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Thursday, Nov 26, 2009
Xavier de Souza Briggs
Angela has covered a number of the most important lessons, saving me the toughest part of this pop quiz. I'd add that while the evidence for luring businesses in with tax incentives is weak, tax credits can be powerful development tools in many other ways. The Low Income Housing Tax Credit, which Angela cites, is a key example. So is the concept of the New Markets Tax Credit, which has a much more limited track record. It provides a "kicker" to encourage private equity investments in development in economically distressed areas, lowering the upfront development costs in ways that really matter. It "softens" risk but doesn't remove it, which is healthy, from a good-government, good-market standpoint. So the main idea is that tax credits belong in the tool kit alongside grants and subsidized loans ("patient" or below-market capital). None is a panacea.
Most of the big lessons from the Empowerment Zones/Enterprise Communities are not about tax credits but about creating a success environment for a wide range of entrepreneurs, coordinating disparate functions in government (left hand/right hand stuff), and not pursuing fads of the hour, such as the idea -- popular in the mid-'90s -- that everyone in inner-city America is dying to be, and can be, a successful entrepreneur. Most low-income folks will get ahead through better jobs and training and by tapping proven supports, such as the Earned Income Tax Credit, not by going into business for themselves (and everyone can think of exceptions to this).
A real Opportunity Zone would target workforce development just as intensively as business development, and we know how to do it right -- the skills development, job matching, transportation and child care and other enablers, etc. The same is true for turning contracting incentives (that focus on who gets selected) into real economic development, where clusters of businesses develop to raise the bar, raise the performance for multiple firms. This helps connect disadvantaged businesses to the wider regional economy. Much was learned about this after the L.A. riots, as businesspeople, researchers, planners and others worked on how to better connect the riot-torn areas to regional economic engines and networks.
Howard Husock
Xavier makes a number of good points, especially regarding workforce development. It's worth considering, however, what is specific about New Orleans that needs to be addressed, in contrast to low-income communities generally. And in creating a "success environment" we should keep in mind that local government plays a number of crucial roles. How difficult and/or how expensive was it to get a building permit in New Orleans? How often was it necesary to pay a bribe to do so? Similarly with business permits: How protracted is the permitting process from time of application to issuance of certificate of occupancy? Is New Orleans zoning appropriate or so draconian that variances and special permits are routinely required? How does the New Orleans tax rate compare to that of neighboring communities? All in all, don't forget local.
Bruce Katz
New Orleans has the opportunity to remake itself as a more competitive, vital and inclusive city. But that will require a much needed course correction on policy and practice. The starting point should be to get housing policy right. New Orleans did not just suffer from "decades of disinvestment"; the city actually suffered from "decades of investment" of the wrong kind. The neighborhoods of New Orleans hardest hit by the hurricane were, in part, "federal enclaves of poverty" -- an almost mini-museum of every federal housing program in play since the 1930s.
The concentration of subsidized housing in a few neighborhoods set off a devastating chain reaction in New Orleans. Over four out of nine poor black residents lived in neighborhoods of high poverty, where the poverty rate exceeded 40 percent. Such neighborhoods exact a huge price on families, consigning them to places where schools don't teach, jobs are scarce and crime takes a huge toll.
In rebuilding New Orleans, it would be tragic to repeat the mistakes of the past on housing. We have at our disposal a multitude of policy tools -- tax credits, vouchers, inclusionary zoning, regulatory reforms -- that can be used to build healthy neighborhoods and, at the same time, improve the lives of low-income families. Everyone involved in the rebuilding effort, particularly the federal and local governments, should adhere to one overriding goal: to create economically integrated "neighborhoods of choice" where families want to live rather than being forced to live. A mix of incomes will set in motion a virtuous cycle of functioning markets, attractive amenities, quality schools and other essentials of community life. The real issue now is not what to do, but who will lead.
