[Joint House and Senate Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 116-46
EXPANDING OPPORTUNITY BY STRENGTHENING FAMILIES, COMMUNITIES, AND CIVIL
SOCIETY
=======================================================================
HEARING
BEFORE THE
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
APRIL 30, 2019
__________
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JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]
SENATE HOUSE OF REPRESENTATIVES
Mike Lee, Utah, Chairman Carolyn B. Maloney, New York, Vice
Tom Cotton, Arkansas Chair
Ben Sasse, Nebraska Donald S. Beyer, Jr., Virginia
Rob Portman, Ohio Denny Heck, Washington
Bill Cassidy, M.D., Louisiana David Trone, Maryland
Ted Cruz, Texas Joyce Beatty, Ohio
Martin Heinrich, New Mexico Lois Frankel, Florida
Amy Klobuchar, Minnesota David Schweikert, Arizona
Gary C. Peters, Michigan Darin LaHood, Illinois
Margaret Wood Hassan, New Hampshire Kenny Marchant, Texas
Jaime Herrera Beutler, Washington
Scott Winship, Ph.D., Executive Director
Harry Gural, Democratic Staff Director
C O N T E N T S
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Opening Statements of Members
Hon. Mike Lee, Chairman, a U.S. Senator from Utah................ 1
Hon. Margaret Wood Hassan, a U.S. Senator from New Hampshire..... 3
Witnesses
Dr. Nathaniel Hendren, Professor of Economics and Founding Co-
Director of Opportunity Insights, Harvard University,
Cambridge, MA.................................................. 4
Dr. Ryan Streeter, Director of Domestic Policy Studies, American
Enterprise Institute, Washington, DC........................... 6
Mr. Jose A. Quinonez, Founder and CEO, Mission Asset Fund, San
Francisco, CA.................................................. 8
Dr. Patrick Sharkey, Professor and Chair of the Sociology
Department, New York University, New York, NY.................. 10
Submissions for the Record
Prepared statement of Hon. Mike Lee, Chairman, a U.S. Senator
from Utah...................................................... 38
Prepared statement of Hon. Margaret Wood Hassan, a U.S. Senator
from New Hampshire............................................. 38
Prepared statement of Dr. Nathaniel Hendren, Professor of
Economics and Founding Co-Director of Opportunity Insights,
Harvard University, Cambridge, MA.............................. 40
Prepared statement of Dr. Ryan Streeter, Director of Domestic
Policy Studies, American Enterprise Institute, Washington, DC.. 44
Prepared statement of Mr. Jose A. Quinonez, Founder and CEO,
Mission Asset Fund, San Francisco, CA.......................... 49
Prepared statement of Dr. Patrick Sharkey, Professor and Chair of
the Sociology Department, New York University, New York, NY.... 52
Response from Dr. Hendren to Question for the Record Submitted by
Senator Hassan................................................. 58
Response from Dr. Streeter to Question for the Record Submitted
by Senator Hassan.............................................. 58
Response from Mr. Quinonez to Question for the Record Submitted
by Representative Maloney...................................... 59
Response from Mr. Quinonez to Question for the Record Submitted
by Senator Hassan.............................................. 59
THE POSITIVE ECONOMIC GROWTH EFFECTS OF THE TAX CUTS AND JOBS ACT
----------
TUESDAY, APRIL 30, 2019
United States Congress,
Joint Economic Committee,
Washington, DC.
The Committee met, pursuant to notice, at 10:30 a.m., in
Room 216, Hart Senate Office Building, the Honorable Mike Lee,
Chairman, presiding.
Representatives present: Marchant, Heck, Herrera Beutler,
Beatty, Schweikert, Beyer, and Trone.
Senators present: Lee, Hassan, Peters, and Sasse.
Staff present: Rachel Brody, Barry Dexter, Sol Espinoza,
Connie Foster, Natalie George, Harry Gural, Colleen Healy,
Christina King, Michael Pearson, Hope Sheils, Kyle Treasure,
Jillian Wheeler, Jim Whitney, Scott Winship, and Randy Woods.
OPENING STATEMENT OF HON. MIKE LEE, CHAIRMAN, A U.S. SENATOR
FROM UTAH
Chairman Lee. Good morning and welcome to this hearing of
the Joint Economic Committee.
To begin, I would like to welcome back the members of the
Committee who were part of this body during the previous
Congress, as well as our new members. And I would like to
congratulate Representative Maloney on her return as Vice Chair
during this Congress. I look forward to working with all of
you.
The topic of this hearing, Expanding Opportunity, is in
many ways a quintessentially American topic. As Abraham Lincoln
put so eloquently: The leading object of our government is, and
has been, and I hope always will be, to elevate the condition
of men, to lift artificial weights from all shoulders, to
afford all an unfettered start and a fair chance in the race of
life.
In other words, the purpose of government is to remove
barriers for opportunity. Often, however, policymakers have a
limited understanding of what ``opportunity'' is, what that
word means. We sometimes see opportunity purely in terms of
economic outcomes--namely, educational or financial success.
And, moreover, we can view financial capital as the only
important source of wealth on which opportunity in our society
depends.
Economic wealth is no doubt important. No one would dispute
its importance. And it is right that the Federal Government
should certainly seek to remove barriers to economic wealth.
But to see opportunity exclusively in those terms fails
adequately to capture an individual source of wealth on which
human beings draw, and one that is in fact key to expanding
opportunity. And that is, Social Capital.
Social capital is the wealth produced from our
associational life, from what we do together as human beings in
a particular society. It inheres in the web of social
relationships through which we pursue joint endeavors, and it
comes from our families, our communities, churches, synagogues,
rotary clubs, and little leagues, and it is through these
institutions of civil society that we make a happy and
productive life with other people. They shape our characters
and our capacities. They help us address the challenges we face
in life and provide us with meaning and purpose as we live our
lives.
For the past two years, the Social Capital Project on the
Joint Economic Committee has documented trends in our
associational life and its distribution across this great
country. It has studied the evolving nature, quality, and
importance of our associational life, and the relationship it
has to different problems our Nation is facing.
The Joint Economic Committee has recently undertaken the
work of exploring the connection between opportunity and social
capital. And it has found that opportunity is largely dependent
on social capital available to us through the relationships we
have with our families, neighbors, fellow congregants, and
coworkers.
These relationships are crucial both to our economic
opportunities and our opportunity for producing and sustaining
a vibrant, healthy, meaningful community life.
And so the goal of the Joint Economic Committee is now to
craft policies rooted in social capital, policies that will
expand opportunity for all Americans by strengthening families,
communities, and civil society in general.
This undertaking will of course not be without its
challenges. After all, social capital is not something we can
see, or touch, or smell. We cannot even directly measure it. We
almost do not have the vocabulary or the tools to do it.
In addition to these difficulties associated with measuring
it, there are also some real significant difficulties in
establishing its causal importance. And while policy can
certainly help promote the bases for a flourishing civil
society within our culture, we must also inevitably confront
its limits and determine when, whether, to what extent, and in
what way the Federal Government has a part to play in this
project, and the extent to which the Federal Government might
be inflicting harm on these institutions.
To bound the types of policies under consideration, and
based on the past two years of research, the Project has
identified five broad goals related to opportunity: making it
more affordable to raise a family; increasing how many children
are raised by happily married couples; connecting more people
to work; improving the effectiveness of investments in youth
and young adults; and rebuilding civil society.
Our distinguished panelists will help us shed light on
these issues and these questions today, and I look forward to
hearing their testimony, and also to seeing the fruits of our
discussion going forward.
I now recognize Senator Hassan for her opening remarks.
[The prepared statement of Chairman Lee appears in the
Submissions for the Record on page 38.]
OPENING STATEMENT OF HON. MARGARET WOOD HASSAN, A U.S. SENATOR
FROM NEW HAMPSHIRE
Senator Hassan. Well, thank you Chairman Lee, and thank you
for holding a hearing in which we can examine innovative ways
to increase economic opportunity in all of our communities. And
I want to thank all of the witnesses for being here with us
today.
I want to focus today on how we can create opportunity for
entrepreneurs by increasing their access to social connections
and personal networks or, in other words, by helping build
their social capital. Entrepreneurs frequently use their
personal connections to identify business opportunities, find
community mentors, and secure the capital that they need to
launch and grow their startups.
However, not everyone starts off with connections to the
business community. And entrepreneurs outside these informal
networks can find it harder to access vital resources like
financial counseling and capital investment. This presents
particular challenges for women entrepreneurs.
Last year the National Women's Business Council issued a
report that found that women's personal networks have fewer
connections with ties to resources like financial capital. This
is also an acutely important issue for entrepreneurs in rural
areas of my State. In rural areas, there is often extremely
limited access to high-quality, affordable broadband internet,
which is an absolute necessity for any business hoping to
compete in the modern economy.
Limited broadband access slows entrepreneurship and
contributes to the so-called ``brain drain,'' a problem for
rural areas that I know, Mr. Chairman, you focused on in a
report on social capital released just last week by this
Committee.
Fortunately there are successful initiatives that Congress
can build on. In New Hampshire, we have many nonprofit
organizations and business incubators that are leveraging
community interest and Federal investments to build social
capital for entrepreneurs from all walks of life.
New Hampshire's Small Business Development Center provides
business advertising and mentorship, for example. Our Regional
Development Corporations provide business-gap financing, and we
have start-up accelerators that tailor their services in
innovative ways. So there are many programs already underway in
the Granite State that can serve as models for our efforts to
expand opportunity for entrepreneurs, and I expect that there
are models in lots of other states, as well.
In my view, having the opportunity to start and grow a
business should not be all about ``who you know.'' Equality of
opportunity for entrepreneurs should be predicated on a
willingness to work hard to transform an innovative idea into a
reality. The bottom line is that we have to do more to level
the playing field and help aspiring business owners build
social capital.
Our country was founded on the idea that nurturing the
talent and energy of every person promotes human dignity and
ignites a vibrant and competitive economy. And government
certainly has a role in ensuring that we do just that.
When we bring people in from the margins, our communities,
our democracy, and our economy all benefit. We thrive and we
build a stronger future for our children.
So I look forward to our witnesses' testimony today on how
we can help all Americans build social capital. Thank you, Mr.
Chairman.
[The prepared statement of Senator Hassan appears in the
Submissions for the Record on page 38.]
Chairman Lee. Thank you, Senator Hassan.
I would now like to introduce our distinguished witnesses
and thank all of you today for being here with us.
First we have Dr. Nathaniel Hendren, Professor of Economics
at Harvard University, and Founding Co-Director of Opportunity
Insights. His work has documented the extent of equality of
opportunity across a range of domains, from the inability of
individuals to purchase insurance, to the difficulties faced by
low-income children seeking upward mobility. And, more
recently, the disparities in intergenerational mobility
experienced by children of different races.
Welcome, Dr. Hendren.
Next we have Dr. Ryan Streeter, who is the Director of
Domestic Policy Studies at the American Enterprise Institute,
where he oversees research in education, American citizenship,
politics, public opinion, and social and cultural studies.
Before joining AEI, he was the Executive Director of the
Center for Politics and Governance at the University of Texas
at Austin. Thanks for being with us today, Dr. Streeter.
Next we have Mr. Jose Quinonez, the Founder and CEO of
Mission Asset Fund, an award-winning nonprofit organization
that helps financially excluded communities to participate in
the mainstream U.S. financial system. He has received a number
of honors and awards for his work, including the 2013 Irvine
Leadership Award, and was nominated for the San Francisco
Chronicle's 2019 Visionary of The Year. Welcome, Mr. Quinonez.
And we have Dr. Patrick Sharkey, Professor and Chair of the
Department of Sociology at New York University, teaching
courses in urban policy, criminology, statistics, and violence.
He is also Scientific Director at the Crime Lab of New York. He
has authored a number of books, including the award-winning
``Stuck in Place: Urban Neighborhoods and the End of Progress
Toward Racial Equality.'' Thank you for being here, Dr.
Sharkey.
We are all very grateful that you are here, and we will
give each of you now an opportunity to present your testimony.
We will start with you, Dr. Hendren, and move forward in the
order in which you were introduced.
STATEMENT OF DR. NATHANIEL HENDREN, PROFESSOR OF ECONOMICS AND
FOUNDING CO-DIRECTOR OF OPPORTUNITY INSIGHTS, HARVARD
UNIVERSITY, CAMBRIDGE, MA
Dr. Hendren. Thank you. So I do have some presented slides.
I do not know if it is possible to show them on the screen. If
it is, feel free. And if there is a clicker for the slides, I
would be delighted to use it. If not, I would be happy to just
roll--alright.
Alright. So thank you for the opportunity to be here to
talk with you today. I think, like many of us, I grew up
inspired by the notion of the American Dream, this idea that
every child should have an opportunity to climb that income
ladder. In my research, with a broad set of collaborators, we
try to measure the extent to which we live up to this ideal.
Unfortunately, our research shows that this dream is simply
out of reach for too many children. There are many ways of
quantifying the American Dream, but one way to measure it is to
ask what fraction of children grow up to earn more than their
parents in adulthood.
Now we find that for children born in 1940, the American
Dream was nearly a guarantee. Ninety percent of those kids grew
up to earn more than their parents. But today, only half of
children grow up to earn more than their parents.
