Abstract
Since their establishment, city-level economic development corporations in Texas have grown in popularity as an ostensible means of providing for economic development. However, one knows little about the association between these economic development entities and the economic vitality of the areas they serve. Using a 2005-2006 survey of city leaders in Texas, along with Census data for 304 Texas cities, the authors investigate the association between the use of economic development corporations and the level of local unemployment. Results of the analysis indicate that economic development corporations have a reliable association with lower levels of unemployment; however, the activities of these entities matter. Lower levels of community employment are associated with activities that focus on industrial development. In contrast, the authors find no reliable relationship between the level of city unemployment and economic development corporations that engage in quality of life activities.
More than 30 years ago, the Texas legislature authorized the establishment of economic development corporations (EDCs) for use by Texas cities. Over time, these entities have been empowered to tax and seek state grants to carry out a broad range of local economic development efforts that include job training, infrastructure projects, seed money for start-up businesses, and improvements in amenities such as parks and recreational facilities. Since being authorized by the state legislature, a large number of cities in Texas have established EDCs. According to Blanco (2009), in excess of 600 EDCs operate within the state of Texas. These EDCs have been credited with generating significant revenue. Since 1989, “more than 558 cities have levied an economic development sales tax, cumulatively raising in excess of $376 million annually in additional sales tax revenue dedicated to the promotion of local economic development” (Attorney General of Texas, 2008, p. 1). 1
Furthermore, city leaders in Texas rely more on EDCs for economic development information and leadership than on any other city office. A survey of Texas city leaders indicates that nearly half (49%) identify the EDC as the local agency most relied on for economic development information (30% rely on the city manager, with the remainder dividing across other city offices, business, and citizen groups). In addition, 65% of city leaders identify the EDC as the economic development lead-taker. The Chamber of Commerce came in a distant second with only 12%. 2 Can so many city leaders be mistaken about the relevance of EDCs to economic development? From the perspective of usage, revenue generation, and acceptance by city leaders, city-level EDCs in Texas have been a success. However, these indicators of success do not empirically address whether city-level EDCs facilitate economic development. Our study’s goal is to address this issue.
Leadership in Local Economic Development
Local economic development in the United States falls to local leadership. National level attempts at local economic development policy have been sporadic and driven heavily by social and political concerns. Recent stimulus aside, the federal government is not a reliable funding source for local governments. State government has a vested interest in the economic vitality of cities—in aggregate, it matters that business locates within a state’s borders. However, as long as business locates within its borders, any given state is not necessarily as concerned with which particular city attracts business. If local communities are to economically prosper, local leaders must formulate and execute successful strategies for economic growth.
A cohort of institutional leaders that includes city mayors, council members, chambers of commerce, and city managers (in reformed cities) have been identified as economic development participants (see, e.g., Clingermayer & Feiock, 1993; Cox & Wood, 1994; McCabe, Feiock, Clingermayer, & Stream, 2009; McGovern, 1997; Nelson, 2003; Svara, 1987, 1999). However, to our knowledge, no scholarly study has assessed the effectiveness of EDCs in improving local economies. Given the use of EDCs in Texas and elsewhere, as we will discuss, an analysis of city-level EDCs in promoting economic development is a worthwhile goal. EDCs have a clearly defined function—to foster and sustain economic growth within a specific, geographically defined area (Lewis, 2003). As such, EDCs have the institutional authority and resources to take the lead and effectively provide for economic growth.
Hypothesis
Our research hypothesis is as follows: Economic development within a community, in the form of employment, will be associated with an economic development corporation. This hypothesis is based on a reasonable expectation, given the statutory authority provided to EDCs by the Texas state legislature. We examine employment because jobs are a central economic development concern. In the above-referenced survey of city leaders in Texas, for example, these office-holders identified job creation as their most important economic development consideration, ahead of items such as downtown development and the impact of development on municipal service costs, traffic, and the environment. Rising unemployment can result in population loss with severe ramifications for city revenue; the “snowball effect” on local business and further economic decline is obvious. Emblematic of slowdown in the provision of goods and services, high unemployment has direct and pronounced ramifications for citizens and potential repercussions on the electoral fortunes of city leaders as well.
