How City Leaders Are Using Public Finance for Racial Equity

By:

Samantha Pedrosa

January 26, 2024 - (6 min read)

Written in collaboration with Lourdes Germán, executive director, the Public Finance Initiative.

Due to unprecedented federal investments through bills like the American Rescue Plan Act (ARPA), many city leaders started to center equity and racial equity in novel ways in their approach to federal aid, expenditure decisions, and public finance. Many cities and jurisdictions have also been using municipal bonds and other public finance tools to advance and accelerate equity outcomes. What’s unclear is – what practices and trends are emerging across the country? The Public Finance Initiative (PFI) and the National League of Cities led a series of discussions, the Mayor and City Leader Signature Co-Learning Series on Racial Equity, Infrastructure and Municipal Bonds, co-facilitated by Andrea Barefield, Council Member from Waco, Texas and Steve Patterson, NLC Second Vice President and Mayor of Athens, Ohio. Council Member Barefield and Mayor Patterson served as Co-Chairs of the NLC Race Equity and Leadership Council. The sessions were designed to give city leaders an opportunity to learn from one another, share emerging strategies, and for us as partners to elevate best practices from a Municipal Bond Markets & Racial Equity Framework we collaborated to develop with other stakeholders and partners these past two years with city leaders and hear their insights on centering equity in capital projects funded with bonds, and public finance broadly.

Our findings from this series have been compiled into the summative brief Race, Equity, and Public Finance: Lessons Learned from City Leaders, which highlights the themes, lessons, and insights municipal leaders gave voice to during these sessions. Insights include the following:

Federal Investments Set the Foundation. Federal aid packages such as ARPA, the Infrastructure Investment and Jobs Act (IIJA), and other aid packages that were initiated during the COVID-19 pandemic, provided historic investments that empowered city leaders to address racial equity through municipal finances. The bills opened opportunities for municipalities to extend equity into their citywide investment strategies. However, they also brought to light the necessity for additional forms of funding to create sustainable projects.

Highlighted throughout the series were innovative approaches municipalities utilized to fund operating and capital needs in communities in meaningful ways, including using funds from grant efforts to continue building on the momentum started by ARPA to invest in local women and minority owned businesses.

It was my pleasure to co-facilitate the Mayor and City Leader Co-Learning series. The topic of centering racial equity in decision making for a municipality’s finances resonates with the City of Athens. Over the past three years we have made strides to expand our commitment to equity through our investment funds. Athens has taken our Community Development Block Grant revolving loan funds and used them to produce low interest loans for women and minority owned businesses. This has helped locals and recent graduates produce incubated startups owned by minority and women entrepreneurs.
Steve Patterson, NLC Second Vice President and Mayor of Athens, Ohio

Local Governments Adopted Inclusive Procurement and Purchasing Strategies. Equity informed procurement and purchasing strategies act as entry points for city leaders that aim to broaden their equity practices in infrastructure projects, including those funded with bond proceeds. Municipalities reported a variety of inclusive strategies: from supporting minority and women-owned businesses in obtaining city contracts to addressing the racial wealth gap by offering resources on procurement processes. These opportunities were not without challenges, as municipal leaders shared that integrating equity into these strategies can be multi-layered. They often required incorporating additional unforeseen needs into the lifecycle of a capital project.

Participants in the series were able to share other examples regarding how they used different aspects of the budget process in their municipality to center equity. Efforts include expanding outreach to underrepresented communities to provide their input in the beginning of planning their capital projects via community engagement in the capital budget process, and enacting a priority-based budgeting framework for constructing an operating budget that is attentive to equity.

Operationalizing Equity. There are several ways equity is integrated into public finance, beyond the traditional designations that a municipal bond issuer may provide investors. City leaders are highlighting equity in their practices working with, and selecting investment banks, asset managers, and deposit institutions. Many leaders are placing emphasis on this to ensure that the banking teams they work with reflect the residents they serve.

Municipalities also reported continued challenge sustaining equity work due to staffing and capacity constraints. Additionally, finding resources for projects that are multi-year remains a challenge, particularly for equity focused projects that were seeded with ARPA funds, and other forms of federal aid that will end. This could lead to cities inability to hire and retain employees with proficient aptitude in equity practices, data reporting, and other skills for the continuation of this work, or inhibit the ability of city leaders to make sustained investments in projects costs over time.

The optimism among city leaders regarding public finance as a tool for promoting racial equity is evident. Sustaining racial equity efforts requires continued capacity building, well thought out frameworks, and continued advocacy, political will, and support from residents and city officials. Municipal bonds, with their potential for long-term impact, stand as a vital funding source for capital projects. As municipal leaders continue to navigate these challenges, the path to racial equity in public finance unfolds with promise and determination.

You can learn more about our findings, additional finance practices being explored by city leaders and more by reading the Race, Equity, and Public Finance: Lessons Learned from City Leaders, brief which will be available in February online as a resource for municipal issuers looking to learn more about the areas for opportunity in this space.

As part of this project, we welcome readers to participate in the Racial Equity and Bond Markets Activities and Resources Survey. This survey will guide the development of programming and resources by providing insight into what would be most beneficial to municipalities in the coming year. Taking less than five minutes to complete you can help establish the best way for municipalities to continue learning through workshops, scholarships, resource banks, NLCU courses, and more.

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Support for the development of this blog was provided by the Robert Wood Johnson Foundation, as part of the Municipal Bond Markets and Racial Equity Project led by the Public Finance Initiative, in partnership with the National League of Cities, among other partners. However, the views expressed in this blog are those of the authors.