Donjek :: The Cents of Place Blog

Donjek Tools: Advocating for Local Stimulus

Federal and state efforts to spur creation of jobs and economic activity have dominated news in the last year. The American Recovery and Reinvestment Act of 2009 (“ARRA”) constitutes stimulus funding to states and local governments. Funding resources are made available in some cases by formula, and in others, by competitive process.

Donjek is working with school districts and cities to:

• Identify stimulus-related funding sources that address their needs. As part of this evaluation, we also identify long-term operating costs;
• Partner with school district and city staff to apply for those funds to be awarded on a competitive basis, and to ensure that funds awarded on a formula basis are effectively distributed;
• Advocate for appropriations for school districts and cities at the state and federal levels. 

As described in further detail below, execution of the ARRA provisions will be large scale and necessarily complicated; as program details emerge, this expectation has been confirmed. Large municipalities are effectively pursuing these resources, and Donjek is proposing to create additional capacity in stimulus funds procurement for municipalities large and small.

Stimulus funds are, generally, to be appropriated in two ways:

• From federal agencies to states, either for state-level investments or state distribution to local governments;
• Directly from federal agencies to local governments or other end users.

The first tranche of stimulus funding for Minnesota school districts took the form of stabilization funds. The State of Minnesota is exchanging these dollars ($500 million) with state funds, meaning that Minnesota districts will not receive new money through this program.

School districts do have an opportunity to access a range of additional stimulus programs, including those in the following general funding categories:

• ARRA Title I;
• ARRA Title II;
• Individuals with Disabilities Act (“IDEA”);
• McKinney-Vento Act;
• Expansion of qualified bonding authorizations;
• Rural Community Facilities program.

Cities may also have access to stimulus funds designated for various uses, and associated with different allocation processes and mandates:

• Broadband Access;
• Brownfield Remediation;
• Energy Efficiency in Public- and Private-Sector Buildings;
• Fire and Emergency Response Staffing;
• Highway Infrastructure;
• Housing Finance and Retrofitting;
• Public Building Renovation;
• Rural Business Development;
• Rural Community Facilities Investments;
• Solar Cities Program.

School districts and cities are financially pressed currently. Evaluating which stimulus sources are worth pursuing in a competitive process will reduce the potential waste of chasing programs as their resources and provisions are unveiled. 

Donjek Project: Designing a Structure for Purchase and Operation of Reused School Buildings

We are very pleased to announce that Donjek is involved in a process to convert recently-closed school buildings in Minneapolis to active reuse, using a range of equity and debt sources including equity investments, debt financing and tax credits. Partnering with the Minneapolis School District, Urban Design Lab and the Local Initiatives Support Corporation (LISC), Donjek will be in the coming months evaluating the prospects for establishing a real estate investment trust (REIT) to acquire and operate two large former elementary schools totaling over 200,000 square feet of leasable space. Such a REIT could be a very effective investment instrument with which to involve a range of potential investors in a new real estate investment model.

The reuse of school buildings is an increasingly relevant issue for many communities nationwide, both small and large in population.  Minnesota’s school districts each face a particular circumstance – for example, enrollment trends are strong in Pequot Lakes in the lakes region, stable in the small town of Rushford, and falling dramatically in the Lac Qui Parle valley. On the other hand, the small district in Houston, Minnesota has nearly tripled in enrollment as a result of its innovative web-based curriculum, which has secured the presence of its physical school.

The data communicate the story effectively. As shown in the graph included here (click on it to enlarge the image), the overall public school enrollment trends for Minnesota statewide and for Midwestern states together have been stable in the last decade. Minneapolis Schools, however, have seen significant declines in enrollment, due in part to students leaving to attend neighboring school districts, charter schools and other alternatives. The policy discussion aside, the Minneapolis Public Schools have twelve buildings they are seeking to sell in one form or another.  Note also the dramatic red line, which indicates the enrollment drop among Minnesota's fifty smallest school districts, which had an average total enrollment of 80 students during the 2007-8 school year.

We look forward to keeping you posted as the process progresses and we engage in mapping out ways to secure active reuse of these buildings. If you would like to learn more as an investor, a prospective tenant or a neighbor, feel free to contact me by email.

Include Financial Sustainability in Comprehensive Planning

Sustainability will get lots of ink in this decade’s comprehensive plans for local governments.  And, to be sure, as is evident from past posts, I agree there are many good reasons for planning and development to reflect environmental costs and other externalities ignored by previous generations.

Still, one critical form of sustainability will remain largely invisible:  Financial sustainability. 

