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Monday, June 11th, 2012

Chicago: The Second-Rate City?

City Journal is the quarterly magazine of the Manhattan Institute, a free market think tank. I really consider it a must read for the serious urbanist. Clearly their political point of view does not jibe with that of many progressive urbanists, but even so, every issue has articles that will appeal to even those who may generally share an opposing political persuation. Consider for example Nicole Gelinas’ piece in praise of NYC Mayor Bloomberg’s transportation policies.

I’m delighted to make my debut appearance in City Journal’s Spring 2012 issue with an article on Chicago called “The Second-Rate City?” In it I pull no punches laying out the bigtime under-performance and challenges facing the city. To wit:

1. Chicago was a national leader in urban revitalization in the 1990s, outperforming competitors like New York and LA. But these trends totally reversed in the 2000s and Chicago is increasingly falling behind on a relative, if not absolute, basis. “But despite the chorus of praise, it’s becoming evident that the city took a serious turn for the worse during the first decade of the new century. The gleaming towers, swank restaurants, and smart shops remain, but Chicago is experiencing a steep decline quite different from that of many other large cities. It is a deeply troubled place, one increasingly falling behind its large urban brethren and presenting a host of challenges for new mayor Rahm Emanuel.”

2. Chicago’s problems span a wide gamut, but weak demographics, a weak economy, and fiscal problems all loom large. “Chicago’s economy also performed poorly during the first decade of the century. That was a tough decade all over the United States, of course, but the Chicago region lost 7.1 percent of its jobs—the worst performance of any of the country’s ten largest metro areas. Chicago’s vaunted Loop, the second-largest central business district in the nation, did even worse, losing 18.6 percent of its private-sector jobs, according to the Chicago Loop Alliance. Per-capita GDP grew faster in New York and L.A. than in Chicago; today, Chicago’s real per-capita GDP ranks eighth out of the country’s ten largest metros.”

3. Key problems include:

– Poor leadership at the state and city levels that allowed huge unfunded liabilities to be incurred. “The debt and obligations begin to explain why jobs are leaving Chicago. It isn’t a matter, as in many cities, of high taxes driving away businesses and residents. Though Chicago has the nation’s highest sales tax, Illinois isn’t a high-tax state; it scores 28th in the Tax Foundation’s ranking of the best state tax climates. But the sheer scale of the state’s debts means that last year’s income-tax hikes are probably just a taste of what’s to come. (Cutting costs is another option, but that may be tricky, since Illinois is surprisingly lean in some areas already; it has the lowest number of state government employees per capita of any state, for example.) The expectation of higher future taxes has cast a cloud over the state’s business climate and contributed to the bleak economic numbers.”

– The lack of a calling card industry that will generate outsized economic output and financial returns to the city. The flip side is that the city is well-diversified, but diversity is about wealth preservation, not accumulation. Mark Zuckerberg didn’t get to be a billionaire through diversification. “Chicago, however, isn’t the epicenter of any important macro-industry, so it lacks this wealth-generation engine. It has some specialties, such as financial derivatives and the design of supertall skyscrapers, but they’re too small to drive the city. The lack of a calling-card industry that can generate huge returns is perhaps one reason Chicago’s per-capita GDP is so low. It also means that there aren’t many people who have to be in Chicago to do business. Plenty of financiers have to settle in New York, lots of software engineers must move to Silicon Valley, but few people will pay any price or bear any burden for the privilege of doing business in Chicago.”

– The fact that Chicago’s global city footprint is too small to carry the region on its own, though that seems to be the only real strategy the city has. Contrary to one blog, I do not say that Chicago isn’t a global city, merely that it needs to be much more, and that Chicago still should to a great extent be viewed as a regional capital city, and the capital of a struggling region at that.

– A very poor business climate, especially for small business. “Red tape is another problem for small businesses. Outrages are legion. Scooter’s Frozen Custard was cited by the city for illegally providing outdoor chairs for customers—after being told by the local alderman that it didn’t need a permit. Logan Square Kitchen, a licensed and inspected shared-kitchen operation for upscale food entrepreneurs, has had to clear numerous regulatory hurdles: each of the companies using its kitchen space had to get and pay for a separate license and reinspection, for example, and after the city retroactively classified the kitchen as a banquet hall, its application for various other licenses was rejected until it provided parking spaces. An entrepreneur who wanted to open a children’s playroom to serve families visiting Northwestern Memorial Hospital was told that he needed to get a Public Place of Amusement license—which he couldn’t get, it turned out, because the proposed playroom was too close to a hospital!” (Sadly, I’m told Logan Square Kitchen will close next month despite the red tape reduction Rahm announced there after my article had already gone to press).

