Some More Thoughts on the Economic Revitalization of Small Town Downtowns: Financial Tools

Posted by: N. David Milder, DANTH, Inc. and Andrew Dane, Short Elliott Hendrickson Inc.

Introduction

In April 2013, we published our article, “Some Thoughts on the Economic Revitalization of Small Town Downtowns” (1). We’ve been most pleased by its reception and republication. Since then, we have completed additional projects, gathered more data and visited other revitalized small town downtowns. Consequently, we decided to write a follow-up series of articles to share what we have learned. This is our first in that series. It focuses on an issue that we believe has hindered needlessly far too many small town downtown revitalization efforts: the deep concerns of local leaders that it will be impossible to find the required financial resources. To the contrary, the primary objective of this article is to demonstrate that they can chose from a wide array of financial tools that, across the nation, small downtowns have been using with considerable success.

One Tool Can’t Do It: A Multifaceted Approach to Financing Downtown Revitalization is Required

Different financial tools often are best suited for different types of revitalization projects. Consequently, small communities are most likely to succeed by adopting a multi-tool approach — even at the project level. For example, the development and operation of Mitchell Park in downtown Greenport NY  (population 2,2000) used these financial tools:

Village Funding:

  • The Village spent a total of $4 million of its own money on the $14.9 million project
  • It acquired the site from a bank that had foreclosed on the property, using funds raised from a $1.2 million general obligation bond offering.
  • Park development was also funded with $1.5 million from the Village’s Capital Improvement Fund.

Grant Funding. The Village obtained 25 grants from a wide range of local, state and Federal agencies.

Private Funding:

  • From the estate of Pauline Mitchell for park maintenance.
  • Northrop Grumman Corporation donated a full-sized carrousel.

Park operational costs are largely offset by fees including:

  • Boats docking in the park’s marina.
  • About $200,000 from the carrousel’s 100,000 riders per year.
  • Admissions to the wintertime outdoor skating rink.

 

Figure 1. Carrousel House in Mitchell Park, Greenport, NY

Figure 1. Carrousel House in Mitchell Park, Greenport, NY

The Financial Toolbox for Small Town Downtown Revitalization

The following list of financial tools that small downtowns can use is certainly not exhaustive, but hopefully it still demonstrates their range and their number. However, the availability or utility of some tools will vary by state. For example, tax increment financing (TIF) is not available in all states and the legislation for it varies across the states that do, as does its frequency of use and impacts.

Funding from the municipality. This is essential. The municipality must have skin in the game if it hopes to get grants from other government agencies, foundations or significant investments from the private sector. Municipal funding can be especially important in the initial stages of a revitalization process to get the vitally needed organizational and planning work done.

Municipality-owned assets. Many small towns and villages will have tangible assets that can be used in the revitalization process, most likely parcels of land. These properties might be moribund and underutilized park land that could be transformed into attractive and well-activated public spaces. They also might be downtown properties taken for tax delinquency or gross neglect and decay that a developer might turn into new housing units, offices and/or storefronts for small businesses.

Timing projects to tap annual budgets for more than one year. Sometimes simple steps, such a breaking a project down into phases that then can be affordably funded over several of the municipality’s fiscal years, can be very effective.

Grants from other government agencies and private foundations. This is often the go-to tool for community leaders in the initial stages of a revitalization process. Getting free outside money for your downtown’s revitalization is understandably attractive and its potential benefits are undeniable. However, this tool also can have its drawbacks. For example, pursuit of such grants, can take many months or several years to succeed. Furthermore, grant givers have their own programmatic objectives and ideas about the projects they want their grant recipients to do. That often means that downtown leaders find that there is little grant money available for their high priority projects, but relatively easy money is available for low priority projects. Simply following the available money, in these instances, can distract a revitalization effort. In the worst cases we have observed, a few communities have based their revitalization projects on available grants rather than a sound strategy and implementation plan, with resulting slowed progress. On the other hand, well-conceived revitalization strategies and project plans can substantially increase a proposal’s chances of being funded. They also help prioritize action steps/projects and it is usually a good idea to tie funding efforts to this prioritization.

Contributions from private sector firms: Grants and gifts. For example, the Northrup Grumman Corp donated the carrousel from the company’s former amusement park to the new Mitchell Park in nearby Greenport NY

Individual donations. For example, in Valparaiso IN (population 32,000) half of an estimated $8 million expansion of its downtown Central Park Plaza will be funded by private donations, with $3 million coming from one local family.

Profit/fee-generating projects. Earned income streams can do much to offset the operating costs of parking facilities and public spaces. However, as Andy Manshel has noted about his experience developing them very successfully for NYC’s Bryant Park: ” Creating earned income streams was long process. It took flexibility and patience to create those streams. There were loss leaders to create a profile for the space.” Here are some types of earned income streams:

  • Fees – campgrounds, carousels, skating rinks, marinas, parking garages and lots, on-street parking fees, etc. See description of Mitchell park’s fees above
  • Rents– for: restaurant spaces, food stands and kiosks, shade at a pool, event spaces for birthday and wedding celebrations
  • Sponsorships. They are always easier to get when significant user traffic has been proven or when a potential sponsor is convinced it is highly probable. One interesting example of sponsorship is the I Love Chester Express in Chester, NJ (pop 1,838). The Express is a shuttle that takes shoppers from a nearby rail station to the borough’s main commercial areas. It is sponsored by The Streets of Chester Shopping Center, Alstede Farms and The Historic Chester Business Association
  •  Selling naming rights. This is an increasingly popular subset of sponsorships. An example: Valparaiso’s Central Park Plaza gets $67,500 annually for the naming rights to its amphitheater.
  •  Sales of Downtown Gift Certificates. In Chippewa Falls, WI, these certificates accounting to over $60,000 in downtown spending.
Figure 2. Naming rights utilized in the amphitheater of the Central Park Plaza park in downtown Valparaiso, IN.

Figure 2. Naming rights utilized in the amphitheater of the Central Park Plaza park in downtown Valparaiso, IN.

