For release on delivery
12:45 p.m. EST (11:45 p.m. CST)
February 12, 2019
Encouraging Economic Development in High-Poverty Rural Communities
Remarks by
Jerome H. Powell
Chairman
Board of Governors of the Federal Reserve System
at
"Rural Places, Rural Spaces: Closing Financial Services Gaps in Persistent Poverty
America," a policy forum sponsored by Hope Enterprise Corporation
Mississippi Valley State University
Itta Bena, Mississippi
February 12, 2019
Thank you for that kind introduction. I also want to thank Hope Enterprise
Corporation for inviting me to speak and Mississippi Valley State University (MVSU) for
hosting us on its lovely campus.
It is a great pleasure to visit the Mississippi Delta. This region gave America the
priceless musical heritage of the Blues. It was also the site of some of the watershed
events of the civil rights movement. But the Delta, like many rural areas, has long
confronted the challenge of poverty. Today I'll speak about three areas of opportunity
for addressing the challenges of rural poverty--education and workforce development,
entrepreneurship and small business development, as well as access to financial services--
the topic of this conference.
MVSU's mission, providing young people an affordable college education, is
itself a very powerful antipoverty program--for its graduates, of course, but also for other
communities that are touched by the university. MVSU opened its doors in 1950 as
Mississippi Vocational College. The vocation of every member of its first class of 200
students was teaching. And even as it added other programs and became a full-fledged
university, MVSU has continued to train many of the teachers who enrich, inspire, and
spark the imagination of children who grow up in the Delta.
MVSU and other historically black colleges and universities, or HBCUs, play a
crucial role in their communities. For much of the 20th century, HBCUs were the
primary means for black men and women to obtain the education needed for middle class
or professional jobs. Larger percentages of HBCU students, compared with students at
predominantly white institutions, come from lower-income families and are the first in
their families to attend college. This university and other HBCUs support intellectual
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leadership, creativity, and innovation. I want to honor you for this proud history and for
your continuing commitment to a better future for your students and for the region where
many of your students were born and will build their lives and raise their families.1
Challenges and Opportunities in Poor Rural Communities
Today, data at the national level show a strong economy. Unemployment is near
a half-century low, and economic output is growing at a solid pace. But we know that
prosperity has not been felt as much in some areas, including many rural places. The
Federal Reserve can help by carrying out our monetary policy mission of supporting
maximum employment and price stability. We also support strong communities by
conducting research, promoting community development, and enforcing laws like the
Community Reinvestment Act, which helps ensure that people have adequate access to
financial services wherever they live. We not only work with communities, we are in
communities, through the presence of our 12 regional Reserve Banks.
Poverty remains a challenge in many rural communities. Indeed, 70 percent of
the 473 "persistent poverty" counties in the United States are rural.2 Unemployment and
mortality rates remain high in these communities. Along with lower incomes and wealth,
the rate of business start-ups in these areas is lower. And their residents have less access
1
For a history of the role of HBCUs, see, for example, Todd Greene and Ashley Bozarth (2018), "The
Critical Role of Historically Black Colleges and Universities in Workforce Development," in Stuart
Investing in America's Workforce,
Andreason, Todd Greene, Heath Prince, and Carl E. Van Horn, eds.,
vol. 1: Investing in Workers (Kalamazoo, Mich.: W.E. Upjohn Institute for Employment Research),
pp. 189-94; and Ronald A. Johnson (2018), "HBCUs as Pipelines for Diversified Intellect, Creativity, and
Innovation," in Stuart Andreason, Todd Greene, Heath Prince, and Carl E. Van Horn, eds., Investing in
America's Workforce, Investing in Workers
vol. 1: (Kalamazoo, Mich.: W.E. Upjohn Institute for
Employment Research), pp. 195-204.
2
As defined in PL 115-31 as counties where 20 percent or more of the population live in poverty as
measured by the U.S. Census Bureau in the 1990 and 2000 decennial censuses (for more information, see
https://www.census.gov/programs-surveys/saipe/guidance/model-input-data/decennial.html) and the
2011-2015 American Community Survey
(https://www.census.gov/programs-surveys/acs/technicaldocumentation/table-and-geography-changes/2015/5-year.html).
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to financial services. Many of these disparities have existed for generations, and in some
places have roots in a history of discrimination.