Now another measure of the American Dream is the likelihood
that a child born at the bottom of the income distribution
grows up to reach the top regions of the income distribution--
sort of the ability to go from rags to riches.
Now if incomes in adulthood were perfectly independent of
one's background, we would expect that 20 percent of those with
low-income parents would grow up to reach the top fifth of the
income distribution in adulthood. But in the U.S., only 7.5
percent of children whose parents are in the bottom fifth of
the income distribution grow up to reach the top fifth of the
income distribution.
Now perhaps perfect mobility of 20 percent is too high of a
standard. Another benchmark is to think about comparing across
countries. Here again, the U.S. lags behind. In the UK, 9
percent of children grow up to reach the top fifth from low-
income backgrounds; 11.7 percent in Denmark; 13.5 percent from
Canada; and 15.7 percent in Sweden.
Now this broad pattern in the U.S. masks the fact that
there are places in the United States where the American Dream
is alive and well. Rates of upward mobility vary dramatically
across the country, and even within cities. In some
neighborhoods--for example, in Provo, Utah--children from low-
income families grow up to earn $66,000 on average at age 35.
In contrast, low-income children who grow up in parts of inner
Baltimore with parents of the same income background, earn on
average only $16,000 in adulthood.
Now upward mobility varies even more when we compare across
neighborhoods within cities. As we have documented in The
Opportunity Atlas, children who grow up just a few miles apart
in families with comparable incomes have very different later-
life outcomes.
For example, children who grow up in some parts of Provo,
Utah, earn just $30,000 a year on average, less than half of
their counterparts at $66,000. Or to take another example in
Midtown Manhattan where poor children growing up on either side
of Third Avenue earn either $28,000 a year or $45,000 a year on
average in adulthood.
And so these striking disparities raise the natural
question: Why do outcomes differ so dramatically across places
in the United States? Now our results suggest that the outcomes
we see today of people in adulthood have their roots in the
neighborhood environments in which these children grew up.
Every year a child spends growing up in a neighborhood with
higher rates of upward mobility increases their income in
adulthood.
And so the message is simple. Neighborhoods matter. Where
we grow up shapes our outcomes in adulthood. If we can improve
the neighborhood environments for children, especially for
those who are most disadvantaged among us, we can increase
upper mobility in the United States. The variation in The
Opportunity Atlas we believe provides a learning opportunity
that can inform such efforts where we can attempt to replicate
the successes of places with high rates of upward mobility.
Now across the U.S., we do see that places with higher
rates of upward mobility tend to be places where children are
growing up in neighborhoods with lower poverty rates, stronger
measures of school quality, stronger family structures, and
stronger measures of social capital.
I do want to be clear today. While we can identify the
characteristics of neighborhoods that tend to promote high
rates of upward mobility, current limitations prevent us from
identifying the best policies for improving upward mobility.
And to that aim, I look forward to an extensive discussion.
And I am excited about our ongoing endeavors and
collaborations on our end with researchers at the Census Bureau
and Treasury Department to further understand these potential
pathways to promoting upward mobility. Uncovering the recipe
for success will not be easy, but thanks to access to
administrative data and support of government research I do
believe we can make progress on this important question.
And more generally, I am delighted to be here today to
discuss how we might learn from evidence to inform policies
that might improve upward mobility. And while I know there is a
lot of disagreement in policies, it is my hope and belief that
an evidence-based approach to improving upward mobility and
opportunity for all of our children as its purpose expands
party lines and allows us to begin to restore the American
Dream. So thank you for letting me be here today.
[The prepared statement of Dr. Hendren appears in the
Submissions for the Record on page 40.]
Chairman Lee. Thank you.
Dr. Streeter.
STATEMENT OF DR. RYAN STREETER, DIRECTOR OF DOMESTIC POLICY
STUDIES, AMERICAN ENTERPRISE INSTITUTE, WASHINGTON, DC
Dr. Streeter. Thank you, Chairman Lee, Senator Hassan, and
members of the Committee, for asking us to come and testify
today on the important relationship between social capital and
opportunity in America.
Through several decades of research, we know that social
capital positively affects a wide range of things that we all
care about and desire, such as good work, happy family lives, a
good education, safety for our kids, and opportunity for us and
others. Yet we do not utilize what we have learned about social
capital very effectively in domestic policymaking anymore.
And before explaining what I mean by that and talking about
policy, I would like to share some relevant data points from
our research at the American Enterprise Institute on social
capital in America.
The benefits of social capital are especially interesting
when we look at how the informal elements of social capital
such as talking with and getting together with neighbors and
friends, and formal elements such as volunteering in civic
groups, relate to one another and other things that we care
about.
Consider the following: 46 percent of people who are both
highly civic and highly social rate the communities where they
live as ``excellent'' compared to 36 percent of people who are
highly social but not very civically engaged in their
communities. People who are highly civic and social are the
least likely to say they would move away from their community
if they could. They are more attached to where they live than
others.
When you ask people if they get a strong sense of community
from their neighborhood, highly civic people are more likely to
say yes, compared with people who are just highly social.
Social people with lots of friends are very happy, but
those who are also civically engaged are even happier still.
People who are civically engaged but not especially social are
more likely to report never feeling lonely than people who are
very social but not civically engaged. I could go on. But
suffice it to say that America's health is greatly enhanced
city by city by those who embrace their communities out of a
sense of responsibility.
To think about the future of social capital in public
policy, it is worth taking a look at the past. We know so much
more about the benefits of social capital today, thanks to the
research of people like Dr. Hendren and others, than we did in
the mid-1990s, but strangely we incorporate these ideas less
today when we are designing policy solutions.
For example, from 1991 to 1996 we saw four major domestic
policy reforms at the Federal and State levels that all
presupposed the indispensable value of basic units of civil
society: family, neighborhood, community, in their very policy
design. Each understood in its own ways that civic and social
networks were important elements of policy success.
The first reform was in school policy which began in
Milwaukee in 1990 with the first voucher law, and in Minnesota
in 1991 with the first charter law, and then rippled across the
country. The premise of the school reform movement was to
empower parents and families to either form their own schools
in cooperation with community leaders or have the ultimate
choice in where their kids went to school. Empowering civically
minded school reformers was central to the movement's success.
The second reform concerns public housing, which in city
after city had become a symbol of failed policy riddled with
crime, drugs, and persistent poverty. HOPE VI, which Congress
created in 1992, made the neighborhood rather than a simple
unit of housing the central focus of public housing assistance.
Housing projects were torn down and replaced with mixed-
income, sometimes mixed-use, developments that gave families in
public housing a greater stake in their neighborhood--or at
least that was the intention.
The third reform is community policing, which predates the
1990s, but it was a Federal law in 1994 that effectively made
it a nationwide practice.
In the 10 years after the law passed, the share of
municipal police departments' practicing community policing
grew from about 20 percent to 68 percent. Today, 80 percent of
police departments practice community policing, which replaces
command and control crime response with crime prevention,
rooted in neighborhood level partnerships.
Fourth, and perhaps the best known, is welfare reform which
was created in 1996 amidst quite a bit of public debate. Most
of the debate then, as now, was focused on the merits of work
requirements and the time limits on welfare recipients.
Less debated, but just as important, was the positive
effect experienced by states that devolved responsibility for
work outcomes to the municipal level. Where that happened,
local leaders stepped up and took ownership for helping people
find work, with generally impressive results.
If we hope to continue to make progress serving individuals
and families struggling to fully participate in the American
economy, we need to focus on the centrality of community
relationships once again.
Whatever the merits of our current debates on a range of
issues from subsidizing wages or making college less expensive,
or even free, and so on, if we fail to recognize the important
role that networks play at the local and regional levels in
people's upward mobility prospects, our national debates about
these former types of policy will achieve limited impact. Thank
you.
[The prepared statement of Dr. Streeter appears in the
Submissions for the Record on page 44.]
Chairman Lee. Thank you.
Mr. Quinonez.
STATEMENT OF MR. JOSE A. QUINONEZ, FOUNDER AND CEO, MISSION
ASSET FUND, SAN FRANCISCO, CA
Mr. Quinonez. Thank you, Chairman Lee, Senator Hassan, and
members of the Joint Economic Committee, for having this
important hearing. My name is Jose Quinonez. I am an immigrant.
I came to this country in the dark of night as a 9-year-old. I
adjusted my status under the Immigration Reform and Control Act
of 1986. I became a U.S. Citizen and now I am living my
American Dream of helping low-income people become visible,
active, and successful in the marketplace.
As the CEO of the Mission Asset Fund, a nonprofit
organization based in San Francisco, I have first-hand
experience at addressing the daunting financial challenges our
clients face every day. And what I have learned is this: Being
poor in America is expensive, particularly for people living
outside of the financial mainstream.
Nationally, one in seven Latinos are unbanked, meaning they
do not have checking accounts, or savings accounts. And while
researchers point to various reasons for why people go without
accounts, we know banks exclude people based on immigration
status, or by requiring narrow forms of IDs. Consequently, many
of our clients are left unbanked and without a choice but to
rely on alternative providers that charge more to cash checks
or pay bills.
The average household--under-served household that earns
$25,000 annually--pays about 10 percent of that income on fees
and interest for financial services that those of us with bank
accounts often get for free.
Lack of credit is a challenge. Nationally nearly one in
three Latinos are credit-invisible, meaning they do not have
credit scores or credit reports. And given the nature of our
economy, there is little anyone can do without credit. People
cannot get loans to buy homes, start businesses; they cannot
rent apartments; in some states they cannot even get jobs
without employers checking their credit reports. And without
access to credit, affordable credit, people turn to high-cost
lenders, some paying 100 percent APRs on small-dollar loans,
and significantly more for short-term payday loans.
Barriers to economic mobility are not just financial.
People are also burdened with uncertainty from the current
anti-immigrant political climate, fearing losing their families
and draining their savings. Many worry about being detained for
lack of documentation, igniting a financial crisis. Bail alone
can strip them of $5,000. Obtaining legal representation, up to
$20,000. And the costs mount from there.
So how can we help people realize their potential when they
are financially invisible and also facing enormous challenges
in their lives? We found answers in how our clients leverage
social capital: their relationships with family and friends in
order to survive and thrive.
Our clients practice a time-honored tradition of lending
and saving money together. It is an activity known by a hundred
different names the world over, but which is essentially the
same. A group of people come together and agree to pool their
money so that one member of the group can take the lump sum.
And they do it again on a weekly or monthly basis until
everyone in the group has had a chance of getting the lump sum.
So when people do not have access to loans, this is how
they create their own, using their word and trust. We built our
lending serving program on this tradition. We formalize loans
by having participants sign promissory notes which MAF then
services and reports to credit bureaus. Since launching the
program in 2008, we have made over 11,000 loans to help
participants build credit. In fact, they see an average
increase of 168 points, opening a world of possibilities for
them in the credit market. And the repayment rate is 99.3
percent, an unheard-of rate in the micro lending world.
Lending Circles is an example of what we could do with and
for people if we designed programs and policies for success
based on people's strengths and social capital to create
lasting change.
But despite the promise of this approach, it is not enough
to help the millions of people that are still trapped with
barriers that diminish their economic potential.
We need better data to understand people's challenges.
Research reports based on national data sets often ignore those
who are financially invisible, thereby missing critical
segments of our society. Congress can also remove asset limits
to further benefit programs like SNAP that are a lifeline for
families not earning enough to make ends meet.
Congress could also provide clarity that U.S. citizenship
is not a prerequisite for accessing financial services, and
allow for more government-issued IDs when opening accounts.
Congress could also significantly reduce the number of credit-
invisibles by allowing positive payment data from utilities,
rent, and telecoms to be included in credit reports. And
Congress can require ability to repay underwriting standards,
and longer repayment terms for small-dollar and payday loans.
I believe these reforms can go a long way in unlocking
people's economic potentials and help them realize their
American Dreams, too. So thank you for holding this hearing,
and I look forward to the conversation.
[The prepared statement of Mr. Quinonez appears in the
Submissions for the Record on page 49.]
Chairman Lee. Thank you.
Dr. Sharkey.
STATEMENT OF DR. PATRICK SHARKEY, PROFESSOR AND CHAIR OF THE
SOCIOLOGY DEPARTMENT, NEW YORK UNIVERSITY, NEW YORK, NY
Dr. Sharkey. Thank you, Chairman Lee, Senator Hassan, and
the members of the Committee. I will focus my comments on a
basic question to the study of social capital: How do we build
stronger communities?
Let me first give a sense of the problem we are facing.
Several decades of evidence, which has been bolstered by the
work of Dr. Hendren and his collaborators, has led to a clear
conclusion: Neighborhoods in which children are raised play a
central role in influencing their academic achievement, their
cognitive development, their physical and mental well-being,
and their economic mobility.
Labor market opportunities, environmental hazards, the
quality of institutions like schools, libraries, financial
institutions, police departments, vary dramatically depending
on where one lives, creating a rigid geography of vulnerability
and opportunity. And the problem is multi-generational. The
vast majority of children who currently reside in poor
neighborhoods are from families that have lived in similarly
poor neighborhoods for multiple generations. So we know, the
evidence tells us, that the consequences of living in highly
disadvantaged neighborhoods are cumulative, with long-lasting
effects that persist across generations.