– Corruption and Chicago’s unique “culture of clout.”

4. What Rahm needs to do to start turning the ship around. While my article is certainly negative towards Chicago in many ways, you’ll note that I’m fairly positive on Rahm. And while it isn’t in the piece, I’m happy to go on record as saying he’s been a breath of fresh air in the city. (Though of course I don’t agree with 100% of what he’s done).

Click through to read the original article for the whole thing. I intend to delve into all these things in more depth in coming weeks in a series of follow-up blog posts here.

Some have accused me of being overly negative on Chicago in this piece. I think the facts speak for themselves on the city’s performance. And consider this: in the national media, outlet after outlet like the Economist and Newsweek have come in and done what are nothing more than outright puff pieces on the city. If nothing else it’s past time for a corrective. And I didn’t even go into everything I could have. Another common complaint was that I ignored the rising crime problems, for example. Chicago’s murder rate is up 36% this year through May.

Perhaps I have soured a bit in the last couple years on Chicago’s performance and strategic position. In that light, after wrapping up this blog series, I’ll probably go mostly silent for a while. I’m not interested in endless pilings on. Especially as, though I live in Providence, Rhode Island right now, I consider myself half Chicagoan, half Hoosier. I love Chicago and think it’s an amazing city. Perhaps that’s why I’m so tough on it. It’s hard to watch a city you love not living up to all it can be.

Comments welcome as always.

80 Comments
Topics: Demographic Analysis, Economic Development, Globalization, Public Policy, Strategic Planning, Urban Culture
Cities: Chicago

80 Responses to “Chicago: The Second-Rate City?”

  1. the urban politician says:

    Peter,

    To be fair, you are incorrect that Chicago’s population loss is largely due to the CHA demolition. It is well documented that most of the population loss was black people willingly choosing to move to the suburbs. CHA displacement was only a small proportion of this.

  2. Peter says:

    tup, I think you underestimate the effect of the CHA’s Plan for Transformation on the City’s population. I work in an industry that interacts with CHA a lot. Over 25,000 public housing units were demolished in the last decade or so. The CHA plan was to demolish and replace about 1/3 of those units. To date maybe 25% of that 1/3 has been built. Why do you think the median household income of Chicago increased at a much faster rate than the country?

    As the CHA brings new PH units on line, developers are required to call previous residents of that site and other demolished sites. In the vast majority of instances, the previous residents can’t be found. Owners of the new developments actually have a harder time filling the PH units than the market rate and affordable units.

  3. I think maybe you all are talking about two different figures (metro vs. municipality). AFAIK, the Census Bureau does not even release municipal level demographic estimates as part of its population estimates program, though you could pull it from the ACS.

  4. @TUP, you say that I cherry pick data to make Chicago look bad. I would simply submit that all those national media pieces like the Newsweek piece or the Tom Friedman column on Rham did far more cherry picking than I did to show Chicago has a glittering Oz. And those pieces likely will end up with much higher national distribution.

  5. Peter, those are the estimates, but I believe for municipalities, only total populations, not racial and ethnic breakdowns, are available

  6. Peter says:

    That’s what I thought, so SGalardi, is wrong of course. No information since 2010.

  7. SGaldi says:

    Peter, public housing demolition has almost nothing to do with Chicago’s population loss.

    Look at the population trends by neighborhood. The vast majority of neighborhoods with population loss have no public housing.

    And there aren’t enough public housing units to make a meaningful difference. Chicago lost over 200,0000 residents, which is far, far greater than the total CHA population.

    And it’s irrelevent anyways. HUD requires that all demolished public housing units are replaced at a 1:1 level in the same municipality. Those who don’t receive the new units are given Sec. 8 vouchers.

    There have been many studies on the relocation patterns of former CHA housing residents. The studies all conclude that the vast majority of former CHA tenants still live in Chicago, and in relative proximity to their former residence. This is why Sec 8 voucher usage skyrocketed in places like South Shore, and why the neighborhoods have suffered decline.

  8. SGaldi says:

    And, Peter, the Census does release the annual estimates every April 1. You can look it up yourself at American Factfinder.

    And yeah, they are only estimates, but they show a continuation of the same pattern we see in the decennial Census. Chicago is the big outlier, along with the other major Midwest cities.

