Federal Budget Cuts are Number-One Worry

Budget cuts and financing issues at the federal level edged out job availability and vacant and abandoned properties to take the top spot among issues facing Fourth District communities, according to stakeholders who responded to our January 2013 survey. Of the 32 percent of respondents who ranked federal budgets cuts as one of their top three worries, 13 percent picked it as their number-one concern. Employment and vacant and abandoned property ranked among the top three concerns for nearly 30 percent of respondents; of that group, almost twice as many ranked employment versus vacant property as their penultimate concern.

Current Issues

1 – Federal budget cuts

Responders’ comments on federal budget cuts focused mainly on three themes: the impacts of cuts on communities and individuals, the types of programs affected by reductions, and frustration with the climate of political gridlock at the federal level. “Needs remain immense while resources do not adequately address, let alone keep up with, inflation,” wrote one CDC executive director. “The mantra ‘do more with less’ is a fantasy considering the needs facing distressed communities. The lack of funding predictably compounds the problems faced by nonprofits, local governments, and the communities they serve.” The deputy director of an economic development organization commented, “Federal program cuts, especially those that are entitlements or transfers to local government, are a big challenge. Continued cuts to CDBG funding and similar programs are creating problems for serving low- and moderate-income areas, especially those still dealing with abandonment and housing market issues.”

Many respondents wrote about the impacts of cuts to specific federally funded programs. “Federal funding for SBA and entrepreneurship development programs is dwindling, and the budget battles in the legislature make future funding even more difficult to ascertain,” stated an economic development agency executive director. The head of a redevelopment authority wrote, “Our organization depends almost entirely on CDBG, HOME and LEAD funds through HUD. As the City’s allocations are cut, they [the city] are keeping more and more of this money to fill gaps in their own general fund budget, leaving very little for community development and housing work done by the Authority.”

Numerous respondents lamented the political environment in Washington and its effects on addressing the real challenges facing communities. “Political gridlock at the federal level means limited reforms on entitlement programs or tax code, which undermines the government’s ability to invest in infrastructure and social safety net programs that address the increasing poverty in this country,” wrote a foundation president. An economic development director opined, “The ongoing political fighting has gotten out of hand. Both parties MUST work together to find solutions to the problems facing our nation.” A director of a community development organization was more direct: “Republicans’ efforts to cut at any cost have very real consequences. Democrats’ efforts to target funds have reduced flexibility (e.g., CDFI funds targeted to very low-income neighborhoods where real estate financing is almost impossible in the current market). The result is a double whammy—less money AND less local flexibility.”

2 – Jobs

Despite declining unemployment rates, jobs are still a concern; in this survey, employment availability ranked as a top issue for about 30 percent of survey respondents. Comments on this topic focused mainly on the skill sets of those looking for work and the types of jobs available. “While we have a significant supply of employment opportunities, there is a need to prepare potential employees to be able to best meet the needs of employers,” wrote a senior manager for a workforce investment board. An executive director of a port authority described the issue as a “mismatch between critical technical skills positions employers want to fill and the skills of the unemployed and underemployed.” According to a respondent from a federal agency, access to quality education and workforce programs is the issue: “The lack of higher paying jobs is in large part attributed to poor quality K-12 education and poor accessibility to effective workforce development programs.”

A number of respondents commented on the need for jobs that pay a living wage. A bank CRA officer wrote, “Without jobs that pay a living wage, there will be more persons living in poverty, particularly women and children.” The director of a university policy center responded this way: “We need more entry-level jobs with living wages and benefits, and that offer career pathways and training.”

Other respondents wrote about the negative impacts unemployment can have on communities. One community development professional described his city’s challenge as a series of consequences from unemployment and underemployment. “[They] continue to contribute to a shrinking population in our city, and if new [employment] opportunities do not become available, even more housing will be abandoned and the city will continue to lose needed revenue.”

“We need more entry-level jobs with living wages and benefits, and that offer career pathways and training.”

3 – Vacant properties

As with jobs, 30 percent of the survey respondents ranked vacant and abandoned property as one of their top three concerns. Many comments revolved around the negative impacts these properties have on communities. “Addressing the overabundance of vacant and abandoned properties in our community is crucial to dealing with blight and creating healthy neighborhoods,” wrote a foundation director. “These properties negatively impact both housing values and the ability to attract people to live in these neighborhoods.” While vacant properties remain a major concern in many communities, some respondents pointed to signs of progress in dealing with them—but in all instances, they also noted a reservation or two. Wrote one local government planning director, “We have been able to make some progress due to demolition funds; however, more still needs to be done.” Another noted that, while progress is being made with a land bank, vacant properties are still a major concern.

