southeastern statesAs the country continues to recover at a modest pace, many state and local governments are grappling with whether they can afford to provide essential programs and services to their citizens. Given ongoing fiscal constraints at the federal, state, and local levels, many localities are making budget cuts, and in some cases that is having significant impacts on communities' most economically vulnerable residents. While some state and local governments are seeing improvements in their budget outlooks, many are still confronting the challenges of the recession and, as noted in a recent report issued by the Center for Budget and Policy Priorities, are hard pressed to adequately meet their communities' needs.

Some local governments are piecing together the resources needed to rebuild programs, but challenges remain. To understand how some of these issues are playing out in communities, the Atlanta Fed's Community and Economic Development (CED) outreach team interviewed local policymakers, nonprofit leaders, and community development practitioners across the Southeast about how they are responding to budgets shortfalls and what impact that may have on households and communities. When asked, for instance, about which programs had suffered most from recent state and local budget cuts, housing was at the top of the list. Respondents stated that housing programs and support for related staff positions have experienced major cuts with some local governments having to suspend programs and lay off staff altogether. It was noted that many affordable housing projects have been stalled or canceled, often because of slow developer turnaround time. Also, some of these projects have faced reduced staff and resources. The Atlanta Fed CED team also found that cutbacks have had a significant impact on state housing trusts, homeownership support programs, support for homebuyer and foreclosure prevention counselors, and legal services, which often are important for low- and moderate-income individuals.

CED team members across the region also heard that a wide variety of social service programs are losing much of their funding or being cut altogether, particularly programs targeted to lower-income households. Programs focused on providing assistance to youth, seniors, and female heads of households were all reported to have experienced significant cutbacks. Recreation and after-school programs also have suffered from more limited support or have been completely eliminated. Child-care assistance and health care programs targeted to lower-income individuals have been slashed in many communities. These observations are corroborated by city leaders who indicated in a recent National League of Cities' Local Economic Condition Survey that in response to budget cuts, individual families feel the pain most acutely.

The CED team found that budget allocations for asset building programs have decreased, which have affected the provision of Volunteer Income Tax Assistance (VITA) initiatives, consumer education programs, and referral and support networks for credit counselors and financial educators. In Alabama, funding has been significantly cut for the primary entities that have capacity to assist with the financial challenges of lower-income populations. In Louisiana, the statewide Individual Development Account (IDA) program was eliminated due to cuts at the state level, debilitating a program that had over time developed significant regional infrastructure.

Given these sets of challenges, the CED team inquired about what strategies communities and government were developing to address ongoing needs. Many organizations responded that they were simply trying to do more with less, undertaking measures such as consolidations, reductions in staffing, and suspension of certain programs. Respondents also noted that community organizations and local government representatives were working to improve efficiencies across different sectors and functions. For example, housing counseling agencies are training employees in both foreclosure prevention and homeownership assistance to provide services like client intake and training in group settings rather than one-on-one interviews. Several community organization representatives also noted that they are now being more creative in how they generate funding such as focusing on how to recapture and relend funds more quickly.

Looking ahead, many respondents stated that they expect a greater focus on collaboration and more deliberate efforts to reduce duplication, both horizontally across agencies and organizations and vertically among sectors. Some community organizations noted they would likely focus on their “bread and butter” services and then look to partner with other groups to provide complementary services they could no longer afford to provide on their own. Others stated they would be seeking to leverage their funding sources by identifying new and nontraditional partners. Some respondents said that heightened competition for scarce funding sources resulted in a shrinking pool of service providers, as the less effective organizations shut down. These respondents noted that discussions about the impact and effectiveness of overall programs have now been elevated in this new environment.

In response to these findings, the Atlanta CED team noted a number of ways that its department could play a role in helping to address some of the needs and challenges identified. These include facilitating partnerships between private and public players; providing clear and objective information so that community groups and practitioners can make informed decisions and measure real community impact; continuing to work with financial institutions to ensure they are aware of investment opportunities in their communities; and working with state and local policymakers to support their assessments of community needs.

By Kyan Bishop, program director, Federal Reserve Bank of Atlanta's community and economic development department.

For more information about this effort, or to learn more about the CED department at the Atlanta Fed, contact Kyan Bishop.

Note: Atlanta Fed CED outreach team members are Nancy Montoya (New Orleans branch); Janet Hamer (Jacksonville branch); Emily Mitchell (Nashville branch); Sibyl Slade (Atlanta Fed); and Ana Cruz Taura (Miami branch).