The state of Texas is an excellent setting to investigate the association between community employment and EDCs. As noted, city-level EDCs are used extensively in Texas. This allows for wide variation in potential influences of interest to our analysis, such as variation in population characteristics, which will be discussed later. City-level EDCs in Texas have also been used for over 3 decades; thus, there has been sufficient time for economic impacts. Furthermore, there is prima fascia evidence to suggest that something is going on—these city-level EDCs generate considerable revenue and have the support of state and local officials. However, presumptions about the ostensible effectiveness of city-level EDCs notwithstanding, we need to empirically validate the association between local economic conditions and city-level EDCs.
The Context for Analysis
Government and Governance in Texas
To place our analysis of Texas city-level EDCs in a larger conceptual framework, we first discuss the general orientation toward government and governing in Texas. We then discuss the various types of EDCs used across states and place Texas’ use of city-level EDCs within this particular context. Texas is firmly small government and pro-business. The state’s guiding document, the Constitution of 1876, grew out of a rural setting and is uniformly judged by scholars to be a heavily antigovernment document. The second longest state document, after Georgia’s, it takes pains to restrict and fragment governmental authority. One result is the limited powers of the state governor. With the popular election of most important state executive positions and limited formal power to formulate the state’s budget, the institutional powers of the state’s chief executive are among the weakest among all state governors.
Restricted governmental authority has gone hand-in-hand with a business-friendly environment. Texas has consistently been rated among the most business-friendly states. Chief Executive Magazine has ranked Texas the top state for business each year, 2005 through 2010 (“Texas Top State for Business 6th Year in a Row,” 2010), and the Small Business and Entrepreneurial Council ranked Texas the top state for entrepreneurs in 2009 and 2010 (“Texas Top State for Entrepreneurs,” 2009). Named the most business-friendly state in a 2010 MSNBC survey (Cohn, 2010), the state’s historic commitment to business and low taxes was succinctly stated by Governor Rick Perry, who, in announcing state austerity cutbacks, said that “10 percent reduction proposals for the next biennium builds on our ongoing call on state agencies to tighten their belts so Texas can continue our commitment to keep taxes low, attract business and create jobs” (Office of the Governor Rick Perry, 2010). With a small government and pro-business orientation, Texas state government historically has preferred minimal intervention in local activities. In their comparative state study, Burby and May (1997) characterize the state’s orientation toward local economic development as being “in keeping with the laissez-faire political culture dominant [in Texas], it prefers to place land use issues in the hands of local governments” (p. 76).
City government in Texas generally reflects the state’s orientation toward government and governance—that is, restricted and fragmented government authority combined with the maintenance of a good business climate. Cities in Texas tend to limit chief executive (i.e., mayoral) power. Those that use a mayor-council system typically employ the weak-mayor variant, with Houston being the only major city to use the strong-mayor variant. In keeping with the state’s minimal government and pro-business orientation, reformed arrangements are also widely used. Historically, municipal reform in the United States was promoted by business leaders on the basis of a business model and efficiency, though there were less savory, implicit goals as well. Many cities in Texas employ a city manager and typically have a small (usually four to seven members) part-time council and a part-time mayor. Furthermore, virtually all city elections in Texas are nonpartisan and the runoff requirement is a frequent electoral feature.
Although composed primarily of rural communities through the 1940s, the majority of Texans are now urban dwellers. Texas, in fact, has more metropolitan areas than any other state (see Liu & Vanderleeuw’s, 2004, description of Texas). Home to Austin, Dallas, El Paso, Fort Worth, Houston, and San Antonio, Texas claims some of the largest cities in the country. During the past half century, the state experienced rapid population growth and an ethnically diversifying population. With a population in excess of 24,700,000 (Census estimates as of July 1, 2009), Texas today is the second most populous state, behind California. Recent estimates put the state’s population at 35% Latino and 11% African American (as of 2008, from 2006-2008 American Community Survey of Population Estimates), and within the next decade the state’s population may be “majority–minority.”
These demographic changes necessitated an increased focus on economic development. Texas, however, does not “deal with problems of growth by enacting a state plan or centralizing planning and regulatory powers at the state level” (Burby & May, 1997, p. 76). Rather, in keeping with its emphasis on minimal state activity and minimal intervention in local affairs, the legislature in the late 1970s provided local communities with the institutional authority and resources to direct their own economic future—this in the form of city economic development corporations. City leaders have the option to establish an EDC. With a director appointed by a governing board whose members are, in turn, appointed by the city council, the adoption of an EDC means that substantial decision-making authority potentially shifts from city hall to an external entity. This arrangement—an external economic development driver—is compatible with Texas’ long-standing distrust of political power and the attempt to restrict governmental authority through fragmentation of authority.
