Introduction

This report presents the findings from a survey of community development and service organizations that is designed to provide insight on 14 key indicators related to the economic health of low- to moderate-income (LMI) communities. Information included in this report is based on the front-line observations of representatives of 363 organizations that play a critical role in the development and stabilization of LMI communities in the Ninth Federal Reserve District. Respondents were asked to gauge changes in employment, housing, financial, and business conditions for the communities they serve by comparing current conditions with those that prevailed six months earlier. Collectively, their observations help provide a community-based perspective on issues that are important to the community development work of the Federal Reserve Bank of Minneapolis.

Survey respondents included: public and private economic developers; state workforce and job service centers; housing developers and housing service providers, including government agencies; Community Action Agencies and other organizations that provide basic-needs assistance; financial education providers; lenders; small business technical assistance providers; trade associations; tribal organizations; university extension services; community foundations; neighborhood organizations; and other nonprofit entities. The geographic locations of respondents were widely dispersed, representing more than 200 cities and townships across the Ninth District.

Respondents were asked to gauge changes in LMI community conditions using the response categories “decreased,” “stayed the same,” or “increased.” They were also invited to elaborate on their responses by providing comments. Respondents were instructed to answer questions based on firsthand observations and were encouraged to answer “don’t know” if they were not knowledgeable about an issue in the community. For each question, those who answered “don’t know” were excluded from the analysis.

Information for Ninth District Community Insight was gathered through an online survey developed and administered by the Community Development Department of the Federal Reserve Bank of Minneapolis. Responses included in this fourth quarter 2011 report were collected during the months of December 2011 and January 2012. Sixty percent of respondents were also participants in our previous poll conducted in the second quarter of 2011. There were no notable demographic differences between repeat and non-repeat respondents. Hence, the two groups were combined for analysis purposes. Percentages reported are for valid responses only, unless otherwise noted. Numbers might not equal 100 due to rounding. Caution should be used when interpreting the numbers for the Upper Peninsula of Michigan as they represent fewer than 20 cases.

LMI Economic Conditions at a Glance

Survey responses indicate that overall economic conditions for LMI communities in the Ninth District continue to deteriorate, but show less overall deterioration in comparison to six months ago. Indicators that showed the most overall deterioration Districtwide were:

• Demand for financial counseling in LMI communities;
• LMI households’ use of alternative financial service providers;
• LMI households’ ability to find affordable rental housing that meets their needs; and
• Homeownership opportunities for LMI buyers.

Survey results also point to some signs of improvement in economic conditions for LMI communities across the Ninth District. Indicators that showed increased overall improvement in comparison to six months ago were:

• Business openings in LMI communities in Montana, North Dakota, and South Dakota;
• Employment opportunities for disadvantaged and dislocated workers in LMI communities in North Dakota and South Dakota;
• Access to credit for business owners in LMI communities in North Dakota;
• Business closings and bankruptcy filings in LMI communities in North Dakota and South Dakota; and
• Job training opportunities for disadvantaged and dislocated workers in LMI communities in South Dakota.

Following is an in-depth analysis of survey results, including state-by-state comparisons and illustrative quotes from respondents.

Employment and Job Training

Opportunities for disadvantaged and dislocated workers

Three-quarters (75%) of respondents said that the availability of employment opportunities for disadvantaged and dislocated workers in LMI communities has either remained the same or decreased over the past six months. According to respondents, many areas continue to experience slow economic growth; the jobs that are available for dislocated workers pay insufficient wages; and unemployment remains high for those with no post-secondary education, especially among populations of color.  

Survey results indicate some scattered signs of improvement across the District; 1 in 4 respondents said that employment opportunities for disadvantaged and dislocated workers have increased over the past six months. Much of this growth can be attributed to the oil industry in eastern Montana and western North Dakota, which, as a byproduct, has also produced new jobs in construction, hospitality, and retail services. Respondents in these communities noted that, while the oil fields have been a powerful draw, the shortage of workforce housing has prevented some workers from accessing these high-wage opportunities. Overall, LMI communities in North Dakota and South Dakota appear to be faring better than those in other states.

