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Published by the Consumer and Community Affairs Division

Do Colleges and
Universities Have
a Role in Local
and Regional
Economic
Development?
In this Issue
Do Colleges and Universities Have
a Role in Local and Regional 		
Economic Development? page 1
Determinants of Federal and State
Community Development Spending:
1981-2004 page 5
Around the District page 14
Calendar of Events page 16

October 2007

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CORRECTIONS
Corrections to Profitwise News and Views Special Edition, August 2007
The following sentence appears on page 9:
Therefore, ACCION-NM became adept at using the network of offices of banking institutions around
the state (Wells Fargo, First State Bank, a First Community Bank subsidiary, and more recently First
National Bank of Santa Fe) to identify borrowers, often would-be bank customers, who do meet bank
underwriting criteria.
Clients of ACCION New Mexico often do not meet typical bank underwriting criteria for small
business loans. The corrected sentence follows:
Therefore, ACCION-NM became adept at using the network of offices of banking institutions around
the state (Wells Fargo, First State Bank, a First Community Bank subsidiary, and more recently First
National Bank of Santa Fe) to identify borrowers, often would-be bank customers, who do not
meet bank underwriting criteria.
On page 17, our list of interviews includes:
Saurabh Narain, National Community Investment Fund, February 13, 2007

Economic Development Editor
Harry Pestine

The correct information follows:

Graphic Designer
Katherine Ricca

Saurabh Narain, National Community Investment Fund, September 8, 2006
The following were omitted from the list of interviews:
Mark Pinsky, Opportunity Finance Network, June 27, 2006.
Lisa Richter, GPS Capital Partners, March 21, 2007.

Visit the Web site of the Federal Reserve Bank of Chicago at:

www.chicagofed.org

Economic Development

Do Colleges and Universities Have a Role in
Local and Regional Economic Development?
by Rick Mattoon

Introduction
It has become almost hackneyed to
suggest that we now live in a knowledgebased economy. Firms prosper and die
based on their ability to add intellectual
value to their products and services. Even
in mature industries, such as
manufacturing, the application of
knowledge to enhance production
techniques and increase productivity has
been fundamental to competitive success.
With the pace of economic change
accelerating, economic development
strategies that emphasize having the best
human capital available to adapt to change
continue to gain favor. Noted economist
Edward Glaesser has demonstrated that
communities with the highest educational
attainment continue to adapt and prosper
across differing economic eras. Glaesser’s
study of the Boston economy found that it
was largely due to the significant human
capital in the city that Boston has been
able to re-invent itself to succeed in
differing economic conditions.1

point is local colleges and
universities. Clearly, colleges
and universities are in the
knowledge business, both
the creation of knowledge
through research, and the
dissemination of
knowledge through
teaching. In addition, most
higher education
institutions embrace
community service as a third
critical function, and this
increasingly is observed as
community outreach, often with
a specific economic
development focus.
This article will
discuss differing
models for colleges and
universities for supporting
economic development
in their community and
region.

If knowledge and human capital are
fundamental building blocks of successful
communities and regions, one might ask a
basic question about how communities
build human capital. An obvious starting
Profitwise News and Views

October 2007



A Structure for Thinking about
Higher Education and Its Role in
Economic Growth
An ongoing project at the
Massachusetts Institute of Technology
(MIT), 2 under the direction of Richard
Lester, has developed a useful, four-part
structure for describing the types of
economic transformation a community
might experience, and the role that
higher education can play in aiding that
transformation:
Indigenous creation – the case of a
new industry emerging that has no
antecedent in the region. This is often
directly related to a spin-off of a
technology from a university. While this
sort of development can receive a great
deal of attention, it is relatively rare. To
many, this is a “big-bang” economic
development strategy where a
university helps create a Silicon Valley
or research “corridor.”

Upgrading an existing industry –
the application of new production
technology that can also lead to the
development of new products or
services. The MIT study described the
revitalization of the industrial machinery
business in Tampere, Finland, as an
example of integration of electronics,
control, and communications
technologies into a traditional product
that benefited the forestry, paper, and
transportation industry.
Each of these types of economic
transformations involves different roles
for higher education institutions. As
Lester suggests, for an institution of
higher education to be effective in
economic development, it must be highly
attuned to its local economy and
understand the local economic
development strategy. For example, in
the first case of “indigenous creation,” a
research university with an active
commercialization office is essential.
The new industry is likely to be the
product of a scientific or technological

Transplantation – an industry is new
to a region, but it primarily develops
through the transplanting of an existing
industry. The development of the auto
industry in southern states is a recent
example. The region did not have auto
production as part of its industrial
heritage, and obviously the industry was
not a new creation spun off from
universities. Rather, the structure and
knowledge of the industry was
breakthrough at the university. A
transplanted, particularly by foreign
potential problem is that, since
nameplate automakers.
knowledge is easily transmitted, a local
community can only benefit from the
Diversification into related
new technology if it can be
industries – an existing industry goes
commercialized locally. Universities that
into decline, but a related industry
emerges that can take advantage of the actively partner with business and
encourage the commercialization of
mature industry’s core technology. An
knowledge through tech transfer and
example is the emergence of the
licensing offices can often help local
polymer engineering and manufacturing
communities gain from basic research
industry in Akron, Ohio. As the tire
advances.
industry flagged, a new industry
emerged capitalizing on the value of
In the case of transplantation of an
polymers in synthetic rubber tire
industry, providing worker training and
production.
developing specialized research

facilities often represent the primary
opportunity for colleges and universities.
When the auto industry began to have a
significant presence in South Carolina,
the state’s higher education
establishment supported the industry’s
growth through several programs. At the
university level, Clemson added
curriculum support in engineering fields
related to automotive manufacture, and
helped to create an advanced research
facility for German automaker, BMW.
The state’s community colleges began
providing essential training for auto
workers.
Perhaps the most ambitious
midwestern effort in universitysupported economic development is at
Purdue University in Indiana. According
to Vice Provost for Engagement, Victor
Lechtenberg, Purdue is responding to
the economic development needs of
Indiana by: 1) aligning itself institutionally
to be more responsive in teaching,
discovery, and engagement; 2) identifying
Indiana-specific targets of development

Noted economist Edward Glaesser has demonstrated
that communities wih the highest educational
attainment continue to adapt and prosper across
differing economic eras.



