Will Lambe
Senior CED Adviser
Community and Economic Development
Federal Reserve Bank of Atlanta
August 24, 2016
Charles Davidson: Welcome to another Atlanta Fed ECONversation, in which we discuss economic issues of the day and the work of the Federal Reserve Bank of Atlanta. I'm Charles Davidson of the Atlanta Fed's Public Affairs department, and I'm joined today by Will Lambe. Will is a senior adviser in the bank's Community and Economic Development [team], and an expert in community development finance. Our discussion today is going to focus on the economic dynamism of smaller metro areas.
Will, thanks for joining us today.
Will Lambe: Sure. Thanks, Charles.
Davidson: So, Will, to set the stage: can you talk a little bit about why the Atlanta Fed is interested in community and economic development in the first place?
Lambe: Sure, I'd be happy to. And you know I have to start with our disclaimer, that my comments this afternoon are my own opinions and not necessarily the policies of the Federal Reserve Bank of Atlanta, or the Board of Governors.
But, to your question specifically, Charles: the roots of our Bank's engagement in community and economic development really go back to 1977, when Congress passed the CRA, or the Community Reinvestment Act, which was a response to the fact that at the time, if you lived in a poor neighborhood or community, it could be really difficult to get a loan for a house, or for a small business, or for education...even if you and your neighbors were making regular deposits into a local bank.
So CRA was legislation that encouraged banks—and continues to do so—to make loans and financial services available in all places, irrespective of the economic vitality of the particular community where people live. The CRA is where the Fed's role in community and economic development comes from.
So here in Atlanta, we pay close attention to—and carry out research to understand—trends, and advise our bank's leadership on issues affecting economically distressed communities and the people living there.
Davidson: Well, shifting to our focus today, Will: you have devised what we call the Small City Economic Dynamism Index. Can you talk a little about that, what the purpose is, and what we've gotten from it so far?
Lambe: Yes, sure. For the purposes of our work—and just to be clear about our definition of a smaller city—small cities are those that are located in metro areas of fewer than a half a million people, and in order to be considered a metro area by the census bureau, a city must have at least 50,000 people—so, practically speaking, we're talking about those cities between 50[,000] and 250,000 people.
In Georgia, these are places like Dalton, and Rome, and Valdosta; and [in] Florida, Pensacola and Gainesville, et cetera. The reason these cities are of particular interest to us here at the Federal Reserve Bank in Atlanta is: I like to think of these places as like the nerve centers that connect the regional economy, and they remain very critical to the overall health of our region. They're hubs of employment, and retail, and health care; where people go for education, and other kinds of services.
We study them for three basic reasons. First, there are a lot of them in our region. The chart here on the screen will show you that within our region of the South, there are more than a hundred small metro areas, which is more than any other region of the country.
The second chart will show you there are a significant number of people living in them. We've got more than 24 million people living in smaller cities in the South.
And finally, as a share of the overall population, we have almost 20 percent of our region's overall population living in these places.
Davidson: Is that a bigger share than in other parts of the country, Will?
Lambe: Yes, it is. As you can see in these screens, it's a bigger share of any other census region. And when we think about our Bank's district, the Atlanta district—which covers the better part of six states—it's the largest share of any other bank's district.
Davidson: So, Will, as I understand it, the index is trying to get at sort of painting the trajectory for smaller cities, what sort of path they're on. Can you talk a little bit about what factors influence their trajectory, or momentum, economically?
Lambe: Yes, sure. Let me just say something really quickly, though, Charles, about the index itself. Here in chart 4 you can see that the Economic Dynamism Index that we've created is a data set that ranks 245 small cities across 14 different indicators in demographics, economics, human capital, and infrastructure.
We created this for leaders in the smaller cities in our region and elsewhere, because data is not often packaged in meaningful ways for community leaders in these places, necessarily, to have insights into their market conditions and how they compare to their peers.
So, the trajectory of smaller cities—the economic trajectory of the smaller cities—and the relationship between our index and that trajectory, is really meant to be a conversation starter. The factors that influenced the economic trajectory of the place—of course growth matters, right? Economic growth, population, tax base, aggregate measures of education attainment and job creation, and new business formation, et cetera.
As is true in any city, these are the things that get you on the map, right? So, if you're trying to attract new people to your city, new residents, new businesses, new investments—these growth factors are what get you on the map.
But the more complicated aspect of this whole discussion, Charles, which you know, is the reality that economic growth sometimes can hide or mask deeper challenges that confront communities. In our work, this is a really important reality that we have to face. Median household incomes, and circumstances of entrenched and concentrated poverty, and wealth gaps across racial and socioeconomic class lines, have worsened in almost all places, and especially in the South—even in those cities that are growing.
