Page 8W

Sunday, April 18, 2004

The Dallas Morning News

ECONOMY
crimp its suburbs. You cant have a healthy region that doesnt have a healthy core, Dr. Hicks said. In many Dallas neighborhoods, of course, its hard to find eyeball evidence of frailty. Main Street buzzes with new bars and restaurants. Upscale downtown housing sprouts. Dallas is home to boutique luxury hotels, Texas only Lamborghini dealership and more than 1,300 $1 million-plus homes. Still, the 2003 Dallas Morning News Poll found that city residents ranked economic development as No. 3 when asked to name the single most important issue facing the city of Dallas. Despite Dallas progress in launching a thriving urban community, the Booz Allen report found that the citys economy is much more fragile than anyone ever suspected, its shortcomings masked by the regions strength. Using a business analogy, the report observed: Companies in fast-growing markets are often those at most risk because they frequently do not realize they are falling behind until the situation is irreversible. Indeed, just as Dallas and the nation began reckoning with the hangover of the 1990s boom, City Hall downsized its economic development efforts slicing its staff nearly in half and budget by two-thirds. In the private sector, thats a red flag. When businesses cut operations that are designed to increase future revenue, investors start looking for the exit. City Hall has cut itself too thin, said Jeff Finkle, president and chief executive of the International Economic Development Council in Washington, a trade organization for economic development directors. Dallas response to Booz Allens findings: Its not broken, but were fixing it. Last winter, the City Council made economic development its No. 1 goal for 2004, part of its first-ever attempt to set priorities for the year. To support that goal, city staff drafted a blueprint that highlighted the personnel cuts as a call to action and asserted that the city lags the suburbs in a number of key areas. But city officials say those steps arent an admission of economic weakness as described by Booz Allen. If this is true and we havent been growing as fast as we did, we have plans to change it, said Assistant City Manager Ryan Evans, who heads Dallas economic-development department. City Manager Ted Benavides also rejected the notion of Dallas facing an economic crisis. Then he said that he would scrub an already drum-tight budget to find a way to expand Mr. Evans staff. Were going to have to look at our operation and look at costs again and give Ryan more people so we can go back into that business big time, he said. The city, Mr. Benavides acknowledged, has taken a kind of ad hoc approach in recent years to a number of priorities, including economic development. On that point, the city and Booz Allen concur. The consultants report found that Dallas has no programmatic approach to building for the future. In 2000, Dallas ranked right behind San Francisco in per-capita gross city product, a measure of local economic activity. Thats a result of Dallas long years of growing faster than the U.S. average. But in the 1990s, when the nation enjoyed its longest period of prosperity, Dallas shifted into low gear, growing only 2 percent a year. That was last among the 15 cities studied by Booz Allen. The reasons why became apparent in the consultants analysis. Dallas is sickly in the most basic way: in its tax base. Dallas taxable property has grown only through price appreciation what Booz Allen calls a disturbing trajectory. In 2003, the value of the commercial tax base fell below that of residential property for the first time. Even a modest decline in property values will devastate the long-term financial plan of Dallas, Booz Allen said. At the same time, retail activity is flat. Sales-tax receipts are Dallas second-largest revenue source after property taxes. Taxable retail trade in Dallas grew only 1.6 percent between 1998 and 2002, a period that spanned the end of the economic boom and the onset of the bust. By comparison, those sales mushroomed by nearly 72 percent in the four largest cities in Collin County Plano, McKinney, Allen and Frisco. Put another way, retail activity in the city of Dallas and those four Collin suburbs grew by more than $1.9 billion over that period. Dallas, however, accounted for only about $127 million of that increase. In 1990, retail sales in Dallas were $1,303 higher per person than in the o o o

DALLAS AT THE TIPPING POINT:

Story by Angela Shah

surrounding metro area. By 2002, they were only $182 higher. IN THE POST-INDUSTRIAL ECONomy, knowledge equals power. Using that yardstick, Dallas faces a power shortage. Dallas ranks in the middle of the pack among its peer cities on basic measures such as the share of the over-25 population with at least a bachelors degree. What puts the city at risk, however, is the meager growth rate in its college-educated population over the last decade 1.7 percent. It must compete for talent in a region that has far fewer higher education graduates than it has jobs, Booz Allen said. Dallas is not well positioned as a destination or expansion site for companies that need educated workers, an increasingly important factor in economic development. The reason: Dallas is simply not hospitable to middle-class families, the target customers of U.S. cities. These families are forced to find refuge in the suburbs as soon as they are economically able, while those who cannot make it out fall further behind. The maturation of Dallas suburbs presents the city with a formidable set of competitors: The schools are better. Housing is abundant. Dallas suburbs added five times as many jobs as did the city in the 1990s. [Businesses] are going to come to the region, but are they going to come to Dallas? asked Mr. Finkle of the economic-development group. Others have noted a shift in momentum, too. While the city of Dallas has historically led the regional economic engine, it has decreased over time, one report warned last month. It added: The citys growth in areas such as workforce growth and office and industrial development lags behind the region. The source? Dallas new economic development plan, recently presented to the City Council. o o o ALTHOUGH COUNCIL MEMBERS eagerly embraced the economic-development overhaul, the $2.2 million initiative would return staffing only to the level of about three years ago. The staff would roughly double, to 32. That expansion would help plug a crucial knowledge gap: understanding the citys business customers. We dont know when our leases expire, what business growth needs are or job training needs, Mr. Evans said in an interview. But apart from building relationships with tenants and developers being buddies, as Mr. Evans put it it is less clear how the city would school itself on the Dallas economy. Even though he brushed aside the Booz Allen findings, punctuating his remarks by thumping a City Hall conference table, Mr. Evans could not name a set of indicators that he uses to track local economic activity. Nor could he say which ones an expanded staff would watch. In an interview a month later, Mr. Evans identified indicators such as property and sales taxes, and new building, sanitation and water permits. Its a constant battle as a central city to move ahead, he said. Weve made significant advancements. UTDs Dr. Hicks expressed surprise that the Booz Allen report had detected so many previously unknown weaknesses in the Dallas economy. What a lack of curiosity the city has for itself, Dr. Hicks said. It is really embarrassing that weve not seen such an analysis before. There should be monitoring in a healthy region. If something turns up negative, it shouldnt be hidden because you cant put it on a poster and promote it. To judge from the conflicting visions sketched by Mr. Evans and Mayor Laura Miller, its not clear how a new era for the economic development department would unfold. Mr. Evans described economic development in Dallas as the product of a partnership City Hall handling busi-

