inner city

Copyright © 2008 ICIC- 0 -


Agenda

• Performance of Inner City Economies

• Federal Policy and Inner City Economic Development

• Policy Area I: Workforce Training

• Policy Area II: Infrastructure

• Policy Area III: Capital Access

• Policy Area IV: Cluster Development


Poverty Concentration in the 100 Largest Inner Cities, 2000

0.1% U.S.Land Area

31% U.S. Minority Poverty

19% U.S. Poverty

8% U.S.Population

Source: State of the Inner City Economies (SICE) database; ICIC analysis

• Targeting poverty in inner cities allows “wholesale” rather than “retail” approach to poverty reduction


Comparative per Capita Income100 Largest Inner Cities vs. Rest of Economy, 2000

2000 Mean Per Capita Income (US $)


• Wages are significantly lower in inner cities than rest of the U.S. for all demographic groups


Cen

tral

City

Pov

erty

Rat

e, %

Cha

nge

2000

-200

7

Central City Job Growth, CAGR, 1999-2006

Job Loss/Poverty Increase:30 Cities

Job Gain/Poverty Increase:35 Cities

Job Gain/Poverty Decrease: 26 Cities

Job Loss/Poverty Decrease:9 Cities

Source: State of the Inner City Economies (SICE) database; ICIC analysis. Three cities not shown.

• Each 1% growth in central city job creation is correlated with a 0.9% decline in central city poverty

Relationship of Central City Employment Growth and Poverty Rates


100 Largest Inner Cities vs. Rest of MSA, 1998 – 2006Job Growth

1998 – 2006Job Net

Growth JobCAGR Change

Rest of MSA 1.3% 6,235,800

Rest of Central City 1.0% +1,389,300

Inner City 0.0% +10,300


• Between 1998 and 2006, the 100 largest inner cities added 10,000 jobs while their regions added over 6 million jobs


1998 – 2006Estab. NetGrowth Estab.CAGR Change

Rest of MSA 1.4% +499,000

Rest of Central City 1.1% +85,600

Inner City 0.2% +8,600

100 Largest Inner Cities vs. Rest of MSA, 1998 – 2006Establishment Growth


• Inner city business formation growth also lags that of the region


Inne

r City

Em

ploy

men

t Gro

wth

, CAG

R 1

998-

2006

Rest of MSA Employment Growth, CAGR 1998-2006

Inner City Job Growth vs. Rest of MSA, 1998-2006

Source: State of the Inner City Economies (SICE) database; ICIC analysis. Ten largest cities noted.

Manhattan - Bronx

L.A.

Brooklyn - Queens

Phoenix

Philadelphia

DallasChicago

Baltimore

Houston

San Antonio


Range of MSA Growth

Number ofMSAs

Average Annual MSA

Growth

Average Annual InnerCity Growth

Percent ofInner Cities that Grew

> 2% 26 3.1% 1.2% 73%

1-2% 35 1.5% 0.3% 69%

0-1% 31 0.7% -0.4% 29%

< 0% 7 -0.3% -1.4% 0%

Source: State of the Inner City Economies (SICE) database; ICIC analysis. New Orleans excluded.

100 Largest Inner Cities vs. Rest of MSA, 1998 – 2006Job Growth

Average U.S. Growth = 1.3%

• Regional growth policies must be augmented to spur job creation in inner cities


Agenda








Role of Federal Policy in Inner City Economic DevelopmentOverview

• Healthy regional economies are necessary for inner city economic growth– A shift from national to regional economic development is critical

• Regional economic growth alone is not sufficient to ensure inner city economic development– Regional policy frameworks must be augmented with specific policy approaches

for inner city economies

• Federal policy should enable inner city economic development by strengthening the inherent competitive advantages of inner cities while addressing weaknesses– Inner city stagnation reflects waning competitive advantages, especially in

workforce development and infrastructure

• Specific public-private initiatives focused on inner city clusters will have the greatest leverage for business development– Inner cities have inherent advantages in those clusters that require access to

infrastructure nodes, anchor institutions, and available workforce


Strategic Location

Located near regional,national and international

infrastructure nodes

Federal Policy and the Competitive Advantages of Inner Cities

Linkage to RegionalGrowth Clusters

Opportunity to leverage proximity to regional

clusters

Under-Utilized Workforce

Large pool of available workers

Unmet Demand

Opportunities for inner city-based businesses

and entrepreneurs

Workforce Development Capital Access

Infrastructure Cluster Initiatives

Inner Cities

Source: Porter, 1995


Agenda








Inner City Labor Force, 2000

13%

56%

3%

66%

0%

20%

40%

60%

80%

Unemployment Rate Labor Force Participation Rate

% Population, 2000

100 Largest Inner Cities Rest of U.S.



Inner City Labor Force, 2000Education Levels: Population Aged 25+



Advanced Degree

Bachelor’s Degree

Associate’s Degree

Some College, No Degree

High School Degree

No High School Degree

Median Annual Earnings, 2007Unemployment Rate, 2007 (%)

Source: Bureau of Labor Statistics, Current Population Survey, 2008

U.S. Workers: Unemployment and Earnings by Education Level, 2007


U.S. Workforce: Training and Earnings Power, 2006

Source: Bureau of Labor Statistics, Current Population Survey, 2006. Wages calculated across occupations that share education and training requirements.

