Download An action agenda for urban inner city economic development

An action agenda for urban inner city economic development
Economic Development Review;
Schiller Park; Summer 1994; Bee, Ed;
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07423713
Urban development
Strategic planning
Statistical data
Recommendations
Economic conditions
Cities
Classification Codes: 9190: United States
9140: Statistical Data
2310: Planning
1120: Economic policy & planning
Geographic Names: US
Abstract:
Volume:
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Subject Terms:
Development of the urban inner cities is critical to the US and to the national
economy. The current inner city situation, including the economy, is reviewed, and
the current response to this inner city economic situation is examined. The major US
cities must address 3 problems in order to provide jobs for their residents: 1. Major
cities must become cost competitive with suburbs and other cities, particularly in the
costs of city services. 2. Crime must be reduced in inner cities to acceptable levels.
3. Inner city citizens must receive a secondary education that matches the best in
the world. Achieving anything short of these 3 goals will fail to fix the problem. A
number of ways in which the challenges of inner city development might be met are
presented. These recommendations include policies, institutional changes, research
efforts, and regulatory changes.
Full Text:
Copyright American Economic Development Council Summer 1994
INTRODUCTION
The problems of urban America exploded onto the front pages of the nation's papers in
1992. The aftermath of the Rodney King incident shocked mainstream America. Many in
the suburban middle class wondered if the Los Angeles violence in 1992 was a replay of
the Watts and Detroit configurations of the 60's. Would such wanton violence spread to
every nook and cranny in America?
Developers watched as entourage upon entourage of politicians visited the scene with the
now familiar litany: more taxes, more resources, more government programs, more of
everything. Everyone agreed that the root cause of this violence was a lack o job
opportunities for inner city residents. Practitioners with decades of front line development
experience were puzzled at these events, and unlike the politicos, weren't sure of the
answers to the question of job growth in inner cities.
This white paper is the economic development profession's attempt, as aptly stated by
Margaret Thatcher, "to first collect the facts before collecting the opinions There must be
an understanding of why the inner city economies have been eclipsed by suburbs before a
solution can be effected. The also must be an understanding of why America's
entrepreneurs, small businesspersons, and corporations choose to invest in some areas
and avoid others before a sound policy can be formulated that addresses the nation's
urban crisis.
This paper focuses on the issues: the current inner city situation, the current response to
the inner city economic situation, and responding to the challenge of the inner city
economy.
THE CURRENT INNER CITY ECONOMIC SITUATION
EMPLOYMENT IN THE INNER CITY
Seven experiences of the past two decades have shaped the inner city employment picture
as significantly as the of the interstate highway and automobile shaped the post war
morphology of inner city. They are:
* Unskilled Manufacturing Jobs Moved Offshore
* Advent of Knowledge-Based Industry Displaces Unskilled Labor
* Immigration Adds a Large Pool of Unskilled Workforce
* Black Middle Class Suburbanizes Drug Culture Flourishes in Inner Cities
* Administrative Offices Suburbanize
* Transportation Policies Favor Suburban and Nonmetropolitan Areas.
UNSKILLED MANUFACTURING JOBS MOVED OFFSHORE
Those industries with a high proportion of an unskilled workforce declined in
employment throughout the U.S. during the 1980's. Significant declines in these
industries between 1975-1990 created a decline in employment opportunities for inner
city residents (see Table 1).(Table 1 omitted) This experience has been documented in
case studies of cities. Between 1982 and 1989, there were 131 plant closings in Los
Angeles, idling 124,000 workers. Fifteen of these plants moved to Mexico or overseas.
Investment trends, particularly the internationalization of low skill jobs, was one of the
root causes of the decline in inner city employment during the decade.(1)
THE KNOWLEDGE-BASED ECONOMY DISPLACES THE UNSKILLED WORKER
The demand for unskilled workers in all segments of corporate America declined in the
1980's. This feature appeared throughout the national economy, but was most apparent in
the disappearance of those industries that have high labor content.
The percentage of the employed with less than a high school education dropped by 55
percent between 1970 and 1991 (see Table 2).(Table 2 omitted) Likewise, the proportion
of the workforce with a college degree doubled during that same time frame, even though
the average educational attainment increased only by 5 percent during that era.
