Texas Debt

When I write "Texas Debt", I don't mean king-sized arrears. The subject matter is what the state owes the Big Bad Federal Government. Via Growthology, the geography of unemployment taxes tells a fascinating tale:

Texas is one of the hard-hit states. Though its unemployment rate is a relatively low 8.3%, jobless claims have soared. In December, Texas paid 330,000 residents a total of $325.7 million, up from 228,000 people claiming $216.8 million a year earlier.

The state began borrowing from the feds in July to pay unemployment benefits and now owes Washington $1.6 billion, said Ann Hatchitt, spokeswoman for the Texas Workforce Commission.

So employers in the Lone Star State will have to pay at least $64.80 in tax per worker this year, up from $23.40 a year ago. This is the highest rate in 20 years.

Even the Texas Boom needs public support. My money must underwrite Lone Star State excesses. Call it a sprawl subsidy.

I kid. I haven't crunched the numbers. The unemployment tax problem looks like a bet on in-migration. There is also some shell game economics at work. Texas politicians are begging the Socialists in DC for money to save their jobs.

Tax Cut Boondoggles

Pittsburgh has had its share of boondoggles. We could debate which projects qualify. Anyone want to argue that Pittsburgh is boondoggle free? From boomtown to backwater, there are many monuments to government waste. No state is immune.

I want to expand our understanding of boondoggle to include tax cuts and other forms of paring government revenue. Pay no attention to libertarian orthodoxy. Not all tax cuts are created equal. Some are bad. I doubt Sarah Palin has enough room on her hand to cover all the nuances.

A blog post titled "Can Sports Save a City?" references a 2002 Chris Briem article about Pittsburgh's debt woes:

Clearly the city has been unable to pay for just its annual operating costs from concurrent tax revenues for most of the last decade. Many believe that the city's structural deficit can be traced to the 11/4 percentage point decrease in the city's wage tax in 1988. Supporters and opponents of that tax cut debate whether it was prudent given the fiscal realities of the city at the time. Both sides forget the intended purpose of that tax cut.

Going back to the Caliguiri administration, if not much farther, there was a clear concern with the out-migration of city residents to other parts of the country and suburbs within the metropolitan region. The future of the city seemed to be tied directly to a decrease in the wage tax and the retention of younger workers that are most affected by it.

The proposal put forth by the Masloff administration never was intended as a unilateral lowering of the wage tax but a more comprehensive tax-neutral program that included a complementary increase in property taxes. It was only at the last minute that the wage tax reduction was approved but follow-up legislation to increase the property tax was defeated. A fundamental error was not the tax reduction itself but the selective implementation of the mayor's original proposal.

It is ironic that what was thought of as a key policy to keep people from leaving the city — shifting taxes from wages to property values — is now the opposite of most tax reform proposals. The lack of a clear answer about what version of tax reform is best highlights the difficulty of sustainable urban public finances for Pittsburgh and other cities.

What may be surprising is that local police and fire department expenses per capita for Pittsburgh are not terribly out of line with other similar cities around the country. But the revenue to pay for those and other services is clearly lacking. And for Pittsburgh a key dilemma is how to deal with a legacy of debt incurred from a population that, for the most part, has retired or left for elsewhere in the state or farther.

I'll summarize. A tax cut was proposed to plug the brain drain. In 1988. How's that taxy slashy treatin' you, Pittsburgh? The supposed relationship between migration and taxes is retarded.*

*That's satire.

Actuaries Of Migration

Residents are fleeing Long Island. At least, that's the hype. Every community has a unique out-migration profile. General trends might apply to a large number of places (e.g. relocation from Rust Belt to Sun Belt). A finer look reveals the power of path dependency:

Lore has it, as Ellie Toczek tells the story, a friend of a friend moved a long time ago to The Villages. The friends from the Long Island community of Smithtown, N.Y., found The Villages so appealing they became the catalyst for what’s become an ongoing exodus from Suffolk County that included folks like Ellie and her husband Steve.

While Ellie laughed as she told the story, this tale revealed considerable insight about migration trends into The Villages, recently released Internal Revenue Service data showed. ...

... Then there are stories that involve folks like Ellie and her husband.

