Community news organizations are often integral to the vitality of a community. Studies, and common sense, have indicated that communities that lack good local news have less civic involvement, more corruption, higher taxes and lower voter turnout.
So, isn't it about time for the government to encourage banks to treat local news as an essential community service?
As readers of this publication know, federal banking regulators are right now considering changes to the implementing regulations for the Community Reinvestment Act. CRA was enacted in 1977 to remedy the discriminatory effects of disinvestment in low- and moderate-income communities, and affirmed that a bank has an obligation to "meet the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with safe and sound operation of such institution." In 1995, new rules required that CRA performance reviews take into account banks' responsiveness to community investment needs and the provision of community development services.
The law has, to some extent, worked. CRA incentivized banks to join forces with the public sector and philanthropy to create new credit and investment products that have, in turn, leveraged tens of billions for such essential community infrastructure as affordable housing, small business development, primary health and day care centers and food markets. It has spurred the establishment of "mission driven" lenders, such as Community Development Financial Institutions (CDFIs), which specialize in financing investment in the unique needs of underinvested communities and businesses.
But these investments become far riskier when there are not good, reliable sources of information for residents and civic leaders — and reporting that holds politicians and institutions accountable.
Banks might get CRA points for lending to a low-income housing project. But if the housing project becomes inefficient or corrupt because no one is watching it carefully, what has been gained? Banks might lend to small businesses, but if those businesses have few ways to reach customers, they may struggle.
Yet right now, many of the small media businesses that serve low and moderate income communities are struggling mightily — and getting little help from local banks.
That's why a broad coalition of local news organizations made a proposal to the Federal Reserve, the Comptroller of the Currency and the Federal Deposit Insurance Corp. to urge some relatively minor changes that could have a major impact on the health of community news.
First, it's important to understand the crisis in local news. From 2000 to 2020, newspapers lost some 81% of their advertising revenue. As a result, there has been a 59% drop in the number of newspaper newsroom staff. Some 2,000 counties, many of which at one point had a local paper, now have no local news source. Thousands more have "ghost newspapers," that provide little local news. More than a fifth of Americans live in news deserts or in communities at risk of becoming news deserts.
The lack of local news undermines the civic health of communities at every level. One study showed that municipal bond ratings went down, and financing costs went up when there was less local news. Other studies have shown that residents are less involved in civic organizations, vote less often and know less about local issues. There's voluminous evidence that when there are fewer watchdogs, corruption rises. And we saw during the COVID-19 pandemic, the collapse of local news leaves information vacuums that get filled with misinformation.
The most vulnerable communities are at greatest risk. The recent "State of Local News 2022" report by Prof. Penny Abernathy of Northwestern University found that newspapers are closing at an average of two per week — with impact being felt disproportionately in low- and moderate-income areas.
But many local newsrooms have trouble financing the changes they need to make. Big-time venture capitalists view local news as not "scalable." Hedge funds buy newspapers but end up gutting them instead of investing in them.
Banks — especially those focused on serving low- and moderate-income communities — have been mostly on the sidelines. We desperately need them to step forward.
Many local newsrooms are so focused on keeping the lights on that they do not have the capital to invest in the revenue-producing steps that could help them survive or thrive. For instance, if they could get a loan to hire an advertising seller or a fundraiser, many would be able to take major leaps forward toward sustainability.
In a survey of local newsrooms, some 65% said they would use extra capital to hire an advertising sales or fundraising staff person — directly drawing in revenue and helping to make the businesses sustainable.
So, the coalition of news organizations made three recommendations to the banking regulators. First, clarify that certain types of local news — provided by small businesses for low- and moderate-income communities — do count as "community supportive services." That way, banks could earn CRA points for helping those organizations.
Indeed, CRA already gives thumbs up to "educational services." Regulators should make it clear that educating residents on civic matters through local news should count as educational services. This is not a novel approach: most local journalism entities that have been granted tax exempt status from the Internal Revenue Service have done so by proving that they are a type of educational institution.
Finally, banks should advertise more in local news outlets. The law already requires that banks make their products and services known to residents of low- and moderate-income communities. Doing some of that marketing through local media will help them promote their services while simultaneously strengthening the local news that can, in turn, strengthen the community.
We are not arguing that CRA eligibility alone will open the floodgates of bank and CDFI financing to meet the credit and capital growth needs of local news outlets. But it could catalyze philanthropic funding and mission-driven financial institutions to develop innovative credit and investment products tailored to the unique opportunities and challenges of rebuilding a local news infrastructure.
When CRA was first established, philanthropic organization stepped up with the research and development funding to test new models and was a key 'loss leader' with new social investment products that unleashed exponentially larger pools of public and private investment targeted to community revitalization. It could do the same if CRA eligibility were extended to the revitalization of local news.
Since 1977, banks have made profitable investments and marketing decisions under the CRA firmament — creating a win-win for private sector investment and the public good. Helping local media is one way to help that would have ripple effects — assisting not only these particular small businesses, but all the residents that are served by having accurate, trustworthy local information.
