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Austin, Texas: A Theory of Everything

There’s a term from physics I’ve always liked: theory of everything. It refers to the holy grail in physics of a unifying theoretical framework that can satisfactorily explain how everything in the universe works. The physicists you can name off the top of your head have all contributed pieces to the puzzle, but nobody has yet discovered the underlying structure that ties everything together convincingly. Many experts would say that no such unifying theory exists, but that doesn’t stop their pursuit of it. Historical consequence, after all, is a mighty large and tasty carrot.

Urban planners and economic geographers are on a similar quest. While the geographic scope–and thankfully the math–may be less ambitious, the search for that single unifying theory that can explain how cities and regions work is no less tempting. Nor is it less consequential, I would argue, at least for people concerned with the future of their communities. Whether it’s concentrated, inter-generational poverty on one end of the spectrum or rising inequality and gentrification on the other, urban and rural planners are analyzing data, building and testing models, and exploring “best practices” that can help make sense of what they see happening on the ground. Jane Jacobs. Richard Florida. Ed Glaeser. Enrico Moretti. Michael Porter. All rock-star thinkers and writers with massive popular appeal because they’ve offered important pieces of the puzzle: clusters, creative class, urban externalities, etc. A theory of everything, for politicians, planners, and pundits.

We’ve reached somewhat of a fever pitch here in Austin lately, even by our own navel-gazing standards. The confluence of housing costs, traffic, property taxes, gentrification, and 78 candidates running for mayor or city council in Austin’s new single-member districts–not to mention a $1.4 billion rail proposal seeking voter approval–has generated a level of awareness about city planning issues that I haven’t seen since moving here in 2002.

It’s exhausting, but important. And, for planners and civic-minded people in general, encouraging.

So, naturally, it’s my turn to take a shot at a theory of everything:

2014-10-16 Austin Theory of Everything Title Slide

Click on the image to download a PDF copy of the presentation. Thanks to the Austin Board of REALTORS for giving me an opportunity to pilot test this presentation at their 2014 Realty Round Up event.

The narrative goes something like this:

While Austin is indeed a special place–ask anybody–we’re not unique in the growth management challenges we’re facing. Fast-growing cities across the developed world have all experienced a version of what we’re experiencing. However, the reason it may “feel” different here is that Austin is experiencing these changes on an accelerated timetable. Rapidly appreciating property values and rents, especially in the urban core. Growing inequality in an environment of significant wealth creation (in the aggregate). Traffic gridlock. Most other cities on this development path experience this process over several decades. Marking the exact start line in Austin is open to debate, but we’re out for a speed record.

Over the next couple of weeks I’ll do a series of posts expanding on several of the points made in the presentation. Topics will include:

  • Why being The Human Capital is, in the immortal words of Homer Simpson, the cause of, and solution to, all of life’s problems
  • Austin’s perceived lack of “middle-wage” jobs–i.e. economic development is ruining the city because it’s all software developers
  • Why we should be organizing civic leadership trips to Raleigh, Charlotte, and Nashville. Not San Francisco.

Brookings: next-best options for incentives

This article was written by Amy Liu and Owen Washburn and appeared in The Avenue, a blog hosted by the Metropolitan Policy Program at the Brookings Institution, on September 28, 2014.

If No End to Incentives for Jobs, then What?

Nevada’s recent incentive package, valued at $1.25 billion, to bring Tesla’s battery production near Reno has reignited a longstanding debate about the merits of state and local economic development subsidies to attract or retain firms and whether to ban the practice all together.

Let’s be honest: The ingrained practice of taxpayer-funded business recruitment has not lessened despite the mounting evidence that many incentives don’t actually pay off. The firms that receive incentives do not tend to generate more jobs than firms that don’t get them. And the overwhelming majority of state job growth comes from births of new establishments or expansion of existing establishments, not from firms moving to the state.

