Tag: Business

And now for the hard part…

Rob Morris 0 Comment CentrePointe, Local , , , , , ,

Critics have identified three interrelated categories of problems for CentrePointe since it was introduced to the public in 2008:

  1. Context.  Will it ‘fit’ with downtown Lexington?
  2. Financing.  Will it be built?
  3. Viability.  If built, will it work?

And CentrePointe has consistently failed across all three dimensions.  It didn’t fit Lexington.  It couldn’t be financed.  And it wasn’t viable.

As the project has changed trajectory in the past few months, it is worth re-examining these critiques.

Context
The first three iterations of CentrePointe were uninspired and uninspiring.  The designs seemed devoid of place – as though they could be plopped down on any block in any random city – Nashville, Atlanta, Phoenix, Detroit.  There was nothing about the designs which was particular to Lexington.

The bland and imposing structures were also the architectural equivalents of bullies – crowding Main Street, unwelcoming to pedestrians, overshadowing nearby buildings, and oblivious to the surrounding fabric of downtown.

The heavy-handed designs seemed to mirror the developers’ if-you-don’t-like-it-well-that’s-just-too-damn-bad demeanor.

In recent weeks, however, we have begun to see much more hope for CentrePointe.  With help from the mayor, the developers engaged Chicago’s Studio Gang Architects (SGA) to reconceive the site. And the developers have interacted much more with the public and the press – including a quasi-interview with the developer which utilized our questions from an earlier post. (We’d like to ask some follow-ups!)

Jeanne Gang presented her firm’s initial architectural concept for the CentrePointe block to a packed crowd at the Kentucky Theatre last week.

It was a great design.

GangCP And like most great designs, it poses elegant solutions to several problems at once.  Here are a few highlights which caught our attention:

  • Mass.  SGA departed from previous monolithic designs, and redistributed the mass of the project across the site.  The new asymmetric distribution allows the design to accomplish a number of goals.  Breaking the project into components also opens the possibility that the site might be developed in phases – perhaps as financing becomes available.
  • Main Street.  Along Main Street, SGA proposes having 6 distinct building designs which would mirror the varied designs across the street and which would also help maintain the organic, eclectic feeling of a typical Main Street.
  • Inclusiveness.  To help ensure distinct building designs along Main Street, SGA has selected five local architects to design 5 of the 6 buildings on that side of CentrePointe.
  • Plays Nice.  Unlike the earlier “bully” designs, this one seems to play nicely with the surrounding city. SGA used “shadow studies” to assess how the 30-story tower might throw shadows over nearby buildings.  Those studies helped them decide to place the tower near the corner of Upper and Vine Streets, where the building would be less overpowering on the surrounding blocks.
  • Circulation.  This design also departs from earlier versions in that it promotes pedestrian circulation with the surrounding city and within the site, with ample open spaces and public areas.  It is able to accommodate parking access for cars without significantly disrupting pedestrian access.
  • Lexington.  Studio Gang are trying to give the project local meaning – connecting it to our history, stories, and environment.   And while I’m skeptical of the real utility of “the connected separateness of paddocks” or “the porosity of limestone” as sources of inspiration for the new design, SGA is the first CentrePointe architect who seems to realize that it will be built in a unique setting within our unique city.

Studio Gang have crafted this particular design to this particular spot in Lexington, and the result is very encouraging.  Lexington may finally have a signature project worthy of the center of our city.

Financing
The changes in the nature of the CentrePointe project don’t alter the economic environment for getting the project funded.

While now armed with a world-class architect and a world-class design, the developers are still faced with the enormous challenge of finding funding while the commercial real estate market remains in severe recession.

Investors will be far less interested in the aesthetics of the project than its financial viability as an investment vehicle…

Viability
Our central criticism of CentrePointe over the past few years has been its economic viability.  We’ve spent a lot of time deconstructing the economics of CentrePointe, and whether it can ‘work’ as an economic entity.

In short, the project wasn’t – and still isn’t – realistic.

Each of the four components of the project (condominiums, hotel, retail, and office) demanded exceptionally high prices and required exceptionally high occupancy to be successful.

Despite the inclusion of SGA in the design of CentrePointe, the developers won’t be able to achieve the levels of occupancy needed to make the project successful.  (Both prices and occupancy were far in excess of the Lexington market.)

