Sunday, August 9th, 2009

Replay: Chicago Corporate Headquarters and the Global City

[ In honor of United Airlines moving its headquarters and 2,800 employees back to the Loop from the suburbs, I am re-running this article from last fall on the migration of corporate HQ’s back to global cities. I highlight the concept of an executive headquarter vs. and operational headquarters. The United announcement is actually a full on operational HQ. Will this be a one-off or is it a signal of the next phase of the evolution of this trend? Stay tuned. This post originally ran on October 8, 2008 ]

Chicago is the Midwest’s only “global city” (or world city if you prefer). There are many paradigms of the global city, but the most widely cited is Saskia Sassen’s. The Cliff Notes version goes something like this. As businesses became more globalized and more virtualized, this created demand for new types of financial products and producer services – notably in the law, accounting, consultancy, and marketing areas – to help businesses service and control these far flung networks. These financial and producer services are subject to clustering economics, and end up concentrated in a relatively small number of cities around the world. These global cities serve as control nodes for various global networks and key production sites for these services.

Although the typical 1-3 million aspirational metros I often feature in this blog have law firms, accounting firms, marketing agencies, and banks, they mostly do not function as global cities. That is because those services are oriented towards domestic consumption and servicing the local market only. In a global city like Chicago, these services are qualitatively different, in that they are designed to serve the needs of global networks, and they are produced to a great extent for export. Columbus’ law firms serve mostly Columbus and Ohio. Chicago’s law firms serve the world. This also explains why the boom in Chicago’s core includes employment growth, while smaller metros, despite their entertainment and residential improvements, are showing urban core employment declines.

This also explains an interesting conundrum. The number of large company headquarters in places like New York and Chicago have been declining while the urban core has been booming. Sassen’s theory explains this in terms of growth built around financial innovation (currently hitting a rough patch to say the least) and producer services, not corporate headquarters.

But I’m starting to notice something. I don’t have the resources to do an empirical analysis, but I’m seeing anecdotal evidence that the global city may actually be starting to attract company headquarters again, albeit a reconstituted notion of the headquarters. Just as Chicago was not able to reinvigorate itself until it figured out how to reposition its experience as an agro-industrial capital into a global age, similarly, the corporate HQ needed to reinvent itself, and is reinventing itself to take advantage of the new global cities.

I was struck by the recent example of Mead Johnson Nutritionals, a spinoff of Bristol-Myers Squibb. This company is currently headquartered in Evansville, where it has also located its key manufacturing operation. But Mead Johnson is planning to move its headquarters to Chicago. According to the article:

“Mead Johnson Nutritionals is looking at Chicago and other cities as a possible location for its corporate offices. Working in a large city will make it easier to conduct business throughout the world. Mead Johnson makes Enfamil and similar products and about half of its sales come from overseas. Having offices near Chicago, for instance, will place executives in close proximity to global-business consultants, leaders in the field of nutrition and an international airport.

Between 40 and 60 people will work in the corporate offices, most of them in new positions. Evansville will retain the company’s operations in research and development, U.S. sales and marketing and information management, as well as a bulk of the finance and human-resources departments, Paradossi said. Mead Johnson’s liquid products will continue to be made in Evansville, he said.”

This excerpt makes two key points:

  1. In addition to just access to global flights, the company specifically wants executive access to the producer services found in a global city, in this case global-business consultants.
  2. The headquarters being moved is not a traditional headquarters, but rather a thin layer of only 40-60 top level people who require close interaction with providers of producer services. Traditional headquarters functions such as R&D, Sales, and IT will remain in Evansville, as will production.

In short, proximity to producer services (and international flights) is a source of advantage to the company, else it would not be making this move, which will cost money in its own right and create a coordination burden with the bulk of the staff left behind in Evansville. We’re also seeing a new concept of what a headquarters is. The “headquarters” is actually splitting into two: an executive headquarters and an operational headquarters.

Is this an isolated example? No. Two other ones in Chicago come immediately to mind. Boeing relocated a small headquarters from Seattle to Chicago. This company wanted a location independent of its operational businesses. A more recent and probably better example is Miller, which is again moving a small headquarters function from Milwaukee to Chicago, this time explicitly to gain access to the marketing services available in Chicago. Many traditional headquarters functions, as well as a key production facilities, will remain in Milwaukee.

I’m not sure if these are isolated cases or a trend. And it isn’t entirely new. Some companies have maintained these type of executive headquarters for a while, though historically the examples I can cite have been motivated primarily by the residential preferences of the CEO. For example, Men’s Wearhouse has a small HQ in Fremont, California (the Bay Area) where the CEO lives while most of the work gets done in Houston. Lincoln National moved a small headquarters to Philadelphia from Ft. Wayne when it hired a new CEO from the Philly area. But I do find it interesting that companies are now moving to places like Chicago where they don’t have a historical connection, and are explicitly citing access to producers services as a rationale. This will be an interesting trend to watch.

