The Forum

Commentary

Monday, March 17, 2014 12:32 p.m.

Op-Ed: GW can fight D.C.’s income divide with endowment

David Meni is the vice president and Zach Komes is policy director of GW Roosevelt Institute.

The District continues to have one of the widest income divides in the country. One in five D.C. residents lives below the poverty line, with high concentrations of need in areas of the city far beyond Foggy Bottom.

GW’s $1.3 billion endowment and $224 million in cash-on-hand holdings have the potential to provide new critical support to build wealth and create new economic opportunities in D.C. neighborhoods. With GW outsourcing the management of its endowment to an outside firm, now is an ideal time to rethink how GW’s investment philosophy can have a greater impact on our wider community.

Access to credit is one of the primary barriers facing low-income communities in DC, with 23.9 percent of city households living areas with inadequate access to banks, vastly higher than the national average of 7.7 percent.

To help solve these problems, GW should invest a portion of its endowment and cash-on-hand holdings in one of D.C.’s dozen community development financial institutions, or CDFIs. These are legal entities such as banks, credit unions and venture capital groups that take on additional risk to provide loans for low-income homebuyers, entrepreneurs and organizations.

Reductions in federal funding, dampened charitable giving, and higher costs have made it necessary to find new capital for further expansion of these community development programs, capital which forward-thinking universities could provide.

As it is now, many mainstream commercial banks refuse to serve low and moderate neighborhoods because of high finance costs and concerns that having too many poor people taking loans on bank balance sheets is too financially risky.

To make up for this shortage, many low-income residents are forced to rely on predatory check-cashing services, payday loans, rent-to-own agreements and pawn shops to finance everyday expenses. Without access to stable financial services, it is often excessively difficult for residents buy homes, start businesses or invest in their children’s education.

Diverting funds towards community investments is a growing trend that has repeatedly shown results. Student efforts at the Tufts University led to investment of $500,000 of into a local community bank. This investment is generating interest payments for the university while providing assistance to struggling neighborhoods and small businesses.

Adopting a conscientious investment policy would be in the best interest of the university, students and the community alike. A philosophy of “impact investing” can provide both social and financial returns, helping to revitalize the District while providing stable source of revenue for the University. CDFIs have been shown to have at or near market interest rates, ensuring that we don’t have to sacrifice sustainable funding for university as it raises its own ambitions.

Now is the time to shift our institution’s strategic financing priorities to better prioritize social impact. That way, GW can flourish alongside the neighborhoods it supports.