• Workforce training has a huge impact on wages of workers without a college degree


35%

21%

15%

0%

10%

20%

30%

40%

Recruiting Qualified Employees Access to Capital Building Corporate Infrastructure

Most Cited Obstacles to Inner City Business GrowthSurvey of Inner City 100 Companies, 2004-2008

Percent of Inner City 100 Companies

Source: Inner City 100 Surveys; ICIC analysis

• Workforce training could promote inner city business growth by addressing the need for qualified workers


Federal Spending on Economic Development by Category, 2006

Source: Brookings, 2008


Federal Workforce Expenditures, 1988-2007 (2006 dollars)

Source: Office of Management and Budget, 2008; ICIC analysis

• Over the Last 20 Years, Federal Spending On Non-Veteran Workforce Training and Employment Has Declined Over 20%

Fede

ral W

orkf

orce

Exp

endi

ture

s, U

S 20

06 (U

S $B

)


Federal Programs Supporting Skills Training and Education

• Department of Education– Pell Grant Program– Carl D. Perkins Career and

Technical Education Act– Adult Education and Family

Literacy Act– Vocational Rehabilitation State

Grants

• Department of Health and Human Services– Temporary Assistance for Needy

Families– Social Services Block Grant– Community Services Block Grant– Food Stamp Employment and

Training Program

Source: Workforce Alliance, 2007; Baider, 2008

• There is a morass of programs and agencies at the federal level. This is exacerbated by the large number of state and local programs

• Department of Labor- Workforce Investment Act- Wagner-Peyser Act- Trade Adjustment Assistance

• Department of Housing and Urban Development– Community Development Block

Grant

• Department of the Treasury– Tax Credits and Deductions for

Education and Training


Evolution of Workforce Development Policy

Old Model

• Targeted to low-income adults, youth, and dislocated workers

• Greater access for individuals with characteristics commonly found in inner city populations (e.g., less formal education)

• Centralized (federal) power for program administration and creation

• Limited private-sectorinvolvement

• High-intensity training common • Focus on job retention and

advancement

New Model

• Open access for core services• Reduction in training for low-

income and less-educated workers

• Decentralization: growing role for states in allocation and assessment

• Private-sector leadership

• Focus on job search and rapid job placement

• Decline in intensive training

Recipients

Public/PrivateRoles

ProgramStructure

Source: ICIC project interviews, 2008


Intensive Training Participants by Education and Income, 2000 vs. 2006

Source: Center for Law and Social Policy (CLASP), 2008. Data apply to Workforce Investment Act.

2000 2000 20062006

Low Income Participants High School Degree or Less


Increase Intensive Training for Low-

Skilled Populations

Link Training to Inner City

Competitive Advantages

• Assess adequacy of existing services for those with low basic skills

• Integrate training with adult education

• Include “work readiness” programs

• Prepare lower-skilled workers in “middle-skilled” jobs

Address Specific Needs of Inner City Residents

Workforce Development for Inner Cities: Federal Policy Recommendations

• Provide adequate support mechanisms (e.g., child care)

• Leverage the skills of community organizations (e.g., language skills)

• Place training service centers near target populations

• Create better mechanisms for matching of residents to regional and inner city jobs

• Link training to clusters

• Orient training providers towards economic development and the needs of business

• Allow flexibility and experimentation at local level


Agenda







Copyright © 2008 ICIC- 25 - Copyright © 2008 ICIC- 25 -

Concentration of U.S. Infrastructure in Inner Cities, 2007

Source: Bureau of Transportation Statistics, 2008; State of the Inner City Economies (SICE) database; ICIC analysis

6%

9%

14%

15%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Business Establishments Ports 50 Largest Airports Intermodal Facilities

% T

otal

U.S

. Inf

rast

ruct

ure

in th

e 10

0 La

rges

t Inn

er

Citi

es


Transportation Infrastructure Density, 2007Selected Facilities

Source: Bureau of Transportation Statistics, 2008; ICIC analysis. Data are for 175 largest central cities.

