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BBA Digest: An Exodus in the Making?

An Exodus in the Making?

Speaking with a small town economic developer recently, he said he would be shifting his marketing efforts based on the fact that some tech companies say they'll let a portion of their employees work from anywhere. There's some evidence that the efforts of smaller cities might be working. Zillow and Redfin are both reporting spikes in single-family home searches in smaller cities, according to the Wall Street Journal. We're also seeing smaller cities offering cash stipends to attract tech workers -- Savannah, Georgia, Tulsa, Oklahoma, and Topeka, Kansas. just to name a few. Heck, the entire state of Vermont. But workers may be unwilling to leave the major metros if they know their compensation may go down. And there can be a real fear of becoming marginalized once you're no longer seen in the office each day, the Journal notes. And the truth is that there's a certain allure for many young people to live in big cities for reasons of nightlife, culture and job-hopping opportunites. Still I see success stories every day in smaller markets proving their worth to companies and workers. It's where I do virtually all of my economic development consulting. That said, I wouldn't get too giddy about massive decentralization, particularly when it comes to the tech industry. Opportunities, yes, but not a sea change.

Much of this talk of an exodus out of big cities began prior to pandemic, simply based on living costs. Millennials wanting to buy their first home and start a family could simply get more bang for their buck by moving to suburb and exurb communities.

When New York City became the epicenter of the coronavirus, some wealthy residents fled, vowing never to return. The appeal of urban living was called into question as editorials predicted the demise of America’s packed metropolises, where density was supposedly making the pandemic worse. But a new report by City Observatory researcher Joe Cortright indicates that people haven’t yet turned away from cities. But he cautions that an urban exodus some are predicting could still come to pass. “We’ll have a definite answer to this question several years from now,” when new census numbers are available, he said. Early data from real estate websites reveal that searches for urban property in some of the nation’s largest metros actually increased compared with last year. Cortright's analysis of Census data shows that in the 52 largest urban centers, the population of well-educated young adults living within three miles of a central business district has increased by 32 percent since 2010 — highlighting the continual appeal of bigger cities.

It's About Risk

Governments, including many longtime advocates of global trade, are using the coronavirus pandemic to erect barriers to commerce and bring manufacturing home, while companies are reassessing far-flung production networks that have proven vulnerable to disruption. A decade of disease, natural disasters and trade wars shows that companies have been “putting a huge amount of risk in global supply chains,” supply-chain chief Peter Anderson of engine-maker Cummins Inc. told The Wall Street Journal. Some manufacturers are looking to make goods closer to where they are sold and are focusing on resilience rather than simple cost-cutting efficiency. This is a matter largely involving the risks of disruption, said Tim Feemster, a BBA team member and principal of Foremost Quality Logistics.

"Having a major supplier go down for whatever reason that provides one or many critical parts and sometimes unique parts to make a finished product kills the whole process when the safety stock runs out," Feemster said. "Given these complex challenges of finding alternative suppliers with costs that can support profits and reduce risk is going to take time though."

Foreign trade is forecast to fall by as much as a third this year, and international investors pulled $83 billion from emerging markets in March alone, suggesting they’re not expecting supply chains to return to those markets anytime soon.

Back in 2003, when Toyota was searching to build an assembly plant for its Tundra pickup trucks, it finally chose San Antonio. Toyota said it chose San Antonio because it wanted to build its trucks close to its customers. Anyone who knows Texas knows this is a truck state, but there were very few existing suppliers nearby.

Since then, I cannot tell you how many expansions have taken place at the San Antonio plant. My point is that it need not always be so complicated.

Photo by Charles Fair on Unsplash

Tesla Focuses on Austin

Tesla appears to be zeroing in on Austin for a $1 billion new Gigafactory to build its Cybertruck and possibly even a new headquarters.

In a public (virtual) meetings last week, Tesla execs touted plans to hire more than 5,000 workers for the 5-million-square-foot plant, in a move that could attract new companies that supply Tesla's components to the area, potentially creating thousands of more new jobs.

Hired by the county to conduct a cost/benefit analysis of the proposed plant, economist Jon Hockenyos said it could generate more than $600 million in annual sales activity; more than 4,000 indirect jobs; and more than $425 million in new annual wages, above and beyond that paid to Tesla employees.

“The benefits substantially outweigh the costs to the community,” Hockenyos said and reported by the Austin American-Statesman. “It’s a marvelous opportunity (with a) net benefit to the county.”

Two public hearings were held remotely last week — one by the Travis County Commissioners Court and the other by the Del Valle school board Thursday evening. Neither jurisdiction has voted on an incentive package.

The Del Valle school district could grant $50 million in property tax breaks for Tesla over 10 years. Travis County is considering a package that would give about $14.7 million in property tax rebates over 10 years.

It's unclear when Tesla might make a decision between Austin, its other close contender of Tulsa, or another site. Construction could begin as soon as August.

The 2,100-acre site that sits along Texas 130 northeast of Austin-Bergstrom International Airport currently encompasses a sand and gravel operation owned by Martin Marietta. Examining the site via Google Maps, I discovered that the nearest rail is about 10 miles to the north near Manor, Texas. That could mean one of several things.

One possibility is that Tesla may have no intention of moving product by rail, plausible because we are looking at high-end vehicles with Cybertruck electric pickup and Model Y SUV. A second is that a rail spur could be built the eight or ten miles to the site. A third optin might be to truck some vehicles to a rail shipping site that the company has identified. (My guess is Tesla will forgo rail.)

