How Austin, Texas Got Equitable Economic Development Right

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This post is part of a series on NLC’s Equitable Economic Development (EED) Fellowship.

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Austin, Texas’s Kevin Johns.

Kevin Johns is the Economic Development Director for the City of Austin. This week I had the opportunity to talk to Kevin about Austin’s Einstein Challenge, an innovative program looking to lift out of poverty 40,000 children in the city.

Carlos Delgado: Kevin, it is always a privilege spending time with you hearing about the innovative programs your Department is implementing in Austin to make the city a more equitable one. Before we jump to discuss the Einstein Challenge, can you share a bit of your professional background?

Kevin Johns: Thank you, Carlos, for the opportunity. I currently serve as the Director of Economic Development Department for Austin, Texas. In this capacity, I am responsible for increasing prosperity for all Austinites, our businesses and neighborhoods through a fusion of traditional and creative city building strategies. Previously, I acted as Director of Planning for the Atlanta U.S. Regional Office of the Parsons Corporation, Director of Economic Development for Palm Beach County, Florida., and Director of two of the nation’s fastest growing suburbs, both in metro Atlanta. My education includes a Masters in City Planning from Georgia Tech, and a BA from Case Western Reserve University.

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CD: This is great Kevin. I am familiar with part of the work your Department does since Austin is one of the 6 cities participating in the 2nd cohort of the Equitable Economic Development (EED) Fellowship program. To give us some context can you tell us what the Einstein Challenge is and why is important for Austin?

KJ: Thanks Carlos. Happy to provide an overview of the project, why the project is important to Austin and how it ties with the work you are doing around equitable economic development nationally.

Overview: The Einstein Challenge is a public-private partnership that incentivizes the expansion of economic service from Austin’s high-technology companies. Our plan is to incentivize companies to tutor 40,000 children out of poverty, and into jobs that pay an average of about $100,000 (the average salary a tech worker makes in Austin). The impact of this investment is to reduce poverty by 25% over the next ten years and break the cycle of children in poverty.

In this new economic framework, the result will be an end to end architecture for giving property tax breaks to companies in exchange for tutoring and other STEM and entrepreneurial services. The companies can do this directly or by proxy.  This intervention in poverty is designed to harness the knowledge of our scientific and entrepreneurial businesses and use it to train children in poverty for futuristic professions. Our goal is to create a Generation of Einsteins from minority children.

Depending on your view, this is either an Economic Development 401 K, or a GI Bill of sorts, but for youth in poverty. It works like this: using our existing performance based agreements, previously reserved to recruit innovation companies like Samsung, Apple, Facebook, Merck, and Visa etcetera, to Austin, we calculate an ROI. On the lower end, the city will receive in the range of $38,000,000 to $70,000,000 net new taxes annually once the system is operation. That analysis assumes that the students might only get jobs paying $48,000. This does calculate the local health and human service department subsidies that are no longer needed, and the taxes that will be earned. Although this number is relatively low, it is important to note that the actual return on investment of downsizing poverty combined with the new tax base will be much greater.

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TAME Capital Area’s 2016 STEM Competition, hosted by the African American Youth Harvest Foundation.

The reason this innovative program is an important part of addressing equity in our city is that Austin has 92 Title 1 schools, and despite lauded figures for economic success, there is a shadow on the glitter of our prosperity: The Brookings Institute finds that Austin has one of the highest rates of increasing poverty and perhaps the fastest growing suburban poverty in the nation. We face an urgent challenge of disproportion distribution of income among ethnic groups. The Einstein project breaks the cycle of children in poverty, and is bi-generational – their children will not be in poverty either. As you know, according to the Martin Institute, Austin is one of the country’s most economically segregated cities; a tale of two cities. I think we can significantly solve that problem with this new economic strategy.

CD: According to TXP, Inc.’s Poverty Reduction Study, commissioned in 2016 by the Economic Development Department (EDD), poverty in Austin, as in many communities nationwide, has a geographic component (the tale of two cities). Do you have a specific target area to pilot the Challenge? And what partnerships are your fostering?