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According to most respondents, the number of job-training opportunities for disadvantaged and dislocated workers in LMI communities has either remained the same or decreased over the past six months. Districtwide, one-third (33%) of respondents reported a decline in the availability of job training opportunities. Declines in state funding for job training programs and unfavorable market conditions were both cited as contributing factors. Respondents also commented on the growing demand for job training subsidies among employers looking to retrain workers for positions that require highly specialized skills.

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Housing

Opportunities for Affordable Rental and Homeownership

Across the Ninth District, many respondents expressed concern about the shrinking supply of affordable rental housing and the recent cuts to federal housing programs that support affordable rental opportunities. Districtwide, more than half (56%) of respondents reported that the ability of LMI households to find affordable rental housing that meets their needs has decreased compared to six months ago. In Eastern Montana and western North Dakota, LMI renters have been particularly challenged by the influx of oil field workers who are able to pay a much higher price for existing rental units. Landlords have responded by raising rents, making it very difficult to find affordable rental housing. Two-thirds (66%) of Minnesota-based respondents also reported a decrease in LMI households’ ability to find affordable rental housing.

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Survey responses indicate that there has been an overall decline in homeownership opportunities for LMI households, too. Districtwide, more than half (56%) of respondents reported a decrease in ownership opportunities for LMI buyers. Although interest rates and home prices remain competitive, more stringent loan criteria have made it difficult for many LMI households to obtain a mortgage. According to respondents, these tight credit conditions are exacerbating the rental housing shortage by preventing some would-be buyers from moving from rental to homeownership. In a few LMI communities across the District, Neighborhood Stabilization Program funds provided by the federal government have been used to generate new affordable homeownership opportunities.

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Household Financial Well-Being

Consumer debt, financial counseling, and the use of alternative financial services

Almost two-thirds (61%) of respondents said that, in the LMI communities they serve, the amount of consumer debt households are carrying has increased over the past six months. However, one-quarter of respondents in South Dakota and Montana (24% and 26%, respectively) said they have witnessed decreases. According to respondents, many LMI consumers are relying on credit to pay for basic living needs such as food, transportation, and health care. A few respondents noted employers’ increased reliance on credit scores to make hiring decisions and expressed concern about the negative effects of poor credit on employment opportunities.

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In surveying consumer credit conditions, we also asked about households’ use of alternative financial services, such as payday lenders. In all states except Montana, more than 60 percent of respondents reported increased use of alternative financial service providers by LMI households in the last six months. Montana recently passed legislation that capped the interest rates of payday lenders at 36 percent. In response, a majority of these lenders closed their doors because of limited profitability. While several respondents viewed this as a victory against predatory lending in Montana, they noted that many LMI households have turned to pawn shops and online payday lenders to meet their ongoing credit needs.    

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Survey responses suggest that the proportion of LMI households without a bank account continues to remain steady or is on the rise in comparison to six months ago. Districtwide, more than one-third (42%) of respondents reported an increase in their proportion of clients without a bank account, especially among households of color. Respondents’ comments suggest that not having the minimum deposit required to open and maintain an account is one of the primary reasons why many LMI households remain unbanked. According to respondents in Indian Country, the lack of access to depository institutions in general is another contributing factor when it comes to the high rate of American Indian households without a bank account.

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Survey results indicate change in demand for financial counseling services in LMI communities across the Ninth District is mixed. Districtwide, a majority of respondents (61%) reported seeing an increase in the demand for financial counseling over the last six months. However, some respondents noted that the increase in demand for services was due to a loss of area service providers rather than an overall increase in the number of households requesting assistance.

A handful of respondents said they had witnessed an actual decrease in the demand for financial counseling services in the past six months, although the reasons for the decline are unknown. While the finances of some households may have improved, respondents’ comments suggest that current financial education opportunities may not be meeting the needs of consumers. Needs for more individualized and culturally specific counseling were both cited.

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Business Conditions

Start-ups and closings, access to credit, and the ability to find qualified workers

Survey results indicate an overall negative change in credit conditions for business owners in LMI communities. Districtwide, almost half of respondents (47%) said that the ability of business owners to obtain the amount of credit they need has decreased in comparison to six months ago. According to respondents, the deterioration in access to credit has been particularly noticeable for start-ups and less established business owners. In some cases, entrepreneurs have relied on community development financial institutions, or CDFIs, to fill the gaps created by decreased lending from traditional financial institutions.

