[Senate Hearing 111-535]
[From the U.S. Government Publishing Office]
S. Hrg. 111-535
WEATHERING THE STORM: CREATING JOBS
IN THE RECESSION
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
ECONOMIC POLICY
of the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
ON
EXAMINING POLICIES CONGRESS MIGHT CONSIDER IN DEVELOPING IMMEDIATE JOB
CREATION, AS WELL AS MEDIUM AND LONGER-TERM POLICIES TO ACHIEVE
SUSTAINABLE JOB GROWTH
__________
DECEMBER 9, 2009
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
CHRISTOPHER J. DODD, Connecticut, Chairman
TIM JOHNSON, South Dakota RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York JIM BUNNING, Kentucky
EVAN BAYH, Indiana MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii JIM DeMINT, South Carolina
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin KAY BAILEY HUTCHISON, Texas
MARK R. WARNER, Virginia JUDD GREGG, New Hampshire
JEFF MERKLEY, Oregon
MICHAEL F. BENNET, Colorado
Edward Silverman, Staff Director
William D. Duhnke, Republican Staff Director
Patrick Brown, Professional Staff Member
Marc Jarsulic, Chief Economist
Dawn Ratliff, Chief Clerk
Devin Hartley, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
______
Subcommittee on Economic Policy
SHERROD BROWN, Ohio, Chairman
JIM DeMINT, South Carolina, Ranking Republican Member
JON TESTER, Montana
JEFF MERKLEY, Oregon
CHRISTOPHER J. DODD, Connecticut
Chris Slevin, Staff Director
(ii)
C O N T E N T S
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FRIDAY, DECEMBER 9, 2009
Page
Opening statement of Chairman Brown.............................. 1
WITNESSES
Heather Boushey, Senior Economist, Center for American
Progress Action Fund....................................... 4
Prepared statement....................................... 29
Bruce Katz, Vice President, Brookings Institution, and
Director, Metropolitan Policy Program...................... 5
Prepared statement....................................... 38
Ray Leach, Chief Executive Officer, Jumpstart, Inc........... 8
Prepared statement....................................... 44
Rick L. Weddle, President and CEO of The Research Triangle
Park, and first Chairman of the International Economic
Development Council........................................ 11
Prepared statement....................................... 47
(iii)
WEATHERING THE STORM: CREATING JOBS IN THE RECESSION
----------
WEDNESDAY, DECEMBER 9, 2009
U.S. Senate,
Subcommittee on Economic Policy,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Subcommittee met at 2:08 p.m., in room SD-538, Dirksen
Senate Office Building, Senator Sherrod Brown, Chairman of the
Subcommittee, presiding.
OPENING STATEMENT OF CHAIRMAN SHERROD BROWN
Chairman Brown. This hearing of the Economic Policy
Subcommittee of the U.S. Senate Banking Committee will come to
order. Thank you all for joining us, the four guests,
witnesses, and others in the audience.
Few among us have ever witnessed the economic challenges
facing this country today. We have avoided the collapse of our
financial system. We were successful as a Nation with that and
as a Senate and Congress and White House back a year ago. But
millions of men and women, as we know too well, are still
struggling to make ends meet, struggling with lower wages and
depleted savings.
Our Nation is showing some signs of economic recovery, but
working families shield their children as best they can from
the financial and emotional costs of job losses. Big banks and
financial institutions have recovered but are still wounded
and, most unfortunately, too often hesitant to lend.
Creditworthy businesses are cutting workers because they cannot
get credit. They have the capacity, they have the customers,
but too often cannot get credit to move forward.
Fear of the unknown is pervasive, whether it be fear of a
parent's job security or health insecurity or fear of paying
for a child's college education or fear of losing one's home--
all persistent problems in Mr. Leach's and my part of the
country, and really around this whole country.
Since 2008, we have been accustomed to the refrain ``worst
since the Great Depression,'' when unemployment reached 25
percent and economic output fell by 25 percent in the 3-plus-
year period between 1929 and 1933. Earlier this year, this
Subcommittee examined the lessons of the New Deal. What we
heard was a range of perspectives in that hearing. One
irrefutable conclusion was that the New Deal kept millions out
of poverty and that investments in our economic infrastructure
paved the way for the most dynamic economic the world has ever
since, beginning only 15 years later.
Similarly, President Obama and Congress have taken steps to
rebuild our economy and reinvest in our workers. The American
Recovery and Reinvestment Act has helped our Nation weather the
economic storm. Last week, the Congressional Budget Office
reported ARRA programs have sustained as many as 1.6 million
jobs this year. The Congressional Budget Office report
estimates that the unemployment rate would be somewhere between
0.3 and 0.9 percent higher without the ARRA. But there are
concerns that demand will again fade. While last Friday's
slight reduction in unemployment is encouraging, there is no
reduction in urgency to create jobs.
Yesterday, the President outlined job creation proposals
that his administration is considering. Congressional leaders
are assembling ideas for job creation policies and will act in
the coming weeks. I believe we need to help small business by
making it easier to access credit. The Small Business
Administration estimates that a new job will be created for
every additional $23,000 lent to qualified borrowers. We need
to encourage growth in manufacturing, the jobs that have, as we
know, the strongest multiplier effect. One manufacturing jobs
supports four other jobs throughout the economy.
As President Obama noted yesterday, job creation will
ultimately depend on the real job creators--businesses across
America, entrepreneurs in Youngstown and Dayton, students in
our colleges and universities, workers in factories in every
corner of our great land.
We have two proven job creators here with us today,
alongside two forward-looking economic thinkers. Today we will
hear our witnesses discuss what steps are necessary not just to
weather the storm but to create new jobs. I thank each of you
for your participation today and look forward to your thoughts
on economic recovery, look forward to your comments on short-
and long-term policies needed to truly jumpstart the hiring of
more workers.
I will introduce each of the four witnesses, and Senator
Dodd I think is coming along and will make an opening
statement, the Chair of the full Committee, in a moment, but I
will introduce each of the four of you. Then we will begin.
Dr. Heather Boushey is the Senior Economist at the Center
for American Progress. Prior to joining the center, Dr. Boushey
was a Senior Economist with the Joint Economic Committee of the
U.S. Congress. She studies working families and trends in the
U.S. labor market, has written extensively on labor issues,
including tracking the recession and its impact on workers and
their families, women's labor force participation trends and
income inequality, and work/life policy issues. She has
testified before Congress and given lectures nationwide. Dr.
Boushey's research has been featured in major national and
regional papers, television, and radio. She previously worked
at the Center for Economic Policy Research and the Economic
Policy Institute, where she co-authored ``The State of Working
America'' and ``Hardships in America.'' Dr. Boushey received
her Ph.D. in economics from the New School for Social Research
and her B.A. from Hampshire College.
Bruce Katz is Vice President of Brookings here in
Washington. He is the founding director of the Brookings
Metropolitan Policy Program. He regularly advised national,
State, regional, and municipal leaders on policy reforms that
aim to advance the competitiveness of metropolitan areas. He
focuses particularly on reforms that promote the revitalization
of central cities and older suburbs and enhance the ability of
these places to attract, retain, and grow the middle class. He
recently served on the Obama transition team and is a senior
adviser to HUD Secretary Shaun Donovan. Before joining
Brookings, he served as chief of staff to Henry Cisneros, the
former Secretary of the U.S. Department of Housing and Urban
Development. He has also served as staff director on the Senate
Subcommittee on Housing and Urban Affairs. He is a visiting
professor of social policy at the London School of Economics, a
frequent writer, and commentator on urban and metropolitan
issues. Welcome, Dr. Katz. Nice to see you.
Ray Leach, founder and CEO of JumpStart from Cleveland,
from my States. Since 2003, Mr. Leach has led JumpStart,
recognized recently by the Economic Development Administration
as one of the most innovative venture development organizations
in our Nation. JumpStart invests risk capital in early stage
companies and provides entrepreneurs with business operation
plans and guidance to help attract larger pools of capital and
accelerate growth. My editorial comment: Prior to Mr. Leach
coming to Cleveland with JumpStart in 2003, Cleveland had a
reputation as one of the worst places to start a business in
the Nation, and he has totally reversed that into Cleveland
being one of the best places. His career began at IBM and has
been principally focused on information technology companies.
He is a Sloan fellow and earned his M.B.A. from MIT. He earned
a B.A. in finance from the University of Akron in Akron, Ohio.
Rick Weddle is President and CEO of The Research Triangle
Park in North Carolina. Under his leadership since 2004, The
Research Triangle Park has generated successful development
projects with capital investment of more than $800 million and
the creation of more than 6,300 new high--quality jobs
averaging $80,000 per year. The Research Triangle Foundation
has assisted in recruiting 18 new firms and 4 expansions to The
Research Triangle since 2004. Prior to 2004, for 5 years Mr.
Weddle was President and CEO of the Greater Phoenix Economic
Council, assisting 170 companies with expansions or relocations
to Phoenix that created 26,000 jobs. He also spent 4 years in
Toledo, Ohio, where he served as President and CEO of the
Regional Growth Partnership, assisting 119 companies with
expansions or relocations that created some 4,000 jobs. He
recently received the Lifetime Achievement Award for Excellence
in Economic Development from the International Economic
Development Council. He is a native of Oklahoma.
Dr. Boushey, if you would begin, welcome to all four of
you. Please keep your comments to close to 5, 6, 7 minutes, and
we will begin the questions. Thank you.
STATEMENT OF HEATHER BOUSHEY, SENIOR ECONOMIST, CENTER FOR
AMERICAN PROGRESS ACTION FUND
Ms. Boushey. Oh, there we go. All right. I will start over.
So thank you, Chairman Brown, for inviting us to speak to you
today about job creation. In my remarks, I am going to focus on
a few key highlights from my written testimony, which goes into
much more depth on the issues at hand.
Of course, the good news is that on Friday, we learned that
the unemployment rate fell to 10 percent and only 11,000
workers lost their jobs in November. This is a clear indication
that the steps that Congress and the administration have taken
to get the economy back on track have been effective. The
American Recovery and Reinvestment Act, signed into law last
February, boosted economic growth in the third quarter and
saved or created upwards of 1.6 million jobs. The act was a
significant accomplishment, but the economic effects of the
recovery package will start to diminish beginning in the middle
of 2010, well before we are fully out of the woods. Economists
now predict that economic growth will be only about 2 percent
for 2010 given the policy efforts already in place. Without
additional action on the part of Congress, the U.S. economy
could easily slip into an extended jobless recovery--or see the
recovery stall altogether.
There are a few key steps that Congress should take now to
help boost jobs in the short- to medium-term.
First, Congress should move quickly to ensure that the
extended unemployment benefits included in the Recovery Act do
not expire as planned at the end of this month. These benefits
go to the long-term unemployed who now account for a
historically high share of unemployed workers. As the chart
behind you shows, nearly four in ten workers have been out of
work and searching for a job for at least 6 months.
Now, extending these subsidies to help the unemployed
purchase health insurance or allowing States the option to put
unemployed workers on Medicaid must also be done before the end
of the year.
Second, Congress should provide another funding boost to
the States. State and local governments have shed almost
160,000 jobs over the past year, with nearly 80 percent of
local government jobs lost in just the past 4 months. So those
layoffs are accelerating, and these layoffs are, of course,
working against economic recovery at the local level. The aid
to the States contained in the package put into place last
February helped, but it only addressed about 30 to 40 percent
of the gap faced by State governments.
Third, the Federal Government could spur the creation of
millions of mostly private sector jobs by directing additional
Federal money into youth and young adult employment--such as
AmeriCorps, VISTA, YouthBuild, and the youth service and
conservation corps--child care, after-school programs, and in-
home health services for the elderly and disabled, as well as
training for those serving America's youngsters, oldsters, and
the disabled. Nonprofit groups and small businesses provide
most of these jobs, although they are paid for by programs that
are currently being cut by State and local governments.
Funneling funds into these programs not only quickly gets
people into jobs, but supports families and communities by
providing much needed services. These programs often have long
waiting lists, and any new funds will be able to meet pressing
needs.
Fourth, the proposals that the President put forward
yesterday that focus on promoting green jobs as a part of the
overall recovery agenda are certainly the right way to go.
Congress should establish a two-tier program to transform the
market for energy efficiency--a ``cash for caulkers'' program.
The first tier would promote immediate investment in energy
efficiency, through super-efficient appliances and simple home
improvements. The second tier, which should be implemented in
parallel at the same time, would increase consumer awareness of
comprehensive whole-home energy audits and retrofits. These
will, of course, create substantial jobs, good jobs in the
construction and manufacturing sectors.
So I want to close by noting that we should consider using
the TARP funds for job creation. We should not let the American
people be scared by tactics about the long-term Federal budget
deficits and allow those to keep Congress from doing what we
need to do to keep the economy moving back on track in the
short term. The deficit will rise regardless of whether or not
Congress approves additional spending if we do not get people
back to work. Unemployed people do not pay income taxes; they
do not pay sales taxes if they do not have any money to buy
things; and if their home gets foreclosed on, then they are not
paying real estate taxes. Over the last year, we have seen tax
revenues fall by nearly as much as we have seen expenditures go
up, so certainly if we fail to act, that, too, will increase
the deficit.
The question is whether we will make the investments today
to get the economy back on track or whether we will allow the
scourge of unemployment to linger. If we do nothing, we risk
not only missing an opportunity to get the 15.4 million
unemployed workers back to work quickly, but also are harming
our economy over the medium to long term.
Thank you.
Chairman Brown. Thank you, Dr. Boushey.
Mr. Katz.
STATEMENT OF BRUCE KATZ, VICE PRESIDENT, BROOKINGS INSTITUTION,
AND DIRECTOR, METROPOLITAN POLICY PROGRAM
Mr. Katz. Thank you, Chairman Brown, for the opportunity to
testify. I also will focus on the highlights from my written
testimony. I am going to make three points that build on
President Obama's presentation yesterday at Brookings that try
to connect macroeconomic policy to metro-economic realities.
The first point is that the American economy, like most
developed economies, is a network of metro economies which
envelop not just cities and suburbs, but a good portion of our
rural areas. The 366 metro areas in the United States house 83
percent of our population. They generate 88 percent of our GDP,
and due to sprawl, about 50 percent of the U.S. rural
population actually live in metropolitan areas because of the
distension of economies. We are metro nation. We need to start
acting like one, like China, like Germany, like Britain, with
the kinds of smart policies and targeted investments that will
enhance our competitiveness globally.
Second, the Great Recession has affected different metro
economies in radically different ways. Metros like Austin, San
Antonio, and Washington, D.C., have fared fairly well during
this downturn, buoyed by strong health and education sectors
and Government. By contrast, bubble real estate economies, such
as Phoenix, Tampa, and Jacksonville, have continued to lose
jobs at two or three times the rate of the United States as a
whole over the last quarter. Motor metros, as you know, such as
Youngstown and Akron, have shed jobs two and three times faster
than the United States, respectively, over the last quarter.
Bottom line, there is no single American economy. Even as
economists talk about national recovery, a large number of our
metro economies are still mired in recession.
Third, Federal efforts to bolster job creation need to
connect ``The Macro to the Metro.'' I will focus on two kinds
of Federal responses.
First, metros need the Federal Government to intervene
quickly to prevent further job losses from the collapse of
general and specific tax revenues. One critical strategy is
direct fiscal assistance to local governments, which employ 10
percent of the Nation's workforce. There is always a fiscal lag
to recessions. The massive decline in property values has not
yet shown up in local government budgets, which derive about 70
to 75 percent of their revenue from property taxes. By one
calculus, property tax revenues for both local governments and
school district could decline in the coming year by $35
billion. If the decline in State transfers to localities is as
large as the decline in State revenue, local governments could
lose another $74 billion.
In fiscal year 2009, about 70 percent of cities dealt with
budget shortfalls through layoffs, furloughs, and hiring
freezes. This will only get worse as revenues decline.
So fiscal aid to cities would keep municipal payrolls
stable and also stall cuts in local spending on construction,
procurement, and other areas. The simplest form is direct aid
in a new program. It could be modeled, actually, on the old
general revenue-sharing program we had in the 1970s. A second
option would be to restructure the State Fiscal Stabilization
Fund started in the Recovery Act to provide direct fiscal
assistance to local governments through a passthrough. In my
written testimony, I also focus on a second strategy for
stopping job losses by enabling Federal resources to be used
for transit operating subsidies. The Recovery Act provides a
lot of funding for capital, none for operating.
Now, second, metros need the Federal Government's support
in creating jobs that build the economy of the future, one that
is low carbon, innovation fueled, export oriented. Investment
in the next generation of infrastructure is critical here. I
recommend that Congress expand funding for the U.S. DOT's
Transportation Investment Generating Economic Recovery--TIGER--
Discretionary Grants, originally funded at about $1.5 billion
in the Recovery Act. TIGER uses job creation as a metric for
evaluating applications, and TIGER-funded infrastructure,
competitively awarded, has a powerful ability to create well-
paying jobs now and a stronger economy in the future.
TIGER disbursements are not expected until February 2010,
but the program is attracting substantial demand. Nearly 1,400
applications received so far by DOT total $57 billion--
remember, just $1.5 billion appropriated--and come from every
State. If even one-third of these applications are projects
that adhere closely to the objectives of the program, that
represents $20 billion in high-quality projects that are ready
to start, but lack funding and, again, build the economy of the
future.
So I believe that funding the qualified TIGER pipeline
should be considered as part of any job creation effort.
Congress should also consider making TIGER a permanent part of
the DOT budget. My written testimony also recommends Federal
support for the national infrastructure bank that Senator Dodd
has sponsored, as well as industry clusters.
So, in conclusion, the time is long past due for national
economic policy to align more closely with metropolitan
economic realities, given the economic primacy of our
metropolitan areas.
I thank you again for the opportunity to testify here today
and welcome any questions. Thanks.
Chairman Brown. Thank you, Mr. Katz.
We do not get our full Committee Chair here very often
because he is so busy, so do you want to make a statement now
before the other two panelists?
Chairman Dodd. Well, that is very generous of you, and I
will try and stay as long as I can.
Let me, first of all, thank my colleague from Ohio for
chairing this work area, job creation, which is so important.
And this Committee has a lot to say about it in terms of a lot
of jurisdictional issues that we are involved in. So I find it
exciting that there is some real attention being given to how
we do this. This forward-leaning, I think all of us agree that
obviously you want to do everything you can for those who have
fallen through the cracks. Whether it is extension of
unemployment benefits or insurance or COBRA extensions and the
like, we have got to do that, obviously, for people.
Certainly I believe very strongly the best social program,
I have often said, that anyone ever imagined or came up with is
a decent-paying job. There is no better social program in terms
of what it means to individuals, families, communities, and,
obviously, it is our job to be honest enough with people to say
that a lot of these jobs that are gone are not coming back,
candidly. And so we have got to be thinking about what we can
do to create that new level of jobs in the country where the
opportunities are there.
A lot of basic research is being done in this country, and
if we export the basic research and end up a lot of the very
products which we have designed and created--plasma television
is a classic example--the ingenuity that came up with that
concept was created here. All the manufacturing occurs
offshore. So we export our basic research and have to import
the products that are produced as a result of our own
technology.
So I am excited about the ideas of marshaling the general
creativity, and obviously in high technologies, the empowerment
zones I thought was a wonderful concept a few years ago, where
we targeted resources to areas and to getting into sort of the
green technology zones, in effect to reward industries into,
one, developing ideas in green technologies or utilizing green
technologies. To the extent that benefits all of us I think is
sort of a creative idea if you think of a cluster.
Obviously, small business, we all talk about it, and it is
tremendously important, and we have got to be imaginative in
how we support this. It is not just tax credits, and this is a
difficult one that gets into the payroll tax area. But if you
are going to encourage small businesses to keep employees they
have or hire new ones, we have got to provide that incentive
for them.
Now, you get into, obviously, some issues and payroll tax
questions, but, nonetheless, I think that is the clear
incentive that makes the most difference for people, things
like the--I love the creative--I think it was John Doerr who
came up with the title of ``cash for caulkers,'' a sort of
intriguing idea to put some people to work in that area. So
there are any number of concepts.
I have got a long statement here, Mr. President, that I
will ask to be included in the record. It goes through a number
of these ideas, including, of course, setting up that lending
facility utilizing some of these TARP resources that exist.
Having been involved, deeply involved a year ago in the
emergency economic stabilization bill, a highly criticized
effort at the time, still highly criticized, I happen to
believe we did exactly the right thing with it, and history I
think will record it as such. And so I think we can honestly
say we have stabilized the major financial institutions in the
country, and clearly now, given the resources that are
available, to at least use a substantial part of those
resources to make a difference in job creation I think is
tremendously well warranted and worthy of the kind of effort
the President is putting into it, and those of us up here can
help support with either our own ideas or getting behind these
proposals.
So this is a very timely hearing to have on some of these
ideas that are being kicked around here, and I thank my
colleague. I thank all of our witnesses. You are all talented
people who have thought about this long and hard for a long,
long time, and any additional thoughts and ideas you have for
all of us I know you are sharing with us, and we really welcome
them. So thank you.
Chairman Brown. Thank you, Senator Dodd. Thanks for joining
us.
Mr. Leach, your testimony.
STATEMENT OF RAY LEACH, CHIEF EXECUTIVE OFFICER, JUMPSTART,
INC.
Mr. Leach. Senators Dodd and Brown, thank you for the
opportunity for me to testify on behalf of nonprofit
organizations located throughout the United States who work
with and are supported by public, foundation, and private
sector partners who are focused on the transformation of
regional economies.
While all of us are encouraged by the recent news regarding
a slight reduction in total U.S. unemployment, economists tell
us that we are going to need to create at least 6 million new
jobs in order to reach full employment in the United States.
Economists also tell us that 70 percent of all new jobs in the
U.S. economy are created by firms that are less than 5 years
old.
With this being the case, now is the time for Congress to
reconsider the Federal Government's role in the formation of
new, highly disruptive technology businesses that have the
potential to create significant white, green, and blue collar
jobs as well as completely new industries.
This being the case, I believe new ideas and actions are
required in order to for the U.S. economy to not only get back
on track for long-term economic growth, but to also allow the
United States to remain the world's largest wealth- and job-
creating economy in the decades to come.
Recent conversations regarding the expansion of small
business loan guarantees, reducing loan fees, providing tax
credits to small companies who hire new employees, are a start
to help more established, typically lower-growth companies.
However, I do not believe that these initiatives will have the
ability to jump-start the U.S. economy in such a fashion where
we can get back to full employment as quickly as we otherwise
could if the Federal Government leveraged some new ideas and
initiatives.
I appreciate the chance to share with you today an approach
that has not been discussed to my knowledge to date with this
Committee and how the Federal Government can partner with
communities, States, and regions of the country to accelerate
the formation of entrepreneurial ecosystems based on regional
cluster collaborations and partnerships that have the potential
to produce sustained, long-term economic transformation,
growth, and wealth creation.
In order to illustrate this example, I would like to talk a
little bit about my organization, JumpStart, a nonprofit
located in northeast Ohio, headquartered in Cleveland and
working in northeast Ohio.
It has been our mission over the last 4 years to recreate
the entrepreneurial ecosystem which at one time was incredibly
robust, particularly in the late 19th and early 20th centuries.
As a result of JumpStart's work, we are working on--the
origination of JumpStart and the foundation of our initial work
was from 1990 to 2002, if you looked at the largest
metropolitan economies across the United States, northeast Ohio
was the worst-performing regional economy 10 out of 12 years
between 1990 and 2002.
In 2003, the public, philanthropic, and private sector
leadership of Greater Cleveland came together to build a
strategic plan to build an organization ultimately that I am
running today called JumpStart, which is a nonprofit entity
that provides programs and access to capital, which is now
recreating the entrepreneurial ecosystem to assist new
innovators and entrepreneurs to realize the greatest economic
outcomes that could result from the creation of new firms based
on disruptive, globally competitive innovation that has the
potential to create hundreds, thousands, and tens of thousands
of new jobs in the coming decade.
