Economic experts see payoff from equity investments

Boston Statehouse

BOSTON (SHNS) – With the Legislature and local governments beginning to make decisions on how to spend billions of dollars in federal relief funding, two economic experts on Thursday urged policymakers to be mindful of equity as they chart a path forward for recovery from the COVID-19 pandemic.

Urban Institute Economist Christina Plerhoples Stacy and Federal Reserve Bank of Boston Executive Vice President Prabal Chakrabarti said the American Rescue Plan Act and other federal dollars have created an unprecedented opportunity to invest in an economic recovery that addresses long-standing issues of inequality.

Such investments, they said, could take the form of more affordable housing near job centers, cash transfers that incentivize apprenticeships and career training, or public transit that connects job seekers with work opportunities.

Chakrabarti and Stacy were brought together by the Massachusetts Taxpayers Foundation for a discussion about an equitable economic recovery as part of the think tank’s forum series focused on ARPA. MTF in May published a report titled Closing the Racial Divide in the U.S. and Massachusetts: A Baseline Analysis.

House and Senate Democrats have said they hope to finalize a plan to spend at least some of the state’s $4.8 billion in remaining ARPA funds by Thanksgiving, and cities and towns that received their own direct federal support have already started to make local decisions about how it should be spent.

“We’re starting to see recovery occurring, but it’s not being felt equitably,” Stacy said.

Chakrabarti pointed to research done by the Federal Reserve Bank of San Francisco that suggested Massachusetts would have gained gain $14 billion annually in gross state product from 2005 to 2019 if it could close the income, education and wealth gaps that exist between white, Black, Hispanic and other racial groups.

“That would be an amazing payoff for the use of American Rescue Plan Act funds,” Chakrabarti said.

The research specifically found that gross state product of Massachusetts would have increased $5.7 billion annually if racial gaps in hourly wages were closed, and another $3.5 billion if employment levels were equalized. White men, for instance, earned $12 more per hour on average than Black men, and $14 more than Hispanic men. They were also significantly more likely to be employed and to have at least a bachelor’s degree.

“This is, I think, the strategic imperative for the commonwealth, how to build a foundation for inclusive growth,” Chakrabarti said.

Both experts said the use of cash and income supports to encourage greater participation in the workforce by making training or education more accessible is one way Massachusetts leaders could use ARPA funding. Investments in child care to make it more affordable for families and more stable as a career choice for educators would also help open up opportunities for job seekers, they said.

Chakrabarti said “topping up” child tax credits after the feds decide how much to expand family tax breaks is one policy to consider, though he said the state should be mindful of long-term sustainability after ARPA funds dry up.

Student loan forgiveness for early educators is another option, he said, as is increased regionalization and support for the non-profits and community organizations that provide much of the job training, housing and economic development assistance. Chakrabarti said all decisions should be made with community stakeholders at the table.

Stacy, whose research is focused on how cities recovery equitably from economic distress, said “spatial mismatch” between where jobs are and where workers can afford to live frequently contributes to inequitable recoveries.

The Urban Institute’s research found that Lowell was one of 23 cities studied that made progress toward inclusion during its economic recovery in the 1990s. Stacy specifically noted the creation of the Southeast Asian Water Festival in 1997 that has brought economic activity and tourism to the city, while also honoring the diverse culture of the city.

Meanwhile, the Institute’s research found that Boston lost ground during its “recovery” period from 1990 to 2013, and ranked 151 of 274 cities for overall inclusion, 81st for economic inclusion and 204 on the racial inclusion scale, according to the most recent Urban Institute analysis.

Stacy recommended developing affordable housing, investing in broadband, educational initiatives and public transit, and offering direct cash assistance to the most vulnerable residents.

In San Francisco, Stacy said the city is working with hotels and other service-sector employers to create more career pathways and opportunities for advancement in service jobs that would make them more attractive to workers who might have to commute further to accept such a job.

Other strategies being used by cities include greater access to public transit, such as the circulator bus being piloted in Columbus, Ohio to transport service workers from the neighborhoods where they live to the neighborhoods where the jobs are concentrated.

Stacy also said it would be important when deploying ARPA funds to make sure state and local governments are collecting data on where that money is going, who is benefiting and whether the desired outcomes are being realized. Too many cities after the Great Recession failed to properly account for how federal stimulus money was spent, making it difficult to learn from that experience, she said.

Auditor Suzanne Bump has asked legislators to set aside some money for her office and others to audits and investigate how ARPA money is spent after it is allocated.

“It’s also important to track and monitor inclusion as you’re going along,” she said.

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