Tax incentive programs. These come in various forms. Here are some examples:

  • In Sherwood, WI (pop 2,800) a new tax increment financing (TIF) district was created in the downtown in order to receive excess increment from a growing commercial district. The community leaders recognized that stimulating downtown redevelopment would require some public subsidy, so they wanted to have the subsidy tool in place. TIFs basically work by taking the increased real estate taxes on property that result from its redevelopment to pay off the bonds that financed the infrastructure improvements and other incentives needed to make the redevelopment happen.
  • In Pompton Lakes, NJ (population 11,137) a developer will make a payment in lieu of taxes, a PILOT, that reflects a roughly 33% property tax savings on a 55-60 unit downtown residential project.

Historic Preservation Tax Credits. These types of credits can be used in smaller communities as well as larger cities. In Kaukauna, WI (pop. 15,462) the City is working with a developer to convert a former flour and paper mill into a project in the downtown. The City has committed to leasing a portion of the renovated space for its brand new library, effectively helping to subsidize co-located commercial spaces. HPTC will be sold to an investor to cover a portion of development costs.

Low Income Housing Tax Credits. A 40 unit senior housing complex in downtown Chilton, WI (pop. 3,933) benefitted from low income housing tax credits. The 1 and 2 bedroom apartment building is three stories, attractive, and provides a base of close by consumers to patronize downtown shops.

Revenues from special assessment districts, including BIDs, SIDs and MSDs.  For example:

  • Hendersonville NC (population 13,000) used funds raised from a Municipal Service District (MSD) to fund a change in the street pattern on Main Street and to install planters;
  • Mat Airy NC (population 10,000) used MSD funds to improve and maintain downtown off-street parking lots.
  • Sherwood, WI used traffic impacts rather than geography as the basis for specially assessing a quarry outside the downtown area in order to help fund a local road to improve pedestrian conditions downtown.
  • In Chippewa Falls, a BID provides about 36% of the Main Street program’s revenues

Using the assessment revenue stream to back the issuance of bonds and/or to obtain bank loans. Cranford NJ ( population 23,000) used the assessment money raised by  its new SID to issue and pay off $3.5 million worth of bond money that was used on a downtown wide streetscape improvement project

Obtaining loan guarantees from federal and state programs. For example: the BID in Washington Borough, NJ (pop7,000), borrowed money from a nearby community bank to rebuild an important downtown parking lot. The BID obtained a USDA loan guarantee that made the private bank loan possible.

Crowdfunding. This is a young financial tool, enabled by and birthed on the Internet. Its use to finance downtown revitalization projects is even younger, but its growth in the number of users and the range of projects it has been used for has been nothing short of phenomenal. For example, Save Our Screens initiatives across the nation have used crowdfunding to help small movie theaters traverse the digital divide. Pagosa Springs, CO (population 1,727) used crowdfunding to fund construction of an observation deck. Its use for downtown real estate projects is in its infancy and appears to be mostly in larger communities, but that probably will change as the use of this financial tool grows and its full range of applications becomes better known. For example, Craftund.com is a new crowdfunding site established in Wisconsin, which allows local residents and community members to invest in food, drink, and real estate development.

Community Owned Businesses. According to Josh Bloom: “Community-owned businesses differ from traditional businesses in that they are motivated by a purpose. They usually arise to fill a void where the marketplace is too slow to act on its own, or the risks appear too high (think decayed downtown). Founders of community-owned businesses don’t just see an opportunity that the market failed to see, but in times when capital for funding new ideas is scarce, they can give life to new business ideas” (2). They can be cooperatives, a community owned corporation, a small owner group or a community-based investment fund. For example, the nine-member police department in Clare, MI, (pop 3,084) formed a corporation to buy and operate a favorite nearby bakery that was about to close. It was renamed Cops & Doughnuts.

Volunteers. This can be a useful tactic, but the number of volunteers and the quality of their efforts can often be difficult to maintain. The Chippewa Falls Main Street program maintains a roster of 300 volunteers. It uses VolunteerMatch.org to recruit and mobilize volunteers for Earth Day Cleanup events as well as festivals and there is a great response.

Energy Audits. The Chippewa Falls Main Street program partnered with Xcel Energy, which provided energy audits for 56 downtown properties. The audits identified $87,000 in annual energy savings, money which can now go toward strengthening and expanding businesses instead of just keeping the lights on.

Traditional Small Town Fundraising. There is a small town culture of banding together to fund all sorts of projects through raffles, barbeques., car washes, etc. These should not be forgotten, though small towns may need to brand and re-frame downtown projects to fit that model of fundraising.

Conclusions:

Small downtown leaders don’t’ need to be financial innovators in order to come up with an effective financing plan for their revitalization program. Dozens of tools exist and have proven successful in small town downtowns across the nation. However, downtown leaders may need outside help to first identify the tools appropriate for their projects and programs and then to tailor a customized approach that meets the unique needs of their communities.

Of critical importance is having a comprehensive revitalization strategy in place before deciding which tools to use and for what purposes. A real strategy looks at not only market potential for various downtown functions (housing, retail, etc…) but also marketing, organization, and other key factors including land use and transportation.

The revitalization strategy can then be used to guide the selection of a set of appropriate financial tools. Key steps include:

  • Identifying a range of tools appropriate for the job.
  • Figuring out which of the tools are best suited to the projects the downtown’s revitalization strategy recommends, and
  • Properly applying these tools in combination with other sources of funding to best leverage all of the investments. For example, a key to the successful use of most of these downtown revitalization financial tools is the leveraging of public funds to attract private investments.

 

ENDNOTES

  1. For those who missed our first article, go to: https://www.ndavidmilder.com/2013/04/some-thoughts-on-the-economic-revitalization-of-small-town-downtowns.html
  2. Joshua Bloom, “Community-owned Businesses: How Communities Become Entrepreneurs, From Main Street Story of the Week, March/April 2010, http://www.preservationnation.org/main-street/main-street-now/2010/marchapril-/community-owned-businesses.html

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The New Normal’s Challenges to Developing a Downtown Entertainment Niche Based on Formal Entertainments: Part 1

Posted by N. David Milder

Introduction

This is the first part of the third in a series of articles about the “new normal” for our nation’s downtowns. It focuses on the challenges many downtowns — especially those that are not very large — now face when they decide to bolster their central social district functions by creating and/or strengthening their venues for the performing and visual arts, e.g., performing arts centers (PACs), theaters, cinemas, museums, concert halls, museums, art galleries, etc. Part 1 deals with a general introduction of the challenges, a discussion of who can afford formal entertainments, and changes in the ways governments, corporations and foundations are funding arts projects. Part 2 will turn to changes in the ways Americans attend performing arts events and visit visual arts venues. Part 3 will survey a number of formal entertainment venues.