But we are seeing hopeful attempts by states and metro areas to do business attraction and job creation smarter, in five main categories:

1. Sign a truce.

Some municipalities within a region have signed a “code of ethics” to collaborate and coordinate on business location strategies so the entire region wins, including ending the practice of “poaching” jobs and firms from each other, which produces no new benefit or growth. In Denver, as Good Jobs First explains, the Metro Denver Economic Development Corporation has such a code of ethics, followed by every city and town in the metropolitan area, which ensures regional collaboration on every business location decision. Similarly, members of the Milwaukee 7, a seven-county, multi-sector economic initiative, adopted its own detailed code of ethics, including a pledge that “Members will not solicit intra-region company relocations” and that a “Violation of this commitment shall be viewed as a breach of our membership pledge.”

2. End single-firm incentives.

Providing tax breaks to individual firms distorts markets and is a highly inefficient use of public resources. Some states are moving to provide broader tax incentives for firm activities in priority industry clusters as they come into or expand in a local market. While being approached by Google, Iowa decided not to give that company its own tax break but instead passed legislation to provide tax abatements on equipment and infrastructure purchases by any data centers coming into the state. This broader approach helped attract multiple high-tech firms bringing their data storage facilities to the state.

3. Lure firms with assets, not just cost reductions.

South Carolina, one of the best in attracting and deepening foreign investments in key clusters from target markets like Germany, often leads their attraction efforts with their investments in world class workforce training programs, modern port and infrastructure, and responsive business climate. The state has also adopted a German-inspired apprenticeship program, Apprenticeship Carolina, which pairs subsidized on-the-job training for workers at firms like Robert Bosch and BMW with industry-focused technical college skills development. And it has invested in advanced R&D programs, including the Clemson University International Center for Automotive Research, to bolster the state’s highly-competitive auto-related clusters.

4. Make incentive strategies and practices more responsible and effective.

As Tim Bartik, Brian Kelsey and others have argued, incentives should be both transparent, so that the public understands the costs and benefits before a deal is finalized, and aimed at high-quality jobs that raise the standard of living. The states of Oregon, Washington and Rhode Island have all integrated evaluation processes into their incentive strategies,including public hearings and formal budgetary review, to ensure public input and review into their business recruitment practices.

5. Focus on what matters to economic growth.

Finally, the best regional economic leaders know that, while firm movements are always afoot, the real opportunities to grow sustained prosperity comes from a focus on local assets and clusters. The Kansas City region, which straddles Kansas and Missouri, has embarked on a renewed regional conversation about the factors that can contribute to economic competitiveness. Rather than have the border war between its two governors dominate economic debate, Kansas City area leaders are actively working together to expand the economic development toolkit to strategies that strengthen trade, innovation and talent development as the course to better jobs and opportunity.

By adopting these approaches, cities, states and regions can move toward a more effective and efficient model of economic growth, one that relies less on traditional incentives.

State of Small Business in Austin

This article was written by Dan Zehr and appeared in the Austin American-Statesman on September 25, 2014.

Austin officials: Small businesses provide base for growth

Austin’s small businesses drove the metro area’s post-recession recovery, but local officials said Thursday that a sustained effort to help those firms thrive will be required if Central Texas is to spread the benefits of that economic growth to more local residents.

While local businesses with fewer than 100 employees collectively employ about 35 percent of the Austin workforce, said Brian Kelsey, principal at Civic Analytics, the same set of companies added more than 8,400 jobs from 2009 to 2011. Those gains offset the sharp job losses at the area’s largest employers in the years following the recession, Kelsey said.

All told, the more than 31,000 small businesses in the region provided about 228,000 jobs as of 2011—giving Austin’s small business community a greater share of local employment than their counterparts in Houston, Dallas, San Antonio and the country as a whole.

Kelsey presented the data Thursday at the city’s “State of Small Business in Austin” luncheon, part of a daylong event designed to bring together and local officials and service providers together with area entrepreneurs and small business owners.

“As small businesses go, Austin goes,” he said.

Each year from 2001 to 2011, the metro area gained an average of 650 small businesses that collectively added about 4,000 jobs, Kelsey said. Many of those companies were concentrated in industries such as construction and real estate, the data show, but the area small businesses also accounted for many jobs in manufacturing and other key middle-wage occupations.

Yet a closer look at the area’s small firms also reveals a sharp disparity in the revenues and productivity levels by ownership category.