I am encouraged to report that since this is collaboration
of supporters was created, JumpStart has generated significant
economic results to date and has been able to demonstrate the
promise to help accelerate the economic transformation of the
northeast Ohio economy. Over the last 4 years, again, starting
with very brand-new one-, two-, three-people companies,
JumpStart has been able to create 600 jobs, and the companies
that we are focused on are expected to create at least 3,000
new positions in the next few years, while at the same time
JumpStart has been able to attract over $1 billion of private
sector capital to northeast Ohio's startup firms.
JumpStart's venture development business model has recently
been highlighted in the national media and has won multiple
awards as a national best practice organization that has the
potential to transform the economic future of our country.
With these thoughts in mind, Congress should take lessons
from JumpStart's public, private, and foundation collaboration
in order to leverage Federal resources to ensure that new and
innovative businesses continue to be created by entrepreneurs
across the United States via a new robust Federal program that
focuses on accelerating technology commercialization,
increasing access to technical assistance, education mentoring,
and training for all entrepreneurs--of course, also improving
access to risk capital and at the same time not significantly
overlapping any significant Federal programs.
One of the examples that JumpStart has been able to benefit
from in Ohio is something called the Ohio Third Frontier
Project. This is a $1.6 billion public sector initiative that
is focused on creating and accelerating the research- and
technology-drive economy in Ohio. A recent assessment of this
program was performed by SRI International and determined that
after the State expenditures totaling $681 million over the
last 7 years have generated over $6.6 billion of economic
activity and over 41,300 jobs have been created in the last 7
years in Ohio, which has resulted in a $2.4 billion increase in
employee wage and benefits.
So today I am recommending that Congress create a $2
billion 4-year initiative from currently available funds from
ARRA in order to create the Federal Innovation,
Commercialization, and Job Creation Network whereby existing
proven nonprofit economic development organizations and higher
educational institutions who have been able to demonstrate
significant commercialization and economic outcomes could serve
as individual regional centers which would manage technical
assistance and capital access programs to benefit regional
innovators and entrepreneurs who demonstrate the promise of
launching wealth-creating new companies.
Expected results from this program would include: first, a
doubling of resources provided by the Federal Government
focused on commercialization and the creation of new high-
potential, high-growth companies by leveraging Federal dollars
to non-Federal public, private, and foundation partners that
have an aligned vision. A special focus on the
commercialization of innovation, as Senator Dodd commented,
basic research is great, but if we are not creating jobs from
that research, we are not getting the bang for the buck that
the Federal Government is making such significant investments
in, so focusing on commercialization, which has the promise to
create a small number of jobs immediately but has the potential
to create at least 25 new jobs in the next 36 months.
We could also realize from this program increased private
sector investment of over $4 billion from investors across the
globe within the next 4 years in brand-new firms that have been
created or supported from this program.
Finally, with this program, the Federal Government could
realize the creation of at least 260,000 brand-new jobs from
brand-new firms within the next 6 years, an additional 1
million U.S. jobs to be created as a result of this work by the
year 2020.
So I greatly appreciate the opportunity to share these
thoughts, and I look forward to taking questions later.
Chairman Brown. Thank you very much, Mr. Leach.
Mr. Weddle.
STATEMENT OF RICK L. WEDDLE, PRESIDENT AND CEO, THE RESEARCH
TRIANGLE PARK, AND FIRST CHAIRMAN OF THE INTERNATIONAL ECONOMIC
DEVELOPMENT COUNCIL
Mr. Weddle. Chairman Brown, Senator Dodd, thank you for the
opportunity to testify today on the important topic of short-
term policies Congress should consider or could consider in
creating jobs. The American Recovery and Reinvestment Act has
done much to help stimulate the economy and job growth during
the downturn. However, with unemployment at 10 percent,
continued action is needed.
As President and CEO of The Research Triangle Park, the
nation's oldest and largest research park, RTP is one of the
best examples of how the public and private policymakers can
have a lasting impact on job creation and economic growth. Mr.
Chairman, as you also noted in the introduction, for 4 years, I
served as President and CEO of the Regional Growth Partnership
in Toledo, Ohio, where in my work there I was able to
experience and benefit from a number of--and operate under a
number of challenges in the recovery manufacturing environment.
As past Chairman of the International Economic Development
Council, my comments today also represent the viewpoints of the
world's largest economic development organization, with more
than 4,600 members, dedicated to creating high-quality jobs and
vibrant communities.
My remarks today will address the following three points.
What do the front-line economic developers see as best
practices or revitalization programs that have worked well to
create jobs? What specific recommendations can we offer to
build on the success of the Recovery and Reinvestment Act in
the short term? And what should we keep in mind to ensure that
there is a balance between short-term immediate actions and the
need to create long-term capacity for innovation and continued
economic growth?
First, allow me to share some data for the survey conducted
last week of the 4,600 members of the International Economic
Development Council. The data provides firsthand feedback from
the field regarding policies and best practices in their
communities. With a 10-percent response rate, the data
represents input from over 400 communities nationwide. Roughly
a third of the practitioners believe the Recovery Act has
already created new jobs in their community. Another 30 percent
do not believe the jobs have been created in their communities
yet. And a quarter are still unsure of the Act's effect on job
creation. It is clear from these results that more needs to be
done.
I have included a number of case studies in the written
testimony that reflect initial analysis from around the country
of what can be done to address this ongoing need of job
creation. Allow me to summarize some highlights and principles
we found among them.
The first principle is to build on and use what we have in
innovative ways. The case studies indicate we do not need to
reinvent the wheel. Our communities have many assets upon which
to build and we should leverage their work as much as possible.
One way to do this is to bring jobs back home and directly
incent the hiring of Americans now. Globalization has benefited
many U.S. companies, yet offshoring of U.S. jobs is a
gargantuan obstacle to economic development efforts. We need to
place direct emphasis on hiring and retaining American workers.
We can offer incentives directly to companies willing to
bring work from an offshore location to the U.S. location
marked by high unemployment. According to the Information and
Technology Innovation Foundation, who first surfaced this idea,
a forgivable loan program administered by EDA would be a
particularly efficient method for not only creating jobs, but
doing so in areas where the need is greatest.
Second, we should expand the current Invest in America
program housed in the Department of Commerce to become an
internationally competitive marketing arm of the U.S.
Government. The United States is the only developed country
without such a national scale program. Most of the nations we
compete with for investment have well-resourced programs to
identify opportunities for foreign direct investment. To meet
this market need, an initiative would require a $50 million
annual investment at the Federal level complemented by another
$50 million tranche in matching funds annually to U.S. States
and regions specifically for attracting high-quality jobs and
investments in the United States.
Third, we should evaluate and align trade and exchange rate
policy with job creation goals. Many trade and exchange rate
policies seem to have been working against our national job
creation goals.
Another way to build on existing programs is to strengthen
the innovation infrastructure in communities. This could be
done with a combination of new ideas, like tax credits or
direct incentives to redevelop vacant office space and retail
space to provide much-needed wet labs and other spaces
conducive to innovation and discovery.
The second principle is the idea of providing resources to
those who are most agile and flexible. For individuals, the
Committee could consider an out-of-the-box idea. Consider tax
credits to spur talent mobility within the United States. Given
the current housing situation, many talented individuals are
stranded, if you will, in locations where they cannot sell
their homes. It would not be unreasonable to formulate a
business and individual tax credit to help some workers
relocate to take a new job.
Other activities could target small business and
entrepreneurs, the key drivers of economic recovery. The small
firm that gains access to needed credit or cash will be more
likely to hire additional workers to get the job done.
We should emphasize non-traditional financing entities,
such as Certified Development Corporations, Community
Development Financial Institutions, and Revolving Loan Funds.
And finally, for companies, we could look to build off
success that are moving capital in the private sector. In
particular, the reduction or elimination of fees on the current
504 and 7(a) loan programs have been very successful, as well
as the Recovery Zone Facility Bonds.
Now, let me turn to the final principle that focuses on
both short-term job creation as well as building our long-term
innovation capacity. There is no doubt that the Federal
Government's investment in research and development is a
critical tool for stimulating innovation and building long-term
competitiveness. We need to find ways to target and accelerate
innovation by encouraging more R&D commercialization.
First, we should invest in innovation infrastructure, such
as research parks, incubators, and others, as they marry short-
term creation goals with the need to build strong, regional
innovation ecosystems. The ideas posed in S. 583, Building a
Stronger America Act, will directly incent the construction of
new and expanded research parks.
Another suggestion to jump-start commercialization would be
to offer a bonus R&D tax credit in 2010 and 2011 which
companies could choose to take against their non-corporate
income tax. This recommendation put forth by the Information
and Technology Innovation Foundation would help companies
maintain research during this challenging economic time.
The rationale for making such investments and incenting
such programs is best illustrated perhaps by the story of
Research Triangle Park. Fifty years ago, the leaders of North
Carolina realized that our State was not well poised to be at
the forefront of the post-war science and technology-based era.
Based on the strengths of the State's universities, the
University of North Carolina, Duke University, and North
Carolina State University, they created a place where companies
could take advantage of the region's intellectual assets with
the physical infrastructure to support corporate R&D
activities.
We need bold new thinking on how to replicate the RTP model
in other locations. This can be done by directing investment
toward retaining and growing critical industries that can
support high-growth companies. We can harness the existing
Federal infrastructure, such as the Economic Development
Administration's University Program or the Manufacturing
Extension Partnership Networks to reach out to competitive,
innovative companies. These programs provide an important link
between Federal goals and the private sector. Additionally, the
Committee could consider steps to allow the Workforce
Investment Act to support incumbent worker training. This
strengthens competitiveness of existing businesses and allows
them to retain critical jobs.
This recession is like none other that we have experienced.
We are not just rebooting our system. We are likely moving to a
new operating platform. As such, we should learn from these
historical successes, but also realize that a different
paradigm is needed. The actions taken under the initial
Recovery Act and the ones this Committee and others recommend
now are merely a downpayment. They are not the full solution,
and even after the second or third round, more action may be
needed.
We are at an inflection point in America today. As we
emerge from this historic downturn and recalibrate the way we
do things, now is a prime moment to consider what must be done
to incent appropriate private sector behavior and move the
Federal Government from just providing a few tools and helping
the companies and communities in selected areas to becoming a
full partner in the National Economic Recovery Strategy.
On behalf of the economic development practitioners around
the country, working hard to create jobs every day in
competitive communities, I want to thank you, the Chairman,
Senator Dodd, for allowing me the opportunity to share these
thoughts. I would be happy to respond to questions.
Chairman Brown. Thank you, Mr. Weddle.
Dr. Boushey, a few weeks ago, I was speaking to the Findlay
Rotary Club and the tone of the questions illustrated a real
fear of deficits in our country. Talk to us--you mentioned that
that shouldn't override what we need to do on creating jobs.
Talk about that for us, if you would.
Ms. Boushey. Talk? I mean, I think that is a really
challenging question, especially for everyday Americans who
tend to look at this in the same way that they do their
household budget. Oh, I am spending too much on my credit card.
Therefore, I am in deficit. That is just an unmitigated bad.
But it is not the same thing for government and I think we
haven't done enough to really educate the public that there is
a big difference there. One thing I don't think people hear
enough about is that unemployment rises, you see tax revenues
fall and you see demand for services go up. That in and of
itself is going to raise the deficit. And so the rhetoric that
we are hearing out there on the airwaves and the radio and
television is all about we spend more and that is what raises
the deficit. We don't hear enough about how what raises the
deficit is the poor economy that we are in right now and the
fact that if we don't get economic growth back on track, that
problem will only continue to mount.
And I think this is a really pivotal moment, because we are
talking about making investments in our long-term economic
growth, the kinds of things that my colleagues up here have
been talking about, and also getting, in the short-term,
getting people back to work. The sooner that we can get the
economy back on track, the better that will be for the deficit
in the medium- to long-term. It will require some spending now,
but those investments are going to pay off.
And just to add one thing, I mean, I think it is helpful
when we are talking to--I find it is helpful when I am talking
to sort of regular folks that we think about this in the same
way that we do putting a child through college, that that is
the kind of investment we are willing to take out loans for, to
go into a household deficit, because we know it is going to pay
off in the future. And that is the way we should be thinking
about the challenges facing us right now. We will address them,
but once we get the economy back on track.
Chairman Brown. Thank you. One of the, I think, most
important proposals in this body from the last couple of years
is Senator Dodd's National Infrastructure Bank. I hear a lot
about deficit, but we don't talk all that much about the
deficit we have in infrastructure that we are passing on to our
children.
The Mayor of Columbus came to see me about a year ago and
he said that unless we get more Federal help, like the Federal
Government used to invest more in water and sewer, that every
individual, every homeowner in Columbus will see double-digit
percentage sewer and water bill increases for as far as he
could see, and we know what that does to economic development.
Explore that with me, what these deficits--what this
infrastructure deficit does to the sort of the job-creating
efforts for manufacturing especially, but for anything else.
Ms. Boushey. Well, there are so many different layers to
it. I mean, just to start with manufacturing, if you are going
to manufacture goods, you have to get them from point A to
point B, and you certainly don't want the bridge to collapse on
you as you are driving there, right? And we know that we have
got this deficit in terms of roads and bridges and that big
picture kind of stuff. Making those investments makes it easier
to transport our goods. It makes it cheaper. It makes it more
efficient. I mean, that would be the first thing I would think
about.
Another piece that we need to think about in terms of
infrastructure, thinking a little bit more broadly than just
manufacturing, is, of course, our investments in education and
our capacity to train the next generation, which is a vital
component of our infrastructure that is related to our long-
term economic growth. Are we creating the kind of workforce
that can have those jobs of the future and are we making those
investments today to do so.
I mean, it really is quite a tragedy when you think about
us being the wealthiest country on the planet and we have--here
in D.C. for a few years we had potholes that were exploding
left and right, creating dangerous situations, but also making
it challenging to convince people to make those kinds of
investments to locate their companies and to see us as a place
to grow.
Chairman Brown. Let me ask one other slightly related
question for you before moving on. The Treasury Department
reported Monday it expects to have some $200 billion back for
TARP. What is your sentiment about how we should reprogram TARP
money, move TARP money in whatever ways toward economic
development? How would you structure that?
Ms. Boushey. Well, I think that at the time that you all
did TARP, that was the right thing to do. That was the right
way to spend that money. I think it is very fortunate and
speaks to the foresight that Congress and the administration
had when those funds were allocated, to allocate that much
money and to do what you did to stop the financial crisis in
its tracks.
But, fortunately, it appears we don't need all that money.
But we do need the money for the reverberations of that
financial crisis on Main Street and what has happened with jobs
and what is going on in the economy nationwide. We know that
this recession was caused by the financial crisis and we
allocated those funds to deal with that. That problem appears
to be sort of on its path toward recovery, so let us reallocate
those funds to the aftershocks of that crisis in terms of job
creation and making the investments that we need to make to get
the whole economy back on track.
I would add to that that, again, it is looking at the
economy as a whole dynamic, that if we don't get people back to
work, we are going to see even more folks having their homes
foreclosed because they can't pay their mortgages, which in
turn affects the financial system. So those investments that we
make in job creation or in small business loans or whatever
pieces we want to allocate to certainly will feed back into
helping the financial sector over the medium- to long-term.
Chairman Brown. Thank you, Dr. Boushey.
Senator Dodd, questions?
Chairman Dodd. No, no, just to thank you. I appreciate
those comments. One of the difficulties, and I appreciate
Senator Brown raising the issue of the Infrastructure Bank--the
only hearing I have ever had here in the two-and-a-half years
on this Committee on an issue where I saw this kind of
unanimity of thought is when I had the President of the AFL-CIO
and the Chairman of the Business Roundtable as well as the
Chairman of the Chamber of Commerce all in agreement on a
proposal was this long-term bank, the Infrastructure Bank
concept, and there are a lot of different variations on how you
do this.
The motivation behind it is because I don't see any of the
means by which we can do this--we certainly don't have the
resources, even if you are in balanced budget, the idea that we
could draw down through an appropriations process to build the
kind of national or regional--we are not talking about the
local infrastructure needs, I mean, those are important,
obviously--and so there are a number of different ideas.
This is not unique. Other nations have done this, and you
have got to do it with some success. Sovereign wealth funds, I
mean, people get nervous about the possibility they could pick
up and take their investments and go home. It is very difficult
to pick up and leave--take a high-speed rail system back to
wherever you are from initially. So the idea of tapping into
those resources is one way.
And you have to do this. Arnold Schwarzenegger, Ed Rendell,
two Governors who are very knowledgeable and thoughtful--Ed
Rendell has worked on these issues for years--are strong
supporters of this, as well. Chuck Hagel was my cosponsor,
Republican cosponsor of this idea for many years.
In fact, I often tell the anecdote that we put the bill
together and we were trying to decide when to announce it, our
latest version of it, anyway. And I thought we ought to wait
until September and Chuck Hagel said, no, let us do it in
August. And I said, August is a dreadful month to announce a
new idea. No one will come. No one will pay attention to us.
But he kept on pressing and I said, fine, we will do it in
August.
And so we held the press conference, and, of course, I was
right. The only camera that showed up to cover it was the one
in the room when we walked in. They wouldn't have shown up on
their own anyway. And no one paid any attention at 10 that
morning. At 5 in the afternoon, Chuck Hagel and I were on every
TV screen in America, because at 4 in the afternoon, the bridge
in Minneapolis collapsed. And so all of a sudden, the issue of
infrastructure became this huge theme across the country.
Chuck was clairvoyant, because had we done it a week later,
of course, we would have been accused of pandering rather than
having an idea to deal with some of these issues ahead of time.
So I have been trying--the administration has been somewhat
supportive of it, but you cannot find a period of economic
growth in our country, I don't believe, where we did not make
investments in infrastructure. You just have to do this. Your
point about the local, the sewage and water system and direct
bearing on what that means to local taxpayers, not to mention
economic growth that can go forward. It is the Panama Canal, or
if you want to talk about the Lewis and Clark expedition, or
you want to talk about the Federal Highway System.
I mean, there is a wonderful book out by Felix Rohatyn that
was just published recently, and he and I have done a lot of
work together on this, identifying historically the investments
in infrastructure that led directly to the economic growth of
the United States.
So I appreciate the comments. It doesn't produce the kind
of jobs immediately, and the topic of this hearing is, of
course, in this moment of crisis, what can you do. So I
acknowledge the fact that this kind of an idea doesn't produce
the kind of results in the short-term, but we have got to start
thinking beyond just short-term or we are going to be lurching
from one crisis to the next in this area.
And I happen to believe that one of the major important
functions, and I will raise this as a question with you and you
can all respond, if you would like, is the rebuilding, if you
will, of the level of confidence and optimism among American
investors, the consuming public generally. And while this idea
may not generate the kind of jobs in the short-term, to the
extent it can generate a level of excitement about the United
States once again moving in the 21st century forward leaning, I
think has its own desired impact economically.
If our country and the people see us not only coming out of
a recession, but far more importantly, leaning forward and
anticipating the future, I think that has a huge positive
impact among people in terms of their habits, what they do, how
they feel about themselves, their country, and their community.
So I don't know if you have any comments or thoughts on
that subject matter, but we are having an awful time trying to
convince people of the value of this. And again, it doesn't
take a lot of public monies to leverage an awful lot of private
capital. That is the great beauty of it. Any comments you want
to make on that point? Yes?
Chairman Brown. I would like to first make one. I
understand the infrastructure with the Interstate System and
the canals and the railroads, but what was the infrastructure
for Lewis and Clark? I missed that part, Mr. Chairman.
Chairman Dodd. Well, thank God that----
Chairman Brown. Did something come out of that that I
didn't know about?
Chairman Dodd. Sure, called Manifest Destiny.
[Laughter.]
Chairman Brown. All right, fair enough. Never mind. We will
proceed.
Chairman Dodd. Well, I want to just make one point, by the
way. Had Thomas Jefferson had the Congressional Budget Office
around----
Chairman Brown. He wouldn't have gone.
Chairman Dodd.----he wouldn't have gone. If they had scored
the Lewis and Clark expedition or the Louisiana Purchase, we
would still be 13 colonies running around. I mean, the scoring
on that, Jefferson smuggled through, both in the Lewis and
Clark expedition and the Louisiana Purchase. The Louisiana
Purchase was the entire budget of the country for 1 year, the
entire budget, that one acquisition. And you can imagine CBO,
poor Doug Elmendorf having to score that at that time.
[Laughter.]
Chairman Brown. All right. Any comments on Chairman Dodd?
Mr. Katz, yes?
Mr. Katz. I want to focus on one aspect of the
Infrastructure Bank, because it is not just about investment
and it is not just about long-term sustainable productive
growth. It is about reform of how we allocate resources.
When the American Recovery and Reinvestment Act, the
funding of about $27 billion for highway funding was sent down
to the States, most States tend to allocate transportation
spending according really to a political logic. You have 33
Senate districts and 66 House districts, which I think is the
number in Ohio----
Chairman Brown. Thirty-three and 99. That was pretty good.
Mr. Katz. Let us just spread it around, as opposed to a
market logic as to where are we going to get the highest return
on investment and how do we make decisions based on evidence,
based on data, whether it is high-speed rail, whether it is
transit, whether it is new highway expansion, whether it is
smart grid, et cetera.
I think where the United States has gone awry over the past
15, 20, 25 years compared particularly to our European
competitors is that we are not making infrastructure
investments with a view toward the long-term and as a means
toward economic competitiveness and sustainable growth. We are
making it really pursuant to an old-style log-rolling exercise,
particularly at the State level.
So my view about the Infrastructure Bank, it is invest and
reform, and let us make decisions again based on merit and
evidence rather than the politics.
Chairman Dodd. I would like you to look, as well--I didn't
mention this--at what I call our Livable Communities Act. It
doesn't have many cosponsors here, but it has attracted
tremendous attention nationwide because it, again, does exactly
what you are talking about. It goes to the issue of how then
land use issues, providing grants to States to kind of make
that intelligent plan, much as North Carolina did with the
Triangle 50 years ago. Terry Sanford, who I loved serving with
here, when he was Governor of North Carolina was brilliant in
that regard.
Kay Bailey Hutchison, our colleague on this Committee, she
and I have had long conversations. In Texas, the idea of a
high-speed rail system between Dallas, Houston, and San
Antonio, that triangle, and then having the sustainable
development occur within that triangle in terms of intelligent
land use and livable community development in that State makes
all the sense in the world. But it is the transit system that
begins to try it together.
Charlotte, North Carolina, a classic example of how a
light-rail system has transformed that city economically, that
investment. Now, the highest real estate values are along that
light-rail system, contrary to what we grew up with. Of course,
living near the railroad tracks was going to be reducing the
value of properties. Today, it increases the value of
properties. Just examples.
Chairman Brown. Thank you.
Yes, Mr. Leach.
Mr. Leach. Sure. I wanted to make a comment on the forward
leaning. I embrace and encourage the forward leaning idea and
the fact that the country and existing and future partners with
the Federal Government want to lean forward along with you,
certainly in regards to some of my commentary.
A great example of this is the Foundation Community in Ohio
and Michigan that collectively have pulled together about $170
million of philanthropic resources to be completely focused on
transformative economic development initiatives in those two
regions. So those two communities, certainly in the
philanthropy in those communities, are forward leaning, for
sure. This is an initiative that these kinds of entities have
never seriously considered and pursued, at least at this scale.
So again, the opportunity to engage, of course, with
philanthropy, but also with the corporate community in
partnership with the Federal Government. Now is the time to
build these partnerships, aggregate this level of resources to
create the scale of opportunities that we have before us.
Chairman Brown. Thank you.
I want to go back to Mr. Katz. You said something in your
testimony about we are a metro nation. You mentioned real
estate metros and you mentioned motor metros, others. You said,
we are a metro nation. We should act like one. What do you mean
by that?
Mr. Katz. Well, when you look at what drives prosperity and
productivity, I think it comes down to innovation, and I think
this really builds on what everyone has been saying here.
