2015 Wrap

A few thoughts on Austin, economic development, and Civic Analytics as we close out 2015:

Austin

Uncertainty about the state of the Texas economy looking down the barrel of sustained lower oil prices led some prognosticators toward the end of 2014 to forecast “moderating” growth in Austin during 2015, which for us is somewhere in the 2.0%-2.5% range. Well, as the great economist John Kenneth Galbraith once said, “The only function of economic forecasting is to make astrology look respectable.” Total employment in the Austin-Round Rock MSA is up by 34,000 jobs through November (3.7%), compared to 26,600 jobs (3.0%) this time last year, according to the latest report from the Texas Workforce Commission. We’re slightly off pace compared to 2013 (4.1%) and 2012 (4.5%), but, barring something very strange turning up in the December report, we are going to finish the year well north of 2.0%-2.5%, proving, yet again, that there are better ways to spend your morning than listening to economists feebly attempt to predict the future. Texas, meanwhile, stands at 1.1% for the year.

Make sure to look for Dan Zehr’s summary of 2015 in the Statesman. Dan’s been on top of the latest data releases all year, providing helpful context with interviews and interesting longer-form stories. We’re lucky to have him.

But despite Austin’s enviable position at the top of most “best of” lists, equitable or inclusive economic development continues to elude us. This is not a challenge unique to Austin, of course, but our population growth rate and influx of higher income households magnify the challenge. We got a few stark reminders this year with new data from the U.S. Census Bureau. First, there’s this thoroughly depressing map of concentrated poverty among children using new data from the 2014 ACS five-year estimates. Darkest shaded areas are 50%+ children in poverty.

austin_children_poverty_map

Wages have been trending upward, at least at the average, but there is still wide disparity among race/ethnicity groups in Austin. Average earnings for Hispanics (69%) and Blacks (65%) are less than 70% of what Whites are earning in Travis County. The last time that ratio exceeded 70% was nearly 20 years ago. Average earnings (wages, salaries, self-employment income; no benefits) for Whites in Travis County are $60,932 per year, compared to $41,332 for Hispanics and $39,620 for Blacks. To put that into perspective, using the affordability guideline of no more than 30% of income spent on housing costs, Black workers in Travis County, on average, can afford to spend about $991 per month on housing costs (rent or mortgage, utilities, etc.), compared to $1,523 per month for Whites. With average rents of more than $1,000 per month across most of central Austin, combined with no significant improvement in wage/income inequality among race/ethnicity groups, we’ll continue to struggle as a community with the pernicious effects of economic segregation into 2016 and beyond.

We also got a fresh look at The Human Capital with new ACS data on educational attainment. Much of Austin’s (city) transformation over the last ten years can be attributed to growth in the very well educated, very high income part of the population. ACS (one-year) estimates indicate that Austin added more than 39,000 people age 25 or older with a graduate degree between 2006 and 2014. That’s 53% growth in Austin’s graduate degree population in less than ten years. Put another way, for every four people age 25 or older that Austin gained between 2006 and 2014, one of them had a graduate degree.

For context, compare Austin to two outliers, San Francisco and Washington DC, in terms of highly concentrated, very well educated, very high income populations, and then one peer city in Raleigh, NC (my hometown). Austin’s graduate degree holding population growth rate of 53% during 2006-2014 exceeded Raleigh (42%), Washington DC (41%), and San Francisco (32%). Numeric growth is even more telling. Austin’s numeric growth of 39,197 graduate degree holders during 2006-2014 was more than San Francisco (34,409), more than double Raleigh (14,393), and nearly as many as the most extreme outlier, Washington DC (41,322).

Austin’s dramatic increase in very well educated population means, of course, an equally dramatic increase in very high income households. Median earnings for Austin (city) residents age 25 or older with a graduate degree are $63,089 per year. Average earnings are more than $90,000, based on residents of Travis County age 25 or older with a bachelor’s degree or better (city-level, graduate degree specific data not available). If we assume that people with a graduate degree earn closer to the average than the median, that’s a potential gain of about 39,000 people earning $90,000+ per year added to the city’s population in only eight years, 2006-2014. Indeed, according to Census estimates, Austin (city) gained 13,770 households with income of $150,000 or more during 2006-2014, a 41% growth rate, compared to Washington DC (40%), San Francisco (28%), and Raleigh (34%).

[Sidebar: People ask me sometimes when they find out I’m from Raleigh why Austin and Raleigh “feel” different, despite experiencing similar rates of population and economic growth. I suspect there are many explanations for that, but one of the main differences is earnings. Numeric growth of $150,000+ income households in Austin was nearly three times that of Raleigh during 2006-2014, and average earnings for bachelor’s+ residents in Austin are considerably higher than Raleigh, $93,480/year versus $79,416/year. This may partially explain why Austin “feels” different than Raleigh in terms of housing costs, foodie scene fueled by discretionary income, etc.]