I think it also goes to show the uphill battle smaller Midwestern cities will have to fight. While some of these are doing well on the whole and are home to clusters of new economy businesses, they are not production sites for international producer services. This will mean that until they develop some type of export oriented production of and participation as a node in a global network for some specific service, they won’t probably see the same types of urban core development as the major global cities.

Friday, August 7th, 2009

Midwest Miscellany

The Rise and Rise of the Chicago Loop

There’s been a string of big good news items about the Chicago Loop economy recently. Willis Group moved into the Sears Tower and dared to claim the naming rights for themselves. Then United Airlines announced it was also relocating to the Sears Tower. This one is huge news because it is a relocation from the suburbs of 2,800 employees and is a full scale traditional HQ, not just a small executive HQ. Greg Hinz over at Crain’s Chicago Business discusses the implications.

The steady flow of businesses into the Loop – companies like Boeing and MillerCoors among others – shows that the Loop is back as the premier business address in Chicagoland, period. No longer is it just for finance, law, banking, government, and tourism. It’s a full service business location.

This is fueled by many factors but among them is the flow of professionals back to the city. These people do not want to spend their lives in cars reverse commuting the burbs. I personally know people who have quit jobs specifically because they did not want to reverse commute. Also, given the spread out region and horrible congestion, the Loop is one of the only areas you can get to from anywhere.

The growth of business in the Loop looks likely to only continue growing over time.

Cincy Streetcar Follow-Up

My post on Cincinnati streetcars got a lot of attention and many hits. Thanks to everyone who passed it around, and also to the Business Courier of Cincinnati for linking it.

While the Cincinnati Enquirer editorialized against the street car, the Business Courier supports it.

Also, the Enquirer has a long article that talks in depth about the matter.

Entrepreneur Mag Best Cities for Startups – Youngstown!

Entrepreneur Magazine named its ten best cities to start a business. Two Midwest cities made the list. One of them, Madison, Wisconsin, would come as a surprise to no one. But the other was Youngstown, Ohio. Yes, Youngstown.

Ordinarily I’d be skeptical about something like this. Youngstown is obviously a troubled city. For example, its metro area is experiencing the steepest population decline of any metro area over 500,000 in the Midwest.

But despite this, or perhaps because of it, Youngstown is a cauldron of creativity. They are famous for their planned shrinkage movement, for example, making them one of the few Midwest cities to face up to their diminished standing the world. But there is more to it than this. The challenges facing Youngstown are so huge, and the traditional approaches failed so badly, that leaders were open to innovative, even radical ideas from elsewhere. As Jim Cossler puts it in the article:

“Youngstown fell so far, traditional community leaders threw up their hands and told the younger generation, ‘You guys try,’” Cossler says. “The new generation is envisioning things we wouldn’t have talked about 10 years ago.” Cossler points to the work of the area’s dynamic congressman and energetic young mayor as examples. “They said, ‘Let’s clean the slate and start over again,’” he says. “There’s a radical transformation going on here right now.”

In city after city across the Midwest, enthusiastic young leaders find themselves frozen out by strong power structures who are not that interested in new ideas. But not in Youngstown. For example, it should come as no surprise that it was Youngstown, not Pittsburgh, that stepped up and not only adopted but funded Jim Russell’s ideas about a diaspora based economic development effort.

Youngstown has a small but enthusiastic community of activists, bloggers, etc., such as I Will Shout Youngstown. You might say, “Big deal, so does every Midwest city.” True, but in Youngstown they are helping to actually drive civic policy and development.

Defend Youngstown has a roundup of the buzz around this.

Another Indy Econdev Winner

This week we learned of another economic development winner in Indianapolis as the city decided to pull a repeat on some past successes and start targeting life sciences conventions:

The Indianapolis Convention and Visitors Association is putting together an all-star corporate consortium to make the city a hub for medical and life sciences conventions, meetings and trade shows.

The ICVA began running the initiative full-speed this year and already has signed deals to bring 40 medical meetings to Indianapolis through 2015, including annual meetings for the American Association of Diabetes Educators in 2012 and the American College of Sports Medicine and American Chemical Society in 2013.

This is a great example of trying to find synergies between the different strategies Indy is pursuing. Not only are these conventions good in their own right, but it gives the city an opportunity to showcase itself to companies and people in a key target industry. I would not be surprised if, as with amateur sports and music business, Indy isn’t also targeting selected non-profit businesses associated with these conventions to relocate.