Innovation, human capital, education and skills,
infrastructure, and, let us say, the quality of place. Those
assets are not uniformly distributed across the American
landscape. They tend to concentrate in pretty intense ways in a
relatively small number of places, here, as in Europe, as in
China, as in India, as elsewhere. There is an agglomeration
effect, essentially, where two plus two equals five. The
benefits of density.
So if you look at the top 100 U.S. metros alone, they sit
in only 12 percent of the land mass of the country. They are
very energy efficient. They house two-thirds of the population.
They generate three-quarters of the GDP. But what comes to
those key assets is about 78 percent of patents, 94 percent of
venture capital and innovation, about three-quarters of our
knowledge workers when you talk about human capital. When you
talk about infrastructure, these are the air hubs. They are the
freight hubs. They are the seaports. And obviously when you
talk about quality of place, they tend to have the transit, the
cultural institutions, and so forth.
So the world may be flat, as Tom Friedman says, but the
assets that drive national economies forward tend to
concentrate at hyper levels in a relatively small number of
places. So when nations want to get smart about growth and
productivity and sustainability, what they have to do is to
help their major metros leverage their own assets in the
pursuit of national goals. It is a different kind of way of
looking at national economic policy.
Chairman Brown. Thank you.
Chairman Dodd was talking about the innovation that you
talked about and how innovation--what innovation can do with
job creation. I was, a month or so ago, I was meeting with a
group of Silicon Valley executives that are very interested in
the climate change bill, you know, John Doerr's comment that if
you price carbon, large amounts of capital will be unleashed.
As I was talking to these executives, some of them were already
wealthy. All of them, I think, expected to become wealthy
because of the climate change legislation, which I appreciate
and I am fine with.
But what I wasn't so fine with was any plans they really
had to take this innovation and make sure that those jobs stay
in this country. What are your thoughts on not necessarily
climate change, but as several of you said and Chairman Dodd
said, so much innovation has come about by great minds in our
country coming out of great universities, coming out of great
university settings, incubators, all kinds of venture capital
firms, all the kinds of things that have happened, but the
manufacturing then goes overseas. What do we do here,
particularly coming out of climate change, that these jobs,
these manufacturing jobs stay here?
Mr. Katz. I think there are a lot of examples from abroad
that we really need to adopt in the United States, and really
for about 30 years, we have basically said we are not going to
have industrial policy in the United States because we don't
want to pick winners and losers.
I think there are a whole set of policies that are really
general in nature that don't sort of bear the burden of prior
mistakes. So if you look to Germany, if you look to some of the
European countries, they are investing heavily in vocational
education, in education and skills that directly relate to the
clusters of innovation that emerge in their major metros like
Stuttgart or Hamburg or elsewhere. They are investing in
institutions that have really a Federalist relationship--
Federal government, State government, cities and metros, and
nonprofits, because Germany pretty much looks like us in terms
of its governance system. They are investing in institutions,
both public and nonprofit, whose job it is to really help
extend innovation to the marketplace and commercialize products
for domestic production.
So the United States sort of decided it is going to be a
laissez faire activity here. We will invest in advance R&D, but
we won't simultaneously invest in the kinds of institutions,
intermediaries, that can provide not just the capital, but the
skills training, the marketing efforts for domestic and global
markets. So we have been basically tying one or two hands
behind our back as we proceed.
So I think there is a lot to learn here, and the good news
is we are the most innovative economy in the world and we are
about to see a step change in innovation with clean energy,
with infrastructure, with a whole set of other emerging
sectors. So now what we have to do is sort of finish the
conversation, extend out the policy envelope, and in a
Federalist way, really leveraging up local nonprofit private
sector energy and discipline, create the new ideas and
inventions and processes, but then create the jobs at home.
Chairman Brown. So, Mr. Weddle, if taking off on what Mr.
Katz said, in your comments about the new clean energy economy
holding the promise of a manufacturing renaissance, a lot of us
are deeply disturbed about the Texas wind farm, that we put
tens and tens and tens and tens of millions of dollars, of
taxpayer dollars for this wind farm. Yet, some 2,000 jobs
probably, unless we can stop it, will be created--unless we can
change and redirect it, will be created in China to make those
wind turbines.
How do we assure that we are not creating more demand as we
do this, for China-made wind turbines? Or am I just wrong? Is
that not a problem?
Mr. Weddle. Well, I would agree with--first of all, I would
agree with everything that Bruce just said about the whole idea
of deliberating taking some steps to make sure that we benefit
from the innovation that we get. I think we have been too
hands-off for too long. Maybe that worked when we were the only
game on the planet, when we could drive everything according to
our own design. I do not think it works in a world where there
is more parity.
We are at the cusp right now of the first era in humankind
where we have unbundled profitability and prosperity. There was
a time when you, if you had profitable companies, you had
prosperous people and communities, and that does not
necessarily work because of the globalization that has
occurred.
So I think we have to review our trade policies and review
our tax policies. I do not have all the answers to that, but I
think well-intentioned, well-minded, thoughtful people can
figure out how to make sure that we do harvest some of the
value that comes from innovation.
Look only right now at the advance, the funding that has
gone into basic research in the last two or 3 years, which was
a sea change from the 5 years before that, but it has gone in
there without thinking through how are we going to harvest that
intellectual property. Are we going to put in place the
innovation infrastructure in our communities, so that our
community leaders can harvest that IP?
I think it is just a question of setting some goals and
then reverse engineering those goals and looking at the
policies that make that happen. Other countries do this, and it
is not rocket science. So I think we have to.
I do not think we have to take for granted that you have to
just accept that as a policy from our corporate leaders because
we have to ask the question, are our interests aligned and are
our interests bundled together, and I think that is a good
starting point for discussion.
Chairman Brown. You had talked about a cluster strategy. I
think of the city you used to live in, that Ray knows a lot
about too, Toledo. Toledo has the largest number of solar
energy manufacturing jobs of any city in America. It is a bit
of a cluster. It is potentially that, certainly.
What do you advise to a city like that, so that they really
can have that sort of cluster strategy for economic
development? Where do they go?
Mr. Weddle. Well, in my oral and in my written remarks, I
said it is time for the Federal Government to move from just
providing tools and assistance to a few communities, a few
places, and become a full partner in these strategies. There is
no harmonization of economic strategy from Federal to State to
community to metro level.
Toledo, with all due respect, they are having to do all
that by themselves. And region by region by region in America
today, we are competing with countries. We are not just
competing with other cities or other areas. So the Federal
Government needs to be more of a full partner to help, I think,
move some of the resources down to the metropolitan level, so
that these cluster strategies can be well resourced in that
regard.
I am sure you have a similar comment on that, Bruce, in
that regard.
Everything that Toledo has done they have done on their
own, fundamentally, in saying that they wanted to develop these
technologies and try to do it. But they have an aging
infrastructure, their resources are constrained, and it is
difficult to make those local investment decisions at scale, I
guess is what I am saying.
Chairman Brown. Mr. Leach, would your Federal Innovation,
Commercialization and Job Creation Network play into that?
Mr. Leach. It would. In fact, I think one of the realities,
especially the role that the Federal Government has played
historically and looking forward, is the resources they are
providing are extremely precious for basic research, and they
would be very precious and incredibly powerful and make a
significant impact in the vision that I shared today.
I think one of the things that we are struggling with as a
Country, which relates to many of the comments here, is the
practice of accelerating technology and commercialization. We
have the ability to do that now, at least at the beginning
stages, with nonprofits and with intermediaries that exist
across the United States. It does not need to go from the basic
lab directly to the private sector, and that there are partners
with the Federal Government, or could be, are today and could
be increasing partners with the Federal Government who care
very much about economic transformation, commercialization and
place and want to make sure that those jobs and the economic
wealth that is created through that transformation has
resonance and can make an impact.
I think one of the things we are struggling with to some
degree as a Country is this is especially in the trenches with
these innovators and entrepreneurs. We have relied on the
private sector to assist entrepreneurs, to move their companies
forward. When we do that, you are immediately giving it to the
private sector, and you would have less influence in that
construct in terms of where the ultimate jobs are created.
So this incremental movement of a stronger industrial point
of view from the Federal Government, I think, will more
significantly benefit the Country, but it is an evolution. And
this program that I have envisioned would very much put that in
place.
Rick commented about Toledo having a vision and being
alone, and, certainly from the University of Toledo point of
view and the regional growth partnership, they have provided
significant leadership. Having said that, the State of Ohio has
also. The public sector has made very, very large investments
in their vision, in that region's vision, as they have in
northeast Ohio, central Ohio and other parts of the State.
So the State of Ohio's Department of Development gets this.
I mean they have built a strategy around this approach. There
is no reason why the Federal Government could not partner and
piggyback on that strategy and bring resources, as Rick shared,
also as a full partner.
Chairman Brown. Tell me how, Mr. Leach, in Ohio--and I am
sorry for the parochialism, to the other three of you--that
there is discussion that Ohio would be the site of the first,
just off the coast of Cleveland, Lake Erie could be the first
site of wind turbines, a field of wind turbines anywhere on
fresh water in the world? There are fields of wind turbines in
salt water with a different set of issues, of course.
How does the Third Frontier and how do your efforts lead to
that happening? Talk through the scenario of how you sort of
capitalized that.
Ohio is the site now of a number of wind turbine
manufacturing, component manufacturers. There is little
assembly of wind turbines in the United States, ergo, the China
field in Texas. Talk about the process of how that happens and
how you helped to make that happen and how Third Frontier, how
the State can help make that happen.
Mr. Leach. Sure. Well, the Third Frontier does have a
particular focus on energy. Historically, they have had a very
large focus in the fuel cell space, and over time they have had
an increasing focus in wind.
The way the structure works in Ohio is the private sector
shares ideas and collaborates with the public sector and other
supporters of these types of initiatives, and they roundtable
around what are the most important things we could work on
collectively that could generate not just innovation but
ultimately commercialization and jobs in Ohio.
There is a private sector commission. It is called the Ohio
Third Frontier Commission, which there is certainly some public
leadership on the commission, but there are six members of a
nine-panel commission that bring the private sector judgment
and influence to these projects.
So they look at the opportunities. They post RFPs and
provide opportunities to stakeholders in the State and also
outside the State that like to make investments in these
projects, and they rate them. They leverage the National
Science Foundation experts in these particular technologies and
industries, to rate what is the total economic impact of such
projects, not just in relationship to attraction of private
sector investment, but also what is the ultimate job impact on
these kinds of projects.
So they are bringing very, very significant private sector
due diligence and analysis to these projects, or rating them,
and therefore then funding them based on the commercialization
impact in Ohio, obviously, and that is how they are rated.
So they are bringing, again, very significant private
sector discipline. The State is not picking winners and losers.
The State is bringing resources, certainly leveraging on a 10
to 1 basis the private sector resources in these projects, but
they have a very, very disciplined process.
There is no reason why the Federal Government could not
rely on a parallel process or provide resources to the States
and have the States add that to their existing resources in
order to make larger impacts.
Chairman Brown. Thank you.
Mr. Weddle, you, in your written testimony, talked about
the role of incubators in North Carolina, Ohio, and the
National Association of Incubators--I am not sure that is the
right term--is located in Athens, Ohio. There are incubators in
Ohio that have played a significant role but particularly a
fairly unheralded role because people do not know a lot about
them because they start very small businesses and many of them
grow.
What are the keys to building a successful network of
business incubators? And go especially to the Federal role, out
of EDA or whatever you think the Federal role should be in
stimulating the growth of incubators.
Then the numbers are pretty stunning, how little Federal
investment leveraged properly, locally, translates into a
significant number of jobs. But talk that through for us.
Mr. Weddle. Most incubators operate on a shoestring because
they are underresourced, and the whole idea is they do not make
a lot of money. If anything, they require subsidy or some
operating expense in that regard. We have a successful network
of incubators in Research Triangle Park, but they all have
their own set of parameters with which they were started and
funded.
I think the Federal Government could play an important role
in providing funds for either acquiring the space, setting up
the space, outfitting the space, making it so that it would be
able to be provided for startups, spinoffs out of universities
or out of companies. We have to remember that not all startups
come out of universities. The history of the 1,600 startups in
Research Triangle Park is that more came out of the companies
and the park than out of the universities, in terms of that
growth pattern.
But it is really hard to get the space reserved, to get it
outfitted, so that you can provide very, very flexible terms
and mentoring activities for the companies. I think the Federal
Government could be a good partner in providing direct grants
to nonprofits, to establish those kinds of activities.
Chairman Brown. Thank you.
Mr. Katz and Dr. Boushey, I will ask them a question. Then
I would like you all to think about the last question I am
going to ask and have all four of you answer that, about what
is the one or what are the two things that you think are most
important for this Congress to do to help create jobs in a sort
of medium range, not just short term, but obviously the crisis
is now.
So think through that as I ask Mr. Katz and Dr. Boushey
this question first. What in the Recovery Act was the most
important thing for industrial States? What did we do in the
Recovery Act that mattered most in States like Ohio, Michigan,
Wisconsin, western Pennsylvania, those States?
California and Texas are the largest manufacturing States,
but they do not necessarily think of themselves that way. The
States that really were industrial States, what were a couple
of things the Recovery Act did?
Mr. Katz, you first, then Dr. Boushey.
Mr. Katz. Well, the jury is still in a sense.
So, first, fiscal stabilization; about $48.6 billion was in
the Recovery Act to help State Governments. A large portion of
that went to education. Other parts went to general government
aid. So, again, it gets to this general issue of as we think
about creating jobs through the front door, you should not be
losing jobs through the back window. In the early phase of the
Recovery Act, I think fiscal stabilization has played a very
big role.
There are other bonding mechanisms, like the Build America
bonds which have really been taken up by the market in a
substantial way, that both help on the capital side, but also
reduce debt service. That has been of help.
I think the jury is out about what is going to happen in
the next six to twelve months because we have substantial
funding coming down the pike in not old-style infrastructure--
you know, filling potholes on freeways and county roads--but
really the next generation infrastructure, when we talk about
high-speed, when we talk about smart grid, when we talk about
health care information technology.
I think the question will be not just whether the States,
but these metropolitan areas, this sort of interesting mix of
nonprofits, universities, private sector firms, cluster
associations, local government have had the vision to take
advantage of the Federal funding. So we are going to see an
uneven application of the Recovery because the capacity across
the Country is quite different.
Chairman Brown. Dr. Boushey?
Dr. Boushey. Yes, my answer is going to echo Bruce's. I
mean I think when you look at where we spent the funds, of
course, a third of it was on tax cuts. Some of that was good
spending. Some of it, we would have done anyway, the extension
of the AMT, for example.
But you know the biggest bang for the buck was the money
that we spent on unemployment insurance. That was 16 percent of
the Recovery Act dollars, the aid for the least among us, those
hit hardest, and that I am sure had some of the biggest bang in
those hard-hit industrial States with the super high
unemployment rates. So, when I think of Michigan, I think of
the UI program, not necessarily helping the kinds of things we
have been talking about here today, in terms of the innovation
or specific companies, but certainly helping the whole
landscape and providing the biggest local dollars. People have
money in their pocket.
And then the aid to the States, I think I would put as the
second most important one because it really was, again, big
bang for the buck, lots of money.
I do not think that is to discount all of the other kinds
of programs here, but in terms of the largest ones that is what
I would say.
Chairman Brown. Thank you.
I will start with Mr. Weddle and move to your right. Just
give us the one or two most important things you think Congress
should do in the next 3 months for job creation.
Mr. Weddle. Thank you. I am happy to make a couple of
comments, and I think I agree with most everything everybody
else says. This is a pretty well-aligned panel, I think, today.
I think restoring or providing additional funding to States
and cities is going to be vital because their revenue base is
really going to show some wear and tear about the middle of
this next year, but I would require two things in that.
One, I would require that we find some way to align the
Federal Government and State strategies and plans together a
little bit better, rather than just throwing money, and I would
also make sure there was an economic development component to
that. There was no economic development component to earlier
stimulus plans.
And then second, I think, because I think it is an out-of-
the-box and an innovative idea, the expanding the Invest in
America Now program to a $100 million scale, nationally drives
a stake in the ground and says we are going to compete on this
planet for new jobs and investment from everywhere.
And I think those would be two interesting things to try to
do.
Chairman Brown. Thank you. On the Invest in America, could
you, in writing for us, contrast? That was going to be one of
my questions, and we were kind of running out of time for you
specifically. But contrast what other countries do that is so
much more inventive or thorough than we do on this. They sort
of invest, and you said there was something in the Commerce
Department or somewhere that we could do.
Mr. Weddle. For example, we have a half a million dollar
budget for the whole Country.
Chairman Brown. Right, right. See what other countries do.
Mr. Weddle. We will be happy to do that.
Chairman Brown. I would be very interested to see that.
Mr. Leach, thank you.
Mr. Leach. I would say to equip the EDA, the SBA and other
Federal agencies in the absence of larger, more robust,
something new program as I talked about earlier, to have
additional significant resources that are focused on the
commercialization of new technologies and equally, if not more
importantly, require these agencies and their partners to reach
out to non-Federal sources who have aligned interests and very
significant resources, who will aggressively partner with these
Federal agencies.
Chairman Brown. Thank you.
Mr. Katz.
Mr. Katz. I will answer less programmatic, more at the
paradigm level. I think what we need is a narrative about what
the next American economy looks like that could really
galvanize State, local, metro action, private and public.
So Larry Summers gave a speech in July. About 80 percent of
his speech was focused on the retrospect of what was done to
prevent the collapse. A very small portion focused on what
comes next. But what he said is we will be export-oriented,
less consumption-oriented. We will be focused on innovating in
what matters, not financial engineering. We will be low-carbon,
and, hopefully, we will be opportunity-rich.
If you take those four pillars of the next economy--export-
oriented, innovation-fueled, low-carbon and opportunity-rich--
that is the ticket around which to organize a whole set of
policies, innovation policies, human capital policies,
infrastructure policies, not just at the Federal level but in a
Federalist system.
I think we have lacked that clear, coherent direction and
vision from the national government, frankly, for decades. And
I think now we need to have it, and then the programs will
follow. They are almost derivative of that vision.
Chairman Brown. Thank you, Mr. Katz.
Dr. Boushey?
Dr. Boushey. Yes, again, I am going to follow Bruce and
agree with him. I mean I think there are a couple things. First
of all, in the medium term, passing that UI extension has just
got to be critical, and I know that is coming up next week, but
I think that is super important. Second, making sure that we
continue to provide more funding to the States is an important
piece.
A couple other points, I mean one is that I think we should
not be afraid of deficits. We should spend that TARP money on
some of these job creation programs, but we need to make sure
that we are focused on a strategy that does not waste it, that
is about long-term investments.
You know we have talked a lot. I mean there has been a kind
of disconnect here this afternoon, with the short term and the
long term in the sense that it is as though these things that
we are talking about on the long term, the more innovation
front, are not really also about short-term job creation. But
we need to sort of remember that economists think that the
unemployment rate is not going to come down to a full
employment level until 2014, 2015, and it could be even longer
than that.
So I do not think that those are in any way in conflict as
long as your time horizon is not like 20 years. As long as we
can do some of these things in like 2 to 6 years, I think that
is all consistent.
Then finally, I want to just tap into what Bruce said about
this notion of galvanizing, and what Senator Dodd said about
optimism. I think that focusing especially on the alternative
energy piece, which has this sort of very sexy, new ideas, that
we are going to get our economy on a better path, that both
helps manufacturing, that can create a strong U.S.
manufacturing base, but also deal with the very important
issues of climate which are being discussed right now.
And finally, I had one more piece which is that on this
notion of less consumer-driven economy, we also need to be
really focusing hard on the kind of financial regulation that
is going to be happening over the next few months, that you
guys are going to be doing here in the Senate and the House.
Focus on getting Wall Street back where it belongs, which is in
service of our productive economy, not the other way around.
I mean for too long we have allowed this economy built on
financial bubbles to be the so-called creator of growth, and we
can see that that has just been a house of cards. The focus of
the financial sector should be to provide capital for
productive investments, and thinking about financial regulation
that gets us back on that track has to be a key component of
the backdrop for a lot of what we have been talking about here
this afternoon.
Chairman Brown. Well said, thank you. Thank you all.
The record will remain open for 7 days--so, anything that
you want to add, including my request to you, Mr. Weddle,
anything you want to expand on. All your testimony, of course,
is entered in the record, as were the comments you made.
Thank you very much. I appreciate all of your joining us
here today.
Subcommittee adjourned.
[Whereupon, at 3:30 p.m., the hearing was adjourned.]
[Prepared statements supplied for the record follow:]
PREPARED STATEMENT OF HEATHER BOUSHEY
Senior Economist, Center for American Progress Action Fund
December 9, 2009
Thank you, Chairman Brown and Ranking Member DeMint, and Chairman
Dodd and Ranking Member Shelby, for inviting me to speak to you today
about the recession, the nascent recovery, and job creation. My name is
Heather Boushey and I'm a Senior Economist at the Center for American
Progress Action Fund.
I'd like to start with the good news. On Friday, we learned that
the unemployment rate fell to 10.0 percent and only 11,000 workers lost
their jobs in November, both numbers were better than had been
expected. This is unambiguous good news for workers and their families.
This data provides an indication that the steps that Congress and
the Obama administration have taken to get the economy back on track
have been effective. The American Recovery and Reinvestment Act signed
into law last February has worked its magic and injected momentum into
the economy, boosting economic growth in the third quarter and saving
or creating upwards of 1 million to 1.5 million jobs.\1\ Recovery
dollars will continue to pump up demand and add jobs to the economy as
the remaining $553 billion is spent in 2012.\2\
---------------------------------------------------------------------------
\1\ Deborah Solomon, ``U.S. Economy Gets Lift From Stimulus,'' The
Wall Street Journal, September 2, 2009, available at http://
online.wsj.com/article/SB125185379218478087.html; Josh Bivens, ``How We
Know the Recovery Package is Helping'' (Washington, D.C.: Economic
Policy Institute, October 2009) available at http://epi.3cdn.net/
bb4f1bd7339f12b9a3_4im6bxb5c.pdf.
\2\ Recovery.gov.
---------------------------------------------------------------------------
But we are by no means fully out of the woods. There are
indications that employers are beginning to need to ramp up hiring, but
have yet to actually do so. We need Congress to be vigilant in
continuing to promote job creation and reducing the hardships among
those hardest hit by the recession.
The economic effects of ARRA dollars will start to diminish
beginning in the middle of 2010--well before we will be fully out of
the woods. Economists now predict economic growth of only about 2
percent for 2010 given the policy efforts already in place. This is a
clear indication that without additional action on the part of Congress
and the Obama administration, the U.S. economy could easily slip into
an extended jobless recovery--or see the recovery stall altogether.
The economic recovery could result in a longer period of job losses
and slower job creation compared to the past two recessions. The nearly
2-year-long Great Recession began with the collapse of the U.S. housing
bubble and ensuing financial crisis, which led to a recession that was
deeper and more protracted than other kinds of recessions.\3\ Even now,
we continue to see global financial markets subject to debt-related
shocks that could potentially upend this economic recovery by hampering
access to credit. On top of this, the massive deleveraging going on in
households across the United States is putting sharp limits on the
potential for consumption to grow quickly.
---------------------------------------------------------------------------
\3\ Carmen M. Reinhart and Kenneth S. Rogoff, ``What Other
Financial Crises Tell Us,'' The Wall Street Journal, February 3, 2009,
available at http://online.wsj.com/article/SB123362438683541945.html.
---------------------------------------------------------------------------
Further, those without a job continue to face extremely daunting
challenges in finding new work. The typical unemployed worker has been
searching for work for 20.1 weeks, and a record 5.9 million of those
workers have been searching for work for at least 6 months, 38.3
percent of the total unemployed. We need to ensure that we do not leave
any demographic groups behind during economic recovery. The
unemployment rate among teens is 26.7 percent, it is 15.6 percent among
African Americans, and 12.7 percent among Hispanics, and 15.0 percent
among those without a high school diploma.
