The Economic Geography of the 2016 Election

We like to take the occasional detour into politics, especially when there’s an economic development story to be told. In the past we’ve looked at Mitt Romney’s infamous makers and takers argument, Rick Perry’s Texas Miracle, and creative class support for Obama. Successful politicians, our storytellers-in-chief, are particularly adept at turning immensely complicated issues into palatable soundbites because complexity and uncertainty have a way of stoking demand for easy answers–the convenient truths–that shape the narrative, as they say.

Sloganizing complex forces shaping voter perceptions of the economy and their place in it is hardly a new political tactic, but for those of us who pay attention to rural economic development and labor market issues, 2016 seems to be a marked departure from the usual talking points. The 2004 election made “offshoring” of jobs somewhat of a national issue, but I don’t recall much of an urban vs. rural flavor to the debate. The red state/blue state narrative, articulated beautifully by local journalist Bill Bishop in The Big Sort, certainly included economics, but was really more of a statement about social and cultural factors–an epilogue, of sorts, to the culture wars of the 1980s and 1990s. Indeed, we’d still be talking about how Tim Russert broke the Internet on election night if Twitter were around in 2000.

Politicians and pundits love to characterize every presidential election as a critical inflection point, the proverbial crossroads that represents some deliberate attempt on the part of the electorate to choose a distinct path forward. Most elections probably don’t live up to that billing with the benefit of hindsight. We’ll see what the historians say about 2016. But the convenient truths of the 2016 presidential election are not hard to spot, and our ability to sort out what’s real from what’s being used as political cannon fodder may help determine economic and labor market policies affecting Rural America in the next administration.

I’ve been combing through results of the presidential primaries, and, through that process, developed a new appreciation for people who do that for a living. Speaking of, I need to thank Joshua Darr, assistant professor of political communication at LSU, for the pointer to Ben Hamner’s election data warehouse on Kaggle. Most of the major news outlets host interactive maps of election returns, but for obvious reasons don’t make it easy to assemble your own data sets to work with.

There are several caveats to keep in mind when working with primary data. First, primaries are not reliable predictors of turnout for the general election. Turnout for the primaries this year was high by historical standards, approaching the record participation in 2008, but turnout for the general in November could throw off conclusions drawn from primary results in any number of ways.

In addition, the way in which primary elections are held and results are reported in several states make it challenging to assemble a complete and accurate national data set. The majority of states report primary results at the county level, making it easy to match returns to other data sources, such as the American Community Survey. However, some states report results using different sub-state geographies that do not line up nicely with counties, such as congressional districts or townships, or, in a few cases, not at all (e.g., Republicans in Colorado).

So, with apologies to AK, CO, CT, KS, ME, MA, MN, ND, RI, VT, WY, as well as the District of Columbia, I’m going to use a data base of primary results in 2,720 counties, matched to various data from the 2014 ACS 5-Year Estimates, to make a few observations about the 2016 presidential election over the course of the next few weeks. Given the states omitted from the analysis, combined with the inherent shortcomings of primary data, the purists among you will no doubt be left wholly unsatisfied. But we work with what we have. Finally, two pieces of background reading I want to mention because they motivated me to take this on:

Nate Cohn in the NYT: Donald Trump’s Red-State Problem

Alan Greenblatt in GoverningCan Counties Fix Rural America’s Endless Recession?

The overarching narratives I want to explore deal with race/ethnicity and education characteristics of voters supporting the two nominees, Hillary Clinton and Donald Trump, although Bernie Sanders will make a few appearances, as well. In particular, I’m interested in this idea that non-college, working-class whites, reacting, in part, to declining economic prospects, are breaking for Trump in a significant way, and whether or not there are differences between urban and rural counties.

But before we can get to any of that, we need a basic understanding of how people voted in urban and rural counties. The USDA Economic Research Service classifies counties on an urban-rural continuum. The first three rows in the table below are counties located in metropolitan statistical areas (MSAs). Rows four through nine are non-MSA counties, with rows eight and nine representing counties USDA ERS considers “completely rural.” Here’s a breakdown of the popular vote for Clinton, Trump, and Sanders, on that urban-rural continuum:


Approximately 60 million votes were cast in the primaries, which means we have about 87% represented in our data set. Trump received 45% of the Republican primary vote and 23% of the total popular vote. Clinton got 55% of the Democratic primary vote and 28% of the total popular vote. So the county data set we’re using here with 11 states and DC missing is tilted by about one percentage point in favor of Trump, and it short changes Sanders by about two percentage points (he won 22% of the total popular vote). Keep that in mind as we continue this thread, but it shouldn’t have too much bearing on the themes we’ll discuss.

