This is an adapted excerpt version of Democracy Collaborative Executive Director Ted Howard's presentation to a four-city teleconference organized by the regional Federal Reserve Banks in Baltimore, Cleveland, Detroit and Philadelphia. The full transcript of his remarks is below:
The New Rustbelt – Presentation by Ted Howard at the Federal Reserve Bank of Cleveland
October 25, 2013
Greetings everybody in Baltimore, Philadelphia, Detroit and here in Cleveland. My name is Ted Howard and I’m the Executive Director of the Democracy Collaborative, which is based at the University of Maryland. I’m going to give you a bit of our perspective that informs the presentation of what we call the Anchor Dashboard, so you’ll understand, if you will, our perspective, agenda, and biases because all this research, of course, comes from a certain perspective about what’s needed in our communities and economic development.
So to begin, a few words about the Democracy Collaborative
. As I said, we’re a center at the University of Maryland at College Park. It’s a land-grant institution. Land grants, as you know, began in 1863 under Abraham Lincoln, so the whole concept, which is very much a state- and community-building concept, is 150 years old this year. Our mission is to promote innovations in what we call community wealth building in order to ensure prosperity and stability in our communities and particularly in low- and moderate-income neighborhoods.
Our work is three-fold. We do a great deal of research, and that research is what we’ll be talking about today in terms of anchor institutions. We do advisory work; that is, consulting and working with community foundations, anchor institutions, and cities to help them design their own wealth building strategies and leverage their resources for local benefit. And we’re very interested in helping to build out the field in economic development of community wealth building—by which we mean those groups such as community development corporations, social enterprises, land trusts, community development finance, employee-owned firms, cooperatives, and so forth, which we think pose a real alternative to how a great deal of economic development has historically in recent decades been practiced in the United States.
These are some of our research reports. You can see, we principally, in terms of anchor institutions, focus on what are called the “eds and meds,” although we have done work in some other fields. These are all downloadable from our website for free, community-wealth.org.
So what do we mean by community wealth building? Like I said, it’s really an approach to economic development that is focused on democratizing wealth and ownership. We are very interested in broader ownership structures over capital. In other words, how do we get more people in the game and owning a piece of equity or the asset in which they work? So that rather than just a job, they have a wealth building opportunity if those companies are successful. We’re very interested in how we anchor jobs locally. You know many of our Rustbelt cities used to have more Fortune 500 corporations headquartered in them than any cities in America except for perhaps Manhattan, New York City. For most of these cities, most of the large Fortune 500 corporations have exited. So how do we create businesses and jobs that are rooted locally and tend not to get up and leave? Community wealth building is very interested in this question of how do you keep money in your community and keep it circulating, rather than exiting?
By way of example, here in Northeast Ohio, where I speak to you from [Cleveland], there’s a study done, I believe, at Cleveland State University that shows something on an annual basis in the 12-14 county area of Northeast Ohio, there are approximately $8 billion of foodstuffs being purchased every year. But of those $8 billion, only about $300 million of it is either grown or has value added here in Northeast Ohio. So you have these huge flows of money exiting our communities, in this case, principally going to California, Arizona and the like—so how do we get a multiplier effect in terms of those resources? And very importantly, community wealth building is interested in the role of legacy institutions, anchor institutions in the community, where in cities like all of ours, which used to be enormous manufacturing and industrial giants, where much of that has gone away. What’s remained are the institutions that were built during that period of the 40s and 50s and early 60s. Legacy institutions here in Cleveland, they would be Case Western University, Cleveland Clinic, University Hospitals, the Cleveland Museum of Art and so forth, anchor institutions.
So what is an anchor? Most people in this video conference will know because I think a lot of you work in this field, but very quickly, they are sticky capital: the kinds of institutions rooted in place that rarely exit their communities. And therefore, they can be counted on as employers, purchasers of goods and services, investors and so forth. Typically, they are among the largest employers. In many of our cities, five of the top ten employers are non-profit anchor institutions. They are local economic engines. Here in the University Circle area of our city [Cleveland], where the anchor institutions are clustered, roughly 50,000-55,000 people come to work in those institutions every day: they are major employers in the region.
Because they can’t exit our communities, they have, in fact, a vested interest in insuring that the community around them is safer, healthier, more vibrant. After all, if you’re a hospital, and the neighborhoods around you are collapsing and are widely perceived to be dangerous and are being reported that way in the news, or if you’re a university and you’re in the same situation, people are going to go to another hospital for their healthcare. Parents are going to send their kids to another university where they think it’s safer. So there’s certainly a vested interest in helping the communities around these institutions.
