Sunday, November 10th, 2013
I was surprised to see that last Wednesday’s post on Cincinnati’s culture of self-sabotage received such a huge response. In light of that, I want to circle back and more fully address the idea of cancelling projects.
What I do not want you to take away from that is that once started, projects should never be stopped on account of the money spent. That’s called the sunk cost fallacy. Money that’s been spent has been spent. One needs to look forward to the future expected benefits and costs. There are certainly many cases in which pulling the plug can be a good idea. For example, Indiana Gov. Mitch Daniels reversed the privatization of certain social services functions after he determined it was unlikely the contract would ever work out like originally envisioned. This an example of someone taking a risk, trying to make it work, then acknowledging it didn’t rather than continuing to double down on a mistake.
On the other hand, I do not see the majority of these rail cancellations as having anything to do with benefit/cost analysis. You may notice, it’s only transit projects that ever seem to get the ax. Since the era of the freeway revolts, it’s tough to name any governor or mayor that has ever sent back earmarks on a highway project, or ever cancelled any road project they could actually get money to build on the grounds that it’s a boondoggle. (My hypothesis continues to be that there’s no highway boondoggle big enough that even the most fiscally conservative governor is willing to kill it). Clearly, the cancellations in these cases is based on an ideological animus to transit specifically.
That is, unless it is baser motivations at play. Chris Christie’s cancellation of the ARC tunnel project enabled him to use the funds New Jersey had pledged to the project to bailout the state’s bankrupt highway fund. He’s not demonstrated any hesitancy to push even questionable and expensive transit projects when they involve Somebody Else’s Money. For example, he wants the Port Authority to spend a billion dollars on an extension of PATH service to Newark Airport, which many consider an inappropriate use of funds. Christie’s motivation appears to be bribing United Airlines to add flights to Atlantic City, whose gambling market is imploding. (Read up on the Revel Casino deal if you want to know more about this sordid story).
Meanwhile, many of these cancellations are proving to be costly in their own right. I noted before how Cincinnati had already let $95 million in contracts out the total $133 million cost of the streetcar, how it will have to repay federal grants that were going to pay for a big slug of the project, and likely end up with at best a minor financial win and potentially a loss.
It’s the same in Wisconsin. Gov. Scott Walker trumpeted that he was returning an $810 million stimulus grant for rail upgrades between Madison and Milwaukee. Apparently although the federal government was going to pay 100% of the construction costs through the stimulus bill, he didn’t want the state to have to pick up the estimated $7.5 million in annual operating costs. (How much the state actually would have had to pay incrementally is a an open point. The existing Hiawatha operating costs were being 90% paid for by federal funds. It’s by no means clear that the state would have been on the hook for the full amount anyway). The feds were actually generous enough to reimburse Wisconsin for money it had spent on the rail line it decided not to build. However, that did not prove to be the end of the matter. Train maker Talgo is planning to sue the state of Wisconsin for $66 million for breach of contract. Given that it actually built trainsets for the state, this seems like a strong case. Also, if the state does lose, it might also be forced to immediately repay an additional $70 million in loans. The state could have paid operating costs for a long time for that kind of money – and it would actually having something to show for it other than a hole in its bank account.
So from a financial perspective, it’s not even clear cancelling these projects was a good move – even if you look solely at costs and ignore benefits.
But beyond the financials, these types of things also show communities that have deep internal divides, and which as a result require businesses and residents to apply an additional uncertainty premium into investment business cases there to account for the likelihood that a) promised actions by the government may not actually occur, even if they are in flight and b) that the community may not be able to muster the staying power to make the kind of long term investments that are necessary for any community to retain marketplace relevance. Though hardly immune to infrastructure drama, New York City just put water tunnel #3 into service for Manhattan. This is a project that was started in the 1970s. That’s the type of long term thinking that has kept a place like New York on top. In short, credibility counts for something, and places like Cincinnati and Wisconsin have damaged theirs.
I want to contrast this with one of the legendary stories of Indianapolis. In the late 1980s it embarked on construction of a downtown mall. Maybe that wasn’t the best idea in the world. The city definitely didn’t have its act fully together. Two entire city blocks had been excavated and were literally holes in the ground. No anchor stores had been signed and it wasn’t clear if the project would or even could be finished. A lot of the public suggested scrapping the project. Some suggested turning the empty blocks into ice rinks. Others trying to bring in a Wal-Mart. Instead, city leaders across the board came together to commit to the project, including many of the downtown corporations investing in the project. It got built. While generally successful, the mall has certainly had its share of troubles over the years and may not even survive over the long term given the disfavor of the mall format. However, one thing that project demonstrated is that Indianapolis finishes what it starts. In short, they have credibility and an ability to execute that’s simply better than most places. I suspect that’s one of the reasons metro Indy has so outperformed Cincinnati in population, job, and reputational growth, despite having far, far fewer natural assets to start with. They aren’t constantly shooting themselves in the foot.
This is also why even though there are road projects out there I did not think were a wise use of funds – say I-69 in Indiana, to pick one I’ve criticized – once they are being built I’m all in favor of getting them done as quickly and cheaply as possible. And then letting the communities in question live with the consequences of making that choice, for good or ill. Again, that doesn’t mean no project should ever be cancelled, but you need to pick your battles. Communities are not well served when project debates turn into endless years of scorched earth politics, litigation, etc. in which neither side will ever given an inch on anything.
Sunday, October 27th, 2013
If you look at the list of target industries for any given city or state, you usually find several from the same list of five common items: high technology, life sciences (under various names), green tech, advanced manufacturing, logistics. Take a few from this list, and add a legacy industry if there’s one or two where you are already particularly strong, and there you have it.
