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Thursday, December 19th, 2013

Srirachagate Gives a Window Into California’s Business Climate Problem


Sriracha Sauce. Image via Huffington Post

I love Huy Fong Foods’ Sriracha sauce as much as the next guy, which is to say a lot. The red hot sauce with the rooster on the bottle has a cult following across the nation. So unsurprisingly it made national news when the city of Irwindale, CA sued to shut down production at the company’s processing plant there. The processing of the hot peppers, done during only a limited time of year because Huy Fong only uses fresh peppers, was alleged to be causing a noxious odor in the town.

This looks like a pretty garden variety dispute between neighbors and an industrial business. Clearly industrial odors can be a problem. I don’t know how long they’ve been in Irwindale, but Sriracha has been around a long time so I’m a bit skeptical something changed just this year. Regardless, I don’t think odor complaints are necessarily evidence of a bad business climate as there could be a legitimate problem.

Then came the state order to stop shipping the product for 30 days. The state of California decided that to reduce the risk of food borne illnesses, the sauce had to sit for 30 days before it can be shipped. Keep in mind, this is for a product that has never had a complaint against it for making someone sick.

How many businesses can afford to halt shipments for a month and survive? Sriracha has a cult following and so they’ll likely overcome it. But many businesses wouldn’t have this luxury. When their customers can’t get product, they lose the business. Indeed, I wouldn’t be surprised if restaurants do turn to alternative suppliers. At a minimum, Huy Fong is going to lose a lot of sales.

Who in their right mind would want to do business in a state like this? And this is far from the worst case. It just so happens that because this is such a popular consumer product, it’s visible. If even these types of companies get shut down, how much more so a firm where this wouldn’t create an avalanche of bad publicity?

Urbanists put way too little thought into business climate, which can sound like such a shady way of saying cut services and taxes. But taxes are often the least part of it. It’s the regulatory apparatus that makes doing business in many places too painful to contemplate. This even affects city-suburb investment patterns. I’ve observed that in many places, the urban core is a flat out terrible place to do business, unless you’re very politically wired up.

This doesn’t usually bother urbanists all that much until a trendy business they like gets affected. For example, an urban farming supply shop in Providence called Cluck got sued when they tried to open. The beautiful and the bearded were outraged and the shop was ultimately approved. But there’s no similar visibility or outrage when a Latino immigrant runs into the red-tape buzzsaw when he tries to open a muffler shop.

If we want to promote investments in our cities and states, we need to be focused on basics like an objective, predictable regulatory framework that operates in the timely fashion and in which arbitrary denials, rule changes, and such are minimized. This is way more important to attracting capital investment than sexier items like streetcar lines.

Wednesday, December 18th, 2013

Urban Skiing in Detroit

This week a video of some urban adventure types in Detroit that’s been making the rounds. But instead of scrapping or whatever it is people do in Detroit’s abandoned skiing, they decided on an urban ski adventure. There’s some pretty cool tricks in there. If the video doesn’t display for you, click here.

h/t Barrel~dEM

6 Comments
Topics: Urban Culture
Cities: Detroit

Tuesday, December 17th, 2013

How Homeowners Associations Stifle Expression and Sustainability by Kaid Benfield

[ Kaid Benfield is Director of Sustainable Communities for the Natural Resources Defense Council who blogs at their Switchboard site as well. I’ve been meaning to repost this piece in which he examines the barriers created by homeowners associations for quite some time. I’m glad to finally be able to share it with you – Aaron. ]

Eagle Pointe Homeowners Association (by: newokadoll, creative commons)

In the 1980s, I lived in a small DC condominium complex in the highly walkable Adams-Morgan neighborhood.  I was one of 14 unit owners.  Another was a fairly well-known Russian writer who had defected; the Cold War was still happening then, if not for much longer.  Alex (as I’ll call him) was a great, friendly guy, and really more a fan of American culture than a critic obsessed with Soviet politics.

I was one of the first to buy into the newly rehabbed complex; Alex was in the second group that began to fill the place out.  A couple of us tried to recruit him to join the condo board.  I’ll always treasure his bemused response:  “Hey, I didn’t leave one communist system just to join another.”

There were about 50,000 homeowners associations – including those in multifamily buildings like ours – in the US at the time.  Today there are 323,600, presiding over the homes and neighborhoods of an astounding 63.4 million Americans, Sacramento (by: beancounter/Pam, creative commons)according to data published by the Community Associations Institute.  Basically, that means in something approaching 20 percent of American homes, you literally cannot live there unless you agree by the terms of your ownership documents to submit to the rules of the governing associations.

I use the word “governing” deliberately, because that is very much what HOAs do (and what my condo board did, when I lived in Adams-Morgan).  For example, they have taxing power, setting mandatory dues that if not paid can result in the placement of a lien on your property or even foreclosure; they have regulatory authority, setting rules for everything from when you can take out the trash to what color and materials you use in your window treatments to what you can and cannot grow in your yard.  They have enforcement power, too, including the right to issue cease and desist orders and to impose financial penalties in the form of fines.  One legal observer has called the exercise of quasi-political powers by HOAs “one of the most significant privatizations of local government functions in history,” pointing out how quickly some of them move to foreclose on private homes because of dues underpayment.

