Thursday, January 29, 2015

What Communities Can Learn from Thomas Edison

By Alex Pearlstein, Vice President. 

I lucked upon a very interesting and well-made biography of Thomas Edison last night on PBS. It’s always useful to get the full picture of a historical icon such as Edison to bring some perspective and shading to what is often a singularly reverential image and legacy. To be sure, Edison was perhaps the most impactful innovator and businessman of the last 150 years, but he also had his faults and his failures. In some cases, spectacular, expensive, and years-long failures like an ill-advised foray into iron-ore refining. He could also be stubborn to a fault – so much so that it eventually cost him his stake in what became General Electric. Above all, however, Edison was a preternatural optimist and never let setbacks get in the way of his long-term vision or ambition. As I tend to do, I starting thinking about the connections between Edison’s philosophy, process, and prowess and the workings of community and economic development. Here then are some key takeaways from the story of Thomas Edison that can inform how communities seek to grow and succeed in a hyper-competitive global economy.

Don’t Be Discouraged by Limitations

Even before adulthood, Edison was hard of hearing and could barely discern sounds or speech more than a couple feet away from him. But this was also the man who invented the phonograph and schmoozed financiers as needed to fund his labs, inventions, and businesses. Too often, communities restrain their ambitions because they outsize the challenges posed by, for example, lack of a hub airport, lack of a research university, or a harsh winter, to name just a few. While these issues certainly impact competitive position, they are not make-or-break challenges that should cause a community to compromise its vision or settle for second-tier status.

Be Curious, “Creatively Borrow,” and Optimize

Like Bill Gates and Microsoft Windows, Edison often took existing technologies and evolved them to become market-changing innovations and products. Alexander Graham Bell invented the telephone before Edison’s phonograph, but Edison challenged himself to devise a way to record and play back sound. (An aside: being almost obsessively competitive is not necessarily a bad thing when it comes to market domination.) The first patent for a light bulb came almost 40 years before Edison developed his prototype. And “motion pictures” were already an emerging technology before Edison created the Kinetoscope. In each case, however, Edison knew intuitively that the technology could be enhanced to be transformational and disruptive. And he didn’t stop until achieving his goal. As Edison became interested in motion pictures after attending a lecture by photographic pioneer Eadweard Muybridge, communities should always be on the lookout for good ideas, best practices, and innovative programs from other places. But, so too, should they never assume that an existing idea will work for them lock, stock, and barrel without customizing and vetting it for their population, economy, and geography.

Don’t Cling to Outdated Ideas

As noted, Edison was stubborn. So much so that he insisted despite contrary evidence that his DC power was superior to the AC power of a competitor, even to the point of losing control of General Electric after his investors froze him out and acquired a smaller AC firm. Communities shouldn’t be blind to the prospect that a competitor might have advanced a program or process beyond what they have achieved. An example would be an existing-business program. Simply continuing to visit employers and query them on their challenges and hiring plans may not be enough to fully capitalize on retention and expansion opportunities. A new innovation like economic gardening might be a worthwhile addition to provide the assistance necessary to really make an impact on local job-creation.

Be a Canny Promoter

From the outset of his career as a full-time inventor, Edison was conscious of cultivating his “brand” as a world-changing innovator. His discoveries were often consciously “leaked” to the press to build buzz in advance of media-friendly launch events worthy of today’s most savvy marketers. He took his phonograph on the road to newspapers and government chambers and fully illuminated his Menlo Park lab in a New Year’s Eve unveiling of his perfected light bulb. The press ate it up, making Edison a revered, almost godlike icon in his own lifetime. Later in Edison’s career, his eponymous company sustained itself almost exclusively by trumpeting his name and image in products and advertisements. While there is a fine line between self-promotion and self-aggrandizement, most if not all communities already understand the importance of external marketing, but maybe not as it relates to promoting the process as well as its results. Very often, investors will make a bet on a community that might not be optimally competitive, but is laser-focused and aggressive in its strategic improvement.