As always, feel free to fire away with questions or comments and I’ll try to work them in. Thanks for reading. More soon.

Austin tech industry debates next moves after Prop 1 vote

This article was written by Lilly Rockwell and Lori Hawkins and appeared in 512 Tech, Austin American-Statesman.

Austin tech industry debates next moves after Prop 1 vote

Could vote have long-term impact on Austin’s reputation as a tech industry leader?

The Proposition 1 vote on ride-hailing regulations was emotionally charged and divisive for the Austin tech community, with some contending that a vote against it put Austin’s reputation as an innovation hub at risk.

Now that Austin voters have officially rejected the ballot proposition, and Uber and Lyft have kept their promise and left the city, many tech investors and entrepreneurs are surveying the damage – if any – to Austin’s status as a technology center.

Joshua Baer, founder of Capital Factory, the downtown technology incubator, has been a critic of the proposed regulations. He said he believes the vote sent signals that Austin is hostile to startups.

“Losing Uber and Lyft is a major setback to our reputation as an innovative city and technology hub that is already impacting decisions made by venture capitalists and Fortune 500 executives,” Baer said Monday. “It’s critical that the tech community and City Council come together… before our reputation is damaged further.”

But others scoffed at the notion that the Prop 1 vote could do any long-term damage to Austin’s entrepreneurial reputation. Austin economist Brian Kelsey said the vote is unlikely to have negative ripple effects on startups.

“Prop. 1 may be a setback in how the outside world views our seriousness in local policy making, but branding Austin as ‘anti-innovation” is ludicrous,’ ” Kelsey said. ” If the existence of two ride-sharing companies locally has an impact on your business model, then I’d say Prop. 1 should probably be the least of your concerns.”

Saturday’s vote, with 56 percent voting against Proposition 1, means the Austin City Council-approved ride-hailing regulations are in effect. These rules, opposed by Uber and Lyft, require fingerprint-based background checks and vehicles to have an identifying “trade dress,” among other regulations.

Though Uber and Lyft have until April 2017 to fully comply, both made the decision to leave the Austin market entirely, effective Monday morning.

Initially, many tech workers and entrepreneurs said they thought the vote would get industry support because of general opposition to more regulation of emerging technology business models.

But they now say Uber and Lyft’s aggressive marketing tactics derailed the discussion.

“I think it backfired in the tech community,” said Austin entrepreneur Richard Bagdonas, who supported the proposition. “I have talked to many people who said ‘I’m pro-Uber and pro-Lyft, but the number of flyers, calls and texts I received pushed me over the edge.’ “

Political consultant Mark Littlefield, who advised the anti-Prop 1 group “Our City, Our Safety, Our Choice,” said the amount of money pumped into this race – more than $9 million – from Uber and Lyft had a backlash effect.

“The narrative started to change” by the end of April, said Littlefield, who was doing polling throughout the campaign. “It became less and less about the policy and more and more about the personalities.

Some tech leaders, worried about whether the tech community would vote at all, mobilized to try and get out the vote. Baer, for example, participated in a news conference last month to encourage participation in the process.

“I must admit, I don’t think this is a slam dunk,” he said at the event with former Mayor Lee Leffingwell. “I’m worried about it. I think it’s going to be hard to get the tech community to realize it and vote. They’re quick to like things on Facebook or tweet about things. But it’s hard to get people out at the polls.”

Baer’s hunch was correct.

Turnout for Prop 1 was dominated by “traditional” voters who reliably show up to vote in state and local elections, Littlefield said.  Early voting data showed that 70 percent of the Prop 1 voters were these traditional voters, he said.

“I’ve seen it time and time again,” he said. “There are people who will vote in May elections and there are people that no matter how vitally important the results of the May election are to their own personal interests, they simply do not vote.”

Political experts said Uber and Lyft underestimated whether support for their service translated into votes.

Take David Goss. He’s a 40-year-old systems engineer for EMC Corp. in Austin. He regularly uses Uber when he’s going downtown for drinks and needs a sober ride home. On paper, Goss sounds like he would be for Prop 1.