Faci

litie

s pe

r Squ

are

Mile

(U.S

. Den

sity

= 1

.0)


Infrastructure Expenditure as a Percent of GDP 1988-2006 (2006 Dollars)

% o

f GD

P Sp

ent o

n In

fras

truc

ture

Source: Congressional Budget Office, 2008


Mix of Infrastructure Spending, 2004Federal vs. State and Local

Source: Congressional Budget Office, 2008

Shar

e of

Infr

astr

uctu

re S

pend

ing,

200

4


Infrastructure and Inner City Economic Development

• Infrastructure density – Density of infrastructure provides multiple access points to local, national, and international

economies– Density means that inner city infrastructure weaknesses harm the entire region’s infrastructure

efficiency for business

• The quality of the infrastructure network relies on the surrounding local road system– The quality of local infrastructure (roads, bridges) influences the value of nearby regional

and international infrastructure

• Infrastructure weaknesses are hurting competitive advantage– The overall quality of national infrastructure has declined over the past decade– The quality of urban infrastructure relative to rural has likely declined– We hypothesize that there has been a decline in inner city infrastructure relative to the

rest of the central city


Position of Inner Cities in Infrastructure-Intensive ClustersCluster Concentration, 1998 Cluster Concentration, 2006

ApparelLocal Utilities Water TransportApparel EntertainmentFinancial Services Local UtilitiesEducation and Knowledge Creation Financial ServicesLocal Community and Civic Organizations Jewelry and Precious MetalsLocal Commercial Services Education and Knowledge CreationProcessed Food Local Community and Civic OrganizationsLocal Financial ServicesJewelry and Precious Metals Hospitality and TourismHospitality and Tourism Local Education and TrainingEntertainment Local Financial ServicesLocal Industrial Products and Services Oil and Gas Products and ServicesWater Transport Processed FoodLocal Education and Training Local Commercial Services

Local Industrial Products and ServicesLocal Entertainment and MediaLocal Health Services Publishing and PrintingLeather and Related Products Local Health ServicesPublishing and Printing Local Entertainment and MediaOil and Gas Products and Services Business ServicesBusiness Services Chemical Products

Building Fixtures, Equipment and ServicesLocal Real Estate, Construction, and Development Leather and Related ProductsChemical ProductsBiopharmaceuticals Local Real Estate, Construction, and DevelopmentBuilding Fixtures, Equipment and Services Power Generation and TransmissionPower Generation and Transmission BiopharmaceuticalsLocal Food and Beverage Processing and Distribution Local Food and Beverage Processing and DistributionLocal Hospitality Establishments Local Hospitality EstablishmentsMetal Manufacturing Local Motor Vehicle Products and ServicesCasino Hotels Metal ManufacturingLocal Motor Vehicle Products and Services Local Personal Services (Non-Medical)Local Personal Services (Non-Medical) Casino HotelsLocal Household Goods and Services Construction MaterialsHeavy Construction Services Local Household Goods and ServicesLighting and Electrical Equipment Heavy Construction ServicesAutomotive Lighting and Electrical Equipment


• Inner cities have lost ground in the most transportation-intensive clusters

Distribution Services (25)

Distribution Services (23)

Local Logistical Services (16)Local Logistical Services (17)

Transportation and Logistics (1)

Transportation and Logistics (9)


Faci

litie

s pe

r Squ

are

Mile

(U.S

. Den

sity

= 1

.0)

Railroad Crossings, Bridges, and Deficient Bridges Per Square Mile, 2007

Source: Bureau of Transportation Statistics, North American Transportation Atlas Data, 2007; ICIC analysis. Data are for 175 largest central cities.


Change in “Deficient” Infrastructure in Urban and Rural Areas, 1998-2006

Source: Bureau of Transportation Statistics, 2008; ICIC analysis

33%

-16%

41%

-5%

-20%

-10%

0%

10%

20%

30%

40%

50%

% Change in Deficient Infrastructure

Rural Urban

Bridges, 1998-2006

Roads, 1998-2006

• Urban infrastructure is degrading relative to rural areas


Change National Policy Approach

Neutral Allocation Mechanisms

• Base investments on economic impact

• National issue linked to global competitiveness

• Economic rationale should replace political rationale

Local and National

Infrastructure Priorities for Inner Cities

• Consider unique characteristics of inner city infrastructure

• Density and network efficiency concerns are magnified in inner cities

• Economic value of national and internationalinfrastructure can be squandered by poor local infrastructure in inner cities

• Promote neutral allocation mechanisms

• Neutrality between urban and rural areas

• Neutrality between central city and inner city areas

• The quality of inner city transportation infrastructure is an issue of national economic competitiveness