The problem is that everybody and their brother is now claiming to be a tech or startup “hub”, etc. And there’s probably some fairness in that. Starting companies is much easier than it used to be, and despite the so-called “20 minute rule”, venture capitalists seem very willing to travel to find deals where they can make good money. For example, payments startup Dwolla didn’t have trouble attracting top name backers even though it was in Des Moines.
So in a sense everybody can play right now. At some point though, there will inevitably be another shakeout of sorts. If you want to be a long term survivor, have a claim to fame that will make you stand out from the crowd, generate above average returns, etc., you need to have something that makes you distinct.
One way to do that is to be sub-specialized. “High tech” is an extremely broad category. A city could have a large number of nominally high tech companies that are totally unalike, and which do not form any type of real ecosystem, integrated supply chain, etc. This is a cluster in name only.
One way to stand out is a concept I’ve called “microclusters”. That is, rather than simply saying “We’re high tech”, you have some specialty within the broader tech industry where you can be a real national leader.
A couple of news stories make me revisit this with regards to the internet marketing microcluster in Indianapolis. Like most cities, Indy is targeting, you guessed it, high tech, life sciences, green tech, advanced manufacturing, and logistics. The main promotional organization for high tech is called Techpoint. (I should note this organization does double duty as a statewide group as well).
But somehow, organically, within tech generally Indianapolis had a lot of startups in the internet marketing space. There were something like 70 or so last time I saw someone who had made a list. One of them, Exact Target, was recently acquired by Salesforce.com for $2.5 billion. That’s a legitimate exit by any standards. Also recently, a content marketing cloud provider called Compendium was bought by Oracle for its own marketing cloud suite. (Terms not disclosed but surely much, much smaller).
When two tech bluechip names decide to go fishing in the same pond for companies in the same field, you start to think there’s something to it. (Salesforce and Oracle weren’t the first either. Terradata bought out a company called Aprimo for $525 million a couple years ago). Wanting to build on the momentum, Techpoint just held a big shindig called M-Tech to launch a campaign they are launching in an effort to boost the city’s marketing technology cluster.
What will this turn into? I don’t know. A news report about M-Tech noted potential challenges from competitors. What’s more, if there’s no pipeline of new companies, this sort of thing will fizzle out. But if money and talent continues to develop new solutions and companies in a place where there’s real domain expertise and a bona fide ecosystem, it will potentially give the city a niche where it can be a truly top tier player and not just another me-too startup hub.
On a more mature level, I wrote some years back about the motorsports industry cluster in Indianapolis. Everybody knows the Indianapolis Motor Speedway and the 500-mile Race, but Indianapolis Raceway Park (now Lucas Oil Raceway) in Brownsburg also happens to be home to arguably the top drag racing event in the US. It’s near Brownsburg predominantly where a collection of (as of 2008 when I got the last report) 400 motorsports companies, employing 8,800 people at average wages of around $50,000/year is centered. Thus this cluster is both a sub-industry (a type of advanced manufacturing) microcluster and a geographic one. (I might note it’s certainly not the only global location in this industry as places like London and Charlotte also have such clusters). People have actually moved to Indianapolis from as far away as Australia and England to start companies in this space, a pretty good indicator it’s a real opportunity zone.
Again, both of these grew organically, so I don’t want to suggest that you can conjure one up with an economic development program. But I suspect most cities have a few of these out there or in the process of developing. It just so happens I know Indianapolis well and so can name what’s there. Identifying these and providing institutional or infrastructural support (e.g., specialized community college training programs) is probably a worthwhile endeavor.
Today’s economy doesn’t have one plant employing 10,000 people. But a good microcluster can be as impactful if not more so. Obviously the smaller your metro, the bigger a splash something like this will make. What’s more, specialization and a true integrated ecosystem can produce what Warren Buffett calls a “wide moat” business that can be defended against upstarts. Also recall that Jack Welch at GE famously didn’t want to be in a business if he couldn’t be #1 or #2 at it. It’s not realistic for smaller cities to ever think they’ll be #1 or #2 in tech generally, nor even have the large tech scene of a New York or Chicago. But they can find particular areas where they can punch above their weight. And as the recent Indy acquisitions show, generate legitimate big dollar exits.
Update: Richard Layman posted some additional thoughts on his blog.
Sunday, October 13th, 2013
The urbanist internet has been a ga ga over an article by artist and musician David Byrne (photo credit: Wikipedia) called “If the 1% stifles New York’s creative talent, I’m out of here.” Now David Byrne himself is at least a cultural 1%er, and at with a reported net worth of $45 million, isn’t exactly hurting for cash. In fairness to him, he forthrightly admits he’s rich. He also is bullish on the positive changes in New York in areas like public safety, transportation, and parks, and does not fall prey to romanticizing the bad old days of the 70s and 80s. However, in his assigning blame for New York’s affordability, he points the finger squarely at Wall Street, neglecting the role he himself played in bringing about the changes he decries, changes in which he was more than a passive participant.
Back in the early 90s I liked to hang out in a neighborhood called Fountain Square in Indianapolis, a down at the heels commercial district near downtown largely populated by people from Appalachia. I enjoyed browsing the low end, marginal shops and eating at diners where the food was mediocre and the waitresses sassy but not all that attractive (not that I let that stop me from flirting with them). Today, Fountain Square is not exactly gentrified, but is seeing a lot of investment and new residential construction. It’s a long way from unaffordable, but it isn’t impossible to conceive of a day when it features almost entirely higher prices (by Indianapolis standards) in the way some other zones downtown do.