But Goss said he voted against the measure. “I do love Uber, I use it all the time,” Goss said. But he said he wasn’t in favor with just letting Uber and Lyft write their own regulations.

“I definitely felt that there was some middle ground, we needed to find a way to ensure the rides were safe and make sure the employees were treated fairly,” he said.

Austin marketing veteran and entrepreneur Josh Jones-Dilworth, who opposed the proposition, said he watched as the discussion — and tech workers’ opinions — morphed.

“It started as a safety issue, and then it became an innovation issue, and then evolved into a corporate bullying issue,” Jones-Dilworth said. “It’s a complex issue, and there was never a consensus. I know a lot of people who changed their mind. And I know a lot of people who stayed on the sidelines because they thought this was a no-win situation.”

David Broockman, a business professor at Stanford University and an Austin native, said startups like Uber and Lyft view themselves as the underdog taking on an established industry: taxis.

“In Silicon Valley there is a tendency to view startups as David against Goliath,” he said, but that doesn’t always translate outside the Bay area, he said, where they are viewed instead as the Goliaths.

Bagdonas, the entrepreneur, agreed with Baer that Austin’s rejection sent a message to the tech industry outside of Texas.

“We have now created an environment that scares investors. New companies are probably going to have a tougher time raising money in Austin if they’re doing something that the City Council can get their hands on,” he said.

Rather than a set back, Jones-Dilworth said he believes the discussion and vote got a productive conversation going.

“I don’t think that one hyper-political issue with no clear mandate is going to set us back much at all,” he said.

Chip Rosenthal, an engineer and former chair of civic hacking group Open Austin, also said he believes Austin will come out ahead in the ride-hailing debates by developing an innovative compromise that will be emulated in other cities.

City leaders might already be working on one.

Mayor Steve Adler’s office put out a statement Monday detailing the steps he and the rest of the Austin City Council will take to ensure Austinites will be able to continue using ride-hailing services.

Some of his next steps include “talking with Uber and Lyft,” though a spokesman for the mayor’s office wouldn’t confirm whether talks are ongoing. It also mentions the possibility of creating a TNC nonprofit.

Adler’s statement also said he is creating an ad hoc committee made up of members of the tech community, including Baer, Jones-Dilworth and Eugene Sepulveda, CEO of the Entrepreneurs Foundation.

“I hope the speed at which the mayor, this council and community leaders address issues impacting riders and drivers signals to the rest of the world that Austin is absolutely open for business, that we value innovation and entrepreneurship, and that these things don’t have to be in conflict with local control,” Sepulveda said.

Adjusting to Life as The Human Capital

Note to non-Austin readers: most of the data analysis we share here is for Austin because we live in Austin and want to generate awareness about how and why Austin is changing, and, perhaps, what we can or should do about it. But nearly everything posted here can be recreated for other communities using readily available public data. ~ Brian

Austin, Texas: A Theory of Everything (cont’d)

Why being The Human Capital is, in the immortal words of Homer Simpson, the cause of, and solution to, all of life’s problems

The Austin Chamber ran a campaign a few years ago branding Austin as The Human Capital. The tagline is still featured as the core message to site selection consultants. We’re certainly in the running for that title. The Austin-Round Rock MSA has added an average of 17,000 highly-educated people (bachelor’s degree or higher) per year to the region’s population since 2000–an 80% growth rate that ranks #4 among large U.S. metro areas with at least one million in population.

And while Austin appears to be squarely in the path of the Silver Tsunami, most of this “brain gain” has directly impacted Austin’s labor force. People age 65+ make up about 12% of the approximately 507,000 residents of the Austin-Round Rock MSA with a bachelor’s degree or higher (bachelor’s+). If we assume that people age 65+ are a similar share (12%) of net change in Austin’s total bachelor’s+ population, then that means Austin’s primary working age population has gained about 198,000 bachelor’s+ people since 2000. According to the Census Bureau, 87% of bachelor’s+ people age 25-64 in Austin are in the labor force. So that works out to about 173,000 bachelor’s+ people joining the labor force in Austin since 2000, or roughly 13,000 per year.

To put that in perspective, excluding everybody in Austin age 65+, a gain of 198,000 bachelor’s+ people would drop Austin in the rankings among large metro areas only three spots, from #4 to #7, still well ahead of fast-growing, economically successful places such as Orlando, Portland, and Denver.