So we try to use this Economic Dynamism Index as a way to start those conversations in specific places.
Davidson: You mentioned starting conversations, Will. If I'm a leader in a small city—a civic, political leader—how could I use this kind of information?
Lambe: Here's how I would respond to that: in places where dynamism is strong, where the potential to absorb new investments, and new economic development, is on an upswing—in our greener cities on the map—we like to think about how to ensure that inevitable growth and development is managed and organized in a way to create maximum economic opportunities for everyone in the city, and that the profits from economic growth be made to benefit the entire community.
Whereas, in those places where economic dynamism is weaker—the red and the yellow cities on our map—then the conversation needs to be about how to create more demand in that particular market: demand for housing, demand for services, demand for locally produced products. In declining cities, we've seen—in both research and practice—the public sector and philanthropy often having to play a creative role in creating new demand, and in doing so creating economic opportunities for everyone in the city to benefit [from].
Davidson: Will, I know you traveled to some of these places, and discussed this work with some of those types of city officials and civic leaders, business leaders, and so on. Is that pretty much the shape those conversations take? Are those the topics that you typically address with them?
Lambe: Yes, we have. We've travelled to a number of cities. We spend a good amount of time out in our district, meeting with local officials. And, yes, as is the case anywhere, people seem hungry for actionable information. So that's what we're trying to provide, is current, actionable data and analysis that informs local decision making.
Davidson: Do these smaller places tend to have access to less of that kind of actionable information than bigger metros generally do?
Lambe: Yes. It's not necessarily that the information isn't there, but oftentimes we find the data that's packaged for more dense urban areas might be less available for smaller markets.
Davidson: Will, what sort of insights have you been able to gain into what makes these small metro areas tick, economically? Are there certain factors that tend to work?
Lambe: Well, we know from years, and decades, of well-done, well-worn, qualitative research that "soft" factors in communities—such as the leadership and vision of local officials, the viability of a plan to execute in a community and following through on that plan—all of these are critical "soft" factors that play an important role in a community's success.
But if I were to look across the data that we have on the smaller cities in our data set and make some observations on the assets that seem consistent across the more successful smaller cities, I'd really categorize them in four main categories. First are those places with large education or health care sectors—university and college towns, as well as hubs that have hospitals and significant health care industry—places like Tuscaloosa, and Gainesville, Florida; Athens, Georgia.
Secondly, places that have managed to maintain some level of manufacturing and industrial competitiveness. So these are places that still are able to produce products that are exported globally; large employers along the Gulf Coast, in places like Lafayette and Lake Charles, et cetera.
Thirdly, places with military or defense installations; so these are smaller cities that have defense industry and all of the business and support services that go with that industry, like Columbus here in Georgia; Huntsville in Alabama; Panama City in Florida.
And then finally places with strong and economically dense tourism assets—places like Naples, Florida, and Savannah, Georgia, where the density of the services that support the tourism industry is significant. This isn't meant to suggest that these are the only pathways to success in a particular small-city context, but just some observations about what we see across our data set.
Davidson: Right. I should pause for a second here for our viewers, to let you know that you can submit questions via a button on your screen, and in just a few minutes, we're going to open it up for audience questions. So if you have something you'd like to ask Will, please do so.
Will, you mentioned the importance of philanthropic investment in the small metros. Can you talk a little bit about what conditions need to be in place for communities to attract that kind of investment? And, secondly, I understand that you and your colleagues in CED have developed a new tool expressly to try to track where that money is going. Can you talk a little bit about that?
Lambe: Yes, sure. I'd love to. This next chart will show you that we've developed a new tool that we're calling "Following the Money"—and this is research that I've done in partnership with my colleague Mels de Zeeuw here in Atlanta, and Keith Wardrip in Philadelphia—and this is an analysis we've done of philanthropic grant money for community and economic development—where it goes, where it doesn't go, and why.
What we've found in that research (which we'll be releasing in early September) is that smaller cities are at a relative disadvantage when it comes to attracting philanthropic resources for community and economic development; those cities that have dense networks of nonprofits and other service agencies working on community development, obviously, are in a position to attract more resources for community development.
Cities that have large foundations that may or may not give locally, but nonetheless that are located in a particular place seem to be predictive of the ability of a metro area to attract grant money.
Finally, [what we found]—and this is, interestingly, against what we assumed going into this research—is that poorer cities (those with higher poverty rates and more distressed socioeconomic conditions) tend to attract more grant money than those wealthier communities, which is an interesting aspect to our work—which, again, will be coming out in early September on our website.
