The PCRG Community Development Summit was held on May 8-9, 2019. It was titled Capital and Capacity: Replanting Roots in an Ever-Shifting Reinvestment Landscape. The title was an undersell to say the least. I would characterize this year’s summit as Transforming the way we do development.
The summit’s first session on May 8, Under our Own Power: Games to Inform, Organize, Build Capacity, and Compel Action was not your ordinary “we can make community engagement engaging” kind of session. The session was facilitated by the Andrea Elcock of the Port Authority of Allegheny County, David Totten of the Southwestern Pennsylvania Commission and a team from evolveEA that included Christine Mondor, Elijah Hughes, Ashley Cox and Daniel Klein. Christine set the tone early by framing levels of engagement from low (transactional) to high (transformational).
These levels of engagement can and should build off of each other. Just because an engagement is transactional, that doesn’t mean it is bad. Sometimes you just need to inform people. However, if you need to get things done, it will require a more significant engagement effort. This goes far beyond the typical community engagement process of Inform, Collect Feedback, Ignore Feedback.
On May 9, Andrea Batista Schlesinger of HR&A Advisors fired up the breakfast club with a call for Equitable Development. Ms. Schlesinger did not pull punches, for example she led off by saying that “Economic development is not neutral, it is political and the tools of economic development and planning are often used to enforce racial segregation.” She called for equity to be a central focus and not an “extracurricular activity.” She advocated for an approach to Equitable Economic Development that I have boiled down to four critical questions for every development program or initiative:
- Who wins?
- Who loses?
- Who made the plan? Or who runs the program?
- How do you protect people from your good intentions?
At the lunch keynote, Nathaniel Smith of the Partnership for Southern Equity made clear that the problems of inequity today are rooted in our history. Early in his address he quoted James Baldwin: “History is not even the past; It is the present.” Mr. Smith made clear what he meant when he said “Extreme Extraction = Extreme Inequality” that he matched with maps and photos of America’s slave trade and the Trail of Tears that displaced native peoples from their historic homelands.
Source: U.S. Census Bureau, Wealth, Asset Ownership, & Debt of Households Detailed Tables: 2014.
Today the net worth of black households is only seven percent of the net worth of white households. While we might like to confine the sins of slavery and racism to the past, they are in the words of James Baldwin, very much a part of the present. New research by Dionissi Aliprantis and Daniel Carroll at the Federal Reserve Bank of Cleveland explore the causes of the wealth gap. For an easily digestible summary of their research, see the article by Brentin Mock of CityLab, “Why Can’t We Close the Racial Wealth Gap?”
If we are going to transform the way we do development, so that it is something that benefits people, then we need to reframe the development debate.
Under the hypothetical scenario used in their model, wherein no income gap exists since 1962—meaning all things equal in payscale between blacks and whites—they claim that the wealth gap likely would have mostly been closed by 2007. That’s because their model predicts that by 1977 the labor income gap has become a stronger contributor to the wealth gap than the initial conditions, and then accounts for more than 80 percent of the wealth gap by 1990, as visualized in the chart below.
If we are going to transform the way we do development, so that it is something that benefits people, then we need to reframe the development debate. Nathaniel Smith challenged us to consider the following: What would Pittsburgh look like if every policy were evaluated based on the impact on the most vulnerable?
So wherever you live, ask yourselves that question before you sink the next bucket of tax dollars into a development deal.
As Pennsylvania was preparing to legalize medical marijuana back in 2017, I posted a blog about the Economic Impacts of Marijuana Legalization. A lot has changed in the legal landscape since then and we have had more time to reflect on the experiences of the states blazing the legal trail, Colorado and Washington.
In October of 2018, The Colorado Division of Criminal Justice Office of Research and Statistics released “Impacts on Marijuana Legalization in Colorado,” a report that compiles and analyzes data on marijuana-related topics.