Specifically regarding city-level economic development policy making, our experience with several small to medium-sized Texas cities leads us to conclude that city-level EDCs are not necessarily staffed by bureaucrats or technocrats, as would characterize Reese and Rosenfeld’s (2002) bureaucratic elite-dominated local systems. 3 That said, EDC staffing may take on more bureaucratic characteristics in large cities. The number of EDC staff varies, but some of the smaller communities that we are familiar with have as few as two full-time employees. The communities in Texas with which we are familiar reflect what Reese and Rosenfeld (2008) describe as a market culture (decision making reflects local business interests and does not emphasize planning) or a mix of market culture and individualistic culture (decision making is influenced by a particular leader in the context of a relatively closed network). Given the prevalence of EDCs in Texas cities, these cities are also not as compatible with Reese and Rosenfeld’s business/government elite-dominated system (though there are elements of business-government domination). Rather, and although we cannot speak about all cities in Texas, many might best fit with what Reese and Rosenfeld (2002) classify as externally driven systems.
Derived from their civic culture model of city-level economic development policy making, Reese and Rosenfeld (2002) identify the following characteristic of externally driven systems: economic development decision making by an entity separate from city government, economic development decision making heavily influenced by business (though there may be more than one locus of business influence), and economic development policy that reflects traditional economic development efforts, such as infrastructure investment and industrial parks. In the aggregate, cities in Texas match up fairly well with the characteristics of externally driven systems. The use of city-level EDCs in Texas indicates the presence of local systems where economic development decision making is in many instances external, at least in formal sense, to city hall. Although, as we will discuss later, there can exist institutional linkages between an EDC and city government. Furthermore, EDC activities in Texas, as we will also discuss, tend to emphasize traditional activities such as industrial development and infrastructure improvements. However, the emphasis on traditional economic development activities is not absolute, and there are some EDCs that emphasize quality of life activities. Furthermore, as previously noted, the state has a reputation for being business friendly, and our prior investigation of several small and modest-sized communities in Texas suggests substantial local business influence. Specifically, the working relationship between city EDCs and chambers of commerce can be quite close. 4
Economic Development Corporations Across States
To place our study of Texas city-level EDCs within a larger setting of EDC use in the United States, we conducted two state-by-state Internet searches of EDCs. First, we used a Google search with the following search parameter: “(state name) economic development corporation.” We reviewed the first 30 results for each search and selected from these the websites for economic development corporations. Second, we accessed the website www.ecodevdirectory.com for each state to identify EDCs that might have been missed in the initial search. Information about EDCs, presented in Table 1, was obtained from identified websites. 5
States With Economic Development Corporations
As displayed in Table 1, we identified 43 states that use EDCs. There is variation across states in how these entities are used.The most frequent type is county level. By our count, 33 states employ county-level EDCs. City-level and regional EDCs are also common. We count 22 states that have city-level EDCs (23 if Wyoming’s mixed city/county EDC is included) and 22 that use regional EDCs (identified cities are provided in Table 1; authors will provide identified counties on request). A couple of states employ a state-level EDC. States commonly use more than one type and eight states employ three types—typically city, county, and regional.
Although many states use them, EDCs are not necessarily used extensively within a state. Of the 22 states that use city-level EDCs, we identified three with an EDC in more than a handful of cities (Nebraska, New Mexico, and Texas). Similarly, of the 33 states with county-level EDCs, there is extensive county use in seven states (a similar pattern holds for regional EDCs). We further found that most EDCs are public sector entities, though in 11 states there are private sector EDCs and in nine states EDCs are public/private partnerships. Finally, in the vast majority of states EDCs are nonprofit entities.
As a result of our EDC search, the use of city-level EDCs in Texas can be placed in a particular context. Texas’ use of EDCs falls in the “mainstream” in several respects. Given that EDCs are used in most other states and at various jurisdictional levels, we can infer that government leaders in Texas are not alone in perceiving EDCs as an effective means to spur economic growth. In addition, Texas’ EDCs are nonprofits, as they are generally across states. Furthermore, along with many other states Texas uses city-level EDCs. Texas falls outside of the “mainstream,” however, in that its use of city-level EDCs is more extensive than in any other state. As far as we could determine, city-level EDC use was more extensive in Texas than in either Nebraska or New Mexico, likely due to the large number of cities in Texas.
