Economy Matters

On this trip to north Alabama's flagship metropolitan area, local officials described the economic fruits of cooperation between local governments and private employers. Advanced manufacturing has been a particular focus, explains Harrison Diamond, business relations officer with the city of Huntsville. The area in the past couple of years has attracted a firearms plant, an all-terrain vehicle factory, and an aviation facility that will produce materials used in jet engines and gas turbines. A "watershed" event in Huntsville's pursuit of advanced manufacturing plants was the 2003 opening of Toyota's largest engine factory, Diamond says.

These sort of public-private ventures are not uncommon, Lambe says. But they come in many variations and involve different levels of public investment. According to several local officials, Huntsville's budget is in sound fiscal shape, relative to other municipalities. Its city revenues decreased during the Great Recession but began to stabilize in early 2010, according to city budget reports. The city appears to have, in comparison to many small cities, more resources to devote to economic development, Lambe says.

"Rocket City" indeed

Few things in Huntsville are uninfluenced by the Department of Defense or NASA. Redstone Arsenal, a 38,000-acre military installation established during World War II, encompasses federal agencies and an array of defense and aerospace firms that together employ 41,000 people. That accounts for nearly 20 percent of metro Huntsville’s total nonfarm employment.

Although it's one of Alabama's oldest cities, today's Huntsville is young. Before the arsenal and the related Marshall Space Flight Center, Huntsville was a small town known for textile mills. Then rocket and missile science radically remade the place. The city’s population more than quadrupled to 72,365 during the 1950s, and then nearly doubled during the '60s, according to the U.S. Census Bureau. No wonder it's known as Rocket City.

As everywhere, however, not every citizen benefits equally from the general prosperity. Supplying enough affordable housing is a challenge, notes Mary Ellen Judah, executive director of Neighborhood Concepts Inc., a community development financial institution based in Huntsville. Housing for low- to moderate-income residents will become an even more pressing need as the population ages, she adds.

During a luncheon presentation in Huntsville, Lambe discussed a few challenges facing the metro area. Using the Atlanta Fed’s Small City Economic Dynamism Index, a database that measures economic prospects in 245 metro areas of 500,000 or fewer people, he compared Huntsville to similar places. Lambe noted, for example, that poverty in Huntsville appears to be worsening.

Also, Huntsville lacks a well-developed local philanthropic community. Places such as Chattanooga, Columbus, and Montgomery score well above Huntsville in terms of national philanthropic dollars invested per capita, according to Lambe. Those numbers are a result mainly of a relatively low level of local philanthropic investment, Lambe says, as national foundations tend to invest where there are local resources already committed.

Lambe spoke before more than 100 bankers, businesspeople, and community development officials. The venue, the Baron Bluff atop Monte Sano Mountain, affords a sweeping view of the city below. You can even see the "Rocket Garden," a display of space ships at Marshall Space Flight Center miles away.

Lambe was here not for that vista, picturesque as it is. Rather, he visits small cities for a firsthand look at community development across the Southeast. Rooted in the Community Reinvestment Act of 1977, which compels commercial banks to lend and invest throughout communities from which they gather deposits, the Atlanta Fed’s Community and Economic Development (CED) team seeks to learn what works and doesn't work in fostering successful economic development in distressed areas.

Lambe has carved out a niche focusing on small cities. The Southeast is home to 48 small metros—with populations between 50,000 and 500,000—the most of any of the Federal Reserve's 12 districts. So Lambe and the Atlanta Fed's CED team analyze the conditions under which private and public investment can provide access to credit and capital. In that arena, smaller cities are too often overlooked, Lambe says, as conventional wisdom holds that the greatest good and the most profits come by focusing on large urban centers.

"We're trying to shine a light on these places and show that they have promise," Lambe says. "By going out and getting to know the people doing the real work, and learning firsthand about their work, we can be more accurate and nuanced when we study it and talk about it."