The Midwest Character and Geography

Jim Russell points us at a blog post at The Pitch in Kansas City complaining about a description of the Midwest by author Jonathan Franzen. I don’t know the reason this guy doesn’t like it, because I thought it was pretty good, so thought I’d repeat it here:

If you ask what the Midwest means to me, it’s that myth of an innocence prolonged and then abruptly lost. … And somehow this dynamic seems more like a Midwestern thing than a Lower East Side thing or a South Boston thing. I’m not enough of a social historian to have a good theory of why exactly this is true. I do know that, for a long time, you really were isolated in Gopher Prairie, Minnesota, or Webster Groves, Missouri, or Oak Park, Illinois — it really was a long way from the Lower East Side. This is all rapidly changing with our new technologies, and our homogenized exurbs and suburbs, but some of the social and mental habits that grew out of isolation may persist in succeeding generations, leaving vestiges of a “Midwestern” character …

……
[On what counts as the Midwest:] Indiana is a special case. Evansville is the South. Fort Wayne is still Rust Belt, Valparaiso is definitely Midwest. That’s actually an interesting way to approach it–to define where my boundaries of the Midwest run. I think it begins around Columbus, Ohio — Thurberville — and stretches west. Anything below I-70 is basically southern. And that’s true right across Missouri. My Midwest is bounded on the south by I-70. It stretches all the way to about an hour east of Denver and includes pretty much all of the Great Plains states north of I-70. … You can take all of Kansas, some of Oklahoma, too. But not, for example, downstate Illinois. You start hearing the South in people’s voices. They don’t sound like Tom Brokaw anymore.

High Speed Rail

High speed rail isn’t just a point of debate in the US, it’s also being fiercely argued in the UK. Guardian columnist Will Hutton is a passionate supporter:

Economic growth and development are driven by what innovation theorists call general purpose technologies. A general purpose technology is one that transforms economies and societies. The wheel was a general purpose technology. So was the Portuguese invention of the three-masted caravel in the 15th century that allowed ships to become ocean- going, leading to European long-distance trade, colonisation and the emergence of a rich European merchant class. So was the printing press. And so was the railway in the 19th century.

Railways did not just get passengers from A to B faster than horses. The railway consolidated nations and national markets. It created new cities and city suburbs. It allowed the European powers to open up their colonies. Rail transformed the military geography of the world. For the first time, people en masse began to move away from their home towns and villages, massively enlarging the gene pool. Railways, like the internet and biotechnology today, were a genuine general purpose technology.

The intriguing question is whether high-speed rail will be as transformative. My hunch is that it will.
…..

It has been obvious for the last 20 years that cities and city regions are emerging as the new drivers of economic growth, especially if their hinterland has a high proportion of industries requiring a lot of brainpower. These fast-growing “ideopolises” tend, as research at the Work Foundation underlines, to trade with each other rather than poorer, less creative cities.

What the European high-speed network will do is to create a network of fast-growing ideopolises, breaking down borders and exponentially opening up traffic. You need to be on the line…What is needed is political leadership, some dynamism and willingness to take risks.

India’s View on “Brain Drain” and Talent Attraction

Jim Russell points us to a great article on how India looks at the matter of talent and people leaving. While they are keen to attract talent, they take a much more sophisticated look at this than most Midwest cities and states – and have done so for 20 years. It explains a lot about the success of India:

A little over two decades ago, when the then prime minister Rajiv Gandhi — during a visit to the United States to meet with President Ronald Reagan — was asked about the flight of top professional talent from India to the US, he said it was not a ‘brain drain’ as it was being dubbed, but a ‘brain bank’ for India to draw upon whenever necessary.

Indian Ambassador Meera Shankar was asked the very same question by the members of The Indus Entrepreneurs, Washington, DC chapter during an interaction.

She, too, like the former prime minister said, it was not a brain drain, but rather “brain circulation”. “What goes around, comes around, and I have seen that movement of Indians to other countries has had a very positive impact back in India.”

Expanding on this point Shankar said, once Andhra Pradesh was one of the most backward states in India. But now it is one of the most developed, thanks to the engineers, technical experts and scientists who came to the US, gathered useful knowledge and then exported that to their home state.

Shankar also pointed out that thanks to globalisation and connectivity, “no one is completely cut off. There is a two-way flow of ideas, knowledge, and investments, and all that helps to circulate rather than act as a brain drain.”

National and International Roundup

Tammi Jones has a great synopsis of the perspective on civic success put forward by CEO’s for Cities. It’s a report on a speech by Carol Coletta. Definitely worth a great. Good stuff in there about the talent dividend, etc.