or Dallas Inc., business is not good. The company has underinvested in core operations, is losing target customers to competitors and has a balance sheet full of liabilities. And management has yet to confront the decline. Put simply, the mighty Dallas economy is sputtering. The city is at risk of an economic crisis, Booz Allen Hamilton concludes. The city is rapidly losing its position as the regions economic core.
On myriad measures from the pace of wealth creation to residents lacking a high school diploma Booz Allen found that Dallas ranked closer to distressed Detroit and Philadelphia than its bustling Southwest peers. Dallas isnt expanding its tax base. Nor is it producing or attracting the college-educated workforce crucial for a city with world-class aspirations. I wouldnt have been expecting these kinds of disparities to be opening up in a Sun Belt city, said Dr. Donald Hicks, a professor of political economy at the University of Texas at Dallas. Trouble in Dallas affects city and suburbs alike. If the suburbs keep capturing more of the regions growth and economic activity, Dallas will be pressed ever harder to pay for city services. And a hobbled center city eventually will

THE DALLAS BALANCE SHEET

Assets
Dallas enjoys a balanced economy In terms of economic diversity, Dallas ranks in about the middle of the pack. The chart compares the economic diversity of these cities as measured across nine industrial categories to Dallas. Positive numbers reflect more economic diversity, negative numbers reflect less.
More economic diversity than Dallas 0.02 0 -0.02 -0.04 -0.06 -0.08 -0.10 Less economic diversity than Dallas

Liabilities
The wealth-creation engine only idled during the 1990s Average annual change in growth of per capita gross city product
0 2 4 6 8 10

Dallas Houston Philadelphia Detroit Jacksonville Phoenix Baltimore Columbus Memphis Indianapolis San Francisco San Diego San Antonio Austin San Jose

2%

ap o Ph lis oe H nix Ja oust ck on so Co nvill lum e Me bus mp Sa his n Jo se D Sa al n A las nt on Sa A io n us Fra tin nc isc De o Sa tro n it D Ba iego ltim Ph ila ore de lph ia

ian

... And the poverty rate tops the national average Percentage of people living in poverty, 2000
0 5 U.S. average 10 15 20 25 30

The cost of living is moderate U.S. average equals 100

0 50

Ind

U.S. average 100

150

200

San Francisco San Jose San Diego Philadelphia Detroit Austin Phoenix Dallas Baltimore Columbus Indianapolis Jacksonville Houston San Antonio Memphis

96

Detroit Baltimore Philadelphia Memphis Houston Dallas San Antonio Phoenix Columbus San Diego Jacksonville Indianapolis San Francisco Austin San Jose

17.7%

Note: Calculations for San Jose, Austin, Columbus and San Antonio are based on earby cities.

Jobs are growing, but only moderately Figures are annual percentage growth rates.
5% 4 3 120 2 1

Its near the top of the wealth-generating list How Dallas gross city product for 2000 compared with other cities
0 20 40 60 80 100

San Francisco Dallas San Jose Houston Austin Indianapolis San Diego Memphis Columbus Phoenix Baltimore Jacksonville San Antonio Philadelphia Detroit

1.4%

$81,762

0 -1 -2

(Gross city product in thousands of dollars per capita)

And the college-educated population is growing more slowly than in other cities Average annual growth 1990-2000, residents over 25 with a bachelors degree
0 1 2 3 4 5 6%

What is gross city product?

Gross city product is a measure of the wealth generated inside a city. The consultants calculated it for Dallas, its suburbs and its peer cities by using the same model that the Bureau of Economic Analysis uses to compute gross state product. GCP takes into account employee compensation including payroll, bonuses and benefits as well as other income categories. The figures in these charts are adjusted for inflation for 2001.

SOURCES: Dallas Central Appraisal District, Booz Allen Hamilton analysis; Federal Reserve; Bureau of Economic Analysis; U.S. Census Bureau, U.S. Housing and Urban Development Department; ACCRA Cost of Living Index for third-quarter 2003; Dallas Morning News research

Ba Ph ltim il or Sa ade e n lph Fra ia nc isc De o t Sa roit Ind n Jo ian se ap Me olis m Co phis lum bu D s Ja all ck as so nv Ho ille us Sa ton n Sa Die n A go nt on io Au sti Ph n oe nix

Detroit Baltimore Philadelphia Dallas Indianapolis Memphis Houston San Diego Columbus Jacksonville San Francisco San Jose Phoenix San Antonio Austin

1.70%