Howard Husock
I couldn't agree more with Bruce that the many and various federal housing programs created their own poisonous brew in New Orleans. With that sobering history in mind, however, I cannot be sanguine about the prospects of success for the next version of same (mixed-income housing financed by tax credits, for instance.) We must not rule out the possibility that the problems associated with low-income housing in New Orleans were not owing to a so-called concentration of poverty but to the lack of individual ownership and poor management by either the government or not-for-profit groups. It is quite possible that a neighborhood of striving people of modest means can nonetheless be a good neighborhood, when supported with high-quality public goods (schools, parks, recreation). Large-scale construction of a new and better version of the Southern shotgun house (which, arguably, is what Habitat for Humanity is building), available for fee-simple ownership, strikes me as far better (and more practical) than another round of subsidized housing, even in a new flavor.
Bruce Katz
I think Howard's neighborhood vision is a reasonable one. But the president's urban homesteading initiative, to be frank, is not going to "get us there." The scale of the effort is just too narrow -- given the limited supply of federally owned land in New Orleans, the location of that land, and the need for additional subsidies to support construction and long-term ownership.
So here is another idea. In 2000, the president announced a home ownership tax credit program, modeled after the low-income housing tax credit program. The program, through the syndication of tax credits, could be a very efficient way to raise private equity for the development of large-scale, mixed-income communities of homeowners. The proposal has gained bipartisan support on Capitol Hill, though it has not yet passed the Congress. Why not put the tool to work in New Orleans -- a test pilot for the nation? I guarantee that it would catalyze the engagement of a network of housing practitioners -- builders, financial institutions, nonprofits, architects, homeownership counselors -- who can get the job done. We have the most sophisticated housing finance and development system in the world -- why don't we use it?
Howard Husock
I completely agree that the urban homesteading proposal is thin gruel, something someone came up with to dress up the "HUD homes for sale" advertisements that can be found in every Sunday newspaper. That said, I don't understand the commitment to the mixed-income approach. Where are the middle-class families going to come from? What would motivate their participation? Decent but simple new homes and the chance to own -- or even to rent from a resident owner -- is a far simpler matter and more likely to be sustainable.
Bruce Katz
We should also remember the Government Accountability Office's assessment of the empowerment zone program in 1999, which found that tax incentives were primarily used by large urban businesses, not the small businesses touted by the president in his Sept. 15 address.
Yet the Opportunity Zone idea -- and the whole concept of tax incentives in general -- ignores a central question: What is our collective vision of the New Orleans economy?
Before the hurricanes, New Orleans qualified as a classic low-road economy. Between 1970 and 2000, the share of jobs in the metropolis in manufacturing and transportation declined from 22 percent to 12 percent. Conversely, the service and retail sectors saw their share rise from 38 percent of employment to 52 percent of employment during the same period.
Such economic restructuring is common in the U.S., but it takes on a particular flavor in New Orleans. As everyone knows, New Orleans specializes in tourism-related industries, which generally pay less than the city and regional averages. (New Orleans has not emulated the Las Vegas model of high-road tourism, with decent wages, good benefits and built-in career ladders).
In addition, the metropolitan area does not specialize in the economically dynamic centers of high technology, new industries and innovation; it ranks 38th among the 50 largest U.S. metro areas on the Progressive Policy Institute's New Economy Index. Overall this is a weak market region that has continued to see employment declines in high-wage sectors: oil and gas extraction, chemical manufacturing, the port and related transportation industries, corporate headquarters.
The broad challenge for this region is, in short, to transition to a high-road economy that expands job opportunities for a broad range of the populace.
Opportunity Zones fall far short of the challenge -- and, to be frank, do not seem to even recognize the challenge before the region. Prior experience tells us that they will most likely aid some large businesses (i.e., the gaming sector) that are likely to stay in New Orleans anyway -- without doing much to aid the low-income workforce.
So, what to do?
Some ideas:
The feds, in short, can help New Orleans become a smart region that can better adapt to economic change and restructuring.
