Leveraging the HUBZone Program to Maximize the Impact of Place-Based Industrial Policies

Leveraging the HUBZone Program to Maximize the Impact of Place-Based Industrial Policies

The Biden administration's emphasis on place-based industrial policy marks a significant shift in the nation's approach to economic development. As the Brookings Institution highlights, these policies aim to address unique local challenges and promote equitable growth by targeting interventions to specific geographies.

Brookings Institution identified 19 place-based industrial policy programs in the American Rescue Plan Act, Infrastructure Investment and Jobs Act, and CHIPS and Science Act, totaling nearly $80 billion in authorized spending.

This represents the most significant test of place-based ideas since the Great Society or New Deal era. However, identifying the places where these policies are most needed is complex.

The Economic Innovation Group's (EIG) report on persistent poverty provides valuable insights, finding that 35 million Americans live in persistent-poverty communities, defined as contiguous census tracts with poverty rates above 20% for at least 30 years.

EIG identifies eight typologies of persistent-poverty communities based on race, rurality, and regional characteristics, offering a framework for tailoring policies to the specific needs of different distressed areas. While EIG's research is compelling, the lack of a statutorily defined geography for these areas poses challenges for policymakers.

In contrast, the Historically Underutilized Business Zones (HUBZone) program, established in 1997, offers a well-established model for targeting economic development efforts to distressed communities. The Small Business Administration (SBA) designates HUBZones using information from various sources to ensure accurate and up-to-date data. There are six types of HUBZone designations, each with specific data sources:

1. Qualified census tracts (QCTs) Data source: Department of Housing and Urban Development (HUD)
2. Qualified nonmetropolitan counties Data sources: Census Bureau, Department of Housing and Urban Development (HUD)
3. Qualified Indian lands/Indian Country Data source: Bureau of Indian Affairs (BIA)
4. Military bases closed under the Base Realignment and Closure Act (BRAC) Data source: Department of Defense (DoD)
5. Governor-designated covered areas Data source: State Governors
6. Qualified disaster areas Data source: Federal Emergency Management Agency (FEMA)

HUBZones generally have either a poverty rate of at least 25% or 50% or more of households with income below 60% of the area median gross income. The Census Bureau also supplies data on income levels, population statistics, and other demographic information to help determine HUBZone eligibility. Overall, about 25% of counties and census tracts in the United States have HUBZone status.

Aligning place-based industrial policies with the HUBZone program

Aligning place-based industrial policies with the HUBZone program offers several advantages:

1. It allows policymakers to target interventions to areas of demonstrated economic distress using a clear, objective definition.

2. By focusing on small businesses, it ensures that the benefits of these policies are distributed more broadly and inclusively.

3. The 35% local hiring requirement ensures that these policies create jobs and provide opportunities for local residents to build skills and access quality employment.

The HUBZone program's focus on supporting small businesses is particularly important for promoting equity and inclusion. Small businesses are the backbone of many distressed communities, often facing significant barriers to accessing federal contracts and other opportunities. The U.S. government, as the largest customer in the world, offers immense potential for these businesses. By providing contracting preferences and technical assistance to HUBZone-certified small businesses, the program helps level the playing field, enabling local entrepreneurs to compete for substantial federal contracts. This creates pathways for these businesses to grow, generate jobs, and drive economic development in their communities.

Moreover, the HUBZone program's 35% local hiring requirement ensures that the benefits of economic growth are shared with community residents. This is critical for addressing the persistent poverty and lack of economic mobility that plague many distressed areas. By creating job opportunities and providing training and skills development, the program helps build local talent pipelines and promotes long-term economic resilience.

In conclusion, while persistent poverty remains a pressing challenge, the HUBZone program provides a proven model for targeting place-based economic development efforts to distressed communities. By aligning the $80 billion in authorized spending for place-based industrial policy programs with this existing framework, policymakers can more effectively promote inclusive growth, expand economic opportunity, and create jobs in the places like Newark, NJ that need it most.