While sales at most of the region’s small businesses ranked higher than average levels nationwide — local Asian-owned firms actually doubled the U.S. average — Hispanic- and women-owned firms generated lower sales, according to 2007 Census data.

Those levels might have changed in the intermediate years. The Census Bureau conducted its 2012 business survey but has not yet released that data for metro areas.

Regardless, as a source of jobs and incomes for so many Austin workers, finding ways to promote small business growth overall, but especially in struggling categories, has become a primary focus for city development officials, said Kevin Johns, the city’s economic development director.

“We have the top economy in America,” Johns said. “If we can’t correct this, no one can.”

The daylong “Getting Connected” event was created in part to help address some of those issues. Held at the Palmer Events Center, the program included a range of classes, exhibits and resources to help small businesses connect to anything from financing to potential business partnerships.

Jonathan Taylor, executive director of the Economic Development and Tourism Division at the governor’s office, said those sorts of resources remain critical for small business development and growth.

Some 15 years ago, Taylor said, the division held its first forum, which it focused on concerns expressed by the state’s small business owners. The topics that year included access to capital, access to government contracts and how to promote and conduct business on the Web.

“The topics we had 15 years ago are still the topics we have today,” he said. “Those challenges remain the same.”

A 2013 needs assessment conducted by the city’s Small Business Program found that most local businesses want similar information. In panels and surveys, local small firms said they would like more online resources, information tailored for specific industries, and increased networking opportunities.

Classes at the Getting Connected program included tutorials on writing government proposals, owning your web presence and tips for exporting. Almost all of them were booked to capacity, city organizers said.

“We used to host an event that was just for business owners to meet lenders,” said Joy Miller, business information coordinator for the city’s Small Business Development Program. “This year, we’re combining it with an event that brings any kind of business resource you need.”

Economic growth slowing in Austin?

This story was written by Dan Zehr and appeared in the Austin American-Statesman on September 19, 2014.

Austin’s economic expansion cooled last year, federal data show
Revisions to earlier years reveal a larger local economy than previously thought, but initial data show slower growth in 2013.

The Austin metropolitan area economy expanded faster in 2012 than initially reported – surpassing the $100 billion mark a year earlier than expected – but the region’s economic growth rate slowed considerably last year, according to data released this week.

After adjusting for inflation, the Austin-area economy grew 2.2 percent in 2013 — faster than the average U.S. metro area but slower than 141 of the country’s other metro areas, according to advance gross domestic product data from the U.S. Bureau of Economic Analysis.

While the agency regularly revises its advance data in subsequent years, the magnitude of deceleration suggested that the Austin economy didn’t maintain the scorching growth it had posted in the three years since the recession.

In that span, the slowest year of growth came in 2011, when the Austin-area economy expanded 4.4 percent – double the Bureau of Economic Analysis’ preliminary estimate for 2013.

“Employment growth has not slowed, so it’s difficult to know what to expect out of a future revision,” said Brian Kelsey, principal of Civic Analytics, an Austin-based economic development consultancy. “But I would be concerned to see such a sharp drop-off, especially relative to the higher growth rates in other (metro areas). That’s not what we’ve come to expect in Austin.”

The potential for revisions lends some murkiness to the local economic picture, but 2013 wasn’t a banner economic year across the country. The federal government slashed billions of dollars in outlays through the budget sequestration that started in March, and it then endured a 16-day shutdown in October.

Meanwhile, in Texas, the hangover from the Legislature’s 2011 budget cuts lingered into the start of 2013, before some of that spending was restored, said Pia Orrenius, vice president and senior economist at the Federal Reserve Bank of Dallas. In fact, economic growth slowed in all five of Texas’ largest metro areas, according to the federal data.

This year, all indications suggest that the state and metro economies will bounce back, Orrenius said. Employment growth has soared. The construction and energy sectors are booming, and the high-tech sector is continuing the rebound it began toward the end of last year.

“It (2013) was not a great year for us, but we’re not there anymore,” Orrenius said. “We’re off the charts again this year. I think you’re going to see a big rebound in 2014.”

