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STRATEGY

Urban Outfitters

Inner-city businesses are finding that some of their best friends are in city hall. The mayors of many cities across America -- including Austin, Chicago, Cleveland, and Denver -- are aggressively shaping the future of their respective downtown districts.
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Big-city mayors are eager to make revivified inner cities a part of their legacies

John F. Street has declared war. In his inaugural speech, at the beginning of this year, the new mayor of Philadelphia vowed to take back from poverty the city's toughest neighborhoods, including his political home base of North Philadelphia. "I will launch an all-out, systematic effort to remove blighted buildings and reclaim the overgrown, polluted lots that dot our city," Street proclaimed. "We will turn a negative into a positive and work with neighborhood residents, political leaders, and local businesses to return this land to useful purposes."

The mayor has his work cut out for him. North Philadelphia, suffering from the vicissitudes wrought by a quarter century of neglect, is a virtual showplace of inner-city ills. And although he has an urban pedigree, that doesn't mean Street will be the mean streets' most effective champion. A generally reticent, sometimes prickly man (he once got into a fistfight during a city council meeting), the mayor has some critics worried that he lacks the political finesse to get the job done. Then there's the long shadow cast by his predecessor. The most popular and charismatic mayor Philadelphia had produced in decades, Ed Rendell left office this year to chair the Democratic National Committee, handpicked for the position by Bill Clinton and Al Gore. His approval rating at the time of his departure was 77%.

The cult of Rendell reached national proportions following the publication of A Prayer for the City (Random House, 1997), a book by Buzz Bissinger that lauds the former mayor as a champion of beleaguered neighborhoods. Rendell also has his critics, those who argue that while the mayor turned around parts of the city, he largely ignored its most intractable section. "North Philadelphia has the worst slums I've ever seen in my life, equal to the South Bronx of the 1970s," says Fred Siegel, a senior fellow at the center-left Progressive Policy Institute, in Washington, D.C. "Rendell was a very good mayor who restored pride and fiscal stability to the city. But he fairly left North Philadelphia to fester and rot." Street has made saving Philadelphia's inner city a crusade, and many will judge his administration on that mission's success or failure.

Although urban poverty isn't among the top-tier issues being debated in the presidential race this year, Siegel believes it will command attention at the city level for some time. The story of Philadelphia's mayors demonstrates the current potency of the issue, even in a time of unprecedented national prosperity. "A long list of mayors are hot on this," Siegel says. "Interest in it goes coast to coast and cuts across parties, from Rudolph Giuliani in New York to Jerry Brown in Oakland. Everybody at this point at least pays lip service to this."

But if mayors agree that inner cities deserve saving, they don't necessarily agree on how to save them. Predictably, most fund a variety of business-development programs: tax breaks for businesses, low-interest loans, and the like. Beyond the basics, however, their strategies diverge:

  • In Indianapolis, former mayor Stephen Goldsmith cleaned up parcels of brown-field land adjacent to the interstate highways that bisect the city and then personally recruited businesspeople to locate new companies there.
  • In Charleston, S.C., Mayor Joe Riley heavily promotes tourism and uses the proceeds from a hotel tax to fund housing and minority-business-loan programs.
  • In Kansas City, Mo., Mayor Kay Barnes is upgrading inner-city housing stock, betting that good, affordable residences will attract people who in turn will attract businesses.
  • In Los Angeles, Mayor Richard Riordan is working with the large immigrant population to encourage start-ups in the city's burgeoning garment district.

Like anything that comes out of a city hall (or a statehouse -- or the White House, for that matter), policies for inner-city development have both their boosters and their detractors, and depend for their success, in part, on the administration's money-raising prowess and the mayor's talent for showmanship. What follow are profiles of four other cities whose mayors are making inner-city renewal a centerpiece of their administrations. The success or failure of those experiments will help write the rules of social and economic reform for years to come.