Combined, this suggests a need for additional actions, even though
it will contribute to Federal budget deficits. However, government
spending in 2010 that gets people back to work would be the best thing
for restoring fiscal balance in the coming decade.\4\ High unemployment
adds to government expenses as more families need assistance from all
levels of government, including unemployment benefits and food stamps,
help with health care bills, and help coping with a home mortgage
foreclosure. And unemployed workers do not have earnings on which they
owe taxes, a trend which has contributed to this year's rise in the
deficit. While tax revenues fell by 17 percent in 2009, spending
increased only a bit more--18 percent.\5\
---------------------------------------------------------------------------
\4\ Michael Ettlinger and Michael Linden, ``Deal with It: A Guide
to the Federal Deficit and Debt'' (Washington, D.C.: Center for
American Progress, September 2009) available at http://
www.americanprogress.org/issues/2009/09/pdf/deal_with_it.pdf.
\5\ Michael Ettlinger and Michael Linden, ``Who's to Blame for the
Deficit Numbers?'' (Washington, D.C.: Center for American Progress,
August 2009) available at http://www.americanprogress.org/issues/2009/
08/pdf/deficit_blame.pdf.
---------------------------------------------------------------------------
One way to address the long-term deficit concerns is to legislate
the ways we will pay for job creation as we legislate job-creation
provisions. Yesterday, President Barack Obama put on the table using
unallocated funds from the Troubled Asset Relief Program to pay for job
creation. Alternatively, Congress could establish a tax on the U.S.
financial services industry to raise an additional $150 billion a year.
In my testimony below, I focus on two issues. First, an outline of
what we can learn from the implementation of the recovery package so
far. Overall, the recovery package boosted economic growth, but the
elements of the package were not uniformly effective. As we debate the
challenges of a slow-growing economy, focusing on the elements that
provided the biggest bang for the buck is the best way forward. Tax
cuts, in particular, have relatively small ``multipliers,'' that is,
for every dollar of Federal spending, the effect on the overall economy
is small than for other kinds of spending, such as that targeted to
those hit hardest by the recession and aid to the States that are
highly budget-constrained due to falling tax revenues and growing
demand for services.
Congress's approval of a 2-year recovery package continues to look
like it was the right decision. The effect of the Recovery dollars will
not peak until mid-2010, but the economy will need a steady infusion of
demand. Now is the time to consider whether further job creation
measures are the right course of action. Given the challenges of a
slow-growth economy, and continued high unemployment and State fiscal
problems, both of which work against the nascent economic recovery,
focusing on job creation is the right path. Below, I present a menu of
the best options for creating jobs in the short- to medium-term based
on the Center for American Progress report released last week,
``Meeting the Jobs Challenge: How to Avoid Another Jobless-or Job-Loss-
Economic Recovery.'' Below, I summarize our recommendations that report
goes into in greater detail. There are a few key steps, however, that
Congress should take now to help boost jobs in the short- to medium-
term:
Continue to help those hurt most by the recession. Congress
should ensure that the extended unemployment benefits and COBRA
subsidies passed in the recovery act do not expire as planned
at the end of December. These benefits go to the long-term
unemployed, who now account for an historically high share--
more than one-third-of unemployed workers. Extending the
subsidies to help the unemployed purchase health insurance--or,
better yet, allowing States the option to put unemployed
workers on Medicaid--must also be done before the end of the
year.
Support State and local governments. The Federal Government
should provide another funding boost to the States. State and
local governments have shed almost 160,000 jobs over the past
year (November to November), with nearly 80 percent of the job
losses at the local level occurring in just the last 4 months.
These lay-offs are working against economic recovery at the
local level. All but two States had or still have shortfalls
for fiscal year 2010, totaling $190 billion. The aid to States
contained in the recovery package was clearly helpful, but it
only addressed only about 30 to 40 percent of the gap faced by
State governments.
Expand national service and provide support for needed
services. The Federal Government could spur the creation of
millions of mostly private-sector jobs by directing additional
Federal money into youth and young adult employment (such as
AmeriCorps, VISTA, YouthBuild, and the youth service and
conservation corps), child care, after-school programs, and in-
home health services for the elderly and disabled as well as
training for those serving America's youngsters, oldsters and
disabled. Nonprofit groups and small businesses provide most of
these jobs, although they are paid for by programs that are
currently being cut by State and local governments. Funneling
funds into these programs not only quickly gets people into
jobs, but supports families and communities by providing much-
needed services. These programs often have long waiting lists
and any new funds will be able to meet pressing needs.
Promote sustainable growth and green jobs. To promote new
green jobs, Congress could establish a two-tier program to
transform the market for energy efficiency--a ``cash for
caulkers'' program. The first tier would promote immediate
investment in energy efficiency, through super-efficient
appliances and simple home improvements. The second tier
implemented in parallel would increase consumer awareness of
comprehensive whole-home energy audits and retrofits, which
create substantial and sustained numbers of good jobs in the
construction and manufacturing sectors.
A tax cut to spur spending. To promote spending by those
who have income, Congress could offer a partial tax moratorium
to taxpayers with adjusted gross income below $150,000 for a
married couple or $75,000 for an individual. Personal income
taxpayers could be offered the opportunity to pay $2,000 less
in their 2009 Federal income taxes but would be required to pay
the sum back over the next 3 years. This idea has the virtue of
costing very little overall for Federal budget purposes since
it is simply deferred taxes and would be likely to be spent
quickly by taxpayers who choose that option.
If we do nothing, we risk not only missing an opportunity to get
the nearly 16 million unemployed back to work quickly, but also harming
our economy over the medium to long term. The deficit will rise
regardless of whether Congress approves additional spending; the
question is whether we will make the investments today to get the
economy back on track or whether we will allow the scourge of
unemployment to linger.
The American Recovery and Reinvestment Act
The recovery package pumped $787 billion into the U.S. economy and
included a variety of mechanisms for getting the economy back on track,
among them:\6\
---------------------------------------------------------------------------
\6\ Center for American Progress, ``Recovery and Reinvestment 101
Update,'' (Washington, D.C.: Center for American Progress, August 2009)
February 27, 2009, available at http://www.americanprogress.org/issues/
2009/03/pdf/recovery_reinvestment_101.pdf; Congressional Budget Office,
``Estimated Impact of the American Recovery and Reinvestment Act on
Employment and Economic Output as of September 2009'' (November 2009),
available at http://www.cbo.gov/ftpdocs/106xx/doc10682/11-30-ARRA.pdf.
Aid to the unemployed, which boasts the biggest bang for
the buck in terms of spurring economic demand (16 percent of
the total package). The multiplier for this kind of spending is
---------------------------------------------------------------------------
between 0.8 and 2.2.
Aid to State and local governments to help them avoid
layoffs and maintain services (11 percent). The multiplier for
this kind of spending is between 0.5 and 1.7.
Tax cuts for most families, which help to boost spending
(32 percent). The multiplier for this kind of spending is
between 0.7 and 1.9.
Investments in infrastructure, which are still ramping up
and coming on line, as these projects take longer to get up and
running (23 percent). The multiplier for this kind of spending
is between 1.0 and 2.5.
Investments in a green economy, which not only creates jobs
but also paves the way for long-term economic sustainability
(18 percent). The multiplier for this kind of spending is
between 1.0 and 2.5.\7\
---------------------------------------------------------------------------
\7\ Center for American Progress, ``Meeting the Jobs Challenge: How
to Avoid Another Jobless--or Job-Loss--Economic Recovery,'' December
2009, available at http://www.americanprogress.org/issues/2009/12/pdf/
job_options.pdf. Mark Zandi says that increased infrastructure spending
has a multiplier of 1.57.
These recovery dollars were a key factor in the economy seeing
positive economic growth in the third quarter, rather than no growth at
all. The Wall Street Journal quotes Jan Hatzius, chief U.S. economist
for Goldman Sachs & Co. predicting that the U.S. economy would grow by
3.3 in the third quarter and that, `` `Without that extra stimulus, we
would be somewhere around zero,' ''\8\
---------------------------------------------------------------------------
\8\ Deborah Solomon, ``U.S. Economy Gets Lift From Stimulus.''
---------------------------------------------------------------------------
This is consistent with the Administration's own findings. The
Council of Economic Advisors shows that the nearly $200 billion in
recovery dollars pumped into the economy as of the end of October added
roughly 2.3 percentage points to real GDP growth in the second quarter
of 2009 and most likely added even more in the third quarter.\9\ They
estimate that without the recovery package, the economy would have shed
over a million more jobs than it actually did.
---------------------------------------------------------------------------
\9\ Executive Office of the President, ``The Economic Impact of the
American Recovery and Reinvestment Act of 2009: First Quarterly
Report,'' September 10, 2009, available at http://www.whitehouse.gov/
assets/documents/CEA_ARRA_Report_Final.pdf; Recovery.gov.
---------------------------------------------------------------------------
The Recovery dollars have been spent on a wide variety of projects
around the country. Here's a sample of some of the projects:
Education. Grants in education have saved or created valuable
education programs, improved access to higher education, and helped
prevent a decline in education quality. The Department of Education has
found that the American Recovery and Reinvestment Act provided a total
of $48.6 billion for the State Fiscal Stabilization Fund, or SFSF, to
be administered by the Department of Education to help sustain and
create jobs and advance education reforms.\10\ As of early November,
2009, $35.4 billion of the SFSF allotment had been obligated by the
Department of Education to States and $13.2 billion is expected to be
obligated in the coming months. SFSF funds were able to restore nearly
100 percent of the 2008-2009 budget gaps and a significant portion of
the 2009-2010 shortfalls.\11\ The Congressional Budget Office estimates
that the money distributed to SFSF has an estimated output multiplier
of 0.7 to 1.9.\12\
---------------------------------------------------------------------------
\10\ U.S. Department of Education, ``U.S. Department of Education
American Recovery and Reinvestment Act Report: Summary of Programs and
State-by-State Data'' (November 2, 2009) available at http://
www.ed.gov/policy/gen/leg/recovery/spending/arra-program-summary.doc.
\11\ Ibid.
\12\ Congressional Budget Office, ``Estimated Impact of the
American Recovery and Reinvestment Act on Employment and Economic
Output as of September 2009'' (November, 2009), available at http://
www.cbo.gov/ftpdocs/106xx/doc10682/11-30-ARRA.pdf.
---------------------------------------------------------------------------
Examples of saved or created programs:\13\
---------------------------------------------------------------------------
\13\ U.S. Department of Education, ``U.S. Department of Education
American Recovery and Reinvestment Act Report: Summary of Programs and
State-by-State Data.''
Stimulus money helped Alabama budget maintain the funding
level for the heralded Alabama Reading Initiative, a ``shining
---------------------------------------------------------------------------
star of modern-day education in the State.''
In Arkansas, Little Rock School Board opted to spend a bulk
of its received stimulus money on ``reading recovery''
programs, after-school tutoring, and math and literacy coaches.
Most of the special-education funds would be spent on classroom
materials and equipment, professional, development, and summer
reading programs.
In Maryland, Gov. O'Malley announced that he would provide
more support community colleges to keep up with increased
enrollment.
Leominster High School in Fitchburg, MA, started an
Alternative Education Program. Officials had discussed creating
the program for over 2 years, but ``the School Committee
decided to move forward with the idea earlier this year, after
learning that the district would receive around $900,000 in
Federal stimulus money for special education. A portion of the
money was used to cover the cost of starting the program.''
Stimulus funds also provided the prize for the Race to the
Top program, a $4 billion contest incentivizing State
innovation in education reform.
Recovery dollars have also improved access to higher education:\14\
---------------------------------------------------------------------------
\14\ Ibid.
ARRA funds were used to mitigate tuition increases at
---------------------------------------------------------------------------
public universities in at least 31 States.
University of Massachusetts was able to rebate a $1,500 fee
increase and instead employ the standard annual increase to
cover the cost of inflation.
At the University of Minnesota, an expected tuition
increase was cut by about half. The Minnesota State College and
University System, which includes the State's community
colleges, reduced a planned tuition increase from 5 percent to
2 percent.
In Virginia, ARRA funds kept tuition increases to the
lowest rate since 2002.
SFSF has allowed Auburn University in Alabama to mitigate
tuition increases that would have been required to bridge the
gap created by reduced State appropriations.
Infrastructure investments. Investments in roads are crucial to
supporting business and building infrastructure. Federal Highway
Administrator Victor Mendez has predicted that ``[b]y addressing many
long-overdue repairs to America's roads and bridges,'' we are
``improving the economy and local quality of life while strengthening
the nation's infrastructure.''\15\ Of the $26.6 billion available for
Federal highway and bridge projects under the American Recovery and
Reinvestment Act, more than 75 percent has now been obligated. To date,
nearly 8,500 highway projects have been approved and nearly 5,000 are
underway. In early November, the Federal Highway Administration crossed
the $20 billion mark in approved obligations for highway, road and
bridge projects.\16\
---------------------------------------------------------------------------
\15\ U.S. Department of Transportation, Office of Public Affairs,
``Highway Investment Hits $20 Billion: Recovery Putting People to work
on Investments with Long-Term Benefit,'' Press Release, November 3,
2009, available at http://www.dot.gov/affairs/2009/fhwa3409.htm.
\16\ Ibid.
Examples:\17\
---------------------------------------------------------------------------
\17\ Ibid; Recovery.gov, ``Featured Stories: Stretch of I-40 Gets
Needed Makeover in Albuquerque Area,'' September 24, 2009, available at
http://www.recovery.gov/News/featured/Pages/NMI40.aspx.
In August, construction began on the $26.2 million I-279/
Fort Duquesne Bridge preservation project in Pittsburgh, PA,
designed to improve the safety of the bridge that serves an
---------------------------------------------------------------------------
estimated 81,000 drivers each day.
In September, work got underway in San Bernardino, CA, on a
massive billion-dollar project, using $128 million in ARRA
funds for additional lanes on I-215 to reduce traffic
congestion that had been crippling the local economy.
Also in September, work began on the three-mile extension
of Minneapolis' Trunk Highway 610 to I-94. When completed, this
project will reduce traffic congestion and improve area
residents' quality of life with sound walls and a pedestrian
bridge.
Last month in Nelsonville, OH, construction started on the
8.5-mile, four-lane highway to divert interstate traffic from
local streets. The project is using $138 million in ARRA funds
and is the largest Recovery Act underway in Ohio to date.
The New Mexico Department of Transportation has broken
ground on a major highway and interchange reconstruction
project on Interstate 40. On May 21, 2009, Albuquerque-based
Mountain States Constructors Inc. was awarded a $24 million
contract--$14.8 million of which comes from Recovery funds--to
build one overpass and four ramps, and to reconstruct Paseo del
Volcan and Central Avenue just west of Albuquerque. When the
project is completed in May 2010, the existing climbing lane
will extend seven-tenths of a mile further to better
accommodate the trucks and heavy vehicles that frequently
travel through the area. The I-40 project has created 78
Recovery jobs so far.
Tax cuts. In total, Treasury estimates that $62.5 billion in tax
relief was available through ARRA tax provisions by the end of August
2009.\18\ The Making Work Pay provision accounts for 37 percent of this
total.\19\ In 2009 and 2010, the Making Work Pay will provide a
refundable tax credit of up to $400 for working individuals and up to
$800 for married taxpayers filing joint returns. This tax credit will
be calculated at a rate of 6.2 percent of earned income and will
phaseout for taxpayers with modified adjusted gross income in excess of
$75,000, or $150,000 for married couples filing jointly.\20\
---------------------------------------------------------------------------
\18\ ``$62.5B in Tax Relief,'' Recovery.gov, September 27, 2009,
available at http://www.recovery.gov/News/featured/Pages/
Estimated$625BinTaxReliefFromtheRecoveryAct.aspx.
\19\ Ibid.
\20\ Internal Revenue Service, ``The Making Work Pay Tax Credit,''
accessed on December 7, 2009, available at http://www.irs.gov/newsroom/
article/0,id=204447,00.html.
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Other individual Credits account for 19 percent of the dollars
available through ARRA tax provisions.\21\ Among these, the American
Opportunity Credit will allow more parents and students to qualify for
help paying for college expenses over the next 2 years. The AOC
modifies the existing Hope Credit for 2009 and 2010 so that it includes
more Americans, including many with higher incomes and those who owe no
tax. It also adds required course materials to the list of qualifying
expenses and expands coverage to 4 years of post-secondary education
instead of two. Many of those eligible will qualify for the maximum
annual credit of $2,500 per student.\22\ The full credit is available
to individuals who have modified adjusted gross income of $80,000 or
less, or $160,000 or less for married couples filing a joint return.
The credit is phased out for taxpayers with incomes above these levels.
These income limits are higher than under the existing Hope and
Lifetime Learning Credits.\23\
---------------------------------------------------------------------------
\21\ ``$62.5B in Tax Relief.''
\22\ Internal Revenue Service, ``American Opportunity Credit,''
accessed on December 7, 2009, available at http://www.irs.gov/newsroom/
article/0,id=205674,00.html.
\23\ Ibid.
---------------------------------------------------------------------------
Energy. The ARRA includes a program launched in late October 2009
which allocates $3.4 billion program for 100 Smart Grid Investment
Grant awards. Federal funds will be matched by industry funding for a
total of public-private investments worth more than $8 billion. These
grants represent the largest single grid modernization investment in
U.S. history. The Department of labor announced at the end of October
that applicants from 49 States have been selected to receive awards and
are expected to create tens of thousands of jobs.\24\
---------------------------------------------------------------------------
\24\ U.S. Department of Labor, ``U.S. Secretary of Labor Hilda L.
Solis Announce $138 Million for Smart Grid Technology,'' Press Release,
October 28, 2009, available at http://www.dol.gov/opa/media/press/opa/
opa20091326.htm.
---------------------------------------------------------------------------
Of these funds, approximately $1 billion will build infrastructure
and expand access to smart meters in order to provide consumers access
to dynamic pricing information, which would enable them to program
smart appliances when rates and demand are at their lowest such as late
at night, et cetera.\25\ Another $2 billion will go to projects that
integrate various components of a smart grid in a single system, or cut
across project areas. These include smart meters, smart thermostats and
appliances, syncrophasors, automated substations, plug in hybrid
electric vehicles, renewable energy sources, etc. Another $400 million
will fund grid modernization projects to reduce the amount of power
wasted in transit from power plants to homes, and $25 million will
enlarge the manufacturing base for components of smart grid
systems.\26\
---------------------------------------------------------------------------
\25\ The White House, ``President Obama Announces $3.4 Billion
Investment to Spur Transition to Smart Energy Grid,'' Press Release,
October 27, 2009, available at http://www.whitehouse.gov/the-press-
office/president-obama-announces-34-billion-investment-spur-transition-
smart-energy-grid.
\26\ Ibid.
---------------------------------------------------------------------------
An analysis by the Electric Power Research Institute estimates
that smart grid technologies could reduce electricity use by more than
4 percent by 2030. That would mean a savings of $20.4 billion for
businesses and consumers around the country, and $1.6 billion for the
State of Florida alone--or $56 in utility savings per person.\27\
---------------------------------------------------------------------------
\27\ Ibid.
---------------------------------------------------------------------------
Examples of Smart Grid Technology Grants:
$138 million was awarded to NV Energy for smart grid
technology. Matching funds increase the value of this project
to $298 million. This statewide project will link 1.45 million
electric and gas meters across 54,600 square miles of service
territory, delivering more than $65 million in benefits
annually to 2.4 million Nevadans.\28\
---------------------------------------------------------------------------
\28\ U.S. Department of Labor, ``U.S. Secretary of Labor Hilda L.
Solis Announces $138 Million for Smart Grid Technology.''
$15.7 million was awarded to Rappahannock Electric
Cooperative in Fredericksburg, Virginia. To improve overall
system reliability, the funds will assist in implementing
digital improvements and upgrades to communication
infrastructure, advanced meters, cyber security equipment, and
---------------------------------------------------------------------------
digital automation.\29\
\29\ ``Webb and Warner Announce Nearly $15.7M in Stimulus Funds for
Investments in Fredericksburg's Smart Grid Technology,'' Press Release,
October 28, 2009, available at http://webb.senate.gov/newsroom/
pressreleases/2009-10-28-01.cfm.
The Detroit Edison Company was awarded $83,828,878 to fund
its SmartCurrents program. The program includes the deployment
of a large-scale network of 660,000 smart electricity meters
and will implement the Smart Home program, which will provide
customer benefits such as dynamic pricing to 5,000 customers
and smart appliances to 300 customers.\30\
---------------------------------------------------------------------------
\30\ ``Stabenow, Levin Praise More Than $103 Million in Smart Grid
Grants for Michigan,'' Press Release, October 27, 2009, available at
http://stabenow.senate.gov/press/2009/
102709LevinStabenowPraiseMoreThan103MillioninSmartGridGrantsforMichigan.
htm.
The Whirlpool Corporation in Benton Harbor, Michigan
received $19,330,000. The funds will support the manufacturing
of smart appliances to accelerate the commercialization of
residential appliances capable of communicating over a home
network with other smart technologies. These appliances will
allow customers to defer or schedule their energy use, which
can lower consumer costs and reduce peak electricity
demand.\31\
---------------------------------------------------------------------------
\31\ Ibid.
$127.5 million was awarded to the Sacramento Municipal
Utility District. The smart grid stimulus Federal grant program
of Sacramento, California's capital city, will explore how to
design, run and manage an urban smart grid utility system with
different types and sizes of clients. California will match the
stimulus subsidy with funds to improve building automation
systems, energy efficiency and retrofitting projects that are
already in schedule, including several buildings in downtown
Sacramento.\32\
---------------------------------------------------------------------------
\32\ Jen Balboa, Sacramento Municipal Utility District, ``SMUD and
regional partners win $127.5 million in Federal grant money,'' News
Release, October 27, 2009, available at http://www.smud.org/en/news/
Documents/09archive/stimulus-10-27-09.pdf; EcoSeed, ``Sacramento reaps
$127.5 million from smart grid stimulus,'' EcoSeed, November 16, 2009,
available at http://www.ecoseed.org/en/general-green-news/green-
business-news/green-business-news/5145.
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National Security. President Obama committed $3.5 billion for the
Department of Homeland Security in the ARRA. These funds will go to
guarding against terrorism; securing our borders; smart and tough
enforcement of immigration laws and improving immigration services;
preparing for, responding to, and recovering from natural disasters;
and unifying and maturing the Department of Homeland Security. The
Coast Guard received the largest proportion of these funds at $1.4
billion, Transportation Security Administration $1 billion, the U.S.
Customs and Border Protection was budgeted close to $1 billion, FEMA
$615 million, and the DHS Management Directorate received $200 million,
and Immigration and Customs Enforcement received $20 million.\33\
---------------------------------------------------------------------------
\33\ Office of the Secretary, U.S. Department of Homeland Security,
``Creating Jobs While Making America Safer U.S. Department of Homeland
Security Recovery Act Plan'' (2009) available at http://
www.exercise.dhs.gov/xlibrary/assets/recovery/
DHS_Recovery_Plan_Final_2009-05-15.pdf.
---------------------------------------------------------------------------
Examples of recent awards by programs:\34\
---------------------------------------------------------------------------
\34\ Ibid.
U.S. Coast Guard funding received from the Recovery Act
will support multiple operational communities and accommodate
the dynamic state of mission needs related to alteration of
bridges, shore facility construction, and vessel repair
acquisition. The Recovery Act funds will allow for completion
of four bridge alteration construction projects. Additionally,
shore facility construction and vessel repairs will be
performed to preserve existing capabilities. Completion of
these projects will facilitate safe and efficient navigation
along the Nation's waterways, create jobs in the construction
sector, and create a $240 million stimulative impact on the
---------------------------------------------------------------------------
construction industry.
Transportation Security Administration funding received
from the Recovery Act will support two programs: the
procurement and installation of checkpoint explosives detection
equipment; and the procurement and installation of checked
baggage explosives detection systems. TSA developed its $1
billion plan with a risk based approach that accelerates
deployment of in-line baggage handling systems and enhances
detection of liquid threats in carry-on baggage.