Davidson: Well, I guess that is perhaps slightly encouraging. Maybe that sounds like it's appropriate that more poverty-stricken places would attract more investment.
Well, Will, one more question about philanthropic investment: are there any patterns, as far as whether the private sector (or other types of investment) tends to follow philanthropic investments, or the other way around? I say "private sector" meaning essentially "not philanthropic."
Lambe: Right. Well, what we know from research is that philanthropy tends to be the kind of investment in particular community and economic development projects or programs that can take the most risk. Philanthropy can lead the way in identifying new solutions, in pushing innovation, in taking bets that others won't take—whether those "others" be local government or other government sources, or other private investors.
When philanthropy makes a bet in a particular place, and the bet wins, then what we see is that other investment, public and private, will follow. We see that all over the country, especially in real estate redevelopment and tax credit-financed real estate projects. But what we're hoping to see more of, I think, over the years, is the ability of philanthropy to test the boundaries of community and economic development interventions that are non-real estate related, and so that's something that we're paying close attention to.
Davidson: Okay, well, thanks for your questions, folks. We've got a number of questions here, Will, from the viewers, and a couple of these are data-related questions, about the methodology, so I'll lump these first couple here together. One is: are the population numbers used in the index based on city or MSA numbers? Secondly: does the index use—well, it's basically the same question—does the index use only MSA data, or does it also use city data?
Lambe: Yes, that's a great question—and for those of you who want to dig into the data, there's a tab on our website that's associated with this tool, where you can access the sources and all of the explanation—but I'll just, at a high level, respond to that particular question: yes, the index includes data both at the metro level, at the city level, and at the county level, for the counties in which the primary cities are located—all of the above, and all of those details are spelled out in our data tab on the website.
Davidson: All right, another data question here: what is the data source for the grant money [research project]?
Lambe: The Following the Money project is a project we've done using data from the Foundation Center['s] FC 1000 research data set. The Foundation Center aggregates grant-level data for any grant above $10,000, from the 1,000 largest foundations in any given year, and that's the data that we've drawn from.
Davidson: All right, good question here: how much does the housing bubble fallout affect these measures?
Lambe: Yes, that's a great question. We've adjusted most of our metrics in the Small City Economic Dynamism Index to account for the fact that the 2008–09 recession had a tremendous effect on communities everywhere, so our index includes both a long-term measure of change in a particular community—and the long-term is measured in different ways, at different times. Again, all of these details are on the website.
We've also included a measure of a short-term, or more recent, indication of where things are trending. And the reason for that is that we wanted to try and account for longer term, noncyclical changes in communities, but we also wanted to understand, specifically coming out of the recession, how places were responding—both positive and negative.
Davidson: Are there any sort of patterns there?
Lambe: I wouldn't say patterns—not that come to mind, but all of those can be explored in gross detail in our index, where you can actually select any number of cities in an interactive data set—any number of the small cities that we've included—and view the data across all of our indicators for those cities at the same time, and compare peers to one another.
Davidson: All right. Well, here's a good one. This is an international question, actually—thank you, Obie!—and his question is: how can such ideas be translated for use in African cities? Now, I don't know that Will has specifically studied how this might apply to other countries, but...
Lambe: I appreciate that question. One thing that I've come to appreciate—in my own experience, internationally—is that the issues that smaller and rural communities are facing in the U.S. and south Georgia are not dissimilar from...although [they] may be dissimilar in terms of scale, [they] are not dissimilar from issues that affect smaller cities elsewhere.
I'll give you a specific example: we're all concerned, and remain concerned, about the increasing number of people living in poverty. In our region, that's a particular challenge, as I know it is in other parts of the world. We measure poverty differently—the benchmarks for poverty are different in different places—but the strategies for enabling people to move out of poverty are not dissimilar, so we focus quite a bit in the U.S. on making sure that capital is available to small businesses and entrepreneurs, people who are trying to start new enterprises. That's not dissimilar from strategies that are used in other countries.
So, I think one of the things that I've taken from my work in smaller cities is the commonality across both the challenges and the solutions that are available for us to solve these problems.
Davidson: All right. Several more questions here. Thanks for your questions, folks. [Is there] any connection between economic success in these smaller metros, and broadband access?
Lambe: Great question. Yes, broadband is certainly an infrastructure that is becoming, and seems to be moving toward a public infrastructure in the same way that water and sewer and roads and sidewalks are. We certainly understand that cities that can offer—whether through public-private partnerships, or through the private sector exclusively—high-speed broadband to both businesses and residents, maintain and seem to maintain (at least, qualitatively) a level of competitiveness that those that can't, don't.