Profitwise News and Views

October 2007

opportunity; and 3) emphasizing
external outreach. This has led to the
establishment of university goals in the
areas of economic development, K-12
education, service learning (where
Purdue students are expected to give
back to the community), continuing
education, and life-long learning.
To implement its economic
development strategy, Purdue
created a set of internal institutions
with four components:

Technical Assistance Program
(TAP) and Manufacturing Extension
Partnership (MEP) – TAP provides
production and management assistance
to area business; MEP provides
intensive training and transferable skills
to managers, engineers, supervisors,
and staff personnel.
Purdue Research Foundation –
founded originally in 1930, assumed
economic development roles beginning
in the mid-1990s, and features a
200,000 square foot technology
incubation facility that has launched
over 40 high-tech companies.
Discovery Park/Entrepreneurship
Center/Center for Regional
Development – engages in applied
research, policy analysis, and technical
assistance that addresses high-priority
regional needs and policy issues; fosters
and brokers networks and partnerships;
and provides regional strategic planning
input.
Corporate Partnerships –
interdisciplinary collaborations with
private sector entities. Ultimately, this
strategy allows Purdue to align with the
economic needs of an Indiana economy
that is still struggling with a reliance on
mature manufacturing firms.

What is needed to make Highereducation-led Economic
Development Work?
Randy Eberts from the Upjohn Institute
of Employment Research suggests that
intermediaries may be a key to
successfully bringing higher education
and the business sector together. 3
Intermediaries can play useful roles in
two dimensions: technology transfer and
education. First, there is a clear
difference in the motivations of
university researchers and firms that
need an intermediary to bridge the gap
(to commercial marketability). In the
university, the researcher is driven by a
desire to discover new knowledge and is
motivated by peer recognition. For the

firm, it is the commercialization of new
technology and the financial gain through
a proprietary technology that matters
most.
Fortunately, several intermediaries
have been established to bridge this
gap. First, government enabling
legislation dating back to the Morrill Act
of 1862 (establishing the land-grant
university system), and more recently
the Bayh-Doyle Act of 1980 that
established a uniform patent policy for
federally based research, helped

Michigan Regional Skills Alliance that
has focused on workforce issues facing
firms operating in a specific sector in
distinct geographic regions. In particular,
these intermediaries have focused on
curriculum needs for working in a
specific industry.

Are There Pitfalls in a Highereducation-based Economic
Development Strategy?
While universities and colleges are
local (and largely fixed) assets in a given

Universities that actively partner with business
and encourage the commercialization of
knowledge through tech transfer and licensing
offices can often help local communities gain
from basic research advances.
establish a framework for university
business interaction. This has
encouraged the creation of government
intermediaries, including National
Institute of Standards and Technology,
the Advanced Technology Program, and
the Manufacturing Extension Program.
In addition, Industry-University
Cooperative Research Centers
(IUCRCs) have created partnerships
between industry, academia, and
government dedicated to technology
transfer. Other examples of
intermediaries include, Partnerships for
Innovation, Independent Technology
Intermediaries, and University
Technology Transfer Offices (a prime
example is the Wisconsin Alumni
Research Foundation).
The other role for intermediaries is in
education and workforce development.
School-business partnerships, advisory
committees, cooperative education
programs, and customized training are
all intermediary opportunities. As an
example, Eberts noted the work of the

community, the question remains
whether higher education can and
should align itself with an economic
development mission. Some question
whether an interest in the direct
application of knowledge reduces the
traditional missions of basic research
and scholarship. In fact, the history of
higher education interactions with
business has been uneven as basic
institutional objectives have created
suspicion between the two sectors.
Surveys suggest that business rarely
looks to universities as partners and
that much of the industry knowledge
they gain comes from suppliers,
competitors, and consulting firms. It is
therefore not surprising that success
stories regarding universities and
economic development in any given
community tend to be more individual
case studies than a systematic model
for higher education engagement in the
community.
Moreover, it is essential to focus on
realistic economic development

Profitwise News and Views

October 2007



strategies. The creation of whole new
industries from breakthrough science is
only likely to occur at the very best
schools. Often, more basic strategies,
such as using community colleges to
help train workers for key local
industries, can produce significant and
realistic returns.
Ironically, the U.S. was at the forefront
of creating a system of university and
industrial engagement. The
establishment of the land-grant
university system in 1862 was
specifically designed to create
university-based extension programs in
agriculture and manufacturing that were
aimed at delivering the best university
research to farms and factories. Today,
many schools may be going back to
their land-grant roots and revitalizing the
role for higher education in local and
regional economic development.



Profitwise News and Views

NOTES
1 Glaesser, Edward L. Reinventing Boston: 1630-2003. Journal of Economic Geography, Oxford
University Press, vol. 5(2), pages 119-153, April 2005.
2 MIT project and summary of the findings from the first phase of research, available online at http://
web.mit.edu/lis/papers/LIS05-010.pdf.
3 Ebert, Randy. Can Higher Education Foster Economic Growth?, presentation at the Federal Reserve
Bank of Chicago, October 30, 2006, available online at www.chicagofed.org/news_and_
conferences/conferences_and_events/files/2006_higher_education_eberts.pdf.