The question facing The Human Capital now is at what point housing costs in Austin rise high enough to discourage even the very well educated, higher income population from moving to and/or staying in Austin, especially given the increasing number of smaller markets that offer many of the same amenities at a much lower price tag (e.g, Durham, Grand Rapids, Chattanooga). Austin is still a bargain compared to outliers like San Francisco and Washington DC, but we need to be cognizant of how far we’ve diverged from traditional points of comparison like Raleigh. Trust me, economic developers in Raleigh-Durham, Charlotte, Nashville, and other peer markets are well aware of it.

Economic Development

Serving as economic development consultant for the National Association of Development Organizations (NADO) is among the most enjoyable and rewarding work we do. This year was no exception, as we launched a new economic development district training program in partnership with the EDA Austin Regional Office, helped roll out the new CEDS guidelines, and collaborated with a group of dedicated RDO planners in Minnesota taking on the challenge of a statewide economic development strategy. And speaking of EDA Austin, congratulations to Jorge Ayala, the newly appointed Regional Director. The office is in good hands. Congratulations, as well, to my former EDA colleague, Paul Corson, for embarking on a new writing endeavor, Rumination Paradox. I can’t say I enjoyed everything about my year in Washington in 2011, but meeting Paul was a bright spot.

The new CEDS guidelines from EDA provide unprecedented flexibility to economic development districts (EDDs) in terms of how they create and implement a regional strategy. Many EDDs are already taking advantage of it, exploring new formats, leveraging web-based data platforms, and using the CEDS as a vehicle to lead coordinated, integrated regional planning efforts. Yet, we still lack a proper compliance mechanism–the proverbial carrot or stick–to ensure that EDDs take advantage of this “opportunity to excel,” as one of my former bosses liked to put it. I had hoped that the Jobs Accelerator program, or one of the other EDA-led inter-agency initiatives, could be used as an incentive to provide more funding to entrepreneurial EDDs embracing new and innovative approaches to the CEDS, but that hasn’t happened so far.

While there are many EDD leaders, in the NADO membership and elsewhere, who can be spotlighted as a way to encourage others, without sufficient carrots and/or sticks we shouldn’t assume that the much-improved CEDS guidelines will result in widespread, immediate improvement. We’ll be doing our part to contribute to the state of practice through continued work with NADO, as well as kicking off the first-ever regional CEDS in Sonoma County and Mendocino County, CA, in early 2016.

Civic Analytics

It’s been a fun year. What started out as a one-man economic development consulting shop in 2012 has grown into a multi-disciplinary team engaged in projects that I never would have imagined three years ago.

This year we designed and built a data platform and planning tutorials on free, publicly-available technology, lowering the barrier to entry for data and GIS-minded EDDs wanting to add value to their communities but lacking the resources to pay for and maintain expensive proprietary licenses. We helped quantify the perceived shortage of technology workers in Austin, not to pile on to the mostly unproductive debate over the so-called skills gap, but rather to create a data-driven call to action to improve workforce development opportunities for everybody, as well as a sound methodology for measuring and tracking progress over time. We’re suckers for a good experiment, and were thrilled to partner with RideScout on investigating potential mobility solutions in downtown Austin. We were part of the planning team that helped the Texas General Land Office submit a $283 million application for Phase 2 National Disaster Resiliency Competition funding. We keynoted the EMSI national conference. We even helped a bank with CRA compliance.

Most important, Meredith and Isabelle joined the team. We’re lucky to have them.

Civic Analytics has never been a traditional planning firm, in economic development or any other field. While every project shares a common theme–using data and technology to help community leaders make informed decisions–we’ve evolved from writing plans and reports for clients to helping clients build organizational capacity to improve the way planning is done, and develop the skills and experience to put plans into action themselves. We’re glad to help clients create a plan, but we would much rather help create better planners.

Thanks for your interest in our work.

What do falling oil prices mean for economic developers?

The falling price of oil will compete for economic story of the year in 2014, but what does it mean for economic developers heading into 2015? Most of the attention so far has been paid to oil-producing states like Texas and North Dakota, but for economic developers in non-production states, could lower oil prices create opportunities for leveraging their own competitive advantages?

Economic developers have access to many tools that can help frame the situation for their communities. The first step is to understand how oil and gas impacts your economic geography. Using the fabulous new and improved U.S. Cluster Mapping Project, developed by Michael Porter’s team at Harvard Business School and funded by the U.S. Economic Development Administration, and 2014 estimates from EMSI, I ranked the top fifteen counties by jobs in the Oil & Gas Production & Transportation Cluster in Table 1.

