Place-Based Policy and Neighborhood Business Density
Impacts of the Community Development Block Grant Program
Meredith McCullough (Arizona State University)
Economic disparities within cities and across regions have long posed challenges for policymakers aiming to revitalize struggling communities. For decades, the Community Development Block Grant (CDBG) program has been a cornerstone of place-based investment strategies in the United States, offering local governments flexible funds to improve economic and social conditions in low-and-moderate income communities. Despite its longevity, few studies have investigated the economic impacts of the program, leaving local leaders with limited guidance on how to effectively allocate grant funds. The study aims to fill this gap by providing a nuanced analysis of the CDBG program's effectiveness in enhancing neighborhood business density.
Drawing on longitudinal geo-located CDBG activity data across 50 U.S. metro areas, the research findings reveal a cautiously optimistic picture: Federally funded CDBG investments do lead to an increase in the density of businesses in targeted communities, but the effect is relatively modest. Specifically, areas with low-to-moderate levels of poverty see the most benefit, particularly from investments focused on economic development and property acquisition. As such, CDBG investment appears to be most efficacious when strategically targeted to areas with a balance of need and potential for growth. Attracting and developing firms in highly distressed areas likely takes longer than five years to materialize and requires more concentrated investments.
While the economic impacts of targeted CDBG investments are not immediate, the findings reveal initial effects within five years. Though exploratory, this research also sheds light on the differential impacts of CDBG investments across businesses of various sizes. While the overall increase in business density is a win for communities, the data suggests that small and micro-sized firms stand to benefit the most from these investments.
The study's findings speak to the broader debate on the efficacy of place-based policies, and more specifically, the role of the federal government in local community development efforts. The context of this study is critical, especially considering declining support and funding for the CDBG program in recent years. For local governments with growing needs and declining tax bases, state and federal support is a vital factor in economic revitalization efforts. As an instrument of place-based investment, flexible intergovernmental grants like the CDBG allow local governments to provide additional services beyond tax and cash incentives that are tailored to specific needs in the community. As highlighted by Gordon (2018), the promise of flexible grants is their ability to harness the best of centralized and decentralized government, combining the scale of federal investment with the place-specific knowledge of local policy makers and community members.
In sum, this paper presents new insights on the short-term firm impacts of the Community Development Block Grant program, the conditions in which these impacts emerge, and provides support for the continued use of intergovernmental grants in place-based economic development.
Meredith McCullough is a PhD student in Public Administration and Policy at Arizona State University, where she studies local economic development, entrepreneurship, and digital transformation. McCullough has held positions in state and federal government and earned her master's degree in public affairs from the University of Texas at Dallas.