Preliminary Thoughts on ARPA 2.0

The Gateway Cities Journal

Preliminary Thoughts on ARPA 2.0

Last December, Governor Baker signed a package that allocated $2.5 billion from the American Rescue Plan Act (ARPA). This leaves the state with more than $2 billion to obligate by the end of calendar year 2024. Governor Baker’s second ARPA spending bill is anticipated in the coming weeks.

The state’s first ARPA package was unavoidably a bit scattershot with a host of urgent recovery needs to be met. Fortunately, the crisis ARPA was built to remedy has largely been averted. The COVID-19 recession was not as deep as economists predicted; over the past year, unemployment has fallen from 8 percent to under 4 percent.

Rather than responding to emergencies, the state can now use these flexible funds for transformative long-term investments. This will require a disciplined and carefully targeted strategy with a heavy focus on parts of the state beyond I-495. These regional economies are struggling mightily to grow skilled workforces, and they have had great difficulty holding on to entrepreneurs and drawing R&D dollars. Without these basic inputs, they can’t build 21st-century industries and supply chains.

The fact that regions like the Pioneer Valley aren’t putting forward ambitious economic development plans and aggressively courting the state for significant matching funds speaks volumes about the need for investment in organizational capacity.

MassINC has long advocated for efforts to seed a new generation of private nonprofit economic development partnerships. The inclusive entrepreneurship bill (S. 270/H. 505) filed by Sen. Lesser and Rep. Cabral, co-chairs of the Gateway Cities Legislative Caucus, contains provisions to bolster these entities with state matching funds.

While this language is geared toward commercial areas and business improvement districts with an eye toward sustaining partnerships built through MassDevelopment’s Transformative Development Initiative (TDI), the provisions are flexible enough to also resource regional economic development organizations, so long as the make-up of their boards represents the diversity of Gateway Cities today.

There is compelling logic behind this multi-level approach. Executing an effective regional economic development strategy requires the ability to tackle tactical real estate development at a district level, while also organizing at the regional scale on strategy and cross-cutting implementation issues, such as regulation, transportation, and workforce development.

The next ARPA package should build serious capacity in both micro- and-meso-level economic development partnerships. These entities must be positioned to help stakeholders align priorities, develop bold plans, and braid resources together to implement them. Most importantly, they need to be able to sustain focus over the long term. This means that rather than a one-time appropriation, the next ARPA package (or an accompanying economic development bill) should include policy provisions that create a sustainable funding mechanism, such as the model contained in the inclusive entrepreneurship bill, which taps proceeds from online sales tax collections.

In addition to building capacity in economic development partnerships, the ARPA bill must provide substantial resources that these organizations can utilize to execute their strategies. At the meso-scale, there are various ways to flexibly structure investment vehicles that encourage regions to come forward with strategies tailored to their comparative advantages. Massachusetts could learn from the successes and failures of New York’s $1.5 billion Upstate Revitalization Initiative, and more recently, Indiana’s $500 million Regional Economic Acceleration and Development Initiative.

At the micro-scale, Massachusetts can use ARPA proceeds to recapitalize the TDI Fund. Earlier this week MassDevelopment announced plans to double-down on the successful TDI formula with the designation of 12 new districts. Providing working capital through ARPA will ensure that these planning and organizing efforts catalyze transformative investment.

Through the FY 2023 budget or an end-of-session economic development bill, the legislature could also support district-level revitalization efforts by moving forward with a long-overdue increase to Housing Development Incentive Program (HDIP). More on this to come…

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