Typically, anchors are non-profit—they have a social mission. I like to think of them actually as somewhat quasi-public. While they are private institutions and usually non-profit, the amount of public resources that flows into hospitals and universities is absolutely enormous. So there’s a somewhat quasi-public nature to them.
Yesterday, and I look around the room, some of us were in a conference here in Cleveland with the Initiative for a Competitive Inner City (ICIC), Michael Porter’s operation, and there was talk about anchor institutions there, and there’s a real question of “are there for-profit anchor institutions, if there are companies that have been in this community for some time?” My own view is that for-profit corporations can exhibit anchor-like behavior, but if the nature of an anchor is being truly rooted in place, then enterprises that are controlled by outside investors who may not live in your community and who are seeking to maximize shareholder value even if that means moving the business to another city or country, they’re not as reliable as the large hospitals and cultural centers and universities that are truly rooted in place.
So types of anchors, we talked about eds and meds. Local government, obviously: the government of Cleveland—at least the last time I heard—was not planning to move to Phoenix or off-shore to China. Museums, certainly. They don’t tend to be as large employers or purchasers of goods and services, but museums certainly are anchors. I was just in New York last week on a panel with someone from the Tate Modern Museum in London that has a very aggressive (in the best sense) community outreach effort and buying local effort. Performing art centers, libraries. On that same panel was the CEO Tony Marx of the New York Public Library System. Sports teams. It’s a little bit of a gray area. Those of us in Cleveland and Baltimore know what happens with sports teams on occasion. But generally, they tend to stay in place. And often churches, religious institutions, can be considered anchors.
So just a word about the economic dimension of what we’re talking about. This economic dimension is particularly what The Democracy Collaborative focuses on. If you were to aggregate the economic activity of all the eds and meds, those many thousands of institutions in the United States, put it all together into one pot—you would find that they conduct $1.2 trillion in business every year. That’s about 6% of the GDP of the United States. But most of their spending is not being done with an eye to how to produce tangible benefits in our communities. So there is a great untapped potential to build a conversation within these institutions, and there are some very good early adopters of local procurement strategies including in the cities that are on this call.
And in terms of the endowments, what’s invested to generate revenue, that totals to three-quarters of a trillion dollars. Again, while there are some early adopters on the procurement side, there’s almost always a firewall between the investment side and the social mission side. Virtually no institutions are investing their resources with a metric like: how do we invest locally to get a reasonable return, but to support our community? One of the best national examples happens to be here in Ohio at the University of Cincinnati; they have a billion dollar endowment roughly, and under Nancy Zimpher’s leadership (she’s now the chancellor of the SUNY system in New York) the board committed to putting $100 million, 1/10th of the endowment, into what was essentially a 4% program-related investment strategy targeted at low- and moderate-income neighborhoods in Cincinnati. That’s now subsequently gone up to $125 million.
So we at the Democracy Collaborative talk about an anchor mission. Now most people tend to think about a hospital in terms of providing healthcare and research and so forth. Most people think about a university in terms of teaching, service, and research. But we step back and look at what we call the anchor mission: when an institution really looks at itself deeply and harmonizes its economic power through hiring, investment, and spending, in combination with its human and intellectual resources, to specifically conduct itself as a business (maybe a non-profit business) in a way that benefits and increases the welfare of its surrounding communities.
We are particularly interested at the Democracy Collaborative in low- and moderate-income neighborhoods. A lot of anchor institutions, and you see these reports all the time, we’ve all read them, talk about the contribution they’re making to the regional economy. They’re creating 30,000 jobs, they’re putting $300 million into the regional economy, and so forth, and all of that is good, but the question is: is that filtering down or trickling down (even though we don’t like to talk in that way), into the core urban area? And I think we all know the answer: generally not. It’s good that there’s a regional benefit, but unless there is a concerted focus on local and neighborhoods and low- and moderate-income residents and how they, too, can benefit, what you’ll have is the donut being hollowed out in our cities, with the counties and suburbs benefiting from these activities, but not the residents of our core urban areas.
