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Financing transformation: How to sustain place-based economic development beyond early federal awards

February 23, 2024


  • Recent federal legislation has authorized billions of dollars for place-based industrial development in regions looking to transform their economies, but congressional appropriations will likely not be sufficient.
  • As a result of decreased and uncertain funding, many place-based programs—as a result of limited or uncertain funding—are facing a “sustainability problem,” which will likely challenge regions’ long-term goals of transformative economic change.
  • To overcome the federal funding challenge, local leaders will need to turn to other sources of support that can supplement the original grant and extend its purposes, including state and local governments, philanthropies, and universities.
  • Securing supplemental funding will almost always mean that coalition structures and governing bodies will need to undergo constant and iterative change to keep all parties and stakeholders at the table and fully engaged.
Macro photograph of a fifty dollar bill overlayed on top of a photo taken in Portland, Maine.
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Next week, 31 recently designated Regional Technology and Innovation Hubs (Tech Hubs) regions will submit applications for sizable place-based industrial development awards from the Economic Development Administration (EDA). Authorized through the CHIPS and Science Act of 2022, the awards are intended to accelerate regional technology ecosystems that have the potential to become “globally competitive” within 10 years.

Yet there is a problem—one that epitomizes a core challenge facing many of the bold economic development programs passed by the 117th Congress. Dedicated to achieving substantial long-haul economic change, users of all of these programs must find ways to supplement initial near-term federal interventions with longer-term support for permanent improvements.

In the case of the Tech Hubs, moreover, the challenge is especially acute given additional financial issues. Originally authorized as a $10 billion program, the Tech Hubs initiative received just a $500 million appropriation from Congress. That’s still significant, but it means the EDA and its local partners must now try to engineer large-scale economic transformation in five to 10 regions with grants of $40 million to $70 million each, with future funding still uncertain. That pales in comparison to the 20 multiyear grants for upward of $500 million each that the original authorization envisioned.

All of which highlights what might be called the “sustainability problem” of the current round of place-based industrial policy grant programs.

Place-based economic transformation is hard, costly, and time-consuming. For example, the story of North Carolina’s Research Triangle Park shows that transforming a promising but struggling region into a global growth center might well require targeting as much as $700 million or more per region over 10 years to achieve a truly self-sustaining shift.

Given that, the question of sustainability is immediate and critical for the winners of an award such as the Tech Hubs program. How will initiatives with laudable long-term aspirations deliver on their promises of transformative change given the limited initial resources they are receiving? How will winning regions maintain their interventions long enough to achieve their goals despite limited and uncertain funding?

The federal government’s expansion of place-based industrial strategies is going to force experimentation in creative, large-scale, longer-term financing. Accordingly, this report will describe the industrial strategy sustainability problem and suggest approaches to address it.

Sustainability is critical to economic transformation efforts—but not always assured

Place-based development initiatives such as Tech Hubs, the Build Back Better Regional Challenge (BBBRC), and the National Science Foundation’s (NSF) Regional Innovation Engines program depend on long-term sustainability. That’s why the Notice of Funding Opportunity for all three underscores the importance of explicit sustainability plans for proposals’ long-term effectiveness.

This emphasis on sustainability reflects the fact that to deliver on their goals, place-based initiatives need to ensure that the necessary large-scale financial and other resources will be available beyond the initial implementation grant period, for the long term.

In this regard, all of the recent place-based programs are ambitious in their goals but time-restricted and financially limited. What’s more, most of the programs—through their emphasis on collaboration among local, regional, corporate, university, and governmental stakeholders—create the assumption that other funders besides the federal government will be required to sustain success. In that sense, the new programs are designed to serve more as flexible seed funders rather than as long-term investors. By providing this federal seed money, the programs seek to catalyze and “de-risk” the opening phases of transformational regional efforts that—if pursued with appropriate vigor and vision—will not only require but should clearly merit further funding and investment.