About two years ago, their son-in-law Michael Butt heard about a teaching opportunity with The Villages Charter School, Ellie said. The opportunity made sense to Michael and his wife Jessica since his parents Warren and Linda Butt lived in the Village of Lynnhaven.

Consequently, Ellie and Steven decided they wanted to be closer to their daughter and her family.

“We just followed the grandchildren,” Ellie said. “Now we just enjoy our lives tremendously.”

Conversely, cities such as Indianapolis suffer from a dearth of networks pointing people there. I bring up Indy because of the indignities it suffered thanks to the Colts playing in the Super Bowl. Via Aaron Renn's Twitter feed, I followed the bluster that is sometimes called "place smack". From The New Yorker:

And once I got past thinking I had any original thoughts about the irony of two sexagenarians singing about teenage wastelands, I noticed that everyone was caught up in the drama around the fate of New Orleans. It is a great sports story—a team that had never won a Super Bowl, that had been devastated by Hurricane Katrina, makes it to the Super Bowl and faces a quarterback from New Orleans. (On my only trip to Louisiana, back in the early nineties, I went out with some high-school teachers on a Friday night, and we stopped by the football game; Peyton Manning was running the offense.) But as a lifelong New Yorker working to overcome his Saul Steinbergian perspective on the universe, I wondered: But what about Indianapolis? What about its sense of place?

For help, I called my former colleague, Matt Dellinger, a proud Indianapolan based in Brooklyn. I expected a defense of the city, but at first he rattled off the nicknames used to belittle it: Indianoplace, Naptown. “We don’t have the same kind of—we did steal the team, after all,” he told me. I told Matt that if he—a writer working on a book about a highway running through Indiana—couldn’t suggest a narrative other than the void, I didn’t know who could, and he replied, “The pleasures of Indianapolis, and Indiana in general, are more subtle than your average news organization can figure out in a day.”

No one is going to move to the void, even if the taxes are low. I'm not disparaging Indianoplace. I empathize. After all, I celebrate Shittsburgh daily. Most of the Rust Belt is nowhere, which is why in-migration tends to be so anemic. If you are looking to poach talent, then best to look in other shrinking cities.

One of these days I need to do some research and figure out if scholars have studied chain migration for boomtowns in the United States. The modeling of this pattern might help regions figure out better strategies for attracting talent. How do you lure a person to a place he or she doesn't know?

Actuaries might have a working answer. Statistical technologies allow a person from far away to assess risk. You needn't know a person to functionally evaluate them. For example, an article about figuring out who might strategically default on their home loans:

On Monday, Loan Value Group L.L.C. of Rumson, N.J., introduced a program that it offers to lenders and mortgage servicers who want to identify borrowers most likely to engage in what’s come to be known as a “strategic default.” Once those lenders find the likely candidates, they can approach them pre-emptively with an offer of money that they would get later if they satisfy the terms of their loans.

To identify those borrowers most likely to strategically default, Loan Value Group analyzes loans using about a dozen criteria. These include negative equity level (say a loan-to-home-value ratio of 115 or higher), income level and geographic location. Then, it uses similar criteria and behavioral economic theory to determine the necessary reward amounts for such borrowers.

In the case of talent attraction, the trick is to identify those who are most likely to move to your Rust Belt city. The next step is to incentivize ("necessary reward") the relocation. Successful poaching builds up trust equity in a target locale (i.e. sending region) and the migration pathway is established. Bringing it back to finance, you hear from a friend about someone who was offered money to stick with a mortgage. You approach your own lender about the program as an alternative to walking away from your home.

The analogy is crude, but I think that's how Indianoplace could get on the map for outsiders. You have to do more than make a cool city. You have to get the word out effectively. Please see The Villages and Suffolk County, New York.

Lone Star State Exodus

There is something rotten in Texas. The state's disdain for education is driving out brains at an alarming rate. The disturbing news:

Texas has 8 percent of the U.S. population but only receives 5 percent of federal research and development (R&D) funding and 5 percent of the nation’s venture capital investment. If Texas received just its population-based share (8 percent), that would mean an incremental $3.7 billion in R&D funding to the state. Additionally, Texas is currently a net exporter of high school graduates who attend doctoral-granting universities in other states. The state currently is experiencing a net loss or brain drain of nearly 6,000 highly qualified students per year and this number has increased by 54 percent in the last six years. Texas must develop more National Research Universities to remain competitive.

