Inclusive Recovery Requires Reimagining Local Economic Development

By Stephanie Copeland, Alex Flachsbart, Colin Higgins, and the Sorenson Impact Center Birmingham, Alabama Getty Images The way Americans work and live is facing a once-in-a-lifetime challenge in the form of simultaneous crises of public health, the economy, climate change, and racial justice. Our response will shape generations of American […]

By Stephanie Copeland, Alex Flachsbart, Colin Higgins, and the Sorenson Impact Center

The way Americans work and live is facing a once-in-a-lifetime challenge in the form of simultaneous crises of public health, the economy, climate change, and racial justice. Our response will shape generations of American life. 

Over fifty years ago, on the heels of a generation-defining tragedy and the eve of an era-shaping response, President Lyndon Johnson made a speech  we’d be wise to revisit today. Announcing his Great Society agenda, Johnson proclaimed, “The solution to these [our country’s] problems does not rest on a massive program in Washington, nor can it rely solely on the strained resources of local authority. They require us to create new concepts of cooperation, a creative federalism, between the National Capital and the leaders of local communities.”

Polarization in Washington may have increased since Johnson’s 1964 statement, but the principle remains. If we stand any chance of responding to the current economic, social, and health challenges in a fair, inclusive, and effective way, we need a renewal of creative federalism. 

To date, responses to our current crisis have either been federalized at-scale or locally creative. They have yet to succeed at the difficult task of combining the two. The Paycheck Protection Program (PPP), for example, was designed to quickly scale across the country. But in exchange for its speed and national scope, the program sacrificed mechanisms to ensure that these relief funds went to local businesses that lack established banking relationships. Excluded businesses tended to be disproportionally owned and operated by Black and Latinx entrepreneurs. A federal program in Washington struggled to reach some of the most vital wealth-producing engines in communities of color. 

Local governments, philanthropies, and nonprofits responded by setting up relief funds targeted towards businesses with 20-or-fewer employees and prioritizing underrepresented groups. Although these local funds filled gaps and were vital for distributing aide in their geographies, they lacked nationwide coverage and received only piecemeal federal support. The challenges facing these local initiatives continue to multiply as municipal budgets face a fiscal cliff and the Community Financial Institutions approach the limits of their liquidity. 

Simply put, the current approach to economic federalism—even if locally creative—has resulted in a nationally inequitable patchwork of relief for America’s smallest businesses. 

This approach has also limited the consistent effectiveness of the opportunity zones (OZ) incentive. For all the optimism about OZs’ potential, its lack of nationally systemic support to channel private capital to community projects has garnered controversy. A recent assessment from The Urban Institute highlighted some of OZs’ design shortcomings and proposed fixes. One conclusion of The Urban Institute’s analysis is that OZ-facilitated local partnerships are one of the incentive’s bright spots.

We agree. 

From Erie’s Downtown Development Corporation to Invest Atlanta, local partnerships have been the make-or-break factor in getting funding to the right projects, whether they’re inside OZs or not. In a standout example, over the course of 18 months Opportunity Alabama (run by one of us) built a statewide (and national) coalition to fund over $100 million in projects, identified hundreds more, provided technical assistance to dozens of underserved communities, and kickstarted a new wave of impact-oriented economic development. 

The problem with these partnerships is one of scale. There aren’t  enough of them. Establishing them requires hard work. These partnerships require local capacity, know-how, and a willingness to do the unglamorous work of changing how local economic, community-focused development is done.

Just as relying solely on a one-size fits all program for inclusive recovery will miss local variation, relying solely on local partnerships will result in a piecemeal approach that lacks national coverage and economies of scale. Alone, both approaches result in the exclusion of places and people that have fewer resources to give.  

The solution rests on a better national system for enabling creative federalism in local development while also providing better tools for local partnerships to form. Regardless of whether congress decides to provide stimulus to states and municipalities facing an acute economic crisis, the  effectiveness and inclusiveness of our recovery will hinge on the inclusion of diverse local partnerships to lead work on the ground. This, in turn, will require the proper tools to make these partnerships work—including the proper forums to transfer and scale these partnerships

For the past two years, The Governance Project has convened local coalitions and helped foster inclusive partnerships by building tools that expand participation in public finance while lowering a key barrier to inclusive growth: technical capacity. A key lesson from our work is that the biggest aspect of a project’s success—its financing—is often the least understood. Without a proper “capital stack,” the kinds of investments in community that could build a cleaner, more prosperous, more equitable, future simply will not happen. The vast majority of the local leaders trying to bolster community wealth often lack the time and experience to build the models that bring their transformative ideas to life. As a result, they are locked out of full participation in local development partnerships. 

If we want fair partnerships for a clean and inclusive recovery, we will need to do better. To successfully achieve a creative federalism, we need to lower the barriers limiting fair participation in local economic development. At the national scale, this has driven The Governance Project’s collaboration with the Mastercard Center for Inclusive Growth to build a free tool that lowers the technical barriers to modeling project finances for community members and local officials. By providing a user-friendly platform to model out different financing scenarios for community-serving real estate projects—from affordable housing to PPE manufacturing facilities—we aspire to expand the economic opportunities, and increase the ability of community residents to have a say over their economic futures.  At the end of the day, without even footing in local economic development, communities that have historically been locked out of resources will continue to participate at a disadvantage. 

The Governance Project and Opportunity Alabama are working together to improve the scale and quality of work they perform with their constituent communities. Currently, Opportunity Alabama cannot credibly put any investment opportunity in front of an investor until it has a financial model—a process that typically takes weeks to build, even for a single deal. With more than 200 “potential investment” opportunities across the state—many of which are still in “idea phase”—the Opportunity Alabama team can only advance a small handful of projects at any given time. By collaborating to get this this tool into the hands of the communities that need it, we can finally democratize the project development process.

At the end of the day what’s at stake is nothing short of an economic recovery that includes all of America and sets our nation’s course for the decades ahead. Our national economic strength has also been our policymaking weakness: we’re a big country with big differences. An inclusive approach to recovery that works in Tuscaloosa may not work in Tulsa; but a lack of adequately coordinated resources and support that will doom both to failure. We need to build an approach that enables local leaders to set the course for the widely varied needs of their communities, but which provides the federal support systems.

While we wait on a systematic response from Washington to rebuild from the top down, let’s not miss this moment to rebuild our economies and communities from the ground up. It may be the first step to revitalizing our country’s creative federalism.

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