What the FY 2026 Federal Budget Proposal Signals for Regional Economic Development
June 6, 2025The White House’s FY 2026 discretionary budget proposal outlines a significant shift in how the federal government approaches economic development. It suggests a move away from place-based and regionally responsive investments toward more centralized priorities, such as national defense and strategic infrastructure. For regional leaders and development practitioners, this moment raises important questions about the future role of federal partnership in supporting local economic resilience and growth.
Cuts to Key Regional Development and Entrepreneurship Tools
The potential elimination of two key Department of Commerce investment programs—the Economic Development Administration (EDA) and the National Institute of Standards and Technologies Manufacturing Extension Program (MEP)—represent two of the most consequential proposed changes. EDA has been a cornerstone of federal support for regional planning, innovation, and infrastructure investment since the 1960s. MEP, created more than a generation ago as a stalwart against the loss of American manufacturing, has touched a significant share of small and medium-size manufacturers across the U.S. While past administrations have proposed eliminating both EDA and MEP, Congress has consistently reaffirmed their value. Should this proposal gain traction, state and regional entities could lose key partners in capacity-building and long-range strategy.
The proposed budget also would reduce U.S. Department of Agriculture Rural Development Administration spending by more than $700 million, narrowing its focus to water and wastewater infrastructure. Support for broadband, rural business development, and rural housing—longstanding building blocks for small-town economic strategy—would be eliminated. In parallel, proposed changes to the Small Business Administration would consolidate resources into the Small Business Development Center program, scaling back technical assistance efforts that serve entrepreneurs representing typically underserved communities.
Institutional Continuity, Programmatic Uncertainty
Some institutions remain in place. The budget maintains staffing support for the Appalachian Regional Commission (ARC), for instance, recognizing the agency’s continued importance. However, the absence of dedicated funding for ARC’s infrastructure, business development, and workforce training grant programs reflects a broader theme in the proposal: reduced federal support for discretionary, locally administered development tools.
Other regional commissions face a more immediate threat. The budget recommends eliminating six entities (including the increasingly influential Delta, Denali, and Northern Border commissions) designed to address deeply rooted economic challenges in distressed areas. These cuts would shift the burden of response almost entirely to states and localities, many of which lack the fiscal flexibility or infrastructure to address these challenges on their own.
Implications for Workforce, Housing, and Revitalization
The proposed removal of the Community Development Block Grant (CDBG), HOME Investment Partnerships, and Job Corps programs would strip communities of tools critical to local revitalization, affordable housing, and youth workforce development. These programs provide flexible support that many jurisdictions rely on to close equity gaps, attract investment, and provide upward mobility pathways.
Additional structural changes—such as block-granting rental assistance or scaling back Department of Commerce research and innovation programs—may reduce access to data, insights, and support for local economic strategies. Taken together, these moves suggest a pivot away from federal-local collaboration in favor of more centralized or narrowly targeted national initiatives.
What This Means for Regional Leaders
While the proposed budget is not final—and Congress will ultimately shape the outcome—it sends a clear message: regions may need to prepare for more limited federal engagement on the economic development front. This has strategic implications for practitioners working in diverse settings, from urban innovation districts to rural towns navigating economic transition.
Key considerations include:
- Inventory Your Dependencies: Identify which local strategies rely heavily on federal funding and evaluate scenarios where those supports may shrink or disappear.
- Diversify Your Partnerships: Strengthen engagement with state agencies, private-sector allies, philanthropic partners, and higher education institutions to broaden your resource base.
- Quantify Your Impact: Use clear, compelling data to document how past federal programs have driven measurable results in your region.
- Invest in Collaboration: Regional coalitions, consortia, and peer networks will become increasingly important for shared service delivery and coordinated funding strategies.
A Call for Adaptation and Leadership
The FY 2026 budget proposal presents real challenges—but it also creates space for regional innovation and leadership. Economic development has always been an evolving field, and those who adapt first often lead the way.
CREC remains committed to supporting leaders across the country in navigating this uncertain terrain. Our shared mission—building data-informed, economically vibrant regions—is not dependent on any single agency or line item. It is rooted in a belief that local and regional actors, when equipped with the right tools and insights, can drive sustainable growth from the ground up.
Let this moment serve as a catalyst: to rethink, to collaborate, and to recommit to the work of building strong regional economies—no matter the fiscal or political climate.