Some local newspapers are on life support; banks could provide the cure they need

By Steven Waldman and Julie Sandorf Originally published in American Banker, March 10, 2023.

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 revenueproducing 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