Given that, it is unfortunate that many of these federal investments are not being funded for a larger share of their authorized size, or providing longer-term funding. In addition to the Tech Hubs program, the EDA’s Recompete Pilot Program and the NSF’s Regional Innovation Engines are also contending with reduced funding and uncertain prospects.

As such, communities that are designing proposals for new place-based programs face challenging tasks as they consider how to ensure their initiatives survive robustly enough and for long enough to enact change.

How communities can sustain their projects after federal funding runs dry

Given these considerations, regional actors need to attend to their projects’ longer-term financial sustainability from the outset. Starting now, they should survey both familiar and new sources of funding to generate the kind of investment that will be necessary to match their ecosystem’s needs for both capital and capacity going forward. Assembling and then preserving this new mix of funding sources may in turn require further iterations of appropriate governance structures to sustain success.

Therefore, it makes sense to consider some of the possible types of funding sources available for regions’ industrial development work. For example, further investments may be required to meet needs such as additional and unforeseen capital project development costs, unfunded startup and staffing expenses, and outlays for launching or expanding the workforce, talent, and cluster development strategies that are often key to success.

What follows are examples of funding sources for these kinds of ongoing and future expenses.

Follow-on federal funding

Conventional wisdom suggests that further federal funding for these programs is unlikely in this heated election year. Yet additional federal funding rounds will be essential for awarded efforts to be fully realized, and represent the biggest and best way to build ambitious programs out to scale.

Fortunately, at least some dynamics of election-year politics could work in favor of constructive action. For one, multiple new, highly networked coalitions spanning nearly half of all U.S. states and territories now have vested interests in a Regional Innovation Engines award, a Recomplete Pilot Program Phase 1 finalist award/strategic development grant, or both. Similarly, powerful players across nearly all states and territories are included in the geography of Tech Hubs designees and related development grants. Taken together, the wide and inclusive scope of these awards suggests intriguing possibilities for a concerted advocacy campaign among cities, states, regions, and rural and urban areas—crossing all geographies and politics, and sharing an urgent interest in realizing the full promise of these programs.

It is also important to note that other kinds of federal support for these awarded programs and regions beyond federal appropriations may also support long-term sustainability. Specifically, the awarding federal agencies can serve as signposts and conveners for other donors and investors that may be drawn to invest in these emerging regional platforms as a result of their nationally certified promise. Such an active and promotional federal role could make a real difference to regional public and private stakeholders as well by spotlighting the potential world-class credibility of emerging assets and investment platforms in their own backyards.

State and local public investments

Non-federal public funding, particularly from states, is another promising avenue for significant support. Overall, program designations and awards have gone to broader regions within states (or sometimes across them), rather than favoring specific cities or universities. Many awards prioritize rural areas, smaller towns, or entire states that are nontraditional recipients of federal funding. And most successful award recipients are seeking to build programs with significant talent and workforce components that already represent core state and regional priorities.

Given that, state policymakers need to pay close attention to the unprecedented opportunity before them. The new development awards provide significant federal dollars and global credibility to many states and regions for the first time. Bold regional and local programs that historically have managed to enlist support from only close to home are now in the national spotlight for offering 21st century technology opportunities, with federal funders helpfully assuming many of the risky startup costs. If there is ever a moment for state leaders to step up to provide critical follow-on funding for success, this is it.

And there are promising early signs that at least some state leaders are responding. For example, substantial commitments for additional state support have already been secured by a number of winning BBBRC coalitions, including H2theFuture in South Louisiana ($25 million); the St. Louis Tech Triangle ($15 million); the New Energy New York initiative ($50 million); and the Richmond-Petersburg, Va. region’s Advanced Pharmaceutical Manufacturing Cluster ($15 million). In all, BBBRC competitions have spurred $297 million in non-federal matching funds to date—a signal of possible longer-term engagement from states.