Under-appreciated native talent is finding the grass greener far from home given the lack of investment in human capital. Those who know Texas best are anxious to leave. Texas Tech is hoping to arrest this crisis, aspiring to be just the fourth Tier One university in the state (which would tie it with much smaller Pennsylvania).

The poor research climate is a major economic handicap. Much more public money is needed in order for Texas to compete nationally and globally. Low taxes significantly impede innovation, fueling the brain exodus.

2009 US Domestic Migration

The big story for 2009 migration was the decline of geographic mobility. Immigration should dominate the 2010 headlines. The Associated Press is offering its own analysis of US domestic migration and published some interesting results:

"People who move tend to be younger and have lower incomes," said demographer William Frey of the Brookings Institution. "Normally, if there is a big influx of young people, that could pull down the income of an area and if there is a big outflux of young people that can raise income in an area."

That appears to have happened in Collier County, Fla., which lost households to larger Florida communities such as Fort Myers and Miami as construction jobs and tourism jobs faded away in 2007 and 2008. But Collier County gained $729 million in total income from new, wealthier residents moving from suburban Detroit, Chicago, Minneapolis and Long Island.

The same thing happened at the state level. Florida, New Hampshire and Vermont lost households but gained income.

Both Florida and Vermont got income boosts from New York and New Jersey, just as Florida lost households to Georgia, and Vermont lost residents to North Carolina.

New Hampshire got an income boost from Massachusetts as it lost households to Florida.

The reverse was true for a handful of states. Iowa, Missouri, Louisiana, Virginia and West Virginia gained population but lost income from 2007 to 2008, indicating that wealthier residents left and poorer ones moved in.

I note a shift in focus from quantity to quality of migration. In terms of policy, the additional variable is welcome news. Shrinking cities (e.g. Pittsburgh) that are gaining income and raising educational attainment of the population often fly under the radar. Actual brain gain remains hidden from view.

Apropos of the financial crisis, the additional numbers can reveal migration bubbles (i.e. gains in households, decreasing income). Not all migration gains are equal:

"It's an interesting time right now because we're gaining population," said LSU sociologist Tony Blanchard. "However you have to look under the numbers and temper the excitement some because ... while we're gaining people in terms of bodies ... the average education of the population through this net migration is going down."

Population is going up along with the brain drain. The simple net-migration narrative completely misses this important piece of economic development. Such data do more to obfuscate than illuminate. I should take my own advice. The situation in Florida isn't as bad I thought it was. More brain drain hysteria and I swallowed it whole.

Rust Belt Economic Geography

Just how much has Pittsburgh divested itself from steel? Albeit state-level data, I see an important redevelopment undercurrent:

In the United States, the biggest steel-producing states include Indiana, Ohio, Arkansas, Alabama, North Carolina, South Carolina and Texas, according to the United States Steel Manufacturers Association. And Pennsylvania remains a maker of steel, though at nothing near the level it was in Andrew Carnegie’s day.

The Pittsburgh Steelers are an anachronism. Yet, king steel remains entrenched in the Mahoning Valley in Ohio. The stunning contrast in economic fortune is wrapped up in the story of clinging too strongly to a community's past.

I'm still thinking about Chicago versus Pittsburgh. Like the Sun Belt (with the notable exceptions of southern industrial cities), Chicago rode the wave of in-migration. Increases in educational attainment and (by extension) income per capita are the result of talent attraction. Nowhere is that dynamic more apparent than Florida:

Business leaders said keeping university graduates in the state could help build the high-tech, high-wage economy Florida desperately needs.

"Today's students are tomorrow's business leaders in the state,” said Gabe Sheheane from the Florida Chamber of Commerce. “We need to remember that. The business community is behind that, to make sure that we provide the type of workforce that businesses need and make them want to come and locate in Florida."

The rush to the Sunshine State has abated, for now. The Florida exodus has been in place for awhile. The same is true where I live, Colorado. As long as people continue to move here, brain drain isn't a problem. A travel section article in the New York Times about Santa Fe is another example:

Countless people have followed that archetypal ramp into a new life. Santa Fe still holds out a promise of renewal, of exactly what Lawrence was looking for when he came to this area: a place that could change not only one’s external life but also one’s inner, spiritual life. “Touch the country,” he said of New Mexico, “and you will never be the same again.”

