Making Federal Infrastructure Funding Equitable—What Philanthropy Can Do

Federal legislation passed last year has made a record amount of public funds available. Yes, what made it across the finish line falls trillions short of what President Joe Biden advocated. Even so, the March 2022 $1.9 trillion American Recovery Plan Act (ARPA) (with its $350 billion in flexible relief funds for states, localities, tribes, and territories) and last November’s $579 billion infrastructure bill provide a unique chance for communities to reinvest in themselves.

But whose voices will decide how that federal money moves and where will it land?

BIPOC communities and BIPOC-led organizations have often been excluded from the benefits of federal funding—and indeed have often been directly harmed by federal spending. This time around, how do we ensure these dollars land equitably on the ground in communities with the greatest need, particularly in cities and neighborhoods where Black, Indigenous people, and people of color are the majority?

Ensuring federal infrastructure and recovery funds go where they are most needed requires both organizing in communities of color and smart philanthropic investments. Alongside community partners, it is imperative that philanthropy help reset not only what infrastructure is built, for whom, and to what purpose—but also who designs and builds it, and what systems of accountability are incorporated into the process.

 

A Pattern of Failing Low-Wealth Communities

Through its Justice 40 Initiative, the Biden administration has pledged that at least 40 percent of the overall benefits of federal investments in climate and clean energy will go to historically marginalized communities. The stakes of this promise couldn’t be higher, for inequities in infrastructure funding have very real consequences.

Consider Lowndes County, Alabama, where 60 Minutes reports that “more than half the impoverished, rural residents have raw sewage running into their yards and even their houses.” In 2020, more than 250 water systems in California failed to meet safe drinking water standards; the majority of the 900,000 people served by these systems were low-income people of color. Detroit offers another example. Last summer, the city experienced two massive rain events that overwhelmed its aging infrastructure, resulting in widespread flooding that disproportionately affected Black neighborhoods. Michelle Martinez, Executive Director of the Michigan Environmental Justice Coalition, noted that the problem “is not just about a flooded basement… It’s about three generations of disinvestment in infrastructure that supports our homes and schools, family businesses and houses of worship; compounded by racist policies like redlining and blockbusting.”

These examples crystalize the unfortunate truth that infrastructure has often been used to deepen racial and social stratification. In other words, federal funding can be a danger as well as an opportunity. The same inequities that play out in wastewater treatment, safe drinking water supplies, and stormwater management play out in other forms of infrastructure. Think of the children in low-wealth communities who, because their neighborhoods lacked broadband access, fell behind educationally when schools closed during the pandemic. Think of people in car-dependent cities across the country who struggle to get to work because public transit service doesn’t reach or run reliably in their communities.

As a society, we must do better.

 

Distribution Channels Matter

Federal funds are only as effective as their distribution channels. Right now, the distribution system is stacked against historically marginalized communities.

Look no further than COVID relief funding for a recent example. No matter how you slice the data, businesses in white neighborhoods were far more likely to receive support from the nearly $800 billion Paycheck Protection Program (PPP) than businesses in BIPOC neighborhoods. In Los Angeles, for example, businesses in white neighborhoods received PPP support at “twice the rate that majority-Latinx tracts received, one and a half times the rate of businesses in majority-Black areas and 1.2 times the rate in Asian areas.” Other cities report similar numbers.

The leading cause? The federal government relied on existing banking infrastructure as its distribution channel. Banks focused their PPP outreach and servicing on major customers whose businesses they most wanted to retain or win, a process that systematically disadvantaged businesspeople of color and smaller businesses owners.

Matt Fry, who runs the nonprofit Detroit Artists Market, shared his story about how this process played out. “[The bank] told us that we were accepted in the first round. But then a day or two later…They told me that they were unable to get the actual loan. That’s how it shook out for us. I was really let down. And at the time, I was instructed that you could only get a PPP loan going through your bank. So, I was very concerned at that point.” Despite Fry’s efforts, his bank failed to secure him a loan.

