Neediest areas are being shortchanged on government funds − even with programs designed to benefit poor communities

If you live in one of the most economically deprived neighborhoods in your city, you might think the government is directing a smaller share of public funds to your community. And you would typically be right.

This is the case even with programs that have been specifically designed to benefit low-income communities. Over the long run, federal funds tend to flow toward areas that are relatively better off.

That’s what we found in a recent study of the U.S. Department of Housing and Urban Development’s Community Development Block Grant program.

We looked at 20 years of data from the CDBG program, which in 2022 provided about $4.3 billion to cities and states across the country. Federal rules require that 70% of these funds be spent in neighborhoods where a majority of families have low to moderate incomes – a category researchers abbreviate as “LMI.”

To count as LMI, a household must make 80% or less of the median income in an area. So, in the Baltimore metropolitan area, which in 2023 had a median household income of US$121,700, a household could make up to $97,600 and qualify. If 51% or more of the households in a census tract earn less than that income, then the tract is eligible for LMI funding.

We asked what happens as that share increases: Are those communities more likely to receive additional funding?

We found that the neighborhoods with the largest share of low- to moderate-income families, relative to the city, were less likely to receive CDBG funds than communities that were closer to the 51% threshold. In other words, the neediest places weren’t the ones most likely to receive money.

The disadvantaged get less

As scholars of political science and public administration, we were not entirely surprised by our findings. Other researchers have documented similar trends for other programs, including the Opportunity Zones program, which may be targeted toward neighborhoods that have begun to gentrify.

These findings are also consistent with analyses of the CDBG program in evaluations of a few large cities. In our work, which looked at more than 15,000 census tracts in nearly 1,300 cities, we concluded that these effects aren’t limited to a small number of urban communities.

What’s more, economic development policies already worsen these effects. Property tax abatements and other tax policies aimed at attracting Businesses and development often leave schools deprived of critical funding, which exacerbates social and racial inequities.

This isn’t just a problem with federal programs. The political scientist Jessica Trounstine, in her influential 2018 book “Segregation by Design,” has shown that cities distribute their public investments in ways that systematically worsen existing inequities.

In the case of the CDBG program, local governments have a lot of discretion in distributing funds. That creates a conflict between two goals: growth and equity. Will governments optimize for economic growth, seeking maximum returns on investment and increasing tax dollars with community development funds? Or will they use these funds to bolster the hardest hit and economically disadvantaged communities?

Cities, for their part, must confront trade-offs regarding the type of investments to make and where to make them. For cities, this could mean using funds to build a public park in a wealthier neighborhood or to repair a youth services center in a very low-income community.

If these examples seem stark, consider that Pharr, Texas, used a portion of its CDBG funds to buy equipment to host festivals, and the council in Comstock Township, Michigan, unanimously decided to use CDBG funds to expand the water capacity at a local craft brewery.

Both activities may be important for economic development; qualifying these activities as community development, however, neglects the focus on helping those with the least.

From the federal government down to city governments, lawmakers are increasingly focused on improving social equity. The reality is that many cities in the U.S. are profoundly unequal, and the most disinvested communities are already plagued with socioeconomic challenges. Adults and children in these environments often live with an increased risk of everything from asthma to toxic exposure to lead.

That’s why it’s so concerning that programs designed to reduce inequality in disinvested communities may be systematically targeted toward relatively better-off neighborhoods with a return-on-investment justification.

What governments can do

Fortunately, policymakers aren’t powerless. Our research indicates there are steps that all levels of government can take.

At the federal level, the U.S. Department of Housing and Urban Development might tighten the requirements around how it, as well as state and local governments, distributes CDBG dollars. Over the years, scholars have sought changes to the funding formula to improve equity.

Since states decide how CDBG funds are allocated to local governments, they could play a key role in improving social equity access. Specifically, they could get rid of competitive bidding processes for these funds and instead prioritize local governments with higher needs.

Finally, local governments could consider using redistributive spending mechanisms – such as providing CDBG funds for youth programs, services for the disabled, or even subsistence payments – to ensure that neighborhoods with the greatest need receive these funds. They should also work with community development organizations and neighborhood groups when considering their spending priorities.

Getting community input is especially important. That’s because, as our research found, the poorest neighborhoods were more likely to receive CDBG funds when community development corporations – nonprofit organizations that represent local interests – participated in decision-making.

In community development, as in so much of life, it matters who has a seat at the table.