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Report

How a new National Recovery Investment Corps can drive a bottom-up, inclusive economic recovery

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Editor's Note:

This brief is part of the Brookings Blueprints for American Renewal & Prosperity project.

Blueprints for American Renewal & ProsperityContents 


Summary

The pace and shape of our national recovery from the COVID-19 recession will depend largely on what happens in the metropolitan regions that disproportionately power the U.S. economy. So many of the institutions and policies that generate growth and shape access to opportunity—in areas such as planning and infrastructure, education and workforce development, business development, and public health and safety—operate within and across urban regions, and often extend into nearby rural areas. Yet federal investments in these realms are traditionally highly fragmented, one-size-fits-all, and unsupportive of cross-jurisdictional solutions that match the economy’s true metropolitan and regional scale.

To ensure an inclusive and sustainable recovery, the next administration and Congress should establish a new, time-limited federal interagency process to invest, partner, and coordinate federal action as requested by local cross-sector, interjurisdictional coordinating councils. This “National Recovery Investment Corps” (NRIC) would deploy planning dollars, follow-on capital, and operating investments to regions in order to accelerate livable wage job creation (and GDP growth), narrow racial disparities, and build the long-term capacity of America’s regions to address their interrelated economic and social challenges. The NRIC would accelerate a long-overdue modernization of U.S. capacity to pursue national objectives through stronger intergovernmental cooperation and action.

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Challenge 

As the COVID-19 pandemic in the United States stretches into the winter months, the economic fallout continues. The U.S. economy has regained roughly half of the jobs it lost in the early months of the pandemic, but the pace of recovery has slowed recently as the virus continues to spread.1 Federal Reserve economists predict that unemployment will not return to pre-pandemic levels until 2023.2

Viewing the U.S. economy as an undifferentiated whole, however, ignores the highly variable experiences of U.S. metropolitan areas as they navigate the crisis. For example, statistics from Brookings’s Metro Recovery Index show that from February to November 2020, Ocala, Fla. and Ogden, Utah actually gained jobs, while employment was still down by 14% in Honolulu.3 The varying severity of the pandemic recession reflects differences in both the direct impact of COVID-19 on local populations and local reliance on heavily affected industries such as hospitality, tourism, and retail. Meanwhile, several very large metro areas that were economically vibrant before the pandemic—such as Boston, Raleigh, N.C., and San Francisco— face long roads to economic recovery.

Even in regular times, the nature of many of our country’s challenges and opportunities varies tremendously by region. According to a 2019 report by our colleagues at Brookings and the Information Technology & Innovation Foundation, just five metro areas accounted for 90% of the nation’s innovation sector job growth from 2005 to 2017.4 These regions—including Silicon Valley, San Diego, and Seattle—face enormous pressures related to affordability, transportation, and racial and economic inequality. By contrast, more than 30 of the nation’s 192 major metropolitan areas—places like Erie, Pa., Albuquerque, N.M., and Mobile, Ala.—actually had fewer jobs in 2018 than in 2008, prior to the Great Recession.5 The challenges facing these cities are of a wholly different order, and include upgrading the capabilities of legacy industries and the small business supply chain, alleviating blight, and expanding educational opportunity and achievement.

This geographic variation should not obscure that, overall, metropolitan regions drive the U.S. economy. In 2018, the 25 largest metropolitan economies alone accounted for half of U.S. gross domestic product (GDP), and all metro areas together generated 89% of national economic output. Each of the 50 states derives the majority of its GDP from metropolitan areas, and 28 states do so from metro area economies that rank among the 50 largest nationwide.

Map1

The urban nature of our national and state economies is not exceptional. In advanced economies like the United States, the highest-value jobs and industries locate in urban regions that provide large numbers of skilled workers; access to customers, suppliers, inventors, and investors; modern infrastructure; and a diverse array of natural and consumer amenities. Although the rise of remote work in the pandemic has caused some observers to question the economic value of cities, the fundamental linkages between place and productivity are unlikely to erode anytime soon.