As noted in an earlier article on the new normal for downtown, successful formal entertainment venues undoubtedly can be strong assets for the downtowns in which they are located. However, the success of such venues has long been uncertain and challenged because,  from their get-goes, they are the equivalents of loss leaders for their districts. Most are nonprofit operations that sell tickets  to events/performances or charge visitors admissions fees that seldom cover their full costs. For example, among performing arts centers,, be they large or small, only about 40% of their operating costs usually are covered by performance revenues (1). To survive financially,they must be able to tap a number of “charitable” revenue streams, e.g.,  grants, bequests and other donations from government agencies, corporations, charitable foundations and individuals. This financial dependence makes them vulnerable.  Evidence suggests that recent trends have made their financial success significantly more difficult to achieve. Funding for the arts took a big hit during the Great Recession, with  its full recovery still in doubt, while research studies have consistently shown attendance at performing and visual arts venues  has been changing, in some instances declining significantly for over a decade.

In the performing arts,  the fees of performers — be they individuals or groups — are related to their popularity. The ability of a venue to attract them will depend on its seating capacity and the ticket prices it can command. Consequently, as more communities with comparatively limited market area populations and wealth try to develop such venues, they often find that their smaller potential audience base, seating capacity and financial resources require adjustments of their aspirations and a fine-tuning of their programs. In other instances, formal entertainment facilities have been built that just have too much capacity for their market areas or are weakened by new competing formal entertainment centers within their market areas

The arts as an engine of economic growth and downtown revitalization too often seems to have achieved the exaggerated status of a religious credo among downtown advocates or the unrealistic expectation among some of them of being the “silver bullet” solution path to economic rebirth. While the arts undoubtedly can contribute to economic growth, their ability to do so will depend on arts venues and programs being planned and designed in a manner congruent with local needs, behaviors and resources. This challenge is now made more complicated by the fact that these local needs, behaviors and resources may be subject to substantial change.

Consumer Expenditures for Entertainment Admissions and Fees.

Tickets admission fees are an important revenue source for the organizations that operate formal entertainment venues. The less revenues they realize from tickets and admission fees, the more they must rely on obtaining outside funds from government agencies, corporations, foundations, and individual donors. The fees can vary. For example, the Cincinnati Museum of Art has free admission; the Columbus Museum of Art  charges $12; the Museum of Modern Art in NYC has a $25 fee; the ticket prices for Broadway shows and tickets for concerts by major attractions can reach well over $100 in prime venues.  Obviously, the affordability of these

Entertainment-CEX-2011-qunits

admissions is a function of both their prices and the incomes of those who would purchase them.

Formal entertainment venues that charge relatively high prices are in a sense targeting  more affluent households and a downtown entertainment niche based on a cluster of such venues is likely to be a feature that helps draw affluent households or young people with a lot of discretionary spending power to want to live in or very near to the district. During the 1960s, 70s and 80s attracting such residents was just a long-term goal of many downtowns leaders. Today, in a growing number of downtowns, that goal has been achieved  and they are stronger for it. Sophisticated formal entertainment venues that feature major attractions that have substantial admission fees are probably well suited for such downtowns. But, a lot of downtown users, be they current or potential, are being priced out of using these formal entertainment venues.

The table above shows that nationally, in 2012, 56% of the expenditures for entertainment fees and admissions came from those in the top 20% of the households sorted by annual incomes. The mean annual household income in this quintile was about $167,000.  Those in the top two household income quintiles, with average annual incomes over $75,900, accounted for 77% (56% +21%) of all entertainment fees and admissions.

The general thrust of these findings is not new: the more affluent have long spent more on entertainment, especially the arts. What is new are:

  • The emergence of deliberate consumers  in middle income households who have reduced discretionary incomes and for whom discretionary entertainment expenditures now are a lower priority than in years past (2)
  • The income stagnation and general economic decline of middle income households, a trend that preceded the Great Recession, but recently has become a hot political issue.

NEA--Percent-Adult-attendance

The implications for many downtowns are:

  • More than ever, ventures to establish new formal entertainment venues must be calibrated in their ambitions, designs and costs to the financial resources of local residents that might be tapped through admissions, fees and donations
  • Such ventures are more likely to succeed in communities that have greater residential wealth, especially if capital investments in new buildings,  busy event/performance schedules and pricey admissions fees are involved
  • In smaller and less affluent communities such ventures are very likely to need strong long-term government subventions and grants from corporations, foundations and community organizations. Most downtowns are likely to fall in this category. In these communities, the presence or absence of very broad support among local residents, the business community and elected officials can be the deciding factor in whether this critical external financial support will be obtained. Often such strong support is mobilized around something or someone that is a source of considerable community pride or identity, such as the artist Grant Wood in the Cedar Rapids (IA) Museum of Art and life on the plains and the Oregon Trail in the Legacy of the Plains Museum in Gering NE.
  • Many of the downtowns with weaker financial resources to tap  might do well to consider that many Americans see art exhibitions and attend performing arts events not only in museums, theaters and concert halls, but also in parks or other open air facilities, restaurants, bars, nightclubs, community centers, places of worship, college campuses, etc. (See table above).

 Grants for Arts Nonprofits

Since the onset of the Great Recession, it has become more difficult for arts nonprofits to get the grants they need from public sector agencies, corporations and foundations. An unanswered question is whether this funding trend will turn around as the nation’s economy improves. Downtown leaders considering the development or expansion of formal entertainment venues might benefit from understanding the topography of these new financial support patterns for the arts.