The project also needed the infusion of Tax Increment Financing (TIF) from the state and city to help pay for ‘public’ improvements to the site (including sidewalks, parking garage, storm sewers, and other infrastructure).

The city and state would issue TIF bonds (debt) to pay for today’s improvements, and would pay them back with interest by harvesting future tax revenues coming out of the CentrePointe site.

And, as we have shown before, the CentrePointe TIF – based on incredibly optimistic assumptions – never pays back the city or state for their investment.  In essence, TIF amounts to corporate welfare for the developers.

And no knowledgeable bond analyst would ever recommend the CentrePointe TIF to his or her investors.  It would never pay them back.

::

Over the past three years, CentrePointe seemed like a lose-lose for Lexington: We lost if the project wasn’t built; we lost if it was built, too.

CentrePointe was a bad idea.  And it was badly executed.

The new approach to designing CentrePointe is different: This new design incorporates so many great ideas, and it seems to function so well with downtown Lexington.

Studio Gang has helped transform the threefold criticism of CentrePointe – It doesn’t fit Lexington; It can’t be financed; It isn’t viable – into a twofold critique.  CentrePointe still can’t be financed.  It still isn’t viable.

While still deeply skeptical about the project’s economic viability (and its value for Lexington), we find ourselves pulling for this vision of the project – just a little.

This CentrePointe seems like a good idea – maybe even a great one.  And that’s the first time we can legitimately say that about CentrePointe.

But great ideas are the easy part.

Now, the community’s attention must turn to the hard part of CentrePointe: Execution.

The transition to execution poses new challenges for the developers and for Studio Gang.

How will the project find funding?  Can they conceive a more realistic plan which pulls back from today’s more ambitious design?  Can they make a 20-story tower work, for instance?  Can they craft an economic model which doesn’t rely so heavily on TIF?  Can they build smaller parts of the project today, and finance the rest when the economy improves?

The future of downtown might rest on the answers.

UPDATE 7/18/2011: Jeff Fugate has an excellent post on what the new design of CentrePointe accomplishes over at ProgressLex.

A Small Business Perspective on Jobs and Tax Cuts

Rob Morris 6 Comments Jobs, National, Taxes , , , ,

Lowell's

In late July, one of our technicians left our award-winning auto repair shop to return to his hometown.  He has been our only employee to leave since I bought the business over two years ago.

His departure raised a question for us that a lot of small businesses have faced in this economy: Do we accept the risks of hiring a new employee to replace him?

The answer, I think, is instructive for many of the economic and political issues facing our country.

::

Impatient voters punished Democrats two weeks ago for not giving enough focus to our nation’s sputtering economy after the near-implosion of 2008.

With our nation’s unemployment rate hovering just under 10% (and ‘real’ unemployment much higher), voters sent a clear signal that they want government to focus on creating jobs and growth.

According to the Small Business Administration [PDF Link], small businesses like ours make up 99.7% of employer firms, and account for two-thirds of new job creation.

Both Republicans and Democrats have reiterated the importance of getting small businesses hiring to get our country’s economy moving again.

::

This week, congress reassembles in the wake of the elections to consider extending temporary tax cuts  implemented under the Bush administration in 2001 and 2003.

Republicans want to extend the entirety of the Bush tax cuts, which would add $5 trillion to the national deficit over the next ten years, and vastly expanded the national debt over the past decade.

Democrats want to extend the tax cuts as well, but would let them expire for the highest-income households which make over $250,000 per year.  The Democratic plan would cost almost $700 billion less than the Republican plan over the next ten years.

Republican leaders claim that giving tax breaks to top earners is critical to generating the new jobs that the economy needs to recover.

Unfortunately, they’re wrong.

::

Just how would the Republican proposal affect small business jobs? A hypothetical example from my industry might help us get to an answer.

A very healthy auto shop might have annual sales of $1,000,000 – an amount which would put it well into the top 5% of shops nationwide.  If that shop is exceptionally well-run, it might see net profits of 30%, or $300,000.

For those few shop owners in such a fortunate situation, what are the implications of extending the Bush tax cuts for those making more than $250,000?  Under the Republican plan, that shop owner would save an incremental $1,500 in taxes over the Democratic tax cut plan.

As a small business owner, I’d happily take the $1,500.  But such a small amount would give me zero incentive to undertake the much greater expense – and risk – of hiring a new employee.