These areas also generally lack diverse industries and employment options and
often have suffered from a decline in a traditional industry. In Appalachia for instance,
timber, coal mining, tobacco, and textiles have long been in decline.3 Likewise, the
number of jobs in agriculture and low-skilled manufacturing, mainstays of the Delta's
economy, is decreasing as a result of automation and outsourcing.4
Education and Workforce Development
High-quality education and training play a crucial role in extending opportunity in
rural areas, starting with early childhood education.5 But in many rural communities,
access to high-quality preschool education is limited. Mississippi is one of several
mostly rural states where nearly half of residents lack access to good quality childcare,
which is the main source of early childhood education.6 Many decades of research also
3
See, for example, Federal Reserve Bank of Atlanta (2012), "From Textiles to Turnaround: A Tale of Two
Economic Development Podcast,
Cities," July,
https://www.frbatlanta.org/podcasts/transcripts/economicdevelopment/120718-textiles-to-turnaround-tale-of-two-cities.aspx; Karl Rhodes (2013), "The Future of
Econ Focus,
Coal," Federal Reserve Bank of Richmond, vol. 17 (fourth quarter), pp. 28-31,
https://www.richmondfed.org/~/media/richmondfedorg/publications/research/econ_focus/2013/q4/pdf/featu
re4.pdf.
4
See, for example, Sungki Hong and Hannah G. Shell (2018), "60% of District's Jobs Could Face
Regional Economist,
Automation in the Next 20 Years," Federal Reserve Bank of St. Louis, vol. 26 (third
quarter), pp. 19-20, 22-23,
https://www.stlouisfed.org/publications/regional-economist/third-quarter2018/many-jobs-face-automation; and Charles Davidson (2017), "Tending to the Farm, Part 3: Technology
Reshapes Agriculture," Federal Reserve Bank of Atlanta, Economy Matters, January 12,
https://www.frbatlanta.org/economy-matters/2017/01/12/tending-to-the-farm-part-three.
5
See Rob Grunewald (2018), "Early Childhood Investments: Paving the Way for the Future Workforce,"
Investing in America's
in Stuart Andreason, Todd Greene, Heath Prince, and Carl E. Van Horn, eds.,
Workforce, vol. 1: Investing in Workers (Kalamazoo, Mich.: W.E. Upjohn Institute for Employment
Research), pp. 297-314,
https://www.investinwork.org/-/media/Files/volumeone/Early%20Childhood%20Investments%20Paving%20the%20Way%20for%20the%20Future%20Workf
orce.pdf?la=en.
6
See, for example, Rasheed Malik, Katie Hamm, Leila Schochet, Cristina Novoa, Simon Workman, and
America's Child Care Deserts in 2018
Steven Jessen-Howard (2018), (Washington: Center for American
Progress, December),
https://www.americanprogress.org/issues/earlychildhood/reports/2018/12/06/461643/americas-child-care-deserts-2018.
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confirm that children who grow up in areas with better-quality K-12 schools or in classes
with higher-quality teachers have better outcomes in life.7
Later in life, workforce training and education are most effective when they train
workers in skills needed by local employers. Rural areas where traditional industries are
declining and where new employers may be moving in often experience a mismatch
between the skills of local workers and those demanded by the new employers. Training
and retraining programs tend to be centralized and concentrated in areas with a higher
population density, which puts many rural areas at a disadvantage.8
Education benefits both the student and the community. It is true that some
young people leave their hometowns to seek greater opportunity. However, it is also true
that young families, drawn back home by family and social ties, are the largest source of
in-migration in many rural communities. Young families are more likely to come if they
believe their children will get a good education. Returnees often bring back important
skills and experiences and make meaningful contributions to the local economy.9
An excellent example is Tim Lampkin, an MVSU graduate. Tim grew up and
graduated from high school in Clarksdale. After graduating from MVSU, he moved to
7
See, for example, Raj Chetty, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez (2014), "Where Is
the Land of Opportunity? The Geography of Intergenerational Mobility in the United States," Quarterly
Journal of Economics,
vol. 129 (November), pp. 1553-1623; and Raj Chetty, John N. Friedman, and
Jonah E. Rockoff (2014), "Measuring the Impacts of Teachers II: Teacher Value-Added and Student
American Economic Review,
Outcomes in Adulthood," vol. 104 (September), pp. 2633-79.
8
See Kate Dunham, Annelies Goger, Jennifer Henderson-Frakes, and Nichole Tucker (2005), Workforce
Development in Rural Areas: Changes in Access, Service Delivery and Partnerships,
U.S. Department of
Labor, Employment and Training Administration Occasional Paper 2005-07 (Oakland, Calif.: Social
Policy Research Associates, June),
https://wdr.doleta.gov/research/FullText_Documents/Workforce%20Development%20in%20Rural%20Are
as.pdf.
