Wednesday, October 22nd, 2008

A New Approach to Regional Economic Development in Indiana

The Indy Star is on a roll. Fresh on the heels of starting a dialog on the priorities of public services in Indy versus aspirational peers, they run a major story highlighting something that’s been evident for some time, namely that there is a large and increasing disconnect between Indianapolis and the rest of the state.

The facts are stark. Consider, the Indy metro area is 25% of the state’s population, but it has:

  • 13% of manufacturing jobs lost in the state
  • 31% of all the jobs currently existing
  • 43% of all the college graduates
  • 44% of all entrepreneurial income
  • 47% of professional services workers
  • 64% of all the population growth since the 2000 Census

Also, while Indy has gained jobs since 2000, going from 862,700 to 908,200, the rest of the state lost jobs, with the total non-Indy employment slipping below 2 million. The income gap is even more severe. Indy actually exceeds the national average in income per job, at $47,777 vs. $47,286. That’s not rock star performance, but probably not awful either on a cost of living adjusted basis. But the rest of the state earns far less than the national average per job, only $38,226, and continues to fall further behind.

Why is this? Simply put, it’s the globalized economy. The new economy we are in favors big cities over small ones and rural areas. The new economy also requires more than just low cost, low skilled labor – at least in Indiana, which will never be cost competitive with a $200/month worker in China. Consider this, quoting, “What sustains the Indianapolis-area economy is a diversified mix of hospitals and insurers, colleges and government offices, logistics and life science, advanced manufacturing and entertainment, bars and restaurants. Together, these sectors provide more than 400,000 jobs, or almost half the metro-area jobs, U.S. Bureau of Labor Statistics reports show.” Many of these sectors are much smaller or don’t exist elsewhere.

Given the realities of the new, globalized economy, what should be done? There are many things, but one of them is to recognize the centrality of cities as the engines of the world economy. And not just cities, but larger cities. There seems to be some sort of minimum scale necessary to support an economy that can compete in the 21st century. As a rule of thumb, I set that level at around one million in a metro area, though I think smaller places can succeed in certain instances.

In that regard, Indiana needs to adopt metro-centric thinking in how it develops economic development strategies. Conveniently, there is already an organizational concept that more or less maps this out. It is called the BEA economic area, and it is effectively the extended economic “solar system” of a city. This would map the state into seven regions, each of which should create a regional economic development strategy and look to stimulate economic growth in the periphery through closer linkages to the core. In that geography, Indiana would be made up of seven basic regions:

  • Chicago (Northwest Indiana)
  • South Bend/Mishawaka/Elkhart (extends into Michigan)
  • Fort Wayne (includes a Michigan County, but should probably also be expanded to Ohio)
  • Indianapolis (which includes part of east central Illinois). This is clearly the largest and most important in Indiana, and includes half the state’s population, including Richmond, Terre Haute, Marion, Kokomo, Bloomington, Lafayette, Anderson, Muncie, and Columbus.
  • Evansville (includes part of Kentucky and Illinois)
  • Louisville (Southern Indiana)
  • Cincinnati (Southeastern Indiana)

This is much more realistic that the current model of “economic growth regions”. For example, EGR 6 includes Blackford, Delaware, Fayette, Henry, Jay, Randolph, Rush, Union, and Wayne counties. That’s not an economic growth region, it’s an economic decline region.

Fortunately, four of my seven regions include a city over one million in population, which means they can be efficiently articulated with the global economy. The others may find it more challenging, but I think there’s clearly hope and indeed, those medium sized cities in Indiana have actually been hanging in there.

Each region would create its own regional strategy based on its unique circumstances. For example, Northwest Indiana is well positioned to become even more integrated with Chicago. Its cost of living compares favorably to the south suburbs. It has the Lake Michigan shore line. And it still has a strong heavy industrial base, albeit one that does not employ nearly as many people as it used to. Extreme fragmentation has long bedeviled the region and it won’t be easy to fix. But Rep. Visclosky has long been championing improvements and the state created a Regional Development Authority that is looking to jump start several initiatives.

