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. 

Transportation Stimulus Projects Should Reflect Modern Economy

A New York Times analysis of over 5,000 transportation-related stimulus projects released today indicates that less than half of the funds are slated for investment in metropolitan areas. The analysis suggests that these transportation investments have been selected based on formula as opposed to what the American economy of today looks like.

As I’ve recounted at the Cents of Place in the past, the nation’s 100 largest metropolitan areas:

• Use 12% of the U.S. land area;

• House and employ 65% of our population;

• Generate 78% of patent filings; and

• Create 75% of total U.S. economic activity.

The report shows that the Minneapolis-St. Paul metropolitan area, while producing 1.36% of the country’s economic activity, is the location of 0.72% of the transportation-related stimulus projects authorized. Readers will note that the seven-county metro area contains just 12% of the state’s total lane miles. So doesn’t it make sense that stimulus funds reflect lane miles?

In its most succinct form, the answer may well be no. Here’s why: The federal stimulus legislation will provide capital grants to build, renovate, and replace transportation infrastructure – but it does not fundamentally address how state and local governments will pay for maintenance and operations. Over 87% of Minnesota’s total lane miles are county, township and city streets, paid for from limited state and local sources. Overbuilding may create long-term costs that will stifle prosperity in greater Minnesota, not the reverse.

Just ask my colleague Chuck Marohn, President of the Community Growth Institute, who provides planning and zoning expertise to small towns across Minnesota. In recent weeks, Chuck has blogged extensively about how and why our current approach to locating infrastructure investments is financially unsustainable. Moreover, it undermines the quality of life in communities like Brainerd, Minnesota, where Chuck grew up.

In metropolitan areas, the higher concentration of economic activity will allow for the funding of ongoing maintenance of road, rail and other systems, which will in turn bolster the metro economy as well as the statewide economy. Future stimulus funding, and the coming debate about a new federal transportation bill, ought to be designed in this light.

Photo courtesy of Resedabear/Flickr: http://www.flickr.com/photos/resedabear/ / CC BY 2.0

Donjek Project: Public-Private Partnership Plan for Proxima.us

I am pleased to announce the launch of Donjek client Proxima.us, a software development and maintenance enterprise. Proxima’s founders, Mike Bougie and Patrick Lynch, are experienced software designers who hail from small towns, and have established Proxima to create top-quality software in rural areas of the United States. 

Outsourcing information technology (“IT”) services to India and elsewhere is widely assumed to be a permanent fact of life, but in fact many U.S. companies are becoming less satisfied with the costs and benefits of working internationally to fill these needs. A recent survey of chief financial officers by Information Week magazine revealed that while 79% outsourced IT work overseas last year, only 42% anticipated doing the same this year.

The benefits of reduced wages abroad have narrowed and many U.S. clients have experienced inconsistent quality of service. More important, international outsourcing exposes clients to risks to data records and intellectual property, as well as financial risks associated with currency and interest rate fluctuations.

Proxima’s service couples highly skilled and educated programmers working in rural America, with clients who desire top-quality IT assistance, personal contact in a domestic time zone, and legal protection in place under U.S. law.

Donjek’s role has been working with Proxima to develop a public-private partnership plan, illustrated above. Watch for this company’s development in Minnesota and elsewhere, as its market shifts and they create professional IT jobs in rural America.

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.

Rushford, Minnesota, or Trading Places Part 2

From Thursday to Saturday of last week, I joined other members of the Minnesota Design Team for a project in Rushford, Minnesota.  The Design Team is a volunteer organization of planners of every stripe – our team included architects, hydrologists, a transportation planner, urban designers, public finance and economic development consultants. 

The process is akin to an extended charrette based on a volume of input received from community residents.  The goal is to give additional tools and ideas to towns across Minnesota, which they can tailor and implement to improve the economic climate, physical design and political efficacy of their community.  It’s worked statewide since 1983.

For most readers, Rushford’s name will conjur images of the flash flooding that devastated the town and surrounding region in August, 2007.  The U.S. Army Corps of Engineers presented recent findings suggesting the rainfall (in excess of 17 inches in areas of the watershed) approximated a “500-year flood” level.  Collecting from a large area, the water converged on Rushford, flowing at over five times its usual volume and reaching a rate of 38,000 cubic feet per second.  The impact of water that topped over levees and was trapped in town by the remainder of the dike system, has been tremendous.

