Inclusive Economic Developmentin Omaha Nebraska

Heartland 2050

Dell Gines, MBA, MSF, PHD Candidate, CEcD

2.24.15

The Federal Reserve Bank

The views in this presentation do not necessarily represent the views of the Federal Reserve Bank of Kansas City nor the Federal Reserve System.

Federal Reserve Bank of Kansas City

The Tenth District consist of Nebraska, Oklahoma, Kansas, Colorado, Wyoming and portions of Missouri and New Mexico

The Federal Reserve Bank of Kansas City Perspective

The mission of the Community Development department of the Kansas City Federal Reserve Bank is to support the economic growth objectives of the Federal Reserve Act by promoting community development and fair and equal access to credit.

Our job is to serve as a neutral convener of resources between those who have and those who don’t, because we know all segments of the population, including the less advantaged, benefit from both economic growth and fair and equal access to credit. The Grow Your Own eBook provides

an overview of what it takes to conduct entrepreneurship based economic development.

Visit: www.kcfed.org/community/smallbusiness

To download the eBook and other information.

Data

All data is derived from the US Census Bureau unless otherwise noted.

Economic Development Definition

The main goal of economic development is improving the economic well being of a community through efforts that entail job creation, job retention, tax base enhancements and quality of life. As there is no single definition for economic development, there is no single strategy, policy, or program for achieving successful economic. – IEDC Economic Development Reference Guide

Defining Economic Development

My Definition“Fostering a dynamic environment where economic opportunities can be discovered, taken advantage of and maximized to their fullest extent to create balanced and sustainable economic growth, jobs, a positive sense of ‘place’ and an improved quality of life in a defined geographic region.” – Dell Gines

Economic Development in PracticeWhile economic development according to IEDC is based upon achieving goals and various methods can be used to achieve those goals in practice one form of economic development has dominated the industry.

ATTRACTION BASED ECONOMIC DEVELOPMENT

This has been a dominant form of economic development for decades and still is most used form of economic development by economic developers.

However, using incentives to attract major firms to communities has not worked in reducing disparity and an creating more inclusive development.

Dominant ED Model

ED Inputs Targeted ED Outputs

Current Economic Development Model Based Upon Attracting Companies

Incentives• Reduce Costs• Improve Profit

• Tax revenue increase

• Jobs• Quality of life

Large Business

Attraction

Net Gain Goals

Education

Public Amenities

Trickle Down Economic Development

Primary Problems1. Structural unemployment 2. Asset ownership and wealth

creation3. Community resiliency & identity

Dominant ED ModelIn a 2012 in-depth report on corporate incentives by The New York Times:

Nebraska ranked #3 in the nation in providing corporate incentives on a per capita basis with $763 per capita in incentives given or 39 cents out of every dollar per state budget. Only West Virginia and Alaska were higher.

Top Incentives by Type• $1.28 billion in Sales tax refund, exemptions or other sales tax discounts• $89.2 million in Corporate income tax credit, rebate or reduction• $11.6 million in Cash grant, loan or loan guaranteeTop Incentives by industry• $939 million in Manufacturing• $235 million in Agriculture• $26.5 million in Alternative energy

Omaha, Nebraska a Tale of Two Cities

Positives #3 - The Best Cities to Find a Job in 2016

#9 - 2015's Most Caring Cities in America

#1 - The Top 10 Best American Cities to Work in Tech in 2015

The 5 Best Big Cities (Best in the Midwest)Time.com/money - August 2015

#15 - 2015's Best City for Families

#5 - Best Metro Area (Omaha-Council Bluffs) for STEM Professionals

NegativesAccording to a 2008 Pew research report:

#3 Among America's 100 largest metro areas, Omaha has the third-highest black poverty rate.

#1 …its percentage of black children in poverty ranks No. 1 in the nation, with nearly six of 10 black kids living below the poverty line.

#2 …only one other U.S. metro area, Minneapolis, has a wider economic disparity between how black and white residents fare.

Omaha, Nebraska is an example of how attraction based economic development can benefit large areas, but mask significant underdevelopment in parts of a community.

Household Finance Comparisons in Omaha

68%

32%

2010 Race and Ethnicity Break Down in OmahaWhite Alone Other Racial or Ethnic Group

White Black Asian American Indian Hispanic

68%

14%

2% 1%

13%

2010 Omaha Population by Race & Ethnicity

Roughly 1 out of every 3 individuals in Omaha is non-White

The largest racial group is Black consisting of 14% of the population with the Hispanic ethnic group consisting of 13% of the population as of 2010.

