Trump’s Proposed Budget Would be Devastating for Inner City Economic Development

During his election campaign, President Donald Trump promised the American people he’d slash federal spending and roll back duplicative programs. So when his administration released its proposed 2018 budget last month, it came as no surprise that cuts had been made. But it was the extent of those cuts – and the programs affected by those cuts – that sent shockwaves through the nation.

If Trump’s proposed budget is passed by Congress, there is no doubt that these cuts will have a devastating effect on efforts to drive economic development in America’s inner cities.

Trump’s budget includes a 13 percent cut in funding for the Department of Housing and Urban Development (HUD). The budget would eliminate HUD’s $3 billion Community Development Block Grant (CDBG) program entirely. Although the program is often criticized for a lack of evidence on its benefits, a new brief by the Urban Institute attributes this to a lack of investment in program evaluation rather than a lack of true impact.

Two of our recent blogs have highlighted how this funding has supported inner city economic development. The CDBG program has helped cities like Lima, Ohio equip local residents with skills in high demand by the area’s advanced manufacturing industry. In addition, within the CDBG program, the Section 108 loan guarantee program has provided critical funding for inner city revitalization efforts, including the redevelopment of a blighted 1.5 million square foot former distribution center in Memphis, Tennessee. The Section 108 program has also been used in places like Atlantic City to create a business loan pool to fill a common financing gap faced by small and inner city businesses.

Trump wants to eliminate grants to Community Development Financial Institutions (CDFIs), which provide financial services in economically distressed neighborhoods. CDFIs are critical for inner city economic growth and development. These private financial institutions are mandated to direct funds to people and businesses in low-income communities that struggle to access traditional sources of capital. There are over 1,000 CDFIs across the U.S., most of which are located in inner cities and directly fund neighborhood-level projects. CDFI loans have been used to fund a range of projects, including a transitional home for troubled youth in Los Angeles, a mortgage-financing and home recovery program for people whose homes had been destroyed by Hurricane Katrina, and business loans for people like Jose “Chepo” Leyva-Lopez who needed to buy new kitchen equipment in order to expand his small California-based tamale business.

In 2016, the federal government appropriated $233.5 million to CDFIs – an amount that helped leverage $2.1 billion worth of follow-on investment from the private sector. This funding helped create more than 28,000 jobs in some of America’s poorest communities. Trump’s proposed budget would cut CDFI funding by $210 million, leaving just $19 million for CDFIs to fulfill existing loan obligations.

If passed, the budget would decrease funding for the Small Business Administration by 5 percent. The new budget would eliminate $12 million worth of technical assistance grants and other programs where the administration thinks the private sector already “provides efficient mechanisms” for small business development and growth. Notably, the cuts would eliminate all funding for the PRIME technical assistance program, Growth Accelerators and Regional Innovation Clusters, all of which provide important innovation and links for inner city growth. The budget would also cut $1 million from the SBA’s loan guarantees that are currently made available to small business owners.

Rather than focusing on access to capital, “the President is committed to assisting small businesses through reducing the regulatory tax burdens that can impede the development of small firms,” says an administration spokesperson.

We know that reducing regulatory tax burdens is not enough to support inner city business development. ICIC research has identified four critical drivers of inner city business growth: improving access to capital, providing management and business education for business owners, increasing company recognition and strengthening business networks, and expanding revenue and contracting opportunities. Inner city businesses must also be connected to regional growth clusters to promote inclusive, sustainable growth and development.

Trump wants to reduce the Commerce Department budget by 16 percent. These cuts include the complete elimination of the Economic Development Administration (EDA) and federal funding for the Manufacturing Extension Partnership (MEP).

The EDA has a number of impact areas, including infrastructure, entrepreneurship and innovation, workforce development and manufacturing. In FY15, the EDA invested approximately $238 million in locally-driven economic development projects, including those like the Innovation Hub at the University of Florida in Fort Lauderdale. Overall, these EDA investments are expected to create or retain approximately 35,000 jobs and will generate an estimated $4.2 billion in follow-on investment by the private sector.

The MEP has been providing critical support to more than 86,000 U.S. manufacturing companies since it was founded in 1988. The MEPs program’s efforts have helped manufacturing companies increase sales by more than $96 billion, realize cost savings of nearly $16 billion, and have helped to create or retain an estimated 800,000 jobs. The manufacturing industry continues to be important to inner cities, and these jobs are often a good fit for the education and skillset of inner city residents. Inner city businesses like Space Age Electronics based in Worcester, Massachusetts and Rader Awning & Upholstery based in Albuquerque, New Mexico rely on MEP’s services and would be hit hard by an elimination of the program.

Despite his promises to invest in infrastructure, Trump’s budget would slash 13 percent from the Transportation Department. Trump wants to cut transportation funding by $2.4 billion at a time when the nation is starved for new investment in infrastructure. Funding for new public transit projects would be cut, including $499 million from the TIGER grant program that has funded dozens of critical road, transit and other inner city infrastructure projects.

Inner city infrastructure is already in critical need of investment, leading to infrastructure quality that is considerably worse than in respective central cities and regions. The best proxy for infrastructure quality is bridge quality data. Not only are inner cities home to twice as many bridges per square mile than the rest of the central city, but these bridges tend to be in poorer condition.

Bridge quality matters to inner city economic development more than one might expect. ICIC research finds that a 10 percent decrease in the percentage of deficient inner city bridges is correlated with a 1.83 percent increase in inner city economic growth and a 1.69 percent increase in regional economic growth.

Additionally, inner city residents are more likely to depend on public transit than central city residents. Overall, infrastructure investments – in bridges, roads and public transit alike – are all critically important to the vitality of urban areas.

Moving forward

There’s no guarantee that Trump’s budget will be passed by Congress. Lawmakers typically make changes to the President’s proposal, and last year, Congress disregarded Obama’s budget altogether. It is likely that Congress will restore funding for some of the programs that Trump has proposed to cut, although the future for these programs that support inner city economic development is unclear. ICIC will join its peers and continue advocating for a sensible budget that protects our nation’s most vulnerable communities.