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Unleashing a Perpendicular Nation: Five Ways to Transform the Federal-to-Local Relationship in the Biden Administration 

Below is the Nowak Metro Finance Lab Newsletter shared biweekly by Bruce Katz

 

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‚Äč(co-authored with Colin Higgins, Andrew Petrisin, and Michael Saadine)

Last month we wrote that local economic stakeholders could not afford to wait for certainty about the federal balance of power before organizing their plans for recovery. We proposed a five-part roadmap to help them prepare in light of the uncertain prospect of federal stimulus. Today we examine how to advance New Localism generally, and the relationship between the federal government and American cities and metros specifically, in the Biden Administration.

Our thesis is straightforward: governing effectively to build back better from our current domestic crises will require the Biden Administration to utilize the full energy of American cities and metros (irrespective of who controls the Senate).

For many reasons, this is much easier said than done.

A Perpendicular Problem: different federal and local organizing principles
Chief among the difficulties that the Biden Administration will face in fully harnessing American metros are the radically different organizing principles of the local and the federal. Metros of all sizes are organized around 
a horizontal and networked approach to problem solving, while the federal government is organized around a vertical and siloed approach. These approaches are, in a sense, perpendicular to each other.

American metros are oriented horizontally: to address multifaceted problems, they use a networked approach that cuts across sectors, disciplines, and institutions. Ecosystems rather than legislative committees and executive bureaucracies drive cities and metropolitan areas. Boosting small businesses requires coordination between major employers, financial institutions, entrepreneurial support organizations and owners/managers of commercial corridors. Upgrading the skills of workers requires close collaboration between firms, community colleges, skills providers, philanthropy and others. And so on. The power dynamics between these actors and institutions are complex, organizational capacity is often suboptimal, and the right leader between public, private, and civic sectors is not always intuitive, but the key is that metros bring networks together to solve local problems. They are unified through a focus on a discrete place.

The federal government is oriented vertically: in order to make the vast and differentiated geography of the country governable, federal agencies growing out of the executive branch are organized around distinct topics of national importance. Solutions — in the form of new programs, reforms, and rules — flow down from technical experts at the top and are applied to the whole country. The net result is a set of specialized and siloed federal agencies that have clear organizational structures and compartmentalized expertise, but do not always play well together or even speak the same language and can be slow to move at scale.

If understood, this perpendicular approach to problem solving can be harnessed to drive meaningful progress on the Biden administration’s top national priorities. On the campaign trail, Candidate Biden proposed a “whole-of-government” approach to addressing national problems. It is likely, then, that the federal government will respond to challenges like controlling the COVID-19 pandemic, economic growth, climate change, small business revival and racial equity with a mix of mandates, incentives and investments (e.g., tax incentives, financial products, block grants, competitive programs) coming from a myriad of federal agencies. These responses, sometimes coordinated, oftentimes disjointed, will have maximum effect when they are braided and blended together at the local and metropolitan level, when the vertical and the horizontal, in other words, work together towards common goals. The five principles below provide some initial guidance on how to unleash the potential of this perpendicular approach.

Five Principles to Unlock the Potential of The Federal-Local Relationship in The Biden Administration

The disparate approaches taken by metros and the federal government to problem-solving are distinctive strengths of the U.S. federal system. In other countries, private/civic networks at the local level are less mature and the public sector is more dominant. To that end, we propose five principles that the incoming Administration should follow to harness the productive intersection of the horizontal local approach and vertical federal approach and fully energize an inclusive recovery.

These principles are crucial guideposts that the Administration should follow if they want to harness the potential of metros to make timely and meaningful progress on their top, urgent, national priorities.

Principle I: Engage with Metros as Networks, Not Governments
Metros are thought of best as networks, rather than governments. As a result, the federal government should not confine engagement with cities to “traditional” urban policy or made-in-Washington solutions. Metropolitan areas are the engines of our national economy, the centers of trade and investment, and the hubs of national innovation and inequality. Their interests and needs extend well beyond traditional “urban” issues like housing and related federal agencies like HUD — especially during the overlapping crises of 2020. As a result, programs and legislation should be designed and financed, and resources deployed, in a way that reflects the multidimensional and networked realities of cities.