Map 2

Despite the economic power and distinctiveness of metropolitan regions, federal policies generally fail to stimulate economic growth and prosperity at the metropolitan scale. Policies engage with state and local governments, but not the multi-jurisdictional—and sometimes multi-state—regions that power the U.S. economy and will ultimately dictate when and how the nation emerges from the pandemic recession.

Of course, the imperative for recovery goes well beyond GDP and job growth. Amid a pandemic that has disproportionately killed Black, Indigenous, and Latino or Hispanic Americans, and that has deeply impacted industries that disproportionately employ lower-wage workers, there is a vital national interest in ensuring that the recovery advances racial equity and equal opportunity.6 That interest has only grown in the wake of the deaths of George Floyd, Breonna Taylor, Ahmaud Arbery, and thousands of other victims of racial violence and injustice before them.

Metropolitan areas represent a critical locus for addressing these challenges as well. So many of the institutions and policies that shape access to opportunity—in areas such as planning, education, business development, and public health and safety—operate within and across urban regions that are systematically segregated by race and income. These issues also manifest differently across metropolitan areas. Many high-tech, high-cost regions that experienced a decade of strong job growth before the crisis saw homelessness accelerate. Many older industrial regions, meanwhile, managed to rebound, but their growth failed to benefit communities of color. Increasingly, these challenges are not uniquely urban in nature, and affect extensive portions of suburbs and exurbs as well.

Ultimately, America’s metropolitan regions face distinctive and intertwined challenges toward achieving an inclusive recovery, encompassing diverse places, populations, and policy domains. As the next administration and Congress craft economic responses to the ongoing pandemic recession, they have both an opportunity and an obligation to strengthen the authorities and accountabilities of leaders in America’s key economic hubs.

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Limits of historic and existing policies

The federal government plays a significant role in supporting economic growth, development, and equity in U.S. metro areas. That role goes well beyond the relatively narrow programs of the Economic Development Administration (EDA), incorporating vast domains of domestic investment including transportation, water, and telecommunications infrastructure; basic science and health research; student aid for higher education and support for high-poverty K-12 schools; community health and economic development; workforce training; and lending and procurement for small and minority-owned businesses.

Despite a clear need to differentiate how these hundreds of billions of federal dollars are deployed across diverse U.S. regions, those regions are effectively on the receiving end of “one-size-fits-all” categorical programs. Federal programmatic offerings may or may not be what a place needs at any given time. Most were designed decades ago and have undergone only occasional, often incremental updates, even as the shape and pace of regional economies have changed dramatically.

One notable example involves the 43 separate federal employment and training programs that aim to help job seekers find and get work. According to the Government Accountability Office, these programs span nine separate federal agencies (Department of Labor, Department of Education, Department of Health and Human Services, etc.), but largely overlap in the types of services they provide.7 Some are designed to assist very specific types of populations, or individuals facing specific types of economic circumstances. Regional leaders trying to navigate this programmatic maze and match categorical funding streams to the needs of a fast-changing labor market (especially in the pandemic) face deep challenges. Moreover, the rewards for doing so are limited; as our Brookings colleague Annelies Goger points out, even this vast array of employment and training programs adds up to only 0.1% of U.S. GDP—one-fifth of the average amount wealthy countries spend on so-called active labor market programs.8

The categorical, fragmented nature of federal investment poses one set of obstacles for regional leaders. A second set of obstacles stems from the fact that the vast majority of federal programs to foster economic growth and prosperity do not actually facilitate solutions at the economy’s true metropolitan scale. Many federal investments run through state capitals, where the needs of major urban regions—the economic engines for their states—often take a backseat to the exurban, small-town, and rural constituencies that hold sway in many state legislatures and executive agencies. Alternatively, federal dollars may flow directly to municipal governments or other local institutions (colleges and universities, nonprofit housing developers, etc.), but without incentives or requirements to coordinate the spending with neighboring jurisdictions to address metropolitan-scale priorities. In either instance, spending decisions are made at levels of geography that do not match the scale of the economy, often creating competition among local actors where collaboration would improve efficiency and outcomes.