Support systems

  • Percentage of Inner City 100 companies that benefit from state, federal, or local government preference or set-aside programs: 22%
  • Percentage of Inner City 100 companies that benefit from tax incentives because of their location: 41%
How city programs stack up
Percentage of Inner City 100 CEOs who rate their city's outreach to their company as:
Excellent 16%
Good 30%
Fair 25%
Poor 21%
Very poor 7%

Note: Out of respondents. Does not add up to
100% because of rounding.


Cleveland

Mayor: Michael R. White (D)

First term: 1989 - 1993
Second term: 1994 - 1998
Third term: 1998 - present

The emphasis: The City of Cleveland closely manages an ever-expanding portfolio of funds that invest city money in inner-city housing and inner-city commercial real estate.

The programs: Cleveland has garnered plenty of publicity for such high-voltage projects as its new sports stadiums and the Rock and Roll Hall of Fame and Museum. But the city's real focus is set squarely on its inner-city neighborhoods, on which it spends $5 for every $1 invested in its downtown. Over the past 10 years Cleveland has spent $66 million on new commercial buildings and $10 million on new office parks in its depressed areas. An additional $47 million has gone toward new housing -- and that doesn't include money that helps homeowners attain loans for renovation and improvement. And there's a city land bank, which in the past 10 years has sold approximately 2,600 plots of unused city land for $100 apiece to people wanting to build homes or businesses on them.

The mayor says: White believes that a strong showing of commitment on the part of the city primes the pump for private investment. "We are creating an environment in which businesspeople want to invest money in the neighborhoods and start and expand businesses there," says the mayor. "But you can't take a one-size-fits-all approach to city redevelopment. Our strategies are not static. We learn from every investment. We tinker. We change nuances. We add to our portfolio of resources. At the beginning of the project we may need higher public investment, but as an area or project takes off, we can lower public investment and let private money finish the job.

"If Cleveland has proven anything, it's that cities can compete with anybody," adds White. "If the suburbs have decent parks, then we can have decent parks. If they have good housing, then we can have good housing. If they have affordable commercial space, we can have that, too."

Supporters say: Those in the business of reviving Cleveland's faded housing stock are ground-zero observers of White's strategy. "If it weren't for White and his administration, my company wouldn't be able to do what it does," says Kenneth Lurie, CEO of Rysar Properties (#52 on the Inner City 100), which refurbishes single-family homes. Lurie ticks off a laundry list of incentives from which he's benefited: "We've utilized land-bank lots in the city. I get a 15-year tax abatement and second-mortgage dollars for my buyers. But what White's done more than anything else is worked with local banks. He said, 'Listen. You guys have redlined long enough. We need interest rates that are good for the people who are going to live in the city of Cleveland.' Now my buyers can have one and a half or two points under market-rate prime on a 30-year fixed mortgage. That's due directly to his efforts."


"If Cleveland has proven anything, it's that cities can compete with anybody."

--Michael R. White, mayor of Cleveland

Skeptics say: Although the inner-city infrastructure is looking better, the mayor's programs haven't lifted many people out of poverty, according to George Zeller, senior researcher at the Council for Economic Opportunities in Greater Cleveland, a nonprofit that collects statistics on poverty. Zeller reports that, from 1986 to 1997, the average income dropped 10% in Cleveland while in the state of Ohio it saw an overall increase of 5%. That's in part because the city has been losing high-paying blue-collar jobs and gaining jobs in the service sector, where salaries are, on average, lower by about $13,000.

"40% of people in the city live in poverty," says Zeller. "Large geographic portions of the city are overwhelmingly populated by poor people who are not rising out of poverty despite the good economic times the nation's in. This is the problem the mayor recognizes, and he'd like to do something about it. He's done a lot of things, but all that stuff he's done didn't raise the incomes of the people of the city of Cleveland. Take that housing stuff, for example. It was good for the neighborhoods. But what did it do for the poor people? It did nothing for them. In fact, it might have hurt them because as home values go up in neighborhoods, rents usually rise."

