Austin Shows the New Equity Imperative for Local Economic Development


Christiana McFarland |March 10, 2016Austin works to create the prototype for how communities of the future compete in a global marketplace.

Skyline of Austin

Austin works to create the prototype for how communities of the future compete in a global marketplace.

Christiana K. McFarland is the reserach director of the National League of Cities. This item originally appeared in CitiesSpeak, NLC's official blog.

With a fast growing tech economy and population, the city of Austin is a hotbed of growth and innovation well on its way to economic dominance… or is it?

Closer examination reveals an economy inaccessible to large swaths of the local workforce, with divergent income growth for Latino and African-American families and gentrification hostile to traditionally underserved populations.

By the numbers, the Austin-Round Rock metro is second in the nation for overall strength and size of its economy and third for wealth and productivity – but the area comes in at an unimpressive 60th for inclusion. In other words, it ranks high among metros on traditional economic indicators, but low on how the benefits of this growth and prosperity reach all people in the region.

Unfortunately, this trend is not unique to Austin. It is an inherent feature of local economies across the country, reinforced by traditional economic development. A new report released by the Brookings Institution, "Remaking Economic Development," calls on cities and regions to aim higher.

Equity Imperative

Although local leaders can be lulled into a false sense that inequitable growth is nonetheless sustainable growth, the recent recession and disappointing recovery have proven it to be, at best, short lived. “If the next generation of workers is not prepared to meet the needs of major employers, that stifles business development and retention efforts. If people are unemployed, they cannot purchase many of the goods and services the economy produces, hurting small businesses and entrepreneurs. Inefficient use of land and infrastructure hampers job access, limits productivity, and hurts property values,” notes Amy Liu, report author and Vice President and Director, Metropolitan Policy Program at Brookings.

Today’s equity imperative for local economic development is not only a moral one but an economic one. In order to thrive, cities must strengthen untapped and underutilized assets and deliberately rectify disparities by race, place and income. This new vision of economic development holds the promise to raise the standards of living for everyone, setting regions on a higher growth trajectory.

Leaving market forces unchecked – or, worse yet, reinforcing them with traditional economic development tools, – often means that growth occurs at the expense of lower-skilled, minority, younger workers.

But, of course, this approach is easier said than done. Ensuring “deep prosperity” means turning the tides on seemingly intractable politics, complex systems and incentives that favor the status quo. Moreover, inclusive growth requires strong market fundamentals that are matched with data-driven, networked and diverse civic leadership.

But it can be done.

The Brookings report suggests several actions that city leaders can take to start the hard work of remaking economic development:

  • Setting the right goals — expand the scope and metrics of economic development to reflect a more foundational and holistic understanding of how to expand the economy and opportunity;
  • Growing from within — prioritize established and emerging firms and industries, invest in the ecosystems of innovation, trade, talent, infrastructure, and governance to support globally competitive firms and enable small businesses to start and grow in the market;
  • Boosting trade — facilitate export growth and trade with other markets in the United States and abroad in ways that deepen regional industry specializations and bring in new income and investment;
  • Investing in people and skills — incorporate skills development of workers as a priority for economic development and employers so that improving human capacities results in meaningful work and income gains; and
  • Connecting place — catalyze economic place making and work at multiple geographic levels to connect local communities to regional jobs, housing, and opportunity.

Keeping Austin Weird, and Educated

The city of Austin gets it. Although Austin weathered the recession better than many, rapidly rising poverty and inequality were becoming major economic concerns. In the not-too-distant future, businesses would not have a sufficient local workforce base to draw upon. Additionally, growing social service needs have become a serious fiscal drain on the city.

Led by then-new Economic Development Director Kevin Johns, the city of Austin set out to create the prototype for how communities of the future compete in a global marketplace.For Austin, taking the economy to the next level means a core focus on equity-based outcomes through a quality built environment and creative workforce.

“We began this journey in January 2010 to eliminate poverty and come to a full employment economy. This was the principal path to exiting the Great Recession, and continues today as we gain speed towards the next recession,” said Johns. “It includes our commitment to help musicians, artists and creatives living in poverty, as well as equity to residents of color and all citizens seeking a prosperous future but drawn into poverty.”

The Einstein Project is one cornerstone of this approach. The project is a public-private economic and education partnership in which Austin’s high technology and scientific companies teach 40,000 children in poverty. There has been a groundswell of support for the Einstein Project from companies including IBM, Samsung, Silicon Labs, National Instruments, Google, GM Research and Apple.

A key element of the Project is that it is incentivized through the companies' receipt of small property tax breaks (also known as Chapter 380 agreements). Using this revamped financial incentives program as a contract for the partnership allows the city to hold companies accountable to performance measures, which are evaluated by the Ray Marshall Center at the University of Texas.

This is important because the goal is substantial: to remove an entire generation of kids from poverty and get them on trajectory to be competitive for the world’s top STEM and entrepreneurial jobs… but hopefully stay in Austin, of course. “This could save us as much as $20-30 million a year. That could be 40,000 kids who will not need subsidies as they become heads of households. Instead, these kids will become a huge talent base for our high-tech companies,” said Johns.

Adapting its financial incentives program – a tool traditionally deemed to deliver economic growth at the expense of local residents and businesses – is a signal that there is new era of doing business with and in the city of Austin. Maybe it’s easier for Austin because it already has a strong market, but it’s certainly an indication that taking the risk to remake economic development can pay steady dividends… and make the world a better place in the process.

Christiana McFarland


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