Source: ICIC project interviews, 2008; ICIC, 2008; Hill, et al., 2003


Example: Park Hill Corridor in West Louisville

• 20 minutes from UPS’s “all points” air hub

- Access to the hub can reduce national and international shipping time by up to a day

- Businesses that have emerged: computer repair, credit card replacement, distribution

- In West Louisville (pictured), the advantage due to hub access undermined by poor quality of local transportation network

Source: Economics Research Associates, 2008; ICIC, 2008


Agenda








Unmet Demand for Investment in the 100 Largest Inner Cities

Consumers Businesses

• 7.4 million households

• Some of fastest-growing segments of the U.S. population

• Retail supply gap estimated at 35%

• 460,000 inner city companies with 8.9 million employees in 2006

• $80 billion in commercial services demand that can be served from inner cities

• Local business services in inner cities are declining relative to needs

Source: State of the Inner City Economies (SICE) database; Boston Consulting Group-ICIC, 2006; ICIC analysis;

• The persistence of unmet consumer and business demand is emblematic of weaknesses in inner city business formation and growth


• Recruitment (“outside-in”) strategies that provide tax incentives and regulatory relief to attract outside businesses to distressed areas

– New Markets Tax Credit (NMTC)– Renewal Communities/Empowerment Zones (RC/EZ)

• Federal contracting opportunities for small business concerns in distressed communities or owned by socially and economically disadvantaged persons

– SBA 8a Program (demographically-based)– SBA HUBZone Empowerment Contracting Program (place-based)

• Access to credit (loan size <$1M) for small businesses and minority entrepreneurs

– SBA guaranteed lending programs (7a, 504)– Community Reinvestment Act (CRA)

Increasing Capital Flow to Inner City EconomiesCurrent Federal Initiatives

Source: ICIC project interviews, 2008; Small Business Administration, 2005


New Markets Tax Credit Projects, 2006

<$1M50%$1-5M

33%

>$5M18%

Source: CDFI Fund, 2008

Transaction Amount

• NMTC has not met its potential to provide equity financing to mid-sized inner city businesses

Real Estate vs. Business Investment

Real Estate Development

68%

Business Investment

Equity & Debt32%


• Federal coordination with local authorities to inform businesses about available support and financing options

• Increase funding for business development within SBA 8a program

Advisory Support

Capital Access Policies for Potential Federal Policy Recommendations

Access to Growth Capital

• Create incentives and/or remove barriers to investment in inner city areas through e.g.:

- Tax credits- Lower regulatory barriers

for individual investors

• Extend and promote the New Markets Tax Credits (NMTC) for business investment

• Reduce red tape and transactions costs for SBA loans

Valuation Models

• Conduct research on valuation models for assessing inner city risk

- Credit scores alone penalize lower-asset individuals

- Conventional site location models may understate inner city economic potential

• Growth capital remains an issue for firms without access to strong advisory services, personal assets, and “friends and family” capital

Source: Pacific Community Ventures, 2006; Community Development Venture Capital Alliance, 2001


Agenda








Cluster Development

• Clusters increase productivity and new business formation– Efficient access to specialized inputs, services, employees, information, institutions,

training programs, and other “public goods” – Easier commercialization of new products and greater opportunities for starting new

companies due to available skills, suppliers, etc.

• Cluster policy leverages policy investments over numerous companies– Investments in training, information, export promotion, etc. will benefit many companies

across a range of industries

• Cluster policies are less distortive than those aimed at individual industries or firms

• Cluster policy does not pick winners

Source: Porter, 2008


Clusters and Federal Economic Development StrategyCurrent Initiatives

• The current state of Federal cluster policy is weak– “U.S. federal government has been almost entirely absent from the realm of

cluster initiative programs” (Mills, et al. 2008) – In 2006, only $565 million out of $76 billion in federal spending on economic

development supported collaboration and clusters– Some exceptions:

• WIRED: Collaborative approach to regional development; many efforts, e.g., West Louisville, are organized around clusters

• SECTORS (July, 2008): “Strengthening Employment Clusters to Organize Regional Success”; DOL; training skilled worker to address shortages; “grantees are required to identify targeted industry clusters”

• However, there is growing role of cluster thinking in economic development

Source: Mills, 2008


Inner City Employment by Cluster, 2006

Employment, 2006

Rank



Anchor Clusters

Emerging Inner City Strengths

Construction, Housing and Real Estate

Transportation and Logistics

Knowledge Creation, Education and Training

Largest Inner City Clusters

Linking Cluster Development and Competitive Advantage


Local Health Services

Local Commercial Services

Local Hospitality Establishments

Local Community and Civic Organizations

Entertainment

Hospitality and Tourism

inner city

Career

current population survey

icic project interviews

city labor force

congressional budget office

federal workforce expenditures

workforce development

labor statistics

federal policy