What’s more, a number of states (at least for now) may have the financial resources to help. Many, though certainly not all, have come through the COVID-19 public health crisis and economic disruption in surprisingly strong fiscal shape. And at least in some states, federal funds provided through the American Rescue Plan Act have not yet been fully committed, and may still be available. As a result, some state leaders are already moving ahead. Pennsylvania Gov. Josh Shapiro recently proposed the creation of a Pennsylvania Regional Challenge to invest in regional growth strategies, some of which might support several of the state’s federally funded initiatives. And Alabama recently invested $20 million to create a new software platform to expand clinical trials across the state—an initiative pertinent to the Birmingham Biotechnology Hub, the state’s Tech Hubs designee.

Philanthropic support

In many communities, private foundations and family office philanthropies already play an outsized role in funding the kinds of investments in people, projects, and places that federal place-based programs are seeking to enable or scale.

Though such funds typically come with their own federal tax restrictions on eligible recipients and activities, philanthropic investments can be broadly supportive of critical community-based initiatives. For example, a recent $100 million grant to the University of Pittsburgh from the Richard King Mellon Foundation seeks to jump-start that region’s simmering life sciences sector through the transformation of a brownfield industrial site into a state-of-the-art bioscience research and development hub. Another Pittsburgh-based foundation, Heinz Endowments, recently announced a $10 million investment in a new project hub to enable local governments throughout Southwestern Pennsylvania to build capacity and resources to compete for major federal infrastructure and clean energy funds. And in other communities, such as San Diego, an impressive array of smaller private foundations and individual and family office philanthropies continues to make a difference through concentrated and wide-ranging strategic investments in growth. One example of such creativity is the TL Foundation Fund—a new philanthropic venture fund conceived and launched out of Connect San Diego to propagate the growth of innovative startup companies in the region.

It is also worth noting that, in some cases, the new federal awards for spurring regions to build world-class innovation programs in areas such as energy, biotechnology, the environment, entrepreneurialism, and workforce development could draw philanthropic support from beyond regional boundaries. Indeed, some national donors may readily seek out opportunities to invest in the kinds of new programs in new places that these federal awards enable.

With that said, philanthropic funding possibilities cannot be taken for granted, even in places where donors have traditionally played active supporting roles. Private foundations and individual and family philanthropies typically work by establishing (and sharpening) specific areas of focus for their contributions. This means the case will need to be made that the new federal industrial policy program or designation seeking support will embrace objectives fully in line with where and how these donors prefer to give. Moreover, donors will often seek out opportunities to make inaugural grants for advancing a compelling priority; this preference to act as an influential “first mover” can signal a related priority for making signature grants that are clearly identified with that donor. Such an approach can then make it difficult to assemble other philanthropic resources across different donors.

Still, philanthropic support may well prove to be among the most promising sources for building additional capital. However, it will likely require a fresh analysis and articulation of the region’s federal award to place it credibly within the context of a particular donor’s established priorities.

University support

In many ways, universities—especially large, regionally based research universities—should be the natural first source for additional funds to build out federal awards. Indeed, in most cases, regions have already turned to nearby universities and related medical and engineering schools as key coalition members, since most awards call for scaling the kinds of basic and applied scientific knowledge and technology typically found in greatest abundance under university flags. By design, research universities maintain substantial research budgets and often—especially for state land grant universities—have special state charter requirements to engage in the development of regional economies. These new, highly competitive federal awards should bring only further prestige to universities that have helped as regional champions to win them.

Yet the alignment of interests between universities and regions can be almost too close when it comes to securing capital. Universities will naturally see themselves as rightful recipients of federal and philanthropic grant funding, rather than as financial donors to others’ efforts. Indeed, success in winning and directly managing government and foundation grants is an essential factor in advancing a research university’s national and global reputation, and a critical contributor to success in its own constant competition for capturing and promoting talent and growth. Accordingly, university grant funds are largely directed internally in support of university programs, faculty research, and related overhead expenses, rather than outward into community projects developed by others for programs beyond university boundaries.