Economic Development Corporations in Texas
Economic development corporations in Texas are 501(c) nonprofit organizations under the Internal Revenue Code 26 U.S.C. § 501(c). City-level EDCs in Texas have their genesis in that state’s 1979 Development Corporations Act (DCA). The DCA allowed cities to form nonprofit development corporations to attract businesses and create job opportunities and would eventually allow EDCs to seek state grants and tax to support economic development projects. In 1987, Texas voters approved a constitutional amendment that “provided that grant monies for economic development may serve the public purposes of development and diversification of the economy of the state” (Moore, 2006, p. 2). In 1989, the legislature further amended the DCA by adding Section 4A, which allowed EDCs to be funded by the imposition of a local sales tax, so long as the new combined local sales tax rate did not exceed 2%. The legislature amended the DCA again in 1991 by adding Section 4B, which allows for a wider range of uses of the local sales tax revenue. Under Section 4A, the local sales tax is intended primarily for manufacturing and industrial development, whereas Section 4B allows communities to undertake projects for “quality of life improvements” (Combs, 2005). In 1997, the legislature amended the DCA to allow 4A EDCs to fund 4B projects, such as water projects, if voters approved.
According to the Texas Comptroller of Public Accounts (Windows on State Government, Texas Comptroller of Public Accounts, October 2005), 4A EDC sales tax can be used for facilities related to manufacturing, industrial development, recycling, warehousing, research and development, corporate headquarters, ports, and job training; job training and career centers; general aviation business service airports linked to industrial parks; infrastructure improvements that expand or promote business enterprises; and the maintenance and operating costs associated with these projects. The 4A EDCs can also fund other projects that the governing board determines contributes to the promotion of business and the creation or retention of primary jobs. Sales taxes from 4B EDC can be used to promote facilities related to professional and amateur sports, athletics, tourism and entertainment, retail business, parking, transportation, sewerage, streets, parks and open spaces, and associated maintenance and operating costs. Blanco’s (2009) survey of Texas EDCs provides valuable data regarding the types of projects, based on their legal authority, that EDCs fund, and allows us to place their activities in a larger theoretical framework. Derived from Blanco’s study, Table 2 displays the types of projects funded by 4A and 4B EDCs in Texas, by the percentage of EDCs that indicated they funded a particular project.
Have You Undertaken and Funded One of the Following Proposals?
Note. EDC = economic development corporation. Responses for 4B Corporations in bold, otherwise, 4A.
A review of the funding priorities of city-level EDCs in Texas reveals two important aspects of EDC activities. First, EDCs per se place substantial emphasis on jobs and business enterprise. For example, nearly two thirds (65.8%) of 4A EDCs and almost half (45.3%) of 4B EDCs report funding job creation/retention and job training programs. Furthermore, nearly two thirds (64.0%) of 4As and two in five (40.4%) of 4Bs provide funding to manufacturing/industrial facilities and new business ventures. EDC activities, therefore, are heavily oriented toward government efforts to facilitate private development.
To the extent that the activities of city-level EDCs in Texas reflect this corporate center approach to economic development, our analysis is well served by focusing on the relationship between city use of an EDC and the level of employment in a community. From a practical perspective, “most Texas cities define local economic development as attracting new business and industry to the community and expanding existing business and industry” (Blanco, 2009, p. 38). Accordingly, our focus on employment is compatible with a fundamental understanding of what economic development should, at the end of the day, produce. “No matter what form it takes, local economic development has one primary goal: to increase the number and variety of job opportunities available to local people” (Blanco, 2009, p. 38; also see Fosler, 1991).
The second finding concerning EDC activities drawn from Table 2 is a distinction in emphasis between 4A and 4B activities. As can be seen (in Table 1 and in the summary statistics provided above), by comparison to 4B EDCs, 4As more frequently fund infrastructure and facility projects. In contrast, more often than do 4A EDCs, 4Bs fund quality of life projects, which would constitute a nontraditional approach to economic development. For example, three in five (60.7%) of 4B EDCs fund city beautification efforts and public parks. By comparison, about one quarter (25.8%) of 4As fund these particular projects. Quality of life projects can have economic development impacts—projects can employ people and make a community more attractive for firms and people to locate. However, this distinction in funding activity—between more traditional economic development efforts and quality of life improvements—may have ramifications for which type of EDC in Texas is most associated with growth in employment and firms. Because of their more pronounced focus on projects that can have a more immediate connection to jobs and business growth, we expect the stronger association to involve city-level 4A EDCs.
