will also offer housing ownership opportunities to check the adverse tide of gentrification. The Millions More Movement will produce and distribute its own products and supports ‘Buy Black’ campaigns." Perhaps easily one can envision a role for the Millions More Movement’s (MMM) Black Economic Development Fund, providing venture and private equity for Black businesses in the Gulf Coast and elsewhere. By pooling small pools of capital from the masses, the MMM is uniquely leveraged to bring to the table large sums of capital that can be poured directly into minority and Black-owned businesses and which can be matched by the government with investment and loan guarantees. Imagine the MMM Economic Development Fund as a ‘fund of funds’ providing capital not only directly to small businesses but to those Black venture capital and private equity funds and even Black-owned investment banks which on a combined basis decide how to invest hundreds of millions and even billions of dollars.

To that end, while on the conference call with the Congressional Black Caucus – specifically Congressman Mel Watt, Congresswoman Cynthia McKinney, and Congresswoman Stephanie Tubbs Jones - last Thursday, I had an opportunity to make a comment and ask a couple of questions related to only some of the above. Here is the transcript of that exchange:

Cedric Muhammad: Just two questions. First, I want to say congratulations on putting together something so comprehensive. But my two questions are this: One, is there going to be an effort to mass mobilize around this bill, potentially involving the Millions More Movement, which I think has the mandate to support something like this? And secondly, I didn’t see anywhere in the provisions for the financial or small business part (of the bill) venture capital or SBIC enhancement. I was just wondering is there a provision there or in President Bush’s Gulf Opportunity Zone for the government to match venture capital and private equity that wants to come and support small businesses?

Congressman Mel Watt: Cynthia or Stephanie, would you all respond to the first part? And then I will respond to the second part of the question about the specific content of the bill.

Congresswoman Stephanie Tubbs Jones: Well, let me say this, that our job is legislative and we can’t put in one bill everything that someone would want in the process. I think what you need to understand is what we’ve tried to do is put together a package that addresses the legislative side of this piece. What we are going to continue to do is be involved. The press conference today had representatives from across the spectrum. We are going to be pushing in every area that we can to get the kind of public support that we want. Surely we want the Million More conference to join us in supporting this legislation and to provide that public pressure on the congress to push it through.

Congressman Mel Watt: Cynthia?

Congresswoman Cynthia McKinney: I think Stephanie spoke well.

Congressman Mel Watt: OK, well let me address the last part of the question about venture capital, because interestingly enough when we put the bill out and it started to circulate, one of the first calls I got is from Jack Kemp who is very into venture capital and like some other people, he was focusing on what is not necessarily in the bill, as opposed to what is in the bill, but the thing he was focusing on is how you build a public-private partnership to do some of this stuff and how you provide venture capital which is the question you asked.

It is not in this bill, but we are no less committed to that proposition. We were trying more in this bill to respond to small and minority businesses and local employment opportunities, Davis Bacon, reinstatement of the affirmative action provisions – that kind of thing. But there are a number of things that are not in this bill that we support and would be happy to pursue on a parallel track. And one of the commitments that I made to Jack Kemp was that I would be happy to meet with him to discuss that further, because that is something that I am very supportive of and obviously members of the Congressional Black Caucus have been very supportive of providing venture capital and increased access to capital throughout our communities and to minority businesses. So it is something we are committed to. Now, I do want to make the point that I made to Jack Kemp though, and that’s this: we tried in this bill not to create bureaucracies and one of the things that this administration has done and – Jack Kemp of course is a Republican so he agreed with me on this – one of the things that this administration has done is kind of done away with the infrastructure – the Empowerment Zone structures that are out there through which you could do this kind of public-private partnership and venture capital stuff. And we didn’t want to start creating another bureaucracy for an empowerment zone because then, this administration’s first response would be, “Well, you are building another bureaucracy.” What we have tried to do is do as much of this bill as possible through existing entities. Because we just did not want to have another discussion about building another bureaucracy. So there were a number of proposals that came forward – there was a health empowerment zone that we left out of the bill for the same reason. But it is not because we don’t support those things, its just because, you know, this bill is already 215 pages long, with 12 titles and there is just so much you can cover in a bill without losing credibility, that you are just in so many different areas that the bill doesn’t have credibility anymore.

Congresswoman Stephanie Tubbs Jones: And also I would say that you need to understand that each of the members of the Congressional Black Caucus have been making efforts on their own to do things with people in their Congressional districts to help people in the Gulf. For example, along with some other community leaders in my community, we created a fund at our Cleveland Foundation that is called from The North Coast – which is what we call Cleveland – To The Gulf Coast and we are raising dollars because we see this as a long-term piece. The Gulf is not going to be rebuilt only in this term of Congress. It is going to be a long-term effort, and that is why our bill is so comprehensive. But each of us have individually done some things in our communities and will continue to do those things to be supportive as well as to push the other part of the legislative process to keep things going.

Cedric Muhammad: Thank you all.

Congressman Mel Watt: Thank You.

Congresswoman Cynthia McKinney: Thank you, Cedric

***

Congressman Watt’s mention of his conversation with Jack Kemp regarding HR 4197 and Katrina redevelopment is interesting and significant. In many respects, Mr. Kemp is the most credible White Republican leader on the subject of economic development and entrepreneurship with an understanding of the Black community and relationships with Black business, political and cultural leaders. He laid out his vision for Katrina redevelopment in a September column entitled, “Imagine The Unimaginable”. I don’t agree with how Mr. Kemp has described the Harlem Empowerment Zone as a “success story” ( I actually heard him say this while appearing as a guest on Kudlow and Company on September 8, 2005), but I have met and spoken with Jack Kemp and think he is about as good as it gets, in terms of a White political intermediary balancing the interests of Big Capital and those of small entrepreneurs. In addition, and maybe more importantly, he shares some of the concerns of his former adviser, the late Jude Wanniski regarding America’s racial divide. He has a role to play.

The Congressional Black Caucus should be commended. It has uniquely set the table for a comprehensive discussion and negotiation to occur regarding Katrina, its political aftermath and the picture of economic development that should occur. HR 4197, though not perfect, is a firm foundation for the most appropriate and comprehensive political response since this disaster unfolded and has evolved.

If anyone felt there was no reference point of discussion regarding where we need to go from here, the Congressional Black Caucus ended that argument on November 2, 2005.

May they receive all of the credit and support they deserve for their good act, and even their good bill.

Cedric Muhammad

Monday, November 14, 2005

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