Public-Funding-for-the-Arts-2013

Public Sector Funding.  It is important to understand the magnitude of the public sector’s financial support for the arts. It now only accounts for about 7% of the revenues of arts nonprofits nationally and, adjusted for inflation, between 1992 and 2013 public funding declined by about 30%.  FY2013 was the first fiscal year since FY2008 that aggregate public sector funding for the arts has increased, but it is still far below former high years (3).  The National Endowment for the Arts (NEA) only accounts for about 12% of the public sector funding. Its expenditures are not expected to increase significantly anytime soon.

County and municipal governments account for 63% of the public funding for the arts and they recently have shown signs of increasing their funding levels as their economies improve and the impacts of natural catastrophes (e.g., Hurricane Sandy) abate. However, local governments in more densely populated areas often face a large number of requests for arts funding and that usually results in many relatively small grants.

Corporate Support. Unfortunately, data are  unavailable for small and medium-sized corporations, but the major findings of a recent report by CECP and The Conference Board on giving in 2012 by large corporations are still illuminating (4):  though large corporation giving increased by 42% from 2007 to 2012, funding for the arts decreased by about 40% during that period (5)!

On the hopeful side for a resurgence in corporate arts funding is the fact that giving to the arts remains popular among the corporations; it is the size of their contributions to the arts that have decreased. But, changes in corporate behaviors and preferences suggest that such a resurgence is not likely to happen any time soon:

  • Education and economic development have become much more important funding priorities
  • More corporations want to make in-kind donations and arts organization may find it difficult to benefit from bulk product donations
  • Corporations are increasingly seeing giving as part of their corporate strategy and less as charity
  • Corporations are increasingly reviewing their giving from a return on investment (ROI) perspective and nonprofits often do not know how to provide the needed metrics (6)

Foundations. Since about 81% of America’s larger corporations have foundations and they account for about 35% of their corporations’ total giving, there is some overlap between corporate and foundation funding (7).

In 2011, the last year for which there appears to be available data, there was a familiar pattern: while there was a 25.3% increase over 2010 in overall giving by 419 foundations, the increase for the arts was a marginal 0.5%. Here again, the arts’ share of the number of grants remained unchanged (8). However, a “larger share of arts grant dollars provided operating support than most other fields” (9).

 Endnotes

1. Harac Consulting, “Evaluation of SOPAC.” October 2011, p.3. http://southorange.org/SOPAC-finalPDF.pdf

2. See: https://www.ndavidmilder.com/downtown-revitalization/the-deliberate-consumer

3. Ryan Stubbs “Public Funding for the Arts: 2013 Update,” GIA Reader, Vol 24, No 3 (Fall 2013): http://www.giarts.org/article/public-funding-arts-2013-update

4. CECP and The Conference Board, “Giving in Numbers: 2013 Edition.”

5. Ibid, page 20.

6. See:ARTSblog » Blog Archive » Michael Stroik. “Corporate Funding Came Back After the Recession, But Did it Leave the Arts Behind”_ (from The pARTnership Movement, an initiative of Americans for the Arts) posted Oct 4, 2013 and ARTSblog>> Judy Belk, “As Corporate Giving Bounces Back, Six Things Nonprofits Need to Know,” posted December 13, 2013.

7. See endnote 4, page 5.

8. Steven Lawrence and Reina Mukai, “Foundation Grants to Arts and Culture, 2011 A One-year Snapshot,” Foundation Center, GIA Reader, Vol 24, No 3 (Fall 2013), http://www.giarts.org/article/foundation-grants-arts-and-culture-2011

9. Ibid.

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So…Surprise! You have a lot of suburban creatives…

Posted by N. David Milder

Introduction. Within the economic development community considerable attention has been focused on young, hip knowledge workers and artists. These young hipsters are part of what Richard Florida has termed the Creative Class. Nationally, they have been drawn in recent years to very dense urban areas that they have helped revitalize, from both residential and business perspectives. It is for these reasons that many economic development organization (EDO) leaders have based their revitalization strategies and business marketing programs on the attraction and growth of these “young creatives.”

However, Florida’s definition of the creative class is in terms of occupations, not age. The occupations Florida uses to define the creative class are from the Standard Occupational Classification (SOC):

  •  Super Creative Core: Computer & mathematical; life, physical & social science; architecture and engineering; education, training and library; arts, design, entertainment, sports, media
  •  Creative Professionals: Management occupations; business & financial operations; legal; healthcare practitioners & techs; high-end sales & sales management

chart

Going unnoticed –as is probably the case in many of our nation’s large metro areas – is the fact that the heavily suburban counties in Northern NJ also have a lot of workers in these creative class occupations. For example, in 2010, Bergen County had 148,150; Middlesex 141,550; Mercer 112,050; Monmouth 86,350; Somerset 74,600 and Morris 103,500 (see table above). Importantly, many creatives also live in these counties: e.g., in 20011 the numbers of resident creatives were: Bergen 196,892, Middlesex 163,910, Mercer 74,541, Monmouth 125,545, Somerset 80,624 and Morris 120,035. As a result of career stages and geographic location, these “suburban creatives” are older, more likely to have families, have higher earnings and higher net worths, and live in single-family homes than the urban hipsters. Moreover, the suburban creatives are equally, if not more, creative and entrepreneurial. Significantly, they do not have to be attracted to these counties — they are already there. They account for a significant part of the healthy and very desirable residential areas in these counties. Also, the downtowns in these counties that have been able to respond to the suburban creatives’ lifestyles and spending patterns have had successful revitalizations: e.g., Englewood, Red Bank, Ridgewood, Westfield, Morristown, etc.

The presence of the creatives means greater job growth. DANTH’s analysis shows that in the 14 Northern NJ counties that Regional Plan Association includes in the NJ-NY-CT Metropolitan Region, there is a correlation of .81 between the number of creatives in a county’s workforce and the number of new jobs projected between 2010 to 2020 by the state’s Dept. of Labor; the correlation between creatives who live in the counties and their job growth was .92. Looking just at the eight heavily suburban counties of Bergen, Passaic, Middlesex, Mercer, Monmouth, Somerset, Morris and Ocean the respective correlations are .84 and .93. In the 14 counties, there is a strong association, .91,  between the number of creatives who live in a county and the number of creatives who are in a county’s workforce.