So while extending the Bush tax cuts would certainly line my pockets, they would do little to encourage me to create jobs in my small business.

::

Some observers might contend, as incoming House Budget Committee Chairman Paul Ryan did on CNBC yesterday, that most job growth comes from larger “small” businesses and that my example above isn’t really that relevant to job creation.

So let’s pretend, for a moment, that our hypothetical business is actually 10 times as large as the example above: It has annual sales of $10,000,000, and its owners see profits of $3,000,000 per year.

Under the Republican plan, that business owner would save an additional $125,000 in taxes over the Democratic tax cut plan.  Now, this seems like an amount which might let a business hire a couple of additional employees.

But while the tax savings might be enough to hire additional employees, it provides little actual incentive to use that newfound money to hire in an uncertain economic environment.

A tax windfall fails to meet a prudent business owner’s criteria for making a hiring decision. Business owners don’t hire because we have extra money laying around. We don’t hire out of charity. We hire when there is more work to do.

Again, I’d happily take the $125,000.  But I’d also know that a drop of just 1% in my sales – a fairly likely risk in our current economy – would wipe out my tax savings.  If I were that business owner, I’d stash my cash as a hedge against an uncertain economy.  Net effect: no new jobs created.

The criteria for hiring is scalable: Whether a business has $1 million, $10 million, or $100 million in sales, the decision to hire is based on needing employees to meet demand – not on having spare cash supplied by tax cuts.

::

In my shop, the economic slowdown – coupled with a nearby street closing for almost a year – contributed to a sales decline of over fifteen percent from our record 2008 levels.  The declines would have been worse if not for our solid reputation, our increased community involvement, and our vigorous marketing.

In fact, our business has more customers than ever before; It’s just that each one is investing far less in their cars.  We see a lot more folks putting off needed maintenance and hoping that their cars won’t break down.

And as I look at replacing the technician who left in July, this drop in sales has been my primary consideration.

An extra $1,500 from tax cuts wouldn’t induce me to hire a new technician.  Neither, frankly, would an extra $125,000.

I’ll hire when our core business is better – when there is more work to do – and not just when I have a convenient pile of cash.

And to make our business better, we need more customers with more money – and more willingness to spend.

::

To encourage small business hiring, policymakers need to encourage spending.  In particular, they need to encourage the kind of spending which reverberates through the economy as that money is spent and respent in the form of wages, further buying, more wages, and – ultimately – hiring.

This respending feedback loop is key to creating enough demand that businesses like mine will start to hire again.  It is key to driving our nation’s self-sustained economic growth.

The fatal flaw of tax cuts for the wealthy is that the cuts don’t foster respending at a scale which drives significant hiring.  As seen in my examples above, a large chunk of each dollar given out in tax cuts to the wealthy is stowed away in savings – thereby stunting the benefits to the economy.

Mark Zandi, Moody’s Chief Economist, has found the same phenomenon in his research (Full PDF Here).

Tax cuts to the rich don’t yield as much overall economic benefit because the wealthy don’t need to (and won’t) spend that money, thus diminishing the virtuous feedback loop.

Zandi

Government spending which goes to those in need – the poor, the unemployed, state governments – does get respent (often out of necessity) and the feedback loop is much, much stronger than with tax cuts.

::

If I’m looking at my bank account, the tax cuts seem like a fantastic idea. More money for me!

But if I’m looking at my business, my employees, their families, and my community – I want the government to focus on assisting those in need.  I want the government to encourage buying (especially from small, local businesses).  That’s what will help my business for the long term. That’s what will – ultimately – encourage me to hire.

Lose the tax cuts.  Give me customers instead.

The CentrePointe Scam

Rob Morris 10 Comments CentrePointe , , , , , ,

We’ve long been critical of the economics of the proposed CentrePointe development just a few blocks away in downtown Lexington.  

One of the least understood portions of the project is the element known as Tax Increment Financing, or TIF.

In essence, TIF allows cities and states to allocate future incremental tax revenues to finance today’s public improvements related to new economic development initiatives.

The recent changes to the CentrePointe project invite a reassessment of the CentrePointe TIF program.

::

NewCP2CentrePointe’s TIF program would use future new tax revenues from the CentrePointe development to fund about $50 million in projects around CentrePointe.