About that time I also liked to drive around the city and take pictures of various neighborhoods in the inner city. One time I was on the East Side and was walking around taking snaps of streetscapes. I apparently pointed my camera too close in the direction of a white minivan whose owner took umbrage. The driver, who was white, long-haired, with a bit of a redneck air about him, circled the block and pulled up next to me to berate me in a semi-menacing way, alternately demanding to know why I was taking pictures of his van and warning me I should never do it again. (I generally take pains to try to avoid including people in my photographs when possible, and things like this are one reason why).
I’m not going to claim there was any hidden agenda here other than this guy being directly suspicious of my pointing a camera his way. But I can’t help but wonder if subconsciously he was aware of a more subtle but potentially more dangerous threat that I posed to his neighborhood and way of life.
I’m not taking credit or blame for neighborhood change in Indianapolis. But I do know that I’m part of the dynamic of the city I’m in. And when I guy like me walks into a neighborhood, my mere presence can be a provocation. Cities are inherently dynamic places, and we are agents of the forces of change whether we want to be or not. (Which is as true for the poor as for the one percent, we just label it “fair housing” when poor people move into rich neighborhoods, but “gentrification” when the reverse occurs).
While I am a writer and observer on cities, I’m an endogenous not exogenous observer. All of us are players in the development of the places we live and visit, event if only bit players in some cases. And oftimes in the complex world of the city, our actions are part of forces or trends we are not event aware of, ones that may have consequences we would never have desired. That does not absolve us of our role.
As for David Byrne, the role of artists and musicians in paving the way for gentrification is so well known as to be conventional wisdom. Similarly today the hipster. And what’s one of the original signature markers of the hipster? The fixed-gear bicycle.
Just as reductions in crime obviously have an effect of dramatically raising property values (and thus rents) in a place as intrinsically attractive as New York, so do other quality of life improvements such as bicycle infrastructure. By making New York an even more desirable place to live, these improvements, wonderful as they may be and which I would heartily endorse, clearly attract more well-off residents and drive up prices.
Byrne has even taken a direct role in this. He created a series of nine public art type back racks from the city, all but one of which is in Manhattan, and which even includes this delightful example from Wall Street:
Photo Credit: Flickr/zombiete
These racks and his activism with regards to bicycles are what give Bryne his standing an urban commentator.
I for one am glad he made the bike racks as they are fantastic and I’m a fan of New York’s improved cycling infrastructure. But I also recognize that this sort of quality of life improvement contributes towards New York’s attractiveness to the wealthy. It’s just not realistic to think one can clean up the crime, the parks, improve infrastructure, etc. and then expect that prices will remain what they were back in the 70s when Bryne moved to the city. Rather than pointing the finger at the Other, the finance industry in this case, it would be more helpful if those of us who advocate for better urban environments would recognize the inevitable side effects many of our proposed policies would produce, and our own role in bringing them about.
Thursday, October 10th, 2013
The Indianapolis Star ran a major article on Sunday that provides a view of the new suburban reality facing many place in America. Called “Amenities reflect Indianapolis suburbs’ new goals” it describes the efforts of various suburbs around Indy to move away from purely a schools/rooftops/retail model of the suburb to one that offers other amenities such as first class parks, New Urbanist town centers, arts venues, etc. Incidentally, the five or so featured are all completely run by Republicans, showing again that local level Republicans today are increasingly more open to quality of life investments than their national or state brethren.
The article highlights the thinking behind some of these, such as moving from an economic model based on smokestack chasing to one based on talent attraction and smaller, entrepreneurial firms. But unfortunately the article focused on whether the attractions would support a traditional ROI equation, instead of the actual underlying strategic rationale: long term survival.
Paul Graham famously suggested that pretty much all startups are destined to fail, saying:
Death is the default for startups, and most towns don’t save them. Instead of thinking of most places as being sprayed with startupicide, it’s more accurate to think of startups as all being poisoned, and a few places being sprayed with the antidote. Startups in other places are just doing what startups naturally do: fail.
Similarly, all suburbs more or less start out as if they were sprayed with “suburbicide.” Most of them follow a fairly predictable cycle of growth, maturity, and decline. Decay is their natural destination. This is a straightforward lifecycle effect, as I’ve explained before. (It can be different in places with significant supply constraints, like California, but these come with their own set of problems such as severe unaffordability).
All the town council members at one of today’s many Indy boomburgs need to do is take a drive around Marion County see where this leads, say down West 38th St. or South Madison Ave. I think we’ve all seen these types of formerly booming suburban districts now fallen on hard times. For those who haven’t, Eric McAfee posted a chilling, if extreme, example of the genre in Kansas City. Pretty much all of Marion County’s township areas are struggling except for a narrow band of very upscale areas on the far North Side, and some remaining greenfield development areas in places like Franklin Township.
The people who built those first generation of auto-oriented suburbs can perhaps be forgiven for not realizing that what they were building would not stand the test of time. Today’s leaders in emerging suburbs have no such excuse. They should know that from the minute their town takes off the growth curve, it’s already infected with suburbicide, and they’ve only got about three decades to administer a cure. And if they fail, they know the fate that awaits them.
I believe that ultimately these attempts at creating more amenity-rich suburbs are as much an attempt to create places that will still have a draw when they are full and hit middle age as they are attractors in the here and now. That’s the real question that should have been asked. What is the best cure for suburbicide? As Westfield Mayor Andy Cook put it, “do nothing” is the easy option in the now, but ultimately a foolish one.