October 2007

Determinants of Federal and State Community
Development Spending: 1981–2004
by David Cashin, Julie Gerenrot, and Anna Paulson

Introduction
Federal and state community development spending is an important component of the U.S. public welfare system, directly impacting the lives of numerous
Americans, including nearly nine million low-income individuals living in housing subsidized by the U.S. Department of Housing and Urban Development (HUD).1
Total federal housing and community development spending exceeded $45 billion in 2004 – nearly $155 for each person living in the U.S. 2
The goal of this article is to describe and analyze community development spending at the state level for the period 1981 to 2004. Two components of each
state’s housing and community development spending are analyzed: transfers from the federal government that are subsequently spent by states and
localities, and expenditures from moneys generated by states and localities. In addition to describing broad trends in public community development spending
over time, we also analyze the determinants of both the federal transfers and the state- and local-generated components of total state spending. For example,
we consider whether community development spending responds to state-level trends in unemployment and poverty, and whether federal transfers and stateand local-generated expenditures are influenced by the same factors. This exercise helps us understand how we should think about public community
development spending; that is, whether it should be regarded as a part of the social safety net that responds to short-term economic fluctuations, like periods
of high state unemployment, or as a part of the social safety net that focuses more on alleviating long-term and persistent conditions, like high rates of poverty.

Data
The data on state spending on
community development come from the
U.S. Census Bureau’s Annual Survey of
State and Local Government Finances
and Census of Governments (19812004). These data cover all 50 states
and are available from 1981 to 2004. 3
The data include federal transfers for
housing and community development to
each state and its localities, as well as
total state and local spending on
housing and community development.
For the purposes of this article, and in
accordance with the data that we
analyze, housing and community
development is defined as “construction,
operation, and support of housing and
redevelopment projects and other
activities to promote or aid public and

private housing and community
development.”4 Note that we do not
study nongovernmental expenditures on
community development. For
convenience, we sometimes use the
term “total state spending” as shorthand
for total state and local government
spending on housing and community
development.
Most of the federal transfers to states
and localities are transferred from funds
allocated to HUD in the federal budget
and from selected housing and
community development programs
under the U.S. Departments of
Commerce and Treasury. Big-ticket
funds and programs in the HUD budget
are the Housing Certificate Fund and
the Community Development Block
Grant (CDBG) Program. The
Department of Commerce administers

the Economic Development
Administration and the Minority
Business Development Agency, and the
Department of Treasury administers the
Community Development Financial
Institutions Fund (CDFI). 5
As a check on the coverage of the
state and local government survey data,
we compared official direct housing and
community development spending by
HUD and the Departments of
Commerce and Treasury to total housing
and community development spending
calculated from the state and local
government survey data. While we do
not expect summing up federal transfers
across states to match up one-to-one
with total government spending on
housing and community development,
we do expect substantial overlap.6 The
federal portion of the state and local

Profitwise News and Views

October 2007



government survey figures for 2004
represent between 79 percent and 93
percent of total federal spending on
housing and community development by
HUD, the Department of Commerce,
and the Department of Treasury in
2004.7
Note that the state and local
government survey data specifically
exclude the following: HUD
administered direct Federal Housing
Administration (FHA) loans to
individuals, builders, and landlords;
building inspection and enforcement of
housing codes or standards; and
temporary shelters or housing for the
homeless and for the military.
Additionally, the state and local
government survey does not include
large tax-incentive programs, such as
Low-Income Housing Tax Credits
(LIHTC) and New Markets Tax Credits
(NMTC). 8
The state and local government
expenditure data are supplemented by
information on population, population

capita 2000 dollars. There was a
gradual upward trend in real expenditure
per capita on housing and community
development for the contiguous
United States as a whole, from $51 in
1981 to $115 in 2004, which
corresponds to an average annual

Trends in Housing and Community
Development Spending
Figure 1 rrepresents overall trends in
community development spending for
the 1981 to 2004 period in real per


Profitwise News and Views

State Variation in Housing and
Community Development Spending

real growth rate of roughly 4 percent. 9
This increase is over and above
spending adjustments for inflation.

There is a great deal of interstate
variation in housing and community
development spending. Table 1		
displays the contiguous states in order
of their total state spending on housing
and community development in 2004,
with a breakdown of federal transfers
and state- and local-generated
expenditures for each state. Spending
ranges from a high of $227 per person
in Massachusetts to a low of $27 per
person in Wyoming, and averages $115
per person for the contiguous United
States.

Federal transfers consistently
comprise about 70 percent of overall
spending, and have been the driving
force behind the gradual increase in
overall spending – rising from $36 in
1981 to $82 in 2004. State- and
local-generated expenditures account
for the remaining 30 percent of
overall spending. Analogous to the
rise in federal transfers, state- and
local-generated expenditures have

In Figures 2 through 5, we examine
interstate variation in housing and
community development for 2004 for
each of the 48 contiguous states in
more detail.10 The 2004 total state per
capita housing and community
development spending figure is written
in each state. States that have hatch
lines have spending above the average
of $115 and states without hatch lines
have spending below the average.

Spending ranges from a high of $227 per person in
Massachusetts to a low of $27 per person in
Wyoming, and averages $115 per person for the
contiguous United States.
density, unemployment, poverty, and
income for each state over the 1981 to
2004 period from the U.S. Census
Bureau, the Bureau of Labor Statistics–
Local Area Unemployment Statistics,
the U.S. Census Historical Poverty
Tables, and the Bureau of Economic
Analysis–Regional Economic Accounts.

more than doubled, from $16 in 1981
to $33 in 2004.

October 2007

NOTES: All dollar values are in real per capita 2000 dollars. 							
SOURCE: Authors’ calculations based on data from the U.S. Census Bureau, Annual Survey of State and Local Government Finances
and Census of Governments (1981-2004).