City Journal reviews a couple of books discussing the legacy of Jane Jacobs (via @GenslerOnCities)

World Changing contemplates the future of the suburb (via @GenslerOnCities)

A columnist in the LA Times suggests public transit improvements will be tough sell in the US (via @OtisWhite)

An interesting look at some of the latest research on global cities. Hong Kong is coming on strong.

You’ve heard of the Internet Movie Database. Well, now there is the Internet Bike Database, with over 30,000 bicycle pictures. (via @ig_fahrrad)

The economy is derailing mixed use projects in Atlanta. (via @OtisWhite)

More Midwest

A moving story of one Elkhart family’s struggle with unemployment in this economy (via @jwalkersmith)

Can anyone run this place? – An article from Slate on the race for mayor in Flint, Michigan. For the record, Walling won. Via Politics and Place

Chicago
Illinoisans ticketed more often in Wisconsin (Tribune) – Film at 11.
Railroad projects gain steam across Chicago (Tribune)

Cincinnati
Cincinnati hub is shrinking (AJC) – via Nullspace

Columbus
City voters approve income tax increase (Columbus Underground)
Teenagers build affordable LEED Platinum home (Green Building Advisor)

Detroit
Detroit’s culture of corruption springs from the grass roots (Nolan Finley @ Detroit News)
Michigan loses if other states rebound (Nolan Finley @ Detroit News)

Indianapolis
Toll road lease tumbles in value (IBJ)

Louisville
Bon Appetit! America’s top restaurant cities (Forbes) – Louisville gets a mention (via @PossibilityCity)

Twin Cities
Cracks develop in support for Central Corridor LRT (Star Tribune)

Post Script

Here’s a nice video on the Miller House and Gardens, the Eero Saarinen designed house in Columubs, Indiana recently acquired by the Indianapolis Museum of Art. This is one of only two houses ever designed by Saarinen (via Atomic Indy)

Wednesday, August 5th, 2009

Indy: Four Projects

As part of its “Insider’s Guide to Downtown Issue”, Indianapolis Monthly did a full page spread this month featuring Yours Truly discussing four major forthcoming projects: the JW Marriott complex, the convention center expansion, the Indy Cultural Trail, and the Superbowl.

While I thought the editors did a good job of capturing the essence of what we discussed, the format limited the space available to only a few sentences for each project. So I thought I’d give a more complete version here. No, this won’t be a famous Urbanophile “N Part In Depth Review”, but just a quick look at the good and bad of the projects, which Indianapolis is very fortunate to have funded and under construction in the current economy.

JW Marriott Hotel

The Good:

  • This complex will be an economic juggernaut. With 1,600 rooms in the main complex + another 600 in the existing Marriott, this own grouping can provide a Chicago or Atlanta sized block of rooms, putting the city in the running for business meetings it previously could not host. The main tower alone will have 1,000 rooms.
  • The 34 story main tower will add to the skyline significantly on the west side of downtown
  • The main tower is probably the most interesting of any downtown skyscraper. I like the arced shape, which again echoes the library expansion, the steel arches on I-465 at 71st and 86th St., and of course Monument Circle. This sort of acts as a bookend to that side of downtown.
  • It will bring major critical mass to what is down a relatively empty area.
  • Kudos to Dean White who was responsive to the desire for better architecture, and his willingness to iterate the design concept multiple times.

The Bad:

  • The secondary towers are very bland. They look like suburban interstate highway hotels and don’t blend with the main tower at all.
  • The complex is inward facing and does not engage well with the street at all. It is yet another downtown campus.
  • The facade is, well, blue. Very blue. During the day I think there’s a risk this will end up looking like a slightly more transparent version of the Gold Building. OTOH, at night, the transparency makes this look very nice.

Convention Center Expansion

The Good:

  • A solid, workmanlike, unpretentious building like many in Indianapolis.
  • The new entrance on Georgia St. will frame the street and be a nice focal point.
  • The new space will surely generate economic ROI

The Bad:

  • One word: boring.
  • The interior renderings show a very dull space. I sure hope that, at a minimum, they dramatically improve lighting, as well as spruce up the existing dowdy space.
  • With the airport project showing the way for how the architecture of major civic spaces can transform a person’s perception of a city, I can’t help but consider this a major opportunity lost for the city to create another signature design. Especially at the price tag, Indy deserved better. And I know that Ratio Architects has better in them, since they’ve done some great local work like the LEED Gold certified KIB building.