It may be that these projects are not all the right ones. The sports complex in Westfield and the water park in Greenwood both seem on the dubious side to me, for example. On the other hand, central parks, trails, and more urban style town centers make more sense. There’s never a sure bet out there and there definitely needs to be a debate.
But too often that debate taxes place without being embedded in any larger context. It was particularly interesting, for example, to see Columbus resident Thomas Heller quoted as an opponent of amenity style investment. In a state whose communities have largely not weathered the storms of the last few decades very well, Columbus stands out as a strong economic and demographic performer – and one that took a contrarian amenity-rich path to boot. Why might that be, I wonder?
Again, it’s easy to cede the argument to opponents, who only have to say “it costs too much” as their perennial refrain. Rare is the item I’m purchased that I didn’t wish were cheaper. The real debate needs to be this: our town is infected with a fatal disease. Given that no-treatment produces death in about 80% of cases, what’s the best proposed cure?
Friday, October 4th, 2013
The main freeway through downtown Indianapolis, the I-65/I-70 “inner loop,” is currently closed for 90 days for a construction project. This is the second time in a decade they’ve done that, which made me ask the question, if you can repeatedly close a freeway for months at a time, do you really need it at all?
I recently did some field surveys (aka driving around) and wanted to follow-up with a report on actual conditions during the shutdown. As expected, there seem to be few if any problems downtown. I haven’t heard any reports of commuting problems and in fact just the opposite.
For through traffic, it’s a different story. The southern arch of I-465 has seen congestion, particularly between I-70 and I-65, where both freeway are detoured over the same segment. Clearly this road would need to be widened in order to enable permanently closing the downtown freeways. The good news: that is needed anyway. Long term plans have already proposed widening. When the I-465 southeast segment was reconstructed in fact, overhead bridges were replaced with extra clearance for more lanes. Also, unlike the west side, the segment between I-70 and I-65 has ample space to build a road as wide as you want. I’d say make it twelve lanes keeping in mind future traffic from I-69 which will already be routed over this segment.
Additionally, there are backups at the I-465/I-65 South interchange. No surprise there. That interchange is very inadequately designed (it includes 25mph ramps, left entrances, etc) and already had problems even prior to the closure. INDOT is actually doing some upgrades there already, but long term it ideally needs to be a four level stack.
In short, I think the teardown idea remains viable, though requires some improvement work elsewhere to make it happen. Given the intrusiveness of such a thing, it’s something I’d be looking at for the longer term time horizon say 25 years as the need to do something about I-465 happens anyway, and the next round of major repairs on the inner loop comes due.
Wednesday, September 4th, 2013
[ I mentioned in yesterday's post from Brian Howey that blogger Doug Masson had also weighed in on Indiana's economic issues and the quality of place/economic development nexus. He was also nice enough to allow me to repost his piece. And you might also want to see my take from last week - Aaron. ]
Ball State scholars Michael Hicks, Srikant Devaraj, Dagney Faulk, Dick Heupel, and Sharon Canaday recently released a paper entitled The Causes of State Differences in Per Capita Income: How Does Indiana Fare? (pdf) Yesterday, Brian Howey offered the opinion that Indiana’s jobs problems are perhaps the result of challenges and limitations at the local government level rather than state economic policy.
The Ball State Report noted that per capita income for Hoosiers ranked 21st in the nation in 1950, 30th in 1980, and 40th as of 2010. There is a verse in the Bible (Mark 4:25) which says “For he that hath, to him shall be given: and he that hath not, from him shall be taken even that which he hath.” Howard Bloom likes to use that verse as a way of describing the algorithm by which groups allocate their resources. The group devotes its resources to those parts of the group that appear to be having success as a way of ostensibly maximizing success. You don’t waste your scarce resources on losing strategies.
Hicks and Howey offer the following (from the Howey column):
Hicks explains: “This is a really a local, not state problem. Almost all our local economic policies target business investment, and masquerade as job creation efforts. We abate taxes, apply TIFs and woo businesses all over the state, but then the employees who receive middle-class wages (say $18 an hour or more) choose the nicest place to live within a 40-mile radius. So, we bring a nice factory to Muncie, and the employees all commute from Noblesville.”
. . .
[The General Assembly has] passed tax caps that have crimped city budgets. The hope was that municipalities would consolidate, but what’s happened has been cuts in parks budgets and a curtailing of school bus service. So when cities compete for that new corporation, and the executives survey a city with shabby parks and kids walking to school in 10 degree weather, they go elsewhere.
Hicks said, “As Americans became richer, schooling and community amenities matter more. This is an iron law of economics, that the share of income we spend on some goods rises as we get richer. Education and amenities (like health care and recreation) are two of these things. So, the Midwest built its small towns long before the quality of a place made much difference in migration or incomes. Today, quality of place matters deeply, and we are, in many places, unprepared to deal with it. [emphasis added]”
The highlighted portions brought to my mind Bloom’s biblical algorithm. The employees with money go to communities that are not deteriorating. The executives choosing new business locations choose communities with parks and schools that are not in disarray. People with resources and choices want to allocate those resources in places that appear to have winning strategies.
This is why Indiana’s relative per capita income matters. The authors of the Ball State study are quick to point out that Indiana’s absolute standard of living has improved. The problem, however, is that we have put ourselves on the wrong side of the economic snowball. Those who have are going to put their resources in places that have. We’re putting ourselves on the “hath not” side of the equation; and, if we’re not careful, even what we have will be taken from us. If our economic policies appeal to low end employers, our people will get low end jobs where the value of our production is taken from us and distributed to the people and places on the “hath” side of the equation. The Ball State study shows that there is a large gap in household incomes for those who migrate out of the state versus those who migrate into the state; with poorer families moving in and wealthier families moving out.
