OZ Updates

Inside the President’s Budget Request: Spatial Inequality and Economic Dynamism

Jun 2, 2021

By Emma Hecker and Kenneth Megan

On Friday, the Biden Administration released its FY22 budget request, detailing the White House’s federal spending priorities, and totaling roughly $6 trillion for FY 2022. The budget is unprecedented in its size and scope, as it would lead to sustained spending levels not seen since World War II. It also contains several key provisions aimed at addressing spatial inequality and economic dynamism.

Here are some of the highlights:

  • Maintaining the Opportunity Zones (OZ) tax incentive. OZs are a powerful economic development tool aimed at spurring long-term private sector investment in disadvantaged communities. While the president’s budget does not outline any proposed changes, policymakers have several options to improve the program. EIG detailed these in a recent letter to the Biden administration. Specifically, we urge policymakers to strengthen reporting and transparency requirements for OZ funds and investments, sunset high-income OZ tracts, create additional flexibility for affordable housing, and designate federal funding for states and communities.
  • Investing in disadvantaged communities. The president’s budget includes a number of provisions that would redouble efforts to revitalize struggling communities. Specifically, it would direct 40 percent of the proposed investments in climate and clean infrastructure to disadvantaged communities. It would also direct funds towards repairs and updates to physical infrastructure, like highways, bridges, and airports, as well as lead pipe removal and service line upgrades to drinking water systems. It would aim to bring broadband access to every American, including the over 35 percent of rural families that can’t currently access reliable internet. Additionally, the budget subsidizes borrowing for rural investments in clean energy development, storage, and transmission projects. It would also more than double funding for the Economic Development Administration to support job creation, capital investment, and workforce development in communities struggling with the transition to a clean energy economy.
  • A renewed commitment to research and development (R&D). The budget would boost investments in climate and clean energy research, encourage R&D, and aim to strengthen the United States’ position as a global leader in scientific innovation. For example, it includes $10.2 billion for the National Science Foundation, a 20 percent increase from 2021 levels. The plan proposes putting those additional funds towards research in emerging technologies, such as artificial intelligence, higher performance computing, biotechnology, and cybersecurity. Funds would also support updates to existing research centers and the construction of new facilities across the nation—which would tap into the latent talent that exists in many parts of the country, fostering greater innovation and pulling in additional resources to support economic growth in traditionally overlooked geographies.
  • Encouraging entrepreneurship. President Biden’s budget aims to strengthen America’s innovation ecosystem through investments in Growth Accelerators, Regional Innovation Clusters, and many of the Small Business Administration’s programs, including those aimed at enhancing innovation. The budget would also invest $330 million to support the expansion of Community Development Financial Institutions, which help small businesses in disadvantaged communities access capital.
  • Investing in American workers. The proposed budget would spend $32 million to help residents in impoverished rural communities access federal resources. It would also spend $318 million on “regional commissions,” which bring economic assistance, infrastructure investment, and workforce development to distressed rural areas (see EIG’s blog on how this type of initiative could be integrated into a national development strategy).The president’s budget would also fortify America’s workforce development programs to ensure that all Americans are able to acquire the skills needed to participate in our economy. 

Ultimately, these policy approaches would work to promote economic dynamism and reduce spatial inequality, a challenge which EIG detailed in a recent report, which found that two-thirds of high-poverty metropolitan census tracts have remained consistently impoverished over the last four decades. Meanwhile, the top 20 percent of zip codes in terms of economic well-being have seen 60 percent of total job growth since 2000. 

It should be noted that there are further opportunities to reduce spatial inequality beyond what was included in the budget request. For example, implementing place-based immigration policies, like EIG’s proposed “Heartland Visa,” would leverage high-skilled immigration to help address economic challenges in struggling areas of the United States. The White House included a pilot version of this concept in its immigration plan released earlier this year.

EIG is pleased that the Administration is seeking to address these challenges. We urge Congress to work in a bipartisan way to enact reforms aimed at reducing spatial inequality and spurring economic dynamism. 

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