The Denver Post summarized the positive findings of the report as follows:
- Five years after Colorado legalized marijuana, young people are not smoking more pot than they used to, organized crime is on the rise and it’s a mixed bag as to whether legal weed has led to more dangerous driving conditions.
- Marijuana has not impacted graduation rates or dropout rates in Colorado. Graduation rates have increased while dropout rates have decreased since 2012.
The state report did report a number of negative findings as well:
- The number of fatalities where a driver tested positive for any cannabinoid (Delta 9 or any other metabolite) increased from 55 (11% of all fatalities) in 2013 to 139 (21% of all fatalities) in 2017.
- Rates of hospitalization with possible marijuana exposures increased steadily from 2000 through 2015.
Other findings in the state report are mixed:
- Felony marijuana court case filings (conspiracy, manufacturing, distribution, and possession with intent to sell) declined from 2008 to 2014, but increased from 2015 through 2017. However, felony filings in 2017 (907) were still below 2008 filings (1,431).
- Filings in organized-crime cases followed a similar pattern, with a dip in 2012 and 2013 followed by a significant increase since 2014. There were 31 organized crime case filings in 2012 and 119 in 2017.
Colorado originally anticipated $70 million in marijuana tax collections per year, but it hit $130 million in 2015, went over $190 million in calendar year 2016 and topped $266 million in 2018.1 A 2016 estimate put the economic impact for the state of Colorado at $2.4 billion, when revenues were half of the 2018 total.
Updated April 2019: https://www.colorado.gov/pacific/revenue/colorado-marijuana-tax-data
In Washington, the legalization was expected to generate an estimated $388 million annually. The revenues, however, have been slow to materialize but have grown rapidly with the excise tax revenues from marijuana starting at $62 million in FY 2015, and then more than doubling to $134 million in FY 2016. In FY 2017, Washington state collected $319 million in legal marijuana income and license fees, an increase of 238 percent. While this amount is still short of the original estimates, the marijuana revenues exceed revenues from liquor by more than $113 million.2
- Between June 2008 and December 2009, the analysis showed, there were 1,312 offenses committed that resulted in felony sentences for the manufacture, delivery or possession with the intent to deliver marijuana.
- By contrast, during an 18 month period following the opening of recreational cannabis stores in 2014, there were just 147 marijuana-related crimes that resulted in felony level sentences — a nearly 90 percent decrease.
As reported in Seattle’s Child, the 2016 Washington State Healthy Youth Survey found that “Rates of teen marijuana use have not increased since 2014, despite the changing landscape.”3
The 2016 Washington State Marijuana Impact Report found that since legalization, marijuana use in the state is higher than the national average, which is no surprise: “Washington State young adults (18-25) past-year marijuana use was 6% higher than the nation’s in 2012-2013 – Washington adults (26+) were 5% higher.”4 The report also noted an increase in fatal accidents, however the absolute number remains small: “Drivers with active THC in their blood involved in a fatal driving accidents have increased 122.2% from 2010 (16) to 2014 (23) according to the Washington State Traffic Safety Commission.”5 Finally, the report noted a small number of marijuana-related crimes reported to the Spokane Valley Police Department for January to August of 2015: possession (21), theft (14), and harassment (11).6
Partisans will still find enough evidence to support their positions, but at this point, the scales seem to be tipping in favor of the marijuana legalization advocates. The worst fears of the legalization opponents have not materialized, at least in terms of any chronic, long-term economic impacts. A robust debate continues regarding the health impacts of marijuana legalization, but that is another story.