In times of national economic emergency, the federal government has provided states with more flexible dollars to stimulate the economy. In 2003, 2009, and earlier in 2020, Washington enacted legislation to increase the federal matching rate for Medicaid spending (FMAP). In these cases, federal lawmakers proved willing to yield discretion over how states deployed the dollars in exchange for getting the relief to state (and ultimately local) governments quickly by taking advantage of Medicaid’s existing funding mechanism. Highly flexible funding of this kind can alleviate short-run fiscal challenges, particularly of the sort that states and municipalities are facing amid the pandemic. But such funding on its own does not help regions address crises that span jurisdictional and policy boundaries, nor does it build capacity to make regions more resilient to inevitable future crises.

Models do exist from past economic crises. While the 2009 American Recovery and Reinvestment Act (ARRA) failed to fully upend categorical programs or fund new metropolitan-scale authorities, many regions around the country used ARRA dollars to support initiatives that advanced a long-term vision, embraced multi-jurisdictional and integrated policy solutions, catalyzed private investment, and/or employed sophisticated metrics for performance management. As our Brookings Metro colleagues noted at the time, such innovations were most prevalent in program areas where lawmakers and regulators offered more flexible rules or included specific calls for collaboration and integration.9 They also observed that places with pre-existing regional capacity—large metropolitan areas such as Chicago, Kansas City, Mo., San Francisco, and Seattle—were better able to design creative and higher-impact strategies for deploying those dollars.

Strategic engagement with economic regions was also a principle at the heart of the Partnership for Sustainable Communities and the Sustainable Communities Initiative (SCI).10 The Partnership, which began in 2009, brought together the Department of Transportation, Environmental Protection Agency, and Department of Housing and Urban Development (HUD) to facilitate cooperation and coordination around regional land use, transportation, housing, and environmental sustainability. The SCI, in turn, provided dozens of grants in 2010 and 2011 to regional entities (councils of governments, metropolitan planning organizations, economic development districts, and large counties) to design, develop, and implement regional sustainability plans. The initiative did not itself fund major new place-based investments, but it did establish a precedent that built the capacity of economic regions to work across disciplines and in partnership with multiple federal agencies in support of locally determined priorities.

Despite these examples and the growing economic prominence of metropolitan areas, we risk addressing the next phase of the pandemic economic crisis with the same disjointed “cafeteria-style” federal programs that fail to engage places around what they really need from their federal partners to recover and rebuild stronger for the long term.

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Policy recommendation: A National Recovery Investment Corps 

As part of an initial relief/recovery spending package, the next administration and Congress should create a new mechanism—a National Recovery Investment Corps (NRIC)—that explicitly encourages and enables regions to organize themselves around inclusive recovery priorities and make significant federal investment requests. This new approach will never be the only (or even primary) way federal investment occurs, but it could prove to be one very effective method for stimulating and supporting strategic regional requests that advance national economic recovery. Its goal would be to foster inclusive economic growth by respecting and responding to our country’s diversity of metro region strengths and needs. The NRIC would encompass three interrelated efforts: an interagency “Corps,” an investment fund, and Regional Recovery Coordinating Councils.

The Corps 

The next administration should establish the NRIC initially as a cross-agency team to oversee dedicated investment funds appropriated to Treasury (see “The Fund” below). This approach, in which Treasury’s role would mirror HUD’s in administering the SCI on behalf of the Partnership for Sustainable Communities, would allow for quicker action than authorizing and standing up a new agency—an important consideration given the urgency of stimulating an inclusive recovery. After the initial period focused on economic recovery—say, two to three years—the administration and Congress could authorize an NRIC-style program on a more permanent basis at the Economic Development Administration. There, it could focus on investing more smartly in places facing longer-term structural challenges, countering the destructive trend of economic divergence affecting our nation.11

The administration should equip the NRIC with staff who possess exceptional knowledge of various federal domestic programs—both those that provide capital investment and operating support. Staff will need access to good data and analytic capacity so they can evaluate investment proposals coming from regions as well as track and report on impacts. They will also need the ability to structure strong investment approaches that advance the national interest while responding to local priorities. A small, dedicated staff team could get the effort off the ground with strong White House backing (from the National Economic Council, Domestic Policy Council, and Office of Intergovernmental Affairs) and responsive point people in key federal agencies such as the Commerce, Education, Health and Human Services, Labor, Transportation, and Treasury departments. NRIC staff could even be loaned from these agencies in order to lower costs. 

