The Role of Community-Based Organizations in Fostering Economic Equity

March 09, 2023

This post is the last in a four-part series titled “The State of Economic Equity.” Written by Institute for Economic Equity staff, this series examines the challenges facing vulnerable workers in 2023 and the opportunities that more equitable participation in the economy may provide.

Previous posts in this year’s “The State of Economic Equity” series highlighted key economic inequities and pointed out that addressing them could not only benefit some people and households but also have positive ripple effects in the broader economy. In this concluding essay, we examine the economic conditions of low- to moderate-income (LMI) communities, as well as the role played by organizations working to promote the residents’ economic security.

It is important to understand the conditions of LMI communities because they can hamper opportunities and shape outcomes for residents. For example, being born in neighborhoods with lower income and lower educational attainment can negatively shape opportunities for economic mobility (PDF). Additionally, more children in these communities are enrolled in underperforming schools, and there is evidence that efforts to improve education can contribute to future economic success (PDF). Finally, people living in LMI communities are more likely to have exposure to a toxic facility or other environmental hazards, such as lead poisoning, air pollution and noise pollution. Exposure to pollutants can have adverse effects on productivity, labor force participation and even earnings.

Organizations working in LMI communities represent an essential part of the infrastructure that promotes economic resilience and mobility for all. These entities include nonprofits, governments, financial institutions and private-public partnerships. Some organizations work to increase the availability of affordable housing in their community or function as a hub for other institutions, policymakers and funders to channel investments where needed. Similarly, other organizations may provide a variety of social services, including workforce development, which help workers obtain the necessary skills for jobs and support child care needs, as well as improve efficiency in the job matching process between workers and employers.

When the pandemic hit, the Federal Reserve launched the COVID-19 Community Impact Survey (CIS) to collect insights into how economic disruptions caused by the pandemic impacted both LMI communities across the nation and the entities serving them.

Fewer COVID-19 Disruptions in LMI Communities, but Recovery Has Not Reached Many

According to the CIS conducted in August 2022, the percentage of respondents reporting significant disruptions in their communities fell compared with their response for 2021.To understand changes relative to 2021, the survey asked respondents to recall conditions in 2021 and also indicate conditions in 2022. However, the impact of pandemic-related disruptions continued to weigh on communities: More than 80% of respondents indicated that their communities had not yet recovered from COVID-19 disruptions, with 40% of respondents from these organizations indicating significant disruptions to household financial stability.Disruptions to household financial stability include income loss, income instability and increasing costs and debt. This contrasts with signs of an overall healthy economy, as suggested by real gross domestic product returning to pre-pandemic levels by the first quarter of 2021 and the unemployment rate decreasing to 3.5% by July 2022.

One area of continued concern was housing instability, which entails evictions, owing back rent, foreclosures and homelessness. Nearly half of respondents noted that housing stability faced significant disruptions, with little progress over the past year. The lack of affordable housing and high housing costs were the primary reasons for disruptions.

Organizations serving LMI communities have also been facing challenges, which hamper their ability to foster recovery in those communities. Even with strong macroeconomic indicators of growth, most of the responding entities (71%) noted an increase in demand for their services compared to last year, and more than half were not able to meet most of overall demand.Entities meeting 75% to 100% of demand for their services are considered being able to meet most of their demand. Lack of staff and volunteers, and challenges related to funding were cited as primary reasons for not being able to meet overall demand.

Financial stability continues to be an area of concern for many organizations serving LMI communities. Less than half of service providers reported being able to operate for more than a year in the current environment before exhibiting financial distress, which included reducing services, laying off staff, closing locations or shutting down entirely. Furthermore, almost a third of entities noted being able to operate at most for six months in the current environment before exhibiting financial distress.

These findings highlight how vulnerable LMI communities are to a crisis such as that caused by the pandemic. Although organizations play a crucial role, they are themselves not immune to shocks. Pursuing economic equity is a complex challenge that benefits from collaborative efforts to build communities that can withstand future economic shocks as well as contribute to the economy.

Together toward a More Equitable Economy

As the first and second posts in this series highlighted, economic conditions of LMI individuals and communities are frequently masked by overall macroeconomic performance. In these communities, economic crisis often strikes deeper, and the path to recovery is longer.

Although a strong labor market helps soften fears of a recession, myriad challenges persist, including rising costs of goods and services, labor shortages, the lack of affordable housing and limited availability of child care. These challenges could be affecting recovery; less than half of the organizations surveyed expected LMI communities with which they work to be fully recovered from the pandemic by 2023. Similarly, less than 60% of the organizations expected to meet most of their communities’ demands, leaving many in need.

Among others, access to affordable housing continues to be an area of concern because it has seen little progress over the past year. Citing the 2022 Survey of Consumer Expectations Housing Survey, an analysis by the Federal Reserve Bank of New York found that expectations of rent increases were highest among households with lower incomes. Also, the analysis noted that while a majority of respondents reported no concerns about being evicted, about 30% saw some chance of eviction. Challenges for LMI renters may persist in the year to come as a Dallas Fed analysis expects year-over-year rent inflation to continue.

Community-based organizations continue to play an important role in addressing many of the barriers to equitable recovery mentioned above. Relying on trust, relationships and deep knowledge about the community, they can collaborate to provide services to those who need the most. For example, when many local governments were struggling to deploy funding allocated through the Emergency Rental Assistance, organizations from various sectors worked together in Louisville, Ky., to provide renters and landlords with timely financial assistance.

The COVID-19 pandemic and the current challenge of inflation remind us that these crises exacerbate preexisting conditions in these communities. This post highlights the continued vulnerability of LMI communities, as well as the opportunity to collaboratively pursue not only recovery to pre-pandemic conditions but also resilience against future crises. Striving for these goals may benefit the ones who are economically insecure and, by fostering broader economic participation, could allow for more innovation and economic growth, building an economy in which we can all thrive.

Notes

  1. To understand changes relative to 2021, the survey asked respondents to recall conditions in 2021 and also indicate conditions in 2022.
  2. Disruptions to household financial stability include income loss, income instability and increasing costs and debt.
  3. Entities meeting 75% to 100% of demand for their services are considered being able to meet most of their demand.
About the Authors
Violeta Gutkowski
Violeta Gutkowski

Violeta Gutkowski is an associate economist at the St. Louis Fed. Read about Violeta’s work.

Violeta Gutkowski
Violeta Gutkowski

Violeta Gutkowski is an associate economist at the St. Louis Fed. Read about Violeta’s work.

Nishesh Chalise
Nishesh Chalise

Nishesh Chalise is a senior manager with the St. Louis Fed's Institute for Economic Equity. Read about Nishesh's work.

Nishesh Chalise
Nishesh Chalise

Nishesh Chalise is a senior manager with the St. Louis Fed's Institute for Economic Equity. Read about Nishesh's work.

This blog offers commentary, analysis and data from our economists and experts. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.


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