New Guide on Reducing Racial Wealth Inequities Lays the Foundation for City Action

By:

Beth Fry
Denise Belser

February 27, 2023 - (5 min read)

Building wealth in communities of color leads to thriving, more vibrant economies and strengthens the financial health of local residents. Yet, many city officials lack the strategy blueprint to affect the creation of policy in government that establishes the necessary onramps to wealth creation, especially for people of color. Others may be attempting to catalyze change in a polarizing political climate. However, wealth inequity—particularly across racial lines—threatens the health, safety, and welfare of cities across the United States.

A new report by the National League of Cities, Municipal Strategies to Narrow the Racial Wealth Divide, is available to help city leaders’ understand how to approach and design impactful strategies to reduce the racial wealth divide, as a complement to existing tools within the field. Local governments are seeking to enact policies and programs that support living wage jobs, home ownership, and business expansion opportunities. However, the path that cities take to reconcile long-standing, systemic racial disparities, often is iterative and divisive. For some this work begins with the creation of a specific office or department dedicated to racial equity or diversity, equity and inclusion. Other cities may launch these efforts with a Financial Empowerment Center providing targeted services and programs that build financial security and may be better poised to address wealth inequalities.

In 2021, the Board of Governors of the Federal Reserve found that the average Black and Latino household owns less than a fifth of the wealth of the average White household, a gap that has remained constant since the 1960s. Without concentrated efforts from government, racial wealth inequities and their compounding effects will continue and worsen.

Perhaps the biggest driver of racial wealth divide is the redlining practices of the mid-20th century, which barred Black borrowers from receiving the same government-backed loans that skyrocketed millions of White Americans into the middle class. The Federal Housing Administration (FHA) created guidelines that disincentivized banks from loaning in areas deemed “undesirable,” or rather those not filled exclusively with middle-class White residents. The FHA was assisted by allies in local governments, utilizing the decentralization of federalism to create segregated communities across the U.S. This only compounded when the post-World War II GI Bill utilized the underwriting conditions recommended by FHA, ensuring that millions of Black and other service members identifying as people of color did not receive the same benefits as their White counterparts. As most Americans gain wealth via homeownership, these practices have negatively impacted generations of wealth for millions of people over the last century.

However, the impacts of the racial wealth divide go beyond personal difficulty and are felt by more than just people of color. Citigroup estimates that the U.S. economy has lost $16 trillion in GDP due to discrimination against Black Americans alone. The current U.S. GDP, for reference, is more than $23 trillion and the bank estimates that tackling key anti-Black discrimination could boost the economy some $5 trillion over the next half decade. Discriminatory and racist economic policies are hurting us all.

NLC’s Municipal Strategies to Narrow the Racial Wealth Divide, gives local leaders strategies on how to effectively address the wealth inequality in their municipalities. Using the power of city hall to take action, local programs can begin to have an impact on narrowing the racial wealth divide. For example:

Denver, Colorado’s Family Business Preservation Program came about to increase multigenerational business ownership as a way to build community wealth.
Targeted workforce development programs such as Tacoma, Washington’s apprenticeship program recruits women and people from BIPOC communities for technical careers within the city’s public utilities department.
New Orleans, Louisiana’s Thrive Works Green program trains hard to employ individuals in green infrastructure and water management fields.

There are many more strategies outlined in the report that focus on down payment assistance, rehabilitation, guaranteed income, debt reduction, procurement practices, and many others.

NLC’s report was developed from a series of interviews with city leaders and national experts to gather the information and strategies discussed. A national advisory group was formed to provide guidance and feedback on the overall framework, promising approaches and evidence-based strategies, with a focus on long-term outcomes that will reduce the racial wealth divide in cities in an impactful way. In addition to the support of the national advisory group, NLC interviewed local leaders and staff from 11 cities of varying size, geographic location, and demographic makeup to understand their approaches to promoting racial wealth equity.

The report leads with six principles that cities should embrace as part of an effective racial wealth divide action plan—the first and most critical one being centering racial equity in municipal policies and practices. Other principles include engaging BIPOC, creating a citywide vision for eliminating the racial wealth divide, establishing a mechanism for benchmarking and measuring success, assessing key municipal policies and practices through a race equity lens, and instituting a feedback loop to ensure continuous improvement.

Addressing the racial wealth divide should include a multi-pronged approach that considers the root causes of the racial wealth disparities in each city, strategies to generate wealth, and residents’ abilities to navigate a path that is fair and accessible given their individual circumstances. Co-creating strategies between local government and residents, including those who have been the most harmed by historic racially inequitable policies, allows cities to envision an idealized future and then build towards that goal.