Energy and the Economy: The Good, the Bad, and the Ugly

Energy Towers

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.

Source: 2017 United States Energy and Employment Report (USEER)

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.

EIA Manufacturing Sector Output, fuel consumption, and energy intensity (1998-2014)

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.

Conclusion

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.

What’s the Buzz in Washington? Opportunity Zones

Springtime means conferences, and members of our team have been on the road. I have been back and forth to two conferences in Washington, D.C. in the last few months, attending the International Economic Development Council’s FED Forum in March, and the LOCUS Leadership Summit, in April. IEDC’s event was focused on economic development programs at the federal level, bringing in top economic developers throughout the county to interface with federal partners at the Economic Development Administration, Department of Labor, and other key partners. The LOCUS event brought together a coalition of real estate developers and investors who advocate for sustainable, equitable, walkable development in America’s metropolitan areas, as a program of Smart Growth America.

At both events, the topic of the hour was Opportunity Zones.

What Is the Opportunity Zones Program?

The Opportunity Zones program is a new federal economic development tax incentive designed to funnel private investment to low and moderate-income Census tracts across the U.S.  The incentive provides Investors the opportunity to temporarily defer or avoid taxes on capital gains – profits from the sell of an investment – if those gains are reinvested in an Opportunity Fund benefitting low-income communities. These communities are designated as “Qualified Opportunity Zones (QOZ).” Each state will be allowed to designate up to 25% of the eligible tracts for Opportunity Zone status, with the final selections being made by the state’s governor. As of April, Census tracts in 18 states had been designated as Opportunity Zones. These are available for viewing on a map available through CDFI Fund.

The creation of this policy was lead by the Economic Innovation Group, who anticipates claims that this program unleashing will unleash $6 trillion in unrealized capital gains that can be leveraged in the neighborhoods that need it most.

How Does it Work?

According to Kenan Fikri, Director of Research at the Economic Innovation Group, who participated in a session at the FED Forum, Opportunity Zones can best be understood as a tax benefit akin to EB-5, or the Earned Income Tax Credit. In fact, rather than being housed in HUD or Department of Commerce, the IRS will be managing this program. This is due to the fact that investors will be drawn to Opportunity Zones primarily through the incentive of deferred capital gains tax. Here’s an example of how it works:

If an investor cashed out $1 million in stocks, they would owe 23.8% or $238,000,000 of that in taxes to the government. But if that $1 million were invested into an Opportunity Zone, taxes would be deferred for five years. If these funds stay invested for more than five years, then the tax bill would be decreased by 10% and if funds stayed in invested for more than seven years, the tax bill would be reduced by another 5%. Furthermore, whatever capital gains would be collected from investments made by Opportunity Funds in the Zone, there would be no capital gains tax levied.

Opportunity Funds are the vehicles through which investments can be made in these zones. According to the statute, Opportunity Funds will be set up as a partnership or corporation. They can fund investment in a domestic corporation, a partnership interest, or real property, so long as any of these have 90% of more of their holdings in an Opportunity Zone.

What Can You Do to Prepare?

At both conferences the feeling regarding Opportunity Zones was one of excitement but also uncertainty. One presenter at the LOCUS Summit likened this rollout period to the “wild west” because there is so little understood about what the outcomes will be. This is due to the speed at which the program was adopted and executed, as well the choice to have the program interred at the Department of Revenue. Here’s what you can do to prepare:

Stay Informed. There are significant questions about how the Opportunity Funds will be set up, with details about aspects of the program still ill-defined. The CDFI Fund has a ton of resources – updated in real time – to keep you abreast of all that you need to know. Check FAQ’s, explore a map of designated QOZ’s and other resources, here.

Think Smart About Outcomes. There is no doubt that Opportunity Zones will massively impact the investment levels in low to moderate census tracts. If your state got an extension, and is not one of the 18 who already has designated their tracts, it could be worth reviewing some of the criticism that has surrounded the first round of designees, and learning from this process.

