Time to rethink economic development

Being a city councilman in a medium-sized city, you are going to come across the writings of Richard Florida in one way or another. Real estate developers, chambers of commerce heads and politicians of all stripes have learned that Florida’s concept of “quality of place” translates into big bucks at the taxpayers’ expense.

The best-selling author, however, has recently done an about-face that might signal a change in the appetite of city governments for urban renewal projects.

Florida is a professor of a particular niche of economics labeled “urban studies,” which is sort of an economic geography and public-policy amalgamation. In his 2002 work, “The Rise of the Creative Class,” he posited that in order for a city to be prosperous, particularly its urban core, it needed to attract the type of people who will make it so.

But Florida’s most recent book, “The New Urban Crisis,” can be described as a mea culpa. As data came in from the past decade-and-a-half of re-urbanization, Florida began to see that the people who benefited from his plan were the wealthy, while the poor and middle class suffered. The unintended result, he now writes, was “something that conferred a disproportionate share of its benefits on a small group of places and people.”

But the more startling revelation is the admission that only his previously identified “super-star cities” and “knowledge hubs” actually saw any benefit from his recommendations. Indeed, only a couple of dozen cities showed any benefit whatsoever from catering to his formula, and the great number of those were the cities on which “The Rise of the Creative Class” was modeled. The Florida Model, in other words, fits only the Florida Model.

Florida, the authority in city planning departments across America, now is saying that Pittsburgh, where he labored as a professor at Carnegie Mellon for 20 years, cannot after all compete with Boston for talent. And that is so despite building a state-of-the-art convention center and two gleaming stadiums. In fact, as a result of what he describes as “winner-take-all urbanism,” places like Pittsburgh — or Indianapolis, or Evansville or Fort Wayne, for that matter — need not apply.

This new policy position likely ends Florida’s own superstar status in American economic-development circles. His offering the white flag on turning Topeka into San Francisco, while long overdue, is a surrender that will not please his crony capitalist fan club. There is simply too much money left on the table.

Chasing the golden chalice of the creative types has provided a lucrative industry for savvy developers. In my city of Fort Wayne, downtown apartment buildings complete with posh bars and restaurants are being constructed with public money (to be owned privately, of course) all in the name of attracting the right kind people.

These deals (yes, there are more than one) are done on the most outrageously uneconomic terms, averaging $275,000 a unit in a city where the average single-family home is priced at $100,000. If you discount the projected future cash flows (rents less expenses) of these operations at a reasonable rate, say 6 percent, their value would be typically a third of their financed costs. That means the government is paying three times what it should for something that it then gives away to “equity” investors.

“The curse of the creative class,” to borrow the phrase of Steven Malanga, a Manhattan Institute scholar, is that cities now have an elusive goal that can never be measured or even precisely defined, a goal they nonetheless spend hundreds of billions to pursue.

As a result, the “quality of place” rationale justifies practically any project anywhere — riverfront promenades, extensive bike trails, apartments, entertainment districts — as long as it requires massive amounts of public financing.

Florida’s “new urban crisis” is a crisis for sure, but one of his own making.

Jason Arp, a financial consultant, represents the 4th District on the Fort Wayne City Council. He wrote this for the Indiana Policy Review Foundation.