A Reminder that the Time for Local Community Investment is Now

This post was written by Carolyn Coleman, Director, Center for Federal Relations at the National League of Cities.

This is the fourth post in a series this week discussing different perspectives on the results of NLC’s 2013 Local Economic Conditions Survey.

At a time when our recent Local Economic Conditions survey report shows that cities are still struggling in significant ways and growth is not keeping pace at a level needed for a sustained recovery, our federal partners should be supporting investments in local communities, not entertaining proposals to harm them.

So far that has not been the case.

Over the last 18 months, the federal government has lurched from one fiscal cliff to the next. For example, on March 1, as a result of Congress’s failure to avert them, the $85 billion in mandatory across the board spending cuts known as “sequestration” went into effect for FY 2013.

Among other cuts, over the course of the year this will amount to a 7.8 percent cut in non-exempt defense spending and a 5 percent cut in non-defense discretionary spending, which will impact many programs including, among others, the Community Development Block Grant program, Section 8 housing assistance, public safety, education, job training, and water infrastructure.

Everyone agrees that these cuts will be harmful to the economy, to communities, and to individuals across the country. Then, on March 26, President Obama acted just in time to avoid a federal government shutdown the next day by signing a stop-gap spending measure.

FY14 Budget
With the FY 2013 process behind them, over the last several weeks, the focus in Washington has shifted to the budget process for FY 2014, which starts on October 1, 2013.  It began with the House and Senate passing budget resolutions several weeks ago.  While these resolutions are non-binding, they do provide a preview of the priorities for the leadership of the two chambers and their differences.

Then earlier this week, President Obama introduced his FY 2014 budget proposal. For cities, while there was good news, it isn’t necessarily outweighed by the bad.  For the last several months, NLC and city leaders across the country have been educating the White House as well as House and Senate members about the value of tax-exempt municipal bonds and the need to preserve this long-standing partnership between the federal government and local governments, which has been in effect since the federal income tax was first instituted in 1913. (See letters and resolutions.)

Municipal Bonds Under Attack
Tax exempt municipal bonds are the most important tool in the country for financing investments in schools, roads, water and sewer systems, airports, bridges, and other vital infrastructure.  According to a recent report issued by NLC, the U.S. Conference of Mayors (USCM) and the National Association of Counties (NACo), over the last decade alone, state and local governments financed more than $1.65 trillion of infrastructure investment through the tax exempt market.

Limiting the exemption or eliminating it would significantly increase the borrowing costs for our communities or mean fewer resources for these essential infrastructure systems. In NLC’s Local Economic Conditions survey, we ask city officials how they anticipate the impact of a federal limitation on the municipal bond tax exemption. Sixty-one percent report they would limit the number of projects undertaken; 54 percent report they would reduce the scope.

For these reasons, we were disappointed and frustrated when we learned that the President’s budget kept the door open on limiting the exemption by proposing a 28 percent cap on income tax deductions.  While the President’s budget did include new resources for infrastructure investments, like America Fast Forward bonds, a national infrastructure bank, and $50 billion in immediate infrastructure investment, these new tools are no substitute for the tax exempt municipal bond tool.

According to NLC-USCM-NACo report, if the proposed 28 percent cap had been in effect during the last decade, the borrowing costs to state and local governments would have increased by $173 billion and would have prevented many infrastructure projects from going forward.

It’s also important to note that the President’s budget is not the only one that keeps the door open to changes to the tax exemption in order to reduce the federal deficit or fund new programs.  Both the House and Senate budget resolutions also leave open the possibility of limiting the exemption for municipal bonds.

While we recognize that a balanced approach is necessary for the federal government to get its fiscal house in order, Washington should be supporting municipal bonds, not entertaining proposals to harm them or our communities.  That will be NLC’s message as the FY 2014 budget process moves forward.

Cities anticipate increased focus on jobs, revenues sources

This is the third post in a series this week discussing different perspectives on the results of NLC’s 2013 Local Economic Conditions Survey.

Last week’s findings from National League of Cities’ Local Economic Conditions (LEC) Survey indicated that local economies have improved over the last year, but cities are still struggling in pivotal areas – notably with a workforce skills gap and tepid improvements in the commercial property market.

This year’s Local Economic Conditions survey included a new series of questions asking city officials about the policy areas that they anticipate focusing on in 2013. Although these findings were not included in our research brief on the LEC survey, they are important to examine for what they reveal about local officials’ priorities. These findings suggest that city officials will continue to focus on core areas of local government that protect the welfare and safety of residents while increasing their focus on areas that create new jobs and revenue.

