The Untapped Urban Market:
Attracting Business to the Inner City

Session Summaries

Welcome and Opening Remarks

Barbara Walter
Barbara Walter, senior vice president and branch manager of the Buffalo Branch, Federal Reserve Bank of New York, opened the forum by affirming the Federal Reserve System's commitment to local markets. "We all know that it's really people who drive the economy," she said. "We do follow Wall Street developments. But we have to also know about Main Street."

Irene J. Elia
Irene J. Elia, the mayor of Niagara Falls, New York, focused her opening remarks on the economic plight of her city. She described the flight of factory jobs (and ex-factory workers) from Niagara Falls and the inability of the city to attract much new employment, a problem she blames in part on the notoriety of Love Canal. Yet there was a positive aspect to the Love Canal crisis, noted Elia, as it led to a local grass roots effort that raised national awareness of toxic dumping and helped to launch a broader environmental movement.
Mayor Elia then explained her plan for revitalizing the Niagara Falls economy, which includes as a key component the further development and promotion of nature tourism. She believes the experience of the mighty waterfall can be enhanced through improvements to the surrounding state parkland and the addition of a network of bike and walking trails. Mayor Elia also stated that more must be done to encourage the development of information technology companies in the region, noting the lack of software publishers, computer or electronics manufacturers, and systems design firms. A former educator herself, the mayor stressed the importance of workforce development in the new economy and promoted more skill-based education in local public schools. She also described another aspect of the city's plan: an aggressive "Come to Niagara Falls" marketing campaign aimed at attracting tourists, businesses and residents.

Session I

The major trends affecting urban and inner-city markets and a new competitive cities agenda designed to stimulate neighborhood and city revitalization
Bruce Katz, a senior fellow at the Brookings Institution and founding director of its Center on Urban and Metropolitan Policy, was the conference's featured speaker. He reviewed the major trends affecting urban and inner city markets and described a new competitive cities agenda designed to stimulate neighborhood and city revitalization. During his presentation, Katz placed inner cities within a larger city context-as disadvantaged communities within central cities that are already struggling with demographic change, population loss, and economic decline. While central cities are showing some signs of recovery, that recovery is highly uneven and most cities still carry the brunt of their region's social problems. For example, central cities continue to bear an inordinate share of the burden of poverty, according to Katz, in part because of practices like exclusionary zoning, which limit the amount of affordable housing in the suburbs. For the good of metropolitan areas as a whole, Katz said, central cities and suburbs must plan together: city decline leads to suburban problems as well, such as increased traffic, the loss of farmland, and the need for increased government spending on new infrastructure.

Katz then stated that current inner-city economic development strategies such as microlending and empowerment zones were marginal and fragmented, and thus unable to affect real reform. He outlined new policies designed to promote systemic change and develop true economic competitiveness. As a first step, Katz said that cities must "know their context," recognizing such factors as economic and social trends, and regional assets and liabilities. For example, he noted the importance of acknowledging demographic shifts-"the need for cities to know who is living there," and pointed out that European Americans are now a minority in the city of Buffalo. From 1990 to 2000, the share of Buffalo's population that was African-American, Hispanic, or Asian rose from 37 percent to 50 percent, reflecting shifts seen in cities across the nation.

Next, Katz said, cities need to provide the basics: good schools, safe streets, competitive taxes and services, modern infrastructure, and a functioning real estate market. On the issue of safety, he noted the need for addressing the perception of crime, which often exceeds the reality in inner cities. Katz said that the misperception is in part attributable to such common city afflictions as abandoned housing and overgrown vacant lots. Katz also stated that cities must deploy targeted skills training to meet the labor needs of businesses, stressing that "as long as workforce development projects are not linked to the job market, they're not worth anything."