These public initiatives would include:

  • A new underground parking garage beneath Phoenix Park;
  • Renovating Phoenix Park;
  • Renovating the old Fayette County Courthouse (now the Lexington History Museum); and,
  • Providing new infrastructure including storm sewers, sidewalks, and – according to the most recent renderings – a pedway which seems to cross Upper Street to (?!) McCarthy’s Irish Pub.

The state and city would issue some $50 million in 30-year bonds (i.e., public debt) to fund the initiatives.  Over the course of the next 30 years, our governments would pay out some $100 million in principal and interest to the investors in the CentrePointe TIF bonds.  The state would cover three-quarters of the total payments (about $72 million), and Lexington would cover the rest.

Then, the state and city would hope to use new taxes generated from CentrePointe over the next 30 years to offset the $100 million spent paying bondholders.

But is this a good investment of taxpayer dollars?

To get an informed answer, we need to dive deep into the business fundamentals of the CentrePointe TIF project.

(Note: What follows is financially ‘geeky’, but it is also critical to understanding how our money is invested.)

::

We have two major concerns with the CentrePointe TIF:

  1. The valuation methodologies used by the state and city are fundamentally flawed, and are not the standard for evaluating a long-term investment.
  2. CentrePointe will not generate the promised revenues, due to incredibly optimistic business model assumptions.

Let’s look at each of these concerns in succession.

Valuation Methodology
As far as we can tell, there have only been two evaluations of the public impacts of the CentrePointe project:

  • A late 2008 assessment of CentrePointe done for Lexington by Morgan Keegan & Company which expected $211 million in total tax revenues over 30 years; and,
  • An Economic Research Associates (ERA) report [PDF Link] done last summer for the state’s Cabinet for Economic Development, which expected nearly $70 million in tax revenues from CentrePointe for the state alone.

Of the two, ERA’s assessment is the more recent, more complete, and – in our judgment – more reliable.  It is also the one which the state used to approve the CentrePointe TIF.

But, as mentioned above, there are deep flaws in how both of these reports valued the public benefits stemming from CentrePointe.

::

Businesses make investment decisions all the time: products, facilities, acquisitions, marketing, and so on.

When businesses evaluate an investment project, they look at how much they put in up front (‘the investment’) versus how much they can get out over time (‘the return’).

But when looking out into the future, most businesses lower the value of future earnings.  In other words, the promise of $1 million next year isn’t worth as much as $1 million in-hand today.  A lot of things can happen in the course of a year – inflation, disasters, competition, market shifts.  And $1 million two years from now is worth even less, because there is even more risk of something happening.

Typically, stable and established businesses use an annual rate of around 10% to ‘discount’ future earnings.  For example, if an investment generates a return of $1 million today, that is valued at $1 million.  Simple enough.  But if it promises another $1 million next year, that is worth just $900,000 to us today (i.e., 10% off of $1 million). The promise of $1 million two years from now is worth just $810,000 today, and earnings further in the future are given even steeper cuts in their valuations.  So the promise of $1 million 30 years from now is worth just $42,000.

This ‘discounted cash flow’ method is the same standard that Warren Buffett and other investors use to evaluate how much to pay for an investment, and it is the financial equivalent of ‘a bird in hand is worth two in the bush’.

Depending on the kinds of risks an investment faces, the discount rate might be significantly higher.

When we purchased Lowell’s, we used a 20% discount rate.  Even though Lowell’s was a solid business with loyal customers, we faced a number of uncertainties.  Would we lose key employees? Would customers stay away in droves?  Would things fall apart? Those things didn’t happen, but they posed very real risks as we purchased a new business.

With an especially speculative venture like CentrePointe, we would usually apply an annual discount rate of 20%. Or more.

So what kind of discount did Morgan Keegan and ERA apply to CentrePointe’s promised future tax revenues?

Zero.

Instead of incorporating the risks inherent with a project like CentrePointe, these assessments valued CentrePointe as if there were no risks at all. In these scenarios, the faint promise of $1 million in 2040 from CentrePointe was just as secure as having $1 million in our wallet today.

This is especially problematic, because so much of CentrePointe’s tax revenues were promised so far in the future, when a conventional valuation methodology would steeply cut their value.

For instance, in Morgan Keegan’s assessment, nearly half of CentrePointe’s tax benefits – over $100 million – came between 2030 and 2040.

