Economic development improves the overall standard of living in a community, as measured by indicators such as employment and income. Economic development strategies focus on attracting, creating, and retaining businesses that provide jobs to residents. At their most effective, strategies include analyzing the local economic context; identifying economic opportunities and resources; and collaborating with industry, government, academic, and community stakeholders. Completing this work both before and after a disaster is crucial to effectively utilize resources such as CDBG-DR to both advance existing strategies and address new challenges that arise as a result of the disaster.
CDBG-DR funds support economic development activities in LMI communities and activities that benefit LMI individuals. This section summarizes four effective economic development strategies that align with the CDBR-DR framework. The case studies in Part II of the Guide illustrate them in further detail.
Low- and Moderate-Income Area (LMA)
To use the Low- and Moderate-Income Area National Objective, the grantee must determine that an activity is available to provide benefit to all residents of a defined service area; that the area is primarily residential; and that at least 51 percent of the residents of the service area qualify as LMI persons.
1. Small Business Strategies to Drive Job Growth
“Economic development and small business are the drivers of the economy by creating jobs, providing goods and services, and facilitating commerce.”
—Federal Reserve Bank of San Francisco
Small businesses—including the smallest microenterprises—make up 99 percent of American businesses and employ approximately half of all working Americans. Microenterprises include many community-based retail and service businesses as well as new startups. LMI residents often establish microenterprises as a first step up from less formal business operations. With financial and technical assistance that empowers them to succeed, LMI entrepreneurs can build up their businesses and create jobs for themselves and others.
After a disaster, one available strategy for CDBG-DR grantees is to offer working capital grants and loans to impacted small businesses. The funds can finance inventory, payroll, and other necessary expenditures to restart operations and rehire employees. These types of programs are often facilitated by specialized organizations such as Small Business Development Centers (SBDCs), Community Development Financial Institutions (CDFIs), or other Community- Based Development Organizations (CBDOs). These organizations may also provide technical assistance in business management, sales and marketing, as well as accounting and legal issues.
Working Capital
Working capital is the short-term assets on a business’s balance sheet less any short-term liabilities, such as mortgage payments, wages, or taxes due. Working capital provides cash for these short-term liabilities, but not for any renovation or construction-related expenses. To reopen and operate successfully, businesses must have working capital, and that type of financing is generally not provided by FEMA, SBA or other federal agencies.
2. Workforce Strategies to Match Residents with Job Opportunities
“Customized training programs help broaden the pool of who gets the jobs from economic development programs.”
Effective economic development strategies combine incentives for business expansion with customized training programs that enable residents to access new jobs. The Upjohn Institute for Employment Research found that the availability of new, higher-skill jobs can create pathways to upward economic mobility in underserved communities if residents have access to the necessary training.
Workforce development programs should align with the community’s overall economic development strategy, focusing on the same industries targeted for business recruitment and expansion. Many CDBG-DR grantees invest in both training programs and the construction of new training facilities, often in collaboration with local community colleges and universities. To engage LMI residents and overcome potential barriers to participation, programs often include outreach to local schools and community organizations; flexible online, nighttime, or weekend options for courses; and “wrap-around” services such as childcare or transportation.
3. Infrastructure Strategies to Anchor Economic Activity
“Investment in energy, telecommunications, and transport networks directly impact growth, as all types of infrastructure represent an essential input in any production of goods and services.”
Infrastructure extends beyond the essential roads, electrical lines, and pipes necessary for residential and commercial development. Traditional industrial infrastructure, such as ports and railroads, continue to serve as the foundation of many local economies, and they can play a vital role supporting jobs in LMI communities. CDBG-DR grantees can use funds to repair major commercial and industrial infrastructure, including newer categories of infrastructure, such as:
- Broadband infrastructure necessary for businesses in commercial districts or industrial zones to sustain competitiveness and job growth
- Energy infrastructure to increase employer resilience to future disasters and mitigate climate change
- Shared specialized facilities that serve a particular industry or small businesses broadly, such as shared commercial kitchens or business incubators
4. Tourism Marketing Strategies to Attract Customers to Local Businesses
“Given its importance as a major export category … and recognizing its role as a source of employment and economic development, the [tourism] sector’s recovery is expected to drive growth in every world region.”
Economic development agencies often invest in marketing strategies and materials to attract businesses and customers to their regions. While marketing is not defined as an eligible activity under CDBG-DR, some grantees receive waivers to conduct marketing campaigns that encourage customers, and especially tourists, to visit their regions after a disaster (CDBG-DR Policy Bulletin). In coastal communities and elsewhere, tourism often supports local retail and service businesses, many of which employ LMI residents. While marketing alone does not foster upward economic mobility, it can contribute to increased business revenue and employment income during the disaster recovery period.
Eligible Activity (or Activity)
Grantees can undertake any CDBG Eligible Activity, including economic development activities, authorized under Title I of the Housing and Community Development Act (HCDA) of 1974 (42 U.S.C. 5301 et seq.) or allowed by waiver and alternative requirement in a Federal Register notice that governs the use of CDBG-DR funds. Examples of economic development activities include loans and grants to businesses, job training, infrastructure improvements to commercial districts, and other efforts to attract or retain workers.
Waivers
Generally, the Congressional appropriations acts that govern CDBG-DR funds allow the Secretary of HUD to waive, or specify alternative requirements for, any provision of any statute or regulation that the Secretary administers in connection with the obligation by the Secretary or the use by the recipient of these funds (except for requirements related to fair housing, nondiscrimination, labor standards, and the environment), if the Secretary finds that good cause exists for the waiver or alternative requirement and such waiver or alternative requirement would not be inconsistent with the overall purpose of Title I of the Housing and Community Development Act (HCDA) of 1974 (42 U.S.C. § 5301 et seq.). HUD publishes waivers and alternative requirements in Federal Register notices.
Further Reading
For an expanded list of time-tested strategies, grantees should consult the Small Business, Microenterprise, Job Training, and Infrastructure sections of the Economic Recovery and Resilience Toolkit.