Cities have also been the vanguard of problem solving during the past several decades, given the complexity and multidimensional nature of challenges. Democratic control of the White House, or the senate, does not fundamentally alter these underlying dynamics. New Localism is primarily a structural reality rather than an outcome of partisan division. The federal government has a generational opportunity to respond to our current crisis by changing the federal policy paradigm in a way that takes seriously the ingenuity of problem solving at the metro level.

The Biden Administration should not squander this moment. Designing federal policies in a DC-centric vacuum, raining down new rules and mandates alongside federal resources, on communities that are already dealing with myriad challenges, would fall short of what’s called for. Rather, the Administration should reverse-engineer federal policy — building it from the bottom-up — in a way that reflects their top priorities and adapts implementation to the wide variance of local conditions and possibilities across the country. In other words, reactive, federal-led decision-making processes should be supplemented with proactive, city-led policies, funding strategies, and requisite guidance.

Principle II: Metro Reality Is Messy So Federal Flexibility Is a Must
The Biden Administration, where applicable, should expand the funding available directly to local governments and metropolitan governance entities (e.g., metropolitan planning organizations) and increase its flexibility, enabling cities to take immediate action based on their radically different starting points and priorities. To the greatest extent practicable, the Administration should, either alone or with Congress, should:

  • Send relief and recovery money directly to localities or metropolitan entities rather than passing it through states. With notable exceptions (like the CDBG, HOME and TIGER grants), most federal grant-in-aid funding to cities and counties is first passed through state governments. Depending on the challenge, it might more sense to first allocate funds directly to localities or metropolitan areas for them to support their distinctive priorities and to separately allocate funds to states for pressing, broader rural and statewide needs. This is not a blanket recommendation to send all money to localities, since we acknowledge there are some funding streams (e.g., SSBCI, certain healthcare, education, and infrastructure expenditures) that make more sense to allocate on a state level. Rather, the Biden Administration’s goals would be served by tactically allocating funds to the sub-national units of government that are fit for purpose.
  • Make federal funding locally flexible. This will enable a broad array of locally responsive uses, helping deploy funds in a way that’s better aligned with the wide variety of local needs and priorities across the country. It will also facilitate innovation in the types of funding arrangements — public and private — that the networked governance of metros can produce. While hampered by its restrictive timeline and dearth of guidance, the CARES Act’s Coronavirus Relief Fund is one example of such flexible funding. Its flexibility led not only to a backstop for tax revenues, but also enabled localities to quickly deploy innovations in testing and contact tracing, small business continuity programs, and more, at a speed and effectiveness the federal government could not have matched. The next round of relief should go even further, opening up new distribution channels for overlooked small businesses via the RELIEF for Main Street Act, which we’ve previously written about.
  • Reward and encourage collaboration across jurisdictional lines. One way to facilitate metro network effects is by providing federal matching and funds that can be unlocked for cross-jurisdictional collaboration on issues that clearly cross artificial geographic divisions (such as clean infrastructure, vaccine deployment, and metro-wide economic recoveries that center racial equity). One way could be to match local funding measures, where regions, and their residents, set their priorities via the ballot box.
  • Streamline federal rules and restrictions. Many of these rules have evolved over time, making effective and efficient administration incredibly difficult and rewarding economic incumbents with the expertise to navigate them. Streamlining the paperwork required for starting small businesses, for example, is especially vital for reigniting entrepreneurship coming out of the pandemic.
  • Saturate cities with technical assistance and planning resources. The pandemic has had a dramatic impact on already-struggling local capacity, especially in smaller metros. Since local priorities are often clearer than the knowledge of how best to utilize federal funding streams, cross-sector guidance is needed to ensure the highest-and-best use of flexible federal funds. We don’t need to look any further than unused and expiring CARES Coronavirus Relief funds or the local capacity issues that hindered community use of Opportunity Zones to see the necessity of such assistance and guidance.
  • Pioneer City Deals. City Deals are plans to align planning, investment and governance across local, state, and federal entities for long-term growth based on experiments underway in Australia and the United Kingdom. They should be applied in the US context.