Build a Great Team

Edison was the brain; Edison was the brand. But he wouldn’t have been successful without the group of talented and accomplished individuals he gathered around him at all stages of his career, from the early Menlo Park days to the final corporate baron years. He was clearly an effective manager and multitasker and worked longer and harder than everyone in his employ, but Edison never was foolhardy enough to think that he could do everything – or even most things – by himself. A community’s “team” is more complicated and diverse than a corporation’s, involving public and private leadership from across multiple sectors and constituencies. But if local leadership does not have the collective vision, persistence, patience, and passion to aspire to high goals and work to achieve them, the community will languish or decline.

Today’s communities have to invent and reinvent themselves constantly to stay abreast or ahead of the competition. Looking to the most famous inventor of the modern era provides valuable perspective on what it takes to disrupt the status quo and affect transformative change.

Friday, January 23, 2015

How can you tell if wages are really low?

By Ranada Robinson, Research Manager.

In our economic research for clients, there are times when annual average wages are low compared to peer communities. A common question that arises is “are they really low or are they commensurate with the cost of living in that community?” So, one way we have explored this issue is to create a wage/cost of living differential so that we could compare the relative wage of a community (indexed to the combined average wage for all metros) to the relative cost of living index published by the Council for Community and Economic Research (C2ER)[1].

In the following table, the twenty metros with the most favorable differentials are presented.

Top 20 Metros with Favorable Cost/Wage Differentials, 2014
Source: Council for Community and Economic Research, EMSI
(Click Graphic to Enlarge)

These twenty metros are those that have the most competitive wages as a percentage of the national average annual wage across all metros compared to the relative cost of living. Texas metros are high on this list. Additionally, many of the southern metros, who are growing quickly, made this list—Austin, Atlanta, Nashville, Dallas, Raleigh, and Charlotte. As an example of why this differential is telling, the Bridgeport, Connecticut MSA, who ranks high on the list but is typically thought of as an expensive place to live, has a very high cost of living compared to the national average; however, its average annual wage is similarly much higher than the national average, so the average worker can handle the expense of living in this metro.

On the other end of the spectrum, the ten communities without as much buck for the bang are illustrated below.

Ten Metros with the Least Favorable Cost/Wage Differentials, 2014
Source: Council for Community and Economic Research, EMSI
(Click Graphic to Enlarge)

While New York and Honolulu may not be surprising, southern communities like Auburn, Alabama and Myrtle Beach, South Carolina are not as obvious. In these communities, the average wage is comparatively low even with their lower-than-average costs of living.

In the world of economic statistics, sometimes one indicator does not tell the whole story. However, looking at data points alongside each other is one of the many ways we here at Market Street are able to tell the true story of what’s going on in our client communities.

[1] For this analysis, the central urban area in the C2ER Cost of Living Index was chosen for comparison in instances where a metropolitan area has multiple urban areas represented.

Friday, January 16, 2015

Riding the Transit-Oriented, Mixed-Use Wave in the Suburbs

By Matt DeVeau, Senior Project Associate.

In October 2013, news began to emerge that insurance giant State Farm planned to locate a large operations center in Dunwoody, Georgia, a near north suburb of Atlanta. It was welcome news for the region and an especially big deal for Dunwoody, a city of about 48,000 where Market Street is currently engaged as part of a team of consultants working on a comprehensive plan update. State Farm and its development partner KDC Real Estate Development and Investments will build a 2.2-million-square-foot mixed-use project – by some estimates the largest such development in the region’s history – that could eventually be home to 8,000 company employees. The city provided no incentives to the project.

In addition to being an interesting local economic development story, the move also is part of a larger trend with broad implications for suburban communities. The Dunwoody project is part of State Farm’s move to consolidate its customer service operations into three large centers – the other two will be in Dallas suburb Richardson, Texas and Tempe, Arizona near Phoenix. These locations have many things in common: Sunbelt metros, great highway access, in areas with very high educational attainment rates.