Being The Human Capital also makes good economic sense. As with most things in life and data, correlation should not be mistaken for causation. But the signal is pretty strong. Here’s a chart showing the growth rate of nominal gross domestic product (GDP) and the growth rate of bachelor’s+ population for the top 100 metro areas ranked by population. Clearly, human capital is playing a role in driving economic growth across the U.S., and Austin is among the winners of this “war for talent.”

2014-10-29 Growth in GDP vs Bachelor's+ Population MSA

Now, the downside risk, as they say. While we love touting our place at the top of the latest “best of” list, Austin is struggling to come to grips with its rapid ascent. Nowhere is that more evident, especially during this campaign season, than in conversations about inequality, gentrification, and affordability.

I’ll get to housing in detail in a future post. For now, let’s just focus on how adding 13,000 highly-educated people to the labor force per year could be impacting Austin, generally. First, there’s the obvious: growing prosperity, at least in the aggregate. Average earnings for bachelor’s+ workers age 25+ in Austin are $85,608, according to the Census Bureau. That’s about $30,000 more per year than the average for all employees in Austin, which goes a long way toward explaining the explosion of discretionary income that’s fueling our local culinary scene.

Next, growing disparity. Bachelor’s+ workers in Austin, on average, earn about $30,000 more per year than workers with some college or an associate’s degree, and about $40,000 more than workers with only high school. And while the bachelor’s+ population may be growing at the fastest rate, other segments of Austin’s workforce are growing at a healthy pace, as well. Workers with a high school diploma or less make up somewhere between 275,000 and 300,000 employees in the Austin-Round Rock MSA; the high school diploma population has grown by 54% since 2000.

Further, Austin’s rapidly growing bachelor’s+ population is likely exacerbating inequality along race/ethnicity lines, although it’s difficult to say for sure until we have better data available (innovative research efforts like the Central Texas Student Futures Project are certainly helping). For example, according to the latest available census data, only 23% of Black employees and 17% of Hispanic employees in Austin have a bachelor’s degree or higher, compared to 49% of Whites and an astounding 67% of Asians. While each race/ethnicity group in Austin has more education, on average, than its peers nationwide, inequality in educational attainment in Austin translates to significant wage inequality. Average earnings for Black employees in Austin are $39,072 per year, which at 30% of total income, converts to affordable monthly housing costs of $977.

Spend ten minutes looking online for rental housing of passable quality at $977 or less per month in centrally located neighborhoods around Austin and you’ll quickly understand why gentrification has been a dominant theme this campaign season.

Inequality of that magnitude isn’t unique to Austin, of course, but the gaps are wider here compared to some other regions. In my hometown of Raleigh, NC, for example (#5 right behind Austin in bachelor’s+ population growth), average earnings for bachelor’s+ workers are $75,228, and the gap between bachelor’s+ workers and some college or associate’s degree workers is about $5,000 smaller than it is in Austin. I have no idea what difference, if any, $5,000-$10,000 per year could make in shaping our perceptions of inequality and affordability in Austin, compared to other fast-growing, economically successful places like Raleigh. But it’s large enough to get your attention, especially considering the pace at which we are adding highly educated people to the population. More on this later when I take up housing in more detail.

Finally, there’s underemployment. Recall that we’re adding about 13,000 bachelor’s+ people to Austin’s labor force every year. It’s difficult to sort out exactly how many jobs requiring bachelor’s+ education we’re adding to absorb that increase in the labor force, but at the risk of raising the ire of the nuance police, we can take a shot at it. According to data from EMSI, we’ve added, on average, about 4,000 jobs per year since 2001 in the Austin-Round Rock MSA in occupations where the typical education needed for entry-level employment is a bachelor’s degree or higher. So that’s 13,000 more bachelor’s+ candidates competing for 4,000 more bachelor’s+ jobs each year. Moreover, even in “boom” years of higher than average job growth for Austin, we’re adding only about 8,000 bachelor’s+ jobs, which is still not enough to meet the demand of 13,000 new bachelor’s+ candidates in the region.

Thus, if you are highly educated and finding it difficult to navigate Austin’s labor market, you’re not imagining it. The Human Capital is getting pretty crowded these days. Now consider what it’s like for the other 63% of Austin’s adult population, which includes approximately three out of four Black employees and four out of five Hispanic employees, struggling to keep up with the rising cost of living in Austin with no bachelor’s+ and on no more than $1,000 per month for housing costs (i.e. rent plus utilities, etc.) and you can quickly see why inequality, gentrification, and affordability are the key topics in most city council races right now.