In a lot of places – probably in most – it’s a sort of government-among-friends, where rules are applied and interpreted with good faith and generosity, where neighbors cooperate on upkeep, and where buildings and communities look better and function better because of it.  That’s certainly the way it was in the condo where I lived for a decade.

Olde Belhaven, Alexandria, VA (via Google Earth)

But, in others, homeowners’ associations appear to have more in common with the Soviets than just a communal process.  Writing in The Washington Post, Justin Jouvenal recently reported on a knock-down, drag-out fight over a simple political yard sign placed by a couple on their property during the 2008 election season.  The association’s grievance, apparently, was that the “Obama for President” placard was four inches taller than the association’s covenants allowed.  The scene was a lovely, 44-unit townhouse community set around a pretty green square in Alexandria, Virginia, an inner suburb of DC.

Now, in my book, requiring that the neighbors cut their grass every so often isn’t so unreasonable.  But stifling political expression because of a piddly 4-inch, inherently temporary “violation” is.  In my lawyering days, I was involved in one and only one case before the US Supreme Court:  on behalf of the Justice Department, I wrote and filed a brief siding with three jurisdictions that had banned billboards from within their borders.  In deciding a case that began with a lawsuit brought by the billboard companies, the Court practically tied itself in knots trying to come to consensus.  The nine Justices wrote or joined in five separate opinions.  A plurality of four ruled that the two states and one city involved could ban commercial billboards but not political ones.  There was enough agreement among the other opinions that it amounted to a majority ruling on that point.

Olde Belhaven, Alexandria, VA (via Google Earth)

Now, there are lots of legal distinctions between public statutory law (the billboard case) and restrictions by “voluntary” associations (the neighborhood lawn sign issue).  But I still might have advised the homeowners’ association that there could be some risks when it came to rules restricting political expression and that they might want to consider backing off on such a minor, short-term infraction before they got hit with a lawsuit they might lose.  In fact, the couple that wanted to display the sign in their yard did sue the association; it took a while, but the couple prevailed and the association lost.  And, for good measure, the court ordered the association to recompense the couple for their costs in asserting their legal rights.  The association, whose stubbornness had gotten them in way over their heads, ended up having to pay $400,000 (including its own legal fees) and went bankrupt.  The lovely green square that has served as the heart of the community is now for sale.

In some cases, HOA rules go directly against individuals who wish to follow green practices.  Two years ago, for example, a Florida woman was hit by mounting fines from her HOA simply for gardening.  On the web site Food Renegade, writer “KristenM” described the situation:

“Imagine growing a lush, organic garden full of fruit trees and raised beds featuring edible flowers and vegetables.  It’s beautiful.  And it’s in your backyard.  Your slice of heaven.  Your respite.  The place where you can get your hands dirty growing wholesome, nourishing foods for you and your family.

“One day you stroll out to your mailbox to find a letter from your HOA telling you your garden is in violation of HOA rules.  According to your deed restrictions, all fruit trees and edible plants should be grown inside a screened in patio.  You face $100/day fines for each day that you refuse to tear up your fruit trees and remove your raised beds.”

Essentially, vegetation was allowed to be planted unless it was grown for food.  And this is Florida, where there are fruit trees, in particular, all over the place.  I don’t know how that case eventually turned out, but association restrictions on gardening are not unusual

backyard vegetable garden (by: Nate Swart Photo, creative commons)

Another way that HOA rules can get in the way of sustainability is by banning outdoor clothes-drying.  The energy savings from the practice can be substantial:  electric dryers burn a full 6 percent of our home energy (second among appliances after refrigerators).  Many would also argue that the way that people have sun-dried their laundry for millennia also produces, in the right climate, a freshness that hot-air dryers can’t match.  The problem, of course, is that once most middle-class homes had acquired indoor electric dryers in the second half of the last century, visible clotheslines became a sign of poverty, something that the kinds of subdivisions that have HOAs want no part of.  Most HOA-controlled neighborhoods now ban clotheslines.

Fortunately, concerns about energy consumption and increased environmental awareness have produced a sort of backlash in the form of a “right to dry” movement.  As a result, six states – Florida, Colorado, Hawaii, Maine, Maryland, and Vermont – have passed laws rendering these bans void and unenforceable.  Jim Howland, who maintains a research project called Making Sustainability Legal, reports that another 13 states have solar access laws that appear to protect solar drying.

Speaking of which, you can imagine what most HOAs not bound by the laws in those 13 states think of solar panels.  On the Green blog published by The New York Times, Kate Galbraith detailed several disputes between green-minded homeowners and their associations in a 2009 story.  Galbraith added that, for solar installers, the roadblocks can be frustrating:  “John Berger, the chief executive of Standard Renewable Energy, a Houston-based firm that designs and installs solar systems for homes, said that the homeowner associations’ prohibitions had already cost him more than $1 million in business.”  That’s a shame, because there are lots of ways that solar panels can be incorporated into roof design while maintaining a high level of aesthetic appeal.

rear-facing solar panels on a single-family home in the Netherlands (by: EnvironmentBlog, creative commons)

I’ll discuss one more issue.  Consider the matter of non-edible landscaping, which HOAs guard with an iron fist to ensure uniformity.  In one example, a Florida homeowner got hit with a lawsuit for planting non-conforming vegetation that did not need irrigation, conserving water.  Kevin Spear reported the story four months ago in the Orlando Sentinel:

“A homeowner near Windermere who happens to work for Orange County’s environmental department has been sued by her neighborhood association for replacing her thirsty grass with a water-conserving landscape.