Data and Method
Our analysis focuses on cities in Texas with a population of at least 5,000. Cities that reach this population threshold can adopt a home rule charter that allows greater taxing flexibility, along with greater flexibility in other areas such as government organization and annexation, by comparison with cities with a population below 5,000 that operate under a general charter. According to the 2000 U.S. Census, there were 304 cities in Texas with a population of at least 5,000 (a list of cities is available from the authors on request). Our dependent variable is change in the level of city unemployment 1999 to 2005 (derived from U.S. Census reports, Mean = 28.5, SD = .787, Range = −0.765 to 5.5).
Our key explanatory variable is whether a city has an EDC. When using the change in unemployment rate, the EDC variable (or the 4A and 4B variables) is coded as a “1” if an EDC is present by 2005. All other cases are coded as a “0.” Among the 304 cities for analysis, 183 (60.2.5%) had an EDC in 1999, with 210 cities having an EDC by 2005 (69.2%). Increasingly popular among city leaders, 215 (70.1%) of these cities had an EDC by 2009. However, and as noted, although both 4A and 4B EDCs fund projects that have a presumed direct impact on economic growth—such as job training, start-up business ventures, and infrastructure improvements—4A EDCs fund relatively more of these types of projects. Although it may be debated, it is plausible to assume that the most pronounced influence on job creation comes from the more traditional economic development efforts engaged in by 4A EDCs, as opposed to the more quality of life emphasis of 4Bs. Therefore, we test for the type of EDC used. By 2005, 101 cities used a 4A, 145 used a 4B, and 36 used both a 4A and a 4B EDC; by 2009 the numbers were 102 4A, 149 4B, and 36, respectively. 6
To determine the independent influence of city-level EDCs, our analysis controls for a series of demographic, city structural, economic, and proximity characteristics. Cities with large populations can act as regional employers for smaller and suburban communities. Therefore, we account for the potential influence of city population (for 2000 Census population, Mean = 47,632, SD = 158,919, Range = 5,005-1,953,124). A large “minority” population, though, can be associated with higher levels of chronic unemployment, whereas rapid population change can be due to job availability, in cases of population growth or lack of jobs, and in cases of population decline. Our analysis controls for percent African American (Mean = 9.96, SD = 11.2, Range = 0.05-57.1), percent Latino (Mean = 29.8, SD = 25.9, Range = 1.7-98.5), and population change 2000 to 2006 (Mean = 15.2, SD = 28.0, Range = −9.4 to 288.6) (all from census data).
Because in principle reformed cities are particularly business friendly and may, therefore, be havens for business and jobs, we account for whether a city is reformed or nonreformed. Based on our own review of these cities, defined as having a city manager, 87% of our cities are reformed. Furthermore, suburban communities may benefit economically by their ties to larger central cities, in contrast with more physically distant, rural communities. Our analysis accounts for whether a city is a census-defined suburb (89% of our cities are suburbs). Because the economy of communities may be particularly influenced by proximity to extremely large cities (i.e., megacities), we account for whether a community is within 50 miles of any of the three largest cities in Texas—Dallas, Houston, or San Antonio (N = 143). Finally, because the level of city wealth may signify community economic well being, we control for per capita income (from 2000 Census, Mean = 18,940, SD = 9,402, Range = 4,566-97,008).
Findings
Change in Unemployment and EDCs: Descriptive Findings
As previously noted, most home rule cities in Texas (i.e., cities with a population at or above 5,000) have an EDC, and over time, an increasing number of cities are establishing an EDC. The descriptive findings in Table 3 provide a look at our dependent variable, change in unemployment, by city EDC status (i.e., whether a city had or did not have an EDC). Our analysis here focuses on the relationship between EDC status in 2005 and change in the level of city unemployment between 1999 and 2005.
Changes in the Level of Unemployment (1999-2005) by City EDC Status (2005)
Note. EDC = economic development corporation.
These findings suggest that the presence of an EDC influences city unemployment in the expected direction. For example, between 1999 and 2005, we observe an average change in the level of unemployment among EDC cities that is less than half of what we observe among non-EDC cities (21.1% vs. 45.3%). In fact, a higher percentage of EDC cities actually experienced a decrease in unemployment compared with non-EDC cities (46.5% vs. 28.0%). A larger percentage of EDC cities relative to non-EDC cities experienced a decrease in the level of unemployment, although there is little observable difference in the average percentage point decrease in unemployment across these cities (−24.2% for EDC and −25.3% for non-EDC cities). A smaller percentage of EDC cities compared with non-EDC cities experienced an increase in the level of unemployment over time, and the average percentage point increase in unemployment was observably smaller for EDC cities than for non-EDC cities (60.7% vs. 72.5%).
