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Legacy Cities in a Post-COVID World: View From Experts in the Field Part II

Oct 27, 2020

By Jason Segedy

This is Part II of a two-part series examining legacy cities in post-COVID world, based on interviews that I conducted with practitioners working in municipal government and community development in ten cities in the Great Lakes. In Part I, three major themes that emerged from these interviews were discussed: 1) Moving Beyond the Eds and Meds Economy; 2) The Enduring Importance of Place; and 3) The Advantages and Disadvantages of Smaller-Scale. Here in Part II, I discuss four additional themes that will be important for legacy cities to consider as they move forward, beyond the immediate crisis of the pandemic.

Theme #4:  LEVERAGING STRATEGIC ASSETS AND CAPACITY 

Many legacy cities are battling systemic challenges that affect their entire region:  economic stagnation, population decline, and the intangible, but very real psychological effects that disinvestment and decline can have on residents and businesses.  These challenges often result in a lack of confidence in the place, which can manifest itself across the board geographically – from local residents to prospective investors across the country.

Given this reality, it is of the utmost importance that legacy cities learn how to leverage their still-substantial geographic and civic assets. 

One example of a community that is doing just this is Erie, Pennsylvania. This important port city, located on its namesake lake, and adjacent to beautiful Presque Isle, one of the most-visited state parks in the country, has seen its fortunes fade, declining from a population of 138,000 in 1960 to 96,000 today.

But like so many legacy cities, Erie is not ready to go gently into that good night. Its largest employer and only Fortune 500 company, Erie Insurance, led by CEO Tim NeCastro, and the Erie Downtown Development Corporation, led by CEO John Persinger, have established a key strategic partnership to revitalize Downtown Erie.

NeCastro, an Erie native, could have chosen to locate his company and its 3,000 employees anywhere, but he made a deliberate decision to choose downtown Erie. His company helped seed the Erie Downtown Equity Fund with a $5 million contribution that leveraged nearly another $25 million from 11 other local organizations, including local universities, hospitals, banks, and foundations. The fund supports strategic real estate purchases and the redevelopment activities of the Erie Downtown Development Corporation. 

Impressed with the level of local commitment to the Downtown core, Boston-based Arctaris Impact Investors recently committed to making $40 million worth of Opportunity Zone investments in Erie.

It is hard to overstate the importance of raising this type of capital for gap-financing in legacy city real estate markets where it is difficult to make the financials pencil-out for real estate development projects. 

In places like Downtown Erie, commercial and residential rents, lease rates, and sales prices are often too low to turn a profit in the near-term. Even for projects which are potentially profitable upfront, it becomes a Herculean task for developers to build their capital stack. It is not uncommon for a developer to have to cobble together a dozen or more funding sources just to make a project happen. All but the most committed, creative, and audacious developers will probably just choose to take their investments to a more prosperous city or a thriving suburban market.

While the key to successful community development in legacy cities most certainly involves establishing strategic partnerships and raising financial capital, it also requires a knack for tactical implementation and marketing – and for knowing when to go big or go home.

In Erie, the team intentionally eschewed smaller projects to show the community, potential investors, and prospective tenants that they were committed to the long-term future of downtown. According to Persinger: “Early wins and low-hanging fruit are not enough. We needed to do something big and bold to shock the market back to life.” 

The initial development plan will invest nearly $125 million in three key blocks of Downtown Erie, establishing 477,000 square feet of new mixed-use development, over 150 market-rate residential units, a food hall, and the first new downtown grocery store in decades. 

This big-and-bold development effort was intentionally-designed to shake-up people’s perceptions of downtown Erie – those within the community, as well as those outside of it. “This wasn’t just EDDC dreaming this up”, said Persinger, “it was based on lots of conversations with prospective investors and tenants – not ‘build it and they will come’. We are helping to build critical mass and distribute financial risk.”    

But, no matter how much cities like Erie do right at the local level, they are still facing headwinds, due to global and national economic realities which are bigger than any of them. It calls for a serious and substantive national public policy response, which is where I turn next. 

Theme #5:  PUBLIC POLICY REFORM

I have written previously about what I call “The U-Haul School of Urban Policy”, which is the fatalistic idea that there are many cities in the Rust Belt that are going to fail, and that the best that we can do for them is to essentially place them in hospice care, while telling their residents to move elsewhere for opportunity.

