Geographic differences in venture capital, start ups

The race between cities to attract the tech industry is an uneven one as two graphics from a Wired story about a Denver startup illustrate:

*Combines San Francisco and San Jose metro areas. Sources: Apartment List, Brookings Institution, Pitchbook

Are efforts to replicate Silicon Valley in different places that much different than trying to copy the High Line? While it is popular to try to attract the tech industry and similar businesses – see Richard Florida’s work as an example – it is not an easy task. Even technology, with all its possibilities to span times and space, is often an embodied industry. Why would Apple pay so much attention to their new building? Why does the tech industry seem to develop in clusters like Silicon Valley and Route 128 outside of Boston?

More broadly, it takes times for communities to develop and often a series of decisions and events are required. Intentional efforts may or may not lead to a flourishing tech sector in a particular location as it is difficult to apply and carry out a particular formula. These developments are often contingent on a number of previous factors. For example, the tech industry seemed to rise up near research universities (Stanford in the Bay Area, multiple schools in the Boston area). It takes a lot (in both time and resources) to develop such educational settings. Success in developing a tech cluster should be measured in decades rather than years.

 

Why Canadian communities may not have an incentive to avoid flood plains

If the costs for rebuilding in flood plains is covered by the provincial and national governments, why would communities limit building on those flood plains?

As the battle to protect homes from flooding continues across the country, questions are being asked about whether it’s time to reconsider regulations that allow developers to build on flood plains.

Jason Thistlethwaite, an assistant professor at the University of Waterloo’s faculty of environment, says the problem is that municipalities set zoning regulations and collect property tax revenue but do not pay for rebuilding costs after natural disasters.

“The municipality really doesn’t have an incentive to go in and use land-use planning and building codes and communications strategies to tell people that they are at risk of flooding, particularly given that most of the revenue comes from development, it comes from property taxes.” Thistlethwaite said. “So they face a real conflict of interest…

Last February, the Parliamentary Budget Office released a report estimating that over the next five years the federal government will dole out an estimated $902 million a year in disaster-related relief to provinces and territories.

I could see at least two good arguments against building in flood plains:

  1. The financial costs in the long run. Of course, the suggestion here is that local communities don’t bear the costs. But, even if they are paid at higher levels, the costs are going to get passed down eventually. Additionally, communities might benefit from property taxes but the reconstruction times and costs also would limit the property taxes they can collect.
  2. Environmental reasons: it can’t be good to have buildings and other debris from the built environment consistently washed into waterways. Limiting development on floodplains also allows for rivers and other waterways to go through natural cycles.

Either could be a good enough reason. However, as noted above, it is very difficult for communities to pass up on allowing development on desirable properties. There are similar situations in the United States.

One of the better options I’ve seen in some suburbs is to convert these flood areas to parks. This accomplishes two purposes: (1) when flooding does occur, the damage is reduced since it affects fewer buildings and (2) having a park nearby can enhance property values and the quality of life.

LA development guided by powerful people and relatively few voters

Some critics have charged that development in Los Angeles is influenced too much by powerful people. Yet, when voters had an opportunity this week to vote on increased regulation of development (Measure S), relatively few people turned out:

In the end, it failed by an overwhelming margin, garnering only 70,000 votes in a city of almost 4 million people. It’s a reassuring sign…

It’s hard to read too much into an election in which hardly anyone voted.

While it was a primary election (where turnout is typically low), this measure would have affected development throughout the city. Does this suggest residents aren’t that interested in development?

Maybe the voters save their attention for local development issues and LA has plenty:

Some of the same people who pushed for the passage of Measure S sued the city over an update to Hollywood’s community plan. In Granada Hills, neighbors are fighting a 440-unit apartment complex. That project conforms to that neighborhood’s newly rewritten community plan, but some residents say it’s too big.

Development can be tricky in that many residents might be very aware of what is happening next door or on the same block (particularly if it affects their property values or their children) but not have much knowledge or concern about matters in other parts of the city. In a big city like Los Angeles, residents may not be very familiar with the daily happenings of other locations. And, this is Los Angeles, famously the poster child for decentralization.

In other words, talking about development in the abstract might be a difficult sell, even in locations like this where housing prices are high for all.

UPDATE 3/9/17 9:08 PM: Here are more exact figures on how many LA residents decided the fate of this sweeping development regulation:

The Los Angeles Times reported late on Tuesday that just 11.4 percent of the electorate participated in the election, despite the fact that the mayor, half the city council, and several heavyweight ballot measures were all up for debate. In Tuesday’s election, apathy won.

Read further for an argument on why measures like this that are so broad should not be on primary ballots.

Could high school football stadiums drive economic development?

Among other reasons, the construction of impressive new high school football stadiums in Texas is justified by the idea that they will promote economic development:

School officials have responded to critics by pointing out that the stadium would also be used for soccer games, band competitions, and some state football games; there’s also the hope that retail and restaurant development will spring up nearby. A high school football stadium serves the community in ways other than just bringing in visitors, business, new residents and more tax dollars. One of them is clearly Texas pride in the game-day spectacle.

The evidence is pretty clear with sports stadiums that the public money spent on them tends to go back to the owners and teams, not the community. Could high school stadiums – paid for with tax money yet serving the community – be different?

One point of skepticism is to ask how many significant events these stadiums would hold each year. The biggest crowd events are football games. But, a high school team plays roughly five to eight home games each year. While these stadiums are bigger than the average high school stadium, are there enough fans to support local businesses? It seems like the stadiums need to hold a lot more events to truly bring in people. (Perhaps some of them could attract concerts or festivals?)

A second question is how to directly link the football stadium to economic development. As the article notes, a number of these communities are expected to grow. At least some of this growth would have happened without the flashy new stadium. Are the communities going to survey new residents and businesses to see if the stadium factored into their decision? Or, having built the stadiums, will they attribute positive changes to the stadium?