As a caveat, Katz said that communities should not expect major federal legislation geared toward cities, but instead must take the initiative to promote change at the state and local level. He outlined several examples of state and local policies designed to improve the quality of life and encourage investment in inner cities. Katz said that Maryland's Smart-Growth Neighborhood Conservation Act of 1997 helps to maintain a balance between road expansion or widening and preserving the quality of life in urban neighborhoods. He also referred to New Jersey's Rehabilitation Code of 1998, which made it easier for residential and commercial property owners to meet code requirements and allowed more flexibility in the use of their buildings. Katz also described Philadelphia's Neighborhood Transformation Initiative, a $1.6 billion dollar 5-year program to remove blight from Philadelphia neighborhoods.

Session II

The competitive advantage of inner cities: Achieving a sustainable inner-city economic base through private, for-profit business development and investments
Claire Kaplan, a vice president at the Boston-based Initiative for a Competitive Inner City (ICIC), began her presentation by explaining that inner-city residents have a significant yet often underestimated collective buying power. While many American firms are anxiously looking overseas for new markets, Kaplan noted that annual retail spending of U.S. inner-city residents equals the retail spending for all of Mexico. There is an untapped labor market in inner cities as well, she said, which represents an inefficient use of human resources.

ICIC, a nonprofit organization that assists municipalities in devising economic strategies for their inner cities, is founded on the belief that a sustainable inner-city economic base is possible only through private for-profit business development and investment based on genuine competitive advantage. Kaplan said that inner cities have a number of competitive advantages that can help certain businesses thrive. For example, inner cities are typically centrally located and proximate to transportation infrastructure nodes, allowing quick access to regional markets. Inner-city locations often have extensive telecommunications infrastructure as well, along with a pool of available labor. Kaplan acknowledged that inner-city locations also present challenges, and said that communities must tackle these issues to attract business investment. Foremost among concerns is safety-but Kaplan believes that sensationalized reporting of inner-city crime by local media outlets often exaggerates the problem and can undermine new investment.

Despite the challenges of an inner-city location, however, many businesses are growing rapidly, Kaplan said. ICIC and Inc. Magazine jointly compile an annual list of the 100 fastest growing companies in America's inner cities. In 2001, 5 of the recognized companies are located in Buffalo, a tie with New York for second place. (Chicago was first with 10.)
One of the Buffalo companies that made the list is Lifestyle Street Gear, an urban clothing chain. Kaplan noted that the retailer is successful in part because it understands and caters to the inner-city market. The local entrepreneur who started the firm now spends a good portion of his time mentoring other small businesses through the University of Buffalo's Entrepreneurial Center. Such university-business partnerships are an important tool in promoting inner-city economic development, according to Kaplan. "It's good for cities to use higher education and business schools for local economic planning and entrepreneurship training," she said.

Session III

A private-sector model for rebuilding inner-city competitiveness: Lessons from MidTown Cleveland
Margaret Murphy, a consultant and founding director of MidTown Cleveland, a nonprofit, private sector-driven inner-city redevelopment initiative, presented an example of successful inner-city business development on a large scale. MidTown Cleveland was established in 1982 to revitalize an older inner-city commercial and industrial area that lay along a proposed light-rail transit corridor between Cleveland's downtown and its university district. Although the railway was never built, the development initiative took hold. Eighteen years later, the formerly struggling area has seen $500 million in new investment and the creation of 425 new companies and 5,500 new jobs.

Foremost in the success of MidTown Cleveland was the development and maintenance of an organization based upon stakeholder enlightened self-interest, Murphy said. Composed of businesses, nonprofit agencies, labor unions, and other property owners throughout the 55-block MidTown area, the organization provided the leadership, influence, financial resources, and long-term support that were essential for the turnaround.

"I hate to say it, but there's nothing more important than the 'Old Boy Network,'" she said, advocating the formal and informal networking sessions that took place among MidTown members and between the organization and other community leaders in the Cleveland area.