Profitwise News and Views

October 2007



States along the West Coast, New
England, New York, Pennsylvania,
Delaware, Maryland, Minnesota, Illinois,
and Ohio all have above average levels
of total state housing and community
development spending.11 In an effort to
better understand what influences
spending, we superimpose statespecific characteristics, such as annual
personal per capita income, population
per square mile, poverty rates, and
unemployment rates, on the maps. The
shading reflects increasing annual
personal income per capita, population
per square mile, poverty rates, and
unemployment rates for Figures 2
through 5, respectively. Each of these
characteristics, alone or in combination
with others, can be used to explain what
types of states are likely to have above
average housing and community
development spending.
From Figure 2, it is evident that
housing and community development
spending is higher in states with higher
incomes. States with personal per capita
incomes in roughly the top quartile
(above $32,000 per year), such as

-

-

NOTES:
Stateand
and
local
government
survey
datanot
are
not available
forand
2001
and
2003.
Data
48
NOTES: State
local
government
survey
data are
available
for 2001
2003.
Data
include
48include
contiguous
contiguous
states.
Allare
dollar
values
are in2,000
real per
capita 2000 dollars. 				
states. All dollar
values
in real
per capita
dollars.
SOURCE:
Authors’
calculations
based
on data
fromCensus
the U.S.
Census
Bureau,
Annual
Survey
of State
and Local
SOURCE: Authors'
calculations
based
on data
from U.S.
Bureau,
Annual
Survey
of State
and Local
Government
Finances and Census
of Governments
U.S.(1981-2004),
Census Historical
Tables;
BureauPoverty
of LaborTables,
Statistics
Government
Finances
and Census (1981-2004).
of Governments
U.S.Poverty
Census
Historical
Bureau
Local
AreaStatistics
Unemployment
Bureau of Economic
Analysis
- Regional
Accounts
of
Labor
- LocalStatistics;
Area Unemployment
Statistics,
Bureau
of Economic
Analysis - Regional Accounts.

Washington, California, Minnesota, New
Hampshire, Massachusetts,
Connecticut, New York, Delaware, and
Maryland, spend above average
amounts on housing and community

Figure 2: 2004 Annual Personal Income and Total State Spending on
Housing and Community Development

*Figured in the states are total 2004 state housing
and community development (H&CD) spending
per capita in 2000 dollars. Cross-hatched states
are states with above average (>$115 per capita)
total state H&CD spending.



Profitwise News and Views

October 2007

0 to 27,000
27,000 to 32,000
32,000 to 47,000

development. Note that Illinois has an
annual personal per capita income just
below the cut-off of $32,000, as well as
above average housing and community
development spending.
Figure 3 shows that densely populated
states also spend above average
amounts on housing and community
development. The relationship between
spending and population per square mile
helps to explain the relatively high
spending in Illinois, Ohio, Pennsylvania,
Rhode Island, New York, Delaware,
Maryland, Massachusetts, Connecticut,
and California. Each of these states is in
the top quartile for population density,
with more than 189 people per square
mile. On the other hand, Oregon, Maine,
and Vermont do not have particularly
high incomes nor are they densely
populated, but they do have above
average housing and community
development spending. In this
framework, Florida, Colorado, Virginia,
and New Jersey are also anomalies.
Florida is densely populated, Colorado
and Virginia have high annual personal
per capita incomes, and New Jersey is
both densely populated and has high
annual personal per capita income, yet

they all have below average housing and
community development spending.
Figures 4 and 5 illustrate the
relationship between community
development spending and poverty and
unemployment rates across states. The
story here is less clear. States with high
poverty rates, such as New York, and
low poverty rates, like Vermont and
New Hampshire, spend above average
amounts on housing and community
development. Similarly, states with both
high unemployment rates, such as
California and Oregon, and with low
unemployment rates, such as Vermont
and New Hampshire, spend above
average amounts on housing and
community development. We attempt to
resolve these puzzles by looking jointly
at several potential determinants of
community development spending in a
regression framework.

Figure 3: 2004 Population per Square Mile and Total State Spending
on Housing and Community Development

*Figured in the states are total 2004 state housing
and community development (H&CD) spending
per capita in 2000 dollars. Cross-hatched states
are states with above average (>$115 per capita)
total state H&CD spending.

0 to 53
53 to 189
189 to 1,171

Regression Analysis
Recall that total state spending on
housing and community development
comprises two components: transfers
from the federal government to state
and local governments, and state- and
local-generated expenditures. We
analyze the determinants of these two
components separately. We present two
regressions with federal transfers as the
dependent variable, and two regressions
with state-generated expenditures as
the dependent variable. Independent
variables include the following:
population, population per square mile,
one-year lagged unemployment rate,
one-year lagged poverty rate, and
annual personal income per capita. In
addition, we examine the relationship
between federal transfers to states and
localities for housing and community
development and state- and localgenerated expenditures, and between
state- and local-generated expenditures
for housing and community development
and federal transfers. Table 2
summarizes the dependent and
independent variables.

The regression analysis presented in
Table 3 (p. 12) is intended as a
statistical exercise to examine multiple
factors that are correlated with housing
and community development spending,
rather than as an attempt to model the
actual process by which housing and
community development is determined.
Regression [1] examines the impact of
state- and local-generated expenditures
on federal transfers, and regression [3]
examines the impact of federal transfers
on state- and local-generated
expenditures to explore the possibility of
an automatic relationship between
federal transfers and state- and localgenerated expenditures. This would be
the case if, for example, there were a
federal matching program for state
spending on housing and community
development, as is the case with
Medicaid. In regressions [2] and [4], we
add state-specific controls, including
population, one-year lagged
unemployment rates, one-year lagged
poverty rates, population per square
mile, and annual personal per capita

income. For each regression, we use data
for the 48 contiguous states covering
the period 1981 to 2004.12 A full set of
one-year fixed effects are included in all
of the regressions.