Indy Cultural Trail

The Good:

  • The Trail is everything Indianapolis should be looking to do. It is world class, innovative, looks right in the local context, is environmentally friendly, is helping to reposition the city for 21st century success, and should generate major economic benefits. This is a home run for the city.
  • Taking 18-36 feet of road away from cars and giving it to people.
  • Separate paths for bikes and pedestrians along much of the length.
  • High quality art work along the trail, much of it bespoke commissions.
  • Links disconnected subdistricts of downtown, and serves as the downtown hub of the greenway systems.
  • Significant upgrade of city infrastructure. About $20 million of the $55 million price tag is actually pure infrastructure improvement, including replacing aging sewer lines and such
  • Use of rain gardens for stormwater detention.
  • High density, low mast street lighting makes a dramatic impact on the city and creates a 24 hour space.
  • Financed with primarily private dollars, notably very generous contributions from Gene and Marilyn Glick, with some federal grants. No local tax dollars are involved beyond in kind contributions from the city
  • $3 million endowment to be established to maintain the Trail over time.
  • Private non-profit organization Indianapolis Cultural Trail, Inc. chartered to manage, maintain, and market the Trail over time.

The Bad:

  • The trail is overly festooned with logos and signage, but I guess that’s the price we pay for a privately financed civic amenity.
  • I wish the budget had been increased in order to replace the stop light mast arms with the versions used in the Wholesale District. This is a big gap in the project, IMO, since not only would that have been a huge upgrade, it would be helped establish those as a city standard.

Super Bowl 2012

The Good:

  • The renderings of the Super Bowl village on the streets were conceptual drawings for the sales cycle, so we shall see what the real ones look like. I do like the idea of covering the streets, and the potential for reuse of modular canopy units.
  • There is no doubt in my mind that the city will execute on this. Nobody hosts events like Indianapolis
  • Call me crazy, but I think there’s a possibility Indy could blow this thing out of the water and potentially be a semi-regular cold weather city host.
  • The East Side legacy project.
  • Mostly privately funded project.
  • I believe this will be a major coming out party for Indianapolis.

The Bad:

  • The current economy means that a lot of the spin-off development won’t happen. The Super Bowl would have been a major impetus to get some projects done, but without financing, many plans won’t happen, alas.
  • There’s a risk that preparing for what is, after all, only a two week event will suck up bandwidth that should be going to other critical issues.

I also noted that there is a gap that needs to be filled. Namely the streets around Lucas Oil Stadium need major streetscape upgrades. The concrete plaza around the stadium is also quite weak. These are clear evidence of the budget challenges on the project because the city did it right with Conseco Fieldhouse where it extend the Wholesale District streetscape concept. In addition to doing this around LOS, the power lines need to be buried. Part of this should include a power-line free South St.

For those who prefer the print edition, the feature is on page 63 of the August issue. Thanks to Indy Monthly for the feature, and for doing such a fair job of representing what I said in distilled form.

Sunday, August 2nd, 2009

Cincinnati: The Great Streetcar Debate

The streetcar craze is sweeping America, and it has come to Cincinnati as well. The city is proposing to build a $185 million system linking the riverfront and downtown with Over the Rhine and the University of Cincinnati. Alas, I cannot seem to locate a good jpeg map of the proposed system, but there’s a Google maps version available at a booster site called Cincinnati Streetcars. The city of Cincinnati also has an official site for the project. The city is projecting an economic impact of $1.4 billion from this project.

Here’s a brief 1:40 video of Cincinnati Mayor Mark Mallory making the pitch for streetcars:

Not everyone is quite so enthusiastic about rail, however. A coalition led by the Cincinnati chapter of the NAACP and an anti-tax group called COAST (Citizens Opposed to Additional Spending and Taxes) is leading the charge on the opposition. Cincinnati has a self-amendable city charter with California style initiatives. This group is trying to bypass the city government with a plan to force a vote on an amendment to the city charter that would prohibit the city from implementing any type of rail transit solution.

Streetcar supporters have cried foul, among other things claiming that the amendment is deceptive, even illegally so, because it is being billed as an anti-streetcar amendment when it in fact bans all rail. Well, it is true it would ban all rail, but can you really blame its proponents for doing that? Any ambiguity would clearly be exploited to bring back streetcars under some other nominal guise. Regardless, this petition drive seems to have captured the momentum and has put the pro-streetcar side on the defensive.