9
See John Cromartie, Christiane von Reichert, and Ryan Arthun (2015), Factors Affecting Former
Residents' Returning to Rural Communities,
USDA Economic Research Service Report No. 185
(Washington: U.S. Department of Agriculture, May),
https://www.ers.usda.gov/webdocs/publications/45361/52906_err185.pdf?v=0.
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Mobile for work. He wasn't gone long, though, before he felt called to return to make his
home here in the Delta. Since moving back, Tim has founded several businesses, as well
as a nonprofit that helps people of color start and grow their own businesses.
Entrepreneurship and Small Business Development
As with Tim and his clients, entrepreneurship opportunities can motivate residents
who have left rural communities to return home--or to keep them from moving away in
the first place. Business ownership represents an important source of income and wealth
for both owners and their employees. Recognizing this fact, successful communities find
ways to help residents turn what they know and do best, including skills they may have
gained from industries in decline, into profitable small businesses.10 One example of a
community taking this approach is Clarksdale, Mississippi.
About 10 years ago, civic and business leaders assessed what made Clarksdale
special and how those characteristics could help the community thrive. Since Clarksdale
calls itself "Home of the Blues," attracting tourists using the local Blues culture seemed
promising. Over the years, Clarksdale has created new jobs by investing to improve its
downtown, and has supported local businesses that cater to tourists interested in the
community's musical heritage.
This growth is also creating new businesses not directly related to tourism--
businesses such as Urgent and Primary Care of Clarksdale. Dr. Mary Williams opened
her urgent care facility last spring, partly in response to the closure of nearby Quitman
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County Hospital. Dr. Williams worked with local organizations to develop a business
plan and obtain the financing needed to open a business that is critical to the community.
DeWitt, Arkansas, is another rural community where entrepreneurship is sparking
a local revival. DeWitt is a town of about 3,000 people. Like Itta Bena and many small
towns, it has seen a steady decline in population over the past few decades. The economy
there is a mix of manufacturing and agriculture, and many families have farmed the land
for generations, such as the family of Tami and Troy Hornbeck.
The Hornbecks grew up in DeWitt, starting and eventually selling a successful
business built on a new soybean varietal that grows well in the South. More recently,
they have been helping lead a new industry in their community using waste vegetable oil
from local restaurants and oil pressed from camelina, a crop farmers are beginning to
grow locally. This cooperative effort involves a partnership between a community
college, a university, the local government, farmers and restaurants, and a Community
Development Financial Institution, or CDFI, among others.11 While still in the early
stages, it has led to the creation of several new businesses and imbued the town with a
new sense of what is possible.
Entrepreneurs such as the Hornbecks and Dr. Williams need support to succeed,
the kind of support HBCUs and other institutions of higher education have long provided.
MVSU itself is supporting rural minority entrepreneurs through its participation in the
HBCU Entrepreneurial Ecosystem Initiative, which teaches students how to start and
grow a business.
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But inspiring stories like these are not as common as they could be.
Entrepreneurship has the potential to play a greater role in poor rural areas, particularly in
areas whose residents are predominantly black and other people of color. Recent surveys
have found relatively high levels of interest in owning businesses among young people of
color.12 Indeed, nationwide, black women represent one of the fastest growing groups of
entrepreneurs.13 Yet research by the Federal Reserve suggests people of color experience
greater challenges in gaining access to credit to start or expand businesses, which leads
me to my last topic and the focus of this forum: access to financial services.14
Access to Financial Services
Access to safe and affordable financial services is vital, especially among families
with limited wealth--whether they are looking to invest in education, start a business, or
simply manage the ups and downs of life. Family income and savings represent the
largest source of funding for students' education. However, more than half of students or
their families also borrow to finance their studies. And racial wealth disparities make
black students more likely than white students to borrow for their education.15 Similarly,
12
See FRB Kansas City, Grow Your Own, in note 10.
13
Black Women Entrepreneurs: Past and Present Conditions of Black
See Walker's Legacy (2016),
Women's Business Ownership (Washington: Walker's Legacy, October),
https://www.walkerslegacy.com/new-report-highlights-struggles-faced-by-black-women-entrepreneursoffers-roadmap-for-solving-toughest-issues.
14
Alicia Robb, Mels de Zeeuw, and Brett Barkley (2018), "Mind the Gap: How Do Credit Market
Experiences and Borrowing Patterns Differ for Minority-Owned Firms?" Community and Economic
Development Discussion Paper 03-18 (Atlanta: Federal Reserve Bank of Atlanta, September),
https://www.frbatlanta.org/community-development/publications/discussion-papers/2018/03-mind-the-gapfinancing-minority-owned-firms-2018-09-14.