“Renee Parker’s plants attract butterflies, blossom regularly in multiple colors and have an assortment of shapes and heights. For a meandering border, she planted Argentine bahia, a grass that’s hardier than the water-craving, fertilizer-loving St. Augustine variety commonly growing in Florida yards.”

In theory, a 2009 Florida statute prohibits homeowners associations from interfering with residents who pursue “Florida-friendly” landscapes that save water.  But Spear’s article says that associations retain their authority “to approve or reject lawn and yard modifications,” and there’s ambiguity in what kinds of plants the law protects.

Meanwhile, in Arizona a homeowner was slapped with fines for planting a native habitat garden featuring Arizona wildflowers.  To the HOA, they were just “weeds,” prohibited by the rules.  A story posted on the web site of the Windstar Wildlife Institute says that the owner’s landscaping choices were lauded in the magazine Phoenix Home and Garden, which noted that the property “embraces the Sonoran Desert with a landscape rich in indigenous plants.”  The Windstar story reports that the case has drawn support from the Tucson Botanical Gardens and the Arizona Native Plant Society.  It was unsettled as of the time the story was written.

Pasco County, FL (by: Daniel Oines, creative commons)

Do these associations go too far?  Do a web search for the phrase “HOA tyranny” and you’ll get an astounding number of results.  Among the more extensive is a book-length bill of particulars called The HOA Primer, in which the writer details the horror stories at some length, saying that covenant enforcement “can become an absolute obsession.”  AlterNet has a very good story from 2007 (“The Property Cops”), written by Stan Cox, detailing how a variety of HOA and other community rules ban a range of green practices, with examples from across the country. 

I suspect – and certainly hope – that it is just a matter of time before HOAs catch up to emerging social values and become more tolerant of new practices to protect ecological values.  Maybe the biggest danger will become that the fixation with mandates will remain, but some of those mandates will become pro- rather than anti-environment.  That’s certainly better as to substance, but I’m less sure that it would be a great thing as to style.

Meanwhile, The HOA Primer cites real estate agent, consultant and author Joni Greenwalt (Homeowner Associations: A Nightmare or a Dream Come True?), for the point that the best HOA board members actually may be those who are hesitant to serve because they have full lives with work and families, but do so anyway out of a sense of duty.  They are less likely to fret about the smaller stuff or have time to go on frequent patrols searching for, say, nonconforming birdhouses.

Taking this thought into account, perhaps my Russian neighbor Alex would have made a great condo board member and we should have recruited him harder.  As I recall, he was too busy writing books and having a good time to oppress anybody.

This post originally appeared in The Switchboard on February 19, 2013. Reprinted with permission of the author.

Sunday, December 15th, 2013

Why State Legislatures Are Hostile to Big Cities

Public Sector, Inc. pointed me at a very interesting study that just came out in the American Political Science Review. Called “No Strength in Numbers: The Failure of Big-City Bills in American State Legislatures, 1880–2000” by Gerald Gamm and Thad Kousser, the study looks at bills affecting big cities, and why they so often fail to pass the legislature.

The authors do their analysis by looking at what they call “district bills”, that is, those that affect only a single city, county or other district, or a handful of such districts. Contrary to what you might think, most of these bills aren’t about money. Only 9% of them involved transferring money to the locality. Rather, the bills are about empowerment. As the study puts it, “Almost always, district bills traffic not in funds or major programs but in authority, granting the locality the ability to conduct its business as its leaders and representatives define that business.” The fact that such a bill is necessary suggests that indeed state legislatures like to keep localities under their thumbs, making cities come begging to be allowed to do things.

Looking at district bills, the authors discover that they do indeed pass at a lower rate for big cities than small ones. Here’s their chart illustrating this:


Passage Rates of District Bills by City Population. Source: Study, Figure 2

This validates the common belief that bigger cities face bigger hurdles in the legislature. As the authors put it, “Large cities do face special burdens in state legislatures, as scholars and urban leaders have contended since the nineteenth century, and the burdens grow with city size.”

Having established that, the authors test a number of hypotheses about why that is. Among these are that legislatures have a particular hostility to the state’s largest city, that having a dominant size relative to the state’s population hurts a city’s chance of getting its bills passed, “bill fatigue” from large cities proposing too much legislation, partisan hostility, and racial animus towards blacks.

None of these were found to be statistically significant.