But there is another common thread – all three sites are located in mixed-use, transit-accessible areas. The Dunwoody site is proximate to a MARTA light rail stop in Atlanta’s Central Perimeter – a formerly auto-oriented office and shopping mall complex that is rapidly urbanizing. In Arizona, State Farm’s offices will be at the mixed-use Tempe Town Lake development less than a half mile away from a Valley Metro light rail stop. And in Texas, the company will anchor KDC’s massive CityLine development that is just steps away from a DART light rail stop. This is no accident. In marketing materials KDC prepared for CityLine, State Farm Spokesman Gary Stephenson said:

“There’s a lot of competition for quality employees, not only within the insurance industry but across various sectors, and attracting and retaining those employees is critically important to the future success of State Farm. The physical environment is an important element of what a company has to offer.”

According to KDC, State Farm’s top factors in selecting the Richardson site were location and the quality of the facility. Access to transit and amenities such as restaurants, retail, and hotels were also priorities. Specifically, the hub was designed to recruit and retain Millennials, who prefer workplaces that are convenient, located near quality housing, and located in mixed use environments. Said KDC CEO Steve Van Ambaugh:

“Millennials prefer a live-work-play environment. They want to be in a work environment that is happy and energized. They don’t want to be in a remote location, disconnected from everything.”

Much has been made in economic development circles of firms abandoning suburban office parks to re-enter central business districts and other close-in office submarkets. But not all ongoing trends are bad news for suburban communities. According to the CoStar Group, insurers like State Farm are increasingly open to leaving high-rent districts for suburban markets. And State Farm’s big bet on its three operations centers suggests that the suburbs in the best position to capitalize on this phenomenon will be those that can complement their traditional advantages – workforce, housing stock, schools, highway access – with transit-oriented and mixed-use developments that appeal to the emerging Millennial workforce.

Suburbs without transit and mixed-use environments should work to develop these amenities, while communities that do have these assets can leverage them right away. Of course, not all communities with transit will have large, undeveloped sites adjacent to transit stops like those in Richardson or Tempe. But the area around the Dunwoody site is largely built out, and its initial design included large surface parking lots, superblocks, and wide, fast roads that are poorly suited for walking, biking, and transit use. These existing conditions were significant impediments to the area achieving its full potential in today’s market.

Local officials have therefor been hard at work to retrofit and re-cast the area as a more walkable, urban place. The Perimeter Community Improvement Districts (PCIDs), self-taxing districts of commercial property owners, developed a Commuter Trail System Master Plan and has installed wide sidewalks, and illuminated, landscaped medians and improved traffic signaling to allow for safer road crossings. For its efforts, PCIDs in 2014 received an award from a local pedestrian advocacy organization for the third consecutive year. These improvements have helped further tap into the Central Perimeter’s excellent transit and highway accessibility, and its 11.0 percent Class A direct vacancy rate as of the fourth quarter of 2014 was at least four percentage points lower than every other major office submarket in the region. Communities and districts around the country with similar assets can and should emulate its success.

Friday, January 9, 2015

State funding, a human approach

By Alexia Eanes, Operations Manager.

I had the opportunity to attend the Georgia Budget and Policy Institute’s (GBPI) 2015 Policy Conference on Wednesday, January 7th, 2015. The conference revealed a lot about the actual state of affairs happening in Georgia, which is exactly what GBPI does as an organization. GBPI, a ten year old organization, thoroughly analyzes Georgia’s budget and tax policies to inform public and local leadership. Their research is meant to be used as a tool which will hopefully benefit the state. The Policy Conference consisted of two panels that discussed K-12 education issues in Georgia and another about healthcare coverage across the nation along with author Bob Herbert as the keynote speaker. 

The Education Plenary: Emerging Issues in Education panel consisted of four men who were there to not only discuss school funding but also key emerging issues in Georgia’s K-12 system. Rep. Mike Dudgeon, vice chairman of the Education Committee in the Georgia House of Representatives; Sen. Lindsey Tippins, chairman of the Georgia Senate’s Education and Youth Committee; Rep. David Wilkerson from Cobb County; and Richard Woods, Georgia’s new state school superintendent. Education remains at the forefront of Georgia’s budget and policy debate. After suffering significant cuts since the Great Recession, Georgia’s K-12 formula is still underfunded by $746 million in 2015 (see chart below). All of the panelists agreed that something needs to change in Georgia’s schools whether it is funding or curriculum, business as usual will not suffice for Georgia’s schools. One of the major areas of agreement all four panelist favored is increasing Science, Technology, Engineering, and Math (STEM) education in Georgia’s schools. There’s a good reason for this backing. STEM occupations are expected to grow 17% by 2018 and get paid more than their non-STEM counterparts by 26% according to the U.S. Department of Commerce.