There are good reasons to think that this link between our
communities and our life chances is growing stronger. As income
inequality in the Nation as a whole has increased, economic
segregation has grown. Meaning, the rich and the poor are
increasingly likely to live apart, sorting into separate
communities.
Inequality between cities and regions is also growing.
While many coastal and sunbelt cities like New York and San
Diego have attracted newcomers with higher income, better
education, other sections of the country, rustbelt cities like
Detroit and Cleveland, have seen higher income, better educated
residents leave.
As a result, metropolitan areas have begun to look more and
more different from each other, some with bustling economies
offering relatively high-wage jobs, others isolated from
economic opportunity. And as this type of regional inequality
has increased, long-range geographic mobility, the kind of
mobility that has always served as a way to allow Americans to
take advantage of new opportunities in new places, has fallen,
particularly for the less advantaged segments of the
population: racial and ethnic minorities, people with less
education.
This is the challenge that faces America's neighborhoods.
Now how did we get to this point? As urban economies began to
shift starting in the 1940s and 1950s and all the way through
the 1980s, a set of social problems like joblessness,
segregation, pollution, and poverty became concentrated in
central cities.
Our response was not a sustained national project of
investment to respond to these challenges. Instead, our
response was to abandon central cities, to withdraw resources,
and to provide ways for the most advantaged segments of the
population to leave central cities and to head to the suburbs.
As the share of city budgets from Federal sources
plummeted, public housing deteriorated, public schools
crumbled, fiscal conditions worsened, neighborhoods emptied
out, institutions like churches and community organizations
withered away. This is what happens when communities are
abandoned. If we want to build stronger communities, we need to
shift from a model of abandonment to a model of community
investment. In the American Enterprise Institute's Survey on
Community and Society, a national sample of respondents was
asked what makes a community successful? The responses are
revealing.
The two top responses were: good local schools and having
libraries and community centers nearby. A great deal of
evidence suggests that the respondents are on the right track.
The most effective way to build stronger communities is to
invest in core public institutions like schools and libraries
that bring people together in shared spaces, and in local
organizations, including faith-based organizations, community
development corporations, prisoner re-entry programs, childcare
providers, mentorship and after-school programs, organizations
like the Mission Asset Fund that provide the foundation for
every community making them less vulnerable to the next crisis
to hit America's neighborhoods. Thank you for bringing us
together. This is a great group of speakers, and I look forward
to your questions.
[The prepared statement of Dr. Sharkey appears in the
Submissions for the Record on page 52.]
Chairman Lee. Thank you very much. We will now begin the
five-minute question rounds. I will go first, followed by
Senator Hassan, and then we will alternate Republican and
Democrat in order of arrival at the hearing.
Dr. Hendren, I will start with you. You mentioned my home
town of Provo, Utah, in your testimony today, and you have
listed Utah communities as among the most upwardly mobile in
some of your writings.
Now in my experience, there's a Moscow in Idaho, there is a
London in Kentucky, there is even a Newark in Delaware, but
there is no other ``Provo.'' Nonetheless, there are some
communities like Provo where upward economic mobility is
possible. What is it that you found in your research that
differentiates Provo and communities like it from other
communities where you do not see that kind of social capital
and economic opportunity?
Dr. Hendren. Well thanks for the question. So I will
preface this by saying I have not actually been to Provo, Utah,
so I will----
Chairman Lee. That's a shame. You need to remedy that.
[Laughter.]
Dr. Hendren. But what I will say is, when we look broadly
across the U.S. in places like Provo that have some of the
highest rates of upward mobility, what we find is really the
four characteristics that I mentioned in my testimony. It is
places that have strong schools. It is places that have less
residential segregation and less income inequality. Places that
have stronger measures of social capital. And places with
stronger family structures.
Now what is it about a place in particular that drives its
high rates of upward mobility? That is a question to which we
do not know the exact answer. But in a place like Utah, the
ways of measuring social capital, two things sort of come to
mind. It is a place where a wide range of social capital
measures score highly. There is a high fraction of religious
populations there, and in the U.S. more broadly we see that
places that have a higher fraction of people who are religious,
we do see higher rates of upward mobility.
We also see in places that have people that return their
Census forms have higher rates of upward mobility--speaking to
some of that civic engagement. And so I think you phrased it
right, that what we see is something amorphous that is hard to
really put a finger on what exactly is driving the high rates
of upward mobility, but what we can say is there are these
characteristics that do correlate more broadly across the U.S.
Chairman Lee. I found it interesting when you mentioned in
your written testimony that there are some poor neighborhoods
in Provo where children raised in those neighborhoods, by the
time they are 35 earn $60,000-$65,000 a year. There are other
neighborhoods where that is not the case.
Are these same correlators present or absent in one
neighborhood or the other? Are those the same things that
differentiate one neighborhood within the same town as one town
from another?
Dr. Hendren. Yeah, exactly. And I think it comes back to
the statements earlier. Across the U.S., metro areas that have
a higher degree of things like residential segregation, or
lower measures of social capital, have lower rates of upper
mobility on average.
When you zoom in within a locality, what you find is the
children growing up in the segregated neighborhoods tend to
have lower rates of upward mobility. Or, in places where
measures of social capital are lower, those are places that
have lower rates of upward mobility even within cities, if that
makes sense.
Chairman Lee. Thank you. That is helpful.
Dr. Streeter, in recent years there has been really rapid
growth in technology. You know, we have seen the rise of the
iPhone, Twitter, other social media platforms, and those are
things that have in some ways enabled easier communication
between people. It connects one person to a whole lot of other
people.
But it has also been argued that the same technologies
might degrade--might undermine people's ability to access an
education, and also interfere with somebody's ability or
inclination to have personal interactions with someone else.
I heard from one--the president of a large university
recently. She told me that as people have become more
accustomed to learning things by YouTube and through Google
searches, students today, even highly performing students in
terms of their entering test scores and high school GPA,
sometimes do not like to memorize because they consider it
useless. That is one of many ways in which it is changing the
way people learn.
But what do you think about the potential effects of
technology on social capital formation?
Dr. Streeter. Well I would start out by saying there is a
lot that we still do not know about the effect of technology on
social capital. And there is some evidence that increased
screen time among younger people on their phones correlates
pretty strongly with increased incidences of self-reported mood
disorders, depression, and the like.
There is some evidence that that is the case. What I would
say is that from our own survey work we found that people who
regularly interact with people that they consider close friends
and family are generally less lonely and happier. And the more
friends that you have, the less lonely you are. That might seem
to make sense.
What we found through our own survey research is that, when
people use digital technology to communicate with friends on a
regular basis, that is like interacting often face to face. Now
there is nothing quite like joining together in a room and
solving problems together. We all know from experience there is
something very valuable there.
We know that when people are concentrated in well-
functioning neighborhoods that social capital has benefits, for
the reasons that have been articulated here. But I think one
thing to help maybe mitigate some of our worry and concern
about the increased screen time, when you walk into a room and
your kids are there and they are all on their phones and they
are not looking up at you, there is something wrong with that--
and I think there is evidence to suggest that we are seeing
problems, particularly among teenagers, that are related to
that phenomenon.
However, I also think, from our own work, we see that, when
people are in regular communication with people they are close
to, whether that is texting, or on phone calls, or using other
social media, it helps sustain those relationships and it helps
people feel less lonely. So there is reason to be optimistic
that some of this social media technology actually can help us
do things together.
And if you actually just examine some of your own
interactions, think about people you are close to and how you
stay in touch with them--I have a daughter that is in school in
the UK. I thought SnapChat was terrible when I heard about it,
when it was invented, but now I love it. It is a way for me to
have visibility into her life every day. I think a lot of
people can identify with that.
I have a closeness that is enabled through that technology
that I did not have before it existed. And our survey data
shows that there is reason to be optimistic that that actually
does help keep us more closely connected with people that we
love and care about.
Chairman Lee. Thank you.
Senator Hassan.
Senator Hassan. Well thank you again, Mr. Chair, for
convening this panel. And thank you again to the panelists for
your testimony.
Dr. Hendren, I would like to ask you about the research you
and your Harvard colleagues published in 2014 on the factors
that impact the future economic mobility of children across the
country. Because in my view, the defining aspect of the
American Dream is the ability of parents to expect that their
children will have a better future, a more prosperous future,
than they had.
In your study, you single out social capital and you
mention that some of the characteristics of social capital are
somewhat amorphous. You also said that important factors in
increasing a child's economic opportunities include school
quality, income inequality, racial segregation, and family
structure. And that those factors also impact future economic
mobility, and I would suggest they are somewhat less amorphous.
They are measurable. Can you tell the Committee about how these
other major factors I just referenced, such as school quality,
also impact a child's future economic opportunities? And also,
do these factors mutually reinforce and interact with one
another? For example, do neighborhoods with both higher-quality
schooling and more social capital provide greater future
economic mobility for children?
Dr. Hendren. Great. Thanks for the question. So you are
correct that broadly we find five factors that correlate with
upward mobility: school quality, income inequality, social
capital, strength of the family structure, and poverty rates.
In terms of school quality in particular, the ways in which
we measure school quality are broad and vast, and I agree there
are many ways to measure it. So you can look at 3rd grade or
8th grade test scores of students on State exams in places or
in neighborhoods that have stronger scores on those exams, and
particular scores by low-income students you see higher rates
of upward mobility.
In places that have less residential segregation, either on
the race dimension or the income dimension, you see higher
rates of upward mobility. And to get to your last question, it
looks like these five factors are in a sense additive across
the U.S. Each factor seems to correlate with higher rates of
upward mobility conditionally on the other factors as well. And
so in places that have both high--strong schools and more two-
parent households, those neighborhoods tend to have higher
rates of upward mobility.
Senator Hassan. Thank you. Mr. Quinonez, I would like to
ask you about an important issue you raise in your essay,
``Latinos in the Financial Shadows.'' You point out that, as
online banking becomes more mainstream, some families may lose
access to bank representatives, such as tellers or other
employees who help them navigate the financial system.
This is an especially important concern in New Hampshire
where many of my constituents also lack access to quality,
affordable broadband internet. So on the one hand you have
fewer human beings to interact with and help navigate the
financial system, and on the other hand you also have people
who really do not have access to the online banking functions,
as well. So fewer bank storefronts and inadequate broadband
access can make building credit a real challenge. One way to
fill this gap in service, as you say in your essay, is for
community nonprofits to partner with financial institutions and
to provide families with financial advice.
How do you think community relationships between nonprofits
and financial institutions can help fill gaps between
storefront and online banking services? And how can Congress
support and encourage these relationships?
Mr. Quinonez. Thank you so much for that question. I think
it goes back to the question of being present, being there.
Because as those bank branches are starting to close--and not
just banks, but credit unions are beginning to close all over
the country--they are not present in those communities anymore.
So those institutions are going to be lacking.
And so I am just lifting up the fact that there are
nonprofit organizations. There are faith-based organizations in
those locations, as well. So there is another way for us to
sort of interact and provide them with the tools and resources
so that they can be the front facing relationship bridge
between what people are experiencing in terms of the hardships,
or even advice and suggestions, so that they can continue
moving on with their economic lives.
So I believe the nonprofits could play a key role there,
but that has not been part of the conversation just yet. So in
that particular essay, I was just like here are the
organizations that are already in those communities, we can
figure out how to either provide them with resources or maybe
connect them more closely with financial institutions, so that
as they close those branches those nonprofits can actually step
in and provide more of those services there.
Senator Hassan. Well thank you very much. And I appreciate
all of you being here today very much. I had a question that I
will ask for the record, in which I will ask you all to help us
prioritize steps we could take to encourage and grow social
capital in our communities, and address some of the issues you
have all identified. Thank you all for your very important
work.
Thank you, Mr. Chair.
Chairman Lee. Representative Marchant.
Representative Marchant. Thank you, Mr. Chairman.
Members of the House have a--we represent communities that
unfortunately change every 10 years. So we have kind of
artificially created districts that are many times kind of
drawn together in a very interesting way.
My District has 15 communities that surround an airport. So
you have an economic driver. Then you have 15 communities. Many
of those communities share school districts. So you do not have
15 different school districts, but it has a great diversity
of--racial diversity, and great economic diversity.
Over the period of 10 years, most people think that these
kind of changes come over decades. But in our environment, the
suburban environment that we live in, these districts evolved
very quickly. So in our area, we have had a--because it's a
corporate atmosphere around the airport, and because of the
airport the population growth has tended to bring in a very
high earner into the community, while the community stays
pretty much the same. But it's making those that were there
before the hirees arrived, actually pushing them into a lower
economic strata.
And of course when the school districts grow at that level,
it forces them to rezone the schools on a regular basis. So
that when you begin to rezone the schools, you zone it more
towards the neighborhood. The neighborhood then pretty much
throws diversity kind of out the window because it's looking
for proximities. So you end up with very stratified racial
school district zones where you have less diversity among the
students learning together.
