Volume 1, Number 3- December 2004
Welcome to the latest edition of EntreWorks Insights, a new quarterly newsletter that will report on business trends, policy developments, and other issues impacting the business of economic development. You’re receiving this note because you’ve asked to subscribe or because you have some previous interest in the work of EntreWorks or the National Commission on Entrepreneurship, where I used to serve as Policy Director. 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. Thanks for your interest.
Erik R. Pages
If you’re working around the field of economic development in 2005, you’ll likely be hearing a lot about BRAC. What is BRAC? BRAC is the Pentagon’s acronym for the Defense Base Realignment and Closure process. Beginning in 1988, four independent commissions assisted the military in determining how and when it should close excess military bases. The last BRAC round was held in 1995, but a new round of military base closings---expected to be the biggest to date---begins in early 2005.
Restarting the base closure process has not been a popular decision in communities that host military facilities. In fact, base closure opponents were able to block this process for almost a decade. But, base closings are back on the table and hundreds of communities will now be forced to deal with the repercussions of upcoming base closing decisions.
Since the formal base closure process started in 1988, 97 major military bases have been closed, and hundreds of other facilities have been affected by base realignment and reorganization. The Pentagon reports that it is saving up to $7 billion per year thanks to these past base closings, and in today’s budget environment, the Department of Defense’s (DoD) leadership is hungry for more savings and a more efficient military base structure.
This desire for streamlining and efficiency ultimately clashes with community desires to “save our base.” While a substantial base closing round will help enhance military effectiveness, it will also mean lost jobs and painful restructuring for many regions. While the loss of this community anchor is extremely painful, we also have a lot of experience with effective strategies for coping and recovering. Here’s a few things that we know going into this year’s process.
Beware of Chicken Little.
In their efforts to save their bases from closure, local boosters often sound a lot like Chicken Little. While base closings can be painful, the sky will not fall. Moreover, one should be extremely cautious in reviewing various economic impact studies about military facilities. If we trusted all of these studies, military bases would be something like the kids at Garrison Keillor’s Lake Wobegon, i.e., where everyone is above average.
Economic impact studies invariably show millions (if not billions) of dollars generated by military base jobs and spillover effects. While military bases do generate jobs, base military impacts have some unique characteristics. First, many military base employees live, shop, and educate their children on the base. Thus, they spend few dollars (and even fewer tax dollars) in the local community. Second, few military bases do extensive business with local contractors. Instead, work is competed on a national or regional basis, and thus may not provide many special advantages to local businesses. Finally, many military facilities do not generate much local spin-off in terms of new business creation. In other words, the bases generally do not stimulate growing local business clusters that serve the base.
These caveats do not imply that base closings are painless--they do cause economic and psychological pain for affected communities. At the same time, however, we should remember that the primary function of a military facility is to support America’s national military mission. If a facility is no longer needed for this purpose, it should not be kept operating simply out of fear of these often-overstated economic impacts.
In past base closure rounds, many shuttered bases were located in isolated rural areas. For example, many Strategic Air Command bases located in the Northern tier of the US have been closed. These bases, located in isolated regions like Northern Maine and Michigan’s Upper Peninsula, hosted bomber squadrons targeting the former Soviet Union. Because they are hundreds of miles from major population centers, redevelopment of the bases has been challenging. Yet, even in these cases, interesting development opportunities have arisen.
Contrast this story with that of Cameron Station, located in Alexandria, Virginia. Closed in 1988, this former Army facility has simply been swept up in Northern Virginia’s development boom. It now hosts a planned community of houses, condominiums and apartments, and few traces of its military past can be seen.
The good news is that this year’s round of affected bases will likely look more like Cameron Station than Maine’s Loring Air Force Base. Military planners have grown increasingly concerned about encroachment, i.e. the appearance of conflicts between military missions and neighboring non-military activities. In areas such as combat air training, such issues of military encroachment are becoming quite controversial. As a result, many military services have a strong preference for training facilities with lots of space and few close interactions with neighbors. Based on these criteria, we can expect that bases in or near growing population centers will face more scrutiny than those in isolated rural regions. The upside of this trend is that closed facilities may face fewer redevelopment challenges, as they will be able to capitalize on already positive local market activity.
Recovery will happen.
A base closing often triggers major trauma. Residents ask questions like: “We were a Navy town. What will be now?” Such an initial reaction is expected, but a longer-term perspective is warranted. Recovery will not only happen; it is the most likely scenario. Most military base communities have recovered well after a base closure. In fact, many communities are better off as the former military base has been replaced by a more diverse, vibrant, and efficient mix of local business, residential, and recreational resources.
Research on base reuse strategies is fairly consistent and compelling. For example, in 2002, the Government Accountability Office (GAO) reviewed community experiences with base reuse. Its report (available here: http://www.gao.gov/new.items/d02433.pdf) found that 71% of surveyed communities had unemployment rates below national averages. Fifty-three percent had per-capita income growth rates above national averages. Similar findings were uncovered in research by the RAND Corporation (http://www.rand.org/publications/RB/RB7511/RB7511.html) and researchers at the Massachusetts Institute of Technology (http://www.eda.gov/ImageCache/EDAPublic/documents/pdfdocs/.)