Austin’s standing as The Human Capital should be celebrated, but the invited guest list needs to be more inclusive.

Texas Economy: Miracle or Myth (Revisited)

Governor Perry’s signature economic development programs are under the microscope again this week. Perry, meanwhile, was in New York, talking up the “Texas Miracle” and challenging Governor Cuomo to a debate, who has also been very active in economic development the last few years, to the tune of $1.5 billion.

Given the flurry of activity, I thought it would be a good time to update my Texas: Miracle or Myth presentation from the TEDC conference last October. Here are the claims for your consideration:

1. Texas is leading the U.S. in job creation.

2. Texas has the fastest growing economy in the U.S.

3. People are fleeing California for Texas in droves.

4. Most new jobs in Texas are low-wage.

5. Economic growth in Texas is due entirely to oil and gas extraction.

Is each statement mostly miracle or mostly myth? Click on the image below to jump to the slides for my take.

Political theater is an easy target, but behind this “debate” is a serious challenge for local economic development efforts in Texas. The standard narrative of the Texas Miracle–low taxes (including no income tax), lax regulation, and business-friendly legal environment–serves as a distraction from recognizing the contributions of the nearly 700 combined Type A and Type B economic development corporations in the state. If economic prosperity can be guaranteed with sufficient commitment to the Miracle formula, then why should communities continue to support the investment of sales tax revenue into community and economic development projects? Why not eliminate the EDCs, lower the sales tax rate, and watch the private investment and jobs come rolling in?

That would be a mistake. While we need more EDCs to take a leadership role in championing things like career and technical education and workforce development, the program as a whole is one of the best vehicles you will find in the country for making community-driven economic development possible. EDC expenditures represent a small fraction of total state tax collections and provide important resources for communities in an environment of declining support from federal and state agencies.

A real miracle defies explanation. Local economic developers in Texas, along with their business, community, and education and workforce development partners, deserve better than that.

Texas Economy: Miracle or Myth?

Economist Tyler Cowen offers 10 reasons why Texas is our future in the latest edition of Time. Governor Perry calls it the Texas Miracle. The DNC calls it the miracle that never was. Who’s right? And, more important, does it matter?

As with most things in life and politics, the truth is somewhere in the middle. Nonetheless, the debate matters very much, especially for economic development, but not for the reasons you may think.

As I argued yesterday at the Texas Economic Development Council conference in San Antonio, an objective view of the evidence provides fodder for both sides of the debate. Texas is very much at the forefront of the economic recovery. Using traditional measures of growth in GDP, employment, and population, Texas performs very well compared to other states and the US as a whole.

Yet, many communities around the state are still waiting for the “miracle” to appear. Forty counties in Texas have higher unemployment rates than the US, and 15 of those counties have unemployment rates of 10 percent or higher. Texas also gets mixed marks on wealth creation. The state ranks 28th in per capita income adjusted for purchasing power parity.

You can access the rest of my presentation here:

Miracle or Myth: The Real Story of Job Creation & Economic Recovery in Texas

The miracle or myth debate is a red herring–a media-friendly smokescreen that obfuscates the true threat to the state’s future economic competitiveness: the growing contingent of people who appear to believe that economic development is possible without public investment.

Take education, for example. Nearly one-third of total US population growth in the ≤ 25 age cohort occurred in Texas between 2001 and 2013. That’s a demographic advantage in terms of workforce availability that many states would kill for. The question is, of course, are we serious about investing in people at the level that’s required to ensure that most residents of the state will be able to participate in the “miracle” (slide 24)?

Are we serious about experimenting and investing in new models of career and technical education that get away from the false dichotomy that’s plagued debates about higher education in Texas recently? Economic developers are critical for making these connections clear to politicians and the people who elect them.

As the Texas boosters like to say, people vote with their feet. Hopefully they’ll find opportunities to make enough money to buy boots when they get here.

Makers, Takers, and the Politics of Economic Development

Knowing where the money in your community comes from is critical information for economic developers. If the people in your community are predominantly working-age and earn most of their income from wages, then you may want to focus on strategies for raising wages, such as workforce training programs. By contrast, if your community is a popular retirement destination in Florida, and most of the income comes from 401ks, then you may want to focus on growth strategies more appropriate for a city of retired or semi-retired people, such as lifestyle entrepreneurship. Knowing where the “new” money comes from, or identifying your “base” in economic development parlance, should be among your first steps in formulating strategies for economic development.