And my question is: When you look at a situation like that,
is the question of school choice more important? Is the
question of a district evolving from 90 percent homeowners to
50 percent apartment dwellers now because the corporations are
bringing in workers that are not going to live there long. They
are staying in an apartment. They are not as connected to the
community. So this is becoming, across the Nation, as big a
problem as these old stratified neighborhoods that are slowly
declining, but you have districts that are kind of exploding as
far as these problems go.
Dr. Streeter? Dr. Hendren? Any of you that would like to
comment on that, I would appreciate it.
Dr. Streeter. Just to one part of your remarks and
question. I do think that what is driving this is an
interrelation of a couple of complex things, right. And so I
will not diagnose those all entirely, although I have some
things to say there, and I know the others here are more
qualified than I am to talk about that. But I do think in that
environment, allowing flexibility with where families can send
their children to school is an important thing. I think having
options--that competitive pressure that happens when there is a
competitive educational marketplace--is generally a good thing.
I think it has been good just a few blocks from here. You can
visit neighborhoods that have benefited where traditional
schools and charters and et cetera have benefited from that
kind of competition.
I do think that the challenges for this sort of sorting and
segregation that happens by income at the regional level is
driven very much by local choices. And I think the tools
available to Federal policymakers on some of these things are
actually quite limited.
I think that, when it comes to how zoning is done and the
way that neighborhoods are sort of constructed, that is driven
very much by local and State policy. And I think that right now
is driving a lot of these factors that we see in terms of
inequality by geography.
Dr. Hendren. Yeah, I think that you raise tough questions.
I think when it comes to zoning and other policies that are
traditionally done at a local level, the only thing that I
would be able to bring to that conversation is to note that it
has national implications. Kind of the outcomes we see in
adulthood for kids that grow up in those neighborhoods tend to
be higher in places where kids from different backgrounds tend
to grow up together.
And so thinking about the types of policies, the ways in
which policy interacts with those incentives, is what I would
say is important. But exactly how to turn that into local
policy or regulations about local policy, I do not have a
strong view at this time.
Dr. Sharkey. If I could just add one last comment on that,
you are describing the growing phenomenon of economic
segregation. High- and low-income people living nearby in the
same area, but living in different communities. And the reason
it becomes important is because, as neighborhoods become more
and more segregated, investment in different communities
becomes more and more unequal.
So, you know, there are steps to take. A, if there is
affordable housing in every neighborhood around the airports
and in every neighborhood within your district, then you will
have some level of economic segregation and schools will become
more integrated as well. But the key is that if there are
investments, if there are core organizations in every single
neighborhood, then the consequences of that kind of economic
segregation become less severe.
Chairman Lee. Representative Heck.
Representative Heck. Thank you, Mr. Chairman. This is my
inaugural meeting of the JEC. I just want to signal, it is a
privilege and an honor to join the Committee, and I am very
pleased to be here. I also want to express my appreciation to
the Chair for selecting this topic. I think it is an important
and very worthwhile use of our time. Although my concern is
that we would devolve down the track of either/or, either
social investment or social capital, which frankly I think, (a)
reminds me of the old beer commercial where two people bark at
each other, ``less filling,'' ``tastes great,'' to no end.
And, frankly, and unfortunately, is emblematic of
everything that is wrong with this town, the ``either/or''
stuff. But having said all that, it seems to me that we have
got a couple of kinds of communities that are relevant to this
conversation: those for whom there has been an absence of
opportunity for quite some time, it is structural, it is
associated with all the factors that have been researched. Dr.
Sharkey, Dr. Hendren, racial discrimination and others. And
then you have other communities where it did not used to be
that case, but then there is traumatic job loss and it becomes
the case.
Everybody has that perspective, whether it is the mining
community in Appalachia, or the factory town in the Midwest, or
in the part of the country that Congresswoman Herrera Beutler
and I live in, the closure of the sawmill where there's just
been this precipitous loss.
We have some counties in Washington State, for example,
that have had double-digit unemployment literally for 25 years
because of the closure of the timber industry, double digit for
25 years.
And so to me it kind of begs the question, however, with
respect to social capital. Is it destroyed, demeaned, deluded,
by traumatic job loss? Dr. Sharkey? Let's go down the line.
Dr. Sharkey. Thank you, Representative Heck, for the
question. It is a great question. I think in sections of the
country that have gone through this kind of economic
dislocation, then it set the stage for a whole set of
additional problems. It sets the stage for the loss of social
capital that we have all been discussing.
It is not inevitable, however. I think what destroys
communities is when there is a combination of this kind of
economic shock, or long-term economic distress, combined with
the absence of a foundation of strong community institutions
that are unable to absorb people who are unemployed, people who
need additional training, people who need to go back to school,
or who need short-term support in order to get back on their
feet and reintegrate into the labor market.
So it is really this interaction between economic distress
and the absence of a strong foundation of community
institutions that creates the kind of----
Representative Heck. But they affect one another.
Dr. Sharkey. I think they interact together, exactly.
Representative Heck. My time is limited, so I guess I want
to get to my second and last question, Dr. Hendren. A lot of
your really informative research relates to upward mobility and
going from one income bracket to another. But I am curious as
to your reaction about the context here.
The truth of the matter is, for 40 years about 88 percent
of this country has been within an income bracket which has not
budged. Wage stagnation. That is the context. Your research is
how do I get from here to here, but the fact of the matter is
wherever ``here'' is has been flatlined for 40 years. And you
did not say anything in your testimony, nor am I aware of
anything in your research, that says how does that context bear
upon the upward mobility.
Dr. Hendren. I thank you for the question, and it is a
delight to be able to answer that. You are absolutely right
that the statistics I quoted on the 7.5 percent of kids from
low-income families that reached the top of the income
distribution is sort of a comparative statistic within the
income distribution.
In terms of statistics that capture exactly that
phenomenon----
Representative Heck. If I may interrupt, as it relates to
social investment, it is much higher in countries that have
greater social investment. But I interrupt. Go ahead.
Dr. Hendren. That is true. When you look across cohorts,
people who are born in 1940, 90 percent of them grew up to earn
more than their parents. The reason that is is because we
experienced broad-based equal growth across the income
distribution.
Today, 50 percent of kids grow up to earn more than their
parents. And the exact reason for that, statistically, is
exactly the phenomenon you mention, which is that there has not
been real wage growth at the median of the income distribution.
That is simply kind of a mathematical restatement of exactly
the phenomenon you are mentioning.
So in terms of whether or not kids earn more than their
parents, that is a direct implication of the statistics you are
describing.
Representative Heck. And if I had more time, we would talk
a little bit about the importance of the Fed's monetary policy
on that fact, and how it is that their over-concern about over-
heating of the economy has caused them to tap the brakes too
rapidly, thus suppressing wage growth. Thank you, sir.
Chairman Lee. Thank you. Representative Herrera Beutler.
Representative Herrera Beutler. Thank you, Mr. Chair.
This is the busy season here in D.C., but I feel like this
is one of those conversations that could go over several days,
and should, quite frankly. Because when I think about the
issues at home--you know, Representative Heck mentioned West
Coast has been decimated in certain areas by the timber
industry, and Federal policy, quite frankly, but how do we grow
back? I am sandwiched between Seattle and Portland. I am the
great sandwich part in the middle, with bones on either ends,
but they are struggling with housing policy, and it is
impacting all of us.
There is some incredible tragedy taking place because of
the impacts on people's lives, people who are losing their
lives. And I think this conversation directly relates to how we
change that.
I found it really interesting that you mentioned--you were
talking about--and I have heard it several times now, and Dr.
Sharkey was talking about, the difference in the strength of
the schools, and the community foundations, and institutions,
the strength of the family, and what I keep coming back to is:
Well what does that actually mean?
You know, I have an idea in my mind. I can tell you, my
family--my father is of Hispanic heritage, and they grew up
very poor and had very little; 10 kids in one room, and here I
get to sit before you today. And it is not because my parents
did anything more than work hard. And I know that these
elements were there, but I cannot define it.
So how do we define it? Is it--it is not always money, and
schools, you can compare Utah schools to D.C. schools, to other
schools, and in Washington State we have a lot of school
choice, believe it or not. There are a lot of people who
choose--and I think this is critical--choose to, whether, we
have public home schools in Washington State. So there are all
these different choices, and I think that contributes. But what
does it look like? How do we find a definition for this? How do
we put a more concrete--some concrete examples, because I think
it is kind of open to everybody, because I think everybody had
a piece, but I would like to hear thoughts.
Mr. Quinonez. Thank you for having a broader perspective,
or any question about that, because I would caution us in
trying to define ``social capital'' very narrowly, of only
thinking about institutions, because sometimes even those
institutions are just vessels where relationships actually
happen.
And if anything from my story and the story of MAF, is that
poor people also have social capital, because they also have
relationships. It is based on those relationships that we rely
on to survive to weather any economic shock, or any political
sort of antagonism against people. And it is those
relationships that really are central to the human condition.
So this is not new, right? This is why people left Africa
to start migrating out and conquering the world, right, because
we had those relationships to base it on. So this is not
anything new. But if we only think of them as being very
specific to a very specific type of folk, then I think we miss
the bigger picture.
And so I think once we start realizing and validating that
the relationships that people have to bear, and start doing
away with policies that actually try to break down families--I
mean, you know, I mentioned our current political climate. That
actually deteriorates the social capital within very specific
groups of individuals.
And so it is kind of acknowledging the broader sense of
what the capital is, and trying to not put up policies that
could break up families in that process.
Dr. Streeter. I would also just add to those good comments
two quick things. From our own work, it is really important
that people feel like they belong. And I think that is one big
element here.
If you actually have people that you can point to in your
lives that you can rely on in times of need when things are
tough, that helps against a whole range of other types of
problems.
So truly lonely people are people not who just have
feelings of loneliness from time to time, but people who
actually do not have someone to turn to when they have real
needs. We see that pretty clearly in our data.
Secondly, I would say--and thank you, Dr. Sharkey, for
referring to this earlier in our survey work on community
institutions, we have another study coming out on this in a few
weeks, which I am happy to share with your staff, that really
does show that when you have access to libraries, good schools,
the way a community is designed, even gyms, even if you do not
use the gyms, it turns out, when you are close to a range of
things that create cohesiveness in a community, it is
predictable of a lot of things: lower levels of loneliness,
higher trust in institutions, and the like.
And I realize that is not a panacea. That is not a response
to a major economic shock. If a factory closes, or an entire
industry evaporates from a community, you cannot then say after
the fact we are going to build these institutions. But it is an
argument for investing in those institutions in those types of
communities now.
We find this to be true whether it is large cities,
suburbs, or rural areas. It does not matter what type of
municipality you live in. It is when you have a density and
proximity to those kinds of community institutions that
actually make a community a community that are predictive of a
whole bunch of very good things.
Representative Herrera Beutler. Thank you, Mr. Chair.
Chairman Lee. Representative Beatty.
Representative Beatty. Thank you, Mr. Chairman. And thank
you to our panel. And let me also say what an honor it is for
me to serve on this Committee, not only for a personal reason,
but I also think it is a good marriage for me, serving on the
House Financial Services Committee and being Chairwoman of the
Diversity and Inclusion Subcommittee, because much of what we
are doing here is talking about how can we be more inclusive as
we look at expanding opportunities and making families and
communities in a better position and place to thrive
economically.
I have a great appreciation for all of your research, your
writings, and your comments today, and can actually say that I
liked just about everything that you said. But it gives me
pause to ask a few questions.
Dr. Hendren, in your testimony you state that current data
limitations prevent us from identifying the best policies for
improving upward mobility. Can you be, quickly, a little more
specific about what that means?
Dr. Hendren. Sure. So that is a reference to the fact that,
frankly, the way in which the Census is constructed is a
repeated cross-section survey of people in the population. And
at present it is actually quite difficult to link people over
time in that data.
So as we look at the historical policies that have been
implemented in our neighborhoods over the last 50 years, it is
actually quite difficult to understand the extent to which
those policies have improved the lives of people in those
neighborhoods versus simply changed where people live.
So that was the particular reference I was providing there.
Representative Beatty. Thank you. All of you presented data
and information, but it made me, sitting here as an African
American female who was not born quite in the 1940s, as you
talked about the wonderful opportunities of children making
more, living better than their families. And you all talked
about whether it was schools, or neighborhoods, or housing. It
made me feel like we needed a little history lesson to remind
us of Brown v. the Board of Education in 1950s, Ruby Bridges in
1960, and in some of those Southern states in 1964 and 1965,
during my lifetime, you could not even vote because of the
color of your skin and there was something called ``red
lining.'' You could not live in communities.
So here we are today in 2019 basically talking about the
same things that I heard my parents talking about in the late
1940s and in the early 1950s. So here we are. What are your
thoughts on the effect of the growing income/opportunity gaps?
Do you think it presents a national emergency? We are talking
about it here in the wonderful Senate on this Committee, but
what is the resolve? Are we in an emergency nationally? And
what should this Committee do? Quickly, we are going to go
right down the line with you, Dr. Sharkey.
Dr. Sharkey. Sure. It is a great question. Thank you for
the question, Congresswoman. I think there is a hard answer,
okay?
Representative Beatty. Is it a national emergency? Yes, or
no? Only so I get through----
Dr. Sharkey. The growth in income inequality I think is a
national trend that has very----
Representative Beatty. Is it a national emergency?