The rhetoric has continued to ratchet up, and both sides are positioning this as some sort of existential, good vs. evil type decision. For example, in this brief 1:50 video of the launch event for the Cincinnatians for Progress Campaign, Mayor Mallory says: “Make no mistake, the nay-sayers, the people who say we shouldn’t do this [streetcars], are opposed to the city.” and “For generation after generation, there are two factions of folks in this city: the people who want to see us advance and those who want to see us stay stuck in the mud.” Watch for yourself:

Seems a bit hyperbolic to me. On the other side, the COAST blog has all the indignation and sarcasm we would come to expect from the various “anti” blogs out there. It’s almost a genre in its own right. Some of their quotes include:

  • “Shooting the messenger is always a loser move. Now it’s apparently some sick sort of ‘progress.'”
  • “They think you’re too stupid to known what’s best for your own city.”
  • “So, COAST poses the question to Cincinnati: Which local politico most resembles Professor Harold Hill, seducing the City with imaginary solutions to perceived community problems, fleecing the populace in the process?”

Much of the COAST/NAACP rhetoric focuses around a “let the people vote” storyline. I actually don’t think it is necessarily a bad thing to hold referendums on projects that require a major tax increase. In fact, Cincinnati did previously vote on – and vote down – a sales tax levy to fund a light rail system. But one does not have to be anti-democratic to point out the flaws in a system of excessive citizen initiatives. California is Exhibit A here. And we have a representative democracy instead of Athenian style direct democracy for very good reasons.

I think both sides are talking past each other and missing important points, so I’d like to make a few observations on this.

1. The African American-tax protester alliance. A partnership between an African American organization and one that I presume is dominated by Republicans might seem odd, but it’s one I’ve seen recur. There’s a sort of natural kinship between African Americans, working class whites, and libertarian leaning Republicans when it comes to projects that are viewed as being left-leaning and oriented towards elites. For example, this is the coalition that successfully opposed city-county merger in Louisville, Kentucky twice. They even had an organization called CO$T (Citizens Opposed to Spending and Taxes).

It would be interesting to see if any Republican groups attempted to build something more than an ad-hoc marriage of convenience out of it. African Americans have long been among the most loyal Democrat voting blocks and maybe this sort of thing is a route back into that community for Republicans. Something to think about.

2. Blocking and tackling and race relations are key. This shows the importance of both maintaining a tight control on city finances and operations, and good race relations, both problems in Cincinnati. The city has budget deficit of $28 million that is expected to grow to $40 million next year. It also has well-known financial issues with a stadium tax, and it came to light that the city signed perhaps the most one-sided lease in the NFL with the Bengals. It obligates the city and county to theoretically unlimited commitments to supply the team with future amenities that become prevalent in the league. When you have a series of things like this, it leaves an opening a mile wide for opponents of new programs to drive a rhetorical truck through. “How can the city spend $200 million on street cars when it has a $40 million budget deficit?” There’s a response to this, but the circumstances themselves create a disadvantage. Had Cincinnati managed its budget in this downturn as well as say Cleveland has, it would be in a much stronger position to make the case for investment.

The problem of race relations in Cincinnati is well known and there is no quick or easy fix to it. Clearly, this isn’t a classic case since the mayor pushing the streetcar system is black. My understanding is that there may be some sort of personality conflict involved here. But I’ve cautioned rail advocates in many cities that they have to be super-careful not to target transit as being for well-off white people and/or as a gentrification generator. It’s very easy to get sideways here, particularly when you’ve got communities that are more transit dependent which have gotten very inferior service in many Midwestern cities for quite some time.

3. The pro-streetcar marketing campaign is very weak. There’s definitely a case to be made for streetcars in Cincinnati, but the pro-streetcar side is not making it very well. For example, I did any number of google searches like “Cincinnati streetcar map” to find a readily embeddable map for this post and couldn’t find one. I go to that Cincinnati Streetcar site and click the “What” link, and instead of an elevator pitch about what the project is and what they want to achieve, we are treated to a discussion of what streetcars are and are not generically as well as information about how to board that makes some dubious claims. Click their “News” link and it simply tells me to click another link to their blog. (This does have a map, incidentally, but the actual streetcar proposal is one of the least prominent things on it).

The city’s site isn’t much better. It’s full of gigantic PDF’s and what would appear to be outdated cost information. It also talks a lot about alternatives and not much about a preferred route, so I’m not even sure they have a specific route in mind yet.