As cities allocate resources to develop workforce, cultural amenities, quality schools, housing stock, multiple modes of transportation and other initiatives, comprehensive plans must establish an approach for financing these core public functions.  Not only is this as critical as ever, it is also potentially at its most difficult.  Two suggestions for how planners and citizens engaged in this work can consider financial sustainability:

Developing alternatives to the property tax will strengthen cities’ financial stability for years to come; failing to do so will be at a community’s own risk. Beyond the anecdote that seniors are on fixed incomes and are therefore more sensitive to property tax increases, this fall’s polling for school referenda reveal a heightened antipathy to this funding source by voters ages 45-65.  Evidence from the 2006 elections nationally suggests that property taxes are a watershed issue for voters – and the stakes are high for candidates who promise to “solve the problem.”  Long-term public planning needs to include both some analysis of alternatives to the current form of property tax as well as concerted education about the fact that public services aren’t free. 

The relationship between local governments and their state and federal counterparts has shifted in recent years, and the shift may be long term or permanent in nature.  In Minnesota, local government aid (“LGA”) reductions have received much attention as the source of diminished services and increased property taxes; a list of Minnesota cities and the LGA received from 2002-2007 is included here.  The infrastructure and services required for future urban development (in a physical sense and in terms of human resources and capacity) are in Minnesota provided primarily by cities, counties and school districts:  Streets, stormwater and wastewater, to start.

More quality analysis is available today than ever before that reveals the many factors contributing to a robust residential tax base.  Data is available to evaluate the impact of physical amenities integral to formation of a comprehensive plan, on property values and tax base.  For example, view articles examining a comparison of high-profile, big-ticket arts investments to neighborhood arts facilities; the impact of a quality K12 system on local property values; and how nearby parks boost home values.  The volumes of data available through residential listing services even allow valuations of a single mature tree (in 2002, its minimum value was estimated to be $10,000) in a residential yard.

With multiple chapters to update, it’s difficult for municipalities to explore each issue in detail.  Moreover, readers will fairly note that social and political issues transcend municipal boundaries, making efforts to reduce reliance on property taxes (for example) very difficult. However, with federal and state support ebbing, local governments cannot afford not to consider financial sustainability in their long-term planning process, property taxes and all.

GIS map courtesy of Prof. Paul Lorah, University of St. Thomas.

Economic Gardening in Houston, Minnesota

"Men and Wheat", Joe Jones, 1939

The agrarian revolution took place on the various continents between 7,000 and 10,000 years ago, but the evolution of “economic gardening,” while promising, remains in infancy. In process for twenty years in the work of Chris Gibbons, Director of Business/Industry Affairs for Littleton, Colorado, economic gardening is a provoking, simple alternative to what Gibbons calls trawling for capital. Under his leadership, Littleton has no marketing budget nor do they provide incentives to individual companies, while posting strong economic fundamentals.

Highlights of the Garden Manual
Inspired in part by experience in Leadville, Colorado, where layoffs in mining pushed the town's unemployment rate north of 40%, Gibbons now describes the economic gardening concept with a series of ideas:

- The essential concept is that relying primarily on the entrepreneurship found in any community in America is a more efficient, durable mode of cultivating economic activity and tax base than recruiting jobs.

- A region’s cultural proclivity for entrepreneurial activity, risk and innovation are key to converting the ideas of local people into growth companies.

- Towns primarily in the business of producing commodities are in a constant duel with both increasingly international markets and regional weather conditions. Gibbons observes that frequently such towns pursue commodity industries, which favor low costs of labor, utilities, and taxes. When the fortunes of the town and regional markets improve, costs for the commodity industries rise and such firms look again to relocate.

- Providing information on topics ranging from markets to vacant real estate can represent a powerful public contribution to fruitful economic gardening, as in Littleton’s case.

- Infrastructure in the form of the physical (transportation, telecommunications, parks and open space) and the intellectual (links with area institutions that provide continuing education and technical training opportunities) is an important support to local entrepreneurialism.

Local Produce
The community of Houston, Minnesota is located in southeast Minnesota, roughly twenty miles from the Mississippi River and slightly farther to the southeast corner of the state.  Houston’s population has held stable in recent years, recorded at around 1,020 during the 1990 and 2000 census, as well as a 2005 estimate.

The population of school-age children has, however, been diminishing as a proportion of the whole. According to the Minnesota Department of Education, the resident school-age population (termed “average daily membership” in the K12 lexicon) has fallen from 528 in the 2002-3 year to a projected 464 in the 2008-9 year. Similar declining enrollment trends, though not usually as steep, are not uncommon in Minnesota, and they create significant stress because most district funding is apportioned on a per-pupil basis, while only a portion of school costs vary with enrollment. The specter of consolidation remains for many districts, including – until not long ago – the Houston School District.

Calling on local entrepreneurial skills, the district moved forward with the formation of the Minnesota Virtual Academy. The academy was the first online education program approved by the state, and now ranks as the largest provider of public education provided through the internet medium. The number of students served by the Houston School District has risen from 528 in the 2002-3 school year to a projected 1,456 in 2008-9 – an increase of 175%, and a very encouraging shift for the district’s future.

Houston’s experience strikes me as a compelling example of the use of economic gardening to create long-term results for cities, large and small alike.

A network of professionals trade ideas about economic gardening through a Google group; visit their forum here.