How Guaranteed Income Programs Can Help Cities Narrow the Racial Wealth Divide

By:

Diana Goldsmith
Jordyn Battle

February 23, 2024 - (6 min read)

According to the Federal Reserve Board of Governors, the gap in wealth between white households and households of color has grown 47 percent over the last 30 years. Wealth is the accrual of resources available to a household at any point in time and serves as a safety net that keeps an individual’s life from being derailed by temporary setbacks and affords them the opportunity to access the best community resources. Black, Hispanic, and Latino individuals have historically and systemically been barred from accumulating wealth at the same rate as white households, due to income inequality, disparities in household assets, and discriminatory practices. Consequently today, Black, Hispanic, and Indigenous communities have some of the highest rates of intergenerational poverty.

Many municipalities are addressing these longstanding inequities by establishing guaranteed income programs which provide unrestricted cash assistance to residents and have proven to be a more flexible and effective means of allowing individuals to address their most pressing and urgent needs. Cities are well suited to pilot guaranteed income programs to affect local challenges such as economic insecurity, income volatility, and housing access, as well as the racial wealth divide. By offering a reliable source of income without imposing conditions, guaranteed income enables individuals, particularly those from historically marginalized communities, to make choices that align with their economic needs, fostering greater financial security and autonomy.

Why Guaranteed Income

Guaranteed income provides a consistent financial buffer to individuals and families regardless of their employment status or income level. Unlike traditional welfare systems which often involve complex means testing and eligibility criteria tied to specific job conditions or income thresholds, guaranteed income programs aim to streamline assistance, reducing bureaucratic barriers and the stigma associated with receiving public benefits. Results from experimental programs have shown positive impacts on health outcomes, job security, and housing stability. Additional evidence for the success of direct cash transfers can be found in the series of transfers that policymakers approved in the depths of the COVID-19 pandemic. COVID support payments were shown to dramatically alleviate poverty and improve the balance sheets of many families. More than eight percent of Black and Hispanic individuals were lifted out of poverty due to COVID relief measures.

Guaranteed Income Pilots and Programs

While Cambridge, MA is a community with many high-income earners, 20 percent of the city’s population lives below the poverty line. After the success of the Cambridge RISE pilot which provided $500 a month for 18 months to 130 participants; Rise Up Cambridge launched in June of 2023, aiming to address the growing economic and racial inequities in the city, and expanding to impact 1,950 families. While less than half of Cambridge residents identify as BIPOC, 81 percent of Cambridge RISE participants were in this demographic.

Birmingham, AL ran a similar pilot program in 2022, Embrace Mothers, specifically targeting single mother households with $375 a month for 110 participants for a year. During the week that the program’s application was open, the city received 8,000 applications. At the conclusion of the pilot, spending data showed that participants mostly used their funds at grocery stores and to pay utility bills. Despite the program’s success, the city has been unable to establish a more permanent program due to a clause in the Alabama state constitution that forbids “enriching citizens.” However, city officials are using the success of the pilot to advocate for policy change at the state level.

City governments can collaborate with community organizations to provide a holistic approach to implementing guaranteed income programs for those most impacted by systemic injustices. In 2021, Durham, NC partnered with local nonprofit StepUp to launch Excel, a pilot that provided 109 formerly incarcerated individuals with guaranteed income payments of $600 a month for one year. A majority of those who participated in the program identified as African American (84 percent). Recently, the Durham City Council successfully allocated $1 million in the budget for the program’s next iteration beyond the pilot phase.

Challenges

As municipalities experiment with guaranteed income programs, they should work to circumvent common pitfalls. Implementing a guaranteed income program without adequate safeguards in place can inadvertently create a benefits cliff. This occurs when the increase in income causes participants to surpass income thresholds set for other essential support programs, consequently losing eligibility for these critical benefits. Policymakers should explore strategies to mitigate the impact of the benefits cliff, such as adjusting benefit eligibility criteria or phasing out benefits gradually as recipients’ incomes rise. The Federal Reserve Bank of Atlanta’s Guaranteed Income Dashboard is a useful tool to visualize the potential impact on participants’ benefits.

Additionally, many cities currently piloting programs are relying on funding that is not sustainable for the long term, such as funds from private donors or temporary federal funding opportunities. City officials should consider ways to build in longer term funding sources, such as local tax dollars. Finally, while cities are laboratories of change, guaranteed income is unlikely to be sustainable and successful solely on the local level. Cities must be aware of the role that local programs can play in establishing proof of concept that can be used to advocate for policy change supporting guaranteed income efforts on a state and federal level.

While guaranteed income in and of itself will not close the racial wealth gap, it has proven to be a meaningful and worthwhile venture to pursue in mitigating poverty for families of color, enabling them to establish financial stability and engage in wealth building endeavors.

The National League of Cities guide, Municipal Strategies to Narrow the Racial Wealth Divide, offers municipalities a framework for addressing racial wealth disparities in their communities and presents five strategies for municipalities to consider as they seek to tackle this pervasive issue: Entrepreneurship and small business development; workforce development; homeownership; income, savings, and debt reduction; and municipal administration and operations. This blog is the third part of a four-part series offering additional insights into these strategies.

Learn More

Join us from 2 p.m. to 3 p.m. (ET) on Thursday, February 29, for a webinar on Cities Narrowing the Racial Wealth Divide Through Guaranteed Income. Stay tuned for more from NLC’s strategy series on how cities can narrow the racial wealth divide through engaging methods to increase housing access and homeownership for Black, Indigenous, and People of Color (BIPOC).