The last hurrah: Academics hold up White's inner-city development program as a model for other cities. But the mayor's ability to attract private money may be hamstrung by strained relations with Cleveland's business community, which wants White to jump-start dormant airport and convention-center projects.


Denver

Mayor: Wellington E. Webb (D)

First term: 1991 - 1995
Second term: 1995 - 1999
Third term: 1999 - present

The emphasis: Unlike Cleveland, Denver stresses investment in the city's commercial downtown, betting that a rising tide of development there will lift the fortunes of blighted neighborhoods nearby.

The programs: The city has spent hundreds of millions of dollars enhancing Denver's downtown with projects ranging from libraries to ballparks. As for inner-city investments, Bill Lysaught, deputy director of small business for the Mayor's Office of Economic Development and International Trade, reports that his agency lends about $5 million of gap financing a year to 40 local businesses -- 80% of which are located in the city's 16 poorest neighborhoods. Lysaught also doles out $225,000 to seven inner-city neighborhood associations to coordinate events like the Juneteenth and Cinco de Mayo celebrations, which forge bonds within neighborhood retail communities and draw crowds to the area. In addition the city spends $750,000 annually for new sidewalks, streetlights, and trees in inner-city commercial districts, and $1.5 million recruiting companies to relocate to or expand into those areas. To foster homegrown entrepreneurship, Denver funds an incubator for light industrial ventures and recently financed the construction of a 7,900-square-foot kitchen to be used by inner-city residents who are interested in becoming food producers, vendors, and caterers.


"People's perceptions of cities are based on how their downtowns work."

--Wellington E. Webb, mayor of Denver

The mayor says: Webb feels that as the downtown goes, so go the surrounding neighborhoods. "A city's about energy, vibrancy, and liveliness," he says. "It's about sports and opera and ballet and theaters and restaurants. That's why people move to cities. And people's perceptions of most cities are based on how their downtowns work. When a downtown goes downhill, the adjacent neighborhoods go off, too. As we've built up our downtown, we're also helping those adjacent neighborhoods and creating a closer linkage between them. One thing we're doing is getting a grant to create higher density in neighborhoods that have a high number of vacant properties. Some people perceive density as a bad word. But the greatest cities in the world -- New York, London, Paris -- all have high density. You need a certain amount of density to maintain a neighborhood and to keep merchants living and residing there."

Supporters say: Randy Jones approves of Denver's focus on its downtown, which he says hasn't prevented investment elsewhere. "Once he got the core secured, Mayor Webb expanded his programs into inner-city neighborhoods," says Jones, cofounder of sports-equipment manufacturer Classic Sport Cos. (#6 on the Inner City 100). Jones recalls moving to Denver in 1994 from Fort Collins, Colo., a small town that's an hour's drive north. "We felt it would be easier to do business in a bigger city, because we'd be closer to suppliers and distributors," says Jones. "At first we moved into the Denver Enterprise Center, which is a nonprofit business incubator started by the city. We had bullet holes in our windows and in some of our basketballs. The area's changed a lot since then. Mayor Webb has also been responsible for some federal funds coming into the neighborhoods. And there are more jobs here. Every year it gets better. In 1998, we moved out of the incubator and bought a building in an area that's similar to where we were. The Office of Economic Development helped us by making capital available through loans. We've had two separate $100,000 loans through them. And now we've grown from 4 to 100 employees. That's a lot of jobs for the city."

Skeptics say: The Reverend Gill Ford chides Webb's administration for spending more federal dollars on sports facilities than it does on business incubators. "I want the mayor to do what he's supposed to do, which is to manage the whole city and not just certain segments and parcels of it," says Ford, president of the Colorado-Wyoming-Montana state conference of the NAACP and one of Webb's opponents in the mayoral election last year. "One of the issues that got the mayor real mad at me was that I pointed out that people have to use a gallon of gas to get a gallon of milk. That's how far grocery stores and hardware stores are from some neighborhoods. Denver has a high sales tax compared to surrounding areas, and I would advocate a sales-tax cut in a minute. That way, we could get businesses right on the outskirts of Denver to move into Denver. We have more areas where they can move into, where their profit margins aren't going to suffer, and where there are a lot of customers."