Dr. Sharkey. I would say close to yes.
Representative Beatty. Okay. We're going to go here, only
because I only have a minute left.
Mr. Quinonez. I say also it is a national emergency, and I
also brought up the IRCA in 1986 clause as a way of history.
Representative Beatty. Sure.
Mr. Quinonez. My social capital was realized because of
that particular legislation. I was able to adjust my status,
and I think if we do that to the millions of people that are in
similar situations we can also allow for the social----
Representative Beatty. I hate to interrupt again. So that
is a ``yes''?
Mr. Quinonez. That is a hard ``yes.''
Representative Beatty. Dr. Streeter.
Dr. Streeter. It is an emergency in some places, and it is
not an emergency in other places. But it is an emergency in
enough places across the country that I do think it is an
emergency. And I don't know that that then justifies one sort
of national policy response. I think in----
Representative Beatty. Okay, we are going to get to the
next part of that after him.
Dr. Hendren. If calling it a national emergency leads to
change, I am all for it.
Representative Beatty. And what should that change be?
Three seconds each. Is it legislation? Is it money?
[Laughter.]
Only because I have 30 seconds to go.
Dr. Sharkey. They have got more time than me to prepare.
Representative Beatty. Come on.
Dr. Sharkey. I would say invest in communities. Invest in
community institutions.
Mr. Quinonez. I would start with a comprehensive
immigration reform.
Dr. Streeter. Subject our workforce development policies to
the same creativity and reform-mindedness that we have with K-
12 and other forms of higher ed.
Dr. Hendren. I would take a life course approach across all
ages of children and think about where in places where a
particular age of kids are falling behind, target programs at
those ages.
Representative Beatty. Let me just say thank you very much,
and I yield back my one second.
[Laughter.]
Chairman Lee. A very good use of time. Representative
Schweikert.
Representative Schweikert. One second early, one second
wasted. Okay, as you know there are dozens of questions here.
But if I was to--if I came to you and said give me the one or
two top priorities, if I cared a lot about velocity, the
movement in particularly upward mobility and stratas, as you
know right now there is some very interesting noise in some of
the data that has come in over the last 12 months, still too
early to--but there seems to be, particularly in wage and
employment stability, those things, some really interesting
numbers happening in our lower quartiles of some real health--
you know, we have a fairly robust economy.
But if I was to look at that in the longer term, if I came
to you and said, hey, over the next 20 years I want to maximize
this upward velocity, what would you do?
Dr. Hendren. So I think the surprising thing is I would say
focus on children. Even though you are looking at wages you see
today, those were produced 20 years ago, at least. So I think
going back into the schools and realizing that the kind of
economic statistics we read every day were formed a long time
ago.
Representative Schweikert. Okay. So when you say
``children,'' is it the way we train children in the household
formation? What is that?
Dr. Hendren. So that comes back to the factors we were
discussing. So things like the quality of the schools. So I
think investing in children. I do think some of the other
factors we have been discussing that are, frankly, more
amorphous, like the strength of the family structure, measures
of social capital. I do not have a good solution for how--what
types of policies are best suited to address those issues. But
what I can tell you is that they look like they are important.
Representative Schweikert. Doctor, what would you do for
velocity?
Dr. Streeter. I agree with Dr. Hendren that the younger the
age of the person when you make the investment the better that
velocity will show itself out over time.
I think that making it possible for people to move around,
even just within regions, I think is important. I think
portability of benefits, but also more flexibility in the way
we do workforce development training, so that when people are
living on the east side of town and the best school for what
they want to do is on the west side of town, making it possible
for them to actually go to school over there and finish. And if
the car breaks down, to have resources to fix the car.
I think some of the very real----
Representative Schweikert. So a transportation barrier----
Dr. Streeter. Yeah, just greater geographic mobility even
within regions I think is something that would help a lot of
people, if we thought more creatively about that.
Representative Schweikert. When you look at your community,
what creates success? What creates that mobility, that
velocity?
Mr. Quinonez. So a great question. Most of the people can't
even get on a plane to fly from the East Coast to the West
Coast. And I think we have a lot of people, again, in this
country that cannot--that are barred from doing that, or even
barred from having the notion of being, you know, that they
belong in this country. So I think we need to address those big
questions, you know, nonetheless. And of course financial
inclusion, having more direct ways of having people being
banked and being included in the credit system is very
important.
Representative Schweikert. Dr. Sharkey.
Dr. Sharkey. Well I would agree with my colleagues here.
And I would say let's make sure that inequality in the country
as a whole does not translate into more and more unequal
communities. So that every kid has equivalent opportunity. That
is unrealistic, but close to equivalent opportunities, no
matter where that child grows up. Okay? So if the schools are
functioning well, if there are community centers, after-school
programs, then that child has a better chance of rising up. And
that happens when there is affordable housing in every
neighborhood across a city and a metro area, and opportunities
are more equally----
Representative Schweikert. So in the House when we look at
some of the housing statistics, you know, the Phoenix area is
having wonderful growth right now, but it is also putting quite
a squeeze on affordable housing. So in that case it's a local
zoning issue.
Can I ask, and I am going to sort of say something and then
ask you if you have a suggestion for what I can read to absorb.
I think there are some very creative ideas out there. As you
have written about, libraries, and those things, we are seeing
some communities that are now setting up sort of a community
page. I have a 3\1/2\-year-old daughter, and my wife went on
this community page and was getting the playpen and those
things from a neighbor I never knew.
It turns out, we are seeing--there are some writings out
there using that type of social relationship through one of
these. There are patterns. And being bankable. We had an
situation in Arizona maybe 20-some years ago where someone
cashing a check was paying a 20 percent fee. They were
literally giving up one day of labor.
So there was an experiment allowing a number of churches
and others to actually have a functioning ACH certificate
through the banking department and so the Catholic Church over
here was cashing checks, and it crashed the price. So there are
creativities out there.
On the transportation side, it turns out that some
organizations, these ride-sharing platforms, will actually do a
discounted. So waiting for the bus in Phoenix when it is 110
out when you can hit the button on a phone and get that ride
sharing. We are working on an experiment right now with our
local homeless campus where they have lots of jobs, but
transportation was our barrier. It turns out, once again,
technology may be that solution. And, you know, the choice
that's now coming through where we are starting to have to
rethink education, is education sitting in a room with bricks
and a ceiling and this and that? Or is part of my education
coming through a screen? Part of it a neighborhood working
group, a neighborhood robotics club?
I guess what I am throwing out, Mr. Chairman, is everything
here is quite real but yet we seem to approach it from 20-year-
old solutions instead of understanding we are living in a
digital revolution around us. And with that, I yield back.
Chairman Lee. Thank you. Representative Beyer.
Representative Beyer. Thank you, Mr. Chairman. And,
Senator, thank you for doing this. I talk to my four children
all the time about the need to build as much social capital as
they can, loneliness, happiness, their progress in life.
Dr. Sharkey, you talked about the positive level and
decreased levels of ``violence,'' how violent crime has really
come down a lot since 1990, but we are still in the dilemma
that we have 4.4 percent of the population and 22 percent of
the world's prisoners. Although I just read that the
incarceration rate is the lowest it has been in 20 years.
You talk about increased investment in the re-entry
programs, things like offender aid and restoration. But what
are the other strategies we can use, recognizing that locking
up mom, dad, sister, uncle, whatever, destroys the family.
Dr. Sharkey. It's a great question. Thank you for the
question. So the decline in violence has brought enormous
benefits that have been experienced by the most disadvantaged
segments of the population. But the methods that we have relied
too heavily on for the last 50 years, which is intensive
policing and mass incarceration, have generated these just
staggering costs that you mentioned.
So what's next? What's the next model? I think we have
models in place. For instance, the incarceration rate has
plummeted in New York. There is no increase in violence. Okay?
We know that this--we can reduce the incarcerated population
without consequences on violent crime.
I would argue for an investment in law enforcement that
allows law enforcement to do their job differently, to build
trust, to regain trust, and build relationships particularly
with low-income communities of color. I would argue that local
community organizations played a central role in contributing
to the drop in violence. They expanded on a large scale in the
1990s and took back parks, and playgrounds, and city streets,
and communities. This contributed. We have causal evidence.
This contributed to the crime drop.
If we invest in those organizations that run re-entry
programs, that work to try to re-integrate people coming out of
the prison system into jobs, into homes, back into their family
life, then the best evidence we have suggests that that is the
right approach. That is the next model moving forward.
Representative Beyer. Thank you very much. In Northern
Virginia that I represent we have very strong community
policing. And not accidentally, all four sheriffs tell me they
have the lowest number of people in their jails in a couple of
decades.
Representative Beyer. Mr. Quinonez, I was fascinated by the
increase in credit scores. I wonder if you could help me on
that. But I am also a car dealer in real life, and it is
amazing how many of the customers we see have terrible credit
scores. And I would love to connect you later with some of the
national NADA and others about providing--we sold 17 million
new cars last year, 40 million used cars. That is an enormous
impact. If you could do the kind of financial training that you
do with your folks to help Americans.
Mr. Quinonez. That's right. Thank you for pointing that
out. Credit reports nowadays, I see them as sort of like
passports to the marketplace, to the financial marketplace,
that without that passport you are really denied everything.
And so that is why we put so much emphasis on helping people
become visible in the credit marketplace.
And one of the ideas that we are pushing is the idea of
having a credit system have more visibility of the totality of
people's financial lives. And so the idea of including rental
payments, or the idea of including even telecom, or even paying
their cellphones, to be included in the credit reports is
actually something that could actually make them become much
more visible by really having a fuller description of what they
are doing with their money.
Recently Experian, the company Experian, has started a
program called ``Boost.'' And I have a personal story to share
here, because one of my--my nephew, I actually told him about
this product, and he went online and he signed up to Boost, and
then within a minute his FICO score went up by 29 points.
Nothing happened, nothing changed with him, all he did was just
say, yes, you look at my transactional information on his
checking account, and through that the credit system was able
to sort of recognize him better. Whereas before, they thought
he was more risky, but now he is less risky, and it is all
because the logarithms included more data about him that
increased his credit score by 29 points. So there's a lot of
different things we could be doing to get him----
Representative Beyer. Let me interrupt you because I only
have three seconds left. I will sign up for Boost tonight,
though, thank you.
And, Dr. Hendren, I want to have two more graphs on your
opening chart, which is the poverty rate and also the rate of
increase in income, just to really understand why the mobility
isn't happening.
But the elephant in the room is income inequality. What
would be the impact of doubling the earned income tax credit?
Dr. Hendren. I guess it would depend on how you pay for it,
but I think there is evidence to suggest that it would increase
labor force participation. It would increase after-tax incomes
for a lot of Americans. And so I think, you know, that would
probably be the impact.
But again, I think the key thing for creating
intergenerational change is whether or not it has spillover
effects on children. And there I think there's some interesting
work suggesting that it might, but I think there's a lot of
interesting work that needs to be done.
Representative Beyer. Okay, thank you.
Chairman Lee. Representative Trone.
Representative Trone. We are now seeing a new type of
segregation in some of the school districts, gerrymandered
school borders that fence out students, which often means
segregating students along racial lines.
The 2016 GAO report found the public schools are more
segregated today by race and class than every before since the
1960s. In many ways, a child's zip code determines their
economic prospects. A few weeks ago we had Secretary of
Education DeVos and we asked her--and she was very evasive--a
question regarding racial segregation posing a threat to the
educational opportunities of children of color.
Mr. Sharkey, can you speak about the long-lasting
consequences of segregation as they relate to social capital,
and also the lack of social capital impeding upward mobility in
communities of color?
Dr. Sharkey. Yes, thank you for the question. So there is
very strong evidence that--well, first off, we know that
segregation gets worse for families with school-age kids. So
segregation is not an accident, okay? It is intentional. We
have set up policies that allow people to sort into different
communities, and then to set up barricades that make sure that
their kids go to schools with resources and the other kids do
not. This is opportunity hoarding. It is very explicit. It is
very intentional. It has gone on for decades.
We also know, with very strong evidence, that when kids get
the opportunity to go to more economically diverse schools,
they do better. Okay? Heather Schwartz has done excellent
research on this based on data from Montgomery County, which
has a very strong inclusionary zoning program, where kids were
randomly assigned to housing developments. Some were in more
economically integrated schools than others.
The low-income kids who went to more integrated schools did
better. Those improvements in academic achievement lasted for
several years following. Okay? So we know that segregation
harms the academic achievement of low-income kids. We know that
economic segregation is particularly severe among families with
children, and we know that the consequences extend into later
in life.
Representative Trone. Mr. Quinonez, studies indicate 80
percent of jobs are found through social capital through
connections, relationships. What government actions have
historically prevented communities of color from accessing
social capital needed for that economic mobility?
Mr. Quinonez. I mean I will speak on that from an immigrant
perspective. And so one of the realities is that immigrant
communities, because of the different types of legal statuses
that we may have and we may live in mixed-status families, some
may have legal documentation, others may not. And that is a
huge impediment from really realizing the economic potential.