In Austin, that could mean significant growth for an economy that was already larger than originally thought. When the Bureau of Economic Analysis released its initial figures for 2012, it pegged the Austin economy at $98.7 billion, leading many local economic experts to suggest the area would easily surpass the $100 billion mark in 2013.

Yet in its revisions released Tuesday, the agency said the local economy had actually nicked that mark back in 2012, coming in at a revised $100.1 billion in 2012 dollars. The agency said the metro area’s gross domestic product rose to $103.9 billion last year, before accounting for inflation.

While the changes to 2012 and prior years weren’t unusually large, an agency official said, at least part of the upward revision stemmed from a change in the way the Bureau of Economic Analysis handles certain business expenditures. It now counts such items as research and development spending as investments rather than expenses, a change that added to GDP totals.

That changed appeared to contribute at least part of the upward revisions to Austin’s GDP, said Sharon Panek, a Bureau of Economic Analysis section chief who helps oversee metro-area and state data.

More people than production?

Despite the rebound Orrenius and others expect to see in 2014, last year’s slower economic growth in Central Texas raised some questions about the area’s ongoing innovation and productivity.

While an imperfect measure, per capita GDP provides at least a rough proxy of living standards — and in Austin, that measure actually ticked lower in 2013, to $52,110 from $52,355 in 2012, according to the Bureau of Economic Analysis.

“I think it is concerning that, despite all the job growth, GDP growth and wealth creation we’ve experienced in Austin, we aren’t gaining ground on GDP per capita, even measured against the U.S. average,” Kelsey said.

By this measure, Austin ranked 60th out of the country’s 382 metro areas and was essentially even with the U.S. metro-area average, which ticked up to $52,093.

In the past, Kelsey said, Central Texas boosters justified the region’s lower per capita GDP or per capita income levels by noting the area’s lower cost of living. Those measures didn’t matter as much because a dollar could go further here than in many other big cities.

“You don’t hear that much anymore,” he said.

As the economic theory goes, innovation tends to increase productivity and drive higher standards of living. Yet Austin’s booming population growth might be overwhelming any such gains.

Diverse job base

Still, the diversity of the Central Texas job base and the rapid rise of its employment levels suggest a fundamentally sound and vibrant metro-area economy, said Karl Kuykendall, an economist at IHS Global Insight Inc.

Kuykendall said the new economic data shows expansion in several key Austin sectors, including the financial and the professional and business services industries. It was two smaller sectors — transportation and utilities, and natural resources and mining—that appeared to drag most on the local economy, according to the Bureau of Economic Analysis data.

In a June report for the U.S. Conference of Mayors, IHS predicted the Central Texas economy would grow 3.9 percent his year and 4.7 percent in 2015, after adjusting for inflation. And from 2013 to 2012, IHS forecast the Austin area’s inflation-adjusted economic growth would average 4.4 percent annually from 2013 to 2020 — fastest among the country’s 100 largest metro areas.

“They are disappointing results for 2013, but it doesn’t reverse our thinking there,” Kuykendall said. “We’re still projecting Austin to be a very fast-growing metro in the coming years.”

Stagnant wages, rising Millennial consumers spell trouble for auto sales

This article was written by Claudia Grisales and appeared in the Austin American-Statesman on September 17, 2014.

Austin auto sales hit bump in August

Austin-area sales of new vehicles hit an unexpected speed bump in August, posting a nearly 8 percent decline, the first drop for the economic indicator in seven months.

Last month, Austin saw 10,214 new cars, trucks and sport-utility vehicles sold, down from 11,070 vehicles sold in August 2013, according to Dallas-based Freeman Auto Report, which tracks new auto registrations in Travis, Williamson, Hays, Bastrop, Burnet, Blanco and Caldwell counties.

While area auto sales are still up 5.9 percent for the year to date, the August drop could be a sign of slowing business to come in the auto sales industry, experts said.

“We haven’t seen much in the way of wage and income growth for most households, despite the stronger economy lately,” said Brian Kelsey, principal of Civic Analytics, an Austin-based economic development firm. “That, combined with lower reported demand for auto ownership among Millennials, is likely having an impact.”