Above all, these need to be truly regional strategies that include the outlying areas as well as the core urban zone. As I’ve noted before, this would not be a charity mission. It is mutually beneficial for everyone.

This approach is against the trend what globalization has been doing to cities. As Richard Longworth noted, “Globalization is disconnecting cities from their hinterlands”. Saskia Sassen also notes in her global city research how global cities have turned away from their city regions and given primacy to building networks with other global cities. As the facts above suggest, we’ve seen that disconnect happening in Indiana as the performance of the capital city and the outlying areas decouple.

While this might work for New York, I don’t think it will work for Indianapolis or any other Midwestern city in the long haul. For Indy, it is not a matter of “or” but “and”. The city needs to both articulate itself with the global economy, and shore up its base closer to home. It is manifestly not sustainable for Indianapolis to be prosperous while the rest of the state sinks into ruin. That might work for a while, but sooner or later a bankrupt and enfeebled state government won’t be able to provide the support the city needs – for example, in transportation funding – to stay competitive. And an increasingly resentful outstate area will become unwilling to pass the legislation needed to allow the city to even help itself. Any extensive new transit service, for example, is likely to require some sort of state law change to enable a regional governance and financial structure, just like Lucas Oil Stadium did. For most cities that aren’t the top tier mega-global elite, being part of an integrated, successful city-region by embracing the expanded notion of the city is a better route to success.

Traditional regional thinking has revolved around how to keep the urban core strong in an era of suburbanization. In the new world, there needs to be an expanded concept of regionalization, one that embraces not just keeping the urban core strong, but also building strength in exurban areas that are having trouble adapting to the new economy.

Clearly, for Indiana the most critical region to get right is Indianapolis. The worst of the economic storm has hit smaller industrial cities, and most of these are in the Indianapolis zone. The Indy region is half the state’s population, so that’s 50% of the problem right there. What’s more, it is the only in-state metro of over one million, and thus it is more likely to actively embrace its extended Hoosier region than, say, an out of state metro like Cincinnati.

This is not going to be easy. It certainly isn’t going to be high on the city’s priority list. Mayor Ballard has huge problems to deal with at home, and likely isn’t giving much if any thoughts to places like Richmond or Terre Haute. The outlying areas, for whatever reason, also seem hostile to the idea.

Consider Anderson. There is no better place to start that getting Anderson linked into an expanded metro area economy. It is only 26 miles from I-465. Suburban sprawl in the northeast corridor is already hitting Madison County. The county has lost huge numbers of manufacturing jobs. If I were in Anderson and saw my own town struggling but a boomtown only 25 miles away, I’d probably be asking myself, “How do I get some of that?”

Instead, Anderson has taken active steps to try to keep Indianapolis away. Madison County used to be part of the Indianapolis metro area, but I’m told they specifically petitioned to be removed so that Anderson could be a standalone MSA, notwithstanding that Anderson has zero brand recognition outside the state.

There was a golden opportunity on the table to link Andersen closer to Indy in the form of a joint airport with Fishers. This would have been a unified replacement for Indianapolis Metropolitan Airport and Anderson Municipal Airport and it would have been located in southwestern Madison County. The benefits of this would have been huge. Firstly, Fishers would have helped pay for it, so that’s free money. It would have created an institutional vehicle and common concern linking struggling Anderson with booming Fishers, and created a lot of mutual communication and linkages between the cities. It would have really helped bind Anderson into the greater Indianapolis economy. It would have also been a magnet pulling development out I-69 and closer to Anderson and no doubt that city would have reaped spinoff businesses. But last year Anderson’s new mayor decided to pull the plug on the idea because he didn’t want Anderson’s airport relocating outside the city.