Finally, it sounds like these communities are locked into competition for stadiums (and other amenities as well as general growth). Is it necessarily the case that building a great stadium would give one suburb a significant leg up on another suburb? If this is a zero-sum game or an arms race, someone will lose. A different view might be that Sunbelt suburban growth will continue in a number of these communities and may not be strongly related to the construction of high school stadiums (or other public amenities).

Can you plan suburban growth around an Amazon distribution center?

Thanks to state tax breaks, Amazon will soon begin construction on a new distribution center in northeast Aurora. The new facility is said to bring 1,000+ jobs. The latest newsletter from the City of Warrenville discusses the new facility. The facility is located near the border with Warrenville and the city thinks this will be a good for Warrenville:

warrenvilletifamazon

Can an Amazon facility be an economic boon for a suburb, particularly in a portion of the community that is underdeveloped? At the least, the 1,000+ workers will have to live somewhere. Could there be certain facilities that pop up to serve the workers – fast food places? Gas stations? Dry cleaners? Tattoo parlors (wait, Warrenville has enough of those)? Adding students to the school system?

I’m sure the city is either working on estimates of this and it would be worth sharing with the public. Connecting the dots between a warehouse/distribution facility and other community amenities is not obvious and what is Warrenville willing to do to capitalize on this opportunity?

Suburbs ask grocery chain to fill vacant stores rather than leaving them empty

The leaders of eleven suburbs held a press conference yesterday intended to prompt Albertsons to allow former Dominick’s sites to be used:

The damaging effects of keeping these spaces vacant is very difficult for a lot of these communities,” Naperville Mayor Steve Chirico said. “We need to do a better job working together and putting the community first, and right now the communities are not being put first. We’re asking for their help. We need to see some participation.”…

However, leases on 15 vacant Dominick’s continue to be paid for by Albertsons. On Thursday, municipal officials said they want the practice of extending those leases to cease.

“When you’re leasing a space that doesn’t have a tenant and you’re renewing that lease for five years purposely so you can control whatever goes in there, that’s where we’re having an issue,” Bartlett Village President Kevin Wallace said.

Romeoville Mayor John Noak said there is interest in the vacant spaces and willingness from suburban leaders to work with Albertsons to get them filled, but the company is not cooperating.

Two quick thoughts:

  1. It is interesting to see under what circumstances suburban leaders are willing to cooperate. Common economic matters could be at the top of this list.
  2. The worst outcome for many suburbs would be that the abandoned properties are not maintained and whoever owns it is doing nothing or the bare minimum. Such buildings are not just empty; they are an eyesore and many suburbanites would say it reflects poorly on their community. This isn’t exactly the case here: Albertson’s has the leases, is paying for the property, and the sites themselves aren’t in terrible shape – they are just empty. But, large grocery stores often occupy prime retail space at busy intersections and it makes sense that communities would eventually want to see the space put back into the retail market both for appearances and sales tax dollars.

See earlier posts on this subject here and here.

Should Baltimore provide $535 million in TIF funds for a new private development?

The CEO of Under Armour wants to develop roughly 260 acres of land in Baltimore but is asking for public funds. A large debate has ensued:

The problem is that Plank, despite being a self-made billionaire, wants a lot of help to make his vision for Port Covington a reality. To that end, his real estate firm, Sagamore, has asked the city of Baltimore for a record-breaking $535 million in so-called tax increment financing. TIFs, as these types of loans are known, are used to fund infrastructure by selling municipal bonds to private investors, and then property taxes generated by the new development are used to pay them back. Though beloved by titans of commercial real estate, TIFs tend to draw scrutiny because they divert so much money away from a city’s general fund. MuniCap, a consulting firm that Sagamore hired to analyze its TIF application, projects that Plank’s development would not yield property tax revenue for Baltimore’s coffers until about 2040, even as the site would require substantial city resources in the interim…

“[We are] outraged that, one year after the world bore witness to the decades of disinvestment in poor neighborhoods and communities of color, city leaders would respond by bending over backwards to back a $535 million playground for the rich,” Charly Carter, the executive director of Maryland Working Families, a progressive political advocacy group, says. “This is the new Jim Crow—black and brown families subsidizing wealthy developers while our own neighborhoods crumble.”…

The campaign to remake Port Covington has been aggressive and well-funded. Sagamore has already spent hundreds of thousands of dollars on marketing the development to the public, and its forceful slogan—“#WeWill build it”—suggests that the project is a fait accompli.

Which isn’t far off the mark. The Baltimore Development Corp., a public-private agency, approved Plank’s $535 million TIF request in March, and the city’s Board of Finance backed it in April. Now all it needs is the Baltimore City Council’s final approval, which could come as early as August. Activists have urged the council to postpone its vote to give the public more time to comb through the 545-page proposal. But according to Councilman Carl Stokes, who heads the body’s economic development committee, Sagamore wants the deal approved by the end of the summer.

This is often how such things are done: a wealthy business leader wants to make more money in real estate development and asks for a tax break from the city or state to help make it more profitable. (There’s nothing in this article to indicate that the Plank has threatened to move to another city.) The big city, often desperate for large projects that supposedly bring lots of jobs but also spruce up areas that few developers would be interested in, doesn’t want to hinder business. The approval is made, the money is diverted, the big development occurs, and the business leaders behind the scenes are the ones who profit the most. This is the essence of the growth machines model in urban sociology and it often involves tax breaks for developers.

What will be interesting to see is if such a project would be voted down or the money significantly cut. Again, most cities are not in the business of angering leaders of big business. But, it isn’t unheard of to negotiate for some changes to the development that might benefit more people or reduce the dependence on public funds.