Anticipating this access gap, several banks and foundations quickly recruited the Community Reinvestment Fund (CRF) to create a program to meet nonprofits’ needs. Fortunately for Fry, CRF got him a loan. His story, along with many others, reveals that, because usual distribution systems and channels routinely fall short, we need to reinvent them and invest in better ones.

 

Reimagining the Distribution of Federal Funds

While philanthropy alone cannot even the scales, by listening to and following the lead of nonprofit and public partners, philanthropic foundations can support and contribute to more effective and more equitable distribution of federal funds. Here are four such measures foundations can take:

1. Bolster advocacy. Many federal dollars will be awarded through competitive programs according to federal or state-developed criteria. Industry lobbyists will no doubt have a seat at the table as those criteria are developed. Nonprofits, particularly those led by and representing people of color and communities of low wealth, must be at the table as well. As Katy Hansen, a senior adviser for water at the Environmental Policy Innovation Center, recently explained to the Associated Press, putting the proper “guardrails” on guidance can “help ensure the funds reach the communities that need them most.”

Philanthropy is well positioned to support such advocacy. For example, water infrastructure is primed to receive $55 billion in new support, the largest such federal investment in decades. Most of those funds will be deployed through State Revolving Loan Funds (SRF). Administered by the Environmental Protection Agency (EPA), SRF is part of the $350 billion in flexible funds included in the ARPA, mentioned above. States have considerable discretion in determining the criteria to award these funds, including the provision of planning grants to historically marginalized communities to develop projects that meet their needs. Philanthropic funding for community advocacy directed at program design and administration—both at the state and local levels—offers significant opportunities to advance equitable outcomes.

2. Support inclusive and equitable decision-making processes. The record influx of federal funds into US cities provides municipalities with a rare opportunity, not only to fill funding gaps, but to also imagine transformative investments that will advance equitable community development.

Last fall, community development leaders called for vigilance in a series of NPQ articles. Marietta Rodriguez, head of NeighborWorks America, observed that “history has given us far too many lessons on the damaging impact that uninformed planning and development have when a well-intentioned group of planners, investors, and policymakers decide what is best for a place they know nothing about.”

Philanthropy can help by supporting cross-sector tables through which city officials, the private sector, nonprofits, and community residents sort through shared investment priorities. Detroit provides an example; city and philanthropic representatives are collaborating to develop tables focused on priority investments in early childhood development, arts and culture, entrepreneurship and commercial corridors, public health, open space, and housing. Multiple foundations, including our own, are supporting nonprofit participation and additional efforts to ensure widespread resident input and engagement in the decision-making process. Kresge’s Detroit Program is also working with the City of Detroit on an extensive mapping exercise to visually display where dollars are landing in every neighborhood.

3. Underwrite technical assistance. Applying for federal and state funding is notoriously complex. Cities with limited staff and lean consultant budgets are significantly disadvantaged when applying for funding and might not even try. If funds are to be equitably deployed, municipalities must have access to technical assistance that meets them where they are, points them in the right direction, and helps them prepare successful applications.

Again, the SRF program provides a compelling example. Many utilities that serve communities of low wealth with woefully deficient water infrastructure have never accessed federal funds. In fact, over the past decade, less than 25 percent of related EPA funds have reached such communities. To redress this situation, foundations have supported the Environmental Policy Innovation Center’s efforts to bolster the ability of utilities in underinvested communities to develop compelling funding applications by offering such utilities the assistance of “funding navigators” who provide expertise in community engagement, water systems, funding, and finance. Similarly, the nonprofit US Water Alliance plans to increase technical assistance to utilities to support this goal. More foundation support would allow the Alliance to expand this work.

Philanthropy can also help nonprofits better position themselves to receive federal funds and influence local priorities. Nonprofit-driven initiatives such as the Justice 40 Accelerator aim to tackle bureaucratic inequities that so often harm BIPOC communities. They do this by sharing information, resources, and staff support with BIPOC-led groups, with the goal of developing a restorative and reparative framework for government resource delivery.