1 Source: https://www.colorado.gov/pacific/revenue/colorado-marijuana-tax-data
2 Source: https://www.tre.wa.gov/portfolio-item/washington-state-marijuana-revenues-and-health/
3 Source: http://www.seattleschild.com/Washington-state-legalized-pot-how-has-that-affected-kids/ /
4 Source: http://www.riag.ri.gov/documents/NWHIDTAMarijuanaImpactReportVolume1.pdf, page 9.
5 Source: http://www.riag.ri.gov/documents/NWHIDTAMarijuanaImpactReportVolume1.pdf, page 9.
6 Source: http://www.riag.ri.gov/documents/NWHIDTAMarijuanaImpactReportVolume1.pdf, page 9.
It is very difficult to track capital for small businesses in any rigorous fashion. The Census Bureau and the Kauffman Foundation partnered to conduct the Annual Survey of Entrepreneurs (ASE), with the first survey covering 2014. Additional surveys covered 2015 and 2016. These surveys provide a nationwide baseline for investment data for small businesses and entrepreneurs, but the data is only available by state and for the fifty largest metropolitan areas.
The most common sources of business financing for young firms are the personal assets of the owner and the owner’s family. The reliances on these sources limits entrepreneurship to the wealthy. Since we do not know which opportunities will create value, it is important to increase the pool of risk capital beyond the small amount that the market provides, which can create opportunities for those without family resources.
Sources of Capital for Startups (less than 2 years old)
Source: Annual Survey of Entrepreneurs, 2014
A small percentage of firms are able to tap resources beyond their personal assets. For startups less than two years only, only 12 percent (120 out of 1,000) are able to access traditional bank financing and seven percent establish a credit account for their business. Five out of 100 firms are able to get a loan or investment from family or friends. State and local governments operate a number of business loan programs, but these are often out of reach for startup businesses where their only collateral is intellectual property. As a result, for firms less than two years old, 17 out of 1,000 access a government guaranteed business loan and only four out of 1,000 businesses are able to access a direct government loan. This leaves a lot of businesses out of the capital markets.
The Small Business Administration (SBA) publishes information on the lending activity they support through their programs. The SBA 7(a) Program provides loans for small businesses of up to $5 million to fund startup costs, buy equipment and more. Here’s what else you can do with 7(a) funds:
- Purchase new land (including construction costs)
- Repair existing capital
- Purchase or expand an existing business
- Refine existing debt
- Purchase machinery, furniture, fixtures, supplies or materials
The Geography of Small Business Finance in Pennsylvania
Using the SBA data, we can dive deeper into what businesses are accessing these loans, where they are located, and what banks are involved. As an example, Fourth Economy created an interactive workbook that presents the SBA 7a loans in the state of Pennsylvania from 2010 through April of 2018. You can explore the maps and data by county.
Clairton, Pennsylvania is home to less than 7,000 residents. It is probably best known for being the home of the Clairton Coke Works and was once known as the Coke Capital of the World. It is also known for being the home of the Clairton Bears, the local high school football, which had a 66 game winning streak that spanned 2009 to 2013.
Clairton is one of the Monongahela river towns where the decline of the steel industry hit hard. Tucked onto two hilltops that overlook the river, train tracks, and the coke works, Clairton has seen more than its fair share of losses. More than a decade ago, the last grocery store in town closed.
Now, there is positive momentum. Local residents, working through two committees: The Healthy Food, Social, and Human Services Committee and the Neighborhood Partnership Program Committee guided the development phase and ensured engagement by the residents of Clairton. The effort to get to opening day resulted from the efforts of two nonprofits, Economic Development South and Just Harvest. Funding for the store was provided by the Pennsylvania Department of Community & Economic Development’s Neighborhood Assistance Program (funded by BNY Mellon and Highmark), and Bridgeway Capital.
Fourth Economy and Palo Alto Partners were engaged by Just Harvest to assess the financial viability of the fresh foods market planned by Economic Development South. We conducted a needs assessment to identify the areas of highest need in Clairton, combined with an opportunity assessment to identify the areas that would be most accessible to residents. We also conducted an evaluation of local expenditures and competing stores and to assess potential store locations in Clairton. Surveys of residents provided critical insights into what factors would make the store successful. The study estimated the potential sales that could be captured for different offerings. Finally, the study integrated all of these analyses into a business plan and operational model.