The Ball State study also took a look at county level differences; comparing the per capita income in 2010 to the national average over time. The average LaGrange County per capita income in 2010 was the same as the national per capita income in 1964: lagging behind by nearly half a century. Only Hamilton and Boone Counties were ahead of the curve; with per capita incomes at the estimated national average for 2019 and 2018 respectively. Indiana as a whole is at 1996 levels.
Government power is fairly centralized in Indiana, with the General Assembly meddling significantly in local affairs. At some point, there will likely be a renewed battle for local control; with the areas having better prospects seeking to limit their connection to State mandated policies that yoke them to the areas with poorer prospects.
This post originally appeared in Masson’s Blog on August 31, 2013.
Tuesday, September 3rd, 2013
[ After I put up last week's post on quality of life's impact on economic development, Indiana political blogger Doug Masson pointed me to a column by Brian Howey that makes many related points. Brian publishes a weekly newsletter called Howey Politics Indiana and writes a weekly column that runs in many Indiana newspapers. He graciously gave me permission to repost his most recent column here - Aaron. ]
After 16 consecutive months of Indiana’s jobless rate above the national average – it’s 8.4 percent now, compared to 7.4 for the U.S. – the cold reality is that we have a problem with a quarter of a million Hoosiers chronically out of work.
Then came a Ball State University study showing Indiana’s per capita income has slipped from 30th in the nation to 40th with dozens of counties wallowing in wage levels in the 1990s and, some like my old home of Miami, in the 1970s range.
I wrote an analysis in which I noted that for almost the past nine years, we’ve had Republican governors who have made job creation and education reform top priorities, and yet we’ve been over 8 percent unemployment since early 2009.
At some point, a political reality comes into play, perhaps as early as 2014 and if this trend persists, by 2016. It used to be that a jobless rate over 7 percent would mean the boot from voters. Yet, Gov. Mitch Daniels left office with a 60 percent approval rating and President Obama was reelected.
Gov. Mike Pence gets it. Speaking before the Indianapolis Kiwanis last Friday, he acknowledged, “There’s a great sense of optimism, there’s reason to be encouraged as Hoosiers, but this is a difficult time for too many in our state.”
At Hobart, Pence told local Realtors, “I want to see where the young people can graduate from high school and can have an industry certification or even an associates degree right that day.”
There was one interesting response to my analysis, and it came from Ball State University economics Prof. Michael Hicks. “Indiana’s problem is not that the overall business climate for investment is poor (it is great) or that we have too few students graduating from college with the right degrees (they are) or that people outside Indiana don’t know how great these things are (they know),” he explained. “The problem is not statewide (we have 12 counties growing much faster than the nation as a whole). These are just facts. I also don’t believe that the overall problem is one of rapid technological progress or any of the national (and hopefully transient) problems in labor markets.”
No, the problem here is much closer to home. It comes in your city or town.
Hicks explains: “This is a really a local, not state problem. Almost all our local economic policies target business investment, and masquerade as job creation efforts. We abate taxes, apply TIF’s and woo businesses all over the state, but then the employees who receive middle class wages (say $18 an hour or more) choose the nicest place to live within a 40-mile radius. So, we bring a nice factory to Muncie, and the employees all commute from Noblesville.”
The real problem here is that Indiana Republicans parade under the banners of Reaganism, of smaller government and one that stays out of our bedrooms and personal lives. But when our cities and towns seek what we call “local control” over tax options, legislative leaders politely listen, and then tell them to shove off.
A classic example came last year when Republican and Democratic mayors from Whiting to Evansville pleaded with the General Assembly to toughen laws on access to methamphetamine ingredients. They were largely ignored, a watered down law passed, and so far in 2013, we’ve had almost 1,100 meth lab busts that have injured 17 cookers, 18 cops and involved more than 300 children.
They have passed tax caps that have crimped city budgets. The hope was that municipalities would consolidate, but what’s happened has been cuts in parks budgets and a curtailing of school bus service. So when cities compete for that new corporation, and the executives survey a city with shabby parks and kids walking to school in 10 degree weather, they go elsewhere.
Hicks explains, “As Americans became richer, schooling and community amenities matter more. This is an iron law of economics, that the share of income we spend on some goods rises as we get richer. Education and amenities (like health care and recreation) are two of these things. So, the Midwest built its small towns long before the quality of a place made much difference in migration or incomes. Today, quality of place matters deeply, and we are, in many places, unprepared to deal with it.”
Power has become centralized at the Indiana City Council (i.e. Indiana General Assembly), which has capped taxes, overridden local gun laws and constantly tinkers in municipal affairs.
“Both parties have been complicit to some degree in the long march towards centralizing power at the state and federal level that has weakened the capacity of local government to address their problems,” Hicks explains. “It will take some serious assistance, both technical and financial, for a state like Indiana to help most communities emerge from the dire straits they are in. Even then, many places face a dismal future.”
The ironic aspect to this is that the chronic 8 percent jobless rate may be just the thing that flushes the central scrutinizers in the House and Senate out of office over the next two election cycles.
You reap what you sow, senator, if the voters make this connection.
Friday, August 30th, 2013
A rather prosaic economic development announcement in Indianapolis provides an opportunity to hammer home in a concrete way the connection between quality of life investments and economic development. This is something I’ve long argued we urbanists do a poor job of. We tend to adopt a “build it and they will come” marketing approach to quality of life initiatives where the connection between cause and effect is tenuous. Additionally, these tend to focus almost entirely on and tell stories about “the best and brightest” which in a country dying for middle class jobs can rightly cause the majority of folks to ask: why would we support spending money on that? That’s why it’s critical to tell stories – to tell them loud and tell them often – that show the link between quality of life and economic development, and also how these relate to the average person on the street.