Anderson has adopted a “go it alone” strategy in trying to lure foreign companies to locate there. The city recently went on a solo trade mission to China, for example. This type of solo show is costly to keep up, especially for a smaller city.

The city has in the past demonstrated zero sum thinking when it comes to economic development. Consider, they are unhappy that workers have chosen to live outside the city limits, including many city employees. They want to explore potentially requiring new city hires to live in the city. When you have to force people to live in your town, you are already playing a losing hand. The city also bemoans workers at Nestle living in Fishers. And they were extremely unhappy when IBM chose nearby Daleville for a call center. In his book, Longworth repeatedly used Anderson and Muncie as examples of struggling cities that engaged in beggar thy neighbor behaviors rather than collaborating.

Believe me, I get that what municipal limits a business locates in matters. In Indiana it is hard for a city to reap any tax benefits from a plant outside the city limits. If everybody relocates outside the city, the central city will die and that’s not at all healthy. As former Indianapolis mayor Bill Hudnut put it, “You can’t be a suburb of nowhere”. But you also can’t be a city that looks at everything outside the city limits as the enemy. No business or prospective resident looks at things that way. Instead, you’ve got to figure out how to carve out a role for yourself and put your best foot forward in making the case for your city. You have to figure out how to create a compelling environment. And then as part of a healthy region you’ll reap your share of the fruits. A rising tide lifts all boasts. Anderson needs to make sure its boat is part of the Indianapolis fleet that is headed for a safer economic harbor, not on some solo cruise out into the perfect storm.

Fortunately, I’ve seen some positive developments here as Anderson Mayor Kris Ockomon recently called the arrival of a 400 jobs in Muncie “a good day for everybody”. Amen. That’s exactly the right tone. And he went on to say, “I think we can still be very competitive”. Again, I agree. And that’s the fighting spirit, even if I wouldn’t suggest that Muncie is the best place to try to be competitive against. Companies have probably figured out by now they can play Anderson off versus Muncie to get even more gigantic incentives.

One only needs to look at the old industrial cities that surround Chicago to see what might happen. Places like Elgin, Joliet, and Aurora were once dying. Now they are thriving hubs in their own right. It’s certainly tougher for places like Anderson, which are smaller and aren’t located next to an economic colossus. But the successful example is out there to study.

Again, as I’ve said before, it is going to have to be Indianapolis that moves first and makes the case for the benefits of expanded regionalization by finding ways to help these smaller cities. I know that the IndyPartnership already does a lot of good regional work. Maybe Mayor Ballard could make himself available as needed to help lobby for a new plant in one of these cities. The city could help integrate attractions like Columbus, Indiana into its tourism materials. Make sure that people flying into the airport for economic development visits to regional places get the VIP welcome (if that’s not already being done). Arrange for Lucas Oil Stadium tours or even see if someone from the Colts organization might be willing to help make the pitch.

When you are the big dog everyone is naturally going to be suspicious. That puts the burden on you to prove your good intentions. My classic example is the 96th St. bridge on the White River. That project was going nowhere. Then Mayor Goldsmith of Indianapolis agreed to pay 50% of the cost, even though by state law it was a Hamilton County responsibility. Then, when the city went to the southside to expand County Line Rd. where it was on the hook for the cost, it had the moral authority to ask for Greenwood’s help.

Again, this won’t be easy and probably isn’t the top priority for anyone. For example, exurban commuting to Indy is a lot less tenable in a high gas price world. But I believe it is absolutely critical to securing the long term future of the state and turning around a lot of these regions that aren’t doing well.

I think Indiana is well placed here because a good chunk of the state is in the orbit of a million plus metro. Places like Illinois have a much worse geography. Ohio is another state where I think a similar approach is warranted because of favorable geography. Many states have one “primate city”. Ohio has the 3C’s and a few other decent sized places like Dayton and Toledo. This has often been viewed as a weakness, because state investments in cities have to be peanut butter spread across all these larger cities. But again, invert the world and stand the problem on its head. Figure out how to make poly-centricity work. Use those multiple nodes that are capable of operating at scale and build regional economic development strategies around them.