Economic Strategy and Program Implications. Many EDOs in Northern NJ, be they EDCs, SIDs or municipal or county departments, may want to alter their strategic thinking, marketing and recruitment programs to better leverage their considerable creative manpower assets.

Because economic development in these counties is heavily viewed through retail and office development lenses, one area in which these assets have been minimally leveraged by EDOs is the creation and growth of small businesses operated by creatives. DANTH’s trends analysis suggests that the creatives can be expected to be increasingly entrepreneurial in coming years:

  • Nationally, the workforce is becoming increasingly composed of “contingent” workers, often creative freelancers. One estimate, by Intuit, sees as much as 40% of 2020’s workforce being contingent. Many young creatives have long followed the freelancer path at the beginning of their careers. Older creatives, who are either laid off or seeking career changes, have also followed this path later in their careers. We can expect more of them to do so in the future.
  • Many boomers are changing their careers as they enter the pre-retirement 55-64 age group, which has a high rate of entrepreneurialism compared to other age groups
  • Retired boomers are increasingly starting new careers because they still want to be active and/or they need the income.

The young creatives and their more mature colleagues bring different asset and need sets to starting a business in terms of training, experience, the size and reach of their professional social networks, and their financial resources. Nevertheless, both groups will:

  • Most probably be inexperienced as entrepreneurs and may need to acquire skills in marketing, bookkeeping, business planning, etc.
  • Need to raise capital (mostly new firms with employees)
  • Possibly need to hire employees (the non-freelancers)
  • Need attractive and convenient places to meet and exchange ideas with other new entrepreneurs and potential clients/customers
  • Need commercial spaces for their new businesses (the non-home office operations)
  • Prefer business locations where these needs can be maximized, especially those that are really easy to get to on foot or by car, bus or rail.

The range and depth of these needs will differ mostly not by age, but, as indicated above, between those who are freelancers with no employees and those who are creating firms, usually incorporated, with employees.

Given the relative dispersion in the suburban counties, their stronger downtowns, often their county seats, (e.g., Freehold, Morristown, Somerville, New Brunswick) may be the best geographic locations for meeting these needs. Their existing economic agglomeration offers a density of businesses, government offices, commercial spaces, professional and financial services, restaurants, coffee houses and watering holes in a reasonably walkable area. But, to meet the most pressing needs of the new and budding entrepreneurs, these downtowns may have to develop a more specialized “entrepreneurial infrastructure.” By doing so, the downtown itself becomes a kind of informal incubator/accelerator. Some possible components of such an infrastructure are:

  • A cadre of technical assistance/entrepreneurship advisors available at nearby colleges and universities or at a SBA Small Business Development Center or at local business consulting firms or through organizations such as SCORE. Helpful would be a mechanism to easily link the entrepreneurs to the types of advisors they need
  • Besides commercial banks, SBA, and personal investors, these new and developing companies would benefit from having access to other sources of capital such as angel investors, venture capitalists and crowdfunding. Here again, a mechanism to help link the entrepreneurs to these various types of investors would be helpful
  • Coworker spaces are finding increasing acceptance across the nation. They can be used by freelancers, new companies or small existing companies. They can function as a kind of “business incubator lite” or provide some business acceleration functions for older firms
  • A full blown business incubator and/or a business accelerator
  • A variety of relatively small and affordable spaces for a) freelancers who do not want to work at home or in a coworker space and b) firms that either are too large for or also do not want to be in a coworker space. These spaces can be in the downtown or elsewhere within a reasonable drive of the downtown
  • A mechanism to help link freelancers to project opportunities and where they can get things like health insurance
  • A permissions and approvals process that is truly timely and affordable for new firms be they startups or new move-ins. Most jurisdictions that think they have a good process upon close inspection are shown to need significant improvements.

(Note: this list is not meant to be exhaustive, but suggestive.)

Some of these components or parts of them may already exist in and near the downtown. Others will have to be created whole or in part.

Some pilot organization is needed to:

  • Design the downtown’s entrepreneurial infrastructure in terms of its components. This effort should bring into play the major local government agencies having economic development responsibilities, relevant EDCs and any downtown SIDS/BIDs. Most importantly it also should bring to the table major landlords and experienced businesspeople who live and/or work in the county, especially those who are experienced business investors or well networked with those who are
  • Create an implementation plan that would cover how it would be financed and who would do what
  • Create an organization to manage this infrastructure or designate an existing organization to do so.

Downtown and County Benefits. Some potential benefits of such a program are:
For a downtown:

  • Better business retention through the strengthening of some of its small businesses: helping some survive and others to grow in the downtown.
  • A stronger cadre of freelancers with an increased ability to afford needed downtown goods, services and amenities
  • Significantly more small businesses wanting to locate in the downtown
  • Significantly more small businesses wanting to use the downtown’s goods, services and amenities
  • The development of an image of the downtown as a very business friendly place that is exciting because it is savvy about what small firms need to grow and succeed — and it provides those things
  • The consequent greater attractiveness of the downtown as a business location to other and even larger firms, with associated impacts on commercial rents, the assessed values of commercial buildings, property taxes, jobs, etc.

For its county:

  • A program to help increase the success rate of the county’s growing number of county residents who become new entrepreneurs, be they freelancers or incorporated
  • A program to help more of the county’s existing small businesses to grow, with commensurate job growth and need for additional commercial spaces
  • A program that will spawn new firms with new jobs and a need for additional spaces
  • The ability to develop a business marketing program that puts the “creatives” spin on the county’s skilled workforce and leverages its small business development advantages to attract older and more substantial firms.

So You Don’t Have a Lot of Hip Young Professionals…

Posted by N. David Milder

Introduction

For over a decade Richard Florida and Joel Kotkin have dueled over the proper way to analyze regional economic growth and their conflicting political and urban/ suburban preferences. They do agree, however, on one very basic and critical point: in today’s world, economic growth is very dependent on knowledge and geographically will tend to flow to areas where the knowledge workers cluster. (1)

Unfortunately, many within the economic development community have come to have a disproportionate amount of focus on and regard for one type of knowledge worker, the young hip urban professional. Too often communities feel unable to secure their economic futures because they have few young hip professionals or are led into futile attempts to attract them. Frequently overlooked are other assets that these young hipster deficient communities do have and that could be leveraged into economic growth.