The results of our analysis demonstrated that such a store would have a narrow path to sustainable break-even operations. Every scenario required some level of subsidy to overcome early operating losses. As a consulting team, we were downcast that we were not creative enough to find a sustainable, break-even solution. We were dreading when it came time to present the results to our project partners at Economic Development South and Just Harvest.
When we got to final numbers on the cash flow and the break-even projections, we expected to hear something like, “Well, thanks for trying.” We got a very different response instead. Greg Jones of Economic Development South was ecstatic — the numbers were much better than he expected. “We can make this work. This is less than it costs to educate people about food deserts and the lack of fresh produce. If we can actually provide fresh foods at this cost, this is a no-brainer!”
With the opening of Produce Marketplace, at 519 St. Clair Avenue, residents of Clairton will have access to affordable fresh foods all year round. It has been great to see this project come to life. It will be two or three years before we know that the store is sustainable, but the level of community engagement and interest to date provides a good leading indicator of the store’s viability.
Energy is a vital sector and a job generator, but it is also important to understand that there are some real challenges for how the development of energy resources and systems benefit the economy.
The Good: Energy is a Job Generator
The 2017 United States Energy and Employment Report (USEER) estimated there are 6.2 million workers in Energy and Energy Efficiency in 2016. This broad definition for Energy accounts for four of every 100 jobs in the U.S. with the largest share in Energy Efficiency Construction. The Energy sectors defined by the USEER report added 300,000 net new jobs in 2016, more than any other sectors than Accommodation and Food Services.
Energy is a common thread woven throughout every aspect of our lives. It is a link between all sectors of the economy, our health, and the environment. Virtually every aspect of our modern industrial lives depend on reliable electrical power and energy infrastructures. Energy is vital for everything we produce but that link is weakening as manufacturing grows more efficient. Gross output in U.S. manufacturing has remained stable or grown since 1998, while overall fuel consumption and energy intensity have decreased.
The Bad: Energy Growth <> Job Growth
Even though energy is essential to our economic life, the development of energy resources does not translate into overall economic growth. At the state level, the development of natural resources and mining has not benefited the host states – there is no relationship between output growth in these sectors and the overall growth of the state economy. The lone exception is North Dakota, where the energy boom fueled growth in a state with about 750,000 people. For other states experiencing an energy boom, such as Pennsylvania, Ohio, and West Virginia, the energy boom has not translated to overall economic growth.
The Ugly: The Workforce Gaps
73 percent of employers reported difficulty hiring qualified workers over the last 12 months. Some of this reflects the difficulty in finding qualified workers willing with the skills and desire to take on a challenging job. However it also reflects the difficulty that some sectors have in recruiting from a broader pool of candidates.
Ethnic and racial minorities are not well represented in the energy workforce. In the U.S., Hispanic or Latino workers make up 16 percent of the workforce but only 14 percent in energy. Black or African American workers account for eight percent of the energy workforce compared to 12 percent. The glaring gap however is that across all sectors of energy women account for a low 22 percent of the workforce in energy efficient vehicles, up to 34 percent for electric power generation, which is still below the 47 percent for the overall U.S. workforce.
We need energy for our economy and it is an important source of job growth. However, the development of energy assets does not guarantee growth in other sectors. Furthermore, more must be done so that the jobs that are created are available to the widest possible pool of eligible candidates.
Is it the Retail Apocalypse or simply Retail Restructuring?
There continues to be a great deal of apprehension about the retail sector. In June of 2017, Business Insider tallied more than 5,000 store closures with a projection of nearly 9,000 store closures by the end of 2017. Fourth Economy has mapped more than 1,700 of these closings across the United States. Traditional brick and mortar retail faces a fundamental challenge from shifts in consumer preferences and advances in online shopping and delivery services. The store closings are the physical manifestation of the challenges facing the retail sector, which often can leave significant redevelopment challenges for local community and economic development officials.
Despite the headlines and the hysteria, overall retail has been adding jobs. Job losses occurring over the last year may be a warning sign, but it is too early to tell. Fourth Economy created a dashboard to track three key statistics.