All White Black Asian Native American Hispanic

17%

12%

34%

24%

43%

31%

2014 Percentage Below Poverty

White Black Asian Native American Hispanic $-

$5,000.00

$10,000.00

$15,000.00

$20,000.00

$25,000.00

$30,000.00

$35,000.00

$40,000.00

2014 Per Capita Income & Median Income

Per capita Median Earnings

All White Black Asian Native American Hispanic

5.40% 5.90%

15.90%

3.60%

15.30%

11.00%

2014 Unemployment Rate by Race in Omaha

Inclusive Development

As previously mentioned, the goal of economic development is what is important, and the methods used to get there can be diverse.

This means that inclusive economic development will seek to use the most effective means and create strategies that lead towards equitable and sustainable growth in disadvantaged or under-developed communities.

This also means that many of the methods we have been taught, utilize and the systems of incentives and practices we are most comfortable with may have to change.

Inclusive Economic DevelopmentInclusive economic development is the utilization of economic development strategies that target creating economic growth and parity among traditionally disadvantage groups or communities.

Key areas targeted for long run parity are:• Business ownership• Economic output• Job creation

The long run benefits are:• Improved national economy • Stronger community’s with an increased quality of life• Greater tax base and lower unemployment in local communities

Inclusive Economic Development

It is my argument that the primary method of conducting inclusive economic development is entrepreneurship based economic development defined as:

Entrepreneurship based economic development is an economic development strategy that places its primary emphasis on the creation and support of entrepreneurs and small businesses to achieve development goals within a defined geographic region.

IT IS NOT:Anti intelligent attraction and retention strategies.

IT IS:Pro creating a “best fit” approach to economic development that takes into

account current and future possibilities.

Inclusive Economic Development

It is my argument that the most effective form of inclusive economic development is to create creators of jobs through entrepreneurship and small business development.

This is known as entrepreneurship based economic development or grow your own models of economic development.

Why Entrepreneurship Is Vital to EconomiesA few reasons why grow your own economic development is a powerful tool:1. Entrepreneurs create jobs, increase local incomes and wealth (Henderson,

2002).

2. A higher ratio of entrepreneurial activity is associated strongly with faster growth of local economies (Barth, Yago & Zeidman, 2004)

3. Greater minority business density creates greater state GDP growth (Lowrey, 2005)

4. Local entrepreneurs are more likely than branch plants to reinvest their wealth locally.

5. Entrepreneurs create a sense of place.

6. The cost of job creation is lower (Edmiston, 2006)

7. Grow your own development is a more feasible way to develop traditionally economically challenged areas.

8. Grow your own development helps create diversified economies.

9. Entrepreneurship is seen as a pathway out of poverty.

The Entrepreneurship Challenge

While entrepreneurship is a powerful engine of economic growth and development, addressing the disparities in race an ethnicity will be critical.

Overview Comparisons

White Black or African

American

American Indian

Asian Some other race

Minority Hispanic

80%

9%1% 3% 3%

18%

5%

73%

14%

1% 2%7%

27%

13%

2012 Percentage of Firms Owned by Race Compared to Percentage of Population in Omaha

% of Total Firms % of the Population

White Black or African

American

American Indian

Asian Some other race

Minority Hispanic $-

$200,000.00

$400,000.00

$600,000.00

$800,000.00

$1,000,000.00

$1,200,000.00

2012 Average Sales Per Firm Omaha Compared to National

Omaha Average Sales Per Firm All FirmsNational Average Sales Per Firm All Firms

Non-Employer Firms

White Black American Indian

Asian Some other race

Minority Hispanic0%

20%

40%

60%

80%

100%

120%

2012 Percentage of Non-Employer Owned Firms Omaha & National

Omaha Non-Employer Firm % National Non-Employer Firm %

White Black or African

American

American Indian

Asian Some other race

Minority Hispanic $-

$10,000.00

$20,000.00

$30,000.00

$40,000.00

$50,000.00

$60,000.00

$70,000.00

2012 Average Sales per Non-Employer Firm Omaha & National

Omaha Average Sales Per Firm Non-Employer FirmsNational Average Sales Per Firm Non-Employer Firms