Together they concluded, not surprisingly, that confronting the safety issue was one of the first orders of business. "We recognized that inner-city areas that reflect a war-zone image-barbed wire, bars over windows-are not going to be competitive," she stressed. Murphy then told of the success merchants had when they pooled their money to pay for security patrols, street cleaning, and beautification projects. Murphy also praised MidTown's cooperative advertising of entertainment events and street festivals, and joint public relations campaigns that helped to alter how the area was perceived.

But the challenges of inner-city redevelopment were underscored by Murphy's description of MidTown's attempt to create an industrial park that could compete with suburban locations. The need for large tracts of land for the project meant that MidTown had to assume the role of real estate developer, and the process of land assembly and clearance proved formidable for the nonprofit organization. With such problems as uncertain property ownership, recalcitrant property owners, environmental damage from previous industry (brownfields), and the cost of relocating displaced businesses and residents, MidTown discovered that the process required an enormous amount of capital, time, and labor. Because of these constraints, MidTown was forced to continue an "infill" strategy rather than attempt massive land clearance.

Session V

Catalyzing inner-city neighborhood retail and business strip development by supporting community development corporations
P. Jefferson Armistead, senior vice president for national initiatives at the Local Initiatives Support Corporation (LISC), highlighted a success story of particular interest to many of the conference attendees: the development of a supermarket in inner-city Manhattan. (The lack of a supermarket on Buffalo's East Side has been a concern in recent years.) Armistead described the role that community development corporations can play in easing a retailer's entry into this kind of underserved market.

LISC is a national nonprofit organization that acts as a catalyst for neighborhood redevelopment by channeling grants, equity investments, and loans to community development corporations. In 1993, LISC began working with the Abyssinian Development Corporation and the Community Association of the East Harlem Triangle, to attract food retailer Pathmark Stores to an East Harlem neighborhood. With 145,000 residents living within a one-mile radius of the store's proposed location, the community had a large untapped retail market. But showing that a market exists is only one of the hurdles that must be overcome in persuading a retailer to locate in an older inner-city area, according to Armistead. "Yes, there is a market there, but it often takes a great deal of time and work to gain access to it," he said. "It's always more expensive than you realized; that's not necessarily a problem, but just something you have to deal with."

In addition to providing a grant and loans for the project, LISC helped the community development corporations access other sources of funding, negotiate the city's zoning and workforce requirements, and answer neighborhood residents' traffic and environmental concerns. Pathmark signed a 25-year lease to operate at the location in 1996, and opened its 50,000 square-foot supermarket on Harlem's busy 125th Street in April 1999. Although Pathmark executives knew the investment might be costly, they were surprised by the return on their investment. "Their new inner-city stores are among their top stores on the profitability chain," Armistead said.

Session VI

A community development bank's role in strengthening inner-city markets for business investment and growth
Shorebank's Shelly Herman described how community development bank's can make a difference in distressed neighborhoods by providing capital to local residents. Shorebank has been operating in south and west-side neighborhoods of Chicago since the early 1970s, providing a variety of financial tools to low-income families and small and mid-sized businesses. Through these efforts, according to Herman, the company has developed expertise in strengthening underserved markets for business investment and growth. She said that Shorebank is now using this market intelligence to help companies make decisions about locating, marketing, and operating in urban communities.

As an example of Shorebank's advisory service, Herman described how the company helped Home Depot move into Chicago's South Shore neighborhood. Herman said Home Depot's regional managers were at first reluctant to consider a new store in the city. According to the company's revenue projections, suburban locations would be far more profitable since residents there had higher median incomes. But Herman and her staff pointed out that the collective buying power of residents near the proposed inner-city site would be enough to sustain the "big box" retailer because the neighborhoods had a high population density. Home Depot eventually placed the store in the city and found that Shorebank was right. "That store is doing at least triple what it was projected to do," she said. According to Herman, this example underscores an important point about inner-city retail development: retailers usually use suburban models to make store location decisions, and these models often miss business opportunities in urban communities.