The announcement in question is the relocation of a company called American Specialty Health from La Jolla, CA to the Indianapolis suburb of Carmel. This will involve 300 initial hires, growing to 675. While the company will retain a California operation as well as one near Dallas, the headquarters will be in Carmel, IN and 50 top managers, including the CEO, are relocating.
Why is the company moving to/growing in Indianapolis? Central location and costs. Plus the CEO has a personal connection of sorts to Indiana. (He attended Culver Academy, an elite military boarding school, but one located in northern Indiana nowhere near Indianapolis and of which most Hoosiers have never heard).
Why is this relevant to the average person? There will be top executives and such relocating, as well as new employees added in high skill areas like IT. However, this is also a general operations center containing what appears to be every type of employee, right down to customer service and call center types. This enables people who aren’t elite techies or execs and who might not even have college degrees to potentially be hired on. While the company is an an upscale location, it’s easily commutable from more average places like Tipton County, and commuting will be made easier when US 31 is converted to a freeway (which is in progress).
Here’s the link to quality of life investment: how do you get these call center and IT and other jobs? You do it by convincing 50 people, including the CEO, to move from La Jolla, which if you don’t know is, to put it mildly, a nice place to live. The average home price is north of $2 million. The people who live there (or elsewhere in the San Diego region and commute in) aren’t there because it’s cheap. These are people with enough money to buy nice stuff and with choices about where to live. Like most of us they are probably interested in saving a buck, but not at the expense of moving to the equivalent of Siberia.
I have written extensively before about the major quality of life improvement initiatives in Carmel, IN. This is a validation that those improvements have tangible benefits. While Carmel has long been a destination for estate homes for the wealthy of Indianapolis, it was not really at that level nationally. Now it may be that some of the ops jobs could have been won without the headquarters, but certainly that HQ represents a huge commitment to the community. And I can tell you that a decade ago these jobs simply would not have been addressable in Indianapolis/Carmel. It wouldn’t have even been in the discussion. Today because of the quality of life improvements, there’s a much larger addressable market for economic development wins like this. Without that investment, had the ASH HQ moved from San Diego it probably would have ended up in Dallas.
Carmel’s quality of life investments have been controversial in many quarters, sometimes justifiably so. There definitely needs to be a debate on these things. But a more Tea Party aligned city council majority has clamped down in opposition to these things. While I think they have been right to criticize certain things, hopefully this will prompt them to understand the value of what’s been going on. And it’s to their credit that they were very collaborative in and supportive of winning the deal for this company. Incidentally, Indy Star reporter Dan McFeely says that while there are state tax incentives, there are zero local tax incentives for this move. That speaks for itself.
I also want to review a couple of other local examples I’ve already highlighted in the past. Medco opened a mail order pharmacy distribution center employing 1,300 in Whitetown, a suburbanizing area northwest of Indianapolis. Sprawl? Yes, but major distribution centers have to go somewhere and I don’t think the urban core is the best place.
Medco obviously employs a number of six figure pharmacists, but I can assure you the focus is doing as much as possible with machines and lower priced pharmacy technician labor. You can be a pharmacy tech without a college degree. Additionally, pharmacy tech jobs at Medco come with full benefits.
How did Indy win Medco? Reportedly for a few reasons. First, Indiana moved much faster than competitor Kentucky in getting the regulatory authorization in place. Second, proximity to the Fed Ex hub (not a distinguisher vs. Louisville, but a necessary attribute) and pharmacy schools at Purdue and Butler. But third was that Indianapolis had needed amentities that were beneficial to entertaining customers.
You have to take any claims in announcements with a grain of salt, but it’s obvious that all of these are prima facie valid. Whitestown is within easy commuting distance of lots of rural and small town Indiana areas in places like Clinton and Montgomery County. Why are investments not just in obvious items like professional schools and transport infrastructure, but creating an environment you can entertain the executives of your customers in downtown Indianapolis important? Well, if you’re a single mother with a high school diploma from Clinton County who can get a decent job with benefits at Medco, it’s obvious why it’s important to you. But that’s a story that doesn’t get told, making it easy to criticize downtown investments as simply catering to fatcats.
Similarly, just 45 minutes south of downtown Indy is the thriving small manufacturing city of Columbus, Indiana. It is hands down the best performing small city in Indiana despite having the second highest percentage of its jobs in manufacturing. It’s also the top recipient of Japanese foreign direct investment (as measured by the number of firms) in Indiana after Indianapolis.
Why do Japanese manufacturers find Columbus a good place to do business? Not only it is pro-business and low cost, it also has a focus on design quality, including a world-renowned collection of modernist architectural masterpieces by the likes of Eero Saarinen and I. M. Pei. The Japanese are famously design conscious and also focus on competing through high quality and engineering excellence, not just low costs. This is speculation, but I can’t help but think that the link between the Japanese ethos and that of Columbus created a values fit. And keep in mind that those foreign manufacturers have to convince their plant managers and such to relocate – with their families – to the community in question. Columbus’ approach made it easier to make the sale. Because if those Japanese executives didn’t want to live in Columbus, all those regular Hoosier folks working in the Japanese plants wouldn’t have jobs.