Actually, let me pause and just acknowledge two people who are there in Baltimore. Charles Rutheiser of the Annie E. Casey Foundation is there (hello Charles!); it’s the Casey Foundation that has funded this research because of its concern for low- and moderate-income neighborhoods. I would also like to say hello to Sarah McKinley, who is one of the three co-authors, along with me and our research director Steve Dubb, of this Anchor Dashboard, and she’s also in Baltimore.
So why did we create this dashboard? Very simply this: there’s growing recognition among anchor institutions that local community economic development efforts are in their self-interest, and part and parcel of what they should be doing. Fifteen years ago, that would’ve been a harder sell. Generally, institutions now believe this. And so as a result, these kind of economic development initiatives are proliferating all over the country. In every city, there are activities where anchors are trying to improve the local community.
But the question is, how do these institutions know if this is working? After all, these are people that are administrators of hospitals, or procurement officers; they don’t have a background in community economic development. They’re just trying to do something to improve the community at large. So if they’re truly concerned about low- and moderate-income neighborhoods, how do they know if their initiatives are working? Is all of this activity—sometimes a frenzy of activity—actually changing the indicators in the community so that life is improving for the people who live there?
One of the nasty truths about a number, historically, of these large anchor strategies (and some that are still going on today) is that in an effort to improve the community, what’s happened is that the historic population—usually a population of people of color who have lived in these neighborhoods—have been priced out of living there. The nastier way to say it is that the whole community has been blown apart. I lived in Washington, DC, for decades and I used to go to areas of Washington, DC, that when I walked down the street I was the only white person walking down the street. And when I walk down the streets now, everybody looks like me, except they’re younger and hipper. Where did all those people go? They were blown out as prices rose. It’s not that institutions want to do that. It’s that if we don’t focus on the right measures, metrics, and indicators and track them over time, we can start a process that gets out of control.
In some cities, in fact, the commitment to improve the neighborhoods has not only dispersed the population that’s there, but things have become so pricey that, even at the university, the students can’t afford to live in the neighborhoods anymore. So how do you plan for success and make sure that you keep a diverse income ratio, and a diverse neighborhood and community going forward?
Our view is that what’s needed—and it’s not the only thing that’s needed—is targeted outcomes, indicators, and data collection. We need to track what matters to see what the impact is. Again, the potential is enormous with this trillion dollars churning through these institutions. Now I’m not saying that all of it, of course, will go local, but even a small percentage is a huge amount of resources going into community and economic development.
Very quickly, the method we used for putting together this paper was that we conducted, over about a year period, 75 interviews, most of them with anchor institution leaders at individual anchor institutions, particularly eds and meds. But we also interviewed 15 neighborhood organizations working in 15 different cities, each of which had been involved with an anchor institution relationship in some way and have seen both what’s worked and what has not worked. When you’re looking at groups like this, you’re looking at a $500,000 organization, a $1 million organization, 18 people maybe working in it, partnering with a hospital that makes $3 billion in revenue and has 25,000 employees. So that power relationship is very significant. We wanted to learn from them what they thought the right indicators should be.
There are challenges for any institution that is trying to do meaningful, equitable, inclusive, economic and community development. I won’t belabor all those, but we all know, so we can be transparent. In our communities wherever there are eds and meds and big institutions, there’s very often a lot of community distrust of those institutions and their agenda, because there is often a very sorry history. A lot of times, the institutions don’t integrate this effort around community development and economic development really inherently in their institutions; it’s sort of a sidebar. It can also be very difficult tracking results in this field. So an institution might be looking at how much of their spending they have shifted—but that may be the only metric they’re looking at. Also, a lot of institutions are fragmented inside. Especially in universities, you’ve got little fiefdoms all over the institutions because it’s so decentralized. You’ve got purchasing happening in all kinds of different spaces, so to get a strategic effort going can be counter to the traditional culture of the institution.
There are also measurement challenges around getting access to the kinds of data that's needed. I’m going to go through the indicators here: We believe that with a concerted commitment by institutions, the data is available. The other things there are pretty obvious. We need to measure what’s important and so forth, but getting an alignment with an institution around us can be a challenge.
Wim Wiewel is a friend of ours, and somebody who has written a number of books about this, actually used to be in Baltimore [at the University of Baltimore], for those of you in Baltimore, and now he’s the president at Portland State. He says the point is: let’s try to get a couple metrics that we can all start to track to see how this is working, not to find the absolute ideal.