U.S. Customs and Border Protection funding received from
the Recovery Act will help CBP meet its mission of keeping
terrorists and their weapons out of the United States, and
securing and facilitating trade and travel, while enforcing
immigration and drug laws. In addition to helping support the
multi-year modernization strategy that includes reconstruction
of up to 23 existing CBP-owned land ports of entry as well as
repairs and alterations at a minimum of an additional 10
locations primarily along the northern border of the United
States, the Recovery Act also provides resources needed for CBP
to continue deploying cutting edge imaging technologies that
allow safe and efficient inspection of cargo and vehicles
entering the United States.
Federal Emergency Management Agency funding received from
the Recovery Act will provide funding for grants to help those
in greatest need, thereby reducing the loss of life and
property and protect the Nation from all hazards. This includes
$100 million for the Emergency Food and Shelter National Board
Program; $150 million for Public Transportation and Railroad
Security Assistance; $150 million for Port Security Grants;
$210 million for Assistance to Firefighters Grants for
modifying, upgrading, or constructing non-Federal fire
stations; and $5 million expansion in authority for Community
Disaster Loans.
Maintaining the Focus on Job Creation
Job creation must remain our top priority. The Jobs Summit that
President Obama held last week was important as it focused directly on
this most pressing problem. There are three ways to think about the
goal of job creation:
Policies that directly boost employment and reduce
unemployment;
Policies that help to those most in need, which often have
the largest bang for the buck in terms of impact on economic
stimulus; and
Policies that create jobs while laying the foundation for a
strong and sustained economic recovery.
Directly boosting employment and reducing unemployment
The options that would create jobs the most quickly and reliably
involve the most direct public policy tools available to Congress and
the Obama administration to preserve public employment, increase
private employment closely associated with public spending, and create
incentives in public programs to reduce the numbers of unemployed. They
include:
Providing Federal funds to States, localities, and schools
to reduce job losses and maintain valuable services.
The aid to States contained in the ARRA was clearly helpful, but
it only addressed about 30 to 40 percent of the gap faced by
State governments. As a result, at least 42 States cut services
and 30 States raised taxes in 2009. These actions are not
helpful as the private sector tries to build on today's nascent
economic recovery.
Additional aid to State and local governments and school districts
boasts clear advantages over many of the alternatives. First,
the added resources will immediately and directly boost
employment in a very hard hit sector. Distinct from the private
sector, job cuts are being forced exclusively by impossible
budget situations, not by a lack of demand for services.
Ameliorating those budget dilemmas will result in more jobs.
Second, additional aid will prevent further cuts to State and
local education systems-investments that will pay dividends far
beyond the current recovery.
Targeting new job creation in sectors with special
investment needs, including national service employment,
private- and public-sector employment in child care, and after-
school programs, and elderly and disabled care, alongside more
training for health professionals.
These jobs, which are largely provided by nonprofit groups and
small businesses, are paid for by programs that are currently
being cut by State and local governments. These programs also
serve needs where there is almost always more demand than
supply. Indeed, the Bureau of Labor Statistics projects that
these kinds of jobs will be among the fastest growing in the
years to come. Investing in these jobs will help pave the way
for long-term economic growth by saving and then creating new
jobs with long-term career paths and steady personal income
growth.
Creating community jobs such as those undertaken by
nonprofit groups to help distressed individuals or communities.
Creating jobs in needed infrastructure investment,
including foreclosed homes and schools.
Reducing the numbers of unemployed by encouraging early
retirement to reduce unemployment through social security, job
sharing, and saving primary- and secondary-school teachers'
jobs by offering early retirement.
Support for those hardest hit
Helping those who are most in need is both the right thing to do
and good for the economy. Channeling funds to the unemployed has a
direct impact on communities as unemployed workers spend these funds.
This not only helps the unemployed and their families, but helps the
overall economy since without aid, unemployed workers who are rendered
destitute, have no income, and no assistance from the government are
not active consumers contributing to economic recovery.
The economic hardships faced by communities hit hardest during the
Great Recession also threaten long-term social and economic damage.
They threaten the cohesiveness of neighborhoods and institutions such
as schools and churches. These things matter from an economic
perspective--saving a neighborhood is less costly than restoring it
both financial and social terms.
Doing more to ensure that families in need get the assistance they
need not only boosts local economies by pumping money into them and
helps the national economy by spurring economic demand, but also helps
families until job creation starts back up. So in the second section of
the report we recommend the following options to spur support for those
hit hardest by the Great Recession:
Extend the unemployment compensation provisions for the
long-term unemployed contained in the ARRA recovery package,
which are set to expire at the end of 2009, to at least the end
of 2010.
Ensure that the unemployed have access to health care by
extending the Federal program that subsidizes health insurance
coverage for the unemployed.
Creating the conditions for a strong and sustained economic recovery
The economic recovery following the recession in 2001 was the
weakest in the post-World War II era in terms of job gains and income
growth, leaving the typical family worse off in terms of income in
2007--the year the most recent recovery peaked--than they were in 2000,
at the prior economic peak following the 1990s expansion. The reason:
the George W. Bush administration and a conservative-led Congress
pushed through tax cuts for the exceedingly wealthy that did not
trickle down to create broad-based economic growth and job creation
while also failing to supervise our financial sector amid an explosion
of ill-considered lending.
This time, a progressive administration and Congress understand
that health care reform, prudent regulation of the financial sector,
improving education, and addressing the long-term issue of climate
change and energy independence will, together, pave the way for a more
vibrant economy in the medium to long run. Integrating these goals into
our short-term goals of job creation where possible should continue to
be a priority.
This third section of the report presents two options that focus on
one of those pillars of our future economic growth, the clean-energy
transformation of our economy, through:
A ``green bank,'' or more specifically a Clean Energy
Deployment Administration that would finance new green-energy
projects and home and building green retrofits to boost energy
savings and job creation.
A new $30 billion Federal revolving loan fund, as outlined
in the Investments for Manufacturing Progress and Clean
Technology Act now before Congress, to help small and midsized
component parts manufacturers retool their plants and retrain
workers to serve the growing global market for low-carbon
energy technology.
Tax provisions to spur job creation
Tax cuts are not as direct, fast-acting, or reliable a way to
create jobs or spur growth as the other options presented above.
Nevertheless, as a politically viable means of encouraging job creation
in the private sector with a minimum of administrative overhead, they
are sometimes the best option. They also can, in some cases, be
designed to pay for themselves over a period of time.
There are some tax cuts that are more likely to spur private-sector
jobs growth, specifically:
A deficit-neutral partial tax moratorium on income taxes in
2009.
A two-tier residential and commercial building retrofit
program featuring a ``cash for clunkers'' program for household
appliances and a ``home star'' certification program for deep
energy efficiency retrofits for entire residential and
commercial buildings.
An expansion of currently effective industrial retrofit
measures that provide tax credits for investment in clean
energy manufacturing.
A 1-year extension of the current fix to the Production Tax
Credit for renewable energy to ensure that this important tax
credit continues to have impact, and that includes
manufacturers of significant components such as wind turbines
and blades to extend its benefits to cover domestic
manufacturing supply chains.
A job-sharing tax credit that would encourage employers to
reduce hours rather than laying off workers.
Changes to the Low-Income Housing Tax Credit to revive the
stalled credit market and spur investment in shovel-ready and
much needed affordable housing projects.
Conclusion
The recovery package has pumped billions of dollars into
communities across the nation. As expected, it took quite a few months
for the effects to start to be seen, but now we know that these funds
had positive impact on economic growth in the third quarter and the
economy lost only 11,000 jobs last month, after losing more than twice
as many every day last January as President Obama took office.
But, we cannot stop focusing on job creation. Unemployment remains
excruciatingly high, especially among young workers, workers of color,
and older and displaced workers. The last two recessions led to
``jobless recoveries'' and the unemployment rate did not peak for about
a year and a half after the recession was declared officially over by
the National Bureau of Economic Research. We run a grave risk of not
creating sufficient jobs this time around as well; projections are now
that we will not get back to ``normal'' rates unemployment until far
into the mid-teens of the next decade.
______
PREPARED STATEMENT OF BRUCE KATZ
Vice President, the Brookings Institution, and
Director, Metropolitan Policy Program
December 9, 2009
Thank you Senator Brown and members of the Subcommittee for the
opportunity to testify before you this afternoon. I am Bruce Katz, Vice
President and Director of the Metropolitan Policy Program at the
Brookings Institution.
Yesterday at Brookings, President Obama laid out three priorities
for new investments to create jobs, including bolstering small business
growth, added investments in transportation and communications
infrastructure, and rebates for home energy efficiency retrofits. These
are important steps, but, as the president himself noted, there is no
silver bullet or single law that will address our current situation.
There is more to be done on several fronts, and my testimony will
address some complimentary and overlapping issues.
I will make three main points today.
First, the American economy, like most developed economies
worldwide, is a network of metropolitan economies, which envelop not
just cities and suburbs but a good portion of our rural areas. Because
the American economy is metro-led, Congress and the Administration must
understand that national recovery will also be metro-led, and so will
depend on restoring economic health and vitality in our metropolitan
engines.
Second, the Great Recession has affected different metro economies
in radically different ways. The bubble-led economies in the Sun Belt
and the auto-dominated industrial economies in the Great Lakes have
borne the brunt of this downturn. It is important to recognize that,
even as economists talk about national recovery and unemployment
numbers improve, a large number of our metropolitan economies are still
mired in recession.
Third, Federal efforts to bolster job creation need to connect
``The Macro to the Metro.'' Our research shows that metros need two
kinds of Federal responses.
They need the Federal Government to intervene quickly to prevent
further job losses from the collapse of general and specific tax
revenues. It would be the height of folly to focus on creating new jobs
in the near term while ignoring the fact that metropolitan areas are on
the verge of losing municipal jobs due to a steep and foreseeable drop
in tax revenues.
Metros also need the Federal Government's support in creating jobs
that build a balanced, productive future economy, which is low carbon,
innovation-fueled and export-oriented. There can be no return to normal
after this recession since what preceded it was anything but normal.
So let me start with the broader metropolitan frame.
Our research and that of others shows that our nation's
metropolitan areas, which encompass cities, suburbs, exurbs, and a
large portion of our rural communities, are the engines of the national
economy. As Harvard Business School Professor Michael Porter notes,
there is really no such thing as the ``U.S. economy,'' but rather a
network of interlinked metropolitan economies across the country.
There are 366 metro areas in the United States, housing 83 percent
of our population and generating 88 percent of our GDP.
The top 100 metros alone sit on only 12 percent of our land mass
but house two-thirds of our population, generate three quarters of our
GDP and concentrate the advanced research institutions, innovative
firms, talented workers and sophisticated infrastructure that are
needed to compete globally.
The majority of the GDP of 44 of our 50 States is generated by
their metropolitan areas. Ohio is a quintessential metro State since
the largest seven metropolitan areas alone generate 80 percent of State
GDP. South Carolina's five largest metropolitan areas are responsible
for 60 percent of State GDP, and its full complement of 10 metros
contribute 82 percent of State GDP. In Oregon, the Portland metro by
itself generates 59 percent of State GDP.
We are a Metro Nation, and we need to start acting like one.
Second, metros vary considerably in size, assets, economy, and in
how hard they have been hit by the recession. Some specialize in
finance and real estate, others in manufacturing and production, still
others in advanced services. Some act as hubs for the movement of
goods; others for the development and commercialization of ideas.
Since April of this year, Brookings has made a quarterly assessment
of the impact of the downturn on each of the top 100 metros. Our latest
Monitor, to be released December 15, shows what the recession looks
like from the ground up.
We find that every metro is struggling to convert GDP growth into
new jobs. Employment continued to decline in 87 of the nation's top 100
metros through the third quarter of this year, and unemployment varies
dramatically from metropolitan region to metropolitan region, ranging
from a high of 16.7 percent in Detroit to a low of 4.8 percent in
Omaha.
The metro focus shows that how long the road to recovery will be.
Only six metro areas in the top 100 (Albuquerque, Austin, McAllen, San
Antonio, Virginia Beach, and Washington DC) have exceeded their peak
pre-recession output. Only one metro area (McAllen) has exceeded its
peak pre-recession employment.
We have also seen intense variation in economic pain. The housing
collapse has been felt in the sun-drenched, bubble real estate
economies such as metros like Phoenix, Tampa and Jacksonville, which
have continued to lose jobs at two to three times the rate of the
United States as a whole over the last quarter. The auto collapse has
devastated the ``motor metros'' concentrated around the Great Lakes.
Detroit, which has been hemorrhaging jobs throughout this decade, has
had more than twice the rate of job loss as the Nation as a whole since
the beginning of the recession in December 2007. Youngstown and Akron,
which have also outpaced the national rate of job loss throughout the
recession, have shed jobs two and three times faster than the United
States, respectively, over the last quarter.
By contrast, metros I mentioned earlier like Austin, San Antonio
and Washington, D.C. have fared fairly well during this downturn,
buoyed by strong health and education sectors and government.
This variation reinforces the point: there is no single American
economy.
Finally, any further Federal response on job creation and economic
recovery must connect ``The Macro to the Metro'' if it is to be
successful. More specifically, the Federal Government must address the
needs of metros and their contribution to the economy in two ways.
In the immediate term, the Federal Government must act quickly to
stop additional job losses that are large and foreseeable. We must not
overlook the importance of job retention in a rush to job creation.
Thinking more broadly, the Federal Government must catalyze job
creation that helps build the next economy and sets the country on the
path toward long term, sustainable growth. We cannot return to the
unbalanced, consumption-led growth of the past decade, driven by
unsustainable, speculative increases in housing values and reckless
engineering of new loan products and secondary market vehicles. True
economic recovery will depend on the Nation finding a different
economic path, one that is more productive, sustainable and inclusive.
Given this framework, we recommend that this Subcommittee and the
Administration and Congress consider five discrete interventions that
prevent further job losses and help build the next economy.
Stop Additional Job Losses
While the recently released unemployment numbers indicate that
hemorrhaging of jobs has been staunched somewhat, the brutal fact is,
because of the delayed effects of the recession on local budgets and
its continuing effects on the ready availability of capital, our metros
will see significant job losses absent Federal intervention. It does no
good to bring in new jobs through the front door if we're losing them
out the back window.
Strategy 1: Direct assistance to cities and towns
One critical strategy for job retention is direct fiscal assistance
to local governments, which employ 10 percent of the nation's
workforce.
Local government finances, local government employment, and private
sector jobs that depend on local projects are on the verge of a crisis.
Local government finances typically feel the full impact of larger
macro trends 18-24 months after their onset because property tax
assessments lag the real-time decline in property values. For fiscal
year 2006-2007, local governments generated $370 billion in revenue
from property taxes, according to U.S. Census data. Property values
have fallen 9.5 percent since then, meaning that the local budget gap
may be as large as $35 billion--and this excludes declines in sales and
income taxes, which have dropped by $3 billion, according to Census
data. Brookings research projects another $15 billion in total revenue
declines over the third and fourth quarters of this year.\1\ Roughly 70
to 75 percent of that should be from property tax losses.
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\1\ Using quarterly census data from 1997 to present, we estimated
this by regressing annual growth rates in local revenue on growth rates
in housing prices, the unemployment rate, holding the quarterly level
of revenue constant. For every 1 percentage point increase in national
unemployment, local revenue is predicted to fall by 0.35 percentage
points. Likewise, a 1-percentage point decrease in housing prices is
associated with a 0.38 percentage point decrease in revenue.
---------------------------------------------------------------------------
At least $50 billion would be required to make up for these local
revenue shortfalls, but that would do nothing to address the massive
losses in transfer payments from States, which make up one third of
local government budgets. If the decline in State transfers is as large
as the decline in State revenue, local governments could lose another
$74 billion, for a total local government shortfall of $124 billion.
A National League of Cities survey found that in FY2009, 67 percent
of cities dealt with budget shortfalls through layoffs, furloughs, and
hiring freezes--a response that might be expected to continue without
some sort of intervention, possibly leading to massive reductions in
jobs and vital services.\2\
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\2\ Christopher Hoene and Michael Pagano, ``City Fiscal Conditions
in 2009'' (Washington: National League of Cities, 2009).
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But fiscal aid to cities would not just keep municipal payrolls
stable. It would also stall cuts in local spending on construction,
procurement, and other areas that directly affect private sector firms
that provide construction, printing, and other services. NLC reports
that 62 percents of cities delayed capital projects in FY2009 due to
budget shortfalls.\3\ Bringing these back online would provide jobs in
site management, planning, and technical assistance, as well as
construction. This local spending also advances national priorities
such as infrastructure improvements, retrofits and other ``green
jobs.''
---------------------------------------------------------------------------
\3\ Ibid.
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Fiscal assistance to cities and towns could take several forms. The
simplest is probably direct aid, in a new program that is separate from
but analogous to the State Fiscal Stabilization Fund in ARRA. A model
could be the general revenue sharing program (GRS) that was in place
from 1972 to 1986. This system had the obvious benefit of providing a
fast-moving response to local government liquidity crises. But it also
had the virtue of targeting aid where it was most needed, through a
formula that took into account localities' tax effort, population, and
per capita income. If re-enacted for a short term today, the program
would address the coming local government fiscal crisis and help keep
municipalities and counties from cutting back in ways that could place
a significant drag on the nation's nascent recovery just as the
Recovery Act spending trails off late next near.
A second option would be to restructure SFSF to provide direct
fiscal assistance to local governments that are entitlement
communities. This approach would allow a local pass through to be
carved out of an extended or expanded SFSF program. Using SFSF in its
current form would not be a particularly effective vehicle for
providing relief to local governments. SFSF did not have any straight
pass-through to local governments, so funds were not directly used by
cities and towns. SFSF did probably forestall cuts that State
governments would have made in local aid, so probably provided indirect
benefit. However, a direct benefit is needed now.
Strategy 2: Transit system operating subsidies
Perhaps the best example of the folly of focusing exclusively on
job creation and ignoring job preservation comes from our nation's
transit systems. As the Federal Government's Recovery Act funds aimed
to create so-called shovel-ready, temporary construction jobs, transit
agencies are facing the likelihood of laying people off from stable,
permanent positions.
No fewer than 51 transit agencies around the country are facing
some combination of service cuts, fare increases, and layoffs.\4\
Transit systems that are vitally important for moving workers in major
metros like New York, Washington, Philadelphia, and Atlanta have all
recently considered job and service cuts as well as far increases to
close millions of dollars in deficits. St. Louis had to suspend nearly
half of its bus service and one-third of its rail service, and laid off
nearly one-quarter of its staff, even though in 2008 ridership on the
region's buses grew by almost 9 percent, one of the largest gains in
the Nation over that time.
---------------------------------------------------------------------------
\4\ Transportation Equity Network and Transportation for America,
``Stranded at the Station: The Impact of the Financial Crisis on Public
Transportation,'' Washington: 2009.
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While the Recovery Act provides $8.4 billion to be spent on transit
this year, Federal rules stipulate that this money can be spent only on
capital improvement projects and not to finance gaps in day-to-day
operating expenses for transit agencies in urbanized areas with
populations greater than 200,000. While capital is of course critical
to transit service, operating costs are also vital to cover the
salaries of the workers who keep the system running, as well as the
debt contracted to pay for capital projects, and are generally about
twice as high as capital expenses for the largest transit agencies.
The Federal Government should step in and change the rules so that
transit agencies can spend transit capital stimulus dollars on
operating expenses. Certainly, agencies have capital needs as well, but
particularly in these stressful economic times they should have the
short-term flexibility to use those Federal dollars to meet their
immediate problems.
These two strategies--direct municipal aid and transit operating
subsidies--would provide a Federal finger in the dike, keeping jobs in
sectors that are being battered by forces that are not entirely within
their control. They would stop the hemorrhaging of jobs.
They will not, however, be sufficient to address the hyper-
unemployment levels among some categories of metropolitan workers,
particularly Hispanic and African Americans, younger people, and people
with less education. These groups will only experience real relief with
the implementation of focused job-creation strategies through proven
programs like the Community Development Block Grant. CDBG is a well-
understood program that provides communities with flexible, easily
deployed resources to address local development priorities.
In the current recession, CDBG funds have been a tremendously
efficient source of job creation.\5\ If program rules were relaxed to
allow more funding for jobs and job creation, CDBG could a potent way
to deliver public sector employment jobs relatively quickly. Many
cities have an established network of community-based facilities
experienced in managing and handling CDBG funds that could help bring a
public-sector employment program up to scale. Further, if a summer jobs
program were a part of this initiative, it could be put in place in
short order, as has been done in past years. The fiscal year 1998
summer jobs program, funded at $871 million, provided jobs and training
for 480,000 disadvantaged youth.
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\5\ An analysis of Recovery.gov data from FY2009 Q4 reveals that
CDBGs created 4,773 jobs at a cost of $7,214 each, while the average
other grant did so at a cost of $56,220 per job. The general finding
here seems to be corroborated by analysis of FY2005-2008 data from
regular budget cycles.
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Build the Next Economy
As Congress acts to stem further job losses, it must not overlook
the long-term. We need to lay the groundwork not just for jobs for the
next year, but jobs for the next generation.
In the midst of rising unemployment, increasing poverty and
battered industries, we need high aspirations for the next economy.
This next economy should be a low (or at least less) carbon
economy, as we struggle with the threat of climate change.
It should be innovation fueled, as we strive to make quantum leaps
on everything from clean technology and renewable energy to high speed
rail, the smart grid and health care information technology.
And it should be less driven by domestic consumption and more
oriented toward exports, particularly to rising nations like China,
India, and Brazil that are rapidly urbanizing and industrializing.
These three factors will play to the strengths of America's metros,
because it is in metros where you find the transit systems and density
that reduce carbon emissions. It is in metros where you find the well-
educated workers, the concentrations of research institutions, and the
streams of Federal funding that support innovation. And it is in metros
that you find the ideas and products that are valued and sought abroad,
and the rail, port, and logistics networks that move these products to
markets overseas.
Strategy 4: Next generation transportation
Our competitor nations understand the importance of having state-
of-the-art, seamlessly integrated infrastructure systems, from roads to
rail to ports to planes. A new approach to infrastructure is not only a
competitive necessity for our nation's metros, it also is critical to
helping metros realize a number of national goals, such as a reduction
in carbon emissions.
Congress should continue to fund, as a matter of course, the U.S.
DOT's Transportation Investment Generating Economic Recovery (TIGER)
Discretionary Grants, originally devised for the Recovery Act. The $1.5
billion TIGER program will fund competitive grants to support
nationally, regionally, or metro-significant projects that may
facilitate linking transportation, housing, energy, and environmental
concerns, such as greenhouse gas emissions. The projects will be
rewarded based on their ability to preserve and create jobs, invest in
transportation infrastructure that will provide long-term economic
benefits, and assist those most affected by the current economic
downturn. In short, these are the type of projects designed to support
a new long term vision for infrastructure in this country.
Typical DOT programs do not require formal evaluations, but TIGER
provides the regulatory structure to improve employment impacts because
it uses job creation as a metric for evaluating applications. In the
short run, this ensures that TIGER funding creates construction-related
jobs in a time of great need. But as the economic recovery stabilizes,
and TIGER takes its place as a regular part of DOT's budget, the job
creation criteria could be broadened to balance short and long-term job
creation. TIGER-funded infrastructure impacts have a powerful ability
to create well-paying jobs now and a stronger economy in the future.
TIGER disbursements are not expected until February 2010 but
preliminary USDOT analysis shows that the program is shiningly popular.
The nearly 1,400 applications received so far total $57 billion and
come from every State. If even one-third of these applications are
projects that adhere closely to the objectives of the program, that
represents $20 billion in high-quality projects that are ready to
start, but lack funding.
TIGER should be a permanent part of the DOT budget, starting with a
$20 billion appropriation, so that these and other critical projects
can be realized. There are many potential vehicles for an expanded
TIGER program. One is the FY2011 budget. By then there should be more
information about the projects funded through the first wave of grants,
including job creation and retention. This information will help refine
the job creation criteria for future grants. TIGER could also be funded
through a short-term reauthorization of the current surface
transportation law, SAFETEA-LU which expires at the end of this month.