The reality is that large numbers of people and untold billions of dollars in investment capital cannot just walk away from our legacy cities, without disastrous social and economic consequences for the millions of people who remain. No matter how much some people might wish it to be so, these places are not going away. 

Alan Mallach, in his book, The Divided City, says it best:

“As a nation, we must decide what we want the future of these cities to be. Our present course relegates many cities to a sort of limbo, where, despite their best efforts, they drift gradually downward, losing jobs, becoming gradually poorer, and offering progressively less hope for those who live there. Is that the only vision that we have for hundreds of small cities and towns that dot the American heartland?”

For too long, the economic policy elite in this country have offered little to the people in these cities other than telling them to move away. It is time to start helping the people in these places, by helping the places. These cities need a public policy regime that intentionally supports place-based economic development. 

In my conversations with practitioners, there were a number of ideas for public policy reform which came up repeatedly:

Trade and Industrial Policy Reform Every legacy city that I interacted with for this series has been severely harmed by the trade and industrial policies that the nation has pursued over the past several decades. It is time for a wholesale re-evaluation of those policies. While it is true that we are not going to bring manufacturing as it existed in 1955 back to these cities, that objection is red herring that is nothing more than a convenient excuse for maintaining a status quo that decimated the economic base of these communities. Due to their advantageous geographic locations and skilled labor forces, there is still an important place for manufacturing in these places.  Their residents deserve more from our policy makers than the implication that any reconsideration of our trade and industrial policy is somehow regressive. They also deserve more than the once-every-four-years pandering that results in vague promises of a new industrial plant in a distant exurb that never materialize.

Antitrust Reform The consolidation of nearly every type of economic activity over the past three decades has destroyed many of the best paying jobs and undermined many important local institutions in legacy cities, as corporations, banks, airlines, utilities, and newspapers have been bought-up by national or global conglomerates with little interest in the goings-on in these places. The trend toward larger-and-larger corporations with monopoly power has strangled lending and capital formation, and has weakened the civic fabric of these places. It is time for the federal government to take a hard look at how deregulation has harmed these communities and for it to strengthen antitrust laws that would foster greater economic competition.

CDBG Reform – The Department of Housing and Urban Development’s Community Development Block Grant (CDBG) has been an important tool used by cities for decades to provide decent housing, expand economic opportunities, and combat neighborhood decline. Although it is flexible in many respects, it is restricted to serving neighborhoods at 80% area median income, or below. This means that the strategically-important “middle neighborhoods” in these cities, which are potentially competitive with suburban communities are often ineligible for these funds. 

HUD should create a new program, specifically geared toward legacy cities, that would help middle-class neighborhoods that are just beyond the upper end of the CDBG income restrictions. This program could help create housing trust and historic preservation funds which could help to leverage additional private and non-profit dollars for real estate development in middle neighborhoods. Not only would this new program provide more flexibility and much-needed funding, but it would also send a message to local non-profits and foundations that middle neighborhood stabilization is an important national strategic objective.

Theme #6:  HOUSING AND NEIGHBORHOOD REVITALIZATION

As the name implies, middle neighborhoods are racially and economically diverse places of predominantly single-family homes and small business districts, populated primarily by the middle-class. They comprise between 25 and 40 percent of the population in most legacy cities. Unlike the most distressed neighborhoods, these places are, for the most part, still physically, economically, and socially intact. But, given their older stock of housing and their proximity to areas of disinvestment, they are in danger of losing their residual strength and slipping into decline. 

Because they are neither the most troubled, nor the most successful residential areas in a city, they are often overlooked. But overlooking them is a serious mistake. It is far easier to stave off disinvestment and decline before it begins, than after it has set in.

The City of Cleveland, recognizing this, has created a Middle Neighborhoods Initiative, with its own dedicated project director. The purpose of the initiative is to incentivize middle neighborhood development, with a special focus on housing rehabilitation and small business development. Jason Powers, the project director, says that Cleveland’s middle neighborhoods are best viewed, not in isolation, but in the context of the regional housing market: “Neighborhoods are a consumer product. How do we create demand for our product?”