What is Santa Fe? A place of healing, since the tuberculosis sufferers started coming over a century ago. A spiritual mini-mecca for a semi-godless age. A sumptuous adobe haven for a few super-rich. A land of hope for thousands of illegal immigrants. A hothouse of talent and IQ, with an extraordinary concentration of Ph.D.’s, and more artists than any American city its size. (According to one report, 39 percent of the city’s economy is generated by the arts and culture.) On and on the list goes. It’s a city of trade and exchange, of markets, built at the crossroads of the old Camino Real and the Santa Fe Trail. Wealthy people fly here from New York to buy their Asian rugs, and opera lovers flock here in summer for the justifiably world-famous open-air productions at the Santa Fe Opera.

Rest assured, most of those Ph.D.'s aren't New Mexico natives. As for Pittsburgh, it built up human capital without a "promise of renewal" that defines the global Santa Fe beacon. Now would be a good time to remind my readers of some analysis from Federal Reserve Bank of Chicago concerning growth in the Great Lakes megaregion:

In considering educational attainment of the populations, the [table below] displays the ranks of Great Lakes metropolitan areas among 118 metropolitan areas in 1970 and 2006. The two local leaders in 1970 college attainment, Columbus, Ohio, and the Twin Cities also experienced the fastest employment growth. While Pittsburgh ranked low in college attainment in 1970, its gains in this metric since then have been the most rapid. Perhaps not accidentally, Pittsburgh’s growth in per capita income also outpaced other cities in the region.

Pittsburgh's talent dividend gains out-pace every city in this cohort, including Chicago. This growth couldn't be more organic. In-migration had almost nothing to with it. We could look at the success from a variety of angles. I'm still trying to think through all the implications. The talent dividend has been both a boon and a curse.

With such a formidable base of local talent production, imagine if Pittsburgh unleashed global ambitions as Chicago did. The region is undervalued and, given the dramatic rise in educational attainment, under-performing. I think the reason for this is the dominant image of steel. I'd bet most people who read the article about the global steel industry were surprised that Pennsylvania was not among the biggest producing states. The stereotype of a place is very powerful and can impede (or enhance) talent attraction.

Rust Belt Chic: Soup Sega

To me, Pittsburgh cuisine is exotic. The first thing that comes to my mind is Eastern European food served up at a local church during a festival celebrating national heritage. In this Sunday's Washington Post, you can find some of that magic:

A recent 10-degree morning is "a good soup day!" says Pat Penka French, ushering a visitor into the humid, fragrant kitchen of the Bulgarian Macedonian National Educational & Cultural Center. The epic wedding scene from "The Deer Hunter" could as well have been filmed in the society's West Homestead brick headquarters, a throwback to the days when immigrant steelworkers founded ethnic social clubs.

The country's oldest Bulgarian organization, the center now sustains itself financially with soup. Its popular Soup Sega -- "soup now" -- is a weekly sale of such specialties as gyuvech (stew) and banitza (feta-filled strudel). The northern Bulgarian spicy tomato soup floats a raft of tiny dill dumplings, while the spinach-and-rice variety, finished with lemon and egg, is French's family recipe from central Bulgaria. "We've had visitors from 44 states and 25 countries," says the State Department interpreter and president of the center. "The soup has opened doors."

Directing the weekly volunteer cooking session is red-haired Angel Roy. Drawn to the center by childhood folk-dance lessons rather than Balkan heritage, she now directs the action while her 9-month-old son, Calder, is coddled by aproned admirers. "I love the camaraderie in the kitchen," she says, "and the motherly advice." Her ingredients stay true to Southeastern European tastes: She uses Bulgarian feta, less salty than that of its neighbors, with dashes of mint and paprika.

I think the described creature comforts would appeal to Gen Y cosmopolites. Rust Belt Chic is the never ending search for authenticity of place. In cities such as Buffalo, thy cup runneth over. It's not for everyone, but I sense a recycling of interest in blue collar culture.

The current globalization hangover might have something to do with the trend. The backlash against suburbia also helps. This is a nationally scaled gentrification project and I can imagine a day in the near future when people lament the increasing rarity of soup sega. The golden age is now.