Overall, these descriptive findings are encouraging regarding the influence of EDCs on unemployment. More definitive conclusions await results of our multivariate analyses that will best address our guiding hypothesis: Economic development within a community, in the form of employment, is associated with an economic development corporation.
Change in Unemployment and EDCs: Multivariate Findings
The regression models in Table 4 have robust standard errors. Breusch–Pagan diagnostics of initial regression models indicated the presence of heteroskedasticity. The robust standard errors correct for the impact of heteroskedasticity and allows for unbiased hypothesis testing. All cities were included that had a population of more than 5,000 as of the 2000 Census. Cities were coded as having an EDC (Type A, B, or both) if an EDC was formed and still existed by the year 2005. 7 We then established our set of model control variables:
Demographic controls—total population, % Black, % Latino, % population change (2000-2006)
City structure control—whether the city was reformed (defined as having a city manager)
Proximity controls—whether the city was a census-defined central city or suburb, and whether the city was located within 50 miles of Dallas, Houston, or San Antonio
Economic control—per capital income
Regression Results for % Change in Unemployment 1999 to 2005
Note. Standard errors in parentheses.
p ≤ .01. **p ≤ .05. *p ≤ .10.
Model 1 examines the association between changes in the level of unemployment and the presence of an EDC. In Model 2, we divide EDCs into Types 4A and 4B to test for any difference in the performance of EDCs based on their legal functions and activities within the community.
In Model 1, the association between the presence of an EDC and change in unemployment is in the predicted direction, although the association is not statistically significant at the conventional .05 level. The presence of an EDC is significant, however, using a one-tailed test at the .05 level (i.e., two-tailed at the .10 level). This indicates that cities that employed EDCs had less growth in, or lower levels of, unemployment by comparison with cities without an EDC over the time span under investigation. In Model 2, we divide EDCs into Types 4A and 4B. The results here are extremely interesting. The presence of a city-level 4A EDC is statistically significant (at the .05 level) and in the expected direction, although the presence of a 4B EDC is not statistically significant (though the association with unemployment is in the anticipated direction). In contrast, although 4B EDCs that place a comparatively greater emphasis on quality of life projects may be associated with reduction in unemployment in some cases, their association with lower unemployment is not reliable.
Several control variables were also statistically associated with changes in the level of city unemployment. Cities with large populations tended to experience increases in the level of unemployment. Cities with larger African American and Latino populations, in contrast, tended to experience lower levels of unemployment. Communities near San Antonio, though, experienced higher levels of unemployment. These relationships hold in both Models 1 and 2. If we look at only at the presence of an EDC per se (Model 1), change in unemployment is also associated, in the positive direction, with per capita income and proximity to a megacity. When EDCs are distinguished by type (Model 2), change in unemployment has no reliable relationship to either per capita income or proximity to the megacities of Dallas and Houston.
Discussion
City leaders in Texas seemingly have concluded that city-level EDCs improve local economies; this was the expectation of the state legislature. Over time, city-level EDCs have flourished and garnered substantial revenue. We sought to empirically test for the association between employment and EDCs use by cities. As expected, cities with an EDC experienced lower increases in unemployment, when not lower levels of unemployment, when compared with cities that did not use an EDC. However, our analysis revealed a critical distinction based on EDC function.
We infer from our findings that city-level EDCs that focus most directly on industrial development are the most successful in providing jobs. The 4A EDCs engage heavily in funding job creation and retention efforts, manufacturing facilities, and infrastructure projects. These are projects that can put people to work in the relatively short term and have potential as economic development catalysts. Although there is some overlap between 4A and 4B EDC activity, the latter fund more quality of life projects. As such, much of 4B EDC activity can be considered as an indirect form of economic development. Improvements to parks and recreational facilities, for instance, may over time help retain or attract business and citizens. To this extent, 4B EDCs might be successful at addressing unemployment, but over a longer time frame than our analysis captured. Over the time period covered by our analysis, 4A EDCs are associated with unemployment.