Attention to young urban professionals within the economic development community predates the Florida-Kotkin “debates,” emerging in the 1980s. Once called “yuppies,” by the 1990s that term had became pejorative and worn out because of the segment’s behaviors and luxurious lifestyle. Later, around 2000, Richard Florida came along with his creative class theory that helped refocus attention on young knowledge workers and artists whose presence and behaviors shaped the hip, open-minded and welcoming urban communities that are conducive to growing creative class clusters. (2) About the same time downtown real estate developers and retailers had discovered the economic clout of these young well-educated urbanites, whom some referred to revealingly as “walking wallets.” Some developers of downtown residential buildings even had them specifically designed to suit this market segment in terms of apartment layouts, amenities and leasing policies. (3)

Googling “the importance of hip young professionals in economic development” brings up a host of articles that proclaim the economic significance of having a throng of young professionals in your community. For example, an article in the Richmond Times Dispatch stated:

“Based on lessons learned from “urban hub dynamics,” the long-term economic prosperity of metropolitan areas will be based, in part, on how quickly a region can become recognized as one of these preferred places for young professionals to live and work today.” (4)

However, there has been a well-known unevenness in the ability of metro areas to grow and/or attract young, hip knowledge workers. Consequently, many cities that did not have a lot of young professionals or that were losing them to hipper cities, have taken on action programs specifically aimed at wooing them, e.g., Cincinnati, Pittsburgh, Richmond, Memphis, Tampa, Indianapolis, Baton Rouge, St. Louis, Milwaukee, Tallahassee, and Fresno. (5).

Even within young professional rich metro areas, the geographic distribution of the young professionals usually is lopsided, taking on a split that leaves the suburbs well behind the urban cores. Does that mean that these suburban communities and their downtowns are doomed economically because of their young professionals deficits?  For them to try to replicate big city hip neighborhoods on a much smaller scale in and around their downtown areas may be an appealing strategy, though one of often questionable viability. Consider Richard Florida’s explanation of why young professionals are drawn to urban locations:

“Urban living provides them with thicker job and dating markets, opportunities to share rent with roommates, and plenty of things to do in their off hours, from bar-hopping to attending graduate school.” (6)

Suburban communities that want to erase a young professionals deficit need to have sufficient and appropriate “thicknesses” and should ask:

  • Are they basically bedroom communities with a supportive downtown or are their downtowns regional commercial centers?
  • Can they generate enough knowledge worker employment opportunities nearby?
  • Can they provide a density of entertainment/leisure activity options that approaches those of large urban neighborhoods?
  • Can they reach a young professional critical population mass that can attract other young professionals?
  • Can they provide affordable and attractive downtown rental housing and will the landlords do leases when roommates are involved?

Perhaps suburban communities and metro areas with young professional deficits should have a more realistic perspective on the economic advantages of young professional populations and then take an in-depth look at other assets that they do have for leveraging economic growth.

Putting Young Professionals in Perspective as Economic Growth Assets  

Discussions of young professionals often conjure up images of brilliant young entrepreneurs such as Bill Gates, Steve Jobs, Larry Page, Sergey Brin and Mark Zuckerberg, who in their 20s founded huge high technology companies in a garage, a dorm room or a makeshift office. (7) These young business titans seem to demonstrate the superior entrepreneurship, high tech know-how and inventiveness of young professionals, an image that is also reinforced by reports of slower adoption of digital technologies by older age cohorts. (8)

Entrepreneurship. Some very credible research done for the Kauffman Foundation clearly shows that people in the 20-34 age group are not the most entrepreneurial, but the least. For example, a 2009 report by Dane Stangler found that:

 “Contrary to popularly held assumptions, it turns out that over the past decade or so, the highest rate of entrepreneurial activity belongs to the 55-64 age group. The 20-34 age bracket, meanwhile, which we usually identify with swashbuckling and risk-taking youth (think Facebook and Google), has the lowest rate. Perhaps most surprising, this disparity occurred during the eleven years surrounding the dot-com boom—when the young entrepreneurial upstart became a cultural icon.” (9)

 Furthermore, another Kauffman study by Robert Fairlee published in 2011 found that between1996 and 2010 the 20-34 age group’s proportion of new entrepreneurs dropped from 35% to 26%, while the 55-64 age group’s proportion rose from 14% to 23% (10)
Freelancers are self-employed, not committed long-term to a client or employer and usually not incorporated. They can be in a wide range of industries and occupations. In many of our urban creative clusters, “creative freelancing” also is a growing trend. For example:

“In a 2005 report, the Center for an Urban Future estimated that 22,000 “creative freelancers”—writers, artists, architects, producers, and interior, industrial, and graphic designers—lived in Brooklyn, an increase of more than 33 percent since 2000. The Brooklyn Economic Development Corporation has dubbed the area from Red Hook to Greenpoint the “Creative Crescent.” (11)

Many of these freelancers are Millennials, i.e., people born between 1977 and 1993. The online freelancer job mart oDesk (sic) had a survey done of “independent workers (freelancers) worldwide who had been active on odesk within 180days.” Unfortunately, no data was provided on how many respondents were from the USA, but, given that oDesk is based in CA and the website operates in English, one might reasonably presume that most respondents were American. Almost 2,000 of the freelancer respondents were Millennials and their views about entrepreneurship are revealing. They are certainly enthused by entrepreneurship though their understanding of the concept is rather untraditional: it is divorced from the notion of starting a business. As Rieva Lesonsky summarized their views:

  • For 90 percent of Millennials surveyed, being an entrepreneur means having a certain mindset, rather than starting a company.”
  • “Aspects of this mindset mentioned included being a self-starter, risk-taker, visionary and someone who ‘spots opportunity.’ ”
  • “Millennials see themselves as building entrepreneurial careers whether they work for someone else or freelance – they don’t necessarily have to start their own businesses.” (12)

In this respect, the Millennials’ “new entrepreneurship,” in both attitude and deed, may help channel them to corporate careers since it is exactly what corporations now are looking for in new hires. According to Eleonora Sharef of Hireart.com:

