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Volume 8, Issue 3, 2008   Federal Reserve Bank of Dallas

The Enduring Challenge of Concentrated Poverty in America: Case Studies from Communities Across the U.S.

Chamizal trailer park
Chamizal

Over the past two years, Community Affairs offices in all 12 Federal Reserve Banks have worked on a joint study of concentrated poverty—neighborhoods with poverty rates of at least 40 percent.

Motivating the project was the recognition that residents of high-poverty neighborhoods across the United States share the problems faced by many communities devastated by Hurricane Katrina in 2005. In addition, little, if any, research existed on how concentrated poverty developed and what it looked like across a wide range of geographies—from new urban immigrant portals to older northern industrial cities, small southern communities and Native American reservations.

In 2007, Community Affairs staff visited neighborhoods of concentrated poverty in their respective districts. They interviewed local residents and representatives of financial institutions, businesses, schools, health organizations, research institutions, nonprofits and local governments, among others. Combining interviewees' insights with already published data, they analyzed the factors that created and sustained pockets of poverty, the challenges these communities face and the communities' capacity and strategies to address the issues.

In collaboration with Washington-based nonprofit the Brookings Institution, the Community Affairs offices wrote "The Enduring Challenge of Concentrated Poverty in America: Case Studies from Communities Across the U.S." The report aims to deepen understanding of how poverty and place intersect in the United States. It also hopes to provoke business, nonprofit and government leaders from diverse places to share information and insight on how to address concentrated poverty.

The report contains three sections—an overview, case studies and a synthesis of the case studies—and features two communities in the Federal Reserve System's Eleventh District: East Austin and El Paso's Chamizal. The entire report is available on the Federal Reserve Bank of San Francisco's website www.frbsf.org/cpreport/. The following are highlights of the report.

Concentrated Poverty in America: An Overview

The number of people living in concentrated poverty significantly increased from 1970 to 1990, decreased in the 1990s largely because of the country's economic growth, and then rebounded. Research suggests that several major factors increased the number of poor people residing in extremely poor neighborhoods: economic change, suburbanization and migration, racial and economic segregation, housing policies, immigration, family formation and mobility.

From an economic standpoint, global changes in the location of manufacturing plants and deindustrialization contributed to the concentration of poverty. Suburbanization and the migration of nonpoor populations out of inner cities and high-poverty rural counties compounded the problem.

At the same time, metropolitan areas built relatively few affordable housing units in the suburbs and clustered public housing in high-poverty and isolated minority inner-city neighborhoods. Households that could afford to move out of inner-city neighborhoods often did, leaving behind neighborhoods that were no longer mixed-income but poor. Higher rates of single parenthood and the slowdown in intergenerational economic mobility further concentrated poverty.

In general, poor households in high-poverty neighborhoods see relatively little private-sector investment and educational opportunities and are cut off from employment networks that exist in nonconcentrated-poverty neighborhoods. At the same time, these households tend to have higher rates of crime, be in poorer health, and pay higher prices for goods and services than wealthier neighborhoods.

These costs of poverty spill over into surrounding areas. Local governments face heavier welfare caseloads, a larger number of indigent customers at hospitals, extra policing and other poverty-related costs. This cost burden constrains their ability to make long-term and strategic investments in human capital and physical infrastructure.

Political and societal divisions between the haves and have-nots cause and are caused by this Gordian knot. Negative assumptions, distrust and misunderstanding limit the ability of both to address the factors driving concentrated poverty.

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Case Studies

Community Affairs staff visited 16 communities around the country. Details can be found in the report.

  • East Albany (Albany, Ga.)
  • Bungalow Park/Marina District (Atlantic City, N.J.)
  • East Austin (Austin)
  • Pondera/Glacier (Blackfeet Reservation, Mont.)
  • Central (Cleveland)
  • Chamizal (El Paso)
  • West Fresno (Fresno, Calif.)
  • West Greenville (Greenville, N.C.)
  • Holmes County (Miss.)
  • Martin County (Ky.)
  • McDowell County (W.V.)
  • Crownpoint (McKinley County, N.M.)
  • Little Haiti (Miami)
  • Northwest (Milwaukee, Wis.)
  • Northern Crescent (Rochester, N.Y.)
  • Old Hill, Six Corners and South End (Springfield, Mass.)

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Learning from Concentrated Poverty in America: A Synthesis of Themes from the Case Studies

Many factors drive and perpetuate concentrated poverty. Several themes are common among the communities studied:


  • East Austin
    Poverty and disadvantage have tended to concentrate over time, and decades of disinvestment are difficult to turn around.
  • High-poverty communities are isolated. Residents are often physically, socially, racially and linguistically separated from the larger economy and community. For example, Interstate 35 cuts off East Austin neighborhoods from the rest of the city—economically, socially and politically. With its recent gentrification, East Austin is no longer widely perceived as a no-man's-land but as cool, hip and edgy.
  • Many of these neighborhoods have experienced significant demographic changes, such as a rise in immigrant households, single-parent households or both.
  • These communities exist within both weak and strong regional economies. Weak markets are those where the large-scale loss of manufacturing, agricultural, mining and other jobs has led to regional economic decline. Strong markets are those that experience aggressive redevelopment. They have high economic growth, housing appreciation and investment. Austin exemplifies a strong market; it is one of the fastest-growing U.S. cities, its regional real estate market is booming and its metropolitan statistical area (MSA) is one of the hottest job markets for young professionals.