Still, there is a significant role that universities can play, especially research institutions—so long as coalition leaders fully appreciate the university interests at stake. One obvious avenue is for universities to work intentionally with community leaders to incorporate regional priorities into their own proposals for additional federal funding, especially proposals for translational research, technology commercialization, and entrepreneurship support. In doing so, funding will most likely flow directly to the universities themselves rather than to community coalitions, but it can still contribute to the region’s overall success.

Similarly, as noted earlier, philanthropic funders often choose to support community priorities through research university funding grants. The aforementioned Richard King Mellon Foundation grant came in the form of an award made to the University of Pittsburgh for the oversight and development of a major specialized biomanufacturing facility in an historically underserved urban area. Thus, a common set of interests and priorities brought the right academic, philanthropic, corporate, and community partners together, and significant public and philanthropic funding through the university will keep them there to build a larger biosciences hub.

Corporate support

Corporate buy-in is a core requirement for many place-based federal awards. Programs typically seek evidence of true business engagement beyond mere endorsement letters and amorphous promises of in-kind contributions. Likewise, they may require specific pledges of active business executive participation in governing coalitions, or assurances that the federal award is consequential for corporate growth in the region.

Yet translating such commitments into capital contributions may still prove difficult. With more and more companies (and banks) nationally or even globally owned and focused, it is increasingly challenging to secure hometown corporate cash contributions for the priorities of individual regions or communities. And especially post-Covid, many privately held companies still face unpredictable markets and disrupted supply chains, and may struggle to contribute to community causes no matter how meritorious.

Still, there are a few potential corporate avenues worth considering. First, many companies—especially larger or publicly traded ones—maintain in-house foundations that provide meaningful cash support for projects and programs in the communities they serve, frequently focused around “pillar priorities” such as talent, workforce, and quality of place. As with philanthropic participation, regional coalition members will need to identify each prospective corporate donor’s priorities for support, and then credibly align these priorities with the program’s broader goals.

Second, awarded programs and designations typically include major initiatives around talent and workforce development. Presumably, many companies in the awarded regions have already expressed a strong and growing need for the deliverables these talent and workforce programs are designed to provide. They may therefore be willing to underwrite a portion of the required costs as a worthwhile outlay from corporate human resources budgets. A case in point is North Carolina’s BBBRC initiative, Accelerate NC, for which life sciences companies are the sustainability strategy for financing the growth of the job training programs that EDA funding has catalyzed.

Finally, regional companies whose business lies within designated opportunity sectors have an obvious self-interest in seeing these sector-scaling investments succeed in areas beyond workforce development. As such, consortia should seek to engage such companies in both endorsing and financially enabling those components of federal place-based programs that will further their own success. Of course, these companies may then also rightfully expect to play an even more significant role in program governance to assure a return on investment.

Bringing the players and capital pieces together

Though not usually sources of capital in their own right, broadly supported community and regional intermediary organizations—such as chambers of commerce, regional partnerships, and business executive roundtables—are often able to pull partners together.

These organizations generally enjoy direct connectivity to all the other potential funders noted above through their economic development mission and board membership. Such organizations often employ the kinds of professional staff—such as business sector experts and fundraising veterans—who can translate the promise of a federal award into an operational, sustainable enterprise. In many cases, such intermediary organizations have actively supported or even led the community coalitions that have won federal awards.

These intermediaries should certainly be looked to now for organizational and governance leadership. Given that, it will be important for winning coalition leaders to better understand the missions and mandates of the region’s intermediary organizations, and make sure federal awards enable demonstrably shared community strategies and priorities.

