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The Inequality of Urban Investments

A new study of Baltimore shows that private capital is more often spent in low-poverty places that don't need it as much.

Compared to private capital, Baltimore's public investment goes more to high poverty neighborhoods.
(David Kidd)


  • In Baltimore, a new study shows that private capital is skewed toward majority-white, low-poverty areas, while public investment is more evenly spread out.
  • But more private money is invested in the city than public. 
  • The Urban Institute study suggests cities use public dollars to leverage more equitable private investment.
You won’t find Baltimore’s "black butterfly" by visiting the Maryland Zoo in the city’s scenic Druid Hill Park. For that matter, you won't find it in any park in the city.

The black butterfly, a term coined by Morgan State University associate professor Lawrence Brown to describe the city’s racial segregation, can only be seen on a map. The slightly curved body of the butterfly is made up of the majority-white areas in the center of the city, and the majority-black areas that fan out on either side make up the large wings.

Racial segregation and the inequities that stem from it is a troubling but familiar problem for cities across the country. In most places, these problems are made worse by private capital. In Baltimore, for instance, new research shows that private capital is skewed toward majority-white, low-poverty areas. Public investment, however, is more spread out.

The Urban Institute study found that Baltimore’s Capital Improvement Program skews toward higher poverty areas and majority African-American neighborhoods on a per household basis. Investment in high-poverty neighborhoods averaged about $4,500 per household versus roughly $2,500 in low-poverty areas.

“What we see here is that the public sector is trying to balance out and do a better job of spreading development resources across the city,” says Brett Theodos, the lead author of the study. “This, in a sense, is exactly what you want government to do.”

But Baltimore -- like many cities -- has a long way to go before residents are equally benefiting from the money invested in it. Baltimore’s public investment dollars are dwarfed by the amount of private money invested in the city by a measure of roughly 9 to 1, according to the Urban Institute.

A separate 2017 analysis by the city didn't reach the same conclusion as the Urban Institute study. Looking at budgeted capital spending over five years in neighborhoods where more than 75 percent of residents were either white or black, the analysis found that white neighborhoods got an average of $15 million for projects and minority neighborhoods got only $8 million.

The difference may be that the Urban Institute’s study takes into account different types of public investment, such as grants and tax incentives. For instance, Theodos found that spending from the federal HOME Investment Partnerships and the Community Development Block Grant programs, for example, is highest among neighborhoods that are more than 85 percent African-American. Between 2011 and 2016, money from both programs averaged more than $500 per household in high-poverty neighborhoods while low-poverty areas averaged about $100 per household.

But professor Brown cautions that spending in the form of incentives and credits greatly influences private investment. “I think it’s very difficult to make this very clean distinction that public is somehow separate from private,” he says of the institute’s analysis, “when actually they go hand in hand.”

For example, in the 1980s, Baltimore invested heavily in its downtown and a waterfront area called the Inner Harbor. The investment attracted developers and today, low-poverty areas still see one and a half times more in private investment than high-poverty neighborhoods.

So how can cities close that gap?

The Urban Institute's Theodos says they should use public dollars to leverage more equitable private investment. “There are ways cities can build the ecosystem of development finance and take a supporting role in building up communities.”

For example, he says, cities could backstop Community Development Financial Institution loans that finance projects in underserved areas. And they should scrutinize the benefits and goals when they put public dollars toward projects in areas that are already attracting plenty of private investment.

Liz Farmer, a former Governing staff writer covering fiscal policy, helps lead the Pew Charitable Trusts’ state fiscal health project’s Fiscal 50 online resource.
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