Also worrying to some was the availability of resources to deal with the oversupply of vacant properties. A bank senior vice president wrote, “With the end of NSP and with budget cuts at every level, the resources to leverage private investment at a scale necessary to combat vacant and obsolete property and revitalize neighborhoods are not available. Any momentum we have will stall.” According to the senior vice president of a community development organization, already insufficient resources to deal with blighted property will lead to greater numbers of such properties whose condition will further deteriorate, as funding for demolition decreases.

“With the end of NSP and with budget cuts at every level, the resources to leverage private investment...and revitalize neighborhoods are not available. Any momentum we have will stall.”

Emerging Issues

Concern at all levels over budget cuts

According to survey respondents, of greatest concern a year from now will be federal and state budget cuts, followed by jobs. The political environment in the capital, coupled with the uncertainty regarding possible cuts due to the sequester is very much on the minds of many responding to our survey. Cuts at the federal level eventually trickle down to the states, which then make further cuts, leaving local governments strapped for resources to meet community needs. Several respondents acknowledged the need for more efficient use of resources but observed that program cuts need to be more strategic and based on effectiveness, rather than haphazard and across the board.

 

Source: U.S. Department of Housing and Urban Development, Community Planning and Development, and the U.S. Census Bureau, Small Area Income and Poverty Estimates.

Federal budgets cuts topped the list in terms of greatest concern a year from now, according to survey respondents. Nearly 44 percent of the respondents ranked federal budget issues as one of their top three concerns followed by state budget cuts (33%) and job availability (30%). Comments about federal budget cuts were similar to those who ranked them as a top current concern and focused mainly on the uncertainty surrounding what programs will be cut and the impact of these cuts on communities. “Federal cuts to CDBG, HOME, LIHTC will impact the City’s ability to fund crucial programs that address affordable housing, foreclosures, and the work being done in communities by CDCs,” stated a foundation program director. An economic development director wrote, “Budgetary cuts at all levels will have a disastrous impact on community and economic development programming.” Another commented, “With limited local resources, our city has been relying heavily on federal dollars. Continued cuts to federal programs create a significant threat to our city’s ability to address needs, both infrastructure and service needs.”

State budget cuts were also labeled a top emerging concern by survey respondents, many of whom commented on how cuts at the state level ultimately impact local governments and communities. “State budget cuts are being passed down to localities, affecting human services and education,” wrote a nonprofit executive director. Another expressed concern about the political leadership, stating, “There is no balanced policy agenda at the state level (e.g. protect the environment AND allow expansion of oil and gas drillers), and the lack of investment in basic infrastructure, mass transit, and human capital will affect the competitiveness of the state and region.” Others acknowledged the likelihood of cuts, but, as one foundation representative commented, “State government needs to cut services wisely and strategically, not just across the board.” Another wrote, “Arbitrary state cuts in human service programs are negatively affecting vulnerable populations. There is no sense that the cuts are trying to reduce redundancy or protect effective programs.”

Availability of local employment opportunities also remained a top one-year-from-now concern for survey respondents. Several mentioned worries over the lack of jobs paying living wages and benefits. A bank senior vice president wrote, “The majority of job opportunities are in retail or other positions that do not offer health care and a career opportunity. These jobs do not offer a living wage and many individuals are faced with having multiple jobs.” Others mentioned the continued uncertainty with the economy and its impact on employment. A banker commented, “Until industry and local business feels the economy is stable there will be no increase in jobs.” Another stated, “The solution to the current economic situation is more jobs.”

Spotlight on workforce development

Access to quality workforce development programs has been inching up in our rankings of top concerns and generating some pointed criticisms of the system and its ability to lessen the gap between job seekers and employers. “Every year, the employability gap widens between people with limited skills and the job requirements set by employers,” stated a senior program officer at a foundation. “There is a limited amount of public funding for education and training because the field is very fragmented and there is no consensus on what works.”

“Access to quality workforce programs is still an issue,” wrote an economic development professional. “Programs don’t necessarily prepare people for jobs that actually exist, nor are there enough options for soft skills that really make or break individual success in the real world.” Several mentioned the disconnect between jobs available and what is needed in terms of workforce training. “There are advanced manufacturing, energy, and technology jobs in our region, but workforce development organizations are not preparing the workforce for those jobs,” noted a president of an economic development organization.” A bank president commented, “Given the increased employment opportunities of the natural gas industry, there is a shortage of trained qualified workers to fill those jobs.”

“There is a limited amount of public funding for education and training because the field is very fragmented and there is no consensus on what works.”

Multi-Faceted Challenges

While the magnitude and scope of current and emerging issues facing communities does vary among geographies, a sampling of respondents’ comments reveals the interconnectedness of these issues.