What then accounts for the failure? The authors conclude that it is, ironically, the very size of big cities’ delegations that work against them. These delegations are often divided, and those divisions lead to their bills failing. As they put it:

Bigger delegations create more opportunity for internal division and that internal division leads to legislative defeat. The tight link between delegation size and passage rates buttresses that argument. It also suggests an answer to the puzzle of why, even after the reapportionment revolution [i.e., one-man, one-vote], bills from big cities continue to lose more often than other district bills. Although the elimination of malapportionment gave big cities and other urban areas greater representation, it also saddled them with more representatives and thus increased the chances that their delegations might be internally divided.

In short, the likelihood of a city’s bill failing is related to the size of its delegation. The bigger the delegation, the more likely it is to fail:


Substantive Impact of City Delegation Size on Passage Rates. Source: Study, Figure 5

Additionally, the authors found that while black population percentage did not impact passages rates, immigrant percentages did. The greater the foreign born population of a city, the more likely it is that its bills will fail. The authors say, “This variable helps explain why bills from cities such as New York and Chicago, hubs of immigration relative to the rest of their states, fare more poorly than bills from cities such as Richmond and Minneapolis, which are microcosms of their states.” They stress that they did not prove this was specifically because of discrimination.

The takeaway from this is that at the end of the day, the problems facing cities in state legislatures may be self-inflicted. If they could promote caucus unity, they would be much more likely to get what they want. I use the term “caucus” loosely here as I don’t often see references to any sort of official caucus representing cities or regions in legislatures. Perhaps it’s time for that to change.

This study explains very well, for example, the travails of the proposed IndyConnect transit plan for Indianapolis in the Indiana General Assembly. It has not been rural legislators who have led the opposition, but local ones. These include people like Sen. Brent Waltz, who represents the south side of Indianapolis and would rather widen north side neighborhood streets than implement transit, and Senate Budget Committee Chairman Luke Kenley, who is from the north suburbs, representing the area where local officials have most promoted a rail line. They are both Republicans, but prior to his retirement, Democrat Bill Crawford, a long time African American political leader, had voiced skepticism as well. If local legislators won’t vote for the bill, why should anyone else?

This immediately suggests a response for cities. Just as we’ve seen attempts to bring more regional unity among local leaders, such as Chicago’s Metropolitan Mayors Caucus, local leaders need to invest significant effort into building delegational unity behind major legislative initiatives prior to trying to get anything passed. This is likely to be very difficult on a regional basis, but for the biggest cities that have multiple representatives even for the core municipality, it should hopefully be more doable (if not easy). Until that nut gets cracked, cities should perhaps resign themselves to continued legislative frustration.

Friday, December 13th, 2013

The Marginality of Parking

I’ve long argued that complaining about “there’s no parking” or having to “pay for parking” is just a convenient scapegoat excuse people give when the product on offer isn’t a compelling enough buy. If your downtown doesn’t offer enough value vs. a suburban office park location, naturally employees having to pay to park sounds like a huge imposition. If an attraction is lame, then of course people don’t want to pay to park there.

I just came across another example of this in action. Attendance at Indiana Pacers games has spiked this year. It’s not hard to figure out why: they started winning games and have a team that doesn’t repel fans. Not long ago their arena was so empty it reminded me of the old days at Market Square where they used to hang a curtain around the upper deck to screen off the empty seats. Those Pacers were a team of thugs that got involved with fights with fans in the stands at the game, and shootouts at strip clubs afterwards. They also didn’t do a lot of winning.

Parking charges on game nights remained quite hefty throughout. The fluctuations in attendance had nothing to do with parking and high parking prices aren’t preventing sellouts this year. The lesson is clear: create a compelling product in your downtown or business district and parking won’t be an obstacle.

It’s amazing how often parking is viewed as determinant. Here’s a particularly sad example from Providence. It’s a marketing ad for downtown, which Greater City Providence called, “Come For the Parking, Stay For the Parking.” Please. (If the video doesn’t display for you, click here).

Don’t be that guy.

Thursday, December 12th, 2013

My Master Plan to Win the War For Indianapolis Government Buildings


The Marion County Jail in Downtown Indianapolis. Source: indy.gov

The Indianapolis Business Journal reported that Mayor Greg Ballard is championing a plan to relocate the jail out of downtown. This is an idea I’ve been touting to anyone who’ll listen since at least 2009, so obviously I’m a big fan of the concept. Though let me hasten to add I’m not endorsing any particular plan as I haven’t seen one.

I’ve always encouraged people to think about public transit investments first as about transportation. But also to ask what it is that implementing an expanded transit system like IndyConnect would let you do that you couldn’t do before. This is one of those things.

More about that in a moment. But first, this is only one part of what I see as a long term reconfiguration of city government space in downtown Indianapolis. I call it my “master plan to win the war” because I see it as game changing for the east and southeast parts of downtown. The components are:

  1. Relocate the jail and criminal courts to a new complex on an old industrial site on the near West Side in proximity to the proposed Washington St. transit corridor. (I was thinking the former GM site originally).
  1. Relocate the civil courts into a new downtown state judicial complex. (The state supreme court already wants one of these, so include the appeals court and local courts as well).
  1. Renovate the old City Hall as, well, the new City Hall housing the Mayor, Council, and executive functions.
  1. Move the rest of the office users into leased space. (I was thinking originally about using this to anchor the MSA site redevelopment and add an office component to the mix of use because the site was so close to the old City Hall).
  1. Implode the City-County Building, demolish the jail, and redevelop Marion County Jail II and Liberty Hall. (I kid you not, one of the jail locations is called Liberty Hall. I think it is used for work-release today, so may be viable as that if managed properly and there’s a particular benefit to locating it downtown for access to employment).
  1. Put all the land used by these facilities back onto the tax rolls by selling for development.

