Six Place-Based Policy Domains

“The US Place-Based Policy Supply Chain,” by Gordon Hanson, Dani Rodrik, and Rohan Sandu makes an analogy between supply chains and place-based policy. Federal and state agencies are like business headquarters, local recipients are like final consumers, and so on. Here we discuss the analogue to product lines: place-based policy domains. Each domain maintains its own parallel and decentralized supply chain that connects government funding to community-level economic investment programs.

Regional Planning and Strategy

The Economic Development Agency (EDA) leads domestic economic development support for the US. The EDA provides competitive grants to development intermediaries as matching funds for public works projects or economic adjustment assistance. The EDA promotes place-based economic planning and strategy by attaching eligibility requirements to its grants: To qualify for EDA grants, a region must demonstrate validated economic distress and provide an EDA-approved, multisector Comprehensive Economic Development Strategy (CEDS). 

EDA assistance relies heavily on a cadre of intermediary organizations capable of applying for, receiving, and distributing government funding within their region. Intermediaries can assume diverse forms across public, private, and non-profits sectors, with levels of local government oversight and overall quality varying significantly between regions based on how the intermediaries are organized and managed. All development intermediaries perform the following functions: 1. Attract/retain business and investment, 2. Support local entrepreneurship, and 3. Coordinate across local stakeholders for development goals. 

Regional Spotlight: The Buffalo, NY region has two prominent economic development intermediaries: the city-sponsored Buffalo Urban Development Corporation (quasi-public) and the non-profit Invest Buffalo Niagara.

Business Recruitment and Retention

Attracting business investment is a fundamental feature of local economic development. While it is the oldest and most publicized form of place-based policy, business recruitment and retention should be considered as just one of six complementary policy domains detailed in this article. The primary government instruments for business recruitment are investment incentives via tax credits, preferential financing, and cash grants. Local economic development organizations (EDO) orchestrate incentive packages for firms and serve to “connect the dots” between a firm’s needs and their region’s infrastructure and capabilities. 

• Statutory incentives are rules-based recruitment awards conditioned on firms meeting regional investment, employment, or pay requirements. 
• Discretionary incentives are firm-specific recruitment awards based on negotiated government deals. Annual US business subsidy incentive levels between 2000 and 2021 are illustrated below:

The first chart demonstrates, state and local government business subsidy support expanded significantly during the Great Recession and has remained at an elevated baseline since 2014. 

The second chart, in contrast, shows that federal subsidies are much more sensitive to business cycles and single relief packages, with funding surging dramatically during the Great Recession and the post-COVID recession but falling sharply afterwards.

Regional Spotlight: Skowhegan, ME is successfully driving new business development through their intermediary non-profit Main Street Skowhegan.

Community Redevelopment

While business recruitment is only concerned about attracting businesses toward a given jurisdiction, community redevelopment efforts specifically target business investment and condition incentives within designated low-income communities – areas with disproportionately high poverty or unemployment. This is based on the enterprise zone model of reducing localized poverty by creating new jobs in communities with clustered poor households. The history of modern federal community redevelopment policy involves three phases:

• Empowerment Zones (EZ): Started in 1993 to support areas with high poverty and unemployment rates by providing firms investing in these areas tax credits and tax-exempt financing until 2000. 
• New Market Tax Credits (NMTC): The current carry-over of EZ policy administered by the Treasury Department. NMTC uses local intermediating Community Development Entities (CDE) to attract private investors and then make qualifying investments in low-income community businesses. 
• Opportunity Zones (OZ): Initiated during the 2017 Tax Cuts and Jobs Act to give states greater autonomy to designate priority areas for economic development. Qualified Opportunity Funds (QOF) serve as intermediators and receive and distribute private investment, with OZs providing reduced tax liabilities to QOF investors.

Regional Spotlight: Four Bands Community Fund receives federal assistance and then supports community redevelopment efforts within Native American communities in the Cheyenne River Sioux Reservation and across the state of South Dakota by providing financing to small businesses and entrepreneurs.

Small Business Promotion

Small businesses have both disproportionately high impact on and susceptibility to regional economic conditions: new small firms account for most net job growth in a given region but are also the most credit-constrained during local economic downturns. Therefore, supporting small businesses has become an important domain for local economic development and place-based policy. The US Small Business Administration (SBA) provides federal support to small businesses through capital, counseling, and contracting programs.

The SBA facilitates access to capital for small businesses via business loan guarantees. Commercial banks or non-profit Certified Development Companies serve as intermediating lenders under these programs. SBA annual lending typically ranges between $20-30 billion, with the exception of 2021 (tied to the COVID economic downturn) when its total loan value reached over $40 billion. 

The SBA’s Small Business Development Centers (SBDC) oversee small business counseling efforts and are typically affiliated with a university or community college. SBDCs provide direct counseling, business training and workshops, access to market research, and support for small business R&D and loan applications. 

The SBA also facilitates federal law that 23% of eligible prime contracts go to small businesses. Additionally, SBA provides technical contracting assistance and preferencing to qualifying small businesses through the Historically Underutilized Business Zone Program (HUBZones). 

Workforce Development

Workforce development serves two primary purposes for place-based policy: 1. Train local workers to attract new investment and 2. Retrain workers who have lost their jobs due to local economic shocks. Decentralized federal workforce training funding is allocated to State Workforce Development Boards, with funding levels shown below:

As with the other policy domains, this chart demonstrates that federal support for worker training programs surged as a countercyclical response to the Great Recession before quickly falling below pre-recession levels by 2012.

• Workforce Development Boards (WDB) are public agencies that fund worker training programs at state and local levels and collectively oversee over 3,000 One-Stop Centers. These One-Stop Centers provide: 1. Access to unemployment insurance benefits, 2. Worker training program vouchers, and 3. Job search assistance.
• Career and Technical Education (CTE) is the primary source of workforce development support and is funded via government subsidies to public community colleges. CTEs are typically tied to 12-24 month certificate-producing programs for careers in healthcare, manufacturing, construction, trucking, and IT. 

Regional Spotlight: Coalfield Development is a non-profit entity offering robust workforce development programs to empower resilient communities across Appalachia.

Technological Innovation

Technological innovation supports place-based policy because high-innovation firms and R&D efforts tend to concentrate in specific areas due to the productivity advantages of proximity. Federally Funded Research and Development Centers (FFRDC), the formal US research arms, share the following characteristics: 1. Housed within universities, non-profits, or private firms, 2. Dispersed across the US, 3. Focused on public-interest research and 4. Maintained long-term relationships with federal agencies. Promoting regional technology clusters as a source of economic growth has become a bipartisan feature of federal policy since the Obama Administration.

Conclusions

These six domains don't cover every type of place-based policy, but they do account for the majority of place-based spending. They represent a patchwork of policies, sometimes under a single federal agency and other times under multiple. Each domain has its own unique blend of federal policy, state and local oversight, and non-governmental actors involved, reflecting a particular historical and geographical path.