Federal Transfers to State and
Local Governments
Determinants of federal transfers for
community development are analyzed in
regressions [1] and [2] of Table 3. We
examine the effect that state- and localgenerated expenditures alone have on
federal transfers in regression [1] and
find that, all else equal, states and
localities that generate a dollar more for
housing and community development than
the average state, receive an additional
$0.19 of federal funding per capita.
When controlling for state-specific
characteristics in regression [2], we find
no evidence of an automatic relationship
between federal transfers and stateand local-generated expenditures. In
fact, states and localities that generate

Profitwise News and Views

October 2007



a dollar more for housing and community
development than the average state
receive $0.08 less federal funding per
capita. All else equal, population does
not appear to be a significant determinant
of federal transfers. Population density,
on the other hand, is important. A state,
such as New York, which has one
standard deviation more people per
square mile than an average state like
Michigan, will receive an additional
$9.59 per person from the federal
government for housing and community
development, according to the estimates
presented in regression [2].13
State poverty and unemployment rates
also influence federal transfers for
housing and community development
significantly. Regression [2] predicts that
a state, such as Kentucky, which has a
one standard deviation higher poverty
rate than an average poverty state like
Michigan, will receive an additional
$3.83 per person from the federal
government for housing and community
development. Conversely, regression [2]

predicts that Louisiana, which has a one
standard deviation higher unemployment
rate than an average unemployment
state like Arizona, will receive $2.22
less per person from the federal
government for housing and community
development. Federal transfers for
community development appear to
respond countercyclically to less
persistent economic challenges, like
unemployment, which tend to fluctuate,
but are increasing in persistent
measures of economic stress, like the
poverty rate.
Another factor that plays a significant
role in the level of federal transfers is
annual personal per capita income.
Regression [2] predicts that a state,
such as Maryland, where annual
personal per capita income is a one
standard deviation higher than an
average income state like Kansas, will
receive $10.85 more per person from
the federal government for housing and
community development.

rates do positively influence federal
transfers, income per capita and
population per square mile have a larger
impact on the allocation of federal
dollars. To be exact, states with poverty
rates one standard deviation above the
mean receive 8 percent more in federal
transfers per person than a state with
an average poverty rate. On the other
hand, states with population densities
one standard deviation above the mean
receive 19 percent more in federal
transfers than an average state, while
states with average annual personal per
capita income one standard deviation
above the mean receive 22 percent
more in federal transfers than a state
with average income.14 So in 2004, a
state, such as Arkansas, despite its high
poverty rate of 15.1 percent, had below
average total state spending on housing
and community development ($54.34
per person), because it has a low
average per capita income ($23,662)
and is sparsely populated with only 53
people per square mile.

We also observe that while poverty

State-generated Spending on
Community Development
Figure 4: 2004 Poverty Rates and Total State Spending on Housing
and Community Development

*Figured in the states are total 2004 state housing
and community development (H&CD) spending
per capita in 2000 dollars. Cross-hatched states
are states with above average (>$115 per capita)
total state H&CD spending.

10

Profitwise News and Views

October 2007

0 to 9.5
9.5 to 14
14 to 19

Determinants of state- and localgenerated community development
expenditures are analyzed in
regressions [3] and [4] of Table 3.
Similar to the analysis of federal
transfers, there is a significant negative
relationship between federal transfers
and state- and local-generated
expenditures when other control
variables are included in the regression.
States that receive one dollar more of
federal per capita funding than the
average state generate $0.07 less
per capita for housing and
community development.
Income is positively associated with
state and local spending as it is with
federal transfers for housing and
community development. Regression [4]
predicts that a state like Maryland,
where annual personal per capita
income is one standard deviation higher
than an average state like Kansas, will

Conclusion

Figure 5: 2004 Unemployment Rates and Total State Spending on
Housing and Community Development

*Figured in the states are total 2004 state housing
and community development (H&CD) spending
per capita in 2000 dollars. Cross-hatched states
are states with above average (>$115 per capita)
total state H&CD spending.

Housing and community development
programs, whose funding accounts for a
small portion of the federal budget,
directly benefit at least nine million lowincome Americans living in publicly
subsidized housing. Real state spending
per capita for these programs has
increased nearly 4 percent each year,
rising from $52.23 in 1981 to $116.19 in
2004. Seventy percent of these funds
come from federal transfers to states
and localities. The remaining 30 percent
come from state- and local-generated
expenditures. Geographic patterns of
spending suggest that states with above
average spending on housing and
community development tend to be more
densely populated and/or have higher
annual personal per capita incomes. The
regression analysis confirms these
observations. In addition, federal transfers
tend to be higher to states with higher
poverty rates and lower to states with
higher unemployment rates, all else equal.

0 to 1.4
1.4 to 5.6
5.6 to 7.5

were a bit of a puzzle. Why is their
spending so high? The regression analysis
helps to answer this question. In 2004,
Oregon, Maine, and Vermont had
moderately high per capita incomes of
$28,014, $27,542, and $29,132,
respectively, which is just below the high
income state cut-off of $32,000. Since
In contrast to its insignificant effect on annual personal income is a significant
federal transfers, population is a
determinant of both federal transfers and
significant determinant of statestate- and local-generated expenditures,
generated expenditures. Regression [4] relatively high incomes help to explain why
implies that a state like Ohio, where the these states have above average housing
population is one standard deviation
and community development spending. In
higher than an average population state addition, Vermont has the second lowest
like Missouri, will generate $3.73 more
unemployment rate of the 48 contiguous
per person for housing and community
states in 2004, and since states with
development. Conversely, population per lower unemployment rates tend to receive
square mile, lagged unemployment, and more federal transfers, this is another
lagged poverty do not appear to be
potential explanation for its high spending
significant determinants of stateon community development programs. In
generated expenditure for housing and
addition, the regression analysis reinforces
community development.
the more casual explanations we drew
from Figures 2 and 3 regarding the
Recall that when we previously used
Figures 2 through 5 to examine potential correlation between housing and
determinants of community development community development spending, and
income and population density.
spending, Oregon, Maine, and Vermont
generate $13.94 more per person for
housing and community development.
This suggests that states with lower
annual personal per capita incomes
may find it challenging to generate
resources for housing and community
development programs.