So to some extent even like my own family, I mean we were
able to help each other because we were family, we were helping
each other, and so that was the essence of our social capital,
through friends that we were in a similar situation. So the
idea of linking--and I hope I am being clear about this--that
when we think about economic mobility, we have to think about
the broken immigration system because that in and of itself is
really causing a lot of people from like not really reaching
their economic potential.
Representative Trone. Mr. Sharkey, given that persistence
of neighborhood segregation and the inequality of social
capital, what investments need to be made to ensure every
community has the opportunity to succeed, and our children can
succeed?
Dr. Sharkey. Thank you for the question. So there are two
sets of investments we can think about, and Dr. Streeter
mentioned one of them. One, we can give people more chance to
move to areas of opportunity. And the types of moves that
typically lead people to opportunity are long-range moves,
moves that bring people into new parts of the country that
offer greater opportunities. Okay? Those types of moves have
become less common over time. So that is one strategy. And
there are a whole bunch of approaches--housing mobility
approaches, but also just funding a mobility bank that lets
people take risky moves, bringing them to different parts of
the country. So that has to be one part of the strategy.
And then the second part is making sure that in areas that
have struggled, in areas where economic opportunities have
become more sparse, that we have investments in the core
institutions, public schools, libraries, community
organizations that prop up a neighborhood, that make sure that
if economic conditions go downhill, that the community doesn't
fall apart, that kids have a place to go that the public
schools don't deteriorate, that churches don't dry out and
people stop coming. Okay? These types of investments, which are
taken for granted in most communities across the country, have
been absent particularly in low-income communities of color.
So we need to make sure that every community across the
country has these basic investments that provide the foundation
for community life.
Representative Trone. Thank you, Mr. Chairman.
Chairman Lee. Senator Peters.
Senator Peters. Thank you, Mr. Chairman.
I want to--Dr. Sharkey, I want to pick up on some of those
comments, because the issue that I think is incredibly
important for our country is to make sure, as you have all
addressed, that economic opportunity is everywhere in the
country. We are not seeing that now.
In fact, the numbers are pretty dramatic. I think, Dr.
Sharkey, you mentioned in your testimony as well that if you
look at just a few geographic areas, most all of the economic
growth--I think a 2016 study from the Economic Innovation Group
showed that New York City, Miami, Los Angles, Houston, and
Dallas have as large an increase of business as the rest of the
Nation combined, just those few urban areas are growing whereas
the rest is being left behind. And we are finding in rural
areas, in particular, as people leave.
You mentioned in terms of mobility one of it is to allow
long-range moves, which is true. And I think it is hard for
folks who are seeing it very difficult to move to those areas
that are very expensive. There isn't the social safety net for
them, so they stay home.
But if we are encouraging people to move, they will move to
these areas. And those areas continue to grow. And you have
folks who have the ability to move, leaving other areas, you
are actually accelerating the situation.
And I get your point about investing in these other areas,
but it seems as if we actually accelerate it. What's your
thought on that?
Dr. Sharkey. Yeah, so you have to balance--again, thank you
for the question--you have to balance these two goals. One is
making sure that every American has access to areas of high
growth. So that partly involves encouraging moves, and even
risky moves. It also involves transportation policy that brings
people nearby those centers of growth that allows them to
commute in quickly on high-speed rail and still live in
affordable housing nearby.
Senator Peters. That only makes those few areas just
bigger.
Dr. Sharkey. Well that's--so that's the second part of it.
And this is the challenge that we haven't grappled with as a
Nation right now, is that there are large sections of the
country that are left behind. Okay? And so the policies that
have to be oriented to those sections of the country left
behind are very different.
This is not about purely focusing on economic growth; it is
about making sure that those sections of the country left
behind, those towns and cities, have functioning institutions
that, as job opportunities become less common, people have
access to retraining; people have access to education; people
have access to child care; people have access to financial
institutions; kids have access to community centers and after-
school programs.
These are the types of investments that can get people back
on their feet and that can make a community start to thrive
again. But those investments have been absent. And there are
several programs that it would be good to talk about because
they are proofs of concept.
One was carried out in Milwaukee in the 1990s. That was the
New Hope Program. What was unique about this program is that it
was targeted toward people in low-income communities, and it
guaranteed community service jobs for anyone who was willing to
work 30-plus hours per week. It guaranteed them a job. It was
available to people without families. It was available to
single men, okay, unlike many similar programs.
It did not just reduce poverty among the people who took
part--and there was a randomized control trial to evaluate--it
did not just reduce poverty and increase work hours, it also
affected the children. So it also improved academic performance
of people who took part. It reduced behavioral problems of
people who took part.
So this is a proof of concept, that if we provide these
kinds of investments, (a) it gets people back into the
workforce; but (b) it also supports families. It brings people
back into the community.
Senator Peters. There's a minute left. Does anybody else
want to take a stab at regional inequality? What do we need to
do?
Dr. Hendren. So I would be happy to add one piece of data
to that discussion, and I think we often talk about promoting
jobs, and I don't want to downplay that by any stretch, but if
you look across the United States at places that have the
highest rates of upward mobility, they are not necessarily the
places that have had the highest job growth over the last 30
years.
A couple of notable examples are places like Atlanta and
Charlotte, two localities that have had some of the highest job
growth, the highest income growth of any metropolitan area in
the United States, but they have some of the lowest rates of
upward mobility.
And intuitively what's going on there is that the economy
today that is there is in a sense importing the talent from
other areas of the country. And I think this sort of highlights
a distinction when we talk about the role of educational
investment, social capital investment, and we're talking about
the production of that human capital for the next generation
that will be in the labor market in whatever city they choose
to live as an adult.
Senator Peters. Thank you.
Chairman Lee. Okay, it is now nearly 11:30. We have just
completed our first round. We are going to go ahead and start a
second round of questioning. We have the room until noon. That
is when we get kicked out. We will go as far into the second
round as we can before we are evicted.
Dr. Hendren, you have previously co-authored a paper in
which you discuss racial inequalities in intergenerational
mobility. And in that you cast some doubt on the viability of
policies such as temporary cash transfers or minimum wage
hikes, at least as far as providing a viable, sustainable
solution.
Instead, as I understand it, you and your co-authors
suggest that intra-neighborhood solutions such as mentorship
for African-American boys, or efforts to facilitate interaction
across racial groups, could provide for more effective
solutions in the long run.
How should we as policy makers, as Federal lawmakers,
specifically, be thinking about increasing access to social
capital, not just for this generation but for future
generations as well, looking at it from a sustainability
standpoint.
Dr. Hendren. That's a great question, so thanks for the
opportunity to talk about that. So you're absolutely right.
What we found is that in every neighborhood in the United
States upward mobility for low-income Black children is lower
than the upward mobility for low-income White children. And so
that suggests that in order to address the race gap in economic
outcomes that we see in adulthood, you actually have to go
within the neighborhood.
It is not just about across neighborhoods directly. So I
think what to do on that front, we have some speculative
solutions that you discussed, things like mentorship and things
like promoting greater integration within neighborhoods and
within schools.
I think it comes back to some of the earlier discussion
about zoning, and to what extent people that might live fairly
close together are actually growing up in the same community. I
think, thinking about this as kind of a national issue, even
though the decisions are being made locally, I think that is
what is crucial here, that all of the local decisions that are
going in in the local zoning board have national implications.
And I think that makes, obviously, policymaking quite
difficult. But I think it is the reality.
Chairman Lee. Thank you. Dr. Streeter, you cite the
enduring connection between civic engagement in America and
religion in America. In the past we have seen some attempts by
the Federal Government to try to incorporate faith
organizations into the provision of various services. For
example, when George W. Bush was President, he had an Office of
Faith-Based and Community Initiatives.
How else might public policy protect and perhaps even
empower, or further the efforts of faith-based organizations in
communities in their charity and their civic engagement work?
Dr. Streeter. Great question, and I think the first answer
to that is to invite them in. And then to ensure that the
barriers to entry are as low as possible while protecting these
important distinctions that we have in the First Amendment.
I think the regulatory reform work that was done in the
Bush Administration through that office was actually a good
step in the right direction, kind of leveling the playing
field, without requiring religious quotas or anything like
that, but making it easier for organizations that are very
missional, whether they are rooted in religion or not, to
actually be involved as part of the solution.
I think that--and this just dovetails off of some comments
I made earlier in my prepared remarks--I think that sort of one
practical thing we can do as policymakers is look at the way in
which our devolutionary policymaking gives incentives to
municipal leaders and others to invest in institutions very
broadly, those that are best equipped to solve problems that
they are invited into the solution equation, whether they are
religious groups or not.
I think that was one of the effects, whether it was
superintended or not, I think it was partially intended by
welfare reform. I think some of the community partnerships that
we've seen in community policing where neighborhoods really
have ownership over the safety of their parks and their
streets. A lot of times when you get on the ground and you go
to the communities where this is affected, you actually have
houses of worship that are involved in those partnerships.
And so I think creating incentives without requirements is
the best thing to do. And fortunately we have some things in
our own policymaking history that serves as a guide.
Chairman Lee. Are there things in our own policymaking
history that also serve as a guide of what not to do? Is there
anything in particular that may be harmful?
Dr. Streeter. Yes, I think--well certainly erecting
barriers that go beyond the case law with respect to religious
organizations was a problem. This kind of crowding out effect
that government programs had on religious organizations. I
think a lot of that was corrected during those reforms in the
early 2000s that you cited.
But I think providing an environment that is overly hostile
to houses of worship disadvantages communities that need that
help the most, here those institutions are super strong. We
just have to acknowledge that. And when you look at the civic
backbone of this country, you really can't disentangle it from
the religiosity of people that are involved. I mean a lot of
our civic activity in this country is fueled and driven by
people that are motivated through their faith and through
organizations that are faith-based.
And so we certainly don't want to crowd out their good
efforts.
Chairman Lee. Thank you.
Representative Heck.
Representative Heck. Thank you, Mr. Chairman.
Dr. Hendren, let's talk housing. Did you study the
relationship at all between long-term homeownership and either
upward mobility or the factors supporting strong social
capital?
Dr. Hendren. So homeownership in particular is not
something that has popped out at us as one of the strongest
correlates of upward mobility. We have done a lot of work
looking at the rule of housing policy, though, in shaping
upward mobility for low-income kids, most notably the impact of
the Moving To Opportunity Experiment relating to some of the
discussions we were having earlier about the negative impact of
large-scale public housing investments that were disinvested in
over the course of the years.
Representative Heck. But that is not a homeownership
program.
Dr. Hendren. No, it is not a homeownership program.
Representative Heck. So you did not study homeownership?
Dr. Hendren. So we have looked the--if I recall correctly,
and I could get the statistic for you exactly--we have looked
at the relationship between upward mobility and the fraction of
people who own a home. And my recollection is that that was not
as strong of a correlate as some of the other things we found.
But I could provide that for you afterwards.
Representative Heck. I would appreciate it very much. And
let me lay out the facts and ask you to accept them as a given
for at least now.
Dr. Hendren. Sure.
Representative Heck. The fact is that demand far exceeds
supply right. An objective analysis suggests we are about 5
million homes short in this country. It is not uniformly
concentrated. It's here, and it is there. We are not building
enough homes. Construction is not keeping up with demand. Wages
are not keeping up with prices.
And if you actually follow that through, here's what
happens. Because we are especially not building new starter
homes now. The profit margins in starter homes is just not
there as it once was in this country. So people stay renting.
People stay renting. Occupancies go up. If occupancies go up,
rents go up. This is all verifiable.
If rents go up, more people become rent burdened. If more
people become rent burdened, more people become subject to the
need of publicly subsidized housing, and indeed more people
become homeless.
The fact is, notwithstanding popular discussion, the single
largest increase in household budgets in the last 15 years is
not the cost of a college education, and not the cost of health
care; it's the cost of shelter. Those of us who have been
fortunate to be in our own home for longer than that don't have
eyes on that, don't experience that, except insofar as, I'll
just use the random example, our 27-year-old son is still
living upstairs. Not quite sure who that would relate to. Oh,
yes, it would relate to my household.
So this is all despite the fact that homeownership, which
is now being deferred, and which is now still commonly aspired
to by the average American, we have a situation where we are
nonetheless one of the lower percentages of homeownership in
modern history.
And we also know--these are all facts--that homeownership
is the largest net worth building tool of the average American.
So I cannot square that it is not a significant factor in
upward mobility with that set of facts; that it is the largest
increase in household budgets in the last 15 years; that
homeownership is being deferred; and that it is the largest net
worth building tool of the average American.
Can you square your conclusion with that set of facts?
Dr. Hendren. Yes. So what I would say is that when you look
across the United States, what you are referring to is more of
what I would argue is a factor that is affecting almost every
family. And I think that is largely true.
Now I don't want to say for one second that the role of
homeownership has no place in thinking about upward mobility,
but what we can say is that when you look across the
metropolitan areas of the United States that is not one of the
strongest factors that jumped out to us in the data.
Now that doesn't mean that it is not playing a factor. This
comes back to a lot of the discussion we were having at the
beginning of the hearing about do we know exactly what the
right policies are for promoting upward mobility? The answer
is, no. And it very well could be homeownership. And I don't
think any of us want to say that that's something that is or is
not.
