What Predicts Local Investment in Housing or Community Development? Trust Funds, Tax Credits, and Intergovernmental Trade-Offs

• In Event: Property Taxation and Local Fiscal Health

Abstract

Background and Research Question
Why do some cities choose to fund housing programs significantly, while others spend nothing? Limited federal assistance has led cities to become more active in housing and community development. Cities depend on institutional capacities and political willingness to allocate resources toward housing and community development. Earlier literature has yet to document the state-local contexts that underlie municipal housing and community development programs. Such contexts are essential for explaining the role that city governments could play in local responses to housing and community development needs. Conceptually, I build from Bowman and Kearney's (2011) second-order devolution framework and field literature to situate housing and community development programs within state-local systems. The study extends the academic discussion on how cities could leverage funding sources and capacities to support municipal programs for affordable housing and community development. What state-local institutional contexts explain city-governmental funding for such programs?

Panel Data and Methods
The study presents panel data on municipal housing and community development funds across four decades. It spans four decennial Census of Governments surveys. The final sample includes 6,791 cities in 1992, 6,878 cities in 2002, 6,866 cities in 2012, and 6,794 cities in 2022. In particular, I present data on state legislation enabling local trust funds drawing from the Housing Trust Fund Project (2023) and legislation identified through Westlaw databases. Historical data on LIHTC housing units are collected from HUD. I apply a two-part model to isolate: (1) the probability of cities offering a housing or community development program and (2) the actual amount of expenditures. The first and second parts are respectively modeled using logit and exponential models, allowing distinct processes to predict whether a functional program is being offered and the extent to which cities actively fund it. I compare static and dynamic models that assess the sensitivity or robustness of results by comparing assumptions of alternative specifications.

Results and Implications
Factors that underlie whether city officials offer a housing or community development program differ from those underlying how much they are willing to fund it. Across specified models, fragmentation of cities is negatively associated with municipal housing and community development expenditure. Among the hypothesized factors, LIHTC housing has the most consistent impact on both model parts. State grants have a limited effect on the probability of a program but more consistent effects on the amount of municipal expenditure. As trust legislation becomes effective, it appears to substitute for the city's general funding. The research offers empirical support for the second-order devolution framework, as cities differ in municipal housing and community development outcomes. In a fragmented region, cities face structural disadvantages in funding housing programs. States have unevenly compensated cities for the devolution of housing and community development functions. City officials must evaluate whether trust funding replaces their general funding or truly expands housing. The research contributes a theoretical framework and panel data for identifying intergovernmental tools for affordable housing and community development.

Author

• Agustin Leon-Moreta, University of New Mexico
  Presenting Author