The new skill mix occurred because more persons found employment in high skill
industries such as services, and also because the skill content of traditional industries,
such as manufacturing, increased substantially during those two decades. These
characteristics are quite apparent when one examines the types of jobs in the U.S.
economy (see Table 3).(Table 3 omitted) The most apparent trend is the actual decline,
during the 1980's, in the numbers of workers classified as operators, fabricators, laborers
and workers in precision production and craft occupations (skills principally associated
with construction and manufacturing). The proportion of workforce in administrative
support declined as a percentage of the total workforce and remained nearly static in
absolute terms. The number of workers in the ranks of management, the professions,
technical disciplines, or sales show a dramatic increase throughout the period. This
characteristic, sometimes termed the knowledge-based economy, is clearly demonstrated
in the labor force statistics.
The story does not end here, however. The statistics show an overall shift toward a higher
skill level within each of these categories (see Table 4).(Table 4 omitted) The data in
Table 4 are only for male workers because this is how the data are collected by the
Bureau of Labor Statistics. It is valuable to look at male numbers alone because it isolates
any of the influences that have occurred from the entry of large numbers of females into
the labor force during the 1970's and 1980's. Even entry level jobs in the blue collar fields
now require a high school education or higher.
The end result of all of these changes is a declining demand for workers who lack a high
school diploma. A major proportion of these poorly educated individuals are the
inhabitants of our inner city neighborhoods.
IMMIGRATION ADDED A LARGE POOL OF UNSKILLED WORKERS
The 1980's was a decade of immigration, legal and otherwise, that was unprecedented
since the dawn of this century. A flurry of unskilled workers flooded into America from
Mexico, Central and South America, and Asia. These workers concentrated
disproportionately in the inner cities of the country's largest metropolitan areas. This
immigration brought a large pool of unskilled workers who compete against the
traditional inner city population for the dwindling number of unskilled jobs. This has
created a further concentration of unemployment and low wage population in America's
inner cities.
THE BLACK MIDDLE CLASS MOVES TO THE SUBURBS
The past two decades have been a time of an emerging racial and ethnic middle class.
This emerging middle class, like the groups that preceded them, moved to the suburbs.
Studies based on the 1990 census show this pattern in areas such as Atlanta, Los Angeles
and most older urban centers.(2) This change leaves the inner cities with only a core of
impoverished, unemployed, and unskilled workers without alternatives to inner city life.
Perhaps more importantly, it robs the inner city of an effective leadership that can use its
political and economic muscle to solve inner city problems.
DRUGS AND CRIME FIND A NICHE IN VACANT INNER CITY BUILDINGS
Violent crime rates nationally have almost tripled over the past two decades (see Table
5).(Table 5 omitted) The drug culture and the concomitant crime that springs from it sank
deep roots in the vacant, abandoned spaces of the inner city. This characteristic has made
the inner city the focal point of more crime against property and people, leading both
companies and the suburban workforce to feel, rightly or wrongly, that inner cities are
crime ridden and unsafe areas in which to invest or in which to work.
The influence of inner city crime can outweigh the economic advantages of inner cities.
Tom Lawton, a well known site selection consultant from New York City, reports cases
where his client companies have chosen suburban locations over urban ones, simply
because of the crime and image problems of inner city sites.
ADMINISTRATIVE OFFICES SUBURBANIZE
The advent of modern telecommunications and data processing technologies allows
companies to separate headquarters and administrative functions. Beginning in the early
1970's, corporate America streamlined its administrative burden by moving the lower
skilled office jobs to suburban areas offering better work force skills and lower costs.
This change left the inner city workforce geographically isolated from the clerical and
administrative work place. Because mass transit systems are designed to feed the
downtown areas of cities, the poor inner city resident finds him/herself without
geographic mobility to the emerging suburban job sites.
In the America of 1992, two-thirds of jobs are suburban, contrasted to nearly less than
one percent in 1950. Even the dwindling number of unskilled jobs in the urban economy
are more likely to be in suburban America.
TRANSPORTATION POLICIES AND FUNDING
Federal funding continues dramatically to favor highways over public transit. It thus
encourages rather than deters less efficient, less cost-effective settlement patterns while
abdicating to the cities responsibility for urban infrastructure and the mobility needs of
the urban poor. This experience further isolates the poor in the ghettos -- inaccessible to
jobs in the suburbs -- and deters use of more efficient multiple occupancy vehicles where
this is practical.(3)
THE ECONOMIES BEHIND INNER CITY DECLINE
The past twenty years saw an explosion of commercial real estate development in the
U.S. Most of the new space, however, was built in suburban areas. Causes should be
examined behind the demand for and supply of inner city space prior to drawing
conclusions on how to stimulate development of inner city jobs.
These findings were collected from statistical sources, a survey of inner city development
programs, active consultants and from inner city companies.
THE SUPPLY OF COMMERCIAL/INDUSTRIAL SPACE INS INNER CITIES
The problems of the inner city workforce stem both from an evaporation of previous
employers and from a dearth of new ones as well. The dearth of new employers is a
function of the supply and demand for commercial/industrial space in the inner city. Our
findings suggest that at least five important considerations influence the supply of space
in inner cities.
* Inner city rents for manufacturing and warehouse space tend to be lower than those in
geographically related suburban areas so landlords have less incentive to remodel or
modernize space (see Table 6).(Table 6 omitted)
* Inner city areas, having been settled and occupied the longest, are the areas most prone
to previous environmental contamination. Factories in these areas were operated prior to
the current environmental awareness. This is an acute problem in older industrial centers
such as Birmingham and St. Louis.(4) A City of Chicago study of its Lake Calumet area
found only one large site without major environmental problems, and almost any older
site in the city was found to pose some risk. With he advent of EPA policies on
environmental liability in the 1970's, contaminated areas became virtually worthless as
commercial/industrial space. The EPA's strategy of suing the deepest pockets ties up such
space or decades because major corporations, city governments, lenders and real estate
investors do not want to inherit environmental liability. A recent IRS ruling that requires
companies to capitalize, rather than expense, cleanup costs will exacerbate the
situation.(5)
* Inner city areas offer few tracts of vacant land for new economic activities. Because
inner cities were built in an era when settlement was denser, existing employers cannot
easily expand facilities to meet growth needs of their companies. Dynamic companies,
even those created in the inner city, tend to move to the suburbs as they outgrow their
facilities, and cannot find in the inner city raw land or modern structures that meet their
needs. A survey of developed industrial sites in the top twenty-five cities in America
confirmed that vacant space does not exist in inner cities. Prices could be found for
parcels of greater than ten acres in only twelve of the twenty-five cases examined (See
Table 6). In the majority of those cases, land prices were almost double those in suburban
markets. In the city of Chicago (excluding the Lake Calumet area), there are
approximately ten to twelve industrial sites of 40 or more acres.
* Adaptive reuse makes sense for retail or high end office space which has a high
economic value but is not feasible for warehousing, manufacturing or administrative
office needs, (which are the dominant space uses in our economy and which are most
likely to produce jobs that fit inner city skills) where new construction costs are
significantly cheaper than renovation costs. So America's inner cities are stuck with
obsolete commercial/industrial facilities.
* Federal laws about historic and archeological preservation and handicap access have a
wider impact in inner cities than in suburbs. The added cost of complying with these
regulations in urban areas, as well as the potential legal encumbrance they pose (so many
parties now have a legal standing in how inner city lands are redeveloped) take away
some of the economic value of inner city areas.
These five characteristics, taken together, have made it more difficult for inner city
owners to expand their business or to restructure in inner cities. Difficulty in development
translates into higher costs for new construction, giving suburban locations a cost
advantage over inner cities.
THE DEMAND FOR COMMERCIAL/INDUSTRIAL SPACE IN INNER CITIES
The paucity of inner cities jobs is also rooted in a lack of demand for inner city sites. Our
investigation led to seven findings as to why this is the case:
* A survey of inner city costs for office space and utilities suggests that inner city areas
overall have about a 20 percent cost disadvantage for office activities (see Table 6). Rent
differentials between inner cities and suburbs in large cities are around $7-15 per square
foot and perhaps $5 per foot in smaller cities.(6) These differentials are disappearing,
however, as vacancy rates are rising. Charles Elliott of Moran, Stahl & Boyer suggests
that the differential, at least in New York City, has disappeared recently.(7) Costs matter
more to corporate America than ever before, so urban areas lose customers for their
office real estate because cost sensitive operations, such as administrative and clerical
work, can be done much less expensively in suburban locations.
* Dynamic companies reach a point in which they become landlocked in inner city
complexes. Since settlement patterns are denser in inner cities, these companies do not
have viable options for acquiring adjacent space to meet their growth needs. Such
companies must choose between finding completely new facilities or in acquiring
adjacent facilities and then clearing and developing them. As the vast majority of both
office and factory space inventory is now suburban, the chances of finding inner city
space of sufficient size and layout are much lower than in suburban areas. Since the
oldest office and manufacturing inventory tends to be in inner cities, companies find that
the cost of meeting code changes and in retrofitting new building technology is more
expensive in inner cities. When expanding, inner city companies take the course of least
resistance, moving to suburban sites.
* The perception that inner city areas offer less protection for worker safety and for
property protection is universally reported among consultants. Some consultants even
report cases where companies choose a more expensive suburban location because of this
issue. If one cannot recruit inner city workers with the requisite skills, and if suburbanites
are reluctant to work in urban factories, then a company cannot adequately staff a factory
in an inner city, no matter what cost advantage might be offered through tax incentives,
utility reduction or land write downs.
* Corporate America sees little incentive to own real estate in an era when prices are not
rising. This characteristic developed in the 1980's and will continue throughout the
1990's. As more and more employers become renters rather than owners, the tax and
investment incentives of enterprise zones for property owners become less significant
motivators for the companies creating jobs.
* Changes in warehouse technology over the last 15 years have made buildings with less
than 24 ft. eave height functionally obsolete. Warehousing is the lion's share of
commercial space use in all urban areas in America. As much as 80 percent of space
absorption in major metro areas is for warehousing. Again, the older industrial
infrastructure is concentrated in America's urban areas, so vacancy rates mushroom in
inner cities.
* The occupancy costs of owner occupied urban factory space appears significantly
higher than in suburban locations. This is particularly true in areas where cities control
the utility services. In one typical example supplied by a consultant, the cost of ownership
at a collection of four urban sites was on average $2.50 per square foot per year more
expensive for a manufacturing building than for suburban alternatives.(8) Higher real
estate costs (because of the scarcity of new, modern space) and higher utility costs are the
factors which contribute to this higher cost. Urban real estate taxes tend to be higher in
inner cities because overall operating costs for city services are higher in large cities (due
to obsolete work rules, featherbedding practices and to the greater influence of unionized
city workforces bargaining higher wages).
* The workforce of the inner city has the most chronic problems with educational
preparation, lacking the verbal, writing and math skills needed in today's economy. Our
survey of major site selection consultants found unanimous agreement on this point.(9)
As Dennis Donovan of Wadley-Donovan aptly stated, "Inner cities lack the quality of
clerical and manual labor found in the suburbs. We have found major problems in inner
cities in tens of basic skills, particularly verbal/reading/writing aptitude."(10) Companies
avoid areas where they cannot obtain adequate labor skills.
THE CURRENT RESPONSE TO THE INNER CITY ECONOMIC SITUATION
TRADITIONAL STRATEGIES PRODUCE POOR RESULTS
The sum of current inner city urban economic development strategy falls into one of three
techniques: recruit new investment and jobs, expand your existing business base, and
foster creation of new companies. Success at each strategy depends on a particular
community's strengths and weaknesses and on creating a product with a niche advantage
over the competition. A sound policy for inner city development must capitalize on
strengths and attempt to improve on weaknesses. A review of strengths and weaknesses
shows that the inner city has few competitive advantages over suburbs (see Table
7).(Table 7 omitted) To become effective, cities must adopt better economic development
strategies.
RECRUITMENT
Recruiting offices and factories to the inner city appears to be more than a problem of
high cost. The centrality of the inner city adds cost without adding value because of
problems with workforce preparation and crime.
Inner cities have a great geographic advantage in centrality to urban commercial markets
and human resources. The labor market advantage of central cities will not materialize,
however, until cities address the workforce deficiencies of their citizens.
Moreover, cities must provide commercial real estate opportunities that meet modern
space requirements.
EXPANSIONS
The bulk of growth in any community comes from the expansion of local companies;
however, despite the inherent advantage of expanding production in-place, it is not
practical in the inner city. Most existing space, both office and industrial, is suburban.
The older building inventory of inner cities is less likely to meet the technical needs of
modern manufacturing, warehousing or office occupations. Companies see leaving the
inner city as the only effective way to control the safety of employees and property. It is
more costly and time consuming to adapt older building to modern technology than it is
to make a move to a suburban site. Cities must face the reality that they need to compete
with suburbs in terms of the variety and cost of commercial real estate. Few of the
development tools created for urban economic development will solve this problem. New
approaches are needed, such as flexible building codes and zoning ordinances.
ENTREPRENEURSHIP
An economic development strategy of entrepreneurship in the inner city seems the
highest risk of all. Most of the small businesses in America are concentrated in the retail
and personal service areas, meaning they are dependent on a local customer base. Inner
city residents have the lowest discretionary incomes of any group in America, which
drastically limits the capital formation potential for entrepreneurial business in inner
cities. It is not surprising, then, that black Americans have a much lower rate of business
ownership than any other group in the nation (see Table 8).(Table 8 omitted) Minorities
comprise only 2.5 percent of America's 550,000 franchise businesses.(11)
From a practical standpoint, a business owner, to be successful, needs a college education
or a technical skill and some business experience to survive in the competitive economy
of today. He/she needs family money or some accumulated savings from past work to
leverage for credit. Virtually no one residing in inner city neighborhoods meets this
profile. Therefore, entrepreneurial development appears to be the longest bet to revive
our inner city neighborhoods.
Efforts to spur entrepreneurial development suffer from a lack of technology. Recent
research by David Birch suggests that four percent of small businesses create 70 percent
of the jobs in that sector. The problem is that no one can pick which companies are likely
to fall into that four percent category. As a result, entrepreneurial programs in essence
expend 96 percent of their resources on companies that will never have significant
growth potential. From an economic development standpoint, efforts at inner city
entrepreneurial development offer scant opportunities for creating significant job growth,
despite their political appeal.
NOTHING NEW UNDER THE SUN
As part of this project, the central cities of the 50 largest metro areas were surveyed to
determine what tools and techniques were used in economic development. Twenty cities
responded with detailed explanations. A survey completed in March, 1993, by the City of
Dallas Economic Development Department, added data on eight cities that had not
responded earlier.
In surveying the economic development programs in the largest cities, it was hoped that
new or unique programs and tools would be discovered that could serve as models for the
nation. Lamentably, only a collection of common development tools and practices was
found in virtually every case.
All of the cities employ a three prong strategy of maintaining existing companies,
fostering the creation of new companies and, in some cases, attracting new companies.
Development tools are used to lower costs (tax abatements, utility discounts, land
writedowns), to provide better financial access (loan funds), to stimulate business
formations (venture funds and incubators) or to improve the local business climate (job
training or day care reimbursement).
Among major cities, past efforts have focused on improved downtown public facilities.
Examples of this approach are the series of public center improvements in Norfolk,
(Festival Marketplace, Maritime Museum, conference center and office redevelopment)
and St. Louis (Busch Stadium, St. Louis Center and Gateway Mall). While these projects
may have created downtown activity and some downtown jobs, it is difficult to know
whether these type of projects have been significant job generators or cost effective forms
of development.
Upon close examination, practically all of the financial assistance programs are based on
pass-throughs of federal funds. Cities and states apparently do not invest general
revenues in these kinds of programs. In a great many cases, the lack of state and local
monies reflects constitutional or statutory prohibitions against public monies invested in
private business.
Among the tools used by urban areas are tax increment financing, property tax
abatements, and enterprise zone credits. TIF is an effective tool for large development or
redevelopment projects, but it is not cost effective for small or mid-size projects. Property
tax abatements can be an effective tool provided they are selectively applied to inner
cities.
Evidence suggests that these tools are nearly universally applied, making them ineffective
in guiding investment into inner cities. Tax credits against state income tax appears to be
a tool that only affects behavior of major corporations having major operations in a state.
In the case of the United Airlines site selection, for example, Oklahoma found that UAL
would never use more than $10 million of the $100 million in enterprise zone credits that
would apply to a $1 billion facility because most of the airlines' assets and employees
were located in other states (state income taxes are apportioned based on the percentage
of a company's assets, employees and sales allocated to a particular state). Most small
companies never have major profits to shelter from state income taxes, so that tax credits
applied against income become ineffective at guiding the location of investment
decisions.
To be effective in promoting urban economic development, incentives must erase cost
disadvantages of cities over suburbs. This analysis suggests that cities currently use the
same standard tools as suburbs, so that these incentives are not effective in reducing the
disadvantages of an inner city location. The survey undertaken as part of this study
probed to find if any of the city programs had unique concepts not shared by the suburbs.
What was found is a litany of programs that are based largely on the pass-through of
Federal funds or a reliance on Federal training and loan funds. The Federal efforts are
expressly designed to prevent one region or city from gaining a comparative advantage
over another. As a result, it would appear that current incentive policies and economic
development strategies are largely ineffective in stimulating investment in central cities.
ENTERPRISE ZONES
Approximately 20 of the 28 cities studied have some form of local enterprise zone
project. Two of the cities, Birmingham and Baltimore, have good data on the annual jobs
impact of the enterprise zone program. The Baltimore statistics report the following 1991
job impact in four zones:
New Companies Assisted: 2 Relocations & Company Expansions: 9 Total Job Impact:
134
If these statistics are typical of enterprise zones, one has to question the validity of the
assumptions behind local enterprise zones. If the tax breaks and loan funds backing up
these efforts were vital to business, would the results not be non significant in a metro
area of three million? The evidence suggests that this tool is ineffective because it ignores
the real problems of urban economic development.
RESPONDING TO THE CHALLENGE OF THE INNER CITY ECONOMY
Sound development arises from understanding the market advantages of a particular
place and designing programs that fit those advantages. Too much of the efforts we see
today are based on the wholesale copying of what everyone else is doing. Some of this
approach arises from a general ignorance of why certain tools and programs work and
from political expediency (voters need to see that something's being done). Some
political leaders view themselves as self-anointed experts in the details of urban
economic development with the ability to diagnose problems and formulate solutions
without any formal training or experience in what has become a very complex field. The
entire practice of economic development needs to be reconsidered if any effective action
is to be expected in solving America's urban problems.
America's major cities must address three problems in order to provide jobs for their
residents: 1) major cities must become cost competitive with suburbs and other cities,
particularly in the costs of city services; 2) crime must be reduced in inner cities to
acceptable levels, and; 3) inner city citizens must receive a secondary education that
matches the best in the world. Achieving anything short of these three goals will fail to
fix the problem. All three of these goals reflect the reality that cities compete against
other cities, regions, and even countries, for investment and jobs. For too many years,
civic leadership in America has forgotten this reality. The vision that must be understood
is that cities have to be well managed and efficient economic units. Large cities have to
find ways to provide services as efficiently as small towns.
As noted, there is a myriad of forces that have contributed to the decline of inner cities. A
number of recommendations are presented based on an analysis of these forces. These
recommendations are divided into the following categories:
* Policies
* Institutional Changes
* Research Efforts
* Regulatory.
Solving America's urban problems must fall predominately to local leaders, but changes
at all three levels of government will improve the process. A new approach, with radical
changes in how cities and states approach urban problems, is necessary. Until programs
are developed that effectively address the core problems of inner cities, only marginal
changes in policy can be offered that, lamentably, will offer only marginal improvement
n the inner city problem. The following recommendations are offered to address the inner
city crisis in America.
POLICIES
* Federal policy should recognize that it is desirable and necessary to treat some areas
differently from others in terms of incentives and federal programs. Stop developing
federal policy that treats all cities equally in all respects.
* Educational attainment of the urban workforce is the major challenge of the decade.
Federal training programs are ineffective at meeting the challenges of educating a
population that has an average educational level of ten years. Such populations can not be
trained for the jobs of today in six months. Solving the educational problem of inner
cities alone could increase the GDP by 154 billion per year (in 1987 dollars).(12) Throw
out the JTPA program, with its byzantine federal regulations, and start over. Recognize
the severity of the problem and understand that America's neediest cannot be helped in
six months or for $2,000. The unskilled jobs upon which the STPA program were based
have evaporated. And one does not move citizens with a tenth grade education into the
economic mainstream in six months, as JTPA envisions.
* State laws that prohibit direct investments or subsidies to companies should be
reexamined in terms of inner city development. Because such constitutional provisions
exist in most states, we see urban programs universally built around the passthrough of
federal monies. States should give more autonomy to cities to use tax resources to
address urban economic problems, so that cities can reduce or eliminate economic
disadvantages they have compared with suburban locations.
* Incentives built around property tax abatement are less likely, in the future, to capture
private sector investment for inner cities. A national glut of commercial and office space
means that less real estate investment is needed in the next ten years. As companies see
less value in ownership, abatements are less likely to affect job locations (abatements are
reserved for owners and rarely pass through to lessees). Incentives are needed with real
cash value that offer companies a motivation to locate in inner cities.
* Federal grants and programs will fail to affect behavior as long as the award is tied to
the Davis-Bacon Act. The current policy of leveraging private dollars with federal grants
is ineffective because the Davis-Bacon provisions tied to the grant raise project costs
above what it would be without the federal participation. National studies have shown
that Davis-Bacon raises the cost of building projects by about 26 percent, so that even a
26 percent grant of project cost is a net wash in terms of project costs.(13)
* Discard the CDBG program as it now stands. One cannot meet a 50% low-moderate
income target in an economy where 70-80% of the jobs are for skilled workers. One just
cannot find employers who meet this artificial definition. This too is a legacy of a past
economy. It excludes viable projects with long-term job stability.
* Other nations, particularly in Asia and Latin America, provide work to inner city
residents through a different form of industrial organization. Residents in those areas are
supplied tools and equipment for at home work. This form of organization relies on
piece-work production systems that have been outlawed in the U.S. since the 1930's by
Department of Labor regulations. America should experiment with modifying zoning and
labor laws to allow piecework at home in impoverished urban areas.
INSTITUTIONAL CHANGES
* Cities have, over the past two decades, shifted more resources into social programs and
less into police protection. The number of uniformed police officers has not increased
significantly in twenty years, although crime rates have mushroomed.(14) At present,
violent felons are beginning to outnumber police officers in many of our urban centers.
Cities must allocate more resources to reduce crime before an investment return can be
seen in inner city areas.
* Per capita city tax rates increase with city size. Large cities must understand that they
compete against suburbs, smaller cities, and third world countries for investment, and that
they must be efficient in the provision of services. Why should the cost of utility services
and police/fire protection be significantly higher in large cities? Not operating efficiently
is a death trap for America's cities.
* For a resurgence of industrial real estate in urban centers (the only balanced
commercial real estate market in America), one needs to replace functionally obsolete
factory buildings with space that will accommodate new technology. Adaptive reuse
techniques are not practical in this segment of the market; new space is needed. Yet this
will never happen until the byzantine system of environmental regulation, historic
review, and other federal requirements are eliminated. Developers need some breathing
room from the legal maze involved in providing attractive urban real estate, and they
need a means of competing economically against suburban projects.
* Government and political institutions do not reflect the metropolitan economy and
cannot, therefore, provide effective leadership or coordination.(15) Urban leaders need
training in economic development. A political or civic leader must understand the
relationship between basic job growth and economic health, to adequately allocate
resources to economic development programs. Urban government must become more
entrepreneurial. It should pursue joint ventures with private for-profit corporations,
subcontracts with private non-profit groups, and competition among operating systems to
determine which serves the citizens best. A redesigned local government will improve
service delivery and operate more cost-effectively. It will strip away redundant
regulations and practices that burden enterprises, profit and nonprofit, large and
small.(16)
* Without a vibrant, indigenous business community in inner-city America, community
leadership tends to fall to political figureheads, who usually don't have an understanding
of economic problems and solutions. Community leadership needs to be developed in
these areas to meet the leadership vacuum that forms.
* Community leaders must recognize that successful economic development programs
consist of more than changing the nameplate of the city planning department to the
economic development department. Successful programs are built around finding unique
niches and developing a product to fit that niche. The copy cat tradition that is prevalent
in the business is a major cause of the poor performance of city economies. Economic
development is a profession requiring talent learned through experience and training.
RESEARCH EFFORTS
* Telecommuting will offer work to persons now lacking geographic mobility. A federal
training initiative to test telecommuting as a vehicle for providing work to inner city
neighborhoods is recommended.
* The Federal government should stop funding entrepreneurial development schemes
until they can prove they have an economic impact. It is suggested that the U.S.
Department of Housing and Urban Development or the U.S. Department of Commerce,
Economic Development Administration hire a contractor to examine the cost
effectiveness of the entrepreneurial development tools that have mushroomed over the
last ten years. Such tools as incubators, research parks, small business counselling
centers, and other innovations are suspected of being expensive programs in terms of cost
per basic job created and also of being widely misapplied in practice. Advancement needs
to be made in the state-of-the-art in terms of entrepreneurial development programs.
* The American Economic Development Council should sponsor research on the issues
of effective workforce training/education and on effective crime prevention efforts in our
cities. Economic development practitioners know virtually nothing about effective tools
for meeting these challenges. Much of the knowledge and experience in these areas is
outside the mainstream of the economic development profession.
REGULATORY
* Recognize that the proliferation of federal programs for environmental protection,
historic preservation, and other social causes have had economic consequences on the
viability of inner-city America. The impact of these programs is not equal across
geographic space. These programs have made the development process in urban areas
more cumbersome and therefore more costly, putting an unequal burden on urban areas.
These programs create onerous social costs to federal, state and local governments that
are not factored into the legislation. It's time to reflect on how these programs can be
reformed to provide social benefits to the nation.
* Cities, especially central cities, must rethink how they provide services to their citizens.
In cases where regional or metropolitan delivery proves more cost effective, the civic
leaders should push hard for the implementation of such efforts. We have passed the era
when inefficiency can be tolerated simply for the sake of political expediency.
CONCLUSION
America's problems with inner city development are solvable. A concerted national effort
that recognizes that the economic landscape of the 1990s is vastly different from that in
the 1960s is a necessary step to solve our pressing urban problems. Radical shifts in
attitude and philosophy about inner city economic development need to lead to successful
solutions to the nation's chronic inner city economic problems.
NOTES
1 James H. Johnson, Jr. et al, "The Los Angeles Rebellion: A Retrospective View."
Economic Development Quarterly, Nov. 1992, p. 362.
2 Paul Jargowski, "Ghetto Poverty Among Blacks in the 1980's", Survey of Regional
Literature, March 1993 and Other Sources.
3 Interwoven Destinies: Cities and the Nation, 82nd American Assembly, April 1987, p.
7.
4 Interviews with C. Mark Smith, Director, Office of Economic Development, City of
Birmingham and Larry Bushong, Executive Director, St. Louis Development
Corporation.
5 Wall Street Journal, May 6, 1993.
6 Dennis Donovan telephone interview.
7 Charles Elliott telephone interview.
8 Correspondence with the Austin Company.
9 Telephone interviews with representatives of the Austin Company, Lawton Unlimited,
Moran, Stahl & Boyer, & Wadley-Donovan Group.
10 Dennis Donovan telephone interview.
11 USA Today, June 11, 1993.
12 Estimate prepared by the Research Division of the Oklahoma City Chamber of
Commerce based upon the median wages of persons with an inner city level of education
versus the median wages of persons in the workforce. This method adapted from a study
by IBM on the value of education to America's workforce.
13 Conversation with Joe Van Bullard, Assistant City Manager, City of Oklahoma City.
14 "Put Police Before Prisons." (The New York Times Editorial), The New York Times,
May 23, 1992, p. A10.
15 Interwoven Destinies: Cities and the Nation, The 82nd American Assembly, April,
1993, pp. 6 & 7.
16 Ibid.
ACKNOWLEDGMENTS
The AEDC Board of Directors acknowledges the contribution of the members of the
Urban Policy Committee, who are:
Mr. Ed Bee, Chairman MetroVision Econ. Dev. Partnership New Orleans, LA
Mr. Thomas L. Clark Greater Denver Chamber of Commerce Denver, CO
Mr. David Fisher Thousand Oaks, CA
Mr. Donald Iannone Levin College of Urban Affairs Cleveland State University
Cleveland, OH
Mr. David R. Kolzow Kolzow & Assoc., Inc. Tuscon, AZ
Mr. Milton R. Lincoln Dekalb Chamber of Commerce Atlanta, GA
Mr. Robert W. Marshall Greater Cleveland Growth Association Cleveland, OH
Mr. Mark Smith City of Birmingham Birmingham, AL
Ms. Audry Bynoe New York State Job Development Authority New York, NY
Mr. Mark Davis Genesee Economic Area Revitalization, Inc. (GEAR) Flint, MI
Mr. William Holly Columbus Area Chamber of Commerce Columbus, OH
Mr. Paul Kaywork Public Service Electric and Gas Co. Morristown, NJ
Mr. David Kreitor City of Phoenix Phoenix, AZ
Mr. James Manuel Columbus Area Chamber of Commerce Columbus, OH
Mr. James Monroe The Chamber/New Orleans & River Region New Orleans, LA
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