Representative Heck. Well thank you for that. And to say
nothing of the fact that if you happened to be a person of
color, the long-term pattern is you've been systematically shut
out of buying in certain areas, and the manner in which credit
is extended to low-income people of color is disproportionate
and discriminatory over a long period of time and upward
mobility, Dr. Hendren.
Dr. Hendren. And today in places that were historically
redlined, you see lower rates of upward mobility.
Representative Heck. Thank you, sir. Yield back, Mr.
Chairman.
Chairman Lee. Representative Herrera Beutler.
Representative Herrera Beutler. Thank you, Mr. Chair. It is
interesting, I think it might have been Representative
Schweikert's questions, that I kept hearing a theme about the
next generation in children; if you want to change the trends,
yes, you want to improve things for folks today, right now, but
if we really want to change the--I think you were saying
velocity, a little bit of Whitney Houston, which I loved--but
it is true that if we want to change it, we have to look at
where they're at. The formative years. You know, I'm thinking
about girls in STEM, and by third grade if you're not
encouraged in math and science you're going to opt out.
We have identified some of these more sensitive times. With
that in mind, I think this is probably to Dr. Hendren. If
better schools and neighborhoods, similar to the conversation I
think you just had, improve upward mobility for children, it
seems important that families have more choices about where
they live and where to educate themselves.
Families in the study that you referenced used the Federal
Housing Voucher Program to make this move, but there are a lot
of families that do not fit into that mold and cannot access
that for many reasons, so they are outside the Federal Housing
Program and would like to duplicate this and move to different
neighborhoods with greater opportunity, or greater flexibility
to educate the kids how they want to.
What are some ways that we can affect policy to benefit
that and loosen those reins a bit? Or, nudge locals, you know,
local municipalities and so on? We can't tell them what to do,
but we certainly--I'm thinking about CBDG funds, I'm thinking
about Housing Funds, low-income tax credit, there's a lot of
things that we do have some rein on.
Dr. Hendren. No, I think that is exactly right to think
about. I think, you know, outside of the voucher program,
thinking about the LYTEC program, where those investments are
being made, and are they being made from the perspective of
trying to improve upward mobility for children? I don't think
that's the common lens that's used for guiding those
investments today. And so how do we shape at a national level
the incentives for those local decisions?
And within the voucher program, I do think there's an
additional discussion about the ability to make opportunity
moves to better neighborhoods for your children using a
voucher. There's a lot of discrimination that is faced by
voucher holders, by people of color, by people of different
backgrounds. And I think policy at a national level that can
help break down some of those barriers for families is
important.
Representative Herrera Beutler. Alright, I yield back.
Thank you.
Chairman Lee. Representative Beyer.
Representative Beyer. Senator, thank you very much. My
friend, Congressman Heck, left. I wanted to pile on on the
housing issue because I noticed one of the recommendations, I
think maybe it was Dr. Sharkey's, about ending the mortgage
interest deduction and reinvesting all of that. Obviously our
realtor friends won't be very happy with that. But the whole
notion I think of having the mortgage introduction in the first
place was that the American Dream, that every American wants to
own their own home, that this would stimulate homeownership.
And I had the advantage of living in Switzerland for four
years where homeownership was 30 percent only, relatively low,
but 80 percent of the people lived in apartments. And with the
increased urbanization of America, what we are seeing in so
many places is increased urbanization and people moving into
apartments, condos, things like that.
By the way, the net worth of the average family in
Switzerland is much higher than it is here, as is the life span
and the happiness. Can you dive, either, any of you, dive a
little deeper into--yes, right now homeownership is an
essential part of our net worth. Does it need to be? And is
this now the time in an urbanized America to rethink
homeownership and the stimulus that we put to it?
Dr. Sharkey. Well let me start. Thank you for the question,
Representative. So I think the question, the broader question
that I think about is how do we invest in housing? And that is
where my critique of the mortgage interest deduction comes in.
This is a regressive policy. This is a policy that
overwhelmingly benefits the highest income Americans and
encourages people to buy the most expensive home they can.
Okay?
So when we think about how we want to invest our Federal
resources in housing, I would prefer a policy that does not
encourage people to buy the most expensive home in the most
exclusive neighborhood they can, and then to do whatever
possible to make sure that property values are stable, or that
they increase by keeping other people out, by building fewer
homes around them.
And so that is the pattern of development that we have
seen, that there are strong incentives for people to invest
heavily so that their home is their main source of assets. And
then they have the very strong incentives to reduce development
around them, to make sure that affordable housing is not built
because people are concerned about property values.
So my broader approach is, if we are going to invest in
housing, I think we should invest in affordable housing. I
think we should try to give the opportunity for homeownership
or for affordable rental housing to a larger segment of the
population.
Representative Beyer. Mr. Quinonez, you talked about the
Mission Asset Fund. How participatory have the community banks,
the credit unions, and the big banks been with you in terms of
providing the capital necessary to grow that?
Mr. Quinonez. Yeah, we've got a lot of backing from
financial institutions to do our work, frankly. You know,
Chase, Citibank, you know, Bank of America, all those
institutions have supported our work, because ultimately they
are the ones that actually are benefiting from this work. Which
is, you know, we are expanding the pool of eligible borrowers
so that they can go into those institutions and get those loans
to buy those homes, or get loans to buy cars, or invest in
their businesses.
And so I make sure to remind them of that, that they are
there to--and it is a good thing, because we actually want our
clients to engage with those mainstream financial institutions.
But we also want them to support the actual work that goes
behind it.
But to your prior question about homeownership, I also
would love to sort of--for us to sort of think about renters,
to sort of say how can we elevate renters and how they manage,
because right now there's a lot of benefit that we accrue to
homeowners, and by way of the interest deductions and so forth,
but by renters themselves have very little benefit. And so even
making the rent payments don't get recognized.
So I mentioned, you know, the idea of including rental
payments in credit reports could be one of those other ways of
incentivizing or supporting that as a housing strategy.
Representative Beyer. You had a couple of bullet points
about Congress should clarify that U.S. citizenship is not a
prerequisite for a bank account. Do banks think it is a
prerequisite now?
Mr. Quinonez. So right now, you know, we have heard from
some of our clients, some of our colleague organizations where
some banks are actually asking for proof of their legal status,
either proof that they're U.S. citizens, or proof that they are
legal permanent residents. So even just to maintain their
checking account.
There are a lot of other financial products that require a
Social Security number, and because of that requirement that
actually leaves out a lot of legal permanent residents. Others
may not have that. They may have an ITIN number, they have
other things, but the idea that to create a financial product
with a requirement of a Social Security number actually does
leave out a lot of--millions of people in America from
accessing those services.
Representative Beyer. Thank you very much. Mr. Chairman, I
yield back.
Chairman Lee. Thank you.
Mr. Schweikert.
Representative Schweikert. Thank you, Mr. Chairman. I will
do this quick.
Mr. Quinonez, there are actually data analytics out there
that actually do create sort of an A-B alternative credit
score, a lot of alternative lenders already use that----
Mr. Quinonez. Yes.
Representative Schweikert. Where some of the barriers,
actually can Fannie, Freddie, others, also look at an A-B type
credit score system. So the person that's traditionally not
been bankable, but has always been really good on their
cellphone payment, this and that, and those actually have
existed for years now.
Mr. Quinonez. That's right.
Representative Schweikert. We took a run at that a few
years ago in the Financial Services Committee, but were not
able to get it through.
There seems to be--and I know that it is a snapshot so it
is hard for you all to do your analytics. In the last
particularly 12-18 months, you know, being someone--and the
staff right behind me, she is incredibly smart. We have been
trying to do digging into the U-6 data, some of the other
things that we've seen, the employment data, and the
populations that all of a sudden are gaining work, and some of
the change in wages.
Are you actually seeing right now this economic growth
cycle, this employment cycle, is starting to create some real
opportunities, or some movement with populations that, as
economists or demographers, if it were just a couple of years
ago we were saying this population is probably part of our
permanent underclass? You know, I obviously have an intense
interest in economic mobility.
Dr. Hendren, are we starting to see anything at least as a
snapshot in this current cycle?
Dr. Hendren. So I think the improvement in median wages
recently suggests that there are more children in these current
years that are earning more than their parents than there were
several years ago. I think that is likely true. And so I think
that is obviously a good thing.
As we think about coming back to the homeownership
question, the role of these financial products, I think the
idea of creating pathways for people to grow up--climb up the
formal credit system is one way to continue to make that broad-
based.
Representative Schweikert. Well, and I know I am jumping on
my own question, but the homeownership housing policy is
something I have always been very interested in, is more
complicated. If it is 2009-10, all of a sudden the fact we
bought a house, it becomes crushing to mobility because you
can't sell it, or you are upside down on the mortgage.
So we have to sort of understand that a vibrant housing
market does also create the ability to I can sell and move, I
can chase a job, and those things.
So it turns out it is more complicated than just the fact
it is a forced bank account. Does anyone else see actually some
interesting things in the data runs of the last 12 months?
Mr. Quinonez. I will share just one quick bit. What we have
seen with our clients is that there has been some improvements
on their incomes. But what was most interesting is how they
managed to couple their wages with government programs, or how
they managed the money within their family to make ends meet.
And so the idea that the more choice, or the people that
have more strategies for managing income, those are the ones
that are better off, rather than people that have just very
limited or one strategy.
Representative Schweikert. Mr. Chairman, he may have said
the magic word, ``creating options and choice,'' instead of a
sort of bureaucratic command/control may be the solution for
that optionality that everyone should have. With that, I yield
back. Thank you all.
Chairman Lee. Thank you, Congressman Schweikert. I want to
thank each of our witnesses. You've been terrific, the
testimony you've prepared, both in writing your prepared
statements today and your answers to our questions have been
enormously helpful. And I thank you for coming. This hearing
stands adjourned.
[Whereupon at 11:52 a.m., Tuesday, April 30, 2019, the
hearing was adjourned.]
SUBMISSIONS FOR THE RECORD
Prepared Statement of Hon. Mike Lee, Chairman, Joint Economic Committee
Good morning, and welcome to this hearing of the Joint Economic
Committee.
To begin, I'd like to welcome back the members of this committee
from the previous Congress, as well as our new members, and I'd like to
congratulate Representative Maloney on her return as Vice Chair this
Congress. I look forward to working with all of you.
The topic of this hearing--expanding opportunity--is in many ways a
quintessentially American topic. As Abraham Lincoln put so eloquently,
the leading object of our government has been to ``elevate the
condition of men--to lift artificial weights from all shoulders--to
clear the paths of laudable pursuit for all--to afford all, an
unfettered start, and a fair chance in the race of life.'' In other
words, to remove barriers to opportunity.
Often, however, policymakers have a limited understanding of what
opportunity is. We sometimes see opportunity purely in terms of
economic outcomes--namely, educational or financial success. And
moreover, we can view financial capital as the only important source of
wealth on which opportunity depends.
Economic wealth is no doubt important, and it is right that the
Federal Government should seek to remove barriers to it. But to see
opportunity exclusively in those terms fails to capture an invaluable
source of wealth on which human beings draw, and one that is in fact
key to expanding opportunity: social capital.
Social capital is the wealth produced from our associational life--
what we do together. It inheres in the web of social relationships
through which we pursue joint endeavors, and it comes from our
families, communities, workplaces, churches, rotary clubs, and little
leagues. And it is through these institutions of civil society that we
make a happy and productive life with other people. They shape our
characters and capacities, help us address the challenges we face in
life, and provide us with meaning and purpose.
For the past two years, the ``Social Capital Project'' of the Joint
Economic Committee has documented trends in our associational life and
its distribution across the country. It has studied the evolving
nature, quality, and the importance of our associational life and the
relationship it has to different problems our Nation is facing.
The Joint Economic Committee has recently undertaken the work of
exploring the connection between opportunity and social capital. And it
is has found that opportunity is largely dependent on social capital,
available to us through the relationships we have with our families,
friends, neighbors, fellow congregants, and coworkers. These
relationships are crucial for both our economic opportunities and our
opportunity for producing and sustaining a vibrant, healthy, and
meaningful community life.
And so the goal of the JEC is now to craft policies rooted in
social capital--policies that will expand opportunity for all Americans
by strengthening families, communities, and civil society.
This undertaking will not be without its challenges. After all,
social capital is not something we can see, touch, or directly measure.
In addition to difficulties of measurement, there are also difficulties
in establishing its causal importance. And while policy can certainly
help promote the bases for a flourishing civil society, we must also
inevitably confront its limits, and determine when and to what extent
the Federal Government has a part to play in this project and the
extent to which it is inflicting harm.
To bound the types of policies under consideration, and based on
the past two years of its research, the Project has identified five
broad goals related to opportunity: making it more affordable to raise
a family, increasing how many children are raised by happily married
parents, connecting more people to work, improving the effectiveness of
investments in youth and young adults, and rebuilding civil society.
Our distinguished panelists will help us to shed light on these
issues and questions today. I look forward to hearing their testimony,
and to seeing the fruits of our discussion going forward.
I now recognize Senator Hassan for opening remarks.
__________
Prepared Statement of Hon. Margaret Wood Hassan, a U.S. Senator from
New Hampshire
Thank you, Chairman Lee, and thank you for holding a hearing in
which we can examine innovative ways to increase economic opportunity
in all of our communities.