Or the new spending on infrastructure that President Obama proposed in
yesterday's address could include a new round of TIGER funding.
Strategy 5: National infrastructure bank
Another important idea to support broad competitiveness goals is a
national infrastructure bank (NIB), which would serve as targeted
mechanism for financing infrastructure. A development bank in essence,
a NIB would have to balance the rate-of-return priorities of a bank
with the policy goals of a Federal agency. Ideally, it would improve
the Federal investment process and focus on multi-jurisdictional or
multi-modal projects with regional or national impact. For these types
of infrastructure projects, the NIB could provide Federal funding in
terms of grants, loans, and loan guarantees.
Another important idea to support broad competitiveness goals is a
national infrastructure bank (NIB), which would serve as targeted
mechanism for financing infrastructure. Congress should pass the
National Infrastructure Bank Act to establish an independent Federal
entity to evaluate and fund infrastructure projects ``of substantial
regional and national significance.'' A White House Press release
following the President's speech yesterday spoke of supporting
``financing infrastructure investments in new ways, allowing projects
to be selected on merit and leveraging money with a combination of
grants and loans . . . '' The NIB would provide grants, loans, loans
guarantees to projects requiring Federal investment of at least $75
million. The Federal Government would provide initial capital of $60
billion that NIB would use to issue bonds, with the proceeds used to
finance major projects proposed by public entities. The NIB Act should
be passed and funded at just under $61 billion.
Strategy 6: Cluster initiatives
As SBA administrator Karen Mills wrote last year before joining the
Obama Administration,
Due to rising global competition, the nation's capacity for
generating stable, well-paying jobs for a large number of U.S.
workers is increasingly at risk. In this environment, regional
industry clusters represent a valuable source of needed
innovation, knowledge transfer, and improved productivity . . .
Many U.S. industry clusters are not as competitive as they
could be, to the detriment of the nation's capacity to sustain
well-paying jobs.
Clusters encompass both existing industries and the emerging
industries, such as alternative energy, that will grow to meet the
challenges of the next economy. In fact, strong clusters promote the
product and process innovation, technology transfer and knowledge
sharing that help industries shift from the now to the next, and move
from making tires to making polymers or making auto glass to making
solar panels.
The Federal Economic Development Administration's fiscal year 2010
budget request seeks $50 million for a regional innovation clusters
initiative that would award competitive, bottom-up grants to strengthen
local efforts and establish a national clusters research and
information center. The House appropriations bill trimmed that back to
$10 million, while the Senate pared it to $35 million. To ensure that a
fully rounded clusters program becomes operational, House and Senate
conferees on the Commerce-Justice-Science appropriations bill should
agree to the Senate funding level for the EDA economic adjustment,
technical assistance, and research/evaluation accounts, which would
allow the clusters effort to be funded at about $35 million.\6\ A well-
designed and implemented EDA clusters program would serve as an
important symbol and demonstration of a new Federal approach to
economic policy.
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\6\ As a compromise, the conferees should also accept the higher
House funding level for EDA assistance programs ($255 million), which
would allow conferees to split the difference between House and Senate
appropriations for public works.
---------------------------------------------------------------------------
Two other bills currently in Congress would encourage the
development and success of industry cluster initiatives, and they
should be passed in some form to bolster the productivity and
competitiveness of America's regional and metropolitan industries. The
SECTORS Act of 2009 (``Strengthening Employment Clusters to Organize
Regional Success Act'') would award grants to local industry-based
organizations to enhance the competiveness of the industry, improve
workforce skills, and coordinate State and local economic development
activities. The SECTORS Act appropriately recognizes the employment
aspects of clusters, calling for Federal support for
[I]dentifying and aggregating the training needs of multiple
employers, helping postsecondary educational institutions and
other training providers align curricula and programs to meet
industry demand, and improving job quality through improving
wages, benefits, and working conditions for workers.
I'm sure the Chairman is quite familiar with the bill, which he
introduced with bipartisan support.
Likewise, the Senate and House both referred a bill to
Subcommittees on Technology and Innovation that would promote the
construction of research parks with $7.5 million for each of 4 years.
The title said it all: ``A bill to provide grants and loan guarantees
for the development and construction of science parks to promote the
clustering of innovation through high technology activities.'' Passing
this bill now would promote innovation by encouraging the concentration
of technology industries, but it would also create short-term jobs in
construction related industries.
Conclusion
I will conclude with these summary thoughts.
I think the time is long past due for national economic policy to
align more closely with metropolitan economic realities, given the
economic primacy of our metropolitan areas.
In the near term, that will require Congressional action to deal
directly and forcibly with the coming fiscal storm in our nation's
metros, given the foreseeable declines in tax revenues as economic
stress (and declines in income, sales and housing values) undermines
State and municipal finance. This metro focus also requires deliberate
and purposeful action to build the economy and the future.
I spoke at the beginning of my testimony about the variations in
assets and economic strength between metros. We must also recognize
variations in institutional capacity. Some municipalities and counties
lack the staffing and experience to design and implement various
Federal programs. Some metropolitan areas, particularly in older
industrial sections of the country, have been in economic decline for
decades. The Federal Government, therefore, must acknowledge this
variation in capacity and take steps to put in place a national network
of firms, non-profit organizations, and individuals that can provide
technical assistance to make sure our national project of economic
renewal can reach its fullest potential. HUD has already started doing
this with regard to neighborhood stabilization funds but more
intensified efforts are needed in such areas as energy retrofit,
transportation and education.
I thank you again for the opportunity to testify here today, and
welcome any questions.
______
PREPARED STATEMENT OF RAY LEACH
Chief Executive Officer, Jumpstart Inc.
December 9, 2009
Mr. Chairman and members of the Subcommittee, thank you for taking
the time to engage in a broad dialog regarding the current U.S.
economy's economic challenges, and for inviting me to testify on behalf
of non-profit organizations located throughout the United States, who
work with and are supported by public, foundations and private sector
partners who are all focused on creating economic wealth and jobs via
the acceleration of the transformation of State and regional economies
under significant economic and employment distress.
All of us are encouraged by the recent news regarding a slight
reduction in total U.S. unemployment, yet I believe everyone also
recognizes that we have a long way to go in order to create at least 6
million jobs which economist tell us would equal full employment. While
it appears that perhaps the worst of the recent recession might be
behind us, I would strongly encourage this Committee to use this crisis
as an opportunity to reconsider our national economic policy regarding
the Federal Government's role in support of the formation of new,
highly disruptive technology businesses that have the potential to
create significant white, green and blue collar jobs as well as
completely new industries.
I would be remiss if I did not share that I believe the recent
expansion of small business loan guarantees is a positive action that I
would strongly recommend Congress to continue to support. I would also
strongly encourage Congress to dramatically expand high-skill
immigration quotas to enable the world's brightest and most capable
individuals to stay in or come to the United States to work for the
benefit of the U.S. economy. I also believe that a wide range of tax
credits, not only for hiring new employees, but also to individuals
making angel investments in very small, high-technology startup
businesses is something that Congress should support and encourage.
Yet, today I wanted to share with you, an approach that has not
been discussed to my knowledge, to date, with this Committee and that
is how the Federal Government can partner with communities, States and
regions of the country to accelerate the formation of entrepreneurial
ecosystems that have the potential to produce sustained long-term
economic transformation, growth and wealth creation. This approach
hones the ability to quickly and efficiently create, support and grow
new technology-based companies. Recent reports from the Kauffman
Foundation and others tell us that over 75 percent of the new jobs in
our economy are done so by firms which are less than 5 years old. The
balance of my testimony today will focus on how the Congress can
leverage current programs, partnerships and organizations to accelerate
the creation and growth of firms that have the potential to employ
hundreds, thousands and tens of thousands of workers in the years
ahead.
In order to begin explain this approach; I would like to introduce
you to my organization, JumpStart Inc. We are a 501(c)3 non-profit
organization headquartered in Cleveland, Ohio, whose mission is to
recreate a robust and active entrepreneurial ecosystem in Northeast
Ohio, which encompasses over 4 million residents and has been a major
center for manufacturing over the last six generations.
Going back to a 50-year period of time between 1875 and 1925 years
ago, cities in our region of Ohio including Cleveland, Akron,
Youngstown, Lorain and Canton were centers for innovative entrepreneurs
who created globally competitive companies that were incredible wealth
and job creators. Due to these significant successes, communities like
Northeast Ohio found that they no longer needed to rely on new
innovative firms for their own economic vitality throughout the
majority of the 20th century. Unfortunately, over time the principal
firms in Northeast Ohio ultimately became victim of new disruptive
innovations that became products of new domestic and internationally
based firms and the increasing challenges of globalization. As result
of this process, which began to accelerate in the last thirty-five
years, not only did Northeast Ohio's significant firms who employed
hundreds of thousands of citizens begin to lose their competitiveness
and shed employment, but at the same time this economic condition
exposed the Northeast Ohio region for its lack of a public or market-
based entrepreneurial ecosystem. These entrepreneurial ecosystems are
critical to wealth creation based on the formation of new businesses as
their function is to engage and assist innovators and aspiring
entrepreneurs to help them perfect their inventions, access financing
to help take their products to market and to help the company's
founders find manufacturing, sales and management talent to join the
company that would enable the new business to grow and therefore more
significantly benefit society by creating increasing employment and tax
receipts.
As a result of the absence of an entrepreneurial ecosystem in
Northeast Ohio, the region has struggled with this critical economic
transition and has found itself near the bottom of many national
economic rankings. In fact, Entrepreneur Magazine ranked Northeast Ohio
as the worst large regional economy for entrepreneurial performance for
almost twelve years in a row from 1990-2002.
This is when a new chapter in the economic history of Northeast
Ohio began to emerge as corporate and philanthropic leadership in
Northeast Ohio came together in 2003 to begin to better understand what
needed to be done to recreate a new set of actors and initiatives that
could accelerate the re-creation of a robust entrepreneurial ecosystem
that could promote, support and invest in disruptive technologies being
created at local universities, centers of research and from the
inventive and industrious citizens of Northeast Ohio.
Bringing together a broad group of partners, including local,
regional and State government as well as the corporate and
philanthropic community resulted in a broad-based strategic plan to
create JumpStart Inc., an non-profit entity that would work and invest
to help re-create an entrepreneurial ecosystem and assist new
innovators and entrepreneurs but do so in a way that would seek not a
maximum financial return from its activities, but instead work to
realize the greatest economic outcomes that could result from the
creation of new firms based on disruptive, globally competitive
innovation that had the potential to create hundreds, thousands and
perhaps tens of thousands of new jobs in the coming decades.
I am encouraged to report that since the creation of JumpStart in
2004 it has generated significant economic results to date and has been
able to demonstrate the promise to help accelerate the economic
transformation of the Northeast Ohio economy. Since 2004, JumpStart has
engaged with over 7,000 first-time innovative entrepreneurs providing
them with approximately 100,000 hours of pro-bono technical assistance
delivered by experienced, serial technology entrepreneurs from
JumpStart's team. It has made significant direct investments in 42 high
potential startup companies that have already created over 600 jobs and
are anticipated to create at least another 3,000 positions in the next
few years. JumpStart has also helped to create a broad-based group of
community-driven as well as private sector, profit-motivated investors
that are making an average of 60 investments in new companies annually
which have resulted in a total investment of over $1 billion in
Northeast Ohio startup firms since 2004.
JumpStart's business model has recently become nationally
recognized, as it has been discussed by media outlets including the New
York Times, the Wall Street Journal, BusinessWeek, Forbes, PARADE
Magazine and the Chronicle of Philanthropy. It also has won numerous
national awards including the Economic Development Administration's
2009 Excellence in Economic Development Award for Urban or Suburban
Communities as well as the State Science and Technology Institute's
2009 Excellence in TBED (technology-based economic development) Award
for Increasing Access to Capital. Yet, at this same time JumpStart
estimates it could make an even greater economic impact. We estimate
that there are at least another 50 firms located in our region that
deserve investment from the ecosystem in Northeast Ohio each year, but
are currently having to wait until more resources are either secured by
non-profit, economical development organizations, like JumpStart, or
the less likely outcome of being able to access private for-profit
resources are attracted to the region.
There are a handful of critical components to JumpStart's success
but none of them are as important as the public/private and foundation
partnership that has been formed in Northeast Ohio in order to
aggregate the resources required in order to build an organization with
the ambition and outcomes of JumpStart. In Northeast Ohio, we are
fortunate to have a group of over 80 foundations who have come together
to form what is the called the Fund for Our Economic Future. This
collaboration of regional foundations has pooled together over $60M in
total resources to focus on a wide range economic development
initiatives including over $20M focused on the creation of an
entrepreneurial ecosystem that can accelerate Northeast Ohio's
transformation.
As critical as this group is, an even more important player in the
emerging economic transformation is the State of Ohio's Third Frontier
Program, a $1.6 billion dollar public-sector initiative that has made
an incredible impact on the technology, research and innovation
commercialization economy in Ohio. A recent assessment of the program
performed by SRI International, found that after State expenditures
totaling $681 million to date, over $6.6B of economic activity and
41,300 jobs have been created resulting in $2.4 billion in employee
wage and benefits. This leverage represents a 22 percent return on
investment per annum to the State and nearly a $10 return for every
dollar of State investment. The projects that this program has helped
to fund have also helped increase Ohio's gross domestic product by
$440M per annum and these annual revenues are anticipated to continue
to grow to at least $900M by 2013. At this same time, high tech
employment growth in Ohio has outpaced almost all other Midwestern
States and venture capital investment in Ohio has grown over 20 percent
since 2003 versus only an average increase of 8 percent nationally
increase during this period of time.
The combination of these two actors--Northeast Ohio-based
philanthropic foundations and the State government has created a
powerful collaboration that is making a tremendous difference to
Northeast Ohio's current and future economy. This leadership in Ohio
provides a great demonstration of what leverage can do to accelerate
the growth and formation of new businesses that create opportunities
and jobs.
To ensure that new and innovative businesses continue to be created
by entrepreneurs not only in Ohio but across the United States, a broad
set of Federal programs should be developed that focus on accelerating
technology commercialization, increasing access to technical
assistance, education, mentoring and training for entrepreneurs and
improving access to risk capital. Unfortunately, current Federal
programs have particular limitations that often times do not achieve
job-creation outcomes. These limited existing programs include the
following:
The SBIR and STTR research-support programs which have a
limited focus on commercialization, especially when the
economic outcomes are to occur via the creation of new firms or
the deployment of Federal research into young, less mature
firms.
Current Small Business Administration's (SBA) loan programs
that are principally focused on less innovative, incumbent
firms that benefit from secured loans (which are typically more
helpful to maintain jobs versus dramatically growing new jobs).
Technical assistance programs provided via the SBA's Small
Business Development Center programs which tend to focus on
even smaller firms that do not have the capacity, in general,
to generate a significant number of jobs in the next 5-10
years.
The current Small Business Investment Company (SBIC)
programs which are focused on providing mezzanine capital to
investment firms who invest in established firms, the SBA needs
to strongly consider new equity-focused programs that would
support non-profit venture development and venture capital
funds that are looking to bring substantial co-investment to
new innovative firms that have the potential to create
significant wealth and jobs.
The Economic Development Administration needs more regional
strategic planning and high-growth innovation-focused resources
to support technical assistance programs run by non-profit
regional intermediaries who are focused on innovation-based,
high growth firms and industries.
The absence of robust State, foundation and private-sector
partnerships is preventing and limiting the Federal
Government's ability to accelerate the creation of new
technology-based companies and jobs. Many States have made
substantial investments in organizations who are perfectly
suited to partner with the Federal Government agencies and
programs yet there exists no strategic, tactical and robust
collaboration amongst the practitioners and experts in the
States that focus on assisting innovative, principally
technology-based, firms who have the potential to dramatically
grow regional and ultimately our national economy.
In order to address the shortfalls of the Federal programming
outlined above, Congress should create a $2B, 4-year initiative from
currently available funds from the original ARRA bill in order to
create the Federal Innovation, Commercialization and Job Creation
Network program where existing proven non-profit organizations and/or
institutions who have been able to demonstrate significant
commercialization and economic outcomes could serve as individual
Centers within the network as well as to collaborate with parts of the
country that do not have established and proven partners already in
place to create new Centers. Each of these organizations would be
required to provide matching non-Federal resources from local, State,
or regional public and/or private sector partners. Key attributes of
the new approach would include:
Federal resources would be immediately matched and aligned
to parties that have a similar vision and prioritization on
commercializing disruptive innovation and supporting high-
potential innovators and entrepreneurial firms.
The program will have a special focus on the
commercialization of innovation which has the promise to create
a small number of jobs immediately but also has the potential
to create at least 25 new jobs within 36 months.
The program would be additive and complimentary to the
support and assistance currently provided by NIH, SBIR, SBDC,
and SBA programs.
The program would provide a logic framework to build
partnerships to support significant economic outcomes including
increased private sector investment, revenue and employment
growth in the next 4 years.
We believe that there are at least 40 non-profit
organizations in the United States that could meet the
requirements to become a federally supported Center. Each
partnering non-profit would have to be able to demonstrate a
history of delivering significant economic outcomes (job
creation, capital attraction, increased revenues) from its work
preceding Federal support.
Regions of States that do not have existing non-profit
organizations or collaborations that could qualify as a Center
would be encouraged to build new strategic plans and
collaborations that would have the ability to realize the goals
of the program. Once these initiatives are formed and non-
Federal resources are secured, the Federal Government could
consider supporting these organizations.
Mr. Chairman, I believe that the economic outcome of such a program
outlined above would make a dramatic impact on all regions of the
country--urban, suburban and rural. By partnering with established,
proven organizations that can bring significant leverage to the table,
anticipated benefits and economic outcomes would include:
Leveraging existing infrastructure and expertise.
Accelerating technology commercialization of Federal,
industrial and community-based R&D.
Dramatically strengthen technical resources for high-
potential technology entrepreneurs.
Create innovation and commercialization infrastructure in
areas that currently are underserved.
Increase the United States Global competitiveness in high
growth entrepreneurial innovations.
Increased private sector investment of at least $4B from
private sector investors across the globe within 4 years in
firms created and/or supported from the Federal Program.
Creation of at least 260,000 new jobs within 6 years at
1.25 the current national average annual wage. An additional
1,000,000 U.S. jobs to be created as a result of the work of
the work of the network by 2020.
I greatly appreciate the opportunity to present to this Committee.
I look forward to the opportunity to continuing the dialog on how we
can dramatically increase programs that support commercialization and
entrepreneurial progress so that we can create an increasing number of
globally competitive and wealth-creating jobs in the United States.
______
PREPARED STATEMENT OF RICK L. WEDDLE
President and CEO of The Research Triangle Park,
and first Chairman of the International Economic Development Council
December 9, 2009
Chairman Brown, Ranking Member DeMint and Members of the Committee,
thank you for having me here today to testify on behalf of economic
development professionals throughout the country.
My name is Rick Weddle and I serve as President and CEO of The
Research Triangle Park (RTP), the nation's oldest and largest research
park. As the home of more than 170 companies involved in cutting-edge
research and development in a variety of industry sectors, RTP is
probably one of the oldest and largest-scale examples of how public and
private policy can have a lasting impact on job creation and creating
long-term economic competitiveness.
I am also speaking as an economic development practitioner with
over 30 years' experience. During my tenure, I have worked with regions
and communities in five States to help reinvent, reposition and
redirect themselves. These activities have cumulatively resulted in the
creation of more than 26,000 jobs with a total payroll of $1 billion.
Finally, as the first Chairman of the International Economic
Development Council (IEDC), my comments today represent the viewpoints
of the world's largest organization serving the economic development
profession with more than 4,600 members. The diverse membership of IEDC
is dedicated to creating more high-quality jobs, developing more
vibrant communities, and generally improving the quality of life in
their regions.
I am here today to share with you my thoughts and the learning of
the economic development community on how to create jobs and
reinvigorate our struggling economy. I have organized my testimony
around three questions that should be considered as we develop new
policy that aims to create jobs and rebuild national competitiveness.
What have we learned from the Recovery Act that can help inform future
decisions?
In February 2009, Congress passed the American Recovery &
Reinvestment Act, which provided $787 billion dollars to tackle the
severe recession triggered by the collapse of the financial sector and
real estate market. The Recovery Act was designed in a rush to provide
resources to triage the economic crisis, resulting in a package of tax
cuts, formula-based fund transfers and direct grants and loans, most of
which would be channeled through existing programs. The act had grand
ambitions to simultaneously meet five goals: 1) to create and retain
jobs; 2) to rebuild infrastructure; 3) to invest in science, health and
technology; 4) to assist those most hurt by the recession; and 5) to
stabilize State and local budgets to maintain service delivery.
Overall, the main drive of the stimulus is to boost demand as the
catalyst for economic renewal and job creation.
Given the actual brevity of the Recovery Act's implementation thus
far, any identification of lessons learned can only be tentative at
this point. I have broken the lessons into what is generating positive
results for economic development and where the challenges remain on the
ground.
On the positive side, Recovery Act investments so seem to be
achieving the following economic development objectives.
They are reigniting stalled projects of strategic
importance.
In some communities, Recovery Act investments have jumpstarted
development projects that had been stalled due to lack of credit in the
private sector and/or insufficient public funds. In Dayton, Ohio, for
example, Community Development Block Grant stimulus dollars coupled
with waste water infrastructure dollars combined on the ground to
restart a multi-use development district, entitled Tech Town, which had
been put on hold due to the lack of public funds. Restarting this
project not only has the capacity to generate short-term jobs through
construction, but also represents a long-term investment in the
economic transformation of Dayton, which has long been struggling to
rebuild after the decline of manufacturing. I will return to this
example later in my testimony.
They are allowing communities to maintain relevant projects
that otherwise might have been cut.
In some cases, Recovery Act dollars have allowed communities to
maintain relevant projects and programs that would have been cut in the
absence of these investments. For example, Richmond, California, used
Recovery Act money to maintain and expand a successful job training
program aimed at at-risk young adults that was slated for closure in
response to budget cuts.
They have enabled business expansion through strategic
infrastructure investments.
Whereas investing in infrastructure upgrades creates short-term
jobs, strategically targeting those investments to enable businesses to
expand enhances the overall economic development impact of that
investment. For example, local economic development professionals in
Youngstown, Ohio, lobbied the State to invest some of its Recovery Act
transportation allocations to relocate a national rail line which
divided the property of V&M Star Steel. By moving the rail line, the
company was then able to double its operations and create 400 permanent
jobs. Notably, however, for this to occur required State-local
coordination and engagement, which can be a trouble spot.
They have incented regional coordination.
The lure of Recovery Act dollars has encouraged communities to
establish regional alliances and coalitions to tackle big, commonly
shared problems. The Chicago Metropolitan Planning Council spearheaded
a coalition of non-profit business and civic groups, real estate
developers and the metro mayors' caucus to create a 17-town region in
Southern Chicago to align resources, including Recovery Act dollars, to
collectively rebuild. Similar regional initiatives are visible in the
San Francisco Bay area, where local political and transportation
leaders have come together to bid for Recovery Act high-speed rail
funding.
They have leveraged resources to increase the size and
scope of investments.
Recovery Act dollars also have served to attract additional public,
private and community resources. For example, the California Emerging
Technology Fund committed to use a portion of its seed funds to match
and leverage Recovery Act funds to meet broadband, digital literacy and
other goals.
They have increased the dollars available for basic
research, a building block of competitiveness in an innovation-
based economy.
Basic research is the primary source of the new knowledge that
ultimately drives the innovation process. Economists estimate that up
to half of U.S. economic growth over the past five decades is due to
advances in technology. A study of recent U.S. patents found that
nearly two-thirds of the papers cited in these patents were published
by researchers at organizations supported by Federal funds, and these
linkages have been growing at an accelerating pace. The major Federal
R&D funding agencies all received significant funding through the
Recovery Act, the first real increase in Federal research funding in 5
years.
They have invested in long-term transformation and economic
diversification.