 “The most successful job candidates… are ‘inventors and solution-finders,’ who are relentlessly ‘entrepreneurial’ because they understand that many employers today don’t care about your résumé, degree or how you got your knowledge, but only what you can do and what you can continuously reinvent yourself to do.” (13)

 Creativeness/Inventiveness. Prima facie, it seems absurd to think that creativity and inventiveness halt completely or significantly after people reach 30 or 35. While there appears to be a lot of conventional wisdom on this subject and a number of opinion-based articles, there are surprisingly few rigorous studies. Also, the linguistic boundaries between being creative and being inventive or innovative are unclear, which makes analysis difficult. That said, if we take even a quick look at artists, be they in the visual or performing arts, they certainly appear to be creative well past their 30s, as the careers of people as diverse as da Vinci, Monet, Degas, Cezanne, Picasso, Matisse, Pollack, Grant, Olivier, Brando, Hepburn, Wilder, Lean, Ford, Allen, Kazan, Spielberg, Bach, Casals, Horowitz, Rachmaninoff and Perlman demonstrate. However, within those careers, many of the artists achieved one or more new styles or techniques that others saw as innovative and inventive. Cezanne, Matisse and Picasso, for example, were well known for their innovations, which continued on through the length of their careers. Among writers, many continued to produce works late in their lives, a small sample of whom might include Charles Dickens, Henry James, Mark Twain, Herman Wouk, Philip Roth, Agatha Christie, George Simenon and John Le Carré.

If we look at the worlds of science and technology a similar pattern emerges, with the exception of mathematics. Within academia it is commonly held that great mathematical achievements are overwhelmingly done by those under 30. Yet, Isaac Newton, who did indeed invent calculus when he was 24, then went on to invent modern physics when he was in his 40s. While Albert Einstein, Werner Heisenberg, Niels Bohr and James Watson did their best work in their 20s, Michael Faraday, Max Planck, Ernest Rutherford, Fritz Haber and Louis Pasteur did theirs in their 40s. (14)

Many of our digital wunderkinds have achieved or try to keep on making significant innovations later in their lives. Steve Jobs certainly made a splash in his 20s when he and Steve Wozniak invented the Apple computer, but he later founded Next and Pixar and many observers feel that his decades later contributions to the iPod, iTunes, iPhone and iPad were of equal or even far greater significance. Bill Gates also made major digital innovations while in his 20s and now is working on globally eradicating major diseases and improving education. Sergey Brin and Larry Page founded Google with their innovative search algorithm while in their 20s and now have their company working on such things as driverless cars and carbon free energy generation. Elon Musk helped found PayPal while in his 20s and now is involved in Tesla electric cars, SpaceX rocket launchers and SolarCity, a provider of solar energy systems. Furthermore, Silicon Valley is known for its many “serial entrepreneurs.”

One rigorous and interesting research project written in 2008 by Benjamin Jones at the Kellogg School of Management reported that the age of the innovators when they attain “great achievements in knowledge” is getting older and older: “The great achievements in knowledge of the 20th Century occurred at later and later ages. The mean age at great achievement for both Nobel Prize winners and great technological inventors rose by about 6 years over the course of the 20th Century. This aging phenomenon appears to be substantially driven by declining innovative output in the early life-cycle.” (15) Moreover, this research seems to show that “a 55-year-old and even a 65-year-old have significantly more innovation potential than a 25- year-old.” (16)

They Like Dense Urban Environments.  If young creatives are not more entrepreneurial or innovative than other age cohorts, then why have they captured the attention of so many within the economic development community? It is not because they play a critical role in Florida’s defining of the creative class, in which the pivotal, all important concept is that of the work people do, whatever their age or education. As Florida has explained, he developed his theory as an alternative to human capital theories of regional development:

 “Human capital theory uses educational attainment (typically the percentage of adults with a college degree), a very broad measure that excludes such successful entrepreneurs as Bill Gates and Steve Jobs, who didn’t graduate from college. My creative class measure is based on the work people actually do, as measured by detailed Bureau of Labor Statistics data. This allows researchers and economic developers to zero in on the actual occupational categories – science and engineering, arts and culture, business and management, meds and eds – that make up the creative class and other occupational classes….

 The creative class is not just a proxy measure for college graduates. Roughly three?quarters of college grads in America work in creative class jobs, but four in ten members of the creative class— 16.6 million workers—do not have college degrees.” (17)

 A more viable explanation of why the economic development community has focused so much of its attention on one subset of the creative class, the hip young creatives, is not the kind of work they do so much as where they like to live and their leisure time and entertainment activities. For decades, the economic development community was searching for a way to revitalize our nation’s urban areas. Numerous researchers, including Florida, Eugenie Birch and, even in some writings, Kotkin, have demonstrated that young professionals’ lifestyle preferences provide a potential solution path: they like living in dense urban environments and are flocking to them. (18)

Also interesting is that fact that this same research has shown that empty nesters, too, like dense urban living and are downsizing from their suburban single-family homes to urban apartments and townhouses. However, the economic development community has focused far less attention on the empty nesters than it has given the young hipsters.

While the hip young creatives may prefer living in dense urban areas, suburban areas can also attract large numbers of residents whose occupations fall within Florida’s definition of the Creative Class. (19) For example, in 2011, Morris County, NJ has 123,629 residents, 49% of the 269,714 in the labor force, who are in management, business, science, and arts occupations. (20) Many non-Millennial knowledge workers who have children prefer living in the suburbs. What proportion of them will move to urban core areas when their nests empty is unknown, but the odds are that significant numbers will stay in their suburban homes and/or communities, perhaps in their own downtowns in newly built or refurbished apartments. Other creatives/knowledge workers, the “lone eagles,” prefer to live and work in scenic rural “Valhallas.”(21)

Attraction for Employers. Many companies like to recruit the best and the brightest out of our nation’s top colleges and universities because they think they are accessing new ideas and techniques. Nonetheless, many firms also have a preference for hiring younger people that is based on bottom line reasoning. For example, it is not unusual to see a number of stories in the media about the age preferences in corporate hiring and the difficulties that people over 40 have in finding new jobs. Many firms prefer to hire younger people because they will work at lower salaries for longer hours, will probably be healthier and have more distant pension payouts than older and more experienced workers. One observer cited data showing that associates in one global law firm work an average of 2,462 billable and unbillable hours a year, 47 to 49 hour a week, though others in the industry claim the weekly total is probably closer to 60 hours. (22) It is not uncommon in New York City to hear claims that firms in the advertising, entertainment and legal industries “like to eat their young.”