As this exercise was intended to
examine the factors that are correlated
with housing and community
development spending rather than model
the process by which those expenditures
are determined, we can only draw some
very tentative conclusions as to why the
relationships we have highlighted exist.
First, states with higher population
densities tend to receive more federal
transfer funds per person than states
with lower population densities, all else
equal. This relationship seems
appropriate considering that most
housing and community development
programs are targeted toward urban
areas, and states with large urban areas
are more densely populated than states
without large urban areas.
The regression analysis also showed
that states with higher annual personal
per capita income generate more
community development spending and
receive more federal transfer funds than
lower-income states. While it makes
sense that higher-income states are able

Profitwise News and Views

October 2007

11

to afford more community development
spending, at first glance it seems puzzling
that these states are also receiving more
in federal transfers than lower-income
states. Recall, however, that community
development programs are generally
targeted to low- and moderate-income
individuals and neighborhoods. Low and
moderate income are defined in terms of
relative, not absolute, levels of income.
Low income is defined as below 50
percent of MSA median income and
moderate-income families have incomes
50 percent to 80 percent of the area
median. States with higher incomes are
likely to have larger numbers of families
who have low- and moderate-income
levels. This helps to explain why higherincome states receive larger transfers of
federal funds for community development.
Finally, we saw that states with higher
poverty rates tend to receive more in federal
transfers than states with lower poverty
rates, and states with higher unemployment
rates tend to receive less than states with
lower unemployment rates. This finding
suggests that housing and community
development spending responds to
persistent economic challenges, like poverty,
rather than to shorter-term economic
fluctuations, like unemployment.

12

Profitwise News and Views

NOTES: State and local government survey data are not available for 2001 and 2003. Data include 48
contiguous states. All dollar values are in real per capita 2000 dollars. *,**,*** indicate significance of a 10%,
5% and 1%, respectively.							
SOURCE: Authors’ calculations based on data from the U.S. Census Bureau, Annual Survey of State and Local
Government Finances and Census of Governments (1981-2004), U.S. Census Historical Poverty Tables, Bureau
of Labor Statistics - Local Area Unemployment Statistics, Bureau of Economic Analysis - Regional Accounts.

October 2007

NOTES
1 Public housing data is available at www.hud.gov/renting/phprog.cfm. Voucher data is available
at www.centeronbudget.org/5-15-03hous.htm. We arrived at our approximation of nine million
individuals benefiting from housing subsized by HUD using the following formula: 2.6 people
per household on average x (1.3 million households living in public housing + 2.1 million
households receiving vouchers) = 8.84 million people.
2 This value is in 2004 nominal dollars. The rest of the analysis uses values in real 2000 dollars.
3 Complete data are not available for 2001 and 2003. These years are not included in the analysis.
4 U.S. Census Bureau Federal, State, and Local Governments: Government Finance and Employment
Classification Manual. Available online at www.census.gov/govs/www/classfunc50.html.
5 In 2004, the Housing Certificate Fund outlays were $20.5 billion and CDBG outlays were
$4.9 billion relative to the total HUD budget of $41 billion (all figures given in real 2000
dollars). The Housing Certificate Fund encompasses rent subsidy programs like Housing
Choice Vouchers (also known as the Section 8 program). CDBGs are transferred directly to
states, local governments, metropolitan cities, urban counties, and other entitled jurisdictions
to help develop viable urban communities in distressed areas. Other programs and funds
include Public Housing Capital Fund (used for construction and operation of public housing),
HOPE grants (used by Public Housing Authorities to revitalize severely distressed public
housing), HOME Investment Partnerships program (formula grants to states and localities to
provide direct rental assistance or oversee affordable housing for rent or homeownership),
and other programs dealing with “urban renewal and slum clearance, redevelopment and
rehabilitation of substandard or deteriorated facilities and areas, rural redevelopment, and
revitalization of commercial areas.” The Economic Development Agency works to attract
private capital investments and higher-skill, higher-wage jobs to distressed communities. The
Minority Business Development Agency works to empower minority business enterprises. The
CDFI fund promotes economic revitalization and community development through investment
in and assistance to community development financial institutions.
6 They should not match exactly because of administrative expenses, which are not transferred
to the state. In addition, different timing of expenditures by the federal government compared
to states and localities will cause the figures to differ.
7 Under a variety of assumptions, we summed up all the housing and community development
funding allocated to government programs (HUD, Commerce, and Treasury) that would get
passed on to states. Totals ranged from $25.9 billion to $31 billion in 2004. We then
compared these figures to the total federal transfers summed up over all the states from the
state and local government survey, $24.3 billion in 2004. Therefore, the coverage of the state
and local government survey data ranges from 79 percent to 93 percent.
8 The LIHTC program, created by HUD, provides states with funding to issue tax credits to
investors for the acquisition, rehabilitation, or new construction of rental housing targeted to
lower-income households. The NMTC program, funded by the Department of the Treasury’s
CDFI fund, is designed to encourage economic development in low-income communities by
providing tax breaks to businesses that develop in distressed areas.
9 Alaska and Hawaii were excluded from the analysis. Total per capita state expenditures on
housing and community development in Alaska are more than two standard deviations above the
mean throughout much of the 1981-2004 period. Similarly, Hawaii’s ratio of total state spending
to federal transfers was more than two standard deviations above the mean in the early to mid1980s.
10 The most recently available data are from 2004. Similar patterns of interstate variation in
housing and community development spending are found in other years as well.
11 New England, as defined by the U.S. Census Bureau, comprises Maine, Vermont, New
Hampshire, Connecticut, Massachusetts, and Rhode Island.
12 As mentioned earlier, complete data are not available for 2001 and 2003, and are therefore
not included in the analysis.
13 To calculate how much more or less a state with one standard deviation more people per
square mile than an average state would receive in federal transfers, we multiplied the
standard deviation of population per square mile presented in Table 2 by the coefficient for
population per square mile in regression [2] of Table 3. In general for similar calculations
below, if xi is an independent variable and y the dependent variable, the increase/decrease in
y for a state with one standard deviation higher xi than an average state is given by increase/
decrease [y] = Standard Deviation [x i] * β[x i].
14 These percentages are calculated by using the means and standard deviations of the
dependent and independent variables from 1981-2004 and the coefficients found in regression
[2]. For example, from Table 2 you see that population per square mile has a standard deviation
of 239.65. When that is multiplied by 0.040, its regression [2] coefficient, we get 9.59. Dividing
that by 49.84, the mean of federal transfers per capita, we get 19 percent.