The last hurrah: Ultimately, Webb's greatest contribution may be the exposure he's given to inner cities while serving as president of the U.S. Conference of Mayors and first vice-president of the National Conference of Black Mayors.


Chicago

Mayor: Richard M. Daley (D)

First term: 1989 - 1991
Second term: 1991 - 1995
Third term: 1995 - 1999
Fourth term: 1999 - present

The emphasis: Chicago encourages inner-city self-sufficiency by turning a neighborhood's new property-tax revenues into an investment in that area's prosperity.

The programs: Daley's administration oversees several economic-development programs, but it is exceptionally bullish on the Tax Increment Financing program, or TIF. Here's how it works: the city designates a blighted neighborhood as a TIF district. It then helps companies in that district by subsidizing land acquisition, business expansion, facility rehabilitation, and employee training, using funds that are raised, in part, through the issuing of city bonds. To sweeten the pot, Daley's administration mandates that all the new property-tax revenues generated by a TIF district be spent on projects in that neighborhood. Taxes from new companies started in TIF districts will continue to be returned to their respective neighborhoods for 23 years.

When Daley entered office 11 years ago, there were only 15 TIF districts in Chicago; today there are more than 90. From 1984 to 1998, TIF districts received $527 million in funding. Last year alone, 11 new TIF districts were created, and $87 million in loans and bonds was invested in all TIF districts.

The mayor says: Daley thinks reinvestment is the key to solving what he sees as a formidable problem: keeping growing companies in inner cities once they become prosperous. "While our country has enjoyed a robust economy, urban areas face the unique challenge of retaining the very companies that have benefited from economic prosperity," he says. "I have created economic-development tools and policies my administration can utilize to help these businesses grow and expand -- whether it's through financial assistance, assembling land for new development, or strengthening our infrastructure to meet the needs of the new digital economy."


"Urban areas must retain the very companies that have benefited from prosperity."

--Richard M. Daley, mayor of Chicago

Supporters say: Having grown up in a housing project in Chicago, Martha Williams always wanted to keep her manufacturing operations in the city. But her company -- StyleMaster Inc., a maker of large plastic storage containers for the home -- required a lot of space to house injection-molding equipment and store inventory. "I went to the Department of Planning with my objectives, and they looked all over the city to find space and to see what we could do with TIF financing," says Williams. "They came up with some land in the heart of the city. We can put all of our operations in the building we're going to build. It's going to be a million-and-a-half-square-foot project put up in two phases." The city contributed $14 million in TIF money for StyleMaster's building, which is located on the city's depressed South Side, and $900,000 for it to train new workers. (Williams will also benefit from the $6.6 million that the federal government lent the city to clean up her land.) "I'm seeing terrific progress in the city of Chicago," says Williams, who expects ultimately to grow StyleMaster from 150 employees to 600. "I see buildings going up and businesses taking advantage of TIF: locating in neighborhoods, demolishing buildings, and buying land."

Skeptics say: The Daley administration is far too reliant on TIF, according to Jacqueline Leavy, executive director of the nonprofit Neighborhood Capital Budget Group. "The TIF program is pretty much the only basket Daley's putting many eggs in," she says. Leavy adds that the administration has lost sight of which areas truly need the aid, and that as a result "the city has overutilized TIFs in the burgeoning downtown and lakefront neighborhoods." She argues that relatively healthy TIF districts naturally attract more developers than their hard-hit counterparts do, creating a situation in which more tax money goes right back into the healthier districts. By law, the city can't spend one cent of the bonanza from the more robust TIF districts to pay for services in those still struggling, unless they share a common boundary, resulting in a broadening of the division between haves and have-nots. Finally, Leavy worries that concentrating on the city's parts could endanger its whole. "We have grave concerns about the fiscal responsibility of TIF-ing so much of the taxable base," she says. "The city's general coffers will have to forgo the benefit of that additional tax revenue for a 23-year period."

