There are good reasons for people to believe that the American economy has recovered from the dark economic days of a decade ago, when our financial system was on the verge of collapse and housing values seemed to decline on a daily basis. Today’s optimism is driven by record corporate profits, a soaring stock market, low unemployment, and the longest consecutive string of monthly job growth in our nation’s history.
For a number of communities, that economic success is borne out by record housing values, massive influx of new business investment, and a seemingly endless supply of new jobs. According to the U.S. Conference of Mayors, booming major metros created 1.9 million jobs, or 95.9 percent of all new jobs created in the economy last year, and were home to 91.2 percent of the nation’s GDP.
This is not the case, however, for far too many communities — as well as for certain neighborhoods in otherwise thriving cities. While the national economy is flourishing, many low- and moderate-income (LMI) communities are struggling to keep the jobs they have, let alone create new ones. Growth is virtually nonexistent and wages have not kept up. These are the places where the recovery has yet to take hold.
Remedying this inequality is not just a moral imperative for our country, it is an economic imperative. Addressing economic exclusion has a profound effect on a range of outcomes such as health, education, and poverty. When millions of our citizens, and thousands of our communities, miss out on the economic success that other parts of our country are enjoying, it also has long-term implications for our national economic vitality. For example, the Organization for Economic Cooperation and Development (OECD) found that rising inequality in the U.S. led to a 5-point reduction in our national GDP between 1990 and 2010, and the WW Kellogg Foundation found that by 2050, our country stands to realize an $8 trillion gain in GDP by closing the U.S. racial equity gap.
The question then is: How do we go about fostering growth and investment in LMI communities? After several decades of practical experience in support of community and economic development, and firsthand work with some of the nation’s top innovators in this space, I have come to three important conclusions:
- Growth and development in all corners of our nation can only be inclusive when and if the private sector is prepared to make investments in LMI communities.
- Private sector, philanthropic, and government resources in support of development can only have a transformational impact if they are better-coordinated than they have been in the past.
- Communities can only be competitive if they leverage these resources as part of a comprehensive local or regional plan. This plan must be inclusive and holistic with investors and community members alike working towards medium- to long-term implementation.
And it doesn’t work for government to go at it alone. The financial services industry is a key partner, but its participation is far from charity. Large and small financial institutions alike have found success investing in low- and moderate-income communities, making plenty of money for their efforts. Those companies that avoided LMI communities are doing their shareholders and investors a disservice and will deliver subpar returns in the long run.
Make no mistake, it takes a little work to invest in LMI communities, but no more so than in other parts of our country. There are well-developed tools for investing in LMI communities, including the New Markets Tax Credit and a number of flexible, short-term efforts to spur growth, like the State Small Business Credit Initiative.
Recently, the creation of the Opportunity Zone program in last December’s tax legislation represents an exciting new prospect for capital investment in LMI communities. Through generous tax breaks for investors in specially designated LMI census tracks, Opportunity Zones have the potential to be a tremendously impactful community and economic development tool — possibly spurring as much as $6.1 trillion in new investment in the 9,000 LMI communities across the country.
Now is the time for local communities to leverage an expanded set of tools with which transformational impact can be coordinated. A number of communities — such as Cleveland, Birmingham, Louisville, South Bend, and Detroit — are poised to take advantage of the Opportunity Zone program. But leaders in these and other communities need to remember that the program is just a tool; one of a number of tools to help make it easier for private investment to flow to areas that haven’t seen this type of investment. After all, local and regional economic success is dependent on the partnership of many public and private institutions, all working in concert to embrace a strategy with a core mission of inclusive growth and shared prosperity.