That’s really the best I could do in attempting to start this post with a focus on traditional economic development issues. A valiant effort, for sure, but perhaps a stretch of questionable proportion.

This post is really about politics. Economic development is inextricably linked to politics, and it will be that way as long as locally elected politicians govern communities with separate tax bases. Accordingly, this blog takes the occasional detour into the impact of politics on economic development, with a spin on data analysis.

With the rise of the Tea Party and the proliferation of bumper-sticker catchphrases lacking any resemblance to nuanced debate, such as “makers and takers” or “you didn’t build that” or “the 1%,” there’s apparently a lot of interest these days in the appropriate degree of government involvement in our lives. Since the vast majority of economic development work is funded with taxpayer money, this is not an inconsequential issue. Running an effective program may be challenging if your community is convinced that government is the root of all evil.

So, in the spirit of encouraging more informed, data-driven discourse and less bumper-sticker evangelism, here’s one suggestion for using readily-available data to have more reasonable conversations about this topic. BEA publishes data on government transfers to households, which include things like Social Security, Medicare, Medicaid, income maintenance programs such as SNAP (food stamps) and what people commonly refer to as “welfare,” and unemployment insurance. At the national level, government transfers make up approximately 17 percent of total personal income, but there is a wide range at the county level, from about 55% in Owsley County, KY, to about 5 percent in Douglas County, CO.

In other words, Owsley County, KY, at 55 percent of total personal income, is more reliant on government programs as a source of income than any other county in the US. In fact, there are three counties in the US where government transfers account for more than 50 percent of total personal income, and they are all in Kentucky (as well as 13 of the top 25).

And, interestingly, they all went strongly for Romney in the 2012 election. As did 21 of the top 25 counties ranked by government transfers as a share of total personal income (2011):

2013-08-14 Counties Receiving Highest Percentage of Government Transfers

In fact, about 75 percent of the counties most reliant on government transfers (at least 2x US average) as a share of total personal income voted for Romney in 2012. Now, to be fair, I can’t find any meaningful correlation between reliance on government transfers measured this way and the outcome of the presidential vote when using the entire county data set, but I think some of the outliers are interesting.

You can download my data set here and draw your own conclusions.

Adding a column to the data set for per capita income and grouping the counties by wealth, or incorporating other variables like age or race/ethnicity, may be revealing. You could also break out the components of total government transfers into the various programs–Social Security, Medicare, SNAP, etc.–and re-run the numbers. The counties receiving a higher share of total government transfers in the form of income maintenance appear to be more strongly correlated (positively) with Obama’s share of the vote compared to medical care via Medicare and Medicaid. But that relationship disappears when calculating transfer payments as a share of total income.

Sidebar: Another popular misconception is how much is spent on each program. Total government transfer payments are distributed as follows for the most well-known programs: Social Security (32%), Medicare (24%), Medicaid (18%), Income Maintenance (12%), and Unemployment Insurance Compensation (5%).

Personal sidebar: Benefit programs for Veterans get a paltry 2.8% of total government transfers, a fact that every US citizen should know and take at least five minutes out of your day today to think about.

At any rate, my point here is that economic developers are hardly empty-handed when it comes to facing down critics with political axes to grind. Facts don’t always carry the day, especially when dealing with entrenched perceptions and party politics, but hopefully we can elevate the state of debate, at least a little.

Thanks to @joshuadarr for supplying the county vote totals and @LMGilchrist for connecting me to @joshuadarr.

Five questions for Austin medical school boosters

Photo: Tower Talk, 4/25/12

I was going to leave this one alone. I don’t like to get too deep into local politics here, but then I read earlier this week about how voting for a property tax increase is like going back in time and investing in Apple stock and so, really, who could resist walking through that very wide open door.

For you non-Austin readers, Central Health, our taxpayer-funded health care district, is asking Travis County residents in November to approve a property tax increase of five cents per $100 valuation in order to raise more money for health care services and partially fund a medical school at The University of Texas at Austin (I know that most grammar experts say to use healthcare instead of health care, but I just can’t do it. Stop reading now if this rebelliousness bothers you too much). For those of you so inclined, there is a long and very complicated backstory about why UT-Austin doesn’t have a medical school, and you can get more details on the proposed tax increase by reading Mike Kanin’s excellent primer, The Med School Solution, in the Austin Chronicle or by visiting Keep Austin Healthy, the PAC set up to advocate for passage of Prop 1.