Profitwise News and Views

October 2007

13

Around the District
ILLINOIS
Children’s Savings Accounts
highlighted at a recent event hosted by
the Federal Reserve Bank of Chicago
An innovative program to help youth
build financial skills and accumulate
savings – Children’s Savings Accounts
(CSA) – was highlighted at a recent
event hosted by the Federal Reserve
Bank of Chicago and coordinated by the
Illinois Asset Building Group (IABG), a
statewide coalition invested in building
the financial strength of Illinois families
and communities through asset
ownership and asset protection.
CSA offers children a chance to build
a more secure financial future through
financial education and savings.
Opened at birth with an initial
investment, CSAs offer families an
incentive to initiate the habit of saving
early in life. Once a child reaches 18,
the funds can be used for specific
purposes, such as education or
training, homeownership, or small
business development.
Local Chicago youth from Mayo
Elementary School discussed savings
(goals) achieved by participating in a
national CSA demonstration program,
the Savings for Education,
Entrepreneurship, and Downpayment
(SEED) initiative. Illinois State Senator
14

Profitwise News and Views

Jacqueline Collins and State
Representative Marlow Colvin spoke
about the importance of CSAs and
financial education in preparing youth
for a successful financial future. Both
were sponsors of legislation that
created a task force to study the
formation of children savings accounts
for all Illinois children.
In addition, IABG members presented
research that demonstrates the behavioral
impact that asset building programs can
have on youth and their families.
Highlights of the event and Children’s
Savings Account proposals were
featured by Chicago Public Radio, the
Chicago Sun Times, and American
Banker. For more information regarding
the Illinois Asset Building Group or
Children’s Savings Accounts, please
contact Gina Guillemette at gguillemette@
heartlandalliance.org, or (773) 336-6083,
or Dory Rand at doryrand@povertylaw.org,
or (312) 368-2007.

INDIANA
IFA awards $7.2M statewide for
brownfields redevelopment
According to a press release issued
by Lieutenant Governor Becky
Skillman’s office, the Indiana Finance
Authority (IFA) has approved
brownfields funding totaling nearly $7.2
million for Indiana communities to

October 2007

assess and remediate environmentally
impaired properties.
Potential developers are often
deterred by abandoned gas stations due
to fear of environmental contamination
and related clean-up costs. Cris
Johnston, Public Finance Director of the
State of Indiana, said he hopes this
investment will “help curb that fear,” and
facilitate property revitalization, while
creating jobs and improving the
appearance and safety of Indiana cities
and towns at minimal cost to taxpayers.
For more information on the Indiana
Brownfields Program’s various funding
incentives, visit www.in.gov/ifa/
brownfields/financial_assistance.htm.

IOWA
Iowa Farm Bureau’s “Renew Rural
Iowa” continues to help grow
businesses
According to Sandy Ehrig, outreach
coordinator for the Iowa Farm Bureau
Federation, “Renew Rural Iowa”
seminars are designed to assist
entrepreneurs and existing businesses
trying to grow their company. “By
bringing together seasoned business
experts and critical resources at each
seminar, business owners can hone their
knowledge of legal and financial matters,
intellectual property, marketing, [and

other topic areas] in one location,” Ms.
Ehrig explained. More than 300
participants have attended regional
seminars in five locations around Iowa.
The Iowa Farm Bureau is now
welcoming participants for the final
seminars this year.
The Iowa Farm Bureau Federation
contracted with the Entrepreneurial
Development Center, an Iowa business
accelerator, to provide customized
services and mentoring for promising
clients. More than 15 businesses
have participated in this special
mentoring service. The Iowa Farm
Bureau’s goal is to promote rural vitality
by assisting the growth of Iowa’s
businesses and entrepreneurs.
For more information, visit www.
iowafarmbureau.com, or contact Sandy
Ehrig at (515) 225-5480, or sehrig@ifbf.org.

MICHIGAN
Property improvement program
income limits raised
According to the Michigan State
Housing Development Authority
(MSHDA), income limits to qualify for its
Property Improvement Program (PIP),
were raised effective April 15, 2007.
PIP enables qualifying Michigan
property owners to borrow funds at
below-market interest to make repairs
and improvements to existing homes.

WISCONSIN
12 Wisconsin counties get “WIRED”
The U.S. Department of Labor’s
Employment and Training Administration
recently designated 12 counties in
south and southwest Wisconsin as a
Workforce Innovation in Regional
Economic Development (WIRED) region.
The designation will bring $5 million
dollars over three years to the multijurisdictional effort to coordinate
workforce development efforts in
support of economic development.
In the press release announcing the
third round of WIRED regions, Department
of Labor Assistant Secretary Emily
Stover DeRocco said, “We are already
encouraged by the results of t h e
W I R ED s t r at e gi c p a r t n e r ship s ,
demonstrating that talent development
can drive economic transformation.”
This is Wisconsin’s second WIRED
region (the Milwaukee 7 region was
designated in 2006).
For more information on WIRED
regional initiatives, visit the U.S.
Department of Labor’s Web site at
www.doleta.gov/wired/regions/
#1stgeneration.

