Navigating the Federal Transition: No Community Will Escape These Five Impacts
- Rich Overmoyer
- May 22
- 5 min read
Although we are still in the early stages, the impacts of the swift and often confusing change in federal policies, programs, and investments have already exposed economic weaknesses in the communities we serve. In an effort to organize my own focus, and as we advise clients, I'm sharing a list of the five impacts that raise the most concern.
Household Financial Distress
The Federal Reserve Bank of New York recently released a summary of the Household Debt landscape. Data from the first quarter of 2025 paints a concerning picture for many households. Total household debt climbed by 0.9% quarter-over-quarter, reaching $18.2 trillion. This increase was driven by a rise in mortgage debt, while credit card and auto loan balances saw slight declines. Student loan balances, however, continued to grow.
Delinquency rates have also seen a notable uptick. Overall delinquencies (payments late by any duration) jumped to 4.4%, the highest level observed since early 2020. More alarmingly, seriously delinquent loans (90 days or more past due) also surged. A significant portion of this data is delinquent student loans, which were not reported during the pandemic reprieve but are now hitting borrowers' credit reports.
The Impacts: This data and overall consumer confidence point to a decrease in consumer spending. With potential cuts to social safety net programs and increased defaults by low-income households, it will also limit the ability of student debt holders to advance their economic mobility by restricting asset purchases and increasing costs of other debt.
Housing Security
The federal budget bill currently being debated, calls for significant cuts to the Department of Housing and Urban Development (HUD) and includes a proposal to reduce funding for block-grant rental assistance programs to states, which could escalate homelessness and housing displacement. In addition, the proposed elimination of programs like the Community Development Block Grant could further hinder efforts to create affordable housing.
The budget request, unveiled on May 2, 2025, signals an intent to pursue substantial cuts to HUD's funding, potentially a 44% reduction from FY25 levels.
Funding for the Emergency Housing Voucher (EHV) program, which targets individuals and families experiencing or at risk of homelessness, is projected to be exhausted in 2026 unless Congress allocates additional funds.
A fundamental shift in federal homelessness policy appears to be underway. The Administration is reportedly moving away from the "Housing First" approach, which prioritizes getting individuals into stable housing quickly and then providing supportive services. Instead, a "treatment-first" model is being favored, potentially involving the use of large encampments on government land with mandated treatment or the threat of arrest for non-compliance.
Conversely, the budget proposes expansions to the Low-Income Housing Tax Credit (LIHTC), a key federal tool for financing affordable rental housing. These expansions include restoring a temporary 12.5% increase in credit allocations that expired at the end of 2021 for the years 2025-2029, and lowering the Private Activity Bond (PAB) financing threshold (commonly known as the "50% test") from 50% to 25% for the same period. These LIHTC changes are projected to facilitate the financing of over 1.1 million additional affordable rental homes over the next decade.
The Impacts: A significant tension exists in the administration's housing policy. Initiatives like "Affordable Housing on Federal Land" and deregulation aim to increase housing supply. However, proposed budget cuts to HUD's rental assistance and public housing could hinder low-income households' ability to afford housing. This disconnect suggests that merely increasing housing units may not solve the affordability crisis if financial support is reduced. Consequently, new units might remain inaccessible to those in need, or state governments could face greater financial burdens if federal funding is reduced and converted into block grants. States will need to take on a larger role in housing program administration and development.
Economic Well-being and Safety Nets
Programs like the Supplemental Nutrition Assistance Program (SNAP), the Low Income Home Energy Assistance Program (LIHEAP), and housing assistance face substantial proposed cuts or restructuring. These changes could increase food insecurity, housing instability, and overall financial hardship for low-income families, seniors, and individuals with disabilities.
The budget proposal from the administration reportedly suggested the complete elimination of LIHEAP funding. If LIHEAP were eliminated in FY26, about 5.9 million low-income households, including many elderly individuals, people with disabilities, and families with young children, would be left vulnerable to energy insecurity and the health risks associated with unsafe indoor temperatures.
A cut of $300 billion to the SNAP program over the next decade is proposed and changes that result in reduced benefits, fewer income deductions and a shift to administrative costs to states will all reduce access to the program.
The Impacts: These safety net cuts and changes will make it more difficult for low-income and ALICE households to thrive. Those most in need will look to their local and State governments for help.
Environmental Justice
The concerted actions taken by the administration in its early months point towards a systematic dismantling of the federal government's environmental justice framework. This is not merely a series of isolated policy adjustments but a comprehensive rollback affecting advisory councils, dedicated agency offices, specific programmatic funding streams like Justice40, and crucial analytical requirements within environmental reviews such as the National Environmental Policy Act (NEPA). The likely consequence is a significantly reduced federal capacity and willingness to consider and address the disproportionate environmental and health impacts faced by vulnerable communities.
The Impacts: An emphasis on domestic energy production through orders like "Unleashing American Energy," coupled with rollbacks of environmental protections and proposed cuts to the Environmental Protection Agency (EPA), will disproportionately affect low-income communities and communities of color who often bear the brunt of pollution. The resulting health and disinvestment impacts will be felt for years to come.
Small Business Confidence
A range of issues including a 0.3% economic contraction in the first quarter, the uncertainty of tariffs and price increase responses already occurring, and skittish financial markets are weighing on small business owners. In April 2025, the National Federation of Independent Businesses released their Small Business Optimism Index and noted “it declined for the fourth consecutive month. Its reading dropped 1.6 points from March to 95.8, marking the second straight month it fell below its half century average of 98 points”.
The impacts: Increased prices for goods as a result of tariffs, a reduction in capital availability due to Small Business Administration (SBA) loan changes, and increasing insurance costs are putting businesses at risk. These businesses are the employers, growth producers, and often the civic and social leaders in their communities, and they are expecting a problematic future. In the short term, this will limit owners’ investment in their companies and communities in the form of less hiring and less charitable giving.