KJ: Glad you asked that question Carlos. Much of the City and areas to the north and west have poverty rates below that of the City’s average. However, neighborhoods in Eastern Austin, along the I-35 corridor, tend to have a poverty rate more than twice the average for the City as a whole. This economic segregation goes back decades. The geographic component of poverty makes inequality more persistent and poverty reduction efforts more challenging.

Geographically: Poverty exists at some level throughout every community, both in Austin and nationally. For example, among the 92 Title 1 Schools in Austin there are a small number (four elementary schools), in District Six in Williamson County, which is a prosperous area. District eight, also a prosperous area, has a pocket of poverty in South Austin, but a majority of the Title 1 schools are clustered in the Eastern Crescent in City Council Districts One, Two, Three, Four and Nine.

Partners: We are advocates of using cultural diversity as an economic strength so most importantly we have started partnerships with the minority community’s leadership. Recently the Black Ministers Union, the MECA Chambers of Commerce (Asian, Black, Hispanic, Gay and Lesbian Chambers) has gotten involved. We have built an excellent relationship with the Equity Office, Austin government partners, the University of Texas, Austin Community College, schools systems, STEM and entrepreneurial workforce service providers, and a good number of our best innovation companies. Most of the partners are already involved in aspects of tutoring, providing internships, tours to high tech companies, math camps, and science fairs, however, there was no coordination, no agreed recommendations on performance, and the combined scale of various piecemeal efforts was unknown. The Ray Marshall Center at University of Texas is intricately involved in organizing the partnerships and measuring the financial impacts.

CD: Can you expand about private sector engagement? And how you are recruiting the companies to participate in the Challenge? And what is the incentive for the private sector to participate and engage?

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High school students from film and digital media program on-set of American Crime, Season 1, to job shadow crew during production.

Private Engagement: We are working with 10 – 20 companies. As Director of Economic Development I believe public private partnerships are the most effective means of enticing performance based participation in government initiatives. In educating poverty youth for futuristic careers, the engagement of the innovation companies is crucial. They ultimately will hire for futuristic jobs, have some STEM initiatives underway, are super smart, can tutor effectively, and know what credentials are needed. That is why we engaged the private sector first. So, over the past two years there has been extensive public outreach to the private sector. We have learned a lot about what they are already doing on a voluntary basis. We now know what schools the private sector is helping, how many children in poverty are tutored, and in what innovation fields. For example, we learned Apple has about 11 programs, helping teachers and students in certain schools. We found out the company matches employee’s time with dollars. Silicon Labs and Google, among other things, provide tours to 7th and 8th graders to show them what careers look like.

How are you recruiting: For the past two years the recruiting has been extensive one on one presentation(s) to business leaders, interviews and, convened meetings of interested private sector companies at City Hall. Since the Einstein project is technology agnostic, recruiting a diverse portfolio of companies is ongoing. The feedback, interest and support from leading companies such as Silicon Labs, Google, Apple, Samsung, IBM, GM Research, Intel, National Instruments and others, has been really heartwarming.

What is the incentive for the private sector to participate? The private sector is in the business of profit. Essentially we want to provide ten year incentivized performance based contracts to a limited number of innovation and entrepreneurship companies to insure that poverty youth annually receive tutoring. Eligible companies have been recruited from targeted cluster industries such as IT, Life Sciences, Space, Finance, and other categories that represent our economic diversification strategy. The incentive for the private sector is threefold:

First the technology and entrepreneurship sectors are insured that an exceptional, talent pool for their company will be available.

Second, their training costs are underwritten through ten year performance based property tax agreements. These are calculated on data demonstrating successes. In addition to meeting contractual terms for data collection, peer-to-peer collaboration, and workforce diversity inclusion and retention, the incentives for training investment must result in a positive collective impact leading to a financial ROI that can be measured effectively to benefit the tax base of the City of Austin.

And third and perhaps most importantly, they become stronger, visible leaders in the movement to achieve equity in America, by securing the human capital they need to compete in a global market place.

CD: This is very interesting Kevin. Performance based payment only if the company meet its targets makes total sense. Curious about who will be collecting and owning data?

KJ: The University of Texas is collecting the data. The information will be published and the data sets for the ROI will be open source. This should insure that the project can be replicated in other communities nationwwide.