The NRIC would essentially open a new avenue for regions to be able to make requests of the NRIC investment fund (see below). The NRIC would also help regions obtain complementary regulatory flexibility, make progress on efforts to braid funding sources toward common goals, and identify existing programs and resources that could be beneficial to a region’s recovery needs.

The NRIC will succeed if its stakeholders see it as one major new way the federal government will help support recovery. It will not succeed as a small, standalone program. Government leaders at all levels must see the NRIC as an important innovation in how we do the work of recovery.

The Fund 

In conjunction with creating an interagency executive branch team, Congress and the administration would provide an initial tranche of NRIC operating and investment funds. The initial funding request would include $5 million for first-year staffing costs, $12.5 million for recovery planning grant dollars for 50 Regional Recovery Coordinating Councils (see below; some regions are already organized and won’t need the planning help), and $20 billion to capitalize the NRIC investment funds—$5 billion for projects needing operating dollars and $15 billion for capital investments. Such an amount would support projects of major regional (and ultimately national) significance across a considerable number of economic regions over two to three years.

The legislation authorizing the fund should include a clear set of national recovery objectives that NRIC investments and other responsive actions would be expected to support. These objectives could include regional GDP growth, living wage employment, small business formation and job creation, climate sustainability, and educational attainment and skill-building. Each would be examined explicitly through a racial and economic equity lens, ensuring that investments narrow deep disparities that predated the crisis.

The NRIC fund would provide planning grants to regions for facilitating analytical work, local engagement, and prioritization of recovery projects with regional significance. In this way, the NRIC intergovernmental process would help to build important local recovery capacities. NRIC investment funds would then follow those plans to provide a layer of added support to existing federal, state, local, and private sector investment. The funds would help accelerate, scale, and connect that spending to jump-start inclusive economic recovery.

Once established, the NRIC would communicate the availability of the new set of resources and begin to work with interested regions. Ideally, the NRIC would not set up competition but rather accept proposals for investment or requests for other forms of assistance on a rolling basis. Given obvious staffing and funding constraints, the NRIC will need to develop very clear and rigorous criteria for investment dollars, emphasizing sizable anticipated returns relative to inclusive recovery objectives, with strong evidence of state/local investment matching dollars and ability to successfully implement.

Rather than (or in addition to) deploying a dedicated NRIC investment fund, the Corps could also work with regions in relation to a proposed National Investment Authority (NIA).12 Proponents of the Green New Deal have recommended creating an NIA as a stand-alone public investment authority with the mandate to formulate and implement a long-term economic reconstruction and development strategy that combats climate change. Part of the NIA’s proposed remit includes supporting state and local climate-related initiatives. In view of the significant contribution that metropolitan areas make to greenhouse gas emissions via interconnected networks of residential and commercial buildings and transportation, the NRIC could serve as a critical interface between regions and the NIA, ensuring that bottom-up, multi-jurisdictional priorities inform national clean energy investment decisions. The NRIC’s cross-agency DNA could also assist in aligning existing federal programs with major NIA investments.

However the funding for NRIC is structured, it would benefit from strong oversight from an independent, bipartisan board (appointed by the president, with leadership confirmed by the Senate), and evaluation by the Government Accountability Office.