The recession exposed many weakness in the U.S. economy, such as
the severe problems in the automotive sector, revealing the need for
investments in long-term economic transformation. Some Recovery Act
dollars are enabling this level of transformation. One such example is
the Economic Development Administration's allocation of Recovery Act
dollars to the University of Arizona to support the startup phase of
its Bio-Science Park, which will be located in a distressed urban
neighborhood. This is a critical investment in the innovation
infrastructure this country needs to remain competitive in the short-
and long-term. I will return to this case later in my testimony.
Where the Recovery Act has added flexibility to existing
programs, it has added value.
When the Recovery Act has added greater flexibility to existing
programs, we have seen positive results. The Richland, California,
program discussed earlier was funded by the Workforce Investment Act's
Youth Activities fund, whose spending criteria had been broadened by
Recovery Act legislation to include 18- to 24-year-olds in youth
activities. Equally, the new SBA provisions have been working well,
allowing some financing to enter the market.
They have resulted in job creation and retention and will
continue to do so.
While there have been a lot of questions recently about the
reliability of the job creation figures surrounding Recovery Act
investments, it is clear that when awards have been made, jobs have
been created and retained. Some new programs, such as Recovery Zone
Bonds, have proven to be quite effective and have received public and
private sector praise. Moreover, the Recovery Act's stabilization of
State and local budgets has helped retain a significant number of jobs
that otherwise may have been lost. The bigger issue is public
perception, which I will return to when we look at the Recovery Act's
challenges.
On the same day as President Obama's Jobs Summit, the International
Economic Development Council (the association representing the economic
development community), RTP and DCI International issued a survey to
over 4,000 economic development professionals across the country to
find out if Recovery Act dollars had created jobs in their regions. A
10-percent response rate, representing over 400 communities nationwide,
returned the following results: 34 percent noted that jobs were created
in their region from the Recovery Act, 31 percent responded no jobs
have resulted from Recovery Act dollars, and 25 percent noted that job
creation has not yet been determined.
While the Recovery Act has positive lessons to offer, it also faces
challenges and limitations. Moving forward, these lessons need to be
considered if the government is to create jobs and strengthen the
economy.
There are significant misperceptions about the Recovery
Act.
Information gaps about what the Recovery Act is designed to do,
when the money will be available, how much money will be available and
what it can and cannot do abound, resulting in significant
misperceptions by the public. The bulk of the Recovery Act is not
designed to create jobs, but to stabilize the economy. The dollars
available to create jobs are to be disbursed over a 2-year period, so
it functions, in effect, as a slow trickle of funds--as opposed to a
great blast, which is what the public was expecting. In addition, some
States have not drawn down all the available funding, delaying that
potential impact and leading to further misperceptions about the
Recovery Act's effectiveness. Finally, some of the newer programs, such
as health information technology, were never mandated to be disbursed
earlier, but were given time to enable the programs to develop. Given
the complexity of the program, insufficient time has been devoted to
educating the public as to its potential and its limitations.
Speed has been emphasized at a high cost.
While speed has not always been achieved, speed is still used as an
indicator of success, which may have consequently prioritized deadlines
over transparency, strategy and new business development. To meet the
need for speed, communities may put forth projects which are shovel-
ready, but not part of a larger plan that targets longer-term
sustainable growth. While such projects may create short-term jobs,
one-off, disconnected investments will not have the same transformative
impact on a community as projects that strategically align grants,
strategy and resources toward a bigger goal. Finally, the need for
speed meant that contracts were allocated to existing, often larger
companies, thus missing an opportunity to invest in startups, minority-
and female-owned, and other very small businesses that may be emerging
as some currently unemployed individuals look to create their own
enterprises.
An overall lack of public alignment has hindered
implementation.
A lack of administrative capacity at the Federal, State and local
levels has created challenges to the implementation of the Recovery
Act. At the Federal level, many agencies found themselves with
significantly more money than they had administered before, plus the
need to create new regulations, all in a very tight timeframe with
insufficient staff. On State and municipal levels, budget deficits
often left insufficient staffing resources available to apply for or
monitor Recovery Act funds, which have more stringent reporting
requirements than regular Federal dollars. Unfortunately, the States
and localities already struggling with budget shortfalls before the
Recovery Act passed were also the least positioned to put together a
strategic approach to accessing and using stimulus dollars.
The definition of distress can be too inflexible.
When the Recovery Act was passed, economic conditions were
different than they are today. For example, a number of States--such as
West Virginia, Wisconsin and Oklahoma--experienced their worst
unemployment declines since the passage of the Recovery Act.
Unfortunately, the act's criteria for some programs, such as Recovery
Zone Economic Development Bonds, relied on 2007-2008 data for
determining allocation levels; thus, those States that were hardest hit
afterward have access to fewer resources, even though they have equal
challenges today as those that were hit by the recession earlier.
Federal funding silos have been maintained.
Most of the Recovery Act investments were channeled through
existing agencies and existing programs, often at different levels of
governments, making it difficult to integrate the funding streams at
the local level into strategic efforts that can revitalize distressed
places and nurture significant job creation. While some communities and
regions did manage to access multiple funding sources, different and
often more complicated reporting requirements adds complexity and
significant capacity challenges to measuring the outcomes. Moreover,
since States are major recipients and allocators of the funding, it
keeps them in charge, and their decisions may not be in aligned with
local needs.
Insufficient funding has been directed to economic
development organizations.
Despite the focus on job creation, most Recovery Act dollars were
not allocated to economic development organizations, which work daily
in the trenches to create and retain jobs. Economic development is
often countercyclical, with States and localities able to allocate more
money to it during prosperous times and forced to make cuts during
economic downturns. Yet it is precisely in a challenging economy when
economic development investments are most required. It is tantamount to
cutting back the police force while crime is rising.
Reporting requirements may deter small business engagement.
The Recovery Act's heavy focus on reporting both challenges public
sector capacity and influences the ability of the private sector to use
funds. For example, the reporting requirements apply even to
contractors receiving under $25,000 of the total contract value.
Because the reporting requirements call for staff time to oversee
compliance, smaller contractors seem hesitant to bid on stimulus-funded
projects. This is particularly troublesome, as small businesses are
ripe targets for job creation.
Measuring job creation is complicated and unreliable.
In public perception, the success of the Recovery Act is measured
by its ability to create jobs and to do so quickly. Yet not only is it
extremely difficult to measure job creation from public investment
generally, its real impact can only be measured over time, often
significant time.
What's working around the country that is creating jobs and
transforming the economy?
Please allow me to start with the story of The Research Triangle
Park. Fifty years ago, the leaders of North Carolina recognized that
our State and the Triangle region, in particular, were not poised to be
at the forefront of the post-war, science and technology-based era. As
such, they made a big bet and established a place where educators,
researchers, and businesses could come together as collaborative
partners to change the economic composition of the region and State,
thereby increasing the opportunities for the citizens of North
Carolina. The vision was to attract research companies from around the
Nation to locate in a parcel of land surrounded by the State's research
universities-the University of North Carolina at Chapel Hill, Duke
University, and North Carolina State University. The resulting
``Research Triangle Park'' would be a place where companies could take
advantage of the region's intellectual assets and that provided a ready
physical infrastructure for corporate R&D activities.
In the fifty years since, the mix of long-term investment in
education and a commitment to building a conducive environment for
innovation and technology-based economic development has paid off. RTP
has grown to be a globally known center of innovation. Currently, there
are more than 170 companies and research and development facilities in
RTP, with more than 42,000 employees with combined annual salaries of
over $2.7 billion. The average salary in the Park is $56,000 annually,
nearly 45 percent more than regional and national averages. Companies
represented in RTP include IBM, GlaxoSmithKline, Cisco Systems, BASF
and Credit Suisse. In addition, a number of U.S. Federal agencies have
a presence in the Park, including the U.S. Environmental Protection
Agency, the National Institute of Environmental Health Sciences, and
the U.S. Forestry Service.
While RTP is an essential model for understanding what works out in
the field, there are other equally important models that we can learn
from. When asked in the survey and through other feedback mechanisms
which programs they have seen have had the most impact to date,
economic development practitioners listed funding for infrastructure
projects, a focus on small business and fostering entrepreneurship, and
freeing financing and extending credit as the most effective programs.
These results remind us that private companies create jobs. Thus, the
quickest, most effective way to create jobs is to provide companies
with the capital they need to find new markets, expand production and
ultimately hire new staff. Below are several different examples of how
jobs were created at private companies with assistance or funding from
economic development groups or government.
Our first set of cases centers on the importance of non-profit
financial intermediaries for extending both debt and equity credit to
enable small business expansion.
Kentucky ``ezone'' helps create jobs by providing funding and
support to entrepreneurs: From July 2008 through June 2009, the
Northern Kentucky ezone (a division of Northern Kentucky Tri-County
Economic Development Corporation) created 189 jobs through its work
with entrepreneurs in the region. The ezone assisted 29 new high-tech
companies in Northern Kentucky and assisted in generating $14 million
in investment for client companies from venture and angel funds.
Additionally, $2.1 million in investments in ezone client companies
came from Kentucky Science and Technology Corporation and other public
funds.
SBA loan program helps manufacturing company create/retain 50 jobs:
San Diego-based CDC Small Business Finance is an SBA 504 lender. In
2009, it helped Campbell Certified, Inc., a structural/architectural
steel fabrication company in San Diego County, obtain an SBA 504 loan
that enabled it to buy a $1.7 million facility, expand operations, and
create/ retain a combined 50 jobs.
The second set of useful practices focuses on effective measures
for helping small businesses export and integrate into the global
economy, which enables them to enter new markets, expand and grow jobs.
Attracting foreign direct investment and helping export-ready
companies: Economic developers in Portland, Ore., are helping clean
tech and green building companies access emerging foreign markets by
launching regular communication with State foreign representatives to
develop specific company targets abroad and for investment in Portland.
They also launched an International Roadshow to bring all of the
foreign representatives of the State back to Portland for a week to
meet with qualified export-ready companies from the city, and help them
find partners in these global markets that will generate significant
export sales and increase jobs for Portland companies.
Loan guarantee enables the creation of new jobs at Illinois
company: In June 2009, the Export-Import Bank of the United States
announced that it would provide a long-term loan guarantee to back
American Plastics Technologies Inc.'s export sale of equipment to make
intravenous solutions, injectable medicines and bottled water to
Nigeria. The loan guarantee supports the creation of 40 jobs. Sixteen
U.S. suppliers from across the country, eight of them small businesses,
are participants in the APT export. (While this is not a local example,
it illustrates the value of loan guarantees to expand export markets.)
The next set of cases highlights entrepreneurship, innovation and
commercialization. These are all activities that expand regional
economies by creating new jobs, new companies, and in some cases new
industries. Economic developers foster this growth by connecting
entrepreneurs, technologies and fledgling companies with funding and
resources that can help bring new products to market.
Oklahoma non-profit helps expand the technology-based economy of
the State: i2E, Inc. provides Oklahoma companies with comprehensive
commercialization services, proof-of-concept funding and seed/startup
funding. Over its 10-year existence, it has assisted 425
commercialization clients and helped clients to attract $345 million of
private capital. In a recent economic impact survey, responding clients
reported creating 998 jobs at an annual average wage almost double the
State average.
Business incubator provides comprehensive services to emerging
science companies: The San Jose BioCenter gives emerging science and
technology companies access to world-class facilities and support
typically only available to larger firms. Since opening in August 2004,
the incubator has assisted 60 clients and graduated 14 companies. Six
of the 14 BioCenter graduates have purchased or leased entire buildings
and now employ between 30 and 400 people in the Bay Area.
Program fosters business startups in rural Iowa: MyEntreNet uses
web technology to provide online networking and resources to
entrepreneurs who are otherwise isolated by distance. Through the
service, they connect with other entrepreneurs, technical support,
training and information on obtaining funding. In 2008, 321 jobs were
created with the help of MyEntreNet and related business incubation
services.
It also makes sense to target business assistance to strengthen
core industries that create good jobs. Targeting manufacturing as well
as energy, health and others not only creates jobs quickly, but does so
in a way that builds competitive advantage for longer-term economic
gain.
Richmond, Va., business retention program identifies and assists
expanding businesses: From July 2008 to June 2009, the Greater Richmond
Partnership's business retention program was able to find and build on
good news in the business community. Outreach efforts helped to
identify 111 expanding businesses and 167 firms with plans to add staff
in the coming 12-month period. These firms intend to create more than
1,600 new jobs and make capital investments in excess of $88 million.
The program is working with these businesses to ensure that they have
access to the resources and information they need to realize their
plans.
Economic developers help wind-power company create manufacturing
jobs: Mariah Power, a Reno, Nev.-based company, decided to manufacture
its turbines in Manistee, Mich., due to a unique partnership with a
local manufacturer, a highly skilled workforce, and extensive
assistance and funding from local and State economic development
groups. A former auto parts manufacturing facility run by MasTech
Manufacturing was retrofitted to produce the turbines after nearly
closing operations due to the crisis in the automotive industry. A
$400,000 Community Development Block Grant, provided by Manistee County
in partnership with the State, enabled the upgrade of equipment needed
to produce the turbines, and the company also received venture
financing. The company has created 60 manufacturing jobs in Manistee
over the past year and plans to add another 120 jobs in 2010.
Economic development groups in Michigan collaborate to grow green
jobs: In Saginaw County, Mich., Saginaw Future, Inc., Michigan Economic
Development Corporation, and the Saginaw County Chamber of Commerce
collaborated to facilitate a $1 billion investment from Hemlock
Semiconductor (which makes polycrystalline silicon, a key component of
solar panel construction), in order to help establish a new industry
cluster, create jobs and spur an economic resurgence. The groups worked
together to address company concerns, provide tax credits, job training
assistance and other incentives. Saginaw Future and its partners also
are investing in workforce development and research and development
initiatives.
In addition to assisting businesses, another valuable way to create
jobs quickly is through real estate investments, particularly in large,
strategically designed projects. These create short-term construction
jobs but also boost long-term competitiveness and economic
diversification, leading to permanent, high-wage jobs. The focus here
should be on commercial property, another market that is in decline,
and innovation infrastructure, to enable long-term economic
revitalization and competitiveness.
Redevelopment of a former auto manufacturing site for mixed-uses
and high-tech companies continues in Dayton: Tech Town is a 30-acre,
mixed-use district under development on a former GM manufacturing site.
Located close to Wright Patterson Air Force Base and within a
Historically Underutilized Business (HUB) Zone, the goal is for the
district to become a place where business, academia and government work
together strategically to take technologies developed at Wright-Patt
and other regional R&D facilities and apply them to commercial uses.
Stimulus CDBG funds are helping keep the project moving, which has the
goal of diversifying and strengthening the region's economy.
Tech park construction jumpstarted to foster the growth of
companies related to the University of Arizona-Tucson: The University
of Arizona-Tucson received $4.7 million grant in Economic Development
Administration stimulus funds for phase-one infrastructure improvements
at the Arizona Bioscience Park. The biosciences facility is designed to
be part of a larger, mixed-used development that includes a hotel and
conference center, retail and residential development. It also is
intended, in conjunction with the university's existing Science and
Technology Park and business incubator, to support the growth of high-
growth, high-tech companies in the region based on university assets.
Funding was awarded in late August; construction is expected to begin
soon.
Cleveland Flats East Bank project moves forward despite credit
woes: Cleveland Flats, designed to be a model sustainable, walkable,
mixed-use community on former brownfields sites, has gained new life
with new sources of funding, including a $30 million HUD 108 loan and
$25 million in Recovery Zone Bonds for infrastructure. The Recovery
Zone infrastructure funding allows tax increment financing revenues to
be converted from infrastructure to direct project subsidy and a
repayment source for the HUD 108 loan. With private financing scarce
and expensive, this creative financing covers the project gap so it can
proceed.
What new thinking should Congress consider when crafting a new jobs
package?
Let me share some suggestions for short-term job creation. I will
first take a few moments to discuss some of the key principles that I
believe should guide our thoughts as next steps and additional programs
are identified. These are:
Build on and use what we have in innovative ways
Provide resources to those who are the most agile and
flexible
Further support R&D capacity--both basic and industry-led
Prioritize action--in regard to short-term impact, but also
in terms of the policy's ability to nurture innovation over the
long-term
Focus on changing private-sector behavior
With these principles as guidelines, I would like to summarize some
policy priorities and strategies to achieve them.
Incent the hiring of Americans now.
Globalization is a reality which has benefited many U.S. companies,
yet the off-shoring of U.S. jobs is a gargantuan obstacle to economic
development efforts. As we move forward, we need to place a direct
emphasis on hiring and retaining American workers. The new green
economy promises manufacturing jobs for renewable energy machinery such
as wind turbines and solar panels. We need to ensure that these
manufacturing jobs are here in the United States, and not in China or
elsewhere. Any job creation package should encourage companies to hire
American workers, a goal which can be accomplished through a
combination of incentives and a review of U.S. trade relationships.
There are several tools and strategies we could use to achieve this
goal.
First, we can offer incentives directly to companies if
they are willing to bring work from an offshore location to a
U.S. location marked by high unemployment. According to the
Information and Technology Innovation Foundation (ITIF), which
issued this idea, a forgivable loan (it becomes a grant if the
company creates and retains the jobs), administered by the EDA,
would be a particularly efficient method not only for creating
jobs, but for doing so in areas where the need is greatest.
Second, we can evolve the current Invest in America
program, housed in the Department of Commerce, into an
internationally competitive marketing arm of the U.S.
Government, similar to the agencies found in most of the
nations we compete with globally for foreign direct investment
(FDI). This initiative would require a $50 million initial
investment, complemented by another $50 million that could be
made available as matching funds to States and regions
specifically for international marketing purposes to attract
FDI.
Third, evaluate and align trade and exchange rate policy
with job creation goals. Many trade and exchange rate policies
seem to have been working against our national job creation
goals. We need to think about whether or not we should: keep
defending the dollar; more stringently enforce trade
regulations and intellectual property protection; and reexamine
some of our bilateral trade relationships to ensure that they
support job creation, rather than hinder it. Specifically, we
should ensure that we are not subsidizing competition by
establishing lucrative trade agreements with countries that
lack parity in terms of environmental and worker protections.
We cannot demand that every country we trade with have the
exact same labor and environmental laws that we do, but trade
agreements should be made with the cognizance that the absence
of such laws in other countries substantially lowers the cost
of business without upholding the standards we as a nation
believe are essential.
Target and reach small businesses and entrepreneurs.
Federal policy also needs to more fully recognize the importance of
entrepreneurs and small business as job creators. Businesses of all
sizes are still facing issues with access to capital and means to
finance new deals. A small firm that receives an influx of cash will be
more likely to hire additional workers to get the job done than a
larger firm with greater existing capacity. Thus, getting resources to
small businesses and emerging entrepreneurs needs to be a government
priority. Finding ways to make it easier for small businesses,
including very small businesses, to access financing, contracts, export
markets and other resources for growth is the single most useful tactic
the government can adopt to create jobs quickly.
There are many approaches we can take to achieve this goal.
First, we should emphasize non-traditional financing
entities--such as certified development corporations, community
development financial institutions and revolving loan funds--
instead of relying on banks to provide working capital for
small businesses. One way to support non-traditional financial
institutions is by allowing them to offer SBA 7(a) programs.
Another effective strategy is to extend the New Markets Tax
Credits (NMTC) through 2014 with annual adjustments for
inflation, and increase funding to existing programs that are
already working in this area, such as SBA 7(a) and 504
programs.
Second, issue Federal tax credits to stimulate seed and
venture investments to support entrepreneurs and small
companies. Quick infusions of capital can also help to create
jobs quickly.
Third, build on successes that are moving capital into the
private sector. In particular, the reduction/elimination of
fees on the 504 and 7(a) loan programs has been very successful
at bringing more lenders in the program and getting working
capital into the hands of small businesses. In addition,
Recovery Zone Facility Bonds have also worked to help private
companies access financing.
Include counts of early stage and startup companies in job
creation measures. This expands our understanding of how and
where jobs are being created in the economy, and may also allow
us to identify emerging industries.
Provide additional funding at all levels of government--
local, State and Federal--specifically to help small businesses
export abroad.
Accelerate innovation through R&D and commercialization.
There is no doubt that the Federal Government's investments in
research and development (R&D) are a critical tool for stimulating
innovation and building long-term U.S. competitiveness. To create jobs
more quickly, we need to find ways to target and accelerate innovation
by encouraging more R&D and commercialization. There are multiple ways
to achieve this goal.
Invest in innovation infrastructure such as research parks,
incubators and others means, as they marry short-term job
creation goals with the need to build strong regional
innovation eco-systems. One idea is to create a direct loan
program or loan guarantee program to invest in such
infrastructure.
Spur partnerships between universities and the private
sector by establishing Federal research grants. Place
incentives in current agency programs for public-private
innovation partnerships.
Offer a bonus R&D tax credit in 2010 and 2011 which
companies can choose to take against their non-corporate
income. This recommendation, also put forth by ITIF, would help
companies maintain their research during challenging economic
times, allowing them to retain and possibly grow science jobs
while investing in the company's long-term competitiveness.
Another ITIF recommendation that deserves consideration is
to allow information technology investments to be expensed in
2010. This would help not only to boost a company's
competitiveness through productivity gains, but also enable
them to buy safer, more energy-efficient equipment.
Finally, finding new ways to work with universities,
Federal labs, hospitals, the SBIR/STTR program and large
companies (with patents they are not using) to accelerate
commercialization is a critical area where new thinking and the
identification of best practice models is particularly
imperative.
Provide support for competitive businesses and industries.
We need bold new thinking on how to create jobs in a way that also
supports our long-term competitiveness, and that means ensuring that
some investment is directed to keeping critical industries strong and
supporting high-growth industries and companies. There are several
tools and strategies to accomplish this.
Harness existing Federal infrastructure such as the EDA
University program or the Manufacturing Extension Partnership
(MEP) networks to reach out to competitive, innovative
companies and help them weather the storm, then expand. These
programs work locally with companies and provide an important
link between Federal goals and the private sector.
Increase funding for the MEP. Encourage MEP to intensify
its focus on supporting sustainability initiatives and pulling
innovative technologies from universities, Federal
laboratories, and other research institutions for adoption by
manufacturing firms.
The Federal Government might consider providing additional
resources to State programs to support fast-growth, innovative
companies, as ITIF also recommends.
Allow flexibility with Workforce Investment Act (WIA)
funding awarded to States to support responsiveness to regional
and State needs, especially for incumbent training. This
strengthens the competitiveness of existing businesses and
allows them to retain critical jobs. Part of a jobs bill needs
to include methods to retain existing jobs as well.
The Federal Government should make a concerted effort to
find new ways of supporting and rebuilding our manufacturing
industry. In our December 3 survey of the economic development
community, manufacturing was identified by the highest number
of respondents (39 percent) as the industry that has been
hardest hit by the economic crisis.
Work more aggressively with the economic development
community and more fully engage us in the jobs dialog and as
funding recipients. This group of dedicated professionals, of
which I am proud to be a part, works daily on the front line in
their States, regions and communities to create and retain
jobs, build companies, and develop innovative eco-systems that
keep regional economies running. They know what potential
projects could benefit most from an infusion of cash, which
company is set to grow and what infrastructure would have the
most strategic economic impact. They are first responders to
the economic crisis and need to be a more integral component of
any jobs bill then they have been in the past.
Develop strategic principles for the allocation of
infrastructure dollars that directly support job creation in
competitive and emerging industries, and support local economic
transformation.
Include issues of flexibility, capacity and speed in the
design of any short-term job creation policy.
Any jobs bill emerging from Congress also needs to address some of
the limitations in the first Recovery Act. In particular, the following
strategies will offer improvements.
Set realistic expectations for any jobs package and ensure
they are understood by the public. Public confusion and
discontent with the Recovery Act is due in part to unrealistic
expectations as to what it can really accomplish.
Build greater flexibility into program design and the
definition of distress. Where flexibility was available,
Federal programs had a greater scope and impact. There may be
additional areas where efficiencies and flexibility can be
found. For example, the Federal Government can streamline or
waive environmental reviews of building projects if States have
similar or more rigorous processes.