While attracting national retailers like Pathmark and Home Depot to underserved communities is an important component of inner-city redevelopment, it is only one among many strategies. Another way to bring business back to the inner city is to help local residents start businesses in their own neighborhoods. Herman outlined a program founded in 1996 called "The Runner's Club," a micro-business incubator similar to those developed by the U.S. Small Business Administration. The club gives start-up and financial management advice to adult and youth entrepreneurs; she cited the success of one group of young club members, who made $200,000 in sales their first year.

Session VII

Public and private incentives designed to encourage inner-city development and redevelopment
Robert Bannister, the director of Fannie Mae's Western and Central NY Office, focused a good portion of his remarks on the federal government's role in inner-city revitalization. He described the Community Renewal Tax Relief Act of 2000, characterizing the legislation as perhaps the most sweeping federal policy to assist distressed communities since the UDAG program (Urban Development Assistance Grant). The Community Renewal Tax Relief Act of 2000 contains a number of provisions that are designed to spur investment in inner-city communities, such as increasing the amount that States can issue in tax exempt bonds, expanding and extending the benefits of empowerment zones, and establishing a new tax credit for equity investments in selected low-income neighborhoods.

The act also establishes 40 so-called "renewal communities." Bannister said that those areas fortunate enough to be chosen, as renewal communities will be able to offer additional firm specific tax incentives that would be powerful tools for attracting business investment in distressed neighborhoods. The Secretary of Housing and Urban Development, in consultation with other Cabinet Secretaries, will select renewal communities in areas demonstrating general economic distress, pervasive poverty and high unemployment. Bannister said that the local Fannie Mae office was actively involved in efforts to obtain a renewal community for the Buffalo-Niagara area, which he believes is one of the most deserving areas in the nation.

Session VIII

Panel Discussion
The event culminated with a lively and informative panel discussion as the lineup of national speakers and some local urban experts faced a round of questions from conference attendees. Much of the session revolved around the remarks of Henry Taylor Jr., an associate professor with the University at Buffalo Department of Planning and director of the university's Center for Urban Studies, who explained what the research activities of the Center have revealed about economic development in Buffalo's urban core.

Taylor took issue with the notion that the lives of inner-city residents will be appreciably improved simply by locating businesses in urban communities. He said that there are already a significant number of jobs in Buffalo's inner-city neighborhoods, but these jobs are often unavailable to the people living nearby. As an example, Taylor cited the heart of Western New York's health-related industry, which is located in one of Buffalo's poorest communities. He said that this agglomeration of hospitals, medical offices, and educational and research facilities provides thousands of inner-city jobs, but the neighborhood still has an unemployment rate of more than 25 percent. One solution, Taylor believes, is to link job-training programs to the needs of local businesses. "Economic development does not work by itself. It has to be coupled with workforce development," he said.

Taylor also said there should be more support for neighborhood businesses, noting that this is one way to truly create inner-city wealth. He encouraged programs to provide more start-up loans and tax incentives for small business owners and other efforts to promote inner-city entrepreneurship. Taylor believes that too often the focus is on large-scale economic development projects, which he said do little to benefit inner-city residents and often lack community input.

But others pointed out that the reluctance of citizens to participate actively in community issues is a problem in its own right. Before taking an outreach position with a Buffalo organization called Heart of the City Neighborhoods, Richard Morrisroe taught at a public school in one of the neighborhoods Taylor described. "The apathy in the community was staggering, Morrisroe said. "If I could get more than 2 percent of my parents to come to a PTA conference, I was happy."

LISC's P. Jefferson Armistead noted that community development corporations are one way to facilitate community participation. "Community development corporations play a powerful role in expressing dreams and hopes in a community," he said. And Armistead believes that residents can be instrumental in catalyzing revitalization of their own neighborhood. As the conference came to a close, he described "the 'paradox of small beginnings.' We've seen some remarkable changes that started with just one house, and then one block, and then a whole neighborhood," he said.

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