- Overall retail employment
- Jobs gains and losses from opening, expanding, closing and contracting
- Worker separation and hires
At this point, the data on retail employment does not indicate a “Retail Apocalypse.” Over the long run, retail has been very volatile and the impact of the recession created a greater disruption than we are seeing now. What is portrayed in the media reflects a shift within retail. Over the past year there have been significant losses in general merchandise, and five other retail categories. These stores represent many of the traditional brands in brick and mortar stores.
|Sep 2016||Sep 2017||Change|
|General merchandise stores||3,188,600||3,130,700||-57,900|
|Clothing & clothing accessories stores||1,351,800||1,321,100||-30,700|
|Food & beverage stores||3,096,200||3,067,400||-28,800|
|Electronics & appliance stores||530,200||502,100||-28,100|
|Sporting goods, hobby, book, & music stores||618,700||601,200||-17,500|
|Health & personal care stores||1,051,800||1,048,000||-3,800|
Other categories of retail are increasing, with nonstore retailers (Amazon) leading the way. Gains have also occurred in motor vehicle and parts dealers as well as building material and garden supplies. These gains were not enough to offset the losing categories, but it shows that the retail sector should not be painted with a broad brush.
|Sep 2016||Sep 2017||Change|
|Motor vehicle and parts dealers||1,988,600||2,012,900||24,300|
|Building material and garden supply stores||1,279,100||1,296,600||17,500|
|Furniture and home furnishings stores||477,100||484,000||6,900|
|Miscellaneous store retailers||833,200||834,400||1,200|
Even if retail is experiencing some short-term declines that portend larger losses to come, there are other segments of the service sector that are adding significant numbers of jobs. The 156,100 jobs added in food services and drinking places is nearly double the job loss in retail.
|Sep 2016||Sep 2017||Change|
|Food services and drinking places||11,499,000||11,655,100||156,100|
|Personal and laundry services||1,458,500||1,491,700||33,200|
|Amusements, gambling, and recreation||1,616,200||1,635,300||19,100|
|Museums, historical sites, and similar institutions||161,500||168,600||7,100|
|Repair and maintenance||1,288,000||1,292,400||4,400|
|Performing arts and spectator sports||457,500||459,700||2,200|
The dire forecasts are overblown. Consumers are shifting from commodities to experiences and many analysts say that retail’s future is to provide more than merchandise. This is as much about where the service is provided as how it is provided. Neighborhood level (Main Street) retail also appears to be adapting to these trends. People looking for and returning to walkable communities has helped, but so has the ability of “Mom and Pop” stores to differentiate through service and quality rather than low prices. The emphasis on more services, entertainment and food has also helped Main Street retail. Recent data on the performance of small retailers is not available at this time, so it is not possible to fully evaluate these trends but it appears that the dominance of big box and superstore retailers is being challenged on two fronts – online and on Main Street.
With changes coming locally in Pennsylvania, with the state’s Department of Health releasing permits for medical marijuana growers and processors as well as dispensaries late last month, it seemed high time to take a look at the economic impacts of marijuana legalization efforts in other states.
Colorado anticipated $70 million in marijuana tax collections per year, but it hit $121 million in 2015 and over $140 million in the calendar year 2016.1 One estimate put the economic impact for the state of Colorado at $2.4 billion.
In Washington, tax revenues are slowly ramping up, but still far short of the estimated $388 million annually estimated in the legalization effort. Excise tax revenues from marijuana were $62 million in FY 2015, $134 million in FY 2016 and expected to hit $270 million for FY 2017.
Whether all states will hit these targets is not yet clear, and there has not been any analysis of whether legalization has offset or increased other public sector costs. We don’t fully know if legalization has produced any savings from reduced drug enforcement costs, or if those savings are offset by increases elsewhere.