What I’m going to show you now is not our saying this is the holy grail of what should be measured. We want to put something on the table for debate and consideration and hopefully, in the coming years, have institutions pilot it, adopt it, refine it, throw out some of the indicators, and add more. It’s not whether we have the right set of indicators—although I think a number of them will turn out to be right—but that we start to have this conversation within our institutions.
So in terms of principles, we are trying to look at things that institutions can control, things that we can set benchmarks around and the like. And again, it’s a scaled approach.
And here we go. We created a dashboard that looks at indicators in economic development, health, safety and the environment, and community building and education.
Let’s look, for instance, at economic development. The desirable outcome is local and minority hiring and inclusive hiring in low- and moderate-income neighborhoods. Institutional data can be tracked for this. You would also want to look at things like the percent of those employed at living wage or above within your institution. There are other indicators, like percentage of procurement dollars directed locally and how that’s shifting over time—that can be tracked institutionally.
Here’s an example of an institution where they’ve tried to do this (not that they used this particular dashboard). We can show these around the country, but this one happens to be from Cleveland’s University Hospitals, which a number of us here in Cleveland are familiar with. I know about this because along with some colleagues at MIT’s Department of Urban Studies and Planning, we did a case study on their effort. Bottom line was you had a non-profit hospital, University Hospitals, about to do a big 5-year expansion plan, $1.2 billion was to be spent. About $800 million for construction, and $400 million for things to fill up the buildings and plan and so forth. For an institution like this, one which was neither governed at the time by any public regulations because of the funds going into it, nor by a community benefits agreement, the way this would have traditionally been done was that the institution would go out and hire a large contractor, one of the 4-5 big firms in the country, and say, “We want all these buildings built, here are the sites, here’s the budget, here’s the timeline we want it brought in on, and if you can put some of that money into local firms, good, we’d like that. And if you can do some minority firms, even better. But it’s yours to handle. We just want the buildings.”
University Hospitals in effect recognized their anchor mission here and said, “Look, in northeast Ohio, we’re leaking population (as some of the cities on this call are), we need to have people working, we need to have money circulating in the community, so we’re not going to do what’s normal. We’re going to take a different approach.” And what they did was set metrics of what percentage of their contracts would go to local and minority-owned firms, what percentage would go to women-owned firms, and how much of the money would be spent locally in general in the region of Northeast Ohio. This started in 2005, and came to fruition during the Great Recession—at that time there was very little construction going on that was outside of this project in this community. And the bottom line was 93% of the $1.2 billion was spent in the region, instead of being spent on vendors who were based in other cities, letting the money exit the community.
So that’s an example of how you can use procurement to start to produce a kind of result for the community. University Hospitals also tracks how many people receive jobs out of this; how many people on construction jobs were residents of Cleveland and not just from the suburbs, and so forth. And it’s these sorts of metrics that we think need to be tracked.
Another set of economic development indicators could focus on business incubation: dollars directed toward seed funding for community owned, locally based businesses. Again, not just a chain that comes in; not Wal-Mart that brings in a facility, but a locally based and owned business that will hire locally and keep money circulating. Arts and cultural developments are very much a part of this. Dollars spent on arts and culture-based programs that have an economic development potential; putting people to work—this is another kind of indicator to track.
I wanted to refer here to something happening in Syracuse, which is really quite interesting. The University of Syracuse has begun what’s called the Near West Side Initiative. As it stands, it has put almost $14 million of debt reinvestment funds toward neighborhood revitalization, and it has used arts programs as the key way to do that. So it’s a thriving arts and culture corridor that’s being built with investments from the University of Syracuse—again, conducting itself in a different way from the norm. What it sees is that by making this investment, which is non-traditional for a university, it is going to produce a healthier, more vibrant community; it is going to attract better students; it is going to attract better professors bringing in big research grants. It’s in the self-interest of the institution.
They’ve also built a transportation corridor to link the Near West Side, which is a low-income area, to the university so that the residents can have access to the institution. It’s 1.5 miles apart, so they had to build a way for people to connect to the university. Working with the city, they’ve secured $42.5 million of external funding; it was the largest public works program happening in Syracuse over the last 30 years, catalyzed by the university in partnership with the city. (Like the anchors here in Cleveland who are in a similar partnership with the city.) And it catalyzed nearly $200 million in additional new investments into the city. Again, this is a way an anchor can use its economic power to in effect help shape a market locally for community benefit.
Affordable housing is another thing that all of our communities need, so how can an anchor institution participate in that? Again, there are various ways that we see that data can be tracked.