The benefit of this is eliminating multiple significant barriers to development, ones that keep the various districts undergoing redevelopment from feeding off each other. And while it wouldn’t fully pay for the projects, it would put large amounts of prime downtown land back to taxable use.

I’m not suggesting that the city should go do all this right away. Nobody has this kind of money laying around. Rather it’s vision to be implemented as the components reach end of lifecycle and need replacement or hugely expensive upgrades. Though to some extent they are all already there.

First the jail. The sheriff claims a new modern jail could be run with his existing staff. This would save money by allowing the city to dump the private contractor that runs Marion County Jail II. (News reports have criticized the sheriff’s spending. So if even the guy who is accused of spending too much money says it can be done for less, take him up on the offer).

And why put a jail on your city’s most valuable real estate? That doesn’t seem to make much sense today. New York and Chicago don’t have their jails downtown. (In fairness I should note the federal government has remand facilities in both CBDs however). A message board commenter noted that even in Indiana, Evansville’s Vanderburgh County Jail is away from downtown.

I actually got this idea when I was living in Chicago and was summoned to jury duty. The Cook County Jail and a criminal court building are located at 26th and California near Little Village. I had some time to kill while waiting around during a recess so I found myself walking down 26th St. spending money. I’m like, if I’m spending money, maybe other people are spending money too.

Downtown, jails inhibit development. But at an old industrial site near a transit served commercial street, a jail could actually inject life into a struggling neighborhood while still being reasonably centrally located. That’s a win-win.

It’s understandable why the jail would be downtown now for historical reasons. And downtown is the one area that’s reasonable to get to with transit today. That’s important when 10% of households don’t own a car. Those families should not be burdened with an inaccessible jail and courts, particularly when the poor are alas too often involved with the justice system. That’s why enhanced transit service on Washington is so important. It’s the link that enables people to get to the new jail. In this case, transit actually facilitates de-centralization, not centralization.

Some will no doubt say this is a waste of money and the jail doesn’t need to be replaced yet. It would not appear that there’s a burning platform to do this immediately. And it’s easy to point at Wayne County, Michigan as a cautionary tale of what can go wrong. But let’s be realistic. Anybody who’s been around Indy a while knows that there’s always at least one nine figure public construction project going at all times. With the new Eskenazi Hospital just wrapping up, it’s time for the next installment, and this looks like it’s the one. If a nine figure project is going to happen regardless, it might as well be something that’s actually great.

The merits of spending can of course be debated. But I’d like to suggest one benefit of these projects that’s often overlooked. I’m totally speculating with this, I’ll admit. But I see the implicit commitment to keep these construction projects going as a way to bind organized labor into the governing consensus. Indy has had remarkably few organized labor problems and I suspect this is one reason why. Labor is being taken care of. It also means labor is invested in keeping the city healthy, because a broke city means no more projects which means no more jobs for union construction workers.

Apart from purely debates about dollars, I suspect the most controversial part of my master plan is imploding the City-County Building. It’s a classic modernist era structure on an entire city block much of which is devoted to a plaza (with I think underground parking). Notably, the gorgeous historic Marion County Court House was demolished when the CCB was built. Here’s a picture:


Source: wikimapia.org

There’s not exactly a plethora of this type of modernism in Indy and demolishing it would be a loss. However, in my view it’s not a great building. It’s a massive development barrier/dead zone where it stands. And it needs huge money spent in renovations and is probably costly to operate. In the summer, even the 25th floor (where the mayor’s office is located), has insufficient air conditioning, for example. I say implode it and redevelop the block in the private sector.

Here are pictures of some other buildings I mentioned:


Old City Hall, empty and with the windows closed up. Source: ibj.com


Marion County Jail II (Source: indy.gov)

Wednesday, December 11th, 2013

China in Motion 2013

A group of 56 photographers took shots of 49 cities to produce this time lapse of China. It’s definitely best in full screen high definition. The middle section is more landscapy, but still very good. If the video doesn’t display for you, click here.

As you already know, I like to publish some sort of audio-visual piece on Wednesday. Since these are usually short pieces, I thought I’d try an experiment and start incorporating a little bit of curated content from outside the world of urbanism proper. Let me know what you think.

This week a song called “Shining Star” from Nneka, a German-Nigerian singer who performs R&B and other genres. It’s from her 2012 album Soul Is Heavy. If the video doesn’t display for you, click here.

If you like her, you can listen to more on this You Tube page.

