Federal Funding: How Small Municipalities and Nonprofits Are Making Sense of Big-Dollar Shifts

Current funding landscape

Various tranches of pandemic-era funding have expired or are about to expire, including American Rescue Plan (ARP) dollars, which largely need to be spent down by December (you can track that here). Pandemic-era funding was largely focused on immediate community needs such as rental assistance, childcare, and nutrition assistance.³ Simultaneously, new funding streams are being deployed to support things like longer-term, large-scale infrastructure; advanced technology; manufacturing; and workforce training tied to clean energy. Each of these could be transformational investments by supporting communities in which lower-income people reside and by creating jobs that provide for upward mobility for workers and their families.

Our survey results illustrate this dynamic well: Half of respondents maintain that funding (federal or otherwise) had stayed the same over the six months prior to March 2024, whereas the remaining 50 percent are split almost evenly between those who had experienced declines in funding and those who had experienced increases. Only 24 percent of nonprofit leaders who responded indicated that their funding had increased in the prior six months (see Figure 2). That’s down from 41 percent and 27 percent from the same periods in 2022 and 2023, respectively.

When asked about the biggest challenge that would impact their organizations over the next year, 48 percent of respondents cited a concern about adequate or uncertain funding. Whether they receive adequate funding may depend on who they serve and where they are located.

New programs focus on disadvantaged people and places

Major federal programs have been implemented in recent years with the goal of boosting disadvantaged communities and underserved areas. The federal government’s Justice40 Initiative, which was launched in 2022, requires that 40 percent of certain climate and energy investments flow to disadvantaged communities. This includes allocations from the IRA, BIL, and ARP. For example, the ARP’s Build Back Better Regional Challenge was aimed at increasing the competitiveness of economically lagging regions and underserved communities.⁴ And tax credits in the BIL include bonuses of at least 10 percent when the investment is in a low-income community or “energy community.”⁵

So, are these efforts working? A recent Brookings report finds that, since 2021, micropolitan areas (communities of 10,000 to 50,000 people) and economically distressed counties, defined as those with low prime-age employment rates and median household incomes, have received a disproportionately large share of investments in what the authors term the “strategic sectors” of clean energy, semiconductors and electronics, biomanufacturing, and other advanced industries.⁶

And early data from the Upjohn Institute show that investments may be having a modest positive effect on job growth in distressed counties (Bartik et al., 2024), although there are a range of circumstances beyond federal funding that affect outcomes. Moreover, a significant share of “new” investment is likely not yet reflected in state and local ledgers in our District (see Whitaker, 2023).

Applying lessons from pandemic-era funding

To help think about how new funds can be deployed effectively, it is instructive to consider how some cities and localities that delivered services during the COVID-19 pandemic used one-time funds to improve services longer-term. A recent San Francisco Fed report about lessons learned from the Emergency Rental Assistance Program (ERAP) finds that three-quarters of ERAP providers from two dozen programs across the country are “planning on finding some way to continue providing assistance to struggling renters post-ERAP,” albeit on a smaller scale. According to providers, this is possible in part because of strengthened infrastructure—things like community partnership networks and better technology solutions—made possible by the ERAP.

How to continue to respond to the immediate needs of lower-income families while also pivoting to new funding opportunities and longer-term solutions is a delicate balance. One leader from a midsize industrial city in Pennsylvania noted, “I'm concerned about the post-ARP environment. The City is working on sustainability . . . long after ARP funds are exhausted. There has been significant progress made in small business development, blight remediation, infrastructure investments . . . we hope to keep the momentum after the funds are spent.”

When it comes to simply staying abreast of new grant opportunities across the various agencies, let alone deployment of those resources, many smaller cities and local nonprofits simply do not have enough staff, as pointed out in a recent article by Bloomberg’s CityLab. When I asked a small-town mayor from central Ohio whether she was following funding opportunities at the state or federal level, she explained how difficult it is to focus on the big picture given limited time and resources: “I manage our city’s Facebook page in addition to everything else. Eventually I’d like to get there but that’s a whole layer we are missing.”

Looking up and looking ahead

As new funding continues to roll out, there are a few things to keep in mind. First, lower-income and small, lower-capacity communities have the most to gain but also the most to lose if they are unaware of or unequipped to take advantage of programs offered through the IRA, BIL, and CHIPS and Science Act. Helping entities that represent these communities to identify and leverage funding effectively should enable them to address immediate issues and longer-term challenges. Resources like the Local Infrastructure Hub or Brookings’ Federal Infrastructure Hub can help.⁷ Second, as funding continues to shift, it is important to consistently track where the money is going and how it is being spent, which can help inform changes if needed (see Related Resources).

The passing of historic levels of federal funding is only historic insofar as the funds make a difference in the lives of people they are intended to help.