Water Wise Gulf South is among the grassroots organizations in the Justice 40 Accelerator cohort. Based in New Orleans, the nonprofit has engaged community members in recent years to design green stormwater infrastructure projects that will mitigate repetitive flooding, add amenities to neighborhoods, and support local employment. The projects are informed by community members’ direct knowledge of the problems in their neighborhoods and the solutions they want to see implemented.

“We are making sure that those of us who are disproportionately affected, Black and Brown communities, have the opportunity to take charge and lead our destiny in mitigation,” says Angela Chalk, a 7^th Ward resident who founded the organization Healthy Community Services. “We live and work in the communities that we serve.”

4. Strengthen the ecosystem of equitable community development actors.Philanthropy has a clear role to play in strengthening the ecosystem of institutions through which investment dollars flow as well as the ability of community-led groups to move forward projects that reflect their vision.

   Relying on the usual federal financial distribution channels is a surefire path to inequity. Community development financial institutions (CDFIs) and other local lending entities comprise a, alternative, community-focused  financial system. Green banks, a newer class of financial intermediaries focused on spurring climate investment, sit closer to government and are well positioned to facilitate the flow of public funds. But though these mission-driven entities were created to address market failures, they could  deliver more equitable results. Philanthropy can enhance such equity  by providing these intermediaries with grants, equity investments, and guarantees.

Foundations can also promote the growth of a more equitable distribution system by prioritizing grants and program-related investments to smaller intermediaries that are led by people of color and serve communities of low wealth. As an example, Kresge has made a multi-year commitment to the African American Alliance of CDFI CEOs to help ensure smaller, Black-led CDFIs have equitable access to federal resources in this space. “Decades-long underinvesting has forced many of us to not have the resources that we need to hire more people with subject-matter expertise in these very technical community development spaces that really drive change and create healthy neighborhoods,” noted AAA CDFI member Calvin Holmes, President of the Chicago Community Loan Fund.

While stronger capital intermediaries led by people of color are critical, they are insufficient to remedy historical funding inequities. An inadequate pipeline of fundable projects remains a primary barrier to greater investment in low-wealth and underserved communities. Again, philanthropy can intervene to even the scales. Projects led by people of color in BIPOC communities and communities with low wealth face multiple barriers to securing predevelopment dollars and technical expertise. As a result, such projects falter and may fail to move beyond the idea stage. As Eric Hangen of the Center for Impact Finance at the University of New Hampshire’s Casey School of Public Policy has written, philanthropy should fund “helper” organizations that can translate community visions into investable projects.

Greenprint Partners, a mission-driven green infrastructure delivery partner, is one such example. Greenprint works with cities and residents to design projects that reduce urban flooding while delivering maximum benefits to communities with low wealth. These smaller, community-embedded projects often require a great deal of time, organizing, and technical assistance to become investable. As Greenprint’s president Nicole Chavas explained in a 2019 interview, “[We] go out and recruit property owners, particularly in the neighborhoods that fit our mission. We aggregate them, find an engineering partner, do all that design work, develop a project, submit the application on their behalf, get approved, implement the project, get reimbursed and then basically deliver…green infrastructure…in a way that is most meaningful for the community.”

Community solar faces analogous challenges. Several helper entities work to advance projects that serve communities of color and low wealth. These helper organizations are not yet well funded, and their business models depend on a share of development fees that are not paid until projects are completed and close on their long-term financing, which can shut out community-led projects. Philanthropy can advance the missing funds to help fill this gap in technical assistance and predevelopment, thereby enabling community-led projects and those from BIPOC-led organizations to benefit from federal resources.

 

The Future Can be More Equitable 

The new wave of federal funding represents a tremendous opportunity for much-needed investment in America’s communities of color and of low wealth. There is no guarantee, however, that this new money will be spent more equitably than in the past.

Philanthropy has an opportunity to bend the arc toward more equitable allocation by investing in advocacy, inclusive decision-making processes, technical assistance, and a strong ecosystem of equitable community development actors. With deliberate effort and by following the lead of community partners, foundations can support a capital distribution system that delivers results for people and communities that have historically been excluded.