 

Principle III: Metros Can be Force-Multipliers if Properly Engaged
In pursuing their top priorities, the Biden Administration should work to fully unlock the roles that cities play as (a) market economies rather than transfer entities; and (b) networks of public, private and civic actors rather than governments alone. The first application of this principle can be in the small business arena, given the devastating impact of the global pandemic on small businesses in general and Black- and Brown-owned businesses in specific. To that end, the following actions make sense:

  • Support the evolution of multi-sector, market-oriented ecosystems. Solving hard challenges requires cooperation across public, private and civic institutions and intermediaries. In Big Ideas for Small Business, the authors recommend that Congress should establish a multi-year Business Ecosystem Demonstration to catalyze and evaluate new ways of driving transformative small business outcomes through integrated systems of anchor demand, business support, capital access and business district regeneration. The Demonstration would be authorized at $275 million per year. Funding would be allocated via competition. Eligible applicants would include networks of key small business stakeholders, including key representatives from the public, finance, corporate, philanthropic, university, community and small business sectors. Applicants could represent a city, county, metropolitan or state level.
  • Properly leverage federal procurement. To maximize local growth in Black-, Brown and Women-owned businesses federal procurement should be supercharged. Current supplier diversity rules are exercises in bureaucratic box-checking rather than market-making. All federal spending should be made transparent at the local level, in a way that shows rather than obscures business creation and expansion possibilities.
  • Fully leverage the federal expenditures in health care. Healthcare is 18% of GDP; by experimenting with federal market and social innovations in reducing health disparities, this money can be channeled across metro economies and bridge persistent geographical divides. This can also further extend the reach of federal procurement rules that narrowly focus on spending by federal agencies themselves.
  • Develop innovative financial products for funding cross-sector initiatives. Having a substantial impact on metro networks means channeling funds through different parts of the local network beyond just the government. As we recently wrote in our set of policy proposals to build back better from the small business crisis, federally innovative products like revenue-based financing for entrepreneurs could enable the requisite flexibility to quickly deploy resources to underserved populations.

 

As the Biden Administration moves from urgent relief to broader recovery, other countercyclical investments delivered via a plethora of city and metropolitan institutions can be considered.

  • Strategically deploy federal investments in research & development. These should be deployed to maximize commercialization and the growth of local businesses and quality jobs. This can be accomplished through a variety of programs like Small Business Innovation Research (SBIR) grants and spending through the various advanced research agencies. Special attention to how federal investments can advance the growth of innovation districts should also be considered.
  • Leverage federal investments in transport, energy, broadband and other infrastructure. Innovative federal infrastructure finance mechanisms should unlock private capital alongside public funds. This may mean improving existing federal financing programs in TIFIA and WIFIA, in addition to deploying new solutions like the Broadband Infrastructure Finance Innovation Act (BIFIA), as proposed in HR2, the Moving Forward Act.
  • Make investments at scale in community colleges, the underappreciated workhorses of the higher education system. Re-launching the Trade Adjustment Assistance Community College and Career Training (TAACCCT) competitive grant program would be a great start. Allowing city and county community colleges to compete for these grants directly would be even better. The consequence would be to give hundreds of thousands of unemployed and under-employed Americans the skills they need to compete once a full recovery is underway.

 

Principle IV: Transfer Effective Ideas
As they think about structuring task forces and advisory councils, the Biden Administration should develop clear channels for the transfer of effective ideas between metros. Currently a number of national civic organizations (e.g. 
What Works Cities and Accelerator for America) act as clearinghouses for smart urban innovation, but the federal government plays less of a role.

This should change. The incoming Administration should develop an internal infrastructure so that smart urban innovations and financing structures can be quickly codified and communicated in order to be rapidly replicated or adapted. This work should include, at a minimum:

  • Coordinating across agencies and localities to clearly highlight and explain successful examples of how to make use of federal grants and tax incentives (e.g., New Market Tax Credits, TIGER grants, CARES CDBG, Opportunity Zones). This initiative should be carried out across agencies and should focus on making the programs more transparent and usable, particularly by smaller metros and rural county governments.
  • Convening practitioners, metros, and federal officials to pioneer and promote Inclusive Recovery Playbooks so that cities can: maximize the growth in Black-, Brown- and women owned businesses across multiple sectors and build long-term climate mitigating infrastructure in the recovery.
  • Supporting municipal consortia to make change at scale for a climate-focused recovery. Sweden has a successful model of doing this through KommunInvest, which started as a multi-municipality cooperative and has evolved into a platform for enabling small- and medium-sized cities to aggregate their market power, level the playing field with financial institutions and get green infrastructure and other projects routinely funded as part of broader pools. A similar, properly resourced consortia of U.S. metros, particularly smaller and medium metros, can help facilitate innovative public/private financing of large-scale climate projects as well as enable tax advantaged capital (e.g., Opportunity Zones) to realize its full potential.