Plus the arguments are very simplistic, reminiscent of those for the Manhattan Airport, and won’t convince anybody who isn’t already on board. For example, in the Cincinnatians for Progress video above, Mayor Mallory says, “When a city puts rails in the ground, economic growth follows.” That’s good for a pep rally, but you’ve got to be able to convince people who are skeptical but convincable. Don’t worry about COAST as you’ll never win them over. But you’ve got to make serious, reasoned compelling arguments, not just generic talking points. Here are some gems from the Cincinnati streetcar site:

  • “Riding a streetcar is much easier than riding a bus. Because passengers can see the rails in the ground, they know where the streetcar is going.”
  • “The streetcar is fixed to a route–there is steel in the ground. A developer knows the route will not change.”
  • “Fixed tracks make the streetcar easier to use. The route isn’t going to change. Passengers can see where the tracks run so there aren’t any surprises.” (These people must have a rather low opinion of their potential ridership to keep bringing up things like this – particularly when they note that it is not for tourists or other people who might expected to only use the system once and thus have justifiable angst about it).
  • “Streetcars promote growth add economic development in a myriad of different ways. The make downtown housing more affordable, bring in more customers to support downtown retail, improve property values, create a more vibrant city, and increase public safety by keeping more eyes on the street which improves the overall business climate.”

These are platitudes. Also, I’m very skeptical of the development metrics. There is already significant development occurring in OTR and downtown. How can you attribute incremental development accurately to streetcars? From what I’ve seen, when pushing for a major investment such as a stadium or a streetcar line, people tend to claim anything that happens after it opens is directly a result of that investment. That’s a dubious proposition. Plenty of places that don’t have streetcars – for example, Indianapolis and Columbus – have been seeing downtown investments in the multi-billion dollar range.

To win over the voters you have to do more than give the standard issue talking points applicable to any city and treat your opponents like obstructionists. You’ve got to give a compelling case for why streetcars are important in Cincinnati and what makes them a particularly good fit for here.

And the pro-streetcar side has handed PR victories to opponents by, for example, doing out of town site visits in a manner that let them be portrayed as simply junkets. The pro-streetcar side needs some new marketing and PR in the worst way.

4. Urban progressives need to learn to appreciate the legitimacy and importance of cost and tax efficiency. I believe we need to invest in our cities. It is going to take spending to renew our worn out infrastructure and build the 21st century amenities needed to be successful. But we’ve got to do that while keeping a close eye on the bottom line. Tax rates matter and places that have high taxation put themselves at a competitive disadvantage. I think this is missed by many urban progressives because they come from the political center and left while concern over taxes is generally associated with the free market right, which seldom ever even talks about inner cities. And also the ideas that fuel progressivism tend to originate in places where high taxes have less of an impact – New York, San Francisco, etc. Those are places where people will pay any price, bear any burden for the privilege of living there. And many of their residents are either well off or otherwise insulated from the negative consequences (for example, students).

But consider the working class for a moment. Think about the factory worker or the truck driver or the teacher or any of the 50% of the city who make the Cincinnati median family income of $37,543 or less. Think about trying to support a family of four on that. Even an extra $100 bucks a month out of their pocket hurts a lot. This is something a lot urban advocates don’t think much about, or certainly they don’t talk much about it if they do. Even fairly small differences in taxation can create incentives for people with modest incomes to leave.

So it is important when considering investments in urban infrastructure to be able to focus on those that are going to generate a positive ROI in terms of property tax base, jobs, increasing median incomes, population attraction, etc. We need to approach these projects not just as things we like and think would be good for the city, but with a hard nosed business case approach as well. I’m not saying you’ll always have rock solid pro formas. There are always assumptions and some element of “build it and they will come” even in purely private sector investments. But Midwest cities cannot afford to price themselves out of the market because they cannot yet command a substantial price premium. I think they need to make investments in differentiated environments (see below), but definitely with an eye towards cost.

5. Opponents lack a vision for civic success. As for COAST and company, I am very much struck by their lack of anything positive they want to accomplish. They appear to be a purely negative organization. They oppose things, namely spending and taxes. But they don’t seem to be in favor of anything. Mayor Mallory above said of people like this, “They don’t want to see any progress happen.” I said his rhetoric was hyperbolic, but in this case I can’t help but think it is the truth.

As I said above, I believe in fiscal discipline. But that is, by itself, a completely insufficient condition for urban success in the Midwest. COAST says of themselves, “Our Mission is to limit increases in taxes and spending to within the rate of inflation and to stop the abuse of power by government officials throughout Ohio.” Ok, who could be opposed to stopping abuse of power. But I find the first part interesting. You see, Ohio is already a high tax state. If you limit increases to the rate of inflation, you are still left with a high tax state.

Let’s say COAST accomplishes their goal of killing all these programs. What then? Is growth and prosperity magically going to wash over Cincinnati? Will there be a boom in downtown development if the streetcar is defeated?

The problem with advocates of fiscal restraint is that they have a tendency to become one trick ponies. They act as though all you need is low cost government to be successful. And in fact, all things being equal, that’s generally a boost to growth. The problem is, all things aren’t equal. Saying your strategy is low spending and taxes is like the CEO saying his business strategy is simply low costs. That doesn’t help you if you are a buggy whip manufacturer. And unfortunately, that’s where most Midwest cities find themselves.