Chattanooga is a great example of a city in our region that has made a big bet on the Gig, which is the broadband infrastructure that Chattanooga is offering to its residents and citizens; and the marketing and branding and economic development competitive advantage that that asset seems to offer to the city seems to be paying off—I'm just speaking anecdotally, because I haven't looked into in depth, but it does seem to be a real asset for that place.
Davidson: Well, here's one [that's] going to challenge you a little bit here, I think, maybe, Will. This is from Tallahassee, Florida: you mentioned the importance of universities to small cities, so how do you explain a red designation for Tallahassee, when there are three universities there—Florida State, of course, Florida A&M, and then TCC? I apologize, I'm not sure what [TCC] stands for, actually. But apparently—according to this questioner—the three schools combined have about 85,000 students; [that's] a lot of students.
Lambe: We could pick out any city on this map and have a 30-minute ECONversation about just that particular place. So, I'll respond more generally, and that is that there is no silver bullet in this work—"this work" being trying to figure out how to take local assets and turn them into economic growth and development opportunities.
While the economic dynamism of any particular place may show up on our map as red or green or yellow, that's not meant to imply that the entire market is in a positive position or a negative position. But the assets of any particular community—whether it's universities in a city like Tallahassee, or the river through downtown in any other community—have the potential to be leveraged for economic development and growth opportunities.
So, if I had the opportunity, I would love to have a deeper dive about any particular market, and [I would] welcome that conversation.
Davidson: All right. Well, here's a little deeper dive for you, again, then, Will: Savannah scores high in all four factors you mentioned. However, the poverty rate is still pretty high. What do you attribute that to?
Lambe: It's one of our biggest challenges, I think, of our generation (to be frank with my opinion), and that is that economic growth, as is evident in a place like Savannah, does not seem to be [a] sufficient outcome for eliminating the poverty and the distress that can be left in its wake. So, poverty in our region—the Southeast of the United States—has been either static or gotten worse in almost all places over the last 10 or 15 years. That's just the truth. It's not unique to Savannah; it's not unique to any particular city.
The conversation we're trying to have with city officials and leaders in the cities that we're spending time in is about where you have economic growth in a place like Savannah. What are the policies, and what are the program and investment decisions that are being made, which are leaving in their wake increased poverty? And, are there changes, are there strategies, are there best practices that we can start to talk about and test—again, back to the philanthropy—that we can encourage our philanthropic partners to make bets on that help us translate growth in a place like Savannah into lower poverty rates?
We don't know the solutions. We know that education is critical, we know that infrastructure matters, we know that housing matters—we know that all of these conditions of distress in a particular place matter, but we still have a lot of work to do to figure out how to affect change at scale in smaller cities and larger cities. And that's the conversation we hope and encourage this data to elicit.
Davidson: Okay, Will, a question here: we talked about philanthropic investment. What would be the non-real estate type of philanthropic investments that you are looking to see?
Lambe: I alluded to that in passing, so let me expand on that a bit. One of the things that many of you are probably familiar with that we've started to see bubble up around the country is a concern that community development investment has done a reasonably good job in helping to create more affordable housing. Of course, we need more in Atlanta; we certainly are actively discussing that challenge. But there are tools and well-worn techniques for getting private capital into the marketplace in ways that create affordable housing and other real estate.
What we haven't figured out, at any level of scale, is how to get the same kind of private capital—alongside philanthropic and public investment—to deal with problems like, say, homelessness; right? The techniques that we're encouraged by sometimes get referred to as "pay for success" or "social impact investments"; but the basic idea is that there are costs—to the public sector—associated with things like homelessness, or prisoner recidivism is another example. Those costs typically hit the taxpayer in many different ways, across many different public programs.
But there's also a really encouraging way of flipping that equation to say: if there's an intervention that reduces homelessness in a place like Atlanta, and we know that it works, and we know what it costs, and what it costs is less than what it costs to deal with homelessness at Grady hospital and in the places where homelessness gets manifest in a city like Atlanta—then let's create an investment mechanism for foundations and for other mission-motivated investors to invest in the intervention—to invest in the prevention of homelessness—and in doing so, save the public sector money. And when those savings can be proven and realized, the investors can be paid back—with a return on their capital.
Those are the tools and the techniques that we're encouraged by, and hope to pay more attention to, and see more experimentation with across our region.
Davidson: All right, Will, great conversation—your end, anyway. We have a lot more questions here, but unfortunately we don't have time to get to them. I think we can try to answer as many of these as possible via email, as we have the questioners' email addresses here, but... Thanks to everybody for watching, and please tune in for our next ECONversation. Thank you.