Crowdsource. Going forward there also seems to be a role for community based financial institutions to step into the role of administering Opportunity Funds, or even incorporating crowd-sourcing to make these funds more community oriented. Community development stakeholders should keep an eye out for the public comment process to weigh in on how these funds can be best used for their purpose of benefiting low income populations.

Additional Resources:

Analyzing Opportunity Zone Nominations and What States Should Do Next

Guiding Principles for Opportunity Zones

Why I Don’t Want to Come to Your Chamber Event – and How You Can Change That

Networking Group
ITU/Rowan Farrell

My circle of friends includes a lot of small business owners. People who own bars, print shops, jewelry businesses, motorcycle shops, yoga studios, food trucks, cideries, dinner clubs, podcasts, and organic farms. And they all have one thing in common.

They do not want to come to your chamber event.

I actually go to a lot of chamber and industry events—and I have benefitted tremendously from attending networking happy hours, gaining mentors and connections. But I’m an economic developer, and I’m used to the small talk, the dress code, and the business card exchange. My friends who are creative, entrepreneurial types are not interested in putting themselves in environments where the main activity is “networking” and the food options range from crudité and ranch to cheese and crackers, (typically without a gluten free or vegan option, excluding celery.) Faced with the choice of running marketing campaigns from their phone while they watch season 4 of Parks and Rec, or interacting with people they don’t know, they’re going to pick yoga pants and the couch over awkward conversations.

They also haven’t heard about your event. Your networking lunch may be posted on your website and Facebook page, but if this target audience is not already interacting with you on social media, then it’s not reaching small business owners outside of your members.

Why is this a problem? Why does the kombucha brewer need to know about and attend Chamber events? Because she represents your next generation of businesses, and if she is not accessing the services offered by your chamber and other aligned organizations, then your economic development ecosystem is failing.

Chambers are vital partners in economic development efforts. They are the access point for businesses in the region, and through their networks, businesses gain access to resources offered by the supportive organizations that can guide them to success, such as financing and mentorship opportunities.

Unfortunately, if a small business owner is looking at your chamber website, seeing a board and staff lacking diversity, holding events at the country club, she will not see your organization as a space where she fits. And when her business encounters a setback, without a network of support, you risk losing her business and all that comes with it—the owner, the employees, and the young people who would potentially be attracted to your community by the enticing things to eat, do, and see. Today, talent is the most important factor in retaining and attracting business, and chambers cannot stand to ignore a subset of small businesses just because they are unconventional or much younger than other members.

Another reason that your “Business After Hours” may not be attracting young people is that networking as an activity has lost its spark. With their purchasing decisions, Millennials have shown that they value authenticity, connection, and community – witness the success of outdoor brand Patagonia, whose products and branding advocate for ecological sustainability – and whose recent Pittsburgh store opening featured designs by a local print shop. With creative engagement with the community, Patagonia attracts young people with common goals and ideals to come together in their space, for events beyond shopping. Trading business cards and small talk does not provide engagement with a community or authentic connections.

Business networking events don’t really make sense to people running small, creative businesses. Talking to a bunch of random people at a business networking event is not an effective solution for growing your business when technologies like LinkedIn and Google exist, making it easy to research specific contacts, understand their expertise, and reach out for a coffee date. Finally, for young business owners, their time outside of work is limited, and they want to spend it having quality experiences.

So, what can you do?

Engage

Small BusinessEconomic development is a profession built on relationships. Stopping by the new businesses that are cropping up in your community and introducing yourself and your organization goes a long way. You might have to do a little bit of hunting – small businesses operating from their houses won’t have a storefront yet, but could be selling significant amounts of merchandise on Etsy or another online platform.

One way to get in touch with these producers is to keep up with farmers markets and maker fairs in your community. Maker fairs like Handmade Arcade feature hundreds of craft-based artists, makers, and producers; consider reaching out to the fair organizers to get an roster of local vendors whose booths you can visit.