In any case, in a competitive world, only firms that deliver excellence as well as cost effectiveness can survive the brutal global competition. Which workers are more likely to produce excellent products, ones that demand excellence in their own communities, or ones who embrace mediocrity? How can any investor believe that residents who tolerate a run down, mediocre community for their own families to live in will suddenly start taking pride in the products coming off their employers’ production lines? It makes no sense at all.
Low costs, low taxes, and a business friendly environment are clearly important. In fact, if you don’t have some stunning advantage like Southern California’s climate or NYC’s unparalleled talent base, it’s almost the price of admission. But that’s all it is – table stakes. In an era where quality global labor is available at prices no American place can match, you just can’t win on low costs alone.
This is why the Tea Party mentality which treats government purely as a fiscal engine in which the only goal is to reduce the dollars coming in and going out is so destructive in the long term. Because competing purely on low costs only works if you are the low cost producer like Wal-Mart. And 95%+ of American communities have no basis to claim to be that.
You would think that in states that are struggling, policy makers would go look at the places that are doing well, find out what those places are doing right and then figure out how to get other places to start doing some of that. Some things can’t be replicated. There’s only one Indiana University, and it’s in Bloomington. But there are lots of strategies and approaches that are more broadly applicable. Sadly, not many leaders seem interested in that. In fact, many of them seem more interested in stopping anybody from doing more of what places like Columbus and Carmel have done.
Unquestionably there needs to be a debate about whether any particular expense makes sense. Without a doubt many proposals are boondoggles and should be rejected. Places like Indiana aren’t San Diego and absolutely need to keep low costs, a strong balance sheet, and a light regulatory touch. But that in and of itself is not enough to attract businesses. You might gain some low-wage table scraps that way, but not many jobs that pay decent wages for the average person.
Places that want to be competitive in the modern economy need an environment that is relevant to the 21st century, not the 1970s. But to make the case for that investment it’s important to start identifying how these make a tangible impact and really making the case and telling the stories about them.
Friday, August 9th, 2013
Curt Ailes recently pointed me at this post from Historic Indianapolis showing the before, during, and after of freeway construction in the southeast quadrant of Indianapolis. The pictures say it all:
You may also want to check out my post on the even worse damage done in Cincinnati.
Monday, July 15th, 2013
I participated in an interesting message board debate a few weeks ago. We were discussing the steep collapse in the urban core (Center Township) population of Indianapolis, a drop comparable to Detroit’s. It lost another 14.5% during the 2000s and even the downtown itself only added less than 1000 people at time with other downtowns were growing more sharply.
Most people were quick to blame schools. I agreed the schools were a problem but suggested crime was a bigger one. Besides which, nobody has yet demonstrated a real turnaround in urban schools, while multiple places have been able to achieve stunning improvements in crime.
What most took me aback was not the debate over which order to rank the two, but rather than many people effectively argued Indianapolis doesn’t even have a crime problem. “It’s not that dangerous” seemed to be the tone, and people talked about how they personally did not feel unsafe or threatened despite living in the city and that suburbanites simply sensationalized urban crime.
I disagree with that in the strongest possible way. While no doubt things can be sensationalized and you aren’t likely to get killed walking down the street, Indianapolis does have a serious crime problem. Almost immediately after our debate died out, someone was shot and killed in the middle of downtown on the 4th of July. And after that there was a series of five murders in one week.
While many cities have seen a drop in murders this year, Indianapolis murders are up 35% and the city is on track for upwards of 150 this year. To put that in perspective, New York City has experienced a stunning drop in murders this year (after a record low last year), and is tracking towards somewhere around 300 murders for the year. NYC has a 10 times the population of Indianapolis but only twice as many murders. When you consider that much of Indianapolis’ population is in outer “suburban” areas that were annexed and have very few murders, the urban core murder rate must be far, far higher than NYC.
Indianapolis Public Safety Director Troy Riggs says the city isn’t more dangerous and points at declines in violent crime overall (query: has it fallen by 80% in the last 20 years, like it did in New York City?). This is exactly the same spin that Rahm Emanuel has been giving to explain away Chicago’s high murder rate.
The people trapped in these neighborhoods tell a different tale. In some Chicago neighborhoods mothers won’t let their kids stand by the window even if they are home because of the risk of getting shot. Someone in Indy similarly said, “I hear gunshots and police sirens every night. I’ve taught my kids how to roll out of bed and get underneath it when it starts happening.”
Make no mistake, the top reason to reduce crime is to keep people from becoming its victims or having to live their lives in terror in neighborhoods like this. But beyond that crime is simply fatal to the urban fabric. Just as one data point, some researchers found that every murder committed causes a city to lose 70 people. Chicago actually would have gained population instead of losing it if its murder rate were the same as New York. Clearly crime is high among the factors driving people out of the central city who have the means to leave, and keeping those who might be willing to move into to it away.
Additionally, given the impressive record of crime reduction in New York and many other places, including Los Angeles (which has also made huge strides in improving police-community relations from its Detective Mark Fuhrman days), it’s also clear that progress can be made.
I’m not sure that there’s a ready answer for schools. My hypothesis has been that it will be families returning to the city that turns around the schools, not a turnaround in the schools bringing families back. But crime is clearly different. Yes, gentrification will “improve” the crime situation. But NYC and LA have seen dramatic crime reductions even in their toughest neighborhoods, ones that have not seen gentrification.
Crime problems can be solved if there’s the will to do so. That will is ultimately lacking in too many places. There’s a fatalistic attitude towards crime too often, and few politicians have the stomach for the spending it will take or the blowback many crime reduction efforts will clearly generate.