The gist of it is that the proposed tax increase would raise about 10% of the approximately $4 billion needed over 12 years to fund the medical school and expanded services, or about $54 million annually, an increase of about $100 on the annual tax bill for families living in a median-valued home of $200,000. The Seton Healthcare Family has pledged $2 billion, and UT is in for at least $25 million annually. Supporters are also looking to Section 1115 Medicaid Waivers for federal matching funds of $1.46 for every $1.00 contributed locally.

In addition to the projected benefits in terms of improved access to health care services, Prop 1 supporters are arguing their case on the grounds of economic development. According to a TXP study, funded by a coalition of supporters going by the name HealthyATX, the medical school and teaching hospital are expected to result in $2 billion in new economic activity and 15,400 jobs. TXP is one of the best firms in this business, so to the extent that you believe economic impact analysis can produce reliable data, I’m sure their numbers are as solid as any.

I do, however, have some other questions for Prop 1 supporters:

1. How is a tax increase like investing in the stock market? The comparison to Apple stock was stretching it a bit. Pitching tax increases as investments is standard fare in political communications, but I don’t think this convinced anybody. The $100 increase in my property tax bill may have a social return on investment–we decided that health care is a public good when voters created Central Health in 2004 after all–but that’s not the same as a personal return on investment, much less the staggering gains you’d see from investing in Apple 30 years ago. Yes, you could argue that one day a medical breakthrough at the UT-Austin medical school may benefit me directly, but, I don’t think that’s too convincing, especially given the mood of taxpayers right now.

And speaking of medical breakthroughs…

2. We’ve heard a lot about what a medical school in Austin would mean for people suffering from cancer and other types of conditions that now require traveling to Dallas or Houston for treatment. Whether you or somebody you love is in this situation, or you simply think that having local treatment options would make Austin a more attractive community in general, this for me is a much more convincing reason to support Prop 1. But where’s the data? We all probably have an anecdotal story to share, but if supporters are emphasizing the quantifiable benefits of passing Prop 1, then there should be some attempt to communicate this using measurable data, not just anecdotes. What do all those trips to Dallas and Houston represent in lost wages, lower productivity for employers, increased vehicle emissions, etc.? Furthermore, which treatments, specifically, are not currently available in Austin? And what would having those treatment options locally mean for Austin’s ability to attract specialists, create jobs with new physician offices, etc.? Prop 1 supporters can do better here.

And speaking of job creation…

3. If you buy the argument that a medical school in Austin would serve as an engine for economic development in the region, whether through direct employment and spinoff impacts or as the foundation needed to grow a viable cluster in life sciences, then why are we focused on property taxes as the only source of local revenue? Moreover, why just Travis County? According to the Texas Comptroller, there’s at least $16 million in 4A and 4B sales tax money spent annually on community and economic development in the five-county Austin metro area–$40 million if you include what’s used for transportation in Georgetown and Round Rock. For a project of such regional significance, shouldn’t we expect a broader base of investors? In addition, sales tax revenue would provide some stability if property values in Travis County decline in a future housing downturn, state funding is cut, or something happens at the federal level and the Section 1115 waivers are no longer available.

And speaking of additional investors…

4. I hear that 400 doctors have come out in support of Prop 1. Well according to the U.S. Census Bureau, there were 880 private practices in business in Travis County in 2010, with nearly 10,000 employees and total annual payroll of about $826 million. A self-imposed payroll tax of, say, 3% would be just about enough to split the cost evenly with taxpayers. Now, many of these physicians and their employees also live in Travis County, so they would be paying twice, and that would be unfair, at least to the lower-wage employees. So, how about a self-imposed sales tax instead? In 2007, physicians in private practice in Travis County hauled in about $1.5 billion in total receipts, according to the latest data available from the U.S. Census Bureau. Physicians in private practice could fund nearly the entire local contribution and let taxpayers off the hook with just a 3% tax on gross receipts. Surely that’s a bargain for such a valuable asset that can secure Austin’s future as a globally competitive region for life sciences, as well as address the shortage of doctors here and around the state.