Regional Recovery Coordinating Councils 

As the NRIC is established and its offerings and requirements communicated, each interested metropolitan region would designate an organization to act as its Regional Recovery Coordinating Council (R2C2). In some communities, the coordinating council could be the area’s council of governments or EDA designee, as these organizations traditionally convene regional planning activities. In other communities, newer public-private-philanthropic partnerships could play this role, such as those that have already formed in many regions to advance inclusive recovery priorities. Regardless of the convener, coordinating councils must not include only the usual regional planning suspects, but instead establish a table where diverse community organizations, next-generation leaders, and nontraditional entities (like minority-serving higher-education institutions and/or community colleges) have a formal role.

Each R2C2 would be required to put together a comprehensive inclusive recovery plan with quantifiable goals and metrics (see below). These plans would articulate local assets, challenges, economic anchors, physical infrastructure priorities, and human capital development needs. Coordinating councils would also need to understand how assets and challenges vary by racial-ethnic and economic subgroups, to demonstrate how investment would accelerate more inclusive growth. The plans would identify strategies and projects of regional significance that, in light of those assets and challenges, would advance inclusive recovery in the region. The planning work would identify various ways that the federal government might help, which could include regulatory flexibility or funds to help close a project’s budget gap or catalyze promising innovation. Regions could also make requests to redeploy existing federal dollars, choosing to forego certain formula allocations if they could redirect those dollars to a higher-impact recovery priority. Embedding these federal requests within a larger strategic recovery framework should facilitate requestor regions’ access to complementary public (e.g., state dollars) and private investment.13

Strategic investment requests that arise from the R2C2s would reflect the specific assets, challenges, and inclusive recovery priorities for each place. For example, one community may request investment in skill-building to help its low-income residents access training relevant to high-value growth sectors. Another community may desire investment in a tech transfer function for its university to help upgrade the capabilities of its legacy industries. Yet another may want to focus on its Main Street or the development of new tools for supporting minority business starts and expansions. Allowing requestors to prioritize what they really need and pushing the federal government to respond to these requests will also create a much stronger federal understanding of local people and institutions, which can have far-reaching positive benefits for intergovernmental relationships.

Importantly, the duration of projects could vary based on their nature. R2C2s could make requests over time, rather than bundle them into one proposal. This kind of flexibility would be unprecedented, but is essential to providing regions what they need, when they need it, versus forcing every region to conform to one form and offer of assistance.

The R2C2 would be required to track its community’s data using a set of common metrics appropriate to the goal of inclusive recovery established through the NRIC. These metrics would allow both local communities and their federal partners to see what recovery strategies are working well, and allow for course correction and sharing models of success across communities. Communities that need some help to get organized could benefit from planning dollars from the NRIC and early technical assistance. The Corps itself would assign a staff point of contact to work with each R2C2, helping them navigate across agencies and structure recovery requests. Just knowing that there would be an NRIC point of contact for interested regions—a skilled, responsive person assigned to help the region advance their inclusive recovery priorities—would represent a huge improvement over present practice for regional stakeholders.

Although states are clearly critical stakeholders in efforts to ensure an inclusive recovery, they would not be eligible applicants to the NRIC. However, the NRIC would want to ensure that R2C2s align state dollars for recovery priorities in conjunction with federal funds. In many projects, the NRIC would likely be negotiating investments into partnerships, projects, and efforts that include resources from all levels of government, and encouraging complementary philanthropic investment as well.

While the argument for the NRIC described here is predicated in part on the economic power and distinctiveness of U.S. metropolitan regions, the model could easily extend to rural regions as well. Nonmetropolitan Economic Development Districts (EDDs)—common throughout much of the country—represent areas of sufficient population and resources to, according to the EDA, “foster economic development on a scale involving more than a single geographic area….”14 Implementing agencies for EDDs—if similarly committed to diversifying the stakeholders they engage in designing and implementing inclusive recovery strategies—could be designated eligible entities for leading R2C2s. Federal efforts such as the Department of Labor’s WIRED program and analogous efforts in states such as New York and Virginia demonstrate the efficacy of bottom-up, multi-jurisdictional economic planning and investment in rural as well as metropolitan regions.15 Such an approach would echo our colleagues Tony Pipa and Natalie Geismar’s call for a national rural strategy that incentivizes regional approaches—particularly those that include historically excluded groups and promote collaboration with a wide range of partners and intermediaries.16