Focus on welfare of community and citizens will remain steady

At the end of the day, local governments are the on the ground government responsible for protecting citizens safety and welfare.  In core areas like public safety (56%), education (59%), and environmental sustainability (58%), city officials anticipate “no change” in focus in 2013.

Further, with city officials reporting that unemployment (66%), median income level (57%), demand for survival services (56%) and workforce skills (53%) are a major/moderate problem for their cities, the majority of city officials anticipate their focus on services to vulnerable populations will remain steady in 2013.  Specifically, the majority of city officials anticipate no change in their focus on affordable housing (60%), safety net services (68%) and workforce/job training (58%).

 Increased focus on areas of job growth, revenue sources, and creating quality places

While focus on services remains steady, city officials anticipate increasing their focus in policy areas that strive to create jobs, new revenue and build quality places.

Percent of City Officials Anticipating Change in Policy Focus

Despite the recent less-then-stellar press about economic attraction/recruitment, this is still the bread and butter of city government, with 75% of city officials reporting that they anticipate increasing their focus on business attraction and recruitment in 2013. This should not come as much of a surprise, as the majority of city officials report that commercial vacancies (65%) and unemployment (66%) are major/moderate problems for their cities. Attracting tourism dollars is also on the agenda for the majority of city officials, with 57% anticipating an increased focus on tourism and entertainment in 2013.

The results from this new series of questions in the LEC survey also point to a balanced economic development approach focused not only on business attraction, but also on helping new companies start and grow, as well as retaining those companies that are already located in a city. Sixty-four percent and 61 percent of city officials report they anticipate increasing their focus on business retention and small business/entrepreneurship support, respectively, in 2013.

Responses suggest that city officials will also focus on creating places where people and businesses want to be.  Seventy-three percent of city officials report that they will be increasing their focus on downtown/commercial redevelopment, 62 percent will be increasing their focus on infrastructure and 57 percent anticipate increasing their focus on community and neighborhood development.

Mirrors State of the City Addresses

These results mirror the themes that mayors across the county have been presenting in their 2013 State of the City Addresses. According to NLC’s annual blog series on the topic, city officials are laying out bold visions in the areas of economic development, infrastructure, public safety, and education, like Baton Rouge, Louisiana’s neighborhood revitalization program, entrepreneurship efforts in Salt Lake City, Utah, infrastructure improvements in Beaverton, Oregon and a renewed focus on quality K-12 education in Columbus, Ohio.

Learn more about NLC’s Local Economic Development Survey.

When it Comes to the Skills Gap, Perceptions Matter

This is the second post in a series this week discussing different perspectives on the results of NLC’s 2013 Local Economic Conditions Survey.

With the recent release of the March jobs numbers, we are quickly reminded that what may finally seem like recovery must be viewed with cautious optimism. Our first blog post in this series dug deeper into the realities of what appears to be a strong and growing real estate market, one in which residential property improvements have largely overshadowed lingering and detrimental challenges in the commercial property market.

This post examines city officials’ perceptions about the labor market as well as skills challenges that may be posing structural barriers to sustained local and national recovery.

Concerns Over Skills Gap

The changing nature and composition of the economy has highlighted the necessity of a local workforce with skills that are appropriately aligned and matched with employer demand.

Unfortunately, more than one in two city officials (53%) report that current local workforce skills are posing a problem for the economic health of their communities. Nearly nine in 10 city officials (88%) note that workforce alignment has not improved over the past year.

Percent of City Officials Reporting Change in Workforce Skills Match to Demand of Local Employers, source: Local Economic Conditions 2013

Perception vs. Reality

We know that a so-called “skills gap” is not the only driver of challenges in the labor market. A skills gap is often the perception, or face, of a much more complex and tangled web of trends relating to a shrinking labor force, long term unemployment, underemployment and divergent hiring patterns.

The facts are stark: the labor market is shrinking, the economy is not creating enough jobs, and those dropping out appear to be in the prime of their working years, ages 25-54. The longer this continues, the more likely this pool will become unemployed in the longer-term, with deterioration of skills, networks and trust in the market to provide opportunity for them.

As reported in the Atlantic, “We increasingly have a bifurcated labor market…the job market looks normal for people who have been out of work for less than 6 months, and horribly dysfunctional for people who have been out of work longer than that.”