And, finally, about that doctor shortage…

5. In our inaugural issue of the Redback Report, we looked at the shortage of physicians in Texas, why the gap will likely grow without additional capacity at our medical schools, and what closing the gap could mean in economic benefits to the state and local economies. We did not, however, say anything about how to fund it, which was in hindsight probably a missed opportunity. So for the Prop 1 supporters, putting aside the extremely unlikely possibility of increased state funding, what other models were considered before turning to local property taxes and why did that seem like the most viable solution? Are there examples of locally funded medical schools in other cities, and what lessons have they learned that can inform our experience here if Prop 1 passes? Seton is making a huge commitment–is that in line with what other regions have raised in private donations in terms of a percentage of overall funding? Are there bigger picture issues that we should be discussing about future public-private partnerships based on your experience with Prop 1?

We’ve talked a long time about the importance of thinking big again. We tout our commitment to regional collaboration on economic development. In going to Travis County taxpayers to fund a regional asset that one key supporter says is an opportunity that is “potentially bigger than any of us have ever seen,” we’ve missed a larger opportunity to demonstrate that we are serious on both counts.

Tea Party trouble for economic developers?

The cognitive dissonance on display this election cycle about the government’s role in the economy is astounding. For economic developers, especially in conservative states, that could spell trouble.

The practice of economic development is, by definition, government involvement in the free market. The vast majority of economic development programs are funded with taxpayer dollars. Business groups lobby for special tax breaks or taxpayer-funded subsidies on behalf of companies relocating to, or expanding in, a community. In Texas, as with most things, we’ve taken the cognitive dissonance to dizzying new heights. We have the Texas Enterprise Fund, $295 million in taxpayer money that state leaders claim “brought more than 56,000 new jobs to the state and generated more than $14.7 billion in capital investment.” We also have the Emerging Technology Fund, created with $200 million in taxpayer money, which is used to attract federal research funding and invest directly in companies selected by political leaders with the help of an advisory committee. That’s right–$200 million in taxpayer money used to “pick winners” and encourage more federal spending in Texas. It takes a special type of person to crow about your state’s adherence to limited government and free market principles while you’re doling out $500 million in taxpayer money in order to influence decisions that, according to your views, should be left to the private sector.

And that’s just at the state level. According to the Texas Comptroller, there are 581 communities in Texas–nearly half of all the cities in the state–funding economic development through local sales taxes adopted by referendum. In FY 2009, these communities raised approximately $676 million in sales tax revenues from taxpayers for economic development, much of which goes to subsidizing the private sector.

Here’s a map from the Comptroller’s website showing where these communities are located (kudos to Susan Combs for making this data available, as well as her other open data initiatives):

View Texas EDCs in a full screen/mobile-friendly map

Zoom in and click on a community to see the type of program (4A or 4B), how much money was raised from taxpayers, and how much money was spent in FY 2009.

I’m bringing this up now because we’ve stepped it up a notch in the cognitive dissonance department and I think it could have significant ramifications for economic developers. In November, Texans will likely elect Ted Cruz, a champion for the Tea Party cause, to the U.S. Senate. According to an analysis of election results from the Republican primary runoff, Cruz won 140 counties, including most of the major metropolitan areas.

(AP Photo/Hernan Rozemberg. Source: VOXXI)

Statistically, Cruz’s margin of victory was larger in counties where the general population had higher incomes, higher unemployment, higher poverty, and older residents. Race, population density (looking for urban/rural differences), and educational attainment in the general population didn’t appear to have a measurable effect on Cruz’s margin of victory. The most interesting observation to me is the combination of higher incomes and higher unemployment in counties that went solidly for Cruz. I’m not sure what to make of that yet, but it seems to fit the general narrative about the Tea Party’s impact on the Republican Party: anti-government plays well these days regardless of your life circumstances. Perhaps there’s a pollster or political consultant out there who could weigh in and tell us how the demographics of actual voters in the Republican primary compare to the general population in order to understand if these conclusions are reasonable, and what they might mean for the big picture of Texas politics, and its economic development programs.

And speaking of cognitive dissonance…

Government provides one-third or more of all jobs in six Texas counties. Cruz won four of them.

Government transfers (i.e. Medicare, Medicaid, SNAP) provide $128 billion in income to residents of the 140 counties that went for Cruz. On average, that’s 22% of total income. Of the 24 counties in Texas receiving at least one-third of total income from government transfers, Cruz won 11 of them.

Hopefully taxpayer-funded economic developers can help replace the jobs and income.