Employee Owned Firms

White

Black or A

frican Americ

an

America

n Indian

Asian

Some other r

ace

Minority

Hispanic

27%

5% 6%

20%

8% 9% 8%

21%

4%

10%

25%

7%

11%9%

2012 Percentage of Firms That Have Employees Omaha & National

Omaha Employer Owned Firm % National Employer Owned Firm %

White Black or African

American

American Indian

Asian Some other race

Minority Hispanic $-

$500,000.00

$1,000,000.00

$1,500,000.00

$2,000,000.00

$2,500,000.00

$3,000,000.00

$3,500,000.00

$4,000,000.00

$4,500,000.00

2012 Omaha Non-Employer Firm & Employer Firm Sales Comparison

Omaha Average Sales per Firm Employer Firms National Average Sales per Firm Employer Firms

White Black or African

American

American Indian

Asian Some other race

Minority Hispanic

5.24

0.27 0.13

1.66

0.400.83 0.85

2.35

0.380.76

1.86

0.510.90 0.70

2012 Average Employees Per Firm Omaha & National

Omaha Average Number of Employees Per FirmNational Average Number of Employees Per Firm

White Black or African

American

American Indian

Asian Some other race

Minority Hispanic $-

$5,000.00

$10,000.00

$15,000.00

$20,000.00

$25,000.00

$30,000.00

$35,000.00

$40,000.00

$45,000.00

2012 Average Annual Pay per Employee Omaha & National

Omaha Annual payroll per employee National Annual payroll per employee

Industry Concentration Comparison for African Americans in Omaha

AgricultureMining

UtilitiesConstruction

ManufacturingWholesale trade

Retail tradeTransportation & warehousing

InformationFinance & insurance

Real estate and rental and leasing**Professional services

Management of companiesAdministrative & waste management

Educational servicesHealth care & social assistance

Arts & entertainmentAccommodation & food services

Other services Industries not classified

0% 5% 10% 15% 20% 25% 30% 35%

2012 Black Industry % Omaha & National

National Omaha

Agricu

lture

Mining

Utilities

Constructi

on

Manufac

turing

Wholesale

trade

Retail t

rade

Transporta

tion & ware

housing

Informati

on

Finan

ce & in

surance

Real e

state

and re

ntal an

d leasi

ng**

Professio

nal ser

vices

Manag

emen

t of c

ompanies

** $2,311,897 Per

Administrati

ve & w

aste m

anag

emen

t

Educati

onal ser

vices

Health

care

& socia

l assi

stance

Arts & e

ntertai

nment

Accommodati

on & food se

rvices

Other ser

vices

Industries

not clas

sified

$-

$100,000.00

$200,000.00

$300,000.00

$400,000.00

$500,000.00

$600,000.00

2012 Black Average Sale per Industry Omaha & National

Omaha National

-50%

0%

50%

100%

150%

200%

250%

2002 to 2012 Black Business Change All Categories

Omaha Change National Change

Entrepreneurship Based Economic Development

Grow Your Own – Entrepreneurship Based Economic Development

The Business Owner

Capital Financial

Resources

CapabilityEntrepreneur and

Owner Skillset

ConnectionResource & Relationship

Network

CultureThe local

communities’ perception and

support of entrepreneurship

ClimateRegulatory, Economic

Development & Policy Environment

5Cs of the Entrepreneurship Ecosystem

Entrepreneurship based economic development focuses on creating strong local entrepreneurship ecosystems. No one program is sufficient to build the small business community alone.

Owner Opportunity Cost

25%

75%

Foggy & Sparce Ecosystem

Time and energy spent figuring out how to get support from the en-trepreneurship ecosystemTime and energy spent working on building the business

10%

90%

Transparent & Dense Ecosystem

Time and energy spent figuring out how to get support from the entrepreneurship ecosystem

Time and energy spent working on building the business

The strongest entrepreneurship development ecosystems do the best job of allowing existing and potential entrepreneurs to spend more time and energy 1) focusing on building the business and 2) becoming more effective business owners rather than wasting time figuring out how to get support, information, and resources to build the business.

How more productive could our businesses be if they had more time and energy to focus on growing?

Simply stated, an opportunity cost is the cost of a missed opportunity. – inc.com

The Transparent Ecosystem

Foggy and Fragmented

One of the largest complaints we hear from individuals seeking to start or grow a business is that the service system is complex and hard to navigate

Transparent and

Connected

The Dense Ecosystem

Microloan

Business Plan Mentoring

Networking

Microloan

Business Plan

Venture Capital

University Support

K-12 Education

Policy Group Mentoring

Market Research

Community Business

Celebration

Ecosystem #1 - Sparse Ecosystem #2 - Dense

Are the programs, policies and activities sufficient in number and type to meet development goals?