While recovery will happen, that doesn’t mean the process will be easy or painless. Lots of factors affect recovery rates and duration, but one extremely critical factor is the presence of committed leaders who start the reuse process early. Most military bases represent huge pieces of property, and will thus take years, if not decades, to fully develop. Community leaders should begin the process early, and take advantage of the substantial federal resources available for community planning and reuse. Funding is available to begin planning before a base closes, and, if possible, community leaders should tap into these resources as soon as possible.
Beware the Unexpected.
The real costs of base closings don’t come from efforts to replace lost jobs. Instead, they result from environmental contamination and substandard or unsafe infrastructure at a facility. For example, DoD expects to spend more than $3.5 billion to clean up contamination at already closed bases.
It’s impossible to eliminate these problems, but it is possible to be prepared for them. Before considering any possible reuse plans, community leaders must be certain that they are fully aware of all liabilities associated with the base. If important infrastructure (e.g. roads, sewer) upgrades are essential for future development, these investments must receive the community’s priority attention.
In our last newsletter, we looked at several regional approaches to reduce turf war and other conflicts among various economic development agencies and small business support providers. Governments and economic development agencies aren’t the only ones dealing with these challenges; foundations and private business leaders are also trying to improve regional collaboration. Lots of interesting activity is underway, and those with interest in learning more should check out an excellent new monograph from the Alliance for Regional Stewardship (ARS), entitled Regional Business Civic Organizations: Creating New Agendas for Metropolitan Competitiveness (available here: http://www.regionalstewardship.org/Documents/Monograph9.pdf)
The report reviews nine interesting projects from all parts of the US. These organizations were involved in a host of different missions, from bridging the digital divide (Florida’s Internet Coast) to traditional economic development (Detroit Renaissance) to promoting diversity (New York’s Long Island Business Association).
What did these organizations do differently to make regional cooperation happen? Here’s a few things that seem to matter:
In our travels around the world and around the web, we regularly find some very cool stuff that might interest our readers. In our last edition, we plugged a few resources from the Northern Great Plains and Mountain West. This time, we turn to the Mid-Atlantic region, with a special emphasis on Pennsylvania. Look for more “plugs” in future editions:
Philadelphia Chamber of Commerce (www.philachamber.com): The Philadelphia Chamber of Commerce and its CEO Council have been making a big push to increase regional cooperation, and build on some of the ideas noted above. Governors of the three states (Delaware, New Jersey, and Pennsylvania) have recently agreed to collaborate in making Philadelphia a choice destination for business. What does this mean in practice? While the details are being ironed out, the governors have agreed to cooperate on infrastructure projects and refrain from battling to recruit outside businesses. This may not be the end of turf wars in Philadelphia, but it might be the start.
Yellowcakes (www.yellowcakes.net): Philadelphia is not the only place in Pennsylvania where exciting things are happening. Central Pennsylvania is also becoming a business hot spot. If you want to know the latest, check out Yellowcakes, an online source for news about the region’s tech firms. Another excellent source for such information comes from Business2Business Magazine (www.b2bezine.biz), which covers news from Berks, Chester, and Lancaster Counties as well as the Harrisburg metro area.
Ben Franklin Investment Partners (http://www.sep.benfranklin.org/capital/bfipfaq): As more regions recognize the importance of developing sources of early stage equity finance, interest in angel investing is growing. A new Angel Capital Association (www.angelcapitalassociation.org) has been created, and lots of interesting local programs are underway. Pennsylvania is pursuing an interesting model with its Ben Franklin Investment Partners Guarantee Fund. This fund, capitalized with $2 million of state funds, provides guarantees of up to 25% against any loss incurred by registered angel networks that fund technology firms located in southeastern Pennsylvania. This guarantee, which can reach up to $200,000, should help reduce risk and help stimulate further seed-stage investment in the region. The program is very new (its first guarantee was made in June 2004), but it offers a promising model that warrants a close look.
If you’re interested in entrepreneurship, you should definitely get to know the National Dialogue on Entrepreneurship. The NDE is run by the Public Forum Institute (PFI), a non-partisan organization devoted to improving public discourse and understanding of complex policy issues. NDE publishes a weekly e-newsletter (produced under contract by EntreWorks Consulting), but it also does much more. The PFI website is chock full of great information about entrepreneurship, and the PFI staff specialize in managing public forums, such as town hall meetings, for elected officials and other community leaders. They have also pioneered use of e-forum technology, which allows conference attendees to actively participate and “vote” on key issues under consideration. If you or your communities are interested in learning more about these initiatives, contact PFI at:
The Public Forum Institute
“What’s So New about New Entrepreneurship Policies?”--a paper presented at the University of Minnesota Symposium on Knowledge Clusters and Entrepreneurship, held in September 2004.
Two new reports from the Cluster Hubs Project, a US Department of Education-backed project to enhance entrepreneurship training at community colleges. This project was developed with support from EntreWorks Consulting.