In addition to a shrinking labor market and longer-term unemployment, we are also facing an under-employment problem.  A Wall Street Journal analysis of recent U.S. Labor Department data shows that “284,000 graduates—those with at least a bachelor’s degree—are working minimum-wage jobs in 2012, including 37,000 holders of advanced degrees. That’s down from a peak of 327,000 in 2010, but double the number in 2007 and up 70% from a decade earlier.”

This is a problem in and of itself, with increasing college debt burdens and decreasing wages, but more so, because many with higher skills are taking middle and lower skill jobs, crowding those at the low end of the skills ladder out of the job market.

This rings particularly true given that we are seeing less job creation at the higher-end of the skills spectrum.  Brookings recently released a study finding that employers are indeed hiring more readily across the U.S., but that this is driven by industries such as construction, hospitality and healthcare.

A middle-skills gap appears to be a reality, particularly in the industrial trades, which have received decreased attention in high schools over the years from parents and guidance counselors as viable career options.  But even in these sectors, claims of uncompetitive wages, undesirable locations and work shifts, and poor hiring practices and systems are also at play.

Perceptions Matter

So, at the end of the day, a skills gap is but one of a host of challenges undergirding potential structural issues in the labor and jobs markets. Regardless, local officials, apparently nearly 90 percent of them, have been confronted with the reality of businesses telling them that they cannot find qualified workers.  This threat of employers picking up and moving, or choosing to hire or locate elsewhere, means that businesses are not happy and are not or will not be job creators for the community.

Cities across the country, from Avondale, Ariz. to St. Paul, Minn., are exploring ways to be both responsive to their business community while also tackling the heart of these complex problems in order to open pathways to employment for their residents.

They are partnering with businesses, workforce systems, economic development organizations, educational institutions and other stakeholders to examine the depth and scope of labor market issues and to educate residents for available employment. They are also placing greater responsibility on the business community to provide training opportunities for potential and current employees and engage in more sensible hiring practices.

2013 Local Economic Conditions: What’s up with Commercial Property?

This is the first post in a series this week discussing different perspectives regarding the results of NLC’s 2013 Local Economic Conditions Survey.

NLC’s 2013 Local Economic Conditions (LEC) Survey, which was released last week, showed overall improvement in local economic benchmarks over the last year. But it also demonstrated that certain indicators are lagging behind, such as the commercial property market. With over half of city officials reporting that commercial property vacancies and values are still a problem in their communities, it’s evident that the effects of the Great Recession still linger.

Improvement in Property Tax Indicators

The sharp uptick in city officials reporting improved commercial property values and vacancies from 2010 to 2011 can be explained fairly simply: the economy – real estate market included – was bouncing back from rock bottom after the combination of fiscal stimulus and monetary easing measures were introduced and implemented at the federal level.  These measures helped to accelerate purchases of distressed assets that could be moved at attractive price points.

The results of the LEC survey show that local officials saw a leveling off of the commercial property market in 2012. While many analysts predict that the market will continue to improve in 2013, they are mostly in agreement that the recovery will be slow.

Commercial Real Estate Prices

Vacancies vs. Values

Commercial property vacancies was the only measure that had less city officials reporting an improvement over the last year, while the perception of commercial property values continued to improve. Although it was a very small decline (4%), it is worth noting why there may be a disconnect between values and vacancies.

Many of the factors that are driving values are related to the ability to finance commercial real estate deals and trading activity. As prices approached pre-crisis levels earlier this year, Bloomberg reported a “’renaissance’ in the issuance of commercial mortgage backed securities…particularly for lower-quality properties, because financing will be more available.” And the CoStar Group reported that “both the investment grade and general commercial segments were heavily traded as improving market fundamentals and attractive yields relative to other asset classes drove strong investor interest in commercial real estate.”

Meanwhile, vacancies continue to persist. In the fourth quarter of 2012, Reuters reported that the office vacancy rate stood at 17.1 percent, “far higher than the 12.6 percent recorded at the end of 2007.” The article also highlights the fact that without a strong recovery in labor markets and employment, office vacancies will continue to stagnate. The National Association of Realtors notes 10.8 percent vacancy rate in retail markets in the fourth quarter of 2012 and a 10.1 percent vacancy rate in industrial markets. NAR expects marginal improvement in these metrics over the course of 2013.

Looking Ahead

Based on the results of the LEC survey, the commercial property market should continue its slow recovery through 2013, though this is far from certain. According to local officials, unemployment (52%), business permits (49%), and retail (48%) are all improving in their communities, which should breathe new life into the market.

A robust recovery in commercial property is crucial, as cities depend on a healthy property market and business environment to provide tax revenues for essential services.