Programming

Millennials have been programmed their whole lives. From Little League to dance lessons to student life activities in college, Millennials are really good at engaging in organized fun. Having an activity or event gives participants something to talk about and engage in together, creating an authentic connection. The description of Newaukee, a young professionals group in Milwaukee explains why programming is so essential to creating meaningful networking events for young people:

“…there had to be a way to socialize and explore the city with their peers that did not entail hauling a stack of business cards to a stuffy networking event. And they also believed in building genuine, long-lasting relationships – people need to meet on a common ground, doing something that they truly love together.”

Newaukee hosts incredible events for their members, billed on their website as Signature Experiences, such as Tournavation, a crowd-sourced idea generation platform that focuses on solving important issues that face the city of Milwaukee, and The Launch, a curated networking program featuring an exhibition of hiring companies and potential recruits on a boat.

Social Media Ready

Photo Ready FoodI am not suggesting you join Snapchat, but I am suggesting your event be worthy of posting on social media. Food choices, drink selections and choice of venue contribute to the quality of the event and the attractiveness of images to be shared. It’s not just enough to have a hashtag – consider experiences that young people can engage with and share on social media, such as a custom backdrop, or providing a station to make signs about why they love their community.

Also – make sure your events are being shared with the young people you are trying to engage. Social media is great for this but working with local online communities, such as blogs or message boards, will put your event in front of new eyes. Don’t forget community bulletin boards at coffee shops or bars – if your event flier is posted alongside music and art shows, that’s a good sign.

Don’t Go It Alone

To get maximum turnout from young folks at your events, engage them in the planning process – and in your organization. Start with asking young people to get involved in planning your events – ask for help in where to have them, and how to promote them. As they become more involved, ask them to join your committees or boards, or help them to create their own, Chamber-supported organizations.

For example, the group Connecticut Young Professionals was started in 2013 by a young person who was new to the state and has grown to more than 1,400 people. They hold events such as a non-profit pitch nights. In an interview, founder Faris Virani explains how he tailors events and messaging to his membership:

Growing up in the digital age, millennials are used to getting information very efficiently, delivered quickly and with brevity. Our speakers realize that their job is almost to plant seeds, not necessarily convey all the information during your speech.

Create a Judgement Free Environment

Today’s young entrepreneurs are more likely to wear a hoodie, echoing Facebook founder Mark Zuckerberg, than a French cuff shirt reminiscent of Gordon Gekko. If you expect young people to wear different clothing to your event than what they wear to work every day, you’re doing it wrong. If you’re changing the venue and the programming of events, you might also consider specifying a dress code on your marketing – with friendly wording such as “Come as you are,” or Dress Code: Casual.

Take these suggestions and look at where your Chamber organization or networking program has room for growth. A good first step is to visit that brand new local brewery, coffee shop, or café and introduce yourself the old-fashioned way. Those authentic connections will take you a long way in connecting with the new generation of business owners.

Is the sky falling for U.S. retail?

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
Nonstore retailers 539,700 570,100 30,400
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
Gasoline stations 932,400 940,500 8,100
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
Accommodation 1,950,200 1,954,000 3,800
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.

 

FEC Index Spotlight: Talking Housing Affordability and Tourism with Vail Valley Partnership

Fourth Economy Community Index #6 Midsized Community Eagle County, CO

We talked with Chris Romer, President and CEO of Vail Valley Partnership, when Eagle County, CO came up as the #6 mid-sized community on the Fourth Economy Community Index this year. At that time, Romer largely agreed with what we reported seeing in the data, but he had one bone to pick with our metrics. Yes, Romer could see how Eagle County received high scores in Talent, Investment, and Place, and he shared how environmental sustainability was crucial given the local economy’s reliance on outdoor recreation (you can read more on this here). But he couldn’t see how Eagle County could land on a list that takes housing affordability into account given how serious an issue it had become in the area.

Like our home city of Pittsburgh, Vail Valley appears to be “affordable” in terms of housing and transportation costs when viewed at a macro level compared with median household incomes. But also like Pittsburgh, data taken at a macro level can be deceiving. Back in July, Romer shared with us that housing affordability was front-of-mind for his organizations and partners in the area. Since then, we have noticed that even during the busy tourist season, the Eagle County Housing Task Force remains active in engaging the community to find solutions.