What is clear is that if Tesla chooses the east Austin site, it will be placing its bets bigtime on Texas 130, a four-lane north/south toll road built to relieve Interstate 35 truck traffic to San Antonio to the south. And that's where it gets even more curious to me.

The closest east-west interstate corridor to the Austin site is Interstate 10, about 50 miles to the south. Heading east on I-10, truck traffic could come to a crawl in Houston, with the remainder of the interstate hugging the Gulf Coast. The alternative east-west corridors are approximately four hours to the north in Dallas via Interstates 20 and 30.

(Of course, I could make a similar argument with the location of the Toyota assembly plant south of San Antonio, and that plant has undergone multiple expansions.)

Yes, Austin is a growing job market. It is the 11th largest metro area in the U.S. soon to be 10th. Texas will then have four metros in the top 10 in the nation, with Austin joining Houston, San Antonio and Dallas.

Yes, Austin is a major tech center. (Dell and Apple and a host of others are there.) It makes sense for Tesla to think of Austin as a future headquarters location.

But when it comes to the highway network in the Austin area, that's where I'm left scratching my head.

A Tipping Point in Mississippi

A friend in Mississippi texted me this Saturday afternoon: "Most difficult part passed."

Later he posted on social media: "I’m beyond excited for our State... such a cool moment to be a part of..."

His elation stemmed from a vote by Mississippi state lawmakers on Saturday that paves the way for the removal of the Confederate symbol from the state flag. The Republican-led House of Representatives and the Senate voted by a two-thirds majority to clear a legislative path to remove the current flag and replace it with a new design free of Confederate iconography.

My friend, an economic development, had spent much of this past week lobbying state lawmakers, per the direction of his employer, in an effort to get state lawmakers to do the right thing.

Amid a heightened focus on Confederate symbols across the nation, Mississippi legislators and institutions have in recent days come out against the flag, the only state banner left in the country with an overt Confederate symbol. Not only did legislators from both parties oppose the flag, so did state universities and prominent members of their athletic departments, the Mississippi Historical Society, Walmart, the Mississippi Baptist Convention, and host of top business leaders in the state.

Legislation proposed on Saturday would create a commission that would design a new flag that would be forbidden from having the Confederate battle emblem and must include “In God we trust.” The commission would be charged with arriving at a design that would be up for a vote on the November ballot.

Gov. Tate Reeves said Saturday that he would sign a bill to change the flag if one reached his desk, a shift from his previously held position that voters should decide whether to change the flag via referendum. To say the governor has been recalcitrant on this issue is an understatement.

"He's been terribly, terribly slow," my friend said. "Finally, he has come around."

Photo by Nicola Fioravanti on Unsplash

A Startling Gap

Despite decades of political change — the end of enforced segregation across the South, the legalization of interracial marriage, the passage of multiple civil rights laws and more — the wages of black men trail those of white men by as much as when Harry Truman was president.

That according to a 2018 analysis by Kerwin Kofi Charles, an economist and the dean of the Yale School of Management, and Patrick Bayer, an economist at Duke University. That gap indicates that there have also been powerful forces pushing against racial equality. If you look at the government’s official wage statistics, you’ll see a somewhat different story. Those numbers show that the wage gap is smaller than in the mid-20th century.

But they exclude people who are not working — and there has been a sharp rise since the 1980s in the number of black men who don’t work. Some have dropped out of the labor force, no longer looking for work after having failed to find decent-paying blue-collar jobs (a trend that has also hurt men of other races, though not as badly). Others are incarcerated. Over all, even before the recent economic downturn, about 30 percent of black men between the ages of 25 and 54 were not working, much more than in previous decades.

Photo by Wonderlane on Unsplash

his Was Our American Dream

About a year ago, I was spoke to a group of economic developers, and after giving my talk, I opened it up for questions.

One of the first caught me a bit off guard. The questioner asked my opinion about the H-1B visa program, to which I am no expert. I said that while there may be some abuses of the program, that I generally favored allowing skilled foreign workers like programmers, seasonal hospitality workers and work-study students to enter this country and work. My answer apparently did not please him, as he then commenced to speak about how foreigners entering the country legally to work were taking American jobs. So I'm sure he is quite pleased with an executive order signed by President Trump last week. The order that suspends foreign work visas including the L-1 visa that allows firms to transfer staff from overseas offices and the H-1B visa that enables companies to hire highly skilled people in certain fields. The president cited the pandemic, saying that “certain nonimmigrant visa programs authorizing such employment pose an unusual threat to the employment of American workers.”

Not surprisingly, the tech industry, which uses work visas to hire thousands of overseas workers every year, are not pleased. The CEOs of U.S. tech giants including Google, YouTube and Tesla all went on record criticizing Trump’s decision to suspend H-1B and L1 work visas.

Matt Turck, a venture capitalist at FirstMark, said overseas entrepreneurs may start their companies outside the U.S. if they can’t get a visa.

“I was on an H1B visa for 10 yrs,” he wrote on Twitter. “Started a company with co-founders also on H1Bs. Hired American employees, served U.S. customers. This was our American dream. But today the same company could be started anywhere. Why would the next generation bother if they can’t get a visa?”

What We're Reading and Watching

It Is Time for Reparations The New York Times Magazine

How Dolly Parton Led Me to an Epiphany TED2020

The End of Tourism? The Guardian

How Technology Will Create These 7 Jobs in the Future Forbes

They Live Alone in Ghost Towns The New York Times

The Dudes Who Won’t Wear Masks The Atlantic