::

The original report [PDF link] from Economic Research Associates (the state’s CentrePointe consultant) estimated that 30 years of tax revenues from CentrePointe would generate some $70 million for the state – while the state’s expenses for CentrePointe projects ran $72 million.  So ERA projected that the state stood to lose $2 million on the CentrePointe TIF.

And that estimate derived from the faulty methodology we described above.

So what does the CentrePointe TIF look like when we apply standard valuation techniques?  Let’s be generous, and apply the 10% annual discount rate reserved for stable investments to our analysis of CentrePointe.  We’ll also use ERA’s estimated stream of future tax revenues.

Using a more conventional valuation of CentrePointe’s incremental taxes, they’re only worth about $25 million to the state, and an estimated $32 million overall.

In reality, the city and state would incur $50 million in public debt today for the CentrePointe TIF bonds, and only get back $32 million of that in future tax revenues.  CentrePointe TIF is a poor investment which loses $18 million for taxpayers.

And that is even before we look at the stability of CentrePointe’s overly-optimistic business model…

Business Model Assumptions
A distinct pattern emerges in ERA’s assessment [PDF link] of the CentrePointe project for the state. At numerous points throughout the document, ERA hedges: they express skepticism about some element of the project, but then use the developer’s assertions about the project as ‘proof’ of its ultimate viability.

How ERA evaluates CentrePointe’s million-dollar condominiums is typical of these hedges (we’ve added emphasis in red):

“ERA approaches new luxury condominium projects in 2009 with a healthy degree of skepticism. […] Bank financing for new condominium construction has seized up. There is a very high degree of uncertainty in residential markets, especially high-end condominiums, across the U.S.  And in recessionary times, introducing a luxury product where it has not been present before represents a considerable risk.

“However, there are two reasons for optimism in the CentrePointe Tower. First, the developers have pledged an all-equity transaction. This greatly reduces the risk that loans would have to be renegotiated in the middle of a deal, that payments would be missed, or that financing would be pulled at the last minute. While it does not eliminate all risks associated with financing, an all equity transaction greatly reduces the risks and complications of development in this difficult market.

“The second reason for optimism is that the developers have reservations for 64 units, out of 91. While a reservation is less a commitment than a purchase contract, this is still an impressive level of sales for this stage of the process. With two-thirds of units reserved before construction begins, the developers have demonstrated there is demand for these types of units.”

Both of the reasons for optimism that ERA cites come directly from the developer’s tenuous assertions.

The ‘all-equity transaction’ refers to the developer’s dead mystery financier, whom the developer had claimed was putting up cash (the ‘all-equity’ part of the transaction) to back the development. Last week, the developer admitted that he was forced to pursue more conventional financing.  Using ERA’s logic, this would greatly increase the risks to the project’s success.

The ‘reservations for 64 units’ refers to the handshake deals that the developer claimed for the old CentrePointe design.  As we have previously documented, 64 ‘reservations’ stretches the bounds of credibility in a market which only sold 10 million-dollar properties in all of 2008. And last week, the developer trimmed the number of condominiums in the new design from 91 to 63.

(Update: As Beverly Fortune notes, the numbers haven’t gotten better for million-dollar residential properties: Only 8 sold in Lexington in 2009, and only 5 have sold thus far in 2010.)

With both ‘reasons for optimism’ now rendered impotent, how would ERA evaluate CentrePointe’s condominiums today?

ERA’s skepticism extends to every other major part of the project:

Offices: “Estimated rents of $26 per square foot would be about $6 per square foot higher than the current highest quoted rate in the market – a number that may be difficult to achieve given current market conditions and may require some concessions.”

Retail and Restaurant: “ERA believes that $27 per square foot is an aggressive ask in this market, especially in downtown.”

Hotel: “With a first year ADR [room rate] of $175 and RevPAR [revenue per available room] of $103 at 53 and 45 percent higher than any comparable properties in the market at the end of 2008, these metrics may be optimistic. […] Projected hotel occupancy as well, is projected by the developer to be nearly 10 percentage points higher than the 2008 year-end average of 61.9 percent.”

In evaluating the entire project, ERA says

“Traditional bank financing would be extremely difficult, if not impossible, to secure for a project of this scale at a time like this. […] If the project’s equity financing remains intact and the investors are satisfied with the projected return, then ERA does not see a market barrier to feasibