inner city

Agenda

• Performance of Inner City Economies

• Federal Policy and Inner City Economic Development

• Policy Area I: Workforce Training

• Policy Area II: Infrastructure

• Policy Area III: Capital Access

• Policy Area IV: Cluster Development

-1- Copyright © 2008 ICIC

Poverty Concentration in the 100 Largest Inner Cities,
2000

0.1% U.S. 8% U.S. 19% U.S. 31% U.S.
Land Area Population Poverty Minority Poverty

• Targeting poverty in inner cities allows “wholesale” rather than “retail”
approach to poverty reduction

Source: State of the Inner City Economies (SICE) database; ICIC analysis

Comparative per Capita Income
100 Largest Inner Cities vs. Rest of Economy, 2000

2000 Mean Per
Capita Income (US $)

• Wages are significantly lower in inner cities than rest of the U.S. for all demographic
groups

Relationship of Central City Employment Growth and
Poverty Rates
Job Loss/Poverty Increase: Job Gain/Poverty Increase:
Central City Poverty Rate, % Change 2000-2007

30 Cities 35 Cities

Job Loss/Poverty Decrease: Job Gain/Poverty Decrease:
9 Cities 26 Cities

Central City Job Growth, CAGR, 1999-2006

• Each 1% growth in central city job creation is correlated with a 0.9% decline
in central city poverty
Source: State of the Inner City Economies (SICE) database; ICIC analysis. Three cities not shown.

100 Largest Inner Cities vs. Rest of MSA, 1998 – 2006
Job Growth

1998 – 2006
Job Net
Growth Job
CAGR Change

Rest of MSA 1.3% 6,235,800

Rest of
1.0% +1,389,300
Central City

Inner City 0.0% +10,300

• Between 1998 and 2006, the 100 largest inner cities added 10,000 jobs while
their regions added over 6 million jobs

Establishment Growth

1998 – 2006
Estab. Net
Growth Estab.
CAGR Change

Rest of MSA 1.4% +499,000

Rest of
1.1% +85,600
Central City

Inner City 0.2% +8,600

• Inner city business formation growth also lags that of the region


Inner City Employment Growth, CAGR 1998-2006 Inner City Job Growth vs. Rest of MSA, 1998-2006

Phoenix

Brooklyn - Queens

Manhattan - Bronx

Houston
L.A.

Baltimore San Antonio

Philadelphia

Chicago Dallas

Rest of MSA Employment Growth, CAGR 1998-2006

Source: State of the Inner City Economies (SICE) database; ICIC analysis. Ten largest cities noted.

Job Growth

Average Average Percent of
Range of MSA Number of
Annual MSA Annual Inner Inner Cities
Growth MSAs
Growth City Growth that Grew

> 2% 26 3.1% 1.2% 73%

1-2% 35 1.5% 0.3% 69%

Average U.S. Growth = 1.3%

0-1% 31 0.7% -0.4% 29%

< 0% 7 -0.3% -1.4% 0%

• Regional growth policies must be augmented to spur job creation in inner cities
Source: State of the Inner City Economies (SICE) database; ICIC analysis. New Orleans excluded.

Agenda








Role of Federal Policy in Inner City Economic Development
Overview
• Healthy regional economies are necessary for inner city economic growth
– A shift from national to regional economic development is critical

• Regional economic growth alone is not sufficient to ensure inner city
economic development
– Regional policy frameworks must be augmented with specific policy approaches
for inner city economies

• Federal policy should enable inner city economic development by
strengthening the inherent competitive advantages of inner cities while
addressing weaknesses
– Inner city stagnation reflects waning competitive advantages, especially in
workforce development and infrastructure

• Specific public-private initiatives focused on inner city clusters will have the
greatest leverage for business development
– Inner cities have inherent advantages in those clusters that require access to
infrastructure nodes, anchor institutions, and available workforce

- 10 - Copyright © 2008 ICIC

Federal Policy and the Competitive Advantages
of Inner Cities

Under-Utilized Unmet Demand
Workforce
Opportunities for inner
Large pool of available
city-based businesses
workers
and entrepreneurs

Workforce Development Inner Cities Capital Access

Linkage to Regional
Strategic Location
Growth Clusters

Located near regional, Opportunity to leverage
national and international proximity to regional
infrastructure nodes clusters

Infrastructure Cluster Initiatives

Source: Porter, 1995

Agenda








Inner City Labor Force, 2000

% Population, 2000
80%

66%

60% 56%

40%

20%
13%

3%
0%
Unemployment Rate Labor Force Participation Rate

100 Largest Inner Cities Rest of U.S.


Inner City Labor Force, 2000
Education Levels: Population Aged 25+


U.S. Workers: Unemployment and Earnings by
Education Level, 2007

Unemployment Rate, 2007 (%) Median Annual Earnings, 2007

Advanced Degree

Bachelor’s Degree

Associate’s Degree

Some College,
No Degree

High School Degree

No High School Degree

Source: Bureau of Labor Statistics, Current Population Survey, 2008

U.S. Workforce: Training and Earnings Power, 2006

• Workforce training has a huge impact on wages of workers without a college degree
Source: Bureau of Labor Statistics, Current Population Survey, 2006. Wages calculated across occupations that share education and training requirements.

Most Cited Obstacles to Inner City Business Growth
Survey of Inner City 100 Companies, 2004-2008

Percent of Inner City
100 Companies
40%
35%

30%

21%
20%
15%

10%

0%
Recruiting Qualified Employees Access to Capital Building Corporate Infrastructure

• Workforce training could promote inner city business growth by addressing the
need for qualified workers
Source: Inner City 100 Surveys; ICIC analysis

Federal Spending on Economic Development by
Category, 2006

Source: Brookings, 2008

Federal Workforce Expenditures, 1988-2007
(2006 dollars)
Federal Workforce Expenditures, US 2006 (US $B)

• Over the Last 20 Years, Federal Spending On Non-Veteran Workforce Training and
Employment Has Declined Over 20%
Source: Office of Management and Budget, 2008; ICIC analysis

Federal Programs Supporting Skills Training and Education

• Department of Education • Department of Labor
– Pell Grant Program - Workforce Investment Act
– Carl D. Perkins Career and - Wagner-Peyser Act
Technical Education Act - Trade Adjustment Assistance
– Adult Education and Family
Literacy Act • Department of Housing and Urban
– Vocational Rehabilitation State Development
Grants
– Community Development Block
Grant
• Department of Health and Human
Services
• Department of the Treasury
– Temporary Assistance for Needy
Families – Tax Credits and Deductions for
Education and Training
– Social Services Block Grant
– Community Services Block Grant
– Food Stamp Employment and
Training Program

• There is a morass of programs and agencies at the federal level. This is
exacerbated by the large number of state and local programs
Source: Workforce Alliance, 2007; Baider, 2008

Evolution of Workforce Development Policy

Old Model New Model
Recipients • Targeted to low-income adults, • Open access for core services
youth, and dislocated workers • Reduction in training for low-
• Greater access for individuals income and less-educated
with characteristics commonly workers
found in inner city populations
(e.g., less formal education)

• Centralized (federal) power for • Decentralization: growing role
program administration and for states in allocation and
Public/Private creation assessment
Roles • Limited private-sector • Private-sector leadership
involvement

Program • High-intensity training common • Focus on job search and rapid
• Focus on job retention and job placement
Structure • Decline in intensive training
advancement

Source: ICIC project interviews, 2008

Intensive Training Participants by Education and
Income, 2000 vs. 2006

2000 2006 2000 2006

Low Income Participants High School Degree or Less

Source: Center for Law and Social Policy (CLASP), 2008. Data apply to Workforce Investment Act.

Workforce Development for Inner Cities:
Federal Policy Recommendations
Increase Intensive Link Training to
Address Specific
Training for Low- Inner City
Needs of Inner
Skilled Competitive
City Residents
Populations Advantages

• Assess adequacy of • Provide adequate support • Link training to clusters
existing services for those mechanisms (e.g., child
care) • Orient training providers
with low basic skills
towards economic
• Integrate training with adult • Leverage the skills of development and the needs
education community organizations of business
(e.g., language skills)
• Include “work readiness” • Allow flexibility and
programs • Place training service experimentation at local
centers near target level
• Prepare lower-skilled populations
workers in “middle-skilled”
jobs • Create better mechanisms
for matching of residents to
regional and inner city
jobs


Agenda








Concentration of U.S. Infrastructure in Inner Cities, 2007
16%
15%

14%
% Total U.S. Infrastructure in the 100 Largest Inner

14%

12%

10%
9%
Cities

8%

6%
6%

4%

2%

0%
Business Establishments Ports 50 Largest Airports Intermodal Facilities

Source: Bureau of Transportation Statistics, 2008; State of the Inner City Economies (SICE) database; ICIC analysis

Transportation Infrastructure Density, 2007
Facilities per Square Mile (U.S. Density = 1.0) Selected Facilities

Source: Bureau of Transportation Statistics, 2008; ICIC analysis. Data are for 175 largest central cities.

Infrastructure Expenditure as a Percent of GDP
1988-2006 (2006 Dollars)
% of GDP Spent on Infrastructure

Source: Congressional Budget Office, 2008

Mix of Infrastructure Spending, 2004
Federal vs. State and Local
Share of Infrastructure Spending, 2004

Source: Congressional Budget Office, 2008

Infrastructure and Inner City Economic Development

• Infrastructure density
– Density of infrastructure provides multiple access points to local, national, and international
economies
– Density means that inner city infrastructure weaknesses harm the entire region’s infrastructure
efficiency for business

• The quality of the infrastructure network relies on the surrounding local road system
– The quality of local infrastructure (roads, bridges) influences the value of nearby regional
and international infrastructure

• Infrastructure weaknesses are hurting competitive advantage
– The overall quality of national infrastructure has declined over the past decade
– The quality of urban infrastructure relative to rural has likely declined
– We hypothesize that there has been a decline in inner city infrastructure relative to the
rest of the central city


Position of Inner Cities in Infrastructure-Intensive Clusters
Cluster Concentration, 1998 Cluster Concentration, 2006
Transportation and Logistics (1) Apparel
Local Utilities Water Transport
Apparel Entertainment
Financial Services Local Utilities
Education and Knowledge Creation Financial Services
Local Community and Civic Organizations Jewelry and Precious Metals
Local Commercial Services Education and Knowledge Creation
Processed Food Local Community and Civic Organizations
Local Financial Services Transportation and Logistics (9)
Jewelry and Precious Metals Hospitality and Tourism
Hospitality and Tourism Local Education and Training
Entertainment Local Financial Services
Local Industrial Products and Services Oil and Gas Products and Services
Water Transport Processed Food
Local Education and Training Local Commercial Services
Local Logistical Services (16) Local Industrial Products and Services
Local Entertainment and Media Local Logistical Services (17)
Local Health Services Publishing and Printing
Leather and Related Products Local Health Services
Publishing and Printing Local Entertainment and Media
Oil and Gas Products and Services Business Services
Business Services Chemical Products
Distribution Services (23) Building Fixtures, Equipment and Services
Local Real Estate, Construction, and Development Leather and Related Products
Chemical Products Distribution Services (25)
Biopharmaceuticals Local Real Estate, Construction, and Development
Building Fixtures, Equipment and Services Power Generation and Transmission
Power Generation and Transmission Biopharmaceuticals
Local Food and Beverage Processing and Distribution Local Food and Beverage Processing and Distribution
Local Hospitality Establishments Local Hospitality Establishments
Metal Manufacturing Local Motor Vehicle Products and Services
Casino Hotels Metal Manufacturing
Local Motor Vehicle Products and Services Local Personal Services (Non-Medical)
Local Personal Services (Non-Medical) Casino Hotels
Local Household Goods and Services Construction Materials
Heavy Construction Services Local Household Goods and Services
Lighting and Electrical Equipment Heavy Construction Services
Automotive Lighting and Electrical Equipment

• Inner cities have lost ground in the most transportation-intensive clusters

Railroad Crossings, Bridges, and Deficient Bridges
Per Square Mile, 2007
Facilities per Square Mile (U.S. Density = 1.0)

Source: Bureau of Transportation Statistics, North American Transportation Atlas Data, 2007; ICIC analysis. Data are for 175 largest central cities.

Change in “Deficient” Infrastructure in Urban and Rural
Areas, 1998-2006
% Change in Deficient
Infrastructure
50%

41%
40%
33%

30%

20%

10%

Bridges, 1998-2006
0%
Roads, 1998-2006
-5%
-10%

-20% -16%

Rural Urban

• Urban infrastructure is degrading relative to rural areas
Source: Bureau of Transportation Statistics, 2008; ICIC analysis

Infrastructure Priorities for Inner Cities

Change National Neutral Allocation
Local and National
Policy Approach Mechanisms

• Base investments on • Consider unique • Promote neutral allocation
economic impact characteristics of inner city mechanisms
infrastructure

• Density and network
• National issue linked to • Neutrality between urban
efficiency concerns are
global competitiveness and rural areas
magnified in inner cities

• Economic value of national
• Economic rationale should and international • Neutrality between central
replace political rationale infrastructure can be city and inner city areas
squandered by poor local
infrastructure in inner cities

• The quality of inner city transportation infrastructure is an issue of national economic
competitiveness
Source: ICIC project interviews, 2008; ICIC, 2008; Hill, et al., 2003

Example: Park Hill Corridor in West Louisville

• 20 minutes from UPS’s “all points” air hub

- Access to the hub can reduce national and
international shipping time by up to a day

- Businesses that have emerged: computer repair,
credit card replacement, distribution

- In West Louisville (pictured), the advantage due to
hub access undermined by poor quality of local
transportation network

Source: Economics Research Associates, 2008; ICIC, 2008

Agenda








Unmet Demand for Investment in the 100 Largest
Inner Cities

Consumers Businesses

• 7.4 million households • 460,000 inner city companies
with 8.9 million employees in
• Some of fastest-growing 2006
segments of the U.S. population
• $80 billion in commercial services
• Retail supply gap estimated at demand that can be served from
35% inner cities

• Local business services in inner
cities are declining relative to
needs

• The persistence of unmet consumer and business demand is emblematic
of weaknesses in inner city business formation and growth
Source: State of the Inner City Economies (SICE) database; Boston Consulting Group-ICIC, 2006; ICIC analysis;

Increasing Capital Flow to Inner City Economies
Current Federal Initiatives

• Recruitment (“outside-in”) strategies that provide tax incentives and regulatory
relief to attract outside businesses to distressed areas
– New Markets Tax Credit (NMTC)
– Renewal Communities/Empowerment Zones (RC/EZ)

• Federal contracting opportunities for small business concerns in distressed
communities or owned by socially and economically disadvantaged persons
– SBA 8a Program (demographically-based)
– SBA HUBZone Empowerment Contracting Program (place-based)

• Access to credit (loan size <$1M) for small businesses and minority
entrepreneurs
– SBA guaranteed lending programs (7a, 504)
– Community Reinvestment Act (CRA)

Source: ICIC project interviews, 2008; Small Business Administration, 2005

New Markets Tax Credit Projects, 2006

Real Estate vs. Business Investment Transaction Amount

>$5M
Business 18%
Real Estate
Development Investment <$1M
68% Equity & Debt 50%
32% $1-5M
33%

• NMTC has not met its potential to provide equity financing to mid-sized inner
city businesses

Source: CDFI Fund, 2008

Capital Access Policies for Potential Federal Policy
Recommendations

Access to
Advisory Support Valuation Models
Growth Capital

• Create incentives and/or • Conduct research on valuation
• Federal coordination with
remove barriers to models for assessing inner
local authorities to inform
investment in inner city city risk
businesses about available
support and financing areas through e.g.: - Credit scores alone
- Tax credits
options penalize lower-asset
- Lower regulatory barriers
for individual investors individuals
• Increase funding for
business development • Extend and promote the New - Conventional site
within SBA 8a program Markets Tax Credits (NMTC) location models may
for business investment understate inner city
economic potential
• Reduce red tape and
transactions costs for SBA
loans

• Growth capital remains an issue for firms without access to strong advisory services,
personal assets, and “friends and family” capital
Source: Pacific Community Ventures, 2006; Community Development Venture Capital Alliance, 2001

Agenda








Cluster Development

• Clusters increase productivity and new business formation
– Efficient access to specialized inputs, services, employees, information, institutions,
training programs, and other “public goods”
– Easier commercialization of new products and greater opportunities for starting new
companies due to available skills, suppliers, etc.

• Cluster policy leverages policy investments over numerous companies
– Investments in training, information, export promotion, etc. will benefit many companies
across a range of industries

• Cluster policies are less distortive than those aimed at individual industries or
firms

• Cluster policy does not pick winners

Source: Porter, 2008

Clusters and Federal Economic Development Strategy
Current Initiatives

• The current state of Federal cluster policy is weak
– “U.S. federal government has been almost entirely absent from the realm of
cluster initiative programs” (Mills, et al. 2008)
– In 2006, only $565 million out of $76 billion in federal spending on economic
development supported collaboration and clusters
– Some exceptions:
• WIRED: Collaborative approach to regional development; many efforts, e.g., West
Louisville, are organized around clusters
• SECTORS (July, 2008): “Strengthening Employment Clusters to Organize Regional
Success”; DOL; training skilled worker to address shortages; “grantees are required to
identify targeted industry clusters”

• However, there is growing role of cluster thinking in economic development

Source: Mills, 2008

Inner City Employment by Cluster, 2006
Rank

Employment, 2006

Linking Cluster Development and Competitive Advantage

Largest Inner City Clusters

Local Health Services
Local Commercial Services
Local Hospitality Establishments
Local Community and Civic Organizations

Anchor Clusters

Construction, Housing and Real Estate
Transportation and Logistics
Knowledge Creation, Education and Training

Emerging Inner City Strengths

Entertainment
Hospitality and Tourism


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