Grow Your Own

• Quality policy• Supportive culture• Appropriate information &

resources • Struggle to access• Difficult to navigate• Slow responsiveness

• Quality policy• Supportive culture• Appropriate information & resources • Easy to access• Easy to navigate• Rapid responsiveness

• Poor policy• Resistant culture• Lack of information & Resources • Struggle to access• Difficult to navigate• Slow responsiveness

• Poor policy• Resistant culture• Lack of information & Resources • Easy to access• Easy to navigate• Rapid responsiveness

Dense Ecosystem

Sparse Ecosystem

Foggy Ecosystem

Transparent Ecosystem

Quality ecosystems

The entrepreneurship based economic development priority should be to create a strong ecosystem by developing and filling in gaps within the entire ecosystem.

Strongest ecosystem

Weakest ecosystem

Business Stages by Size & Community Support

Stage 4

(500+) –

19.2% of Total

Jobs

Stage 3 (100-499) – 21.6% of

Total Jobs

Stage 2 (10-99) – 33.9% of Total Jobs

Stage 1 (1-9) – 22.3% of Total Jobs

Self-Employed – 3% of Total Jobs

Proactive Support Attraction & Retention Strategies

Proactive Support Retention Strategies

Proactive Support Economic Gardening

Passive Support Non-profits

Passive SupportNon-profits

Note: Proactive support means the agency is reaching out directly to these firms. Passive support means the support is available on demand.

Business Stages by Characteristics• Well defined and highly sophisticated strategy, layers of expert management

across divisions, need access to highly developed workforce with sophisticated skill sets, clear and comprehensive business model, intense competition, often global for market share

Stage 4 - 500+ Employees

• Defined strategy, expert management, owner as CEO, needs access to workforce markets, supply chains and financial expertise, sophisticated business model, sophisticated competitors for market share

Stage 3 - 100-499 Employees

• Refining core strategy, dealing with industry shifts, expanding markets, building management teams, embracing new leadership roles as owner shifts to CEO, growth becomes more intentional (Lowe Foundation), selling to broader market base

Stage 2 - 10 to 99 Employees

• Basic strategy, owner still wears many hats, limited ‘specialized management’, basic systems, strategy is day to day driven, simple business models, growth is more organic, direct selling to broader customer base

Stage 1 - 1 to 9 Employees

• Limited strategy, owner wears all the hats, sells to a narrow audience, basic banking and financial requirements , direct selling to narrow customer baseSelf-Employed

Note: These are generalities and differ by revenue, industry type and maturity

Owner Boundary Spanning

Management Marketing

Finance Operations

Management Marketing

Finance Operations

Owner comparative advantage – They should be spending the most time doing what they are the best at.

When businesses start, the owner is often required to wear all of the hats of the business. Each area is often small enough to be managed by a single individual.

As businesses grow, the ability of the owner to manage competently all aspects of the business shrinks. They have a “make or buy” decision. Do they hire an employee or contract out.

Economic Development at the 10,000 Foot Level

Leadership Vision Strategy Tactics

Economic Development at the 10,000 Foot Level – EDO Responsibilities

StrategyDetermining the key ways in which economic development activities will be organized to achieve the future vision.

VisionCreating (with broad input) a compelling vision of what the community will look like in the future that can serve as a rallying point, a measurement stick and marketing tool.

LeadershipAligning key stakeholders around the creation of and mobilization towards a shared vision. This consists of connecting with, providing appropriate information too and create space for those critical and future leaders drive change.

Inclusive Development Recommendations1. Focus on creating creators versus consumers of jobs in

minority communities.2. Create incentives and policies that focus on developing

entrepreneurs across the continuum (micro to gazelle) versus corporate or large business incentives.

3. Develop a strong entrepreneurial ecosystem in targeted areas.

4. Seek to connect the two forms of development (attraction and entrepreneurship) through supply chain connectivity.

5. Influence local schools to both become more entrepreneurial and teach more entrepreneurship.

6. Recognize that it takes time an eliminate a short term reward mindset.

You Are InvitedGrowing Entrepreneurial Communities Summit

May 4th and 5th A practitioner centered summit focusing on best practices and

new strategies in creating entrepreneurial focused communities.

Visit – www.kcfed.org/community/smallbusiness for more details

Contact

Dell GinesSr. Community Development AdvisorFederal Reserve Bank of Kansas City

dell.gines@kc.frb.org(402) 221-5606

For more information & resourceshttp://kcfed.org/community/

To sign up for our Community Connections email newsletter please email me at the address above.