Corporations also like to hire freelancers because of lower salary and benefit costs. As noted above, many firms may also like the millennial freelancers’ new  entrepreneurial mindsets.

How this will affect corporate office locational decisions remains to be seen. Certainly there is an interest in tapping this labor market segment in regions where they are present. Often, firms may not have to locate in downtowns to tap this labor market. When making locational decisions many firms will look at labor pools defined by 30 to 45 minute travel times, which means that many urban core young knowledge workers can be tapped from many suburban locations. Some firms may decide for suburban or urban locations depending upon the situation. Google, for instance, has not moved to San Francisco though it has hundreds of white buses transporting its employees everyday from the city to and from its headquarters Mountainview complex, an hour’s drive away. Yet, it also has a very large presence in Manhattan. Also, reverse commuting has been growing in many metro areas.

Population Size. The Millennials, of which the young urban hipsters are a subset, constitute the largest generation, about 23% of the US population, but they are outnumbered by the combined populations of the older and still largely active Gen X with16%, Younger Boomers 14%, and Older Boomers 10%. (23)

 Some Suggested Take Aways

  • There is little doubt that urban areas with a cluster of young hip creatives have a strong asset capable of driving a good part of their revitalization efforts
  • But, if you don’t have a heap of hip young creatives in or near your community, you may have lots of older creatives or some other assets, e.g., gas and petroleum trapped in shale rock, upon which your economic revitalization can be built
  • There probably are more knowledge workers and artistic people who are older than 35 years of age than younger
  • These “mature creatives” are more entrepreneurial and, at a minimum, just as innovative and creative as the younger group
  • In metro areas that are rich in knowledge workers, many of them probably live and/or work in suburban communities and these communities should have revitalization strategies that clearly recognize and leverage this asset
  • It should not be forgotten that many non-Millennial knowledge workers and artists also often live and/or work in dense urban areas, e.g., office workers, teachers and researchers, doctors, lawyers, nurses, architects, etc.

Disclosure

The author is not a Millennial, though he is quite fond of his friends and relatives who are.

ENDNOTES

1.  See for example: Richard Florida, The Rise of the Creative Class: And How It’s Transforming Work, Leisure, Community and Everyday Life, Basic Books, 2002, pp. 402; Joel Kotkin, The New Geography: How the Digital Revolution Is Reshaping the American Landscape, Random House.(November 2000) pp. 256. The family of terms creatives, young professionals, young urban hipsters, knowledge workers, artists are used in this article as basically referring to very similar if not entirely completely congruent groups of people, some being subsets of others.

2. Richard Florida, “Competing in the Age of Talent: Quality of Place and the New Economy,” January 2000, pp. 55

3. Personal interviews with developers from 2003 through 2007

4. John W. Martin and Jack Berry, “Winning young professionals,” Richmond Times Dispatch,  May 20, 2013

5 Haya El Nasser,  “Mid-sized cities get hip to attract young professionals,” Yahoo! News, October 10, 2003

6. Richard Florida, “The Fading Differentiation between City and Suburb,” Urban Land, January 31, 2013, Article 

7. Tom Agan, “Why Innovators Get Better With Age,” New York Times, March 30, 2013

8. Maeve Duggan and Joanna Brenner, “The Demographics of Social Media Users — 2012,” PewResearchCenter, February 14, 2013. http://pewinternet.org/Reports/2013/Social-media-users.aspx ; Kathryn Zickuhr, Generations and their gadgets, Pew Internet, Feb 3, 2011  http://www.pewinternet.org/Reports/2011/Generations-and-gadgets/Report.aspx?view=all

9. Dane Stangler, “The Coming Entrepreneurship Boom,” Ewing Marion Kauffman Foundation, June 2009, pp. 6 p.4. Kauffman’s research looks at “all new business owners, including those who own incorporated or unincorporated businesses, and those who are employers or non-employers.”

10. Robert W. Fairlie, “Kauffman Index Of Entrepreneurial Activity 1996 – 2010,” Kauffman Foundation, March 2011, pp. 28, p.9.

11. Kay S. Hymowitz, “How Brooklyn Got Its Groove Back: New York’s biggest borough has reinvented itself as a postindustrial hot spot.” City Journal, Autumn 2011,  www.city-journal.org/printable.php?id=7527

12. Rieva Lesonsky, “Millennials Are Rewriting the Rules of Work and Entrepreneurship” reports on a survey that had a full sample of 3,193, of which 1,958 were Millennials and was done by Millennial Branding for oDesk. For the oDesk slideshow on the report see: http://www.slideshare.net/oDesk/millennials-and-the-future-of-work-survey-results

13. As described in Thomas L. Friedman, “How to Get a Job,” New York Times, May 28, 2013, NYT Article here

14. See: http://www.scieditco.com/images/agescientists.html

15. Benjamin F. Jones , “Age and Great Invention,” Kellogg School of Management,  April 2008

16. See Tom Egan above

17. Richard Florida, theatlanticcities.com/jobs?and?economy/2012/07/what?critics?get?wrong?about?creative?class/2430/

18. Eugenie L. Birch, “Who Lives Downtown,” November 2005 • The Brookings Institution • Living Cities Census Series, pp. 20

19. Kris Hudson, Wall Street Journal, May 15, 2013,”Is Generation Y a ‘Game Changer’ for Housing?”

20. Source: U.S. Census Bureau, 2007-2011 American Community Survey

21. See: Philip M. Burgess, “Lone Eagles Are a Varied Species,” The Rocky Mountain News, April 12, 1994 and Joel Kotkin, The New Geography cited above

22. Steven J. Harper, “The Tyranny of the Billable Hour,” New York Times , March 28, 2013, http://www.nytimes.com/2013/03/29/opinion/the-case-against-the-law-firm-billable-hour.html

23. Pew Research Center’s typology of generations was used with national census data for 2011 to compute these population estimates.