 

Principle V: A Surge in Data to Drive Inclusive Growth
The federal government has the unique vantage point of being able to see what is happening in all corners of the country, if it adequately measures it. The federal government can standardize and collect data and provide easy-to-use toolkits for metros so they can have a better sense of who their economies are working for (and who they are not working for) and catalyze private investment and inclusive growth.

Across agencies, the Biden Administration should maximize the use of public and private data to highlight timely information for the economic recovery and make this data easy to use for metros, especially smaller ones with less capacity.

  • In doing so the federal government should prioritize the small business sector. This sector constitutes nearly half of American jobs and has been uniquely hard-hit by the crises of 2020. Data collection on small businesses has focused on inputs (e.g., new capital programs, new contracting requirements) rather than outcomes (e.g., jobs and firms created). And federal funding for data collection declined by 30% between 2008 and 2018, hampering the quality and timeliness of the public data we have on small businesses. At a minimum the federal government should:
    • Ensure that public data around small businesses is more timely, frequent, reliable and shared with metros through a relatively low-cost set of data collection improvements; and
    • Develop a set of standardized measures and tools to help metros set recovery goals for their small business sector
  • Improving data collection and sharing can be uniquely impactful to empowering metro networks. Publicly collected and standardized data can be used to foster initiatives that meet public goals with private resources. For example, the federal government can work with Fortune 500 corporations, universities, hospitals, utilities and local governments to develop transparent and shared tracking and reporting regimes (similar to ESG standards) to supercharge anchor procurement from — and investment in — small, diverse, and sustainable businesses. A Supplier Diversity Task Force, made up of representatives from the employers which have already shown progress in this area, could accelerate this effort and should be a top 100-day priority.

 

Embracing Perpendicular Thinking and Action from the White House
Every Democratic Administration in modern times comes into power stating that they want to be better partners with localities. The Obama Administration was the most recent example, setting up an 
Office of Urban Affairs to represent the interests of cities in federal deliberations.

The Biden Administration needs to learn lessons from these prior efforts and remake the federal-local relationship for the better. Recognizing the fundamental difference between the way cities and the federal government are organized would be a productive start to a different, and more symbiotic, kind of relationship. The new Administration has inherited, in essence, a 19th century federal republic that was driven in the 20th century by top down federal and state policies and now must be powered by 21st century bottom up, networked solutions that harness federal and state rules and tools.

This is the essence of the perpendicular challenge. Following the five principles we outline above is the beginning of a different way of operating, one that respects at the outset that the federal government and localities are literally different governance species. These principles should be priorities. Harnessing the power of this 21st Century model of problem solving is necessary for the Biden Administration to govern in a way that responds to the uniquely 21st century set of problems they have been handed: a raging pandemic, a climate crisis, stark racial inequities, and an economy on the brink.

Our suggestions to move the federal-local dynamic into one that facilitates symbiotic problem solving are just a start. More hard thinking in this area needs to be done, at both the conceptual level and around how specific policies, programs and products are implemented across different sub-national units of government and sectors of society. Structural change rather than a tweak here or a nudge there is needed to harmonize two different approaches to problem solving. A first step in this structural change would be for the President to direct the policy arms of the new Administration — the National Economic Council, the Domestic Policy Council, the Office of Management and Budget, the Council for Environmental Quality — to articulate how disparate initiatives will tactically leverage local ecosystems during policy and program implementation for maximum impact.

On the campaign trail, Candidate Biden touted a “whole of government” approach to solving the hard problems our country is facing. A perpendicular nation, where cities, metropolitan areas, and rural towns harness federal policies and investments for maximum impact, requires a “whole of society” approach. Therein lies the path to transformative change and, to use the phrase of the President-elect, winning the battle for the soul of this (perpendicular) nation.

Bruce Katz is the Founding Director of the Nowak Metro Finance Lab at Drexel University. 

Colin Higgins is a Senior Research Fellow at the Nowak Metro Finance Lab. 

Andrew Petrisin is an Associate Consultant at WSP. 

Michael Saadine is a real estate and social impact investor.