Update: For more interesting reading, here’s a European perspective on city-regions. Also, Louisville has an initiative called Wired 65 that is looking at a more broad regional framework for competitiveness from a talent perspective.

Topics: Economic Development, Globalization, Regionalism
Cities: Indianapolis

28 Responses to “A New Approach to Regional Economic Development in Indiana”

  1. Anonymous says:

    A small point: It was the former Mayor of Anderson who lobbied for the separate MSA designation.

    Also, I think the current mayor understands the need for a regional approach. It is unfortunate that local politics caused the defeat of the south Madison County Airport Project.

  2. The Urbanophile says:

    Interesting. I had not heard how the MSA designation went down, only that there had been a petition for removal.

  3. Indy says:

    If the 2nd bypass was ever built wouldn’t Anderson be in a position to basically become the new Plainfield? Wouldn’t their be opportunities available for the construction of distribution centers in and around Anderson?

  4. The Urbanophile says:

    Indy, in a word, Yes. INDOT’s study of an outer bypass indicated a freeway link between I-69 and I-70 would carry somewhere in the neighborhood of 70,000 cars per day in the design year – enough to justify a six lane highway. However, a mixture of anti-sprawl groups and NIMBY’s killed the Indiana Commerce Connector and I don’t see any real prospects of it being revived.

    Even without this, Anderson is ideally suited to leverage growth from the interstate.

  5. Anonymous says:

    Anderson is “unhappy that workers have chosen to live outside the city limits, including many city employees. They want to explore potentially requiring new city hires to live in the city. When you have to force people to live in your town, you are already playing a losing hand.”

    Correct me if I’m wrong, but doesn’t Indianapolis already do this?

  6. thundermutt says:

    anon, in Indianapolis, city = county. That’s almost 400 square miles.

  7. thundermutt says:

    Urbanophile, another excellent think-piece. I believe that CICP and the rest of the economic-development apparatus of central Indiana already coordinates work and acknowledges that a win for the metro is a win for Indianapolis.

    On the other hand…we cannot overlook the clear benefits of urban redevelopment. It is often “easier” to plow a beanfield under than to rescue and reuse an old railyard (such as Hawthorne) or polluted industrial site (such as Indianapolis Coke or Chrysler Foundry) but it is absolutely necessary to keep renewing the core.

  8. Anonymous says:

    “anon, in Indianapolis, city = county. That’s almost 400 square miles.”

    Except Lawrence, Beech Grove, Speedway, and a few much smaller enclaves, all within Marion county.

    But the whole point of the piece was about regional development and integration, and the City of Anderson was singled out for criticism for limiting the talent pool it can draw upon. Indianapolis definitely has a bigger pool, but it also limits itself.

    Is that good?

  9. Anonymous says:

    Anderson and Madison County have long been involved in regional economic development efforts. As Indianapolis’ regional economic development efforts have evolved (MAGIC, CIRCL, Indy Partnership, CICP…) one constant is the active involvement of Anderson and Madison County.

    Anderson has also smartly placed a few eggs in the basket carried by ECI and maintains close relationships with State officials. Anderson has no “go it alone” philosophy. Fortunately for Anderson, it is, in addition, able to stand alone on select initiatives.

  10. thundermutt says:

    anon 7:00, my whole point: the geographic restriction for Indianapolis is much less restrictive than Anderson’s, and the diversity of housing and school options is far, far greater in Marion County than in Anderson proper.

    The parochial interest served by “live in the city” or “live in the county” restrictions have to do with perception: people in the city are already providing infrastructure for the suburban areas at some real cost. It seems only fair that taxpayer dollars (which is where government salaries come from, after all) be “recycled” into the local unit of government.