“K-12 education is the foundation of all the other issues listed and determines just about all aspects of a person’s future, which in turn affects a community’s future. Continued poor quality K-12 education is detrimental to the person and the community.”

“The overall quality of primary and secondary education in several of the large school districts of our region continues to be a source of concern, with obvious long-term effects on the area’s workforce.”

“A major issue is the lack of available quality affordable housing. Given what we know about the importance of housing stability to education, employment, and health, this is critical.”

“Small business is a primary economic driver and historically accounted for a majority of the jobs created. Inadequate access to capital and tighter underwriting standards, coupled with market uncertainty, have limited the ability of these enterprises to grow and invest, thus impacting their traditional job creation function. More robust growth at all levels of the economy is dependent on the ability of small business to expand.”

“Access to credit and capital for small business is an emerging issue as we re-emerge from the recession. Local and regional employment growth is dependent on these businesses being able to stabilize and grow. That requires access to capital.”

“Vacant, abandoned, and REO properties in the numbers that we have in our city contribute to extremely low property values, drugs, prostitution, and other crime and safety issues. They inhibit the successful rehabilitation of viable homes in close proximity to them, and they contribute to the overall negative image of the city, which prevents economic growth. The resources to address the issue are simply unavailable and homes continue to fall into disrepair.”

“Loss of funding—for core- and basic-needs programs that fight poverty, serve the poor, employ the workforce, provide quality programming for children, and address the population’s health care needs—is a concern.”

What can data analysis techniques tell us about constituents’ concerns?

In addition to the in-depth analysis of the written responses we received from our community issues surveys, the Cleveland Fed teamed with the Board of Governors on a more quantitative approach using text analytics software. This analysis involves exploring the textual data for information on terms and phrases and then grouping the comments into meaningful categories. For example, using the 68 responses we received to our question requesting any “additional comments or insights you may have regarding key issues in community development,” the analysis revealed that 21 percent of the responses mentioned words related to the economy or economic conditions, followed by 18 percent that included references to government, budget cuts, or taxes, 14 percent that mentioned lack of funding, and 14 percent that commented on employment, wages, or job-related issues (see Figure 2).

Many of our survey respondents discussed more than one of these topics in their responses, and elaborated on the interconnectedness of the issues. About half of respondents mentioning the economy, for instance, also included comments about the government and the lack funding in their responses to this question. As one foundation officer wrote, “It is very difficult with the economic conditions, the foreclosures, and the vacant and abandoned properties to have enough access to low-risk capital to continue to improve communities because the needs are so great. Community development corporations have to be more diligent in planning for their neighborhoods; find ways to collaborate with many partners; and more holistically serve their communities. Continued cuts to federal, state and local budgets will make it more difficult to fund projects, at the same time local government needs to be more strategic about leveraging resources and focusing the limited funds on areas where impact will be greatest."

Nearly two-thirds of those who mentioned employment in their responses also remarked on the economy and education-related issues in their comments. A nonprofit executive director mentioned, “the desperate need for collaboration between employers and job training programs and skilled trade apprenticeship programs.” Commented a port authority director, “High-skill jobs, such as engineers, and specialized technical jobs such welders and pipefitters are in high demand. The aging workforce is making the need even greater. There are not enough skilled people entering these fields.” Another wrote about the role of small business owners in the economy, “small business owners create and retain local jobs, increase the tax base and strengthen the economy in communities,” but they may need “technical assistance with the financial, legal, accounting and tax issues of running a business and these services are extremely important in turning creative entrepreneurs into solid business owners.”

In addition to categorizing the survey responses into topical groupings, the text analytics also allowed us to derive sentiment within responses to our survey. How, you may wonder? To do this, responses were scanned for words that may suggest a less-than-positive outlook regarding the issue. Words such as “challenge,” “restrictions,” and “weak” appeared in responses to our question about other key issues in community development, suggesting more negative sentiments toward those issues. Through this analysis, we found that 30 percent of the responses in our January 2013 survey contained negative sentiment, up from 15 percent in the responses to our July 2012 survey. Certainly, the continued cuts to the budgets at all levels of government and the uncertainty regarding further reductions in funds and possible sequestration has elevated respondents’ concerns.

Going forward, we plan to continue to work with the Board of Governors to identify changes we observe over time in the textual responses to our survey.

Survey Methodology

The Federal Reserve Bank of Cleveland developed this survey to elicit perspectives from our stakeholders on key issues facing the communities and individuals they serve. We sent an online survey in January 2013 to 1,129 individuals working in organizations throughout the Fourth District; 165 completed the survey. Below is a breakdown of the types of organizations that provided responses to this survey, and which states these organizations are located in. Please note that the responses reflect only the perspectives of those responding to the survey and not all the organizations within our district.

Breakdown of respondents by organization

Breakdown of respondents by state