Cincinnati is where it is and is what it is because of the river era, and to some extent the railroad and industrial era. If Cincinnati weren’t here today, would anyone think to create a major city there? Unlikely. It’s like most places in the Midwest. The raison d’etre they once had is gone and they need to reinvent themselves to be relevant in the future. Reinvention is about strategy, it’s about selecting customer segments, entering new markets, and leaving old ones. It’s a challenging, painful process. But businesses that stay successful over the long haul are constantly doing this to keep up with the times. IBM used to be in the punched card business. Intel’s core business used to be memory chips. Neither is the case today.

What COAST and others like them lack is any sort of vision about what Cincinnati actually needs to be in order to be successful. In the free market, companies fail. In fact, most of them ultimately do. So too it is with cities. Creative destruction is real. Cincinnati has no intrinsic right to success. It will only earn it by fighting every day to make itself relevant for the 21st century. A platform that only exists to oppose things is by definition inimical to that end since change is necessary for sustained success.

The Case for Streetcars in Cincinnati

First, let me say that I’m generally skeptical of light rail solutions in cities like Cincinnati, and streetcars are a variant of light rail. But while I haven’t studied the particulars of the Cincinnati case enough to make a formal endorsement, it strikes me that there are any number of arguments to make in favor of this proposal and it seems like a generally good one.

  • It is, in effect, a rail transit pilot project for Cincinnati. Businesses like to do pilots and trials before they commit to a major investment in new product areas. Similarly, Cincinnati can start with this streetcar system and if fails, it’s not good, but it is certainly better than if they had built a multi-billion regional rail network. And if it succeeds, it has made the case for expansion of the system.
  • The proposed route makes sense. By linking the University to OTR and downtown, you are linking three key origin and destination points. All of these are major strategic focus areas for the city, so investing in this routing is strategically aligned with other things the city is doing. OTR is a bit of a hike from downtown and this will give better access to residents there to downtown and the waterfront. Someone will correct me if I’m wrong, I’m sure, but I also don’t believe this is a rail line that merely replaces existing bus service.
  • As I’ve noted, Cincinnati is in a challenging spot in that it is in a high tax state, and it has a central city that has structurally worse crime, schools, etc. than the suburbs. I’d suspect the taxes are even higher too. At a minimum, it will be impossible for Cincinnati to attract residents and businesses into the city merely by pitching itself as a low cost place to do business since it will never be low enough cost to offset its other structural disadvantages. It can never get away with being an NYC type of place, but it has to figure out a market it can serve and create an environment that is differentiated enough with appeal to that market such that it overcomes the other considerations. This is likely to involve targeted investment in urban infrastructure and amenities, and as these things go, the streetcar project is far less expensive than many. It’s only about a third the cost of the football stadium, for example.
  • The streetcar project cost could be reduced further by lopping the Uptown connector to start. Also, the city is banking on some federal funding. That’s a good test. Can the city get those federal funds? If not, maybe the project is not such a good idea. But if the city is right, then maybe the actual local part of cost is even more modest. I don’t know how the city plans to fund this completely since conveniently none of the web sites I looked at had that information, but if it will throw off as much development as the city claims, TIF should be able to take care of much of the city’s share. My main concern would be the operating expenses, to make sure they are built in up front and that there’s a plan for capital maintenance.
  • So many places want to implement rail to create density. The beauty of this line is that it serves areas that are already dense. Thus, a lot of the built environment in places like OTR is already in place and waiting. The ingredients are there and it is not going to take a wholesale makeover of an area to see the benefits. Heck, even Mr. Anti-Rail Wendell Cox said, “Cincinnati is a veritable treasure trove of middle and late 19th century architecture. Surely Cincinnati has more from this era than any city not on the eastern seaboard. This can perhaps best be seen just north of the downtown area (central business district), in the ‘Over-the-Rhine’ neighborhood.” You have here exactly the types of areas that might conceivably be supported well by a streetcar system.

One thing I’d add to the Cincinnati plan: make the whole thing fareless. And maybe adjust the timing. Conceivably the midst of the recession is not the time to be taking this on. Perhaps a better approach would be to look to defer any major expense on this a year or two to let the economy heal first, while continuing with the sales job, financing, planning and engineering, etc. The public might be in a better mood to invest then as well. The Cincinnati Enquirer has advocated this approach in an editorial against the streetcar plan. I’m not saying you have to do this, but clearly the current approach is generating blowback that could ultimately have negative consequences in the form of the charter amendment. Maybe some sort of cease fire would be in order.

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