The last hurrah: TIF's future looks bright thanks to the enthusiastic -- if parochial -- support of many of the city's politicians. "Every alderman says, 'TIF my ward -- please!' " says Leavy. "It's like a bad Henny Youngman joke."


Austin

Mayor: Kirk Watson (D)

First term: 1997 - present

The emphasis: Austin wants to populate its inner city with small businesses, large tech companies, and even academic institutions drawn from other parts of the city and region.

The programs: The Austin Revitalization Authority (ARA) is spending $86 million through 2005 to redevelop and stabilize the city's most distressed district, in the central part of East Austin, starting with the construction of a 40,000-square-foot retail and office complex. The city has qualified much of that area for federal loans, in hopes of encouraging indigenous businesses to remain there and expand, and outside businesses to relocate there or expand into the area. Other betterment initiatives include beautification, the demolition of derelict buildings, historic preservation, home construction, and storm-water drainage. In addition, the ARA is trying to attract restaurants and clubs to the area in order to create the vibrant nightlife young professionals look for.

A fiber-optic cable already runs through the neighborhood, and the city is negotiating with three companies to provide Internet access to every building in East Austin. That may help Austin capitalize on its growing reputation as a technology center: the ARA has sent out feelers to Dell, Samsung, and Microsoft about locating offices in the area. Another prospect is the incubator of the University of Texas. "I'd say we have a 50-50 chance of getting them," says Byron Marshall, interim executive director of the ARA. "If we do, we might be able to get the start-ups spun out of the incubator to stay here as well."


"People are starting to realize that East Austin has become an economic engine."

--Kirk Watson, mayor of Austin

The mayor says: When Watson was elected mayor, he named East Austin his first priority. But local politics stymied his efforts on behalf of that area. Meanwhile, private investment in the city's burgeoning downtown rapidly eclipsed inner-city projects. Now Watson believes interest in East Austin is picking up. "It's becoming much easier to recruit business to East Austin," he says. "I get people contacting me all the time about this. It's not so much 'What can the city do for me?' as 'This looks like an area of exciting opportunity.' People are starting to realize that an area that appeared not to be a potential economic engine -- well, now it is."

Supporters say: Bob Foster's Equix Advisory Corp. has refurbished three East Austin buildings for new tenants: an advertising agency and two high-tech companies. Tech companies are easily wooed, he says, by the neighborhood atmosphere, the cheap space, and the bandwidth. And while Foster hasn't used any of the ARA incentives, he has on several occasions asked for Watson's aid in cutting through the development bureaucracy. "The mayor's been a dynamo," Foster says. "The development process can only be described as a meat grinder. In the 1960s and 1970s a fabric of 'antigrowth good intentions' was woven into the system that makes doing anything -- good or bad -- very difficult. The mayor is willing to get right in the middle of a bureaucratic muddle -- to wade right in and say no to people. He's been really, really aggressive."

Skeptics say: City Councilman Gus Garcia, an East Austin representative for nine years, says that the city council hasn't done enough to help private investment in the inner city catch up with that of the downtown. "East of Interstate 35 is not where the emphasis is," Garcia says. "All the development has been downtown, and the distressed neighborhoods are still distressed. The city has dedicated small amounts of money to distressed areas, but there hasn't been a capital injection by the private sector. This mayor has moved more things than the others. And the city has gone in to help neighborhoods to develop a good plan. But the neighborhood plans are relatively new, and they need implementation strategies."

The last hurrah: With five years left in the first phase of ARA's grand plan for East Austin (a second phase will last through 2013), Watson's legacy as an inner-city reformer has yet to be written.

Mike Hofman is a staff writer at Inc.

For a detailed list of Inner City 100 companies, please see The Inner City 100: America's Urban Superstars.


Please e-mail your comments to editors@inc.com.

Last updated: May 1, 2000




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