We also found that larger cities, as well as communities near to San Antonio, had higher levels of unemployment over time. It may not be a surprise that large cities experience high unemployment. Although large cities can act as major regional employers, because of the array of services offered, they can also be home to many who are undertrained, underskilled, and not easily employable. It is not necessarily proximity to a megacity per se (we look to Model 2 in Table 4 as the preferred model of change in unemployment), but proximity to San Antonio in particular that was associated with increased unemployment. We found that cities with large African American and Latino populations experienced less unemployment/a smaller increase in the level of unemployment over time in comparison to cities with a large Anglo population. Although an initially surprising finding, the comparatively high level of chronic unemployment often associated with African American and Latino populations means that the level of unemployment in these cities generally had less “room” to vary relative to the level of unemployment in predominantly Anglo communities.
Regarding the economic influence of EDCs, we again note that these entities are neither established nor function in a vacuum. In Texas, they are public entities authorized by the state legislature and established by local political office-holders. As such, EDCs operate within a network of local political, civic, and business leaders. A more detailed understanding of EDC governing boards is in order here: 4As have five-member and 4Bs have seven-member boards. City council members may act as governing board members as long as they do not constitute a quorum. Furthermore, a city’s manager also can act as its EDC director. Although we do not have systematic information on either city council board membership or the frequency of city managers as EDC directors, we think it reasonable to assume that these situations exist in some cases.
This understanding of the potential institutional linkages between EDCs and other organs of city government, along with differences between 4A and 4B EDC activities, has theoretical relevance from the perspective of Reese and Rosenfeld’s (2001) civic culture model of city-level economic development policy making. Ostensibly an entity external to city hall, a given EDC can be linked with other city political institutions via these interlocking institutional positions. Political considerations, therefore, will not be entirely absent from EDC usage. Characteristics of 4A EDCs are compatible with Reese and Rosenfeld’s idea of an externally driven system. These types of EDCs address traditional economic development activities, such as infrastructure, and traditional economic development outcomes, such as employment. In contrast, economic development decisions in cities that employ a 4B EDC may be much less externally driven.
Although we admit it is speculative nature, it is interesting at this point to consider the following: In some cities 4B EDC activity may essentially “subsidize” otherwise routine city maintenance costs associated with parks, recreation, streets, parking, and sewerage. These activities, which comprise much of the functional authority granted 4Bs by the state legislature, overlap with many ordinary city maintenance activities. City officials operate in a political and not solely economic environment. In addition to good economic conditions, city leaders want credit for attractive city amenities. This may help explain the popularity of 4Bs in particular in Texas, given their authorized focus on quality of life projects (again, 102 cities used a 4A, 149 used a 4B, and 36 used both, as of 2009). An interesting question for future research, therefore, involves the expectations and motivations of public officials regarding the outcome of EDC activities. Given their functional differentiation, there may be a greater tendency for 4B EDCs to become an institutional “arm” of city government, and for 4A EDC cities to better reflect (in Reese & Rosenfeld’s terms) externally driven systems.
To return to city economic conditions, there is obviously more to learn about EDC activities and economic outcomes. We do not claim to have identified all relevant economic forces or to have explored their interaction with EDC activity. There are economic indicators in addition to the level of unemployment that can be tested. At this point, we offer empirical evidence based on an analysis of cities in the state of Texas that indicates a reliable association between employment, a key indicator of local economic vitality, and city establishment of an EDC that focuses on industrial development. However, it should be obvious that city-level EDCs in Texas are not an economic “cure-all.” As indicated by our descriptive finding, even in EDC cities, in many cases the level of unemployment increased over time. With this in mind, the following discussion of two Texas cities, both with a 4A EDC, may illustrate some of the difficult context in which EDCs are expected to produce results.
The first involves the City of Port Arthur, Texas. Over the past decade, this city has seen its population decline. This decline can be attributed in part, though not fully, as the result of hurricanes. The city’s population declined from 57,755 in 2000 (Census 2000) to an estimated 56,674 by 2009 (Census 2009 population estimates), and between 2005 and 2010 vacant housing units increased by 1.2% (according to the Port Arthur Economic Development Corporation). The unemployment rate for the city as of June 2009 was 10.2% (according to the Port Arthur Chamber of Commerce), higher that the national rate of 9.5% for the same period (according to the Bureau of Labor Statistics). All this, however, is only the recent context within which the Port Arthur EDC operates.