Source: GBPI, Georgia Budget Primer 2015

While I could go on and on about STEM education, there were other very important topics discussed regarding the school system in Georgia: high school graduation rates (Georgia is 40th in the nation), school funding (see graph below) and readjusting the state’s K-12 formula, Common Core, and teacher and parent responsibility. The latter, by far, was the most passionate discussion I have ever witnessed. Teachers and administration were both present in the audience which made for a very insightful discussion, and rightfully so, not only do teachers have to deal with stressful teacher evaluations and “teaching to the test,” but also with financial support that remains below pre-recession levels. As Richard Woods pointed out, only half of Georgia’s teachers don’t make it past their fifth year. The first chart above and the second one below both illustrate that while 2015 funding won’t be as bad as previous years, it’s still worse than where we were pre-recession and need to be.
Source: GBPI, Georgia Budget Primer 2015

Healthcare is also another important topic to Georgia’s budget and policy debate. The state has chosen to forgo Medicaid Expansion and, as a result, have lost billions in federal support. The Healthcare: Closing Georgia’s Coverage Gap panelists included Jason Bailey from the Kentucky Center for Economic Policy and Adam Searing from the Georgetown University Center for Children and Families. Jason Bailey discussed how Kentucky, a conservative state, was able to expand Medicaid coverage as well as the depth of Kentucky’s implementation of the Affordable Care Act, most notably its health insurance exchange Kynect. Kynect is a user friendly website that helps Kentuckians find affordable health care and has been widely used and accepted. Providing Kentuckians with quality healthcare and not lose out on the funds being given to the state was the motivation behind Kentucky leadership’s decision to expand it. To understand the repercussions the state and the people of Kentucky could have faced if Medicaid was not expanded, click here

Adam Searing provided a national overview of Medicaid expansion, as well as some insight into different approaches states, especially conservative ones, are using to pass Medicaid expansion. One examples is Utah, where a coalition of civic leaders including local chambers of commerce, hospitals, and religious institutions along with the governor banded together to support expansion within the state. More importantly, Searing noted that Medicaid expansion is not one size fits all, the federal government has established a great amount of flexibility including shared costs structures. He also noted that states, on average, saw a 30 percent drop in uncompensated care with the expansion of their Medicaid program along with the community health benefits the expansion provides.

Both education and Medicaid expansion had an underlying theme that was not apparent until the Keynote speaker, Bob Herbert – author of Losing Our Way, took the stage to discuss wealth and income disparity between the rich and those living in poverty. He made us think about a “living” wage and minimum wage, about how one third of the population is either poor or near poor, and where the disconnect is between leadership and the people they represent. Perhaps the most poignant part of his keynote address came when he read a passage from Losing Our Way, the story of a 19 year old girl, Jessica Gallardo, who worked in a bakery manufacturing operation. The teen worked nights, including school nights, often till 1 a.m. in order to help provide shelter for her family. Conditions in the factory were grueling; employees often didn’t take lunch or bathroom breaks – instead favoring to stay on the manufacturing line until their shift ended. Needless to say, Jessica had trouble paying attention in class, let alone doing her homework. With the example and so many more listed in his book, Herbert believes that change starts with the public voice. Herbert’s call to action against disparity is for us, the community, to challenge the local leadership and make them take notice in what we believe needs to be changed. “Believe passionately about your cause, it’s our America”, he says. 

One of the key takeaways that was repeated time after time by each presenter/panelist is that leadership needs to recognize their states strengths and weaknesses. State budgets are not just numbers on a spreadsheet but directly affect its citizens’ wellbeing. That should be the main concern for each state representative and community stakeholder.