While jobs are plentiful in strong markets, they may not pay enough to move households out of poverty. Some jobs also may be inaccessible to low-income residents because they do not meet employers' skills or screening requirements.

When Community Affairs staff asked residents and other local stakeholders about their communities' biggest challenges, they heard similar answers: schools and skills, housing and lack of mainstream investment.

Schools and Skills

Virtually across the board, these communities' students underperform in reading and math. Their schools struggle with challenges such as families that undervalue education, don't speak English as their first language, or move frequently. In Chamizal's Bowie High School, the dropout rate is over 25 percent. Local educators point to students' limited English proficiency and need to support the family as common reasons.

Poor-quality schools produce a poorly skilled adult workforce and deter middle-income households. These communities tend to have low business investment, which contributes to the cycle of underemployment, unemployment and joblessness (people not actively seeking work). In East Austin, the unemployment rate was three times higher than that of the Austin MSA, and only half of the community's adults were in the labor force in 2000. That same year, just 40 percent of adults in Chamizal participated in the labor force.

Housing


Chamizal

Housing in such neighborhoods varies from unaffordable to poor quality to vacant. Some areas have clusters of public and subsidized housing units, which perpetuate the concentration of poor households. In El Paso, subsidized housing is clustered in Chamizal. Many of the units were built seven or eight decades ago and have not been significantly rehabilitated.

Lack of Mainstream Investment

The case-study communities suffer from a lack of mainstream business investment, which also deters middle-class households. As a result, households with lower purchasing power are left clustered. In some cases, this means it is more expensive to run businesses there. The absence of much private-sector investment runs down neighborhoods and can raise the price of goods and services.

Some of these neighborhoods have easy access to mainstream financial service providers and others do not. Many are heavily populated with alternative financial services providers such as check cashers and payday lenders; their financial products can be more expensive than those of banks and credit unions.


Chamizal

Of communities that have easy access to mainstream financial services providers, some residents choose not to use them because of inconvenience, cost structure or negative experiences with the providers. This suggests that some banks and credit unions are not offering products and services attractive to lower-income households.

In the case-study communities, credit tends to be more costly than in higher-income communities for a variety of reasons. For example, a significant portion of residents have poor credit or no credit files. The more they spend on housing loans, cashing checks and other financial transactions, the less they have to spend on health care, food and other necessities, which further hampers upward economic mobility.

Addressing Concentrated Poverty

Communities' capacity to mitigate issues associated with concentrated poverty is limited. Local organizations often lack the funding, experience and skills needed to deal with the scope and scale of poverty and its attendant problems.

These communities tend to have governance problems with land ownership, land use and civic oversight. Mixed into this situation is a lack of trust among residents and community and economic developers in the wider area. This is a major hurdle because trust is core to creating successful community development policies, strategies and programs.

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Conclusion


East Austin

The challenges and issues neighborhoods of concentrated poverty face exacerbate each other, making it more difficult for residents to achieve upward mobility.

A variety of local, state and federal policies and programs address poverty. Some aim to improve neighborhoods, others try to expand opportunity to residents and others focus on both people and place by seeking to transform neighborhoods. The case-study communities in the Fed's Eleventh District use all three approaches. For example, El Paso has Project ARRIBA, a workforce development program, and the city of Austin created a Homestead Preservation District, which promotes housing affordability in East Austin. Regardless of which strategies community stakeholders use, the Federal Reserve and Brookings Institution stress that harnessing the collective knowledge and spirit of longtime residents is vital to the success of these communities.

—Elizabeth Sobel

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e-Perspectives, Volume 8, Issue 3, 2008

Federal Reserve Bank of Dallas Off-site page
Community Development Office Send an e-mail
P.O. Box 655906, Dallas, Texas 75265-5906
214-922-5377
Gloria Vasquez Brown Send an e-mail
Vice President
    Alfreda B. Norman Send an e-mail
Assistant Vice President and Community Development Officer
Jackie Hoyer Send an e-mail
Houston Branch
Senior Community Development Advisor
    Julie Gunter Send an e-mail
Senior Community Development Advisor
Wenhua Di Send an e-mail
Community Development Economist
    Elizabeth Sobel Send an e-mail
Community Development Specialist
Roy Lopez Send an e-mail
Community Development Specialist
     
The views expressed are the authors' and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System. Articles may be reprinted on the condition that the source is credited and a copy is provided to the Community Development Office.
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