What has occurred in Port Arthur during the past decade is reflective of systemic, long-term trends that are not readily reversed. The city’s population has been declining, manufacturing jobs have been leaving, and unemployment has routinely been in the double digits for decades. For example, the city’s population declined about 13% between 1960 and 2000 (according to Census reports). The downturn in the city’s oil-based economy in the early 1980s facilitated this population decline that resulted in a city with a dramatically altered ethnic composition. Majority White in 1960 (73% White and 26% Black), the city was plurality Black by 2000 (44% Black, 18% Hispanic, and 7% Asian), and the 2010 Census is expected to show Port Arthur to be majority Black. Furthermore, the city has for decades suffered from chronic unemployment. For example, official unemployment reached nearly 13% in 1992, and by the late 1990s the city’s official unemployment had topped 20%. Although the City of Port Arthur may be something of an extreme case, its economic situation is not unique.
Our second city for illustration is Silsbee, Texas. With a relatively small, racially mixed population (7,032 according to July 2009 Census estimates; 66% White and 32% Black according to the 2000 Census), the city has experienced substantial economic turmoil. Founded in the late 1880s as a “paper-mill” city, the city for most of its life has been essentially a one-industry town—dependent on the lumber industry (the Kirby Lumber Company) and associated railroad activity. The city survived the depression and generally thrived through the 1970s, and its population grew from about 3,000 in 1915 to more than 7,000 by 1970. In the mid-1980s Kirby Lumber was purchased by another lumber firm, which subsequently closed Kirby Lumber in 1987. This proved to be an economic catastrophe. The closing resulted in the loss of more than 800 jobs (both lumber and railroad jobs) and produced a near 30% unemployment rate in the city. With chamber of commerce support, city officials attempted to stem the economic decline with a public campaign to encourage citizens to “Shop Silsbee First.” However, it has been a near impossible task to reverse the economic blow caused by the loss of so many industrial jobs in such a small community. As a result, the city’s population declined from more than 8,000 in 1980 to less than 6,500 by 1990, which compounded the city’s economic problems.
Although the city’s population and economy have gradually improved during the past decade, there are continued economic concerns. One of these is a declining downtown business area. Physically, the area has become dilapidated and city leaders have become concerned with the tendency of many citizens to shop where they work—in larger cities in the region. There is also a growing division between business interests in the town. On one side are the older, smaller downtown businesses, located toward the city’s southern end. Also prominent in town are the larger, more recent, or expanding businesses. Such interests include car dealerships and a major big-box store, located in the city’s northeast quadrant, along a recently constructed transportation artery. The concerns of downtown business owners, such as the need for downtown renovation and a traffic problem caused by a nearby railroad switching yard, are of little interest to non–downtown business. Although city leaders appear most enthusiastic about the new businesses and associated residential development in the city’s northeast, some efforts have been made to assist downtown business. The city’s 4A EDC has provided seed money for a (nonchain) downtown restaurant and has sought state grants for improvements to the city’s downtown park. Limited resources, though, continue to hamper any large-scale revitalization project. The city’s EDC, for example, has already committed most of its projected revenue to city drainage improvements—a multiyear commitment that lasts until 2013. 8
Although there is social and economic variation across cities, the situations in Port Arthur and Silsbee can hardly be unique. Our discussion highlights the problematic social and economic trends that can confront any given city-level EDC. Of special importance here, we believe that our two-city illustration provides a particularly crucial emphasis to our findings. It is relevant that both these cities have a 4A EDC—the type of EDC shown in our analysis to have an association with changes in the level of unemployment. To the extent that the situations in these two communities reflect the economic situation in even a modest portion of cities in Texas, it is impressive that we found a reliable relationship between changes in the level of city unemployment and city-level EDC usage. Add to this the potential influence of city politics on EDC activity, and the fact that we found a relationship between unemployment and EDCs becomes perhaps even more impressive.
Conclusion
Given the wide use and increasing establishment of EDCs by city officials in Texas to strengthen their local economy, we asked whether all these leaders could be wrong. Our answer is that they are not wrong. The use of city-level EDCs, in particular those that support industrial and infrastructure development, has a positive local economic effect, at least on the level of unemployment. Further investigation of EDC effects at other jurisdictional levels and in other regions will determine precisely how broadly our findings apply. Also, whether entities with an economic-focused role that are external to “regular” governmental institutions are more effective at improving economic conditions relative to those that are more intertwined with the “regular” institutions, or are “regular” governmental institutions, is a question that remains to be addressed. Our findings, we believe, provide a solid foundation for investigating the role of these widely used entities, economic development corporations, in economic development.
Footnotes
The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
The authors received no financial support for the research, authorship, and/or publication of this article.