But by contrast look at something like fire protection. It’s well known that if you don’t put out a fire in a timely fashion, your entire city can burn down – including rich people’s neighborhoods – something that has happened again and again throughout history. Hence no city, no matter how poorly run in other areas, ultimately allows its fire protection to fall below minimum standard. For example, even in Detroit, while the fire department has seen major cuts, has tons of broken down equipment, has to deal with a stunningly high percentage of arson fires, etc, there is still a baseline level of fire protection for the city, something that was documented in the recent documentary about the Detroit Fire Department called “BURN.”
That fire protection is generally the best provided public service has been known for a long time. For example, in 1972′s “Report From Engine Company 82,” Dennis Smith (admittedly a fire fighter) had this to say:
The people in the South Bronx know that when the corner alarm box is pulled the firemen always come. If you pick up a telephone receiver in this town you may, or may not, get a dial tone. If you get on a subway you may, or may not, get stuck in a tunnel for an hour. The wall socket in your apartment may, or may not, contain electricity. The city’s air may, or may not, be killing you. The only real sure thing in this town is that the firemen come when you pull the handle on that red box.
Failing to put out fires in a timely fashion is simply unacceptable in a city, while we’ve grown used to tolerating large amounts of crime. Places like New York City have decided that they for one will not accept high crime rates, and have relentlessly attacked it, making stunning progress.
I think we need to acknowledge that macrotrends played a big role in this. Mayors like Giuliani and Daley got big credit for turning around their cities, when in fact many big cities all came back at the same time, suggesting common outside forces played a big role. (Saskia Sassen does a great job of documenting this macrochange in “The Global City.”) The peaking of the crack cocaine epidemic likewise helped incredibly. I’m sure there are many other such common factors.
Yet it doesn’t seem unreasonable to attribute at least something to policing and policy changes. Both NYC and LA saw major changes under the leadership of William Bratton. (Chicago, which tried different methods, has not seen similar results, though has had improvements in the last 20 years). It seems to me a lot of people would rather die than give any credit to Giuliani, Bloomberg, the NYPD, Bratton, Kelly, Broken Windows, etc. Myron Magnet wrote of this, “Some people can’t – or won’t – see what’s in front of their own eyes.”
There is certainly plenty of scope to debate or critique various police tactics (e.g, stop and frisk). I myself am very troubled by the increasing militarization of the police, for example. This is a debate that needs to be had and reforms made where necessary. And the police definitely need to be held accountable when they do wrong, something that requires significant, vigilant oversight.
Yet to me the current crop of NYC mayoral candidates give off a soft on crime air. If the next mayor decides to opportunistically score cheap political points at the expense of NYPD, not just that mayor, but the entire city, may come to regret it. Sadly, too many people no longer remember what it was like even in Manhattan not that long ago. (For a sample to refresh your memory, read this). For example, the New York Times in 2004 asked “Is New York Losing Its Street Smarts?,” citing a woman who thought it was a joke at first when she got mugged.
The Millennial urban dweller who has never experienced anything but urban Disneyland is sadly unlikely to understand what is at stake. And indeed even if NYC takes its foot off the gas on crime, things are extremely unlikely to go back to what they were (thankfully). But even a modest uptick in crime can have a chilling effect, and the crime genie can be fiendishly difficult to put back in the bottle once it’s loose. Just ask Rahm Emanuel. Despite his crime stat rhetoric, he knows the score. He meets the families of the victims and I’m sure desperately wants to end the killings.
As for Indianapolis, it’s hard to argue it has really been serious about crime. Before doing a job search for Public Safety Director, the city council specially raised the salary of the job – to $125,000 a year. That’s for a person overseeing both police and fire with a budget of $525 million. Unsurprisingly, they’ve been unable to recruit somebody with the experience befitting the 13th largest municipality in the United States. The previous occupant came from White Plains, NY. (His contract was not renewed). The current one came from Corpus Christi, TX.
I’m not saying Troy Riggs is no good, merely that this is a huge step up for him. He certainly deserves a fair shot to do the job, which he’s been on less than a year. But Indy is in a sort of lose-lose position. Either they hired another guy who’s a bust. Or if he succeeds he’ll be “gone in 60 seconds” to someplace where they’ll pay him a real salary.
I’ve long argued that Indianapolis public sector pay is too low to do a proper national job search for any key position in city government. But it’s tough to change when locals don’t agree. See, for example, Paul Ogden, who strongly feels differently. But it’s the same elsewhere. Detroit had a recent controversy over the pay of its police chief too.
Call me crazy, but I don’t know anyone in the private sector managing a $525 million budget that’s safety critical who only makes $125K/yr. If that salary was raised by just $25-50K, the field of potential recruits would increase enormously. Skimping on policing is the epitome of penny wise, pound foolish – and it’s the city’s citizens, disproportionately the poor ones, who pay the price.
At the end of the day it’s simply a matter of priorities. You could buy a lot of policing for the cost of even one of the $500 million stadiums that dot the American landscape. You can be sure that if a major fire ever again did wipe out a good chunk of a city, state and local government will do whatever and spend whatever it takes to make sure it doesn’t happen again. One hurricane in New York and Bloomberg puts $20 billion in improvements on the table for better withstanding future storms. Yet crime and other ills have effectively destroyed big chunks of our cities, and we’ve just let it happen.
I find that urbanists seem to rarely talk about public safety unless it’s about some controversial incident with the police. I think that’s a mistake. Most cities in America aren’t seeing the strong investment flows and growth of a New York, San Francisco, or Seattle. Outside of a “green zone” downtown many places are still in decline. There’s nothing more important to restoring confidence in those places – and put and end to the ongoing human tragedy in too many of their neighborhoods – than fighting crime. Public safety really is Job #1.