    Of course, if we had commuter taxes and/or a regional tax system, that point would be moot.

    That cities or counties have (and express as policy) such parochial interests is a good argument FOR commuter taxes and a regional tax system.

  11. Anonymous says:

    Thunder, do you think Indianapolis should only hire persons who live within the city’s boundaries?

  12. The Urbanophile says:

    Thanks for the comments. A few things:

    1. I’m aware of the good work the IndyPartnership has done and the regional economic development thinking that has been there. That’s all great. I’m suggesting we take it to the next level, particularly with an expanded view. Not just Anderson, but even places as Richmond and Terre Haute and Marion.

    2. If Indy required employees to live in Marion County then I don’t agree with that either. The only justification I’ve heard that makes sense is that emergency responders should live in the city limits so they can be nearby if needed. I believe Indiana state law prohibits requiring police and fire to live in the city limits though, and in a large, modern city, I don’t think this is a huge concern.

    3. I don’t see these smaller cities benefiting from Indianapolis as sprawl. Rather, it is reinvesting in these existing old urban centers to help bring them back to life so you don’t need as many beanfields plowed under.

  13. thundermutt says:

    anon, yes, until Indianapolis has a city wage tax, I think employees of the city, county, and all its taxing districts should have to live within Marion County. That includes IPS.

    I see it as an ethical and attitude problem: “I’ll take money to work there, but I sure don’t want to live there among the people who pay my salary.”

    It’s kind of like seeing a Honda parked in the employee parking lot of the UAW…

  14. thundermutt says:

    I agree that the cores of Anderson, Muncie, Kokomo, Columbus, Richmond, and Terre Haute are just as important as the core of Indianapolis to keep healthy. But in recent years, “new investment” in Anderson has been somewhere south of town along SR9…not in former GM, Remy, and Guide plants.

  15. Alon Levy says:

    I see it as an ethical and attitude problem: “I’ll take money to work there, but I sure don’t want to live there among the people who pay my salary.”

    It’s kind of like seeing a Honda parked in the employee parking lot of the UAW…

    Or like having NYPD officers and New York City public school teachers who live in Long Island and Westchester County. This happens a lot, because they can’t afford to live in the five boroughs.

    It’s very hard to justify restrictions on where city employees can live. Sometimes the city is too expensive for them; sometimes it’s so strapped for good employees that these restrictions will only create white flight. In either case, such policies punish the city more than they punish the wayward employees who dare live outside its boundaries.

  16. thundermutt says:

    And I see it as being committed to a solution instead of being part of the problem.

    Everyone seems to think that everyone else should take action to solve social problems.

    We have to fix that attitude and replace it with this one: YOU are the solution, or you are part of the problem.

    FYI, Indy isn’t NYC. There are houses available within Marion County from $20,000 to $2,000,000, in all kinds of settings. There are good schools. This is, year after year, one of the top ten “most affordable” housing markets when median home price is compared with median income. That means civil servants can find afforable housing in decent neighborhoods here.

    If you can’t tell, after 25 years I’m sick to death of suburbanites telling me what’s wrong with my city instead of investing time and money as I do in living and working here to FIX it.

  17. Anonymous says:

    It kills me that $700+ billion is made readily available to bail out a bunch of bandits who largely created their own mess and who provided nothing of real tangible value while. Meantime, just a few million dollars invested to help organize and promote regional planning / coorperation like you described could produce billions of dollars in economic output – real products and needed services that have real value.

    Something has to change. I hope the Midwest can get its act together.

  18. The Urbanophile says:

    thunder, you can’t renew a city based on an appeal to people’s better natures. That dog won’t hunt. While an appeal to civic duty will always motivate some, others simply aren’t able to willing to do it. Look at the world’s most successful urban cores. Yes, there were and are a core group of people who are passionately committed to making better. But the vast bulk of people moved their because it was selling a product they wanted to buy for its own sake. That’s ultimately the only way to do it.