Tuesday, December 10th, 2013

Southern California’s Road Back by Joel Kotkin

[ Believe it or not, metro LA has fewer jobs today than it did in 1990, making it the only metro in America’s top ten that can make that “boast.” Today Joel Kotkin shares some of his thoughts on rebuilding – Aaron. ]

If the prospects for the United States remain relatively bright – despite two failed administrations – how about Southern California? Once a region that epitomized our country’s promise, the area still maintains enormous competitive advantages, if it ever gathers the wits to take advantage of them.

We are going to have to play catch-up. I have been doing regional rankings on such things as jobs, opportunities and family-friendliness for publications such as Forbes and the Daily Beast. In most of the surveys, Los Angeles-Orange County does very poorly, often even worse than much-maligned Riverside and San Bernardino. For example, in a list looking at “aspirational cities” – that is places to move to for better opportunities – L.A.-Orange County ranked dead last, scoring well below average in everything from unemployment to job creation, congestion and housing costs relative to incomes.

Yet, Southern California possesses unique advantages that include, but don’t end at, our still-formidable climatic and scenic advantages. The region is home to the country’s strongest ethnic economy, a still-potent industrial-technological complex and the largest culture industry in North America, if not the world.

In identifying these assets, we have to understand what we are not: Silicon Valley-San Francisco, or New York, where a relative cadre of the ultrarich, fueled by tech IPOs or Wall Street can sustain the local economy. Unlike the Bay Area, in particular, our economy must accommodate a much larger proportion of poorly educated people – almost a quarter of our adult population lacks a high school degree. This means our economy has to provide opportunities for a broader range of skills.

Nor are we a corporate center such as New York, Houston, Dallas or Chicago. We remain fundamentally a hub for small and ethnic businesses, home to a vast cadre of independent craftspeople and skilled workers, many of whom work for themselves. In fact, our region – L.A.-Orange and Riverside-San Bernardino – boasts the highest percentage of self-employed people of any major metropolitan area in the country, well ahead of the Bay Area, New York and Chicago.

Policy from Washington has not been favorable to this grass-roots economy. The “free money for the rich” policy of the Bernanke Federal Reserve has proven a huge boom to stock-jobbers and venture firms but has not done much to increase capital for small-scale firms. Yet it is to these small firms – dispersed, highly diverse and stubbornly individualistic – that remain our key long-term asset, and they need to become the primary focus on regional policy-makers.

Ethnic Networks

Immigration has slowed in recent years but the decades-long surge of migration, largely from Asia and Mexico, has transformed the area into one of the most diverse in the world. More to the point, Southern California has what one can call diversity in depth, that is, huge concentrations of key immigrant populations – Korean, Chinese, Mexican, Salvadoran, Filipino, Israeli, Russian – that are as large or larger than anywhere outside the respective homelands. Foreigners also account for many of our richest people, with five of 11 of L.A.’s wealthiest being born abroad.

These networks are critical in a place lacking a strong corporate presence. Our international connections come largely as the result of both the ethnic communities as well as our status as the largest port center in North America, which creates a market for everything from assembly of foreign-made parts to trade finance and real estate investment. Southern California may be a bit of a desert when it comes to big money-center banks, but it’s home to scores of ethnic banks, mainly Korean and Chinese, but also those serving Israeli, Armenian and other groups.

For the immigrants, what appeals about Southern California is that we offer a diverse, and dispersed, array of single-family neighborhoods. Both national and local data finds immigrants increasingly flocking to suburbs. Places like the San Gabriel Valley’s 626 area, Cerritos, Westminster, Garden Grove, Fullerton and, more recently, Irvine, have expanded the region’s geography of ethnic enclaves.

These enclaves drive whole economies, such as Mexicans in the wholesale produce industry or the development of electronics assembly and other trade-related industry by migrants largely from Taiwan. Global ties are critical here. Korean-Americans started largely in ethnic middleman businesses, but have been moving upscale, as their children acquire education. They, in turn, have helped attract investment from South Korea’s rising global corporations, including a new $200 million headquarters for Hyundai in Fountain Valley, as well as a $1 billion, 73-story new tower being built by Korean Air in downtown Los Angeles.

Tech Industrial Base

During the Cold War, Southern California sported one of the largest concentrations of scientists and engineers in the world. The end of the Cold War, at the beginning of the 1990s, severely reduced the region’s technical workforce, a process further accelerated by the movement out of the region of such large aerospace firms as Lockheed and Northrop. The region has roughly 300,000 fewer manufacturing jobs than it had a decade ago, largely due to losses in aerospace as well as in the garment industry.

Yet, despite the decades-long erosion, Southern California still enjoys the largest engineering workforce – some 70,000 people – in the country. It also graduates the most new engineers, although the vast majority of them appear to leave for greener pastures. One looming problem: a paucity of venture capital, where the region lags behind not just the Bay Area, but also San Diego and New York. This can be seen in the relative dearth of high-profile start-ups, particularly in fields like social media, now dominated by the Bay Area.

But the process of recovery in Southern California does not require imitating Silicon Valley. Instead we need to leverage our existing talent base – and recent graduates – and focus on the region’s traditional strength in the application of technology. A recent analysis of manufacturing by the economic modeling firm EMSI found strong growth in some very promising sectors, including the manufacturing of surgical and medical equipment, space vehicles and a wide array of food processing, an industry tied closely to the immigrant networks.

