August 23, 2022

Fortifying rural America is crucial to the health and well-being of our country, but rural America is often overlooked by private capital.  The strongest remedy for rural communities in decline is to reverse out-migration, boost population growth and nurture talent. It is people who occupy positions of both customer and product of a community – thus making people the barometer of community vitality.  It’s a vicious cycle, rural communities in economic distress are losing their young talented workforce, which in turn makes the economic distress more acute. Why is this happening and how can public policy on the state and federal level reverse this trend?

Understanding out-migration from rural areas starts with asking why young people, after high school or college, pick up and leave their hometown. According to the U.S. Census Bureau’s Current Population Survey (CPS), 88% of people move for three reasons: housing, family, and work.  Of these three, work is usually the missing link in a rural town where the incentives of deep family ties and affordable housing would otherwise keep people in place.  Those who temporarily leave rural areas leave for school, work or romance will move back home for family and lifestyle if work is available.

So, how do you keep people from moving? You start by sparking the entrepreneurial spirit by providing incentives to those who are willing to build businesses with the kind of quality jobs that allow people support their families and live a good life.

“The difference between the great and good societies and the regressing, deteriorating societies is largely in terms of the entrepreneurial opportunity and the number of such people in the society. I think everyone would agree that the most valuable 100 people to bring into a deteriorating society would be not 100 chemists, or politicians, or professors, or engineers, but rather 100 entrepreneurs.” -Abraham Maslow

Simply put, communities need people, people need jobs, and entrepreneurs create jobs. However, starting a business is inherently risky.  Entrepreneurs abandon paychecks, invest personal capital, bet on forecasts, race toward milestones, and sacrifice their personal time and sometimes their health to create something new and innovative that others will come to depend on.  

One of the biggest obstacles to entrepreneurial opportunity in rural areas is the availability of private investment capital.  According to the USDA Rural Eligibility, rural America accounts for 14% of the U.S. population and 97% of U.S. landmass, yet only 1% of nontraditional private investments have been made in rural communities since 2000. And small business loans under $1 million fell from 40% of all commercial loans in 2004 to less than 20% of bank loan portfolios in 2016.  

Flexible capital is often out of reach, but programs at both the federal and state level are excellent tools to correct this deficit by attracting private investment into rural communities.

The Power of Economic Development Programs

The federal New Markets Tax Credit (NMTC) program has driven over $65 billion of private capital to entrepreneurs in overlooked areas since 2003.  In 2021 alone, 31.5% of all NMTC investments were in rural areas (over 30x the private market ratio of investment) and those investments helped entrepreneurs create 13,000 quality jobs.

Since 2007, 18 states have passed their own NMTC or similar programs. These programs have encouraged an additional $6 billion in private capital investment in 18 states.  Six states, including Alabama, Georgia, Michigan, Ohio, Pennsylvania, and Utah, have put in place tax credit incentives specifically targeted to create rural jobs.  Entrepreneurs in these states have access to low-cost flexible capital and gain expert operational support from private investors reducing many of their risks. The result?  NMTC increases entrepreneurial opportunity.

The details of these programs vary from state to state, but they all function by incentivizing capital investment in small businesses located in rural census tracts.   The eligible industry sectors vary based on the priorities of the state. Under the Georgia Agribusiness and Rural Jobs Act (GARJA), eligible sectors are agriculture, manufacturing, health care, technology, and transportation. Under the Utah Small Business and Rural Job Creation Tax Credit Act (UT SBJA and RJA), sectors range widely, from aerospace to food.

The Impact of Targeted Investment is Enormous

In Utah, almost half of the 67 bank branch closures since 2014 were in rural areas, making it incredibly difficult for small businesses in these areas to receive capital. To address this challenge, the state set a goal to create 25,000 new rural jobs over time through programs like the Utah Rural Jobs Act. Through this program as well as the Utah state NMTC, Advantage Capital has invested almost $30 million over a five-year period, creating 265 jobs, and retaining 198 jobs with average wages nearly 50% higher than the state mean.

In Ohio, the Ohio Rural Business Growth Act (RBG) passed in 2017 to foster small business expansion and permanent job creation in rural Ohio counties.  Advantage Capital has invested $25 million in six rural Ohio businesses in conjunction with the OH RBG, collectively supporting and creating hundreds of jobs and stabilizing small business operations during the pandemic. Overall, by 2020, the program had supported 23 small businesses across 22 different rural communities and created an estimated 1,028 quality jobs thus far.

These investment programs boast impressive metrics, but their catalytic impact goes beyond numbers.  By offering strong wages, good benefits, and other wealth-creating opportunities, these programs are lifting families and households out of poverty, stabilizing rural populations, and incentivizing growth economic vitality in rural areas across the country. Most importantly, they focus on supporting entrepreneurs, who at the end of the day, are the essential engine of job creation.

Want to learn more about the power of targeted investment programs and their impact on communities across the country? Download our annual impact report here.

Authored by: Ryan Dressler, Principal