FYI the first data based analysis is the collective impact of the benefits of tutoring and entrepreneurship. Participants in the Einstein Challenge will provide data to the University of Texas Ray Marshall Center on a quarterly basis. Performance measurements that show proportionate increases between the services and student output will be provided by Ray Marshall to the City of Austin as part of the annual contract review. The Center will conduct the ten year longitudinal study of Return on Investment (ROI) to establish a fair and independent analysis for all collective measurements. Using a collection of surveys, school data, college enrollment and workforce data, the University will measure whether: individual programs meet their goals, efforts increase long term interest in STEM-CE fields, benefits of programs extend to improvements in academic and behavioral performance, and participants eventually enroll in college and earn a living wage.

The 2nd data analysis is the monetary ROI associated with poverty reduction determined by calculating the cost savings to government of reducing poverty and the new wages, and taxes generated. Tactically this financial ROI to the City government, which is being prepared by the University Of Texas Lyndon Baines Johnson School Of Public Policy, is measuring how much tax savings results from less need to build 40,000 affordable housing units, less need for utility subsidies, less cost for health and human services, less cost for court and criminal justice facilities and staffing, and less cost associated with reduced police and jail costs. This data set will be combined with the net new taxes to indicate overall ROI to the government.

CD: What outcomes are you forecasting after the Einstein Challenge is launched and how will you be tracking success?

KJ: Equity Outcomes: The biggest outcome I forecast is the change in equity patterns. Within ten years, I am optimistic we can transform 40,000 children who are currently in poverty, mostly children of color, into an educated middle skill or high paying technoloyg savvy workforce, one that can lead national and international companies. This forecast is based upon our successful economic track record in public private partnerships, and the effective use of traditional incentives. The University of Texas Ray Marshall Center will be tracking changes in equity as part of the collective impact model.

Financial Return on Investment Outcome: Another outcome I predict is that by substantially breaking the cycle of children in poverty, the cost of government will decrease dramatically. A study by the Congressional Budget Office for example, estimated that a head of household in poverty costs $61,000 annually. This is an amount that can be reduced dramatically.  The University of Texas LBJ School is tracking the ROI in six categories:  taxes generated by the youth when employed, cost avoidance by reduced need and cost of affordable housing, reduced cost of utility subsidies, reduced health and social service subsidies, reduce criminal justice court costs, and reduced police and jail expenses.

One calculated financial outcome to Austin is that the city will gain between $38,000,000 and $70,000,000 annually in new taxes. In a limited analysis my Department commissioned a study by TXP, Inc. to evaluate the relationship between education levels, income, and social services spending. The study concluded that if children in poverty realized adulthood with jobs paying $48,001, the net annual gain in funding for the City of Austin from – not subsidizing these individuals, would amount to $38,015,405. Using a similar calculation, if children in poverty realized adulthood with a high-paying job with a salary of $98,000 (average 2015 salary of technology jobs in Austin) the net City of Austin annual gain in funding from not subsidizing these individuals, would amount to $70,000,000.

CD: Thank you Kevin for such detailed information about the Einstein Challenge. I am sure other communities most likely will be looking to replicate this program. Any advice to these communities?

KJ: Thanks so much for speaking with me Carlos, and for the wonderful work that you and the National League of Cities are doing to improve the economic and equity health of our communities.

The Einstein Challenge could be a key component of a national economic regeneration plan for America. It is sustainable and can be replicated anywhere. In a globally competitive world it is the human talent that will keep our cities and our nation as the most successful economy on earth. The more we work together the more we learn on new ideas like this. Not every city is a science hub, but, we can all tutor entrepreneurship, innovation, small business ownership and the creative industry clusters.

Finally there are 15.2 million children in poverty in America. It is both possible and practical to break this cycle of poverty. The ROI is financially so great that within a decade we could produce as a nation $700 billion annually in net new taxes. To put that in perspective the 2016 – 2017 federal debt was $666 billion, the sixth largest in U.S. history.  We could eliminate the national debt over time. Cities don’t need to be Austin. They need to be dedicated and relentless.

carlos_delgado_125x150About the author: Carlos Delgado is the Senior Associate for the Rose Center for Public Leadership in Land Use at the National League of Cities.

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