Cultural Complex

For most Americans, and even more so among foreigners, the image of Southern California is shaped by its cultural exports, not only in film and television but in fashion and design. This third sector epitomizes the uniqueness of the region, and provides an economic allure that can withstand both the generally poor business climate and the incentives offered by other regions.

After a period of some stagnation, Hollywood again is increasing employment. Roughly 130,000 people work in film-related industries in Los Angeles, which is now headed back to levels last seen a decade earlier but still well below the 146,000 jobs that existed in 1999.

At the same time, the sportswear and jeans business in Los Angeles, and the surfwear industry in Orange County, remain national leaders. Overall, the area’s fashion industry has retained a skilled production base – over twice that of rival New York’s – and has been aided, in part, by access to Hollywood, lower rents and labor costs than in New York.

Taken together, these sectors – ethnic business, sophisticated manufacturing and culture – could provide the basis for a renaissance in the local economy. The smaller firms in these fields, in particular, need a friendlier business climate, a more evolved skills-training program from local schools and a better-maintained infrastructure. More than anything, though, they require an understanding on the part of both government and business that their success remains the best means to reverse decades of relative decline.

Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

This piece originally appeared at The Orange County Register.

Sunday, December 8th, 2013

Suburban Corporate Wasteland

I was a guest on the show “Where We Live” on WNPR radio in Connecticut this week. The theme was “Suburban Corporate Wasteland” – the increasing numbers of white elephant office campuses in suburbs. Apparently Connecticut has several of these and some buildings are actually being demolished because there’s no demand for them.

The entire program is worth a listen, particularly if you are someone trying to figure out how to redevelop one of these things. Several local officials join to talk about efforts to do that in their towns. If you want to just hear Yours Truly, I’m on for about 10 minutes starting at 38:30. Here’s the audio embed. If it doesn’t display for you, click here to listen.

There are a number of challenges converging to put pressure on suburban office campuses in some places:

1. Decentralization has run its course. There was a massive wave of suburbanization in the post-War era that has finished. That’s not to say things are going to be re-centralizing. Rather, the massive move from the core to the periphery is largely complete. The development pattern of the United States will continue to be decentralized, but it will largely be driven by organic growth rather than relocations. I think something similar happened with driving. The factors driving VMT growth above the rate of inflation – more cars per household, women entering the workforce, and such – are pretty much played out in terms of driving huge additional travel miles.

2. Corporate M&A and industry restructurings have dampened demand in some areas. In Connecticut specifically, a number of the complexes in question were from pharmaceutical and insurance companies. There has been a lot of consolidation in the pharma industry, for example. And with a challenging environment for new drug development, pharma companies are now really focusing on cost cutting and reducing overhead, not building massive new office parks.

3. The nature of work is changing. There was a popular trend for a while towards massive suburban office HQ campuses. For example, Sears moved from its namesake tower in downtown Chicago to a big campus in Hoffman Estates. These campuses had tons of free parking and lots of onsite amenities like gyms, dry cleaners, cafeterias, day care, etc. They also offered an idyllic, almost pastoral setting in some respects. Workers could spend their days cocooned inside the campus. Today’s firms are less vertical integrated and more networked. They are heavily globalized and collaborative. They’ve also figured out that people who don’t get out and engage with the world around them end up cut off from information flows, leaving them a step behind. Workers are also demanding more flexible working conditions. And of course there’s cost cutting pressures. This leads to things like hoteling, co-working, and telecommuting – no massive suburban office park needed.

4. In select industries and cities, there has been a resurgence in the fortunes of downtown offices. This has particularly been the case in high tech. Google’s second largest office is in Manhattan. Salesforce.com’s Exact Target unit employs a thousand people in downtown Indianapolis. Amazon is building a large urban campus is Seattle. Many companies in Chicago have relocated downtown from the suburbs. I’ve probably seen more announcement of these types of moves in Chicago than anywhere else. I’d caution that in most downtowns the trends in private sector employment have remained negative. But in select locales and industries, things have been looking up. In industries where there’s a need for proximity to high end business services or where there are unique clustering or labor force issues, downtowns will retain an appeal.

Put it all together and it’s clear office space demand is weaker than it used to be. Joel Kotkin recently surveyed the same trends and suggests that the US may have hit “peak office”. The idea is not that office space will actually decline, rather that it won’t be growing at the same rates as in the past. This will affect both urban and suburban markets.

It’s easy to see how these trends combined to pound a place like Connecticut. It’s next to NYC, the premier central business district zone in America. But it is also far enough to make commuting to most of it a pain (even the express train to Stamford takes about an hour). And it’s an expensive and business hostile environment to boot. Large scale employers who want a suburban footprint can find many better places.

We are in fact seeing this happen in finance. Goldman Sachs is booming in Manhattan, but has what I believe is their second largest US office in Salt Lake City, presumably housing back office functions. Deutsche Bank is building a big facility in Jacksonville. JP Morgan Chase has a huge presence in Columbus, Ohio, where its former Bank One unit was based. A place like Connecticut is the odd man out. Suburban Chicago is probably set to be another loser. But in smaller cities the suburbs will do much better.

