Welcome to the latest edition of EntreWorks Insights, a quarterly newsletter that reports on business trends, policy developments, and other issues affecting the business of economic and workforce development. You’re receiving this note because you’ve asked to subscribe or because you have some previous interest in the work of EntreWorks Consulting. If you wish to subscribe or be removed from this list, please send an email to info (at) entreworks.net. If you’re interested in the newsletter, please read on. Please feel free to share with friends, family, colleagues, and other loved ones. Comments and constructive criticism (and praise) are also welcome. You are also encouraged to visit and comment on the EntreWorks blog at http://entreworks.net/blog. Thanks for your interest.
Erik R. Pages
President
EntreWorks Consulting
www.entreworks.net
HIGHLIGHTS
Time to Get Serious About Small Cities
Donald Trump’s election last year has triggered something of a boom in reporting on what’s happening in rural America. For the first time in many years, reporters from major media outlets have dug deep into the economic challenges facing America’s rural regions. That’s a great thing, but I would also like to see a similar focus on what’s happening in America’s smaller cities as they face challenges that may be even more profound that those facing rural America. This issue of EntreWorks Insights takes a look at what’s happening in America’s smaller cities, and offers some suggestions for improving the lot of these communities.
What are Small Cities?
There is no single definition of what constitutes a small city. For our purposes, I’m referring to small and medium-sized cities that typically have a population below 100,000 people and are often much smaller than that. These communities may also be referred to as legacy cities, as they often were home to major employers or large manufacturing bases. Many of these cities are located in the Rust Belt, and our list would include cities like Springfield MA, Flint MI, Scranton PA, and Racine WI. But, our list could also include challenged smaller cities in other parts of the US, such as Stockton CA, Alexandria LA and Butte MT.
These places are smaller, but share many characteristics with larger cities. Their physical layouts are similar, as they typically have a downtown core with mixed residential areas, surrounding by rings of suburban and exurban development.
The Legacy City Challenge
America’s major urban centers are booming---just try to find an affordable home or rental unit in places like New York, San Francisco, or Washington, DC. Meanwhile, smaller legacy cities struggle to keep up. These places have been hurting for awhile, but the gap between their performance and growing US regions widened during and after the Great Recession.
Small legacy cities are often trapped in something of an economic “death spiral.” As they lose economic anchors, such as local manufacturers and other jobs creators, revenue sources dry up and talented workers depart for better opportunities. Many of the remaining residents are older and poorer. Housing stock tends to be older, and its values depreciate at a faster than average rate. Meanwhile, massive legacy costs in areas like pensions and infrastructure maintenance build up. A declining and less wealthy population combines with higher city operating costs; this is a tough equation. A recent Manhattan Institute study finds that per-capita debt burdens have grown in 71 of 96 surveyed Rust Belt cities. A recent study from Pennsylvania found similar results, as nearly every small city had seen a growth in tax burdens accompanied by a major decline in the local tax base.
These difficulties are further worsened by the smaller size of these communities. They lack the scale to act on their own, their markets are smaller, and they are often neglected by politicians from other regions. They lack critical mass, and cannot make big investments that offer the prospect of changing the regional economic trajectory over the short or medium term. Recovery and revitalization require a long-term and patient perspective.
How to Respond?
This toxic mix of economic decline and policy dysfunction creates massive challenges for economic development. It is exceedingly difficult to attract or grow businesses in an environment where taxes are higher, the workforce may be less talented, and local amenities may be less attractive than those found in suburban areas or large cities.
While revitalization efforts can be challenging, they are not impossible. And, many regions are succeeding. For example, a recent Lincoln Institute for Land Policy study tracks the great successes found in a number of legacy cities such as Allentown and Bethlehem (PA), Grand Rapids (MI), and Albany (NY). Reports like this one and my own extended experience working in small cities offer some pathways to progress. Each community is developing its own unique strategies and approaches, but a number of focus areas appear to be especially promising.
- Engage Philanthropy
Because they are “legacy” cities, many of these older small cities host community foundations and other philanthropic organizations. This is a huge asset that many other regions envy. We know that foundations have played a critical role in revitalizing places like Pittsburgh and Cleveland, but they’ve also played a central role in smaller cities like Grand Rapids MI and Chattanooga TN. For example, Chattanooga has recently emerged as hotspot for entrepreneurship. Much of the initial investments in these programs came from the local Lyndhurst and Benwood Foundations. Tapping these philanthropic resources, or creating new ones, is essential for success.