Respondents’ comments suggest that, in some parts of Montana and South Dakota, credit access has loosened in recent months. Overall, credit trends appear much more favorable in North Dakota than in other parts of the District. In fact, one-third (32%) of respondents in North Dakota reported an increase in access to credit for business owners in LMI communities in the last six months, compared to less than 12 percent in other states.

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Indicators of business vitality in LMI communities appear to vary across the Ninth District. Forty-one percent of respondents said that the number of businesses closing or filing for bankruptcy has increased over the past six months, while nearly half (46%) said that conditions remain about the same. Anecdotally, micro-businesses appear to be faring better than small businesses. According to respondents, unfavorable credit conditions, decreased consumer spending, and increased property taxes have been burdensome for many business owners.  

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Survey responses indicate scattered signs of increased business strength across the District. About one-quarter of respondents (28%) reported an increase in the number of business openings in the LMI communities they serve in comparison to six months ago. In particular, agricultural businesses in LMI communities have continued to fare well, as have establishments located in or near the oil boom region. In areas where business openings remain flat, respondents said that the lack of infrastructure, including commercial space and access to high-speed Internet service, has prevented some companies from expanding.

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Business owners’ inability to meet workforce needs appears to be growing in LMI communities, especially in the manufacturing sector. Districtwide, almost half (45%) of respondents reported a decrease in business owners’ ability to recruit and retain workers with the “right” skills in comparison to six months earlier. According to respondents’ comments, there continues to be an unmet demand for workers with highly specialized manufacturing skills. There has also been an increase in employer demand for job training funds, suggesting that business owners are either unable or unwilling to bear the cost of training. In some rural areas, the shortage of workforce housing and continued population decline has made employee recruitment extremely difficult.

Survey results indicate that Minnesota may be experiencing fewer difficulties with workforce recruitment and retention than other states. In Minnesota, nearly 1 in 5 (18%) respondents reported an increase in business owners’ ability to recruit and retain workers with the “right” skills in the previous six months and less than 40 percent reported a decline.

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Capacity of Community Development and Service Organizations

Funding levels and the ability to meet LMI community service needs

In addition to sharing their perspectives on current economic conditions for the LMI communities they serve, we asked respondents to share their perspectives on their own organization’s financial outlook and ability to meet ongoing community service needs.

Districtwide, about half (49%) of respondents reported decreased confidence in their organization’s ability to retain adequate levels of funding for staff and programs compared to six months earlier. Survey responses indicate widespread concern over government spending cuts. In particular, respondents mentioned the loss of funds provided by the 2009 American Recovery and Reinvestment Act and cuts to federal housing programs. A decline in the amount of funding available for general operating expenses from both government and philanthropic sources was also a concern. According to respondents, some organizations have been able to weather these cuts by diversifying their funding streams, while others have opted to merge with like organizations.

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Changes in ability to meet the ongoing service needs of LMI communities appear to vary for community development and service organizations across the District. In South Dakota and Montana, less than one-third of respondents (26% and 29%, respectively) reported a decrease in their ability to meet the needs of clients seeking assistance over the previous six months, compared to half of the respondents in Minnesota and Wisconsin. Among organizations that provide basic-needs services, respondents continued to report increased demand for services by formerly middle-class households. Survey results indicate some signs of improvement in this area. Districtwide, about 1 in 5 LMI community organizations reported an increase in their ability to meet the needs of clients seeking assistance in comparison to six months earlier.

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About Ninth District Community Insight

The Ninth District Insight Survey is designed to capture front-line observations about issues that affect the economic health of LMI communities. The survey responses can serve as leading indicators of change in conditions that are otherwise difficult to measure, or are not measured through other existing data sources. Federal Reserve Bank of Minneapolis senior leadership and Community Development staff use Ninth District Insight to help identify regulatory and policy issues that deserve attention and to decide how Community Development program resources should be targeted. We hope the community-based perspective that Ninth District Insight provides will also be a valuable resource for decision makers outside the Federal Reserve System.

Participation in Ninth District Insight is entirely voluntary and no individually identifiable information is reported. If you would like your organization to be considered for inclusion in the next survey, contact Ela Rausch at ela.rausch@mpls.frb.org.

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