Also, don’t be too quick to write the eulogy for the suburban office campus, even in the tech industry. A recent article in Der Spiegel featured Silicon Valley’s new “monuments to digital domination” – including Apple’s $5 billion Norman Foster designed campus, Frank Gehry’s campus for Facebook, and others for Google, NVidia, and Samsung. In Houston, Exxon Mobil is putting the finishing touches on a three million square foot campus that will employ 10,000 people. But unlike Google moving 2,500 people to downtown Chicago, projects like that don’t make national headlines.

I don’t think there will be a massive back to downtown wave, and the suburban office park is not dead. But there are headwinds facing suburban office space, particularly in expensive, mature markets.

Friday, December 6th, 2013

Some Implications of Detroit’s Bankruptcy

There’s been so much ink spilled over Detroit’s bankruptcy that I haven’t felt the need to add much to it. But this week the judge overseeing the case ruled that the city of Detroit is eligible for bankruptcy. He also went ahead and ruled that pensions can be cut for the city’s retirees. Meanwhile, the city has received an appraisal of less than $2 billion for the most famous paintings in the Detroit Institute of the Arts.

A couple of thoughts on this:

First, every city in America should be doing a strategic review of its assets, and moving everything it doesn’t want turned into de facto debt collateral into entities that can’t be touched by the courts. In the case of the DIA, the city owns the museum and the collection. Hence the question of whether or not art should be sold to satisfy debts. If it were typical separately chartered non-profit institution, this wouldn’t even be a question.

At this point, I’d suggest cities ought to be taking a hard look at whether they own assets like museums, zoos, etc. that should be spun off into a separate non-profit entity. Keep in mind, the tax dollars that support the institutions can continue flowing to it. But this does protect the assets in the event of a bankruptcy.

In the case of Detroit, it seems inevitable that at least some art work will be sold. Given that worker pensions are going to be cut, it would be pretty tough to say no to selling art. Assuming this is the case, post-sale the museum should be spun off as a separate entity to hopefully reboot its standing the museum world. As the trustees of the group that operates it have been adamantly opposed to any sale, one would hope other museums would not hold any violations of industry standards against them for, particularly if they acquire ownership of the building and artwork away from the city afterward. The city of Detroit doesn’t need to be in the museum business anyway. It has bigger fish to fry.

Secondly, public sector employees will have to start rethinking their approach to retirement benefits. The current mindset has been to grab as much as you can anytime you can because the taxpayer will always be forced to cover the promises no matter what. As the actual results in Central Falls, RI and now this show, that’s no longer a good assumption.

Detroit’s workers don’t have lavish pensions as these things go. But they weren’t shy about abusing the system either. They in effect looted their own pensions by taking out extra, unearned “13th checks”. They also used pensions funds to give a guaranteed 7.9% annual rate of return on supplemental savings accounts workers were allowed to establish. All told these “extra” payments drained about $2 billion out of the pension system.

This was not something the city did through an arm’s length transaction. As the Detroit Free Press reported, Mayor Dennis Archer was alarmed by the practice and wanted to stop it. But “the city doesn’t control its pension funds, which have been largely administered by union officials serving on two independent pension boards.” So he tried to amend the city’s charter to stop the practice. According the Free Press, “Archer backed an effort to block the payments through a proposed new city charter, which actually passed in August 1996. Enraged, several city unions and a retiree group sued and won. Archer tried again to block payments through a ballot initiative, called Proposal T, but it failed.”

The unions could brazenly loot their own pension plan because they felt rock-solid assurance that the taxpayers would ultimately be required to make them whole. This bankruptcy is showing that may not be the case after all. It should serve as a warning to unions everywhere not to get too aggressive with their shenanigans.

They’ll of course appeal the judge’s ruling and may win. But the Michigan constitution says pensions are a contract right. The very definition of bankruptcy is that you can’t pay what you’re contractually obligated to. Bankruptcy is all about breaking contracts. The bondholders have contracts that are not supposed to be impaired too, after all. I’m a fan of local government autonomy as you know, but as Steve Eide rightly points out, any freedom worth its name is freedom to fail. If cities and their various constituencies don’t suffer the consequences of their mistakes, they should be heavily micromanaged from on high.

When individuals fail, we have a safety net (unemployment insurance, for example). Plus we have personal bankruptcy to give people a fresh start. We don’t even worry about whether the person is at fault for their own position or not. We provide that backstop regardless. But that backstop doesn’t allow people to go on living like they did before as if nothing happened. Similarly, cities in trouble shouldn’t be abandoned, but they need to realize that there are genuine consequences for failure. A realization that failure has consequences for pension holders as well as the taxpayer should hopefully promote healthier decisions about how retirement benefits should be offered, funded, and administered.

The Urban State of Mind: Meditations on the City is the first Urbanophile e-book, featuring provocative essays on the key issues facing our cities, including innovation, talent attraction and brain drain, global soft power, sustainability, economic development, and localism. Included are 28 carefully curated essays out of nearly 1,200 posts in the first seven years of the Urbanophile, plus 9 original pieces. It's great for anyone who cares about our cities.

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