There is also an important intermediary role that the awarding federal agencies themselves can play beyond initial funding, especially in sustaining regional programs that take root and begin to build out their competitive potential. For example, agency leaders could take a portfolio view of the most promising Regional Innovation Engines or Tech Hubs awards, convene innovation-driven investors and donors from across the country, and spotlight exciting opportunities. In that way, private equity firms and real estate developers might be attracted to invest in specialized projects and facilities, supply chains, and place-based innovation centers. Venture capitalists could then be drawn to the promising innovation and startups that should come from these new, federally awarded, and asset-rich collaborations between universities, companies, and communities. Corporate research and development operations could also find genuine opportunity in locating significant facilities and talented professionals in the heart of these emerging markets. And here again, even national philanthropic donors may find worthy programs and projects to support in regions that are intentionally directing innovation toward addressing some of the 21st century’s most significant societal challenges.

Still, in most cases, such energizing developments on a national scale will not happen right away, even for the most competitive award winners. Once launched with federal seed stage investments, the first steps toward realizing the market promise of these regional awards will likely need to happen closer to home, with early metrics making clear that a variety of regional stakeholders really can come together in significant new ways—and then stay together to accomplish big things. Working to meet that challenge is where effective regional intermediary organizations can make all the difference.

Greater St. Louis, Inc. (GSLI), a relatively new leadership intermediary serving the St. Louis metro area, provides an especially instructive example. GSLI led the regional coalition that secured one of the 21 BBBRC grants in 2022. But GSLI has also gone on to facilitate critical fundraising efforts for additional, broader investment in key BBBRC program components. Early successes include helping to secure a pledge of $5 million from Boeing and an appropriation of $15 million from the state of Missouri to build the advanced manufacturing center that is the centerpiece of the federal award. Importantly, GSLI has also worked with local universities and vocational colleges to build out required workforce and training programs. And it has helped strengthen the leadership and governance structure of the separate nonprofit organization that will oversee the new manufacturing center by arranging for one of GSLI’s own top professionals to join that governing organization as a senior executive. Meanwhile, GSLI has been able to employ the BBBRC award’s focus on advanced manufacturing and bio and geospatial technologies to form the basis for its own efforts to build out a broader regional cluster strategy—thereby assuring ongoing alignment between the BBBRC award consortium and the business and community leadership that comprise GSLI’s board of directors. In all, GSLI has created a playbook for connective action here that could be highly useful in other settings.

Setting the stage to thrive over the long term

Over the past two years, the Biden administration has launched a series of unprecedented opportunities for new regions, different players, and big ideas to take center stage in advancing a place-based industrial policy strategy for the 21st century. And regions have responded—coming together in new kinds of coalitions and prevailing in tough competitions. Overall, they have succeeded in staying focused and aligned around thoughtful, exciting, and clear visions for growth and long-term success.

It may therefore seem almost unfair to suggest, as we do here, that these heroic efforts are in many ways only just beginning. But in truth, for winning consortia to succeed, they will almost certainly require far more funding beyond their initial awards. What’s more, securing such expanded support will almost always mean that coalition structures and governing bodies will need to undergo constant and iterative change to keep all parties and stakeholders at the table and fully engaged.

In this regard, regional economic development has always required genuine initiative and a special breed of optimism and energy. But ensuring these ambitious programs achieve both early and lasting success will likely demand such resourcefulness on a whole new scale.

This report has therefore attempted to survey some of the most promising next steps and partners in sustainability. For now, the likelihood of support from these funding sources is roughly the order in which they are listed above. That order itself will almost certainly change over the months and years ahead, as federal, state, and local politics drive and dominate the landscape for federal and state governmental support, while shifting economic trends narrow or enhance priorities for corporate, university, and philanthropic participants.

More constant factors will include the necessity for regional winners to continue to envision and articulate the value proposition for their federal awards and designations in the context of advancing core, long-standing regional assets and interests that have historically attracted support from a variety of community stakeholders. Likewise, coalition governance structures will need to continue to shift—and potentially simplify—to ensure those stakeholders providing further financial support remain incentivized to do so through direct engagement and oversight.

In this regard, achieving the ultimate prize of realizing whole new markets of global opportunity out of these awards is indeed possible. But it will take difficult, aligned, and extremely productive work to get there.