It has become almost hackneyed to suggest that we now live in a knowledge-based economy. Firms prosper and die based on their ability to add intellectual value to their products and services. Even in mature industries, such as manufacturing, the application of knowledge to enhance production techniques and increase productivity has been fundamental to competitive success. With the pace of economic change accelerating, economic development strategies that emphasize having the best human capital available to adapt to change continue to gain favor. Noted economist Edward Glaesser has demonstrated that communities with the highest educational attainment continue to adapt and prosper across differing economic eras. Glaesser’s study of the Boston economy found that it was largely due to the significant human capital in the city that Boston has been able to re-invent itself to succeed in differing economic conditions.

The goal of this article is to describe and analyze community development spending at the state level for the period 1981 to 2004. Two components of each state’s housing and community development spending are analyzed: transfers from the federal government that are subsequently spent by states and localities, and expenditures from moneys generated by states and localities. In addition to describing broad trends in public community development spending over time, we also analyze the determinants of both the federal transfers and the state- and local-generated components of total state spending. For example, we consider whether community development spending responds to state-level trends in unemployment and poverty, and whether federal transfers and stateand local-generated expenditures are influenced by the same factors. This exercise helps us understand how we should think about public community development spending; that is, whether it should be regarded as a part of the social safety net that responds to short-term economic fluctuations, like periods of high state unemployment, or as a part of the social safety net that focuses more on alleviating long-term and persistent conditions, like high rates of poverty.