- Encourage Immigration
While the demographics story in rural America is one of steady population loss, the picture is more mixed for legacy cities. Some places, like Flint and Youngstown, have seen major population declines. Yet many smaller cities are growing, and these places tend to also be homes for relatively larger immigrant populations. Examples include Allentown PA, Lowell, MA, Reading PA, Scranton PA, and Worcester MA.
This immigrant boom bodes well for these communities. It brings a younger population, and the prospects for new businesses, new housing starts, and new industries. To date, few legacy cities have fully embraced this immigrant wave as an economic development success story, but the potential is great. Many cities in the Northeast, such as Allentown, Reading PA, and Paterson NJ are developing new programs to promote Latino entrepreneurship. Recent research from Stanford suggests this is a smart good proposition as Latino business start-up rates have remained 2-3 times higher than the national average for decades.
- Connect, Connect, Connect
Because of their smaller scale and market size, most of these legacy cities can no longer go it alone, i.e. they must link their economies to other regions as opposed to serving as the core of a wider regional market. Successful regions consciously strive to build these connections and to identify how their local companies and institutions are linked to major metro economies. The Lincoln Institute study cited earlier found that many of the best performing legacy cities were located in the Northeast. One factor behind this trend is location. These higher performers are more closely tied to major East Coast metro areas in terms of business ties and cultural links. They benefit from proximity to these metro areas, but can still tout their lower costs and other business benefits. These are the primary factors driving many back office operations and distribution center facilities to locations in or near these smaller cities. For example, as anyone who drives on Route 81 can tell you, eastern Pennsylvania is now a booming area for transportation and logistics operations.
- Double Down on Manufacturing\
Most legacy cities are former manufacturing hubs, and most of them still have a higher than average concentrations of manufacturing businesses and jobs. This is a good thing, and serves as a powerful competitive advantage. Supporting manufacturers of all types makes sense, but many legacy cities will benefit from a special focus on small-scale manufacturing. As a new Smart Growth America report shows, small scale manufacturers not only bring new jobs to a neighborhood, but they can also spur neighborhood revitalization. Small-scale manufacturing operations, including popular trends like breweries and distilleries, are ideal tenants for older industrial buildings found in legacy cities.
- Stay Real
Targeting these small scale manufacturers helps on one final front: keeping it real. Smaller legacy cities are called legacy cities for a reason: they have deep and fascinating histories. Preserving and honoring these legacies matters, and small cities should consciously avoid simply copying what works in LA, NY or Chicago.
Legacy cities can offer an authentic sense of place, and most experts suggest that this authenticity is in great demand by younger Americans. When combined with lower costs of living and a friendly business climate, these factors can help position smaller cities for future prosperity.
We welcome your reaction to these thoughts and ideas and also welcome your own stories on what works to rebuild and revitalize America’s legacy cities.
Resources
If you want to dig deeper on this topic, check out some of the following resources:
- Federal Reserve Bank of Atlanta, Small Cities Economic Dynamism Index
- Federal Reserve Bank of Chicago, Looking for Progress in America’s Smaller Legacy Cities(2017)
- Legacy Cities Partnership: http://www.legacycities.org/
- Lincoln Institute for Land Policy, Revitalizing America’s Smaller Legacy Cities (2017)
- Manhattan Institute, “Rust Belt Cities and their Burden of Legacy Costs,” October 24, 2017.
- Pennsylvania Economy League, Communities in Crisis (2017).
- Smart Growth America, Made in Place: Small-scale Manufacturing and Neighborhood Revitalization (2017)
Top of Page
What’s New at EntreWorks Consulting?
As we head deep into the holiday season, we’re busy wrapping up a number of long-term projects for the Appalachian Regional Commission and the Pentagon’s Office of Economic Adjustment. In addition, we continue to work with the National Association of Counties and the National Association of Development Organizations to provide technical assistance regions affected by the downturn in coal. Our team met with Utah-based communities in October, and we’re now planning for technical assistance sessions in Montana and Wyoming. Watch the EntreWorks Blog for more details. Finally, we are also deep into program evaluation work with the Louisiana-based Rapides Foundation.
We continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Recent posts have discussed the state of rural manufacturing, the Start-Up Act of 2017, and new business data resources. You can also access blog updates at our Facebook and LinkedIn pages and on Google Plus.