Work with agencies that already have a track record in
achieving job-related outcomes, such as the Economic
Development Administration and the CDFI Fund.
Leverage funds across Federal agencies in a targeted manner
and consider centralizing the overall management of the program
to align their impact.
Thank you for the opportunity to testify today. I would be happy to
answer any questions the Committee may have.
______
SUPPLEMENTAL REPORT OF RICK WEDDLE
Funding for Invest in America to Attract Investment, Create Jobs and
Stimulate Growth Industries: A Comparative Review of the Structure,
Funding and Program Focus of Competitor Nation Investment Promotion
Agencies
Overview and Introduction
The information compiled below is a supplemental report generated
upon the request of Chairman Brown, following my testimony on creating
jobs in the recession to the Senate Banking Committee's Subcommittee on
Economic Policy on December 9, 2009. As the Committee will recall, I
worked with the International Economic Development Council (IEDC), of
which I am a former Chairman, to compile the analysis presented in my
original testimony. For this document, I again called on IEDC to pull
together this research on Foreign Direct Investment (FDI) and other
countries' approach to it. As noted during my original testimony, the
United States is the only developed economy without a major FDI
attraction function. Specifically, this report addresses the following
recommendation from my original testimony on the Federal role in
revitalizing our economy:
We can evolve the current Invest in America program, housed in
the Department of Commerce, into an internationally competitive
marketing arm of the U.S. Government, similar to the agencies
found in most of the nations we compete with globally for
foreign direct investment (FDI). This initiative would require
a $50 million initial investment, complemented by another $50
million that could be made available as matching funds to
States and regions specifically for international marketing
purposes to attract FDI.\1\
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\1\ Rick L. Weddle, In Testimony Before the Subcommittee on
Economic Policy, December 9, 2009, 2 pm hearing: ``Weathering the
Storm: Creating Jobs in the Recession.''
In support of this notion of increased funding for the Invest in
America program as a tool to attract investment, create jobs and
stimulate growth industries, I have compiled a comparative review of
the structure, funding and program focus of competitor nation
investment promotion agencies to benchmark our efforts stand and frame
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recommendations for short-term action.
This report is structured as follows:
1) Why National-Level Inward Investment Promotion? A brief overview
of the rationale for pro-active efforts at the national level
to promote inward foreign investment.
2) How Does the United States Compare? A data-driven argument for
the timing and job creation impacts of a well-funded national
investment promotion program.
3) Country Comparisons of National Investment Promotion Agencies.
Profiles of the national inward investment promotion agencies
the United Kingdom, Ireland, France, Spain, Brazil, Canada, the
Netherlands and Finland. For purposes of comparison, a summary
of the current scope of Invest in America is also included.
4) Conclusions/Further Recommendations. A summary of findings and
specific suggestions for ramping up Invest in America.
Why National-Level Inward Investment Promotion?
Foreign investment brings outside capital & job creation,
drives exports, and is also linked to positive externalities
like knowledge transfer and competition-sparked increases in
the productivity of domestic businesses.
The balanced budget requirements and persisting shortfalls
facing individual U.S. States may constrain their ability to
independently attract foreign direct investment (FDI).
Time is of the essence in capturing the highest-value
outbound investment from rapidly growing emerging markets.
According to empirical research, as markets globalize, ``the most
productive firms become multinationals earlier, while firms
that are relatively less productive enter host economies
later,''\2\ as international market entry becomes more
feasible.
---------------------------------------------------------------------------
\2\ Silvio Contessi and Ariel Weinberger, Foreign Direct
Investment, Productivity, and Country Growth: An Overview, Federal
Reserve Bank of St. Louis Review, MARCH/APRIL 2009, p 74.
More players for a finite pool of global investments
---------------------------------------------------------------------------
translates into more competition. According to the World Bank:
Today's shrinking economic environment makes effective promotion
of foreign investment an especially competitive activity for
countries. The current global economic slowdown and associated
financial instability are expected to significantly reduce
flows of FDI in 2009 and beyond. The extent of FDI decline will
ultimately depend on the depth and duration of the economic
slowdown. However, companies are already reluctant to make
medium-term investments--many projects have been postponed or
even canceled, and some estimates suggest that FDI flows could
fall by as much as 30-40 percent in 2009.
As the pool of FDI shrinks, there will be more competition for
fewer projects. The ability of [Investment Promotions
Intermediaries] to influence investment decisions with timely
and relevant country and sector information and facilitation
efforts will be more crucial than ever.\3\
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\3\ World Bank Group Advisory Services, Investment Climate, Global
Investment Promotion Benchmarking 2009 Summary Report, P 11.
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How Does the United States Compare?
While in dollar values the United States remains the top
recipient of inward FDI flows (see Figure 1), as total global
flows of FDI increase and more nations compete for finite
investment opportunities, the United States share of overall
global investment has begun to shrink (see Figure 2).
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The United States lags behind other nations in terms of
growth rate of inward FDI. The five countries with the largest
average year over year percent increase in FDI from 2006-08
were the Netherlands, Brazil, Russia, Spain and Saudi Arabia.
The United States ranked 13th during this same period while
India and China ranked 6th and 9th respectively.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mergers & Acquisitions (M&A) of existing U.S. firms, assets
and divisions account for the vast majority (see Figure 4) of
incoming FDI, eclipsing Greenfield activity. However,
Greenfield FDI vastly outpaces M&A in terms of job creation.
Investment promotion to increase the amount of Greenfield FDI
would have strong impacts on job creation.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Country Comparisons of National Investment Promotion Agencies
Below, the national inward investment promotion agencies of 8
countries are profiled: the United Kingdom, Ireland, France, Spain,
Brazil, Canada, the Netherlands and Finland. These countries were
selected as they represent competitor nations for total global flows of
FDI and/or nations with faster year on year growth rates of incoming
FDI than the United States. Each is instructional in terms of
approaches to investment promotion, and each reflects a stronger
financial commitment to the effort. For purposes of comparison, I begin
with an overview of the current scope of the Invest in America program.
Invest in America
While in the past, the sheer size of our economy did not
necessitate a focus on international investment promotion, in reaction
to the pressures of globalization, the United States is starting to
play catch-up in the race to target FDI. The Department of Commerce's
March 2007 roll out of the Invest in America Initiative reflects this
new drive to capture FDI through a coordinated national effort.
The Invest in America Program is housed within the United States
and Foreign Commercial Service (USFCS) Office of the International
Trade Administration. At present the program has an estimated annual
budget of under $1 Million and a direct staff of 3 full-time employees.
Invest in America also delivers its services through Federal Government
staff at existing international USFCS posts in target FDI source
markets.
In terms of investment promotion services, the office:
Conducts investor outreach and education
Performs Ombudsman assistance and foreign investor after-
care when approached
Engages with national and sub-national partners to enhance
the investment policy environment
Trains USFCS staff on dealing with foreign investor
prospects
At present, Invest in America is not equipped to promote the United
States as a destination for investment on a broad scale through
branding and public relations, an activity conducted by all the IPAs
profiled below. Invest in America also does not perform lead generation
or deal facilitation (such as match-making and site selection
assistance) as these are efforts already performed by State and sub-
State entities.
Given the rationale for pro-active national investment promotion
efforts as outlined above, Invest in America is a solid and established
platform from which to capture a growing percentage of global FDI flows
and increase the number of inward Greenfield activities. The following
profiles of other similar agencies provide guidance on the expansion of
Invest in America to support U.S. competitiveness in the long-term and
job creation and economic revitalization in the short-term.
United Kingdom
The United Kingdom's national-level investment promotion activities
are housed within U.K. Trade & Investment (UKTI). UKTI's parent
agencies are the Foreign & Common Wealth Office (FCO) and the
Department of Business, Innovation and Skills.\4\ Within the UKTI,
Investment Promotion activities are led by the Directorate of
Investment, which spearheads efforts to market the U.K. economy
internationally and partners with Regional Development Agencies (RDAs)
to supplement their FDI attraction, retention and expansion efforts.
The aim of UKTI's inward investment promotion efforts is to help the
United Kingdom ``benefit from different forms of foreign direct
investment not just in terms of the creation of jobs, and the injection
of capital, but also through the competition and `knowledge spillover'
effects that inward investors have on the rest of the economy.''\5\
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\4\ The parent agencies have gone through a series of changes:
through November 2007, UKTI fell under the Trade and Industry Committee
and through June 2009 the Department for Business, Enterprise and
Regulatory Reform.
\5\ UK House of Commons Trade and Industry Committee, UKTI's 5-year
strategy: Government Response to the Committee's Sixth Report of
Session 2006-07, July 2007, p. 3.
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UKTI's total operating budget per annum is listed as
256 million ($416 million). A portion for programming
(89 million/$144.7 million) is allocated directly from
Parliament, the remaining funds are transfers for administration and
staffing from the parent agencies, the predominant portion
135 million pounds (219 million USD)--comes from the FCO
and includes the London HQ budget. For the current budget year,
15.4 million ($25 million) of UKTI's programming budget
went directly toward inward investment efforts, including marketing the
United Kingdom abroad, production of publicity materials and
advertising. In addition, 17.2 million pounds ($27.9 million) flowed to
FDI attraction in the form of assistance grants to RDAs.
UKTI has 2,500 staff and advisers including those overseas, based
out of embassies, high commissions, consulates and tradeoffices. To
agency aims to merge delivery of both trade and investment promotion
services across its overseas operations and maintains staff in 150
foreign offices including 22 in the Asia-Pacific region, 12 in Canada
and the United States, 17 across Europe, 2 in Latin America and the
Caribbean, 1 in the Middle East and 1 in Sub-Saharan Africa.
The Inward Investment Services provided through the Directorate of
Investment include:\6\
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\6\ Source: UKTI Autumn Performance Report, December 2007, p. 13-
14.
Promoting the United Kingdom's assets to prospective
investors and using regional and local analysis to advise
onsite selection. Recruitment efforts focus on six target
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industry sectors.
Connecting businesses to key contact networks, such as
industry leaders, chambers of commerce, universities and other
centers of research excellence.
Facilitating collaborative technology partnerships between
United Kingdom and foreign businesses.
Assisting overseas entrepreneurs to develop a U.K.
platform.
Building relationships and providing after-care services to
key high-value investors to facilitate their continued growth/
retention in the United Kingdom.
Serving as a source of international investment policy and
regulatory expertise.
Ireland
Industrial Development Agency (IDA) Ireland is the primary national
entity with responsibility for the attraction and development of
foreign investment in Ireland. In terms of structure, IDA Ireland is an
autonomous statutory Agency which operates under guidance from the
Ministry for Enterprise, Trade and Employment. This government ministry
is the primary source of funds to the agency and is empowered to issue
general policy directives and receive reports on activities. IDA
Ireland is governed by a small Board (approx. 15 members) composed of
private sector leaders representing the target sectors, as well as IDA
Ireland's Executive Director and the Assistant Secretary of the
Department of Enterprise, Trade and Employment. The Board is
responsible for setting the broad policies of the organization and for
overseeing its operation.
IDA's annual budget is =186 Million ($266.7 Million), broken down
as follows:
=9 Million in grant assistance ($12.9 Million)
=37 Million for administration & general expenses ($53
Million)
=11 Million for programming (marketing, consulting,
promotions and advertising) ($15.7 Million)
=46 Million for Industrial Building Charges ($65.9 Million)
IDA Ireland operates 10 regional offices in Ireland and 17 offices
outside of Ireland. These are in Boston, New York, Atlanta, Chicago,
Mountain View, Irvine, Sao Paulo, London, Paris, Frankfurt, Mumbai,
Moscow, Shanghai, Taipei, Sydney, Tokyo and Seoul. Worldwide, the
agency has a staff of 260, the overwhelming predominance of which (202)
are based in Ireland, with 33 staff in America, 11 in Europe and 14 in
Asia.
IDA Ireland's services are directed at prospective investor
companies, promoting the country's suitability as a location for new
investment or expansion projects by providing information on doing
business in Ireland and insight on the dynamics of individual regions.
Investment recruitment efforts focus on 5 high-value sectors (Life
Sciences, Software and Services, International Financial Services,
Information Communication Technologies, Cleantech) and attracting
Research, Development & Innovation (RD&I) projects. Core functions
include:
Compiling and distributes detailed sector-based
intelligence.
Connecting businesses to local service providers, local
public sector contacts and institutes of education. These can
include introductions to companies already operating in Ireland
and introductions to relevant university departments, training
colleges, or third part service providers such as tax
specialists, estate agents, banks and recruitment firms.
Working on a continual basis with foreign investors
facilitated by IDA to retain and support them.
As indicated in the budget breakdown above, IDA Ireland also has
funds for direct assistance grants to companies locating in Ireland, to
support capital development and job creation surrounding an investment.
Matching grants are also available through IDA for existing foreign
companies that are undertaking major training initiatives.
France
The Invest in France Agency (IFA) was created in May 2001 and is
overseen jointly by the Minister of Economy, Finance and Industry and
the Minister for Regional Development. These parent agencies
collaborate to define IFA's strategic priories, objectives, and
indicators, and are responsible for determining IFA's annual budget.
Approximately 99 percent of IFA's funding comes in the form of
allocations of government funding through these parent agencies. The
remainder comes from regional partners (sub-national IP entities) to
support their participation in prospect-development events arranged by
IFA.
For 2009, IFA's budget was approximately =22.2 Million ($31.8
Million); =200,000 of this comes from transfers from regional partners.
For 2010, an additional =5 million has been added to the agency's
budget for a new communications campaign. IFA's budget breaks down as
follows:
70 percent for human resources
20 percent for operation costs
10 percent for communication (with this share increasing in
2010 to reflect the new campaign)
Staff wise, in 2007 IFA had 60 employees at their central Paris
office and 79 staff distributed across 21 foreign offices. Among these,
most are stand alone offices with multiple staff, though a few are
housed within embassies, consulates and/or commercial service posts. In
2008, IFA's combined worldwide staff grew to 160. Of these 21 foreign
offices, 7 are located in Europe (Benelux, Germany, Italy, Russia,
Scandinavia, Spain, and United Kingdom), 7 in Asia (China, India,
Japan, Korea, Singapore, and Taiwan), 2 in the Middle East (Israel and
United Arab Emirates) and 5 in North America.
Invest in France staff provide the following services:
Investment facilitation through every step of the process
of opening operations in France. This support includes
information about legal regulations, analysis of eligibility
for public financial support, & connections with local
authorities and industry clusters.
Site selection
Ombudsman assistance
After-care to investor companies
Spain
Invest in Spain was created in 2005 as an independent agency housed
within the Ministry of Industry, Tourism, and Trade to enable the
public sector to provide a better response to the challenges posed by
the growing integration of international markets and the resulting
increase in competition to attract the best investment projects. Invest
in Spain's budget for 2008 was =7.55M ($10.8M). In 2008, =7.2M
($10.3M), or 95 percent of the agency's total budget, was supplied from
transfers from the General State Budget. The remaining 5 percent, or
=350,000 ($500,000), came from income generated through sponsorship and
agreements.
Invest in Spain has 43 designated staff in its domestic HQ in
Madrid, its only direct office, and draws on a network of investment
officers working in Economic and Commercial Offices in Spanish
Embassies across the world. In addition, the agency contracts for
representation directly with in-country investment and site selection
consultancies in eleven target countries: Canada, the United States,
Mexico, Brazil, France, Germany, the United Kingdom, the Netherlands,
Sweden, Japan and India. With these two networks combined, the total
representation of Invest in Spain spans 95 offices worldwide.
The agency provides investment facilitation services at no charge
directly to prospective businesses, as well as delivering after-care to
existing foreign investors to maintain their presence and encourage
reinvestment. In addition, Invest in Spain works with other entities
which attract investment at the regional and local level to establish
channels for cooperation.
Specific functions performed include:
Promoting Spain as a destination for investment and
providing information on doing business in the country
Lead generation
Connecting potential investors to relevant business
networks, chambers and other private service providers
Providing technical support in the form of partner and
location searches and talent recruitment
Brazil
Apex-Brasil is Brazil's trade and investment promotion agency. It
took its current form in 2003, becoming an autonomous public agency
under the Ministry of Development, Industry, and Foreign Trade to
further promote and coordinate trade and FDI.
For 2010, the total budget for Apex-Brasil as a whole will be R$286
Million ($160.9 Million). According to figures released in 2008, inward
investment promotion was allocated R$50M ($28.1M) from within the total
Apex-Brasil budget. This was aimed at supporting 29 planned events to
be performed in 13 target countries, along with the provision of an
estimated 226 actions of business intelligence, such as sector studies,
market studies, and investment opportunity studies.\7\ According to
conversations with Apex-Brasil investment staff, this number was later
adjusted downwards an undisclosed amount to reflect the onset of global
recession.
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\7\ Press Release, December 18, 2008. Apex-Brasil increases
resources provided to investment and exports promotion in 2009. source:
http://www.apexbrasil.com.br/portal_apex/publicacao/
engine.wsp?tmp.area=149&tmp.texto=4965.
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Apex-Brasil employs 300 people across both its trade and investment
promotion (IP) departments. The IP department has 17 dedicated
employees in the headquarters in Brasilia, and shares staff members in
Apex-Brasil's offices in Havana, Miami, Moscow, Brussels, Beijing,
Warsaw, and Dubai, merging both trade and investment promotion
functions from these locations. In addition, Apex-Brasil has liaisons
in Brazilian embassies in other locations abroad.
In terms of services, Apex-Brasil:
Performs lead generation in target sectors, focusing on
``companies and projects that offer technological innovations
and new business models, strengthen industrial supply chains,
have a direct impact on national job creation and improve the
volume and diversity of Brazilian exports.''\8\
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\8\ ApexBrasil: Brasilian Trade and Investment Promotion Agency,
2009, Who We Are, p.2.
Provides investment facilitation and assistance with doing
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busienss in Brazil.
Acts as a liaison between prospective investors and key
local and regulatory bodies.
As part of Apex-Brasil's strategy to ramp up inward-FDI, in 2009
the agency initiated a partnership with the World Bank Group to deliver
training and technical assistance to improve the capacity of the
Brazilian States to attract investment. In this arena, Apex-Brasil's
focus is to decrease the fragmentation among the range Federal and
State entities working to attract investment, with the long-term goal
of facilitating a more integrated approach to FDI attraction.
The Netherlands
The national inward investment promotion entity for the Netherlands
is an operational unit of the Dutch Ministry of Economic Affairs called
Netherlands Foreign Investment Agency (NFIA). NFIA works directly with
businesses to attract new locations and facilitate expansion projects.
Funding for NFIA flows through the Ministry of Economic Affairs;
currently the annual budget is =11.5 Million ($16.5 Million). According
to agency officials, NFIA plans to use these funds in 2010 to attract
projects worth =500 Million ($718.6 Million) in FDI and create 2,500
new direct jobs.
NFIA has one national office, its headquarters in The Hague. In
addition, NFIA has 19 local offices spread among the United Kingdom,
Turkey, the United Arab Emirates, the United States, Japan, Korea,
China, Taiwan, India, Singapore and Malaysia. NFIA directly employs 100
people worldwide, including 30 in The Hague. Beyond these direct staff,
the agency partners with embassies, consulates and other entities that
represent the Dutch government abroad to deliver its services and
message. NFIA also maintains a broad network of domestic partners,
including municipalities, provinces, regional development agencies,
ports and airports, research centers, and technical institutions.
The agency provides the following assistance to prospective
investors at no cost:
Promoting the advantages of the Dutch business environment,
particularly as a launch pad for Europe
Guidance on doing business in the Netherlands, including
labor issues, permitting, tax structures and available
incentives
Site selection and match-making assistance
Work to enhance the investment policy environment
As organizational priorities set forth by the parent agency in
2006,\9\ NFIA has broadened their services to:
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\9\ Finnish Ministry of Economic Affairs, August 2006, Action for
Acquisition, p. 3-4.
Include a stronger focus on encouraging expansions from
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existing foreign companies.
Gaining knowledge-based activities, such as R&D.
Establishing additional offices in emerging market
countries, such as India and China.
Canada
The Invest in Canada Bureau is one of the three initiatives inside
the Department of Foreign Affairs and International Trade (DFAIT). Its
current incarnation dates back to 1998, when it was created to attract
FDI to Canada. Invest in Canada now meets this goal by undertaking four
main functions: working to improve the investment climate, marketing
Canada as an investment location of choice, offering services to
foreign investors and coordinating aftercare functions once companies
have made an investment.
The total planned budget for DFAIT in 2009-2010 is $214.6 Million
CAD ($201.8 USD), with the largest portion ($161.3M CAD/$151.7USD)
going toward operating Canada's international platforms. $4.5M CAD
($4.2M USD) of the DFAIT budget is dedicated to programming for the
Invest in Canada program; staffing and administration expenditures are
not included in this figure, but are integrated within DFAIT's annual
budget.
At its headquarters, Invest in Canada has 51 employees working in
investment promotion. DFAIT has 13 regional offices throughout the
Nation and abroad, it has missions and posts totaling 156, with 50
offices located in the Americans, 42 in Asia and Oceania, 34 in Europe,
15 in the Middle East and North Africa, and 15 offices in Sub-Saharan
Africa. These offices outside of Ottawa provide a range of DFAIT
functions including the delivery of the investment promotion program in
the field.
It should be noted that the Invest in Canada Bureau also works with
provincial/territorial governments and municipalities in foreign
investment attraction efforts. For example, it awards funding to
Canadian communities of up to 50 percent of the costs of improving
their investment attraction activities.
Finland
Invest in Finland was founded in 1992 as an independent agency
housed within the Ministry of Employment and the Economy (MEE), which
provides its funding. Invest in Finland has an annual budget of =3.1M
($4.44M).
Invest in Finland employs 18 people at its headquarters in
Helsinki, its only office in the nation. The agency also has an
independent office in Sweden and shared offices with the Finnish Export
Association in four other target countries. In addition, Invest in
Finland works in partnership with entities in more than 50 countries,
including consultancies, chambers of commerce, and economic development
organizations, to gather information, generate leads and serve
potential investors. Invest in Finland draws on international business
development professionals with experience in target industry sectors to
serve as in-country consultants.
Service-wise, Invest in Finland:
Performs match-making services, linking investors with
Finnish research universities and institutions, with a target
of attracting companies interested in R&D activities.
Provides investment facilitation to business free of
charge. These services cover every stage of setting up a
business in Finland, ranging from initial data collection and
opportunity analysis to networking and the actual business
launch.
Assists with partner search to support inward Mergers &
Acquisitions. According to the European Council of American
Chambers of Commerce, ``This covers the whole process of
identifying possible businesses and delivering background
information, to organizing meetings and giving advice on a wide
range of practical issues.''\10\
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\10\ http://www.european-american-business.com/2009/1_37.php.
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Conclusions/Further Recommendations
As illustrated by the organizational summaries above, the developed
countries which capture the lion's share of inward FDI invest strongly
in their IPAs, making the Invest in America (IIA) office underfunded in
comparison to its peers. With additional funding, IIA would be able to
better supplement and complement the efforts of State and sub-State
entities, especially in the form of matching grants in the face of
public sector budget constraints and travel freezes. With additional
staff and leverageable funding, IIA is well placed to attract foreign
investment in high-growth sectors which will ultimately spin off into
increased productivity and sustainable jobs at a time when the United
States urgently needs to stimulate growth in the industries of the
future. Drawing on the various models presented above, combined with an
understanding of the unique political and structural environment in
which Invest in America operates, I recommend that the Committee
consider $100 million in additional funding to IIA, $50 million of
which would serve as matching grants to support State and sub-State
efforts. The remaining $50 million would do well to expand Invest in
America operations by funding dedicated inward investment promotion
officers in major foreign markets, expanding in-country investor
outreach efforts particularly via cultivating relationships with
significant investors, providing expanded ombudsman services to
potential investors, and establishing a dedicated after-care team to
work with existing priority investors to maintain and expand their
presence in the United States.
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