It may be some years before we can really examine the impact of legalization on public costs, but there are other impacts that are receiving less attention. The legalization of marijuana at the state level has created a fundamental conflict with federal law where it is still illegal and controlled as a Schedule 1 drug, the most serious category of illegal substances that have no currently-accepted medical use and a high potential for abuse. As a Schedule 1 drug, the funds for research on medical uses are restricted, so it is even harder to get marijuana reclassified (as could happen if research proved that its medical use was beneficial). As recently as August of 2016, the DEA rejected reclassification based on the recommendations of the FDA.
The US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) indicated in what is known as the Cole Memo that they would not charge a bank with federal crimes for accepting marijuana money if the financial institution ensures that all state laws and the directives of the Department of Justice have been followed. This situation puts a significant resource burden on institutions that effectively makes accepting these deposit not profitable. Some credit unions and “money service businesses” such as PayQwick are entering the marijuana market, but the uncertain legal patchwork they operate under provides a limited solution.
As a result, marijuana businesses that are legal in their home states cannot use banks or many traditional banking services.They have to pay all of their bills, taxes, and payroll in cash. They can’t get loans or mortgages, and they can’t build credit.
These problems can also extend to companies that supply marijuana businesses and all of their employees. If your income comes from an activity that is not allowed by federal law, then you as an employee may be barred from using a bank or getting credit. Furthermore, since these businesses are paying their workers in cash, any individual with a bank account would be subject to additional scrutiny for making large amounts of cash deposits. This is such a new industry that the potential problems facing employees in these businesses have not yet surfaced, but it is something that policymakers should be considering before significant problems emerge.
1. See Joseph Henchman, Marijuana Legalization and Taxes: Lessons for Other States from Colorado and Washington, Tax Foundation Special Report (Apr. 20, 2016).↩
At Fourth Economy we have been tracking the news about retail store closures. These store closures often can leave significant redevelopment challenges for local community and economic development officials. In future posts we will highlights some of the ways that communities are dealing with these buildings. According to Business Insider more than 5,000 store closures have been announced so far, with the potential for nearly 9,000 store closures by the end of 2017. These store closings are the most physical manifestation of the challenges facing the retail sector.
As a resource to the community, Fourth Economy has started to identify and compile a list of retail store closings. Tracking down the locations has proven to be a challenge, but we have identified 1,768 of these closings so far. You can see the results in the above Working Map of Retail Closings, created in Tableau Public. We are providing this as a resource to the community and will continue to update it as closings are announced and locations identified. If you know of any closings in your area, please send them to firstname.lastname@example.org and we will update the map.
Stay tuned for more.
A great American poet once said, “For the times they are a-changing.” That is especially true today in our economy. Underneath the radar of the rhetoric and public spotlight, the changes in the economy are generating a ripple effect for how industries and people use land. Land use is not a topic that is top of mind for most people, but a few local governments are waking up to the reality that a number of forces are beginning to change the need for land, and ultimately its value. Local governments care deeply about land use, or they should, because the value of land translates into the property tax revenues they need to maintain the community. Continue reading “New Economics of Land Use”
Much attention has been paid to Pittsburgh’s burgeoning cohort of tech startups — but, more broadly, how is the climate for startup businesses in Pittsburgh, and what does it indicate about our city’s entrepreneurial culture? The Kauffman Index is one of the most prominent rankings of entrepreneurship and startup activity. Its release is often used to measure how Pittsburgh is doing compared to other metropolitan areas–and how we’ve progressed over time.
The 2016 Kauffman Index shows that entrepreneurship in the Pittsburgh region continues to lag behind other major metropolitan areas. Pittsburgh ranks 40th in startup activity in 2016, unchanged from our 2015 ranking. However, our rate of new entrepreneurs slipped from 150 new firms per 100,000 adults in 2015 to just 120 in 2016. By way of comparison, Austin, which ranked first in 2015 and 2016, saw its rate of new entrepreneurs go from 550 per 100,000 in 2015 to 600 in 2016. This means that Austin generated five times as many new firms per 100,000 adults as Pittsburgh did last year. Continue reading “Checking Up on the Health of Pittsburgh’s Startup Economy”