  9. Peter says:

    SGalardi, I would love to see those studies you are referencing. 25,000 public housing units is consevatively 50,000 people and likely much more. There are vast census tracts where former CHA sites like robert taylor, abla, henry horner, ida b. wells, have lost massive amounts of population, some tracts lost 100% of the population from 2000-2010. Again, the former residents in most instances can’t be located by the developers to fill the new replacement units.

    CHA does not receive Section 8 vouchers on a 1:1 ratio for displacement of public housing residents. HUD has no where near that amount of money that would require.

    “And, Peter, the Census does release the annual estimates every April 1. You can look it up yourself at American Factfinder.”

    I did, there are no City estimates. Link?

  10. SGaldi says:

    Peter, first, your facts are wrong. There was no net loss of 25,000 CHA units. There is something like 12,000 (net) units lost through the entire CHA Plan for Transformation, which began long before 2000.

    But, let’s take your claim as fact and say that 25,000 CHA units were destroyed, and not one resident stayed in Chicago (both ridiculous assumptions, obviously). Even discounting 50,000 net loss purely through our fictional CHA scenario, Chicago would have easily the second worst population loss in the nation.

    So, even taking your assumptions as fact, it wouldn’t change a thing. Chicago would still have massive population loss, trailing only Detroit.

    Chicago has something like 77 community areas, and I think 62 experienced population loss. Only a small fraction of those 62 community areas had even one unit of demolished public housing, so obviously CHA isn’t a major culprit.

  11. SGaldi says:

    And, Peter, you’re wrong about HUD requirements (I have worked in management level in affordable housing for 12 years).

    Sec. 8 saves HUD big money relative to public housing unit costs, so they are happy to offer 1:1 voucher issuance. And Sec. 8 costs aren’t fully covered by fed. money. States and localities pay a share of costs, depending on whether we’re talking about “sticky” vouchers (a topic for another day).

  12. Peter says:

    SGalardi, the Plan was for the demolition and rehab of 25,000 public housing units. It began in 2000. You are correct that at the moment, 25,000 units haven’t been demolished, probably half that have been. But thousands of units sit vacant awaiting demolition and redevelopment. Cabrini row homes, Lathrop Homes are examples.

    As I stated previously I am in an industry where I work closely with CHA. They do not have 1:1 voucher replacement.

    Can you provide a link to your source for 2011 City of Chicago population estimates?
    I never claimed the whole population loss in Chicago was due to CHA demolition.

  13. Peter, the best research I know on the population details of Chicago is Ed Zotti’s Straight Dope report. He takes a somewhat more optimistic view than I do, looking a longer term. His research came out after I submitted my story. I think my take is fair (because other cities had similar trends to Chicago and did better on the whole), but he provides further useful detail:

    http://chicago.straightdope.com/sdccensus1.php
    http://chicago.straightdope.com/sdccensus2.php
    http://chicago.straightdope.com/sdccensus3.php

  14. Anon says:

    “Mark Zuckerberg didn’t get to be a billionaire through diversification”

    But Warren Buffet did.

  15. the urban politician says:

    SGaldi reminds me of a person named ‘Crawford’ on Skyscraperpage who famously has a disdain for Chicago.

    Hmmm….

  16. MarthaB says:

    Why are people arguing about public housing? It has little to do with the population loss.

    Look at the maps of population decline by neighborhood. By and large, the declining neighborhoods don’t have projects. So it’s basically irrelevent.

    And what about the white population loss? Chicago had worse white population loss than any other city in the U.S. Were all those whites supposedly living in the projects too?

  17. the urban politician says:

    MarthaB,

    My apologies, but you are just too easy to pick on.

    People here are arguing about facts. Based on the unsubstantiated drivel we’re hearing from you, I’d gather ‘facts’ are not your cup of tea.

  18. MarthaB says:

    Urban Politican, do you not regard decennial Census estimates as “facts”? You think the Census results are “unsubstantiated drivel”?

    My guess is that you’re wildly biased, and therefore choose to ignore or otherwise dismiss the Census results.

    Why should we believe your unsubstantiated anecdotes over the rigorous Census methodology? And, if you think the Census is flawed, then why isn’t it similarly flawed for all big cities, many of which have similar issues as Chicago?

    The fact is that Chicago has the second greatest population loss in the U.S. per the Census. If you want to ignore the African American loss, fine. But what’s your excuse for the White loss?