The financial impact of the flood will exert a toll on Rushford for years to come.  Many homeowners did not carry flood insurance, noting its cost.  Today, mortgages remain due while some properties are now a lot with a hole in the ground, the homes having been demolished and removed.  The state of recovery for businesses appears to have benefited from a state-appropriated $35 million dedicated to relief for damaged businesses across southeast Minnesota. 

Still, citizens emphasized to us that Rushford, a settlement since the 1850s, has a long history of which the flood is just one recent chapter.  The physical attributes of the place are striking – the confluence of the Root River and Rush Creek, the high bluffs typical of the geologic form known as the Driftless Area in southeast Minnesota, western Wisconsin and northeast Iowa. 

Other strengths come to mind.  School enrollment has diminished modestly but is projected to be stable in the next 5-10 years.  Tax base has increased over 10% annually since 1999.  A company called Rushford Hypersonic recently announced a partnership with the University of Minnesota to develop nanotechnology products from University research and patents.  From one large coop employer in town, I heard words I don’t often hear:  “We have adequate access to a pool of skilled workers.”  Each of these trends is significant and positive.

Rushford and Washington, D.C. – the first subject in this series – are more different than they are alike.  However, one of the key themes I discussed in the last post was the need for public and private entities to invest together in the success of places and the people who create them.  Rushford is a great example of a community prepared to distinguish itself through investment of financial and sweat equity.  My chief hope, beyond their success, is that these investments address safeguarding the town from future flooding.

Project: Estimating the Impact of a Highway Bypass on Tax Base

What will happen to property values and the tax base of a community when it redirects most of its auto and truck traffic around town, or chooses to widen a highway through downtown to four lanes? Recently, I concluded a project in Pequot Lakes, Minnesota, and provided analysis to address this difficult question.

A town of nearly 2,000 residents located roughly one hundred miles north of the Minneapolis-St. Paul metropolitan area, Pequot Lakes is in the heart of one of the state’s lakes regions and is an increasingly popular destination for visitors.

Hence, the premise of the project. Annual average daily traffic (AADT) on State Highway 371 at Pequot Lakes is projected by the Minnesota Department of Transportation (MnDOT) to double over twenty five years. Congestion and safety conditions along the highway, which runs north-south through the center of town, are expected to deteriorate without infrastructure improvements. Since 2000, the City and MnDOT have been engaged in evaluating the costs and benefits of expanding the highway to four lanes in its current downtown alignment, or constructing a new bypass alignment. The bypass alignment would follow an alignment less than one mile to the east of the existing downtown alignment, at first diverting 2/3 of the existing traffic volume. The new route would also create a different form for the City as depicted in this graphic prepared by planners at the Community Growth Institute.

Starting with analysis of broad trends experienced by the community ranging from market values, population and school district enrollment, I built on existing research conducted by State transportation departments across the country, to gauge the impact of a bypass or expansion on land values and tax capacity. While most of these studies parsed property into three to five categories, I created ten to reflect the range of economic activity in Pequot Lakes. Light manufacturing, timberland and agriculture, local commercial businesses and tourist retail are all well represented in Pequot Lakes. 

After classifying the property into these ten categories, I modeled impacts for each type of property based on the literature of similar studies and other related research. The findings included a projection that the alignment through downtown Pequot Lakes would boost aggregate property values and City tax capacity slightly higher than under the bypass alignment scenario.

However, the acquisition and construction costs associated with the expansion of the road through downtown are projected to be significantly higher than the bypass scenario. With these costs included, the analysis suggests the bypass alignment is a more cost-effective approach. The Region 5 Development Commission is, at the time of this writing, completing survey work for both the business community and the citizenry of Pequot Lakes, after which the City Council will proceed with naming a preferred route.

Source documents: The final planning report is located here, and related draft and final environmental impact statements can be found here, or view the brief version of a bibliography of bypass studies I've annotated here.

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.