The Mayo Clinic, for those of us in Cleveland, is one of the big competitor health systems. But up in Rochester, MN, the Mayo Clinic realized that housing was a very large problem, not only for their lower-wage workers, but for the whole community because there were people being priced out of the market. So the Mayo Clinic took several millions of its dollars, and helped to finance a community land trust. And local philanthropy participated in it, and as a result 875 units of housing have been constructed, 200 of them in the land trust, which provides permanent affordability. All homes are within 30 miles so people can get to work to the institution. Again, unorthodox, but another kind of effort that an anchor can implement using its economic power.
And finally, community investment. I mentioned actually that our institutions, many universities around the country, say, “Well, our endowment is pretty small.” Well, how much is it? “Well, it’s only a billion dollars.” I don’t know, but from where I’m at, that’s a lot of money. It ain’t Ivy League money, but it’s not insubstantial, and yet not too much has been done on this front—yet.
But here’s a chart. We tracked this at the Democracy Collaborative. I mentioned the University of Cincinnati, which you’ll see at the bottom. I said over $125 million, now it’s up to $148.6 million; we’ve just updated this site. And these are other institutions that are taking a part of their investment capital, not the whole endowment, but saying, “We’re going to invest locally. We’re going to get a return. We may get a lower return than we would if we put it all into hedge funds or derivatives, or the new Twitter IPO or whatever. But our bet is that if we can invest in our community, over time...”—and remember, these institutions are there for the long haul. The University of Cincinnati is going to be there in a hundred years; who knows what bank will be in Cincinnati, or if there will even be banks then. It may be all electronic. But you can count on the University of Cincinnati being there, so it takes the long view—“...Okay, we’ll get a lower return now. Maybe even for 10, 15, 20 years, but the payoff in 30, 40, 50 years will be enormous for us.” And that’s the kind of thinking we want to encourage in these institutions.
And then there are various community building and sustainability metrics we could discuss and that can be tracked. I think everybody gets the point here. We could go through every indicator, but the point is there are certain areas of interest to focus on and data to collect in your institution, and you need to continue to review as you’re doing your work to see over time what’s happening in the community and whether or not you are producing the results you want. And if not, you can start to re-tool how you are doing business and what firms you are working with and so forth, to ensure that you are producing these results.
Again, to just reiterate, what do we mean by the anchor mission? This is really the key. We need to encourage institutions to consciously and strategically apply their long-term, place-based economic power in combination with their human and intellectual resources to better the welfare of the communities in which they reside, and in particular, I think, low- and moderate-income neighborhoods, given growing wealth inequality, and the intractable urban core poverty problems we have.
What’s next? Finally, I’ve been so bold as to decide to advise the Fed. Why not? Here are some things that I think all of us in our four rooms and in the Federal Reserve System can do to help encourage this.
First, we can just start to promote this idea of using common measures among multiple institutions and start to track that. We can do that at conferences. A Cleveland Fed conference around this topic, and that’s just a start, would capture a lot of people’s imaginations and institutions would start to respond, I firmly believe it. We at the Democracy Collaborative actually are meeting with the leaders of many eds and meds around the country in the coming months to encourage a couple to begin to pilot test this approach to monitoring their economic activity. As I said, the Fed can enlist university, hospital, and arts leaders to pilot this. It can empower community development corporations and other community based organizations to start to think of these metrics in their interactions with their anchor institutions.
Here in Cleveland, these organizations have a robust connection and interaction with anchor institutions. Encourage them to start to put these sorts of measures into the conversation, and not to settle for less. We would like to build a community of learning and practice among anchor institutions so they can start benefiting from each other's experiences on what’s working and what’s not working. Lastly, I think the Federal Reserve Banks can certainly, since they produce so much good research, so many publications and conferences, start to publish and convene around this question of metrics and anchor institutions.
Finally, I mentioned that you can download this dashboard for your own use. If you’d like a hardcopy, you can email press@democracycollaborative.org and we’ll get one out to you. The dashboard itself is backed up by a research report that’s a little denser, a little more academic with a lot more footnotes; we’d be happy to send that to you. If you go to http://community-wealth.org/indicators, you’ll also see the Chronicle of Higher Education has written about this and other publications are writing about this approach to indicators. And we’ve created a suite of 8 policy briefs in these different areas, 2-page policy briefs that can also be downloaded, each of which has examples in all of the indicator areas of anchor institutions that have been doing this work.