Harris County (Houston) is the obvious outlier, but falling oil prices will have even more severe impacts on smaller counties where the oil and gas cluster makes up a larger share of total employment and carries a huge multiplier effect, such as in Midland and Ector County, Lafayette Parish, Williams County (Williston), and Lea County. Larger and more diversified counties, such as Dallas, Tarrant, and Los Angeles, will no doubt feel the impact of lower oil prices through declines in corporate profits, lower earnings, and reduced consumer spending, but the shock should be absorbed to some extent by virtue of having other industries to lean on.

So how strong might that shock be? Oil and gas industry market forecasts seem to be all over the place, but some analysts are projecting declines of up to 30 percent:

According to Porter’s team at Harvard, there are twelve industries in the oil and gas cluster. Let’s assume that lower oil prices result in a 20% decline in earnings across all industries in the oil and gas cluster. That’s probably a bit steep in terms of how lower corporate earnings would translate to wages and salaries of workers, and it’s unlikely that lower oil prices would produce the same 20% decline across different industries in the cluster (e.g., extraction vs. oilfield machinery manufacturing). But we’ll use it here for the sake of illustration.

Table 2 (second tab if you’re using the link) shows how a 20% decrease in earnings may impact the counties in Table 1, based on my analysis of EMSI data and accounting for direct and multiplier effects.

Whatever your experience and/or intuition says about oil prices in 2015, economic developers working on behalf of communities with strong oil and gas clusters should be doing scenario analysis like this right now, evaluating a range of potential impacts of lower oil prices and how public services, such as the workforce development system, may be affected. Further, many community colleges and technical schools have added new programs or expanded capacity to meet the strong demand for oil and gas workers during times of higher prices. Seek out and collaborate with your education partners, too, so they can weigh in and benefit from the results of your analysis. Many of them have likely been through this before.

Economic developers everywhere would be wise to follow suit, even in communities with little or no obvious oil and gas industry presence. Austin, for example, is known for technology, not oil and gas. But as Dan Zehr, who covers finance and the economy at the Austin American-Statesman, explains in his excellent deep-dive on Austin’s oil and gas industry, the “Blueberry in the Tomato Soup” will not escape the downsides of falling oil prices because earnings from oil and gas holdings are a key driver of the regional economy.

Earnings are wages, salaries, supplements (employee benefits), and proprietor income. As Zehr points out, investors, owners of holding companies, and the like derive significant income from oil and gas while living in Austin–with very few oil and gas jobs showing up in an analysis of the local economy. In fact, according to EMSI estimates, oil and gas extraction is the eleventh largest contributor to Austin’s GDP at $1.63 billion per year in value added, but only accounts for approximately 1,300 jobs (0.1% of total employment). Yet, the same 20% decline in earnings modeled above for the oil and gas cluster results in a loss of an estimated $307 million in earnings and 5,700 jobs for the Austin-Round Rock MSA, according to my analysis of EMSI data.

And it’s not just places in major production states. The oil and gas cluster accounts for at least $200 million in earnings in Contra Costa County, CA, Lake County, IN, Salt Lake County, UT, Jackson County, MS, Yellowstone County, MT, Dakota County, MN, Orange County, CA, Lucas County, OH, and Duchesne County, UT, as well as several higher-profile counties in Pennsylvania, according to EMSI estimates.

What about the upside of lower oil prices? Indeed, lower oil prices may present an opportunity for some economic developers. According to other data from EMSI, approximately 85 percent of total sales in oil and gas extraction go to petroleum refineries, which are part of the oil and gas cluster as defined by Porter’s team at Harvard. Sorting out and measuring the feedback loops within the same cluster is complicated. However, there are several industries not in the oil and gas cluster that use oil and gas extraction products as inputs that may benefit from lower prices.

Economic developers in places such as Salem County, NJ, Orangeburg County, SC, and Morgan County, AL (petrochemicals), Clayton County, GA (air transportation), Sarpy County, NE (trucking), and McCracken County, KY, and Unicoi County, TN (chemicals) all have major employers in industries that represent $200 million or more in sales nationally for the oil and gas extraction industry.

I have no idea what lower oil prices may mean for those industries, but it’s a good conversation starter for economic developers who want to approach local industry representatives about business retention and expansion, getting a cluster initiative up and running, recruitment and/or entrepreneurship possibilities through supply chain analysis and import substitution, etc.

Economic developers are in a unique position as experts on their local economies. They stand at the intersection of the public and private sectors, and the best economic developers can leverage their expertise on the local economy to identify opportunities for public-private partnerships.

For economic developers in regions with strong oil and gas clusters, now is the time to evaluate what sustained lower oil prices may mean for your economic geographies. Economic developers in non-oil and gas regions should take advantage of the tools at their disposal, as well, to explain to community leaders how lower oil prices may impact their local economies, aside from the price at the pump.

Most seasoned economic developers I’ve worked with have at least one success story that began with a seemingly trivial conversation, perhaps about something like gas prices. But armed with the right information, you never know where those conversations may lead.