And I want to thank all of the witnesses for being with us today.
I want to focus today on how we can create opportunity for
entrepreneurs by increasing their access to social connections and
personal networks--or, in other words, by helping build their ``social
capital.''
Entrepreneurs frequently use their personal connections to identify
business opportunities, find community mentors, and secure the capital
that they need to launch and grow their startups.
However, not everyone starts off with connections to the business
community, and entrepreneurs outside these informal networks can find
it harder to access vital resources like financial counseling and
capital investment.
This presents particular challenges for women entrepreneurs.
Last year, the National Women's Business Council issued a report
that found that women's personal networks have fewer connections with
ties to resources like financial capital.
This is also an acutely important issue for entrepreneurs in rural
areas of my State.
In rural areas, there is often extremely limited access to high
quality, affordable broadband internet, which is an absolute necessity
for any business hoping to compete in the modern economy.
Limited broadband access slows entrepreneurship and contributes to
the so-called ``brain drain''--a problem for rural areas that I know,
Mr. Chairman, you focused on in a report on social capital released
just last week by this Committee.
Fortunately, there are successful initiatives that Congress can
build on.
In New Hampshire, we have many non-profit organizations and
business incubators that are leveraging community interest and Federal
investments to build social capital for entrepreneurs from all walks of
life.
New Hampshire's Small Business Development Center provides business
advertising and mentorship, for example.
Our Regional Development Corporations provide business gap
financing, and we have startup accelerators that tailor their services
in innovative ways.
So there are many programs already underway in the Granite State
that can serve as models for our efforts to expand opportunity for
entrepreneurs, and I expect there are models in lots of other states as
well.
In my view, having the opportunity to start and grow a business
shouldn't be all about ``who you know.''
Equality of opportunity for entrepreneurs should be predicated on a
willingness to work hard to transform an innovative idea into a
reality.
The bottom line is that we must do more to level the playing field
and help aspiring business owners build social capital.
Our country was founded on the idea that nurturing the talent and
the energy of every person promotes human dignity and ignites a vibrant
and competitive economy, and government certainly has a role in
ensuring that we do just that.
When we bring people in from the margins, our communities, our
democracy, and our economy all benefit; we thrive and we build a strong
future for our children.
So, I look forward to our witnesses' testimony today on how we can
help all Americans build social capital. Thank you, Mr. Chairman.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Question for the Record for Dr. Hendren Submitted by Senator Hassan
1. As I noted during the hearing, social connections are often
critical for entrepreneurs seeking the counseling, investment, and
other resources necessary to start and grow a small business.
Given the unique challenges faced by entrepreneurs with limited
social capital--such as women entrepreneurs and entrepreneurs in rural
areas lacking quality broadband internet--what are some specific steps
that you would recommend Congress take in order to encourage the
development of social capital and promote economic opportunity in
disadvantaged communities?
Thank you for the opportunity to discuss this question. On the one
hand, you can work to promote entrepreneurship of adults interested in
pursuing such a career. However, our work would suggest one should also
focus attention on cultivating the entrepreneurial opportunities and
skills in the next generation. At this point, we don't know the best
policies to do this, but we do know that the development of ideas,
starting of a business, and creation of economic opportunity is rooted
in childhood environments. I would consider the encouragement of more
programs in schools to help promote entrepreneurship. I would also
consider after-school programs to promote a greater understanding of
how to start a business. I would also support programs that facilitate
greater summer youth employment programs, perhaps helping youth work in
small businesses, which would allow them to be exposed to the type of
internship opportunities children from more affluent backgrounds use to
develop social capital during childhood and succeed later in life. To
be sure, these policy suggestions are speculative at best, and so I
would also encourage implementing policies in this area that are
rigorously tested (e.g., through randomized control trials). But
nonetheless, I do believe a greater focus on growing the opportunities
available for the next generation holds the most promise for addressing
this important issue.
__________
Question for the Record for Dr. Streeter Submitted by Senator Hassan
1. As I noted during the hearing, social connections are often
critical for entrepreneurs seeking the counseling, investment, and
other resources necessary to start and grow a small business.
Given the unique challenges faced by entrepreneurs with limited
social capital--such as women entrepreneurs and entrepreneurs in rural
areas lacking quality broadband internet--what are some specific steps
that you would recommend Congress take in order to encourage the
development of social capital and promote economic opportunity in
disadvantaged communities?
Because it is difficult to jump-start economic activity in
disadvantaged communities through traditional tactics such as luring a
company with tax credits, it seems regional strategies are more
promising. Finding ways to connect disadvantaged communities with
growing areas within a distinct geographic region is more likely to
help the former, rather than focusing on individual communities by
themselves. This is typically how outlying areas around a central hub
of economic activity, such as small towns outside a growing urban area,
continue to remain economically viable themselves. Factoring this
reality into our policymaking would be useful.
One example where this kind of thinking has been implemented as
policy is in the Regional Cities Initiative in Indiana (https://
iedc.in.gov/programs/regional-cities-initiative/home). By way of full
disclosure, I was involved in the conception and design of the
initiative under then-Governor Mike Pence. The reason we pursued the
Regional Cities strategy was for the foregoing reasons above--namely,
the uncomfortable but sober acknowledgement that some towns and
counties simply would not bounce back on their own. The initiative
provides matching funds to regional plans that connect disinvested
areas with the regional city around which most of the economic activity
in that part of the State occurs. This kind of structure gets people at
the community level within a region thinking more broadly and
strategically about what they have to offer the region, and forming
relationships to that end.
These kinds of regional partnerships could flourish more broadly if
incentives within our HUD-based and workforce (DOL) funds, for
starters, pushed community leaders at the State level in this
direction.
__________
Question for the Record for Mr. Quinonez Submitted by Vice Chair
Maloney
How would you address the problem of bank closings and
the lack of banking services in low-income communities? How could
financial institutions, nonprofits and governments work together to
give residents access to those services?
Banks are closing branches at record rates. Between 2009 and 2018,
banks closed 111,251 branches all across the country, a drop of 11.4%,
leaving low-income families in urban and rural communities in what is
now known as ``bank deserts.'' \1\ While analysts attribute industry-
wide market forces, consumer preferences, and technology as drivers of
this trend, the loss of bank branches has been attributed to worse
financial outcomes in the surrounding neighborhoods.\2\
---------------------------------------------------------------------------
\1\ Top Branch Trends for Banks and Credit Unions in 2019.'' The
Financial Brand. Retrieved on 5-13-2019 from:
\2\ Consider, for example, the evidence provided by the author of
this paper, linking bank branch closings with loss of credit within a
six-mile radius: Nguyen, HLQ. ``Are Credit Markets Still Local?
Evidence from Bank Branch Closings.'' American Economic Journal:
Applied Economics 2019, 11(1): 1-32 Retrieved on 5-13-2019 from
---------------------------------------------------------------------------
There is an opportunity to reinvent bank branches into ``Financial
Community Centers'' that can prevent the proliferation of bank deserts
and preserve access to essential financial services.
The idea is simple: In neighborhoods with a dearth of financial
services or where branch shutdowns are imminent, banks could partner
with community-based organizations who are already present in the area
to repurpose their branches into Financial Community Centers. Depending
on the particular needs and limitations of each branch, Financial
Community Centers could provide much-needed services like:
Smart ATMs to allow consumers to access their accounts.
In most cases, banks could simply leave their ATMs operational and
agree to service them as they do with smaller branches in grocery
stores.
In-person bank tellers. Tellers employed by the bank
could be present to assist consumers in person, or the bank could
enable nonprofit staff members to help consumers open new accounts,
apply for credit, and access money orders and other services from their
existing accounts.
Ongoing financial education and coaching services to
consumers, including guidance about how best to leverage the financial
and banking products they already have.
International money transfer products, allowing clients
to send remittances to family abroad.
Business incubators programs, homeownership programs, and
referrals to other critical services pertinent to that specific
community. Banks could even fund some of this programming using dollars
from the Community Reinvestment Act.
Partnerships like these leverage the unique strengths of nonprofits
and financial institutions--giving community organizations the tools to
better serve the clients with whom they already have built
relationships and trust, and allowing banks to more profitably deliver
high-quality products to a larger customer base.
Such partnerships are not out of the ordinary. In fact, some banks
and communities have already struck partnerships, presenting viable
models for what more that could be done with the right guidance and
direction from Congress.
__________
Question for the Record for Mr. Quinonez Submitted by Senator Hassan
1. As I noted during the hearing, social connections are often
critical for entrepreneurs seeking the counseling, investment, and
other resources necessary to start and grow a small business.
Given the unique challenges faced by entrepreneurs with limited
social capital--such as women entrepreneurs and entrepreneurs in rural
areas lacking quality broadband internet--what are some specific steps
that you would recommend Congress take in order to encourage the
development of social capital and promote economic opportunity in
disadvantaged communities?
Traditional employment alone, it turns out, does not lead to
financial security for the working poor. Infrequent hours and low,
stagnant wages have made entrepreneurship an appealing alternative
despite higher risks. Many entrepreneurs are choosing to monetize their
skills in solopreneurship, contract or gig work, side jobs, and other
forms of self-employment. These ``nano-ventures''--small, local, and
often informal entrepreneurial endeavors--are an important,
increasingly popular source of employment in the U.S.\1\
---------------------------------------------------------------------------
\1\ See, for example, Gallup's estimate that over a third of U.S.
workers participate in the Gig Economy:
---------------------------------------------------------------------------
Nano-ventures face many of the same challenges as small business,
including working with tight budgets, accessing capital, marketing and
building connections, and managing high levels of risk and uncertainty
in their personal and professional lives.
Many of these entrepreneurs struggle to navigate hurdles since
existing services and policies are not designed for them. Much of the
social services infrastructure is designed to provide safety nets for
those who are traditionally employed, and business counseling and
capital is geared towards larger-scale enterprises, leaving nano-
ventures without the support they need to succeed. For example, groups
like the Small Business Administration (SBA) provide small businesses
(formally incorporated businesses with up to 500 employees and under
$7.5 million annual receipts \2\) with high levels of support,
including low-interest loans averaging over $100,000; however, the
corresponding high bar to entry, including needing to submit detailed
business plans and financial projections, makes them inaccessible to
nano-ventures.
---------------------------------------------------------------------------
\2\ See SBA's site for more nuance around this definition:
---------------------------------------------------------------------------
There is an opportunity to expand programs that are already helping
small businesses,\3\ to be inclusive of, and accessible to nano-
ventures. This could include expanding the eligibility criteria to
include those who are self-employed and just starting up, or offering
smaller supports with easier application processes. These services
could be delivered through local ``Financial Community Centers,'' \4\
open to nano-ventures, micro businesses, and small businesses alike.
These centers could create opportunities for human interaction where
professional relationships can form, and be the focal point for
Congress to support entrepreneurs in many ways:
---------------------------------------------------------------------------
\3\ For example, like the Small Business Administration, Community
Development Financial Institution Fund, Community Development Block
Grants, Workforce Investment Act, and Temporary Assistance for Needy
Families, which most states already use to support small businesses:
\4\ For more details about Financial Community Centers, see the
answer we provided to Vice Chair Maloney's question about access to
banking services.
Dedicate space for members to network with each other,
share resources, collectively address challenges particular to their
industry or locality, and even use their numbers to purchase group
insurance plans at lower rates.\5\
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\5\ Freelancer collectives that already exist tend to give their
members many of these same benefits: See, as an example, ``The Rise of
the Freelance Class''
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Offer counseling and educational services to nano-
ventures--for instance, in choosing the appropriate designation
(contractor, LLC, corporation, etc.), separating personal and business
finances, developing business plans and financial documents, and filing
taxes
Provide ``nano-loans''--affordable, small-dollar capital
with fewer application requirements and less stringent underwriting
than the typical small business loan--to support the development of
nano-ventures and close the gap in credit availability between the
median $5,000 personal credit card limit and the minimum $50,000 SBA-
backed small business loan.
Extend tax incentives, such as the Qualified Business
Income deduction and write-offs for allowable business expenses, to
nano-ventures; eliminate disincentives like higher social security
taxes on entrepreneurial income; and extend VITA tax preparation
assistance to nano-ventures
Offer alternatives to traditional work-based safety nets
\6\ like portable and entrepreneur-owned benefits, government-sponsored
retirement accounts, and tax write-offs for healthcare and other
insurance payments
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\6\ An important part of supporting entrepreneurship is thinking
about how entrepreneurs, especially those with nano-ventures, can
access financial products that traditionally are made available through
the workplace. See, for example:
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Amend means testing for public benefits to make it easier
for nano-ventures to report their true personal income. Like small
businesses, nano-ventures should be able to exclude business income and
assets so that those who are self-employed don't have to worry about
business ventures affecting their families' eligibility for social
safety net programs.
Eliminate asset limits and benefit cliffs altogether, to
encourage more people to pursue entrepreneurship.
Congress could also invest in research to better understand the
role that nano-ventures play in expanding opportunities for financial
empowerment, and the strengths and needs of these entrepreneurs. With
the right action, we can support people in building economic
opportunity through entrepreneurship and thriving in our rapidly
evolving labor market.
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