15
Judith Scott-Clayton and Jing Li (2016), "Black-White Disparity in Student Loan Debt More Than
Evidence Speaks Reports,
Triples after Graduation," vol. 2 (3) (Washington: Brookings Institution,
October),
https://www.brookings.edu/research/black-white-disparity-in-student-loan-debt-more-thantriples-after-graduation.
See, for example, See, for example, Robert Kelchen (2015), "Financial Need and Aid Volatility among
Journal of Student Financial Aid,
Students with Zero Expected Family Contribution," vol. 44 (January),
pp. 179-201, http://publications.nasfaa.org/jsfa/vol44/iss3/2; and Fenaba R. Addo (2018), "Parents' Wealth
Bridges,
Helps Explain Racial Disparities in Student Loan Debt," Fall, pp. 9-11,
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racial wealth disparities mean access to credit is critical for would-be entrepreneurs who
must borrow to supplement personal savings and support from friends and family. Banks
often consider credit scores when evaluating loan requests, however, and high-poverty
regions tend to have a larger percentage of people with no established credit rating or a
low credit score. This combination of low wealth and low credit scores limits access to
credit or causes borrowers to turn to higher-cost credit.
Fortunately, CDFIs are helping potential borrowers improve their
creditworthiness and providing them with safe and affordable credit. While CDFIs fill a
critical gap in some communities, most consumers use other banks and credit unions. In
rural areas, this often means a community bank.16 Industry consolidation has led to a
long-term decline in the number of community banks. While most rural communities
continue to be relatively well served, that is less often the case in communities with high-
poverty rates.17
In 2018, Federal Reserve staff members met with leaders in rural areas across the
country that had recently experienced a bank branch closure. We found that small
businesses, older people, and people with limited access to transportation are most
https://www.stlouisfed.org/publications/bridges/fall-2018/parents-wealth-helps-explain-racial-disparitiesin-student-loan-debt.
16
See Federal Reserve Bank of Richmond and Federal Reserve Bank of Atlanta (2017), Small Business
Credit Survey: Report on Rural Employer Firms
(Richmond, Va.: FRB Richmond),
https://www.richmondfed.org//media/richmondfedorg/community_development/resource_centers/small_business/pdf/credit_survey/sbcs_
report_rural_employer_firms_2016.pdf.
17
See Randal K. Quarles (2018), "Trends in Urban and Rural Community Banks," speech delivered at
"Community Banking in the 21st Century," Sixth Annual Community Banking Research and Policy
Conference, St. Louis, Mo., October 4,
https://www.federalreserve.gov/newsevents/speech/quarles20181004a.htm.
According to 2017 Federal Deposit Insurance Corporation Summary of Deposits data (available at
https://www5.fdic.gov/sod), nonmetro Persistent Poverty Counties had, on average, 0.36 bank branches per
1,000 people, compared with 0.53 for other nonmetro counties.
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affected.18 We also learned that the loss of the branch often meant more than the loss of
access to financial services; it also meant the loss of financial advice, local civic
leadership, and an institution that brought needed customers to nearby businesses.
Regulation and supervision need to be carefully tailored to suit the size and
business model of different types of institutions. At the Fed, we have renewed our efforts
to avoid unnecessary regulatory burden on community banks, which provide essential
credit in their local communities.
Another means to address the issue of branch closures is the Community
Reinvestment Act, or CRA, which encourages banks to help meet the credit needs of the
communities they are chartered to serve. The CRA has been an important tool for
strengthening local communities. The trend toward fewer branches and increased use of
technology to deliver financial services presents a particular challenge to our current
approach to CRA evaluations. Specifically, the current regulations use a bank's branches
to define its assessment area, the area for which it is evaluated for CRA purposes. To the
extent that banks serve much broader areas using online or other non-branch delivery
systems, or have so many assessment areas that examiners cannot do a thorough
evaluation in each, the financial needs of many rural communities may be overlooked.
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We believe that revisions to the CRA's implementing regulations should more effectively
encourage banks to seek opportunities in underserved areas.19
Conclusion
To summarize my main points today, people in rural communities who are
struggling with persistent poverty need access to high-quality education from preschool
through college. They need support for their aspirations to own their own businesses.
And they need access to safe and affordable credit.
I will conclude where I began, by applauding both MVSU and Hope for their
long-standing contribution toward bettering the lives of the people of Itta Bena and
similar rural communities.