PIP can be used to finance almost
any type of permanent improvement,
including repair or replacement of
mechanical or electrical systems,
remodeling or room additions, replacing
windows, painting, or siding.
For more information, visit www.
michigan.gov/mshda.

Profitwise News and Views

October 2007

15

Calendar of Events
November
What Will Sustain Rural Development:
Is the Answer Blowing in the Wind?
Glencoe, IL
November 7, 2007
Sponsored by the Federal Reserve
Bank of Chicago, The Land Institute,
and the Chicago Botanic Garden, this
timely and interactive conference will
provide a forum to explore the
opportunity for developing affordable,
renewable wind power and the potential
impact on our Midwestern rural
economies. Progress with other
renewable sources of alternative energy,
such as solar, ethanol, and hydroelectric,
will also be assessed. The event will
feature nationally recognized
practitioners and researchers who are
working toward harnessing wind power
as a meaningful energy resource, as
well as a means to promote rural
economic development.
The fee for this event is $80, and
registration deadline is November 3,
2007. For more information, or to
register online, visit www.chicagofed.
org/community_development, or contact
Barbara Sims at (312) 322-8232 or
CCAEvents@chi.frb.org.

16

Profitwise News and Views

Strategies for Improving Economic
Mobility of Workers

A Dialogue on Economic
Opportunities in the Delta

Chicago, IL
November 15 and 16, 2007

Jackson, MS
November 29, 2007

This conference is hosted by the
Federal Reserve Bank of Chicago’s
Economic Research and Consumer and
Community Affairs departments in
partnership with the W.E. Upjohn
Institute for Employment Research. The
goal of the conference is to bring
together researchers and practitioners
to discuss some of the key issues
regarding policies impacting
disadvantaged workers and their
communities. Topics to be discussed
include trends and future outlook on
work, wages, and occupations, spatial
mismatch between jobs and workers, job
training and education, and other state
and federal assistance for low-income
workers. There will also be panel
discussions by practitioners that will
highlight practical experiences with
running workforce development programs.

Participants in this interactive forum
will discuss issues related to
concentrated poverty that are endemic
to the Delta. The forum is sponsored by
the Community Affairs Offices of the Federal
Reserve Banks of Atlanta and St. Louis.

For more information, or to register
online, visit www.chicagofed.org/
community_development, or contact
Barbara Sims at (312) 322-8232 or
CCAEvents@chi.frb.org.

October 2007

For information, or to register online,
visit www.stlouisfed.org/community/
conferences, or contact Julie Kerr at (501)
324-8296 or Julie.A.Kerr@stls.frb.org.

December
An Informed Discussion of
Nontraditional Mortgage Products
and Escalating Foreclosures
Chicago, IL
December 11 and 12, 2007
The Federal Reserve Bank of
Chicago in co-sponsorship with the
University of Wisconsin Extension and
the Wisconsin Housing and Economic
Development Authority (WHEDA), will
host a conference to discuss
“nontraditional” mortgage products,
which allow borrowers to exchange
lower payments during an initial period
for higher payments later. Participants

will gain valuable insights from experts
who will explore the risks posed by
nontraditional mortgage products as
well as issues stemming from
Wisconsin’s rising number of
foreclosures. A further goal of the
conference is to initiate an effective
community response to the rising tide of
Wisconsin foreclosures.
The registration fee for this event is $60
($40 for nonprofit organizations).
Conference registration and payment
deadline is December 3, 2007. For
further information or to register online,
visit www.chicagofed.org/community_
development, or contact Barbara Sims
at (312) 322-8232 or CCAEvents@chi.
frb.org.

National Community Investment Fund
Annual Development
Banking Conference 2007
On November 6 and 7, 2007 the National Community Investment Fund,
along with the Federal Reserve Bank of Chicago, will host the National
Community Investment Fund Annual Development Banking Conference
2007. This conference is for professionals and organizations who are
stakeholders in financing the economic development of disadvantaged
communities, including:
• Officers, directors and senior managers of banks, thrifts, and credit unions
• Investors, investment bankers, and managers
• Foundation and nonprofit executives
• Regulators

2008

• Consultants and technology suppliers

2008 National Interagency Community
Reinvestment Conference

• Academics and researchers

San Francisco, CA
March 30–April 2, 2008
Mark your calendars for the 2008
National Interagency Community
Reinvestment Conference. This three
day event, jointly sponsored by the
Federal Deposit Insurance Corporation,
Federal Reserve Bank of San Francisco,
Office of the Comptroller of the Currency,
and Office of Thrift Supervision, will
feature CRA examination training,
creative strategies for community
development, innovations in community
development investing, and the National
Community Development Lending School.

The conference features keynote speakers: Sheila Bair, chairman, FDIC,
and Kim Reed, director, CDFI Fund, plus a full agenda of presentations and
panel discussions on a wide range of important community development
financing issues.
Visit NCIF’s secure Web site to register online, or to download and print a
PDF registration form to fax or mail. The NCIF has secured a block of
rooms at the Hilton Chicago, 720 South Michigan Avenue. To make
reservations, call the hotel at (877) 865-5320 and mention the National
Community Investment Fund room block when making your reservation. If
you have any questions or need additional information, please call Joe
Schmidt of NCIF at (312) 881-5817.

Registration materials will be
available in January. Please visit the
Federal Reserve Bank of San Francisco’s
www.frbsf.org/community/
conference08.html for more information.

Profitwise News and Views

October 2007

17

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