  19. thundermutt says:

    Urbanophile, “urban pioneers” also know they can make lots of money in real estate when things tip to the good. That’s far from appealing to “better nature”.

  20. Alon Levy says:

    If you can’t tell, after 25 years I’m sick to death of suburbanites telling me what’s wrong with my city instead of investing time and money as I do in living and working here to FIX it.

    Me too. And yet, treating people who’d like to live in the suburbs as pariahs will not solve anything. A lot of people live in the suburbs and work in the city; why should government employees be prohibited from doing that?

  21. thundermutt says:

    Why? Municipal employees occupy an office of trust and serve the citizens of the City or County. They should live with the results of the policies, decisions, and activites they undertake daily.

    I treat suburbanites in Indianapolis as pariahs because they really don’t contribute to the well-being of the city that they are tied to, while often heard complaining. I’ll shut up when the suburbanites are carrying part of the city-county load by paying a wage tax.

    Indianapolis-Marion County can’t tax itself back to health and continue giving the suburbs a free ride (water, sewers, medical centers, colleges, state and federal government centers, museums, and huge regional parks like WRSP, Ft. Ben, and Eagle Creek).

    They can’t, as the Hudnut/Urbanophile aphorism goes, be “suburbs of nowhere”. Like it or not, we’re all tied together, and the sooner Indianapolis’ suburbs start acting that way the better.

  22. Jon says:

    Several months ago, I had a chance to interact with several economic developers in East Central Indiana (EGR 6), Morgan County, Hendricks County, and Fort Wayne. I agree completely with your view. But, additionally, economic developers need to change their paradigm. Nearly every economic developer I’ve met is focused on attracting large number of jobs into their community. Nearly every economic developer I’ve met in Indiana wants to establish itself as a life science hub and to attract the next Honda plant. The bar is not raised very high for these folks. In my opinion, these folks don’t have any sense of a realistic strategy. Rather than compete with neighboring communities, they should figure out how to collaborate. But this requires changing their conventional wisdom. While your assessment of EGR 6 appears correct, the economic developer for that region is not wired like most in Indiana. He has a sense of strategy and is trying to reinvent that region for success.

  23. Alon Levy says:

    Municipal employees occupy an office of trust and serve the citizens of the City or County. They should live with the results of the policies, decisions, and activites they undertake daily.

    They do. If they screw up, not only will their place of work become worse, but also they might be fired. Even Jane Jacobs admitted that the stakeholders in an area are not just those who live in it but also those who work in it (and, despite her many attacks on the suburbs, never advocated restrictions on where city employees could live – she realized top-down restrictions never improved anything).

  24. Alon Levy says:

    As for “life science hub,” it seems like every city in the US has life science research. It’s becoming the new steel and auto production – something that’s good for development, but only lasts for a generation; afterward, the rest of the world learns how to do it more cheaply and the industry collapses.

  25. Anonymous says:

    “Municipal employees occupy an office of trust and serve the citizens of the City or County. They should live with the results of the policies, decisions, and activites they undertake daily.”

    Except in Anderson, apparently.

  26. thundermutt says:

    Municipal civil-service employees generally can't be fired except for criminal behavior, even in an "employment at-will" state like Indiana.

    Jacobs probably didn't argue on this point because NYC had a non-resident wage tax until 2006.

    The wage tax rate in Philadelphia is something over 3%, and that is probably way too high. But I continue to argue that it should be some amount, and that overall wage & income taxes should probably be approximately equal throughout a metro area.

    Local income and property tax policy is something regional economic development professionals can and should care about.

  27. thundermutt says:

    …and I don’t mean “they should always be as close to zero as possible”.

  28. Anonymous says:

    THe ICC went way beyond a connector between I-69 and I-70.

    If it had just been an Anderson to Greenfield link, I would have supported it but the road would not have taken enough traffic off of I-465 to justify the destruction of private property for a privately operated road.

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