Wall Street Journal Prints Lies

The New York Post screams, "Exodu$$$! Wealthy flee NJ". Another headline exclaims, "TAXES DRIVE OUT WEALTH". The reputable Wall Street Journal offers this summary:

As states suffer budget shortfalls and move to increase taxes, a study by Boston College’s Center on Wealth and Philanthropy shows how that can cause wealthy families and businesses to flee elsewhere.

That’s just what happened in New Jersey, the center’s study found. It said the flight of wealthy families deprived the Garden State of $70 billion dollars in wealth and some $1.1 billion in expected charitable giving from 2004 through 2008.

To be quite frank, the WSJ journalist (Shelly Banjo) is lying. The report says nothing of the sort:

As context for this section, we have previously concluded that New Jersey is losing wealth and charitable capacity for giving more because of a decline in wealthy households moving to New Jersey in recent years than from wealthy households leaving New Jersey. We have also seen that New York is a major source of households migrating to New Jersey. In the prior section we found that the wealth of households leaving New York decreased substantially in recent years. In this section we examine how many of these households moved to New Jersey as opposed to Connecticut or someplace else.

This is the problem with net migration data. Net out-migration is shorthand for "exodus". For that matter, so is "population decline". The Boston College study is full of useful information that could help inform better policy. Instead, the Wall Street Journal distorts the facts in order to support its own viewpoint.

For the record, I think tax cuts are usually a good idea. But I can explain my position without resorting to misrepresenting research. Also, good newspapers can and will provide an honest summary of the findings:

While the entire Northeast has seen an outmigration of millionaires, New Jersey has seen a disproportionate amount, with fewer moving in to replace them, the study said. The people arriving are younger and less educated than those moving out.

The number of wealthy households moving to New Jersey from Pennsylvania between 2004 and 2008 dropped 45 percent. From New York, the number dropped by half.

I used to subscribe to the Wall Street Journal and recently received a seductive offer to renew. I'm not interested in paying for yellow journalism. I'll stick with the Financial Times.

Zero Gravity Ohio

The high tax bogeyman is back in the Ohio news. The crux of the argument is the same narrative I see recycled across the United States. The misinformation:

In his recent State of the State address, Gov. Ted Strickland announced his plan to spur job growth through a $40 million Energy Gateway Fund focused on developing "green energy" jobs. What both the governor and the state legislature fail to recognize is that the state's tax climate is driving businesses and individuals out of Ohio.

Unequivocally, the author is describing the tax regime as a push factor. If only Ohio were more like Michigan. That's an actual suggestion after detailing the out-migration woes. The opinion piece isn't all bad. I appreciate the regional focus. No sense in repeating the Wendell Cox nonsense about the exodus from overtaxed Rust Belt. However, I suspect parochial competitiveness is the real reason.

A recent quote from the governor of Indiana:

We're as eager as anyone for this recession to be over as anyone is. But in the meantime we're fighting it by out competing other states and welcoming jobs from companies that decide that Indiana gives them a lot better chance to get their money back than Michigan, Ohio, Pennsylvania, or wherever else they are.

Regional cooperation might be at a nadir as the economy begins to recover. Richard Longworth wrote two posts (here and here) about this problem. Protectionist rhetoric is on the rise. I digress. The Tax Foundation is exploiting mega-regional disharmony to push Ohio towards tax reform.

Focus on talent attraction. Taxes aren't the issue. (Via Aaron Renn's Twitter feed) West Michigan has figured that out:

Ann Harten, vice president of human resources and global information systems at Haworth Inc. and facilitator at the Tuesday meeting held at the Haworth headquarters, says that when it comes to recruiting talent, local businesses first compete against the draws of other regions -- not necessarily other companies.

Hot-shot executives who are considering career moves compare metropolitan areas, so they analyze how West Michigan stacks up against such regions as Nashville, Austin and Milwaukee in making their decisions, she says.

When they shared notes with each other, chief information officers and human resources executives at some of West Michigan's largest global companies discovered they were having the same problem with recruiting top-level talent, simply because there was a fuzzy perception of the area. ...

... "A lot of people thought there was nothing in the state except for automotive manufacturing," Stotts says. "There was the perception that the economy was terrible. Anything west of Lansing was thought to be agricultural."

Communities such as Holland, Grand Haven, Muskegon or Grand Rapids were thought to be suburbs of Detroit. "People didn't have any knowledge of any communities in the area. There was a total lack of awareness as a whole. Everybody was facing the same challenges."