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Conclusion

The scale of the pandemic recession, the damage it has inflicted on vulnerable populations and communities, and the unequal state of the expansion that preceded it all necessitate a far-reaching effort by the next administration and Congress to put the U.S. economy on a path toward inclusive recovery. The ultimate success of that effort, however, will rest on the energies and talents of public, private, and civic sector decisionmakers in the regions that overwhelmingly power national prosperity.

That’s why we should seize this moment to help build the recovery in their image, ensuring that federal dollars connect the dots across programs and places to capitalize on metropolitan assets and address metropolitan challenges. At this critical moment, the NRIC would accelerate a long-overdue modernization of our capacity to pursue national objectives through intergovernmental cooperation and action.

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Footnotes

  1. Alan Berube, “COVID-19’s third wave is hammering the Midwest” (Washington: Brookings Institution, 2020).
  2. Federal Open Market Committee, “December 16, 2020: FOMC Projections materials” (Washington: Board of Governors of the Federal Reserve).
  3. Alan Berube and Sarah Crump, “Metro Recovery Index,” online at www.brookings.edu/interactives/metro-recovery-index/ [accessed January 2021].
  4. Robert Atkinson, Mark Muro, and Jacob Whiton, “The case for growth centers: How to spread tech innovation across America” (Washington: Brookings Institution and Information Technology and Innovation Foundation, 2019).
  5. Alan Berube, Sarah Crump, and Alec Friedhoff, “Metro Monitor 2020,” online at www.brookings.edu/interactives/metro-monitor-2020/ [accessed January 2021].
  6. APM Research Lab Staff, “The color of coronavirus: COVID-19 deaths by race and ethnicity in the U.S..” online at www.apmresearchlab.org/covid/deaths-by-race [accessed January 2021]; Heather Long and others, “The covid-19 recession is the most unequal in modern U.S. history.” The Washington Post, September 30, 2020.
  7. Government Accountability Office, “Employment and training programs: Department of Labor should assess efforts to coordinate services across programs.” GAO-19-200: Published March 28, 2019.
  8. Annelies Goger, “Turning COVID-19’s mass layoffs into opportunities for quality jobs” (Washington: Brookings Institution, 2020).
  9. Mark Muro, Sarah Rahman, and Amy Liu, “Implementing ARRA: Innovations in design in metro America” (Washington: Brookings Institution, 2009).
  10. Lauren Heberle and others, “HUD’s Sustainable Communities Initiative: An emerging model of place-based federal policy and collaborative capacity building,” Cityscape 19(3)(2017): 9­-37.
  11. Clara Hendrickson, Mark Muro, and William A. Galston, “Countering the geography of discontent: Strategies for left-behind places” (Washington: Brookings Institution, 2018).
  12. Saule T. Omarova, “The climate case for a National Investment Authority” (Washington: Data for Progress, 2020).
  13. For an example of such a framework, see Amy Liu, Alan Berube, and Joseph Parilla, “Rebuild better: A framework to support an equitable recovery from COVID-19” (Washington: Brookings Institution, 2020).
  14. “Economic Development Districts,” online at www.eda.gov/edd/ [accessed January 2021].
  15. Sherry Almandsmith and others, “Transforming regional economies: Challenges and accomplishments; Final report of the evaluation of Generation I Workforce Innovation Regional Economic Development (WIRED) grants” (U.S. Department of Labor, 2011); “Regional Councils,” online at https://regionalcouncils.ny.gov/ [accessed January 2021]; “Regional Council Information,” online at https://govirginia.org/regions/ [accessed January 2021].
  16. Tony Pipa and Natalie Geismar, “Reimagining rural policy: Organizing federal assistance to maximize rural prosperity” (Washington: Brookings Institution, 2020).
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