Sales of new vehicles are a key indicator of a consumer confidence, as purchases of big-ticket items such as new cars tend to indicate consumers aren’t worried about their job status or economic stability.

After a bounce-back year in 2013, Austin area auto dealers have seen an upward sales trend for most of 2014 after getting off to a slow start in January. That month, area new car sales dropped a surprising 9 percent, bucking a trend of robust growth last year.

From February through July, however, new car sales in Central Texas have posted gains of 6.2 percent to 18.1 percent.

Year to date, area auto dealers are still holding onto their overall gains. In the first eight months of the year, 83,977 new vehicles were sold by Central Texas dealers, compared with 79,246 by this time last year, according to the Freeman Auto Report.

Industry experts said the year’s earlier gains were driven by a healthy local economy, strong population growth and incentives from auto manufacturers.

Now, those gains could start slipping. In fact, from July to August, most of the region’s biggest selling brands showed a decline in unit sales.

Chris Markey, new car sales manager for BMW of Austin in Northwest Austin, said that despite the latest sales report, his dealership still recorded a strong month thanks in large part to new sales of the i3 hatchback, the all-electric BMW that began selling this summer.

In June and July, the dealership only had one or two i3s to sell, but that changed in August when the dealership expanded its inventory and sold 20, Markey said.

The dealer has been able to entice potential buyers by offering an extended test drive where customers can check out an i3 for three to four days. The vehicle has a base price of $41,350.

“We are the top i3 dealer in the nation so far,” Markey said.

Overall, the top sellers for monthly August sales were led by the usual suspects: Chevrolet with 1,574 units sold, followed by Ford at 1,246 and Nissan at 1,108.

For the year, Ford remains the top seller with 12,351 vehicles sold, followed by Chevrolet at 11,507 and Toyota at 8,257.

Labor Day

A few points to ponder as you go about your Labor Day in Austin:

There are approximately 60,000 single-parent households in Austin with children under age 18. 90% have at least one person in the household working. 17% have multiple people working.

Average wage in Austin by race/ethnicity:

  • Asian $67,812
  • White $54,708
  • Black $38,688
  • Hispanic $38,388

Maximum monthly affordable housing cost at average wage:

  • Asian $1,695
  • White $1,368
  • Black $967
  • Hispanic $960

Inflation-adjusted average annual increase in average wage since 1996:

  • Asian 3.0%
  • Hispanic 1.1%
  • White 1.0%
  • Black 0.7%

The inflation-adjusted average wage for Black workers in Austin is down 2% since the end of the most recent recession. Rents are up 7% and home prices are up 13% in Austin in the last year alone, according to July figures from Zillow.

Average wage in Austin by sex:

  • Men $63,960
  • Women $42,768

76% of single-parent households with children under age 18 in Austin are headed up by women. Affordable monthly housing cost at an average wage of $42,768 is $1,069. Head over to Zillow or another property listing site and see what you can find right now available, especially in central Austin, for $1,069 or less per month that’s suitable for a single-parent family.

The unemployment rate in Austin is back to pre-recession levels, but there are still about 47,000 unemployed people looking for work, nearly equivalent to the entire student population at UT-Austin.

Clearly, of all the places you could be looking for work right now, Austin’s a good bet. We’re on pace for record job growth this year. But let’s keep in mind that 70% of job growth this year is likely to be in jobs that don’t pay enough, on average, to provide much in the way of housing choice, especially in central Austin where, I’m told, we’re encouraging density and mixed-income neighborhoods.

Further, lack of postsecondary education is holding back a significant portion of Austin’s primary working age population (25-64), including a majority of Black and Hispanic workers, in terms of ability to compete for higher-wage jobs that can support housing costs in Austin.

Of course, most fast-growing cities face these challenges. Austin is not unique in that respect. The pace of change here may separate Austin from other places, but anybody familiar with the housing market in Washington DC, or rapidly gentrifying neighborhoods of San Francisco, may beg to differ.

So the question is: what will we do with our growing prosperity and momentary place in the spotlight to show other cities around the country how a community of “big ideas” can make life better for all workers?

Happy Labor Day.