    Again, why did Chicago lose more whites than any other city in the U.S.? What’s the reasoning for this? Why are previously struggling cities like Philly gaining whites (heck, basically all cities outside the Midwest are gaining whites), while Chicago suffers signficant white losses?

  19. @MarthaB, what numbers are you looking at for white population? Between the 2000 and 2010 Census, Chicago had only the 7th highest total decline in non-Hispanic population. Philly was actually #1 in total non-Hispanic white population loss.

  20. the urban politician says:

    Greg Hinz mentioned your article in his blog at Crains.

    A commentator named Eric M really critiqued your arguments, btw:

    http://www.chicagobusiness.com/article/20120615/BLOGS02/120619858/is-the-second-rate-city-hindered-by-a-diverse-economy

  21. SGaldi says:

    Crains Chicago Business is the official media mouthpiece for the city’s business interests. They’re essentially shills.

    They would be bereft of their duties if they didn’t criticize the blog article.

    Re. the Crains article, Chicago doesn’t lack for leadership, as was claimed by Greg Hinz. It suffers from too much centralization of leadership in the mayoral office, IMO. The council and business community are reduced to sycophants.

  22. Former New Yorker says:

    Apparently, hell hath no fury like an amateur urbanologist and blogger. Why so bitter, Mr Renn. If you could take your nose away from the pool of cherry-picked stats you’ve compiled to prop up your thesis, perhaps you could conduct an honest assessment of Chicago and its flaws, challenges and successes. Your critique of economic diversity and Chicago’s place or not as a “global” city is particularly nauseating and uninformed as the reader can only conclude that the author has many biases.

  23. Let me just say that I don’t think Chicago even deserves to be named in the same breath as Detroit. But I do believe Chicago is falling behind on a relative basis versus traditional large tier 1 piers other than LA (which has its own set of problems).

  24. MarthaB says:

    Outside of rah-rah boosterism, I think it’s almost impossible to argue that Chicago isn’t closer to Detroit than to first-tier cities.

    If you look at relative trends for the most relevent metrics, in every single one, Chicago is closer to Detroit than to first-tier cities.

    This is true whether one looks at population growth, economic growth, property values, foreclosures, outside investment, crime rates, education rates or spatial changes to metropolitan development patterns.

    I really can’t think of a single notable metric where Chicago is currently performing more like a first tier city than like a bigger Detroit/Cleveland. Can anyone name one?

  25. the urban politician says:

    MarthaB,

    Most people could name several.

    But there is no point discussing facts with you. You long ago established that making up your own statistics is how you roll.

    And most of us have better things to do.

  26. Alon Levy says:

    Martha:

    Okay, let’s look at real per capita income growth over the decade, 2000-10:

    New York: 7%
    Los Angeles: 5.2%
    Chicago: -1%
    Washington: 11.4%
    Boston: 5.3%
    Bay Area: -8.6%
    Dallas: -3.8%
    Philadelphia: 7.7%
    Houston: 1.9%
    Atlanta: -9.9%
    Miami: 3.8%
    Detroit: -10.7%
    Seattle: 1.7%
    Phoenix: -1.7%

    This is for CSAs where available, and MSAs otherwise (MSAs fail to capture the population shift within SoCal toward the poorer Inland Empire, but are otherwise very similar in results). Chicago here ranks 9th out of the top 14 metro areas.

    Incidentally, correcting for local costs of living will more or less keep the ordering of the metro areas, but dampen the trends – i.e. the faster growers (except DC) will look somewhat worse and the negative-growers will look somewhat better.

  27. I’ve lived in Chicago on and off for a decade and there’s so much to chew on in the points you’ve made.

    But just to focus on one: the small business atmosphere and bureaucracy. There’s still a huge reluctance to license food trucks and the like here – and if Chicago does have a business segment that could be one possible calling card, its collective cuisines and businesses around those cuisines would be a candidate.

    And yet the city has dragged its feet on innovative places like Logan Kitchen and like any number of food trucks.

    I get that the city wants to ensure that safety regulations are in place, but there’s a compromise in the middle that should have been reached long ago. Chicago still only allows premade items in the handful of food trucks they have now.Contrast that with Madison, WI where 50+ food trucks make fresh food every day.

    I realize that Chicago is a city with a significantly larger footprint, and the management of those trucks would look different than in Madison, but instead of encouraging this growth, the city has done what it seems to do best: throttle and choke any substantial growth in the sector while trying to figure out who or what will control and/or benefit from that sector.

  28. RichS says:

    Martha B- would like to contact you – pls call 312-497-1818

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