We caught up with Chris Romer in December to learn more about the Task Force and get his take on the connection between housing affordability and a strong local economy. Romer shared that his organization is supportive of initiatives driven by the community at large and by business owners, and lends a hand whenever possible to help advance efforts like the Housing Task Force.

“As a resort-oriented community,” he said, “Our challenge is that we have international demand for our real estate.” He went on to share that Vail Valley is unique because when someone goes to buy or sell a house in a place like Cincinnati, OH, where Romer grew up, most people are moving for a job or moving from somewhere nearby. By contrast, much of the residential real estate market in Eagle County, CO is made up of second homes or vacation homes. “That is exasperated by the fact that we are surrounded by public land, so we have 15% on which we can build.” Because of the recreational assets and the investment opportunity, this means a lot of competition for housing, says Romer.

When asked what he thought about the need for housing that is attainable for people working in the local tourism sector, Romer reported that tourism makes up about 48% of the local economy and that while local jobs in tourism, recreation, and hospitality pay about 60% above average for the state in those sectors, they are still lower paying jobs in many regards. Therefore, Romer said, “It does exasperate the challenge in terms of affordability.”

We wrapped up our conversation with Romer by asking what, in addition to the Housing Task Force, he would share with other economic developers on the topic. “We are very actively engaged with advocacy and working with elected officials to reduce regulatory burdens,” he said. “And we are working to educate the community on ways that we can impact and incentivize developers to include attainable and affordable housing.”

At Fourth Economy, we’ll be anxious to see what comes next for Eagle County in terms of housing affordability, and we want to hear your thoughts on Vail Valley’s approach. Strategies like this one, that pair smart economic development decisions with a long-term point of view, are what build the strong communities and economies that the Fourth Economy Community Index seeks to capture. You can subscribe to Vail Valley Partnership’s newsletter and follow them on social media by visiting www.vailvalleypartnership.com.

 

We’re hiring!

We’re looking for an innovative and creative professional with experience and expertise in graphic design, brand management, business development, and web design. Fourth Economy is hiring a Graphic Design and Communications Manager to help us communicate our plans and recommendations to our clients and the stakeholders they serve.

Send cover letter and resume and work samples that demonstrate your design approach and capabilities to pia.bernardini@fourtheconomy.com.

The Four Keys to Effective Collaborations

The Fourth Economy team strongly believes in the power of partnerships in improving community and economic development outcomes. Through our work, we have managed numerous collaborations and identified four keys that lead to effective partnerships.

Patience, Participation, and Partnership

Effective collaboration can be difficult and often takes time. Therefore, it requires that all stakeholders have patience throughout the process of building partnerships and developing solutions. As partnership groups face challenging times, it is critical that they overcome these difficulties together and remain engaged in the effort. One difficulty that may arise is that as individuals and organizations collaborate to further a common purpose, they are typically guided by their own self-interest. These motivations are not always negative and can often support the success of collaborative groups when they are aligned with the goals of the larger partnership. In addition to acknowledging these self-interests, during initial conversations, these groups should identify outcomes and boundaries to focus their work. The group should allow for some flexibility in these areas as issues can change, but too much flexibility will impede the group’s ability to effect change and could cause stakeholders to leave the group. Continue reading “The Four Keys to Effective Collaborations”

Fourth Economy’s Rich Overmoyer and Chelsea Burket Appear on “Our Region’s Business”

Fourth Economy CEO Rich Overmoyer, along with Director, Sustainable Communities, Chelsea Burket were recent guests on “Our Region’s Business” hosted by Bill Flanagan. They discussed Fourth Economy’s role as a platform partner for the Rockefeller Foundation 100 Resilient Cities initiative. Watch their appearance by clicking on the video below.

Dr. Jerry Paytas on the Fourth Economy

Our own Jerry Paytas appeared on the Sunday Business Page recently where he was interviewed by KDKA’s Rick Dayton. Dr. Paytas explained the origin of the Fourth Economy name and provided a brief overview of our philosophy for effective economic and community development. Click here or on the image below to watch the complete interview.

paytas-kdka