Making these neighborhoods competitive with suburban areas involves ensuring that they have the housing and amenities that people want, and marketing them appropriately. Powers says that people sometimes view marketing as superficial work that you do on the side, if you have the resources, but points out that it is mission critical: “Selling a place is just as important as selling homes.”

In fact, successful neighborhood revitalization often comes down to psychology – changing the narrative and the perception, by building confidence with tangible changes on the ground. The City of Sandusky, which sits on Lake Erie, midway between Toledo and Cleveland, and which was recently voted “America’s Best Coastal Small Town” by USA Today, is “taking advantage of the advantages”, according to City Manager, Eric Wobser. 

The city is capitalizing on its assets, including its waterfront location, and Cedar Point, which is home to more large roller coasters than any amusement park in the world. By leveraging its strength as a tourist destination, with noticeable improvements to its public spaces, its downtown, and its neighborhoods, it is drawing suburbanites back to the city, along with urban expatriates from nearby Cleveland and Columbus who want to live in a small coastal town that still has the urban amenities that they crave.

 Theme #7:  ECONOMIC INCLUSION IN MINORITY AND DISINVESTED NEIGHBORHOODS

 It is no secret that legacy cities, particularly in the Great Lakes region, are some of the most disinvested places in the U.S. They are also some of the most racially and economically segregated – with many older, lower-income, predominantly Black urban core neighborhoods, ringed by newer, higher-income, predominantly white suburban areas. 

Whether the issue is hypervacancy and widespread abandonment in Youngstown, or a municipal water supply poisoned by lead in Flint, these cities are living with the legacy of decades of explicit and implicit policy decisions that served to cut many of their minority and low-income residents off from opportunity and the civic amenities that most suburban residents take for granted.

In many of these neighborhoods, the housing market has all but ceased to function, destroying equity for many homeowners, many of whom are now underwater in their mortgages, and making it all but impossible for residents to get home equity loans to improve their properties. This is a particularly serious problem in working-class Black neighborhoods.

Many of these neighborhoods also desperately need new and improved housing that could be built on the thousands of publicly-owned vacant lots which are holes in the neighborhood fabric. But unlike the overheated real estate markets upon which many urban policy discussions revolve, these neighborhoods face a different challenge. Instead of prices that are too high, displacing existing residents, they face prices that are too low, trapping residents in substandard housing, and generating comps that make it impossible for new housing construction to financially pencil-out. 

Despite the low prices, housing is still not affordable for many. As Cheryl Stephens, Executive Director of East Akron Neighborhood Development Corporation, points out: “There are working class people who need housing that is within their budget. We need to be more expansive in our definition of what’s affordable. People have a limited number of choices about where to live that meets their budgetary constraints.”

In addition to having weak housing markets, these neighborhoods face significant challenges with poverty and an overall lack of economic opportunity. Few jobs or businesses exist in many of them, necessitating long walks or bus rides for residents without reliable access to a vehicle to access jobs or even just basic services.  As Stephens says: “People should be able to live and work in the same community.”

All of these complex and interrelated problems – a lack of marketable and affordable housing, a lack of jobs, and high rates of poverty – point to the need for more community development capacity. This, too, presents a challenge.

According to Dan Baisden, neighborhood planner with the City of Fort Wayne, Indiana, many legacy cities lack sufficient community development capacity: “We need to invest in community development resources to build stronger communities.”

Moses Timlin, Neighborhood Strategy Coordinator with the Genesee County Land Bank, in Flint, Michigan, echoes this concern: “The biggest challenge is strategic implementation.  Flint updated its master plan in 2013, but there is limited capacity to help implement it.”

CONCLUSION 

It is clear that legacy cities are places with significant challenges, as well as opportunities. While there is a lot that they can do at the local level to improve economic conditions, there are significant limitations on their ability to change their fortunes, absent public policy changes at the national level to help improve their economic position.

These cities are working hard to pioneer what Pete Saunders describes as “Rust Belt Urbanism”, an urban policy framework that can speak to and focus on the authenticity, resilience, and affordability of older industrial cities, while also squarely acknowledging their cultural, economic, and social challenges.

They have gotten the ball rolling. Now, they need the help of investors, policy makers, and elected officials at the national level.

Jason Segedy is the Economic Innovation Group’s inaugural Legacy Cities Fellow. You can learn more about EIG’s Legacy Cities Fellowship and Jason’s background here

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