The above story tends to get lost in anxiety about brain drain and opens the door for the Tax Foundation to pursue its agenda with a dubious recitation of the facts. If only it were so easy as to simply reduce tax rates. It isn't. But that option is cheaper than place-based strategies that are fundamentally designed to reduce out-migration. The sunk costs represent a redoubtable risk.

Back to the example of Hamilton, Ontario:

Enter Glen Norton, a developer who became the senior business development consultant of Hamilton's downtown renewal division.

Norton and three investors, using only private money, bought the three-storey building that started life in 1887 to house soldiers from the armoury across the street.

"The idea is that creative professionals need a small space and benefit from working in close proximity to each other," Norton said.

"There's that synergy, that sharing of ideas, that energizing each other, that opportunity to do projects together."

Norton and his partners have set out to show one can take an old building in downtown Hamilton, fix it up and repurpose it and it works as a business model.

"We worked backwards to what a traditional developer might have done. We said, 'Let's find an old building and then let's figure out what we can use it for.'"

The ground floor, which includes a magnificent terrazzo floor and 11-foot ceilings, will house a boutique cafe and a gallery. ...

... The second and third floors will contain 20 studios. Half of them have already been snapped up, even though the owners have not spent a cent on advertising. One web designer wants four.

"It's been pure word-of-mouth," Norton said.

That's how shrinking cities will get back on the map. There has to be a buzz from a trusted source. Relocation is risky business, which is why most people don't move very far from their place of current residence. Or, they follow friends/family to a boomtown or struggle to make it in a first class global city. Understanding the rationale behind this migration is critical to economic redevelopment.

Along those lines, I rather like Mike Madison's recommendation to Pittsburgh:

The business community and local government should stop preaching to the local business choir ("Isn't Downtown Such a Wonderful Place?") and make meaningful and public efforts to bring people to the region from outside Pittsburgh. Move here, please! Re-invest in Pittsburgh's sister cities program (here's the list, including what I believe is the newest: Danang). Promote a "sister city of the month" campaign in the region that features business, arts, culture, and citizens of our urban buddies. Study how other post-industrial cities have attracted immigrants in the last 40 years. Bring more fresh eyes and fresh voices to Pittsburgh -- the New Girl herself being Exhibit A of that sort of thing.

The boldfaced sentence is the part I most appreciate. Any "meaningful" effort starts there. That goes for tax reform advocates, as well. Show your readers a working example, "Lower taxes in Michigan plug brain drain!" Good luck with that. As for attracting immigrants, the authors of "Hollowing Out the Middle" claim Iowa's campaign worked. There is a be-careful-what-you-wish-for asterisk in terms of community integration, but the numbers are promising.

With a few exceptions, Rust Belt cities struggle to attract talent. That difficultly takes a back seat to talent retention. I applaud West Michigan's fresh thinking and open inquiry. Ohio could learn a few things from its neighbor to the north. And I'm not talking about tax reform.

TechBelt Tidbit

Sometimes a pithy post can remove the writer's block. Congresswoman Kathy Dahlkemper (her district includes Erie) has expressed interest in the TechBelt Initiative:

As your representative in Congress, I will always advocate for our region’s businesses and industries. We must identify the strengths of our businesses that are already here, helping them grow and create new jobs. Companies like General Electric Transportation represent the foundation of our local economy, and we must continue to do everything we can to ensure their success.

Working with my colleagues, we were able to secure funding for Amtrak expansion, giving GE the chance to bid on 54 new energy efficient locomotives—a significant business opportunity for GE and for the workers in our region.

But our local economy cannot be reliant on one company; we must diversify to grow businesses and job opportunities in various fields. Our community’s farms, manufacturers, technology leaders, retail and commercial services, health care providers, educators, and tourism are all vital to our future. A diversified economy will have the strength and the resilience to help us sustain the natural ebbs and flows of the broader world economy.

That’s why I’ve led the effort to involve the 3rd District in the [TechBelt Initiative], a collaboration between Pennsylvania and Ohio to spur innovation and growth in our regional economy. Through this initiative, we can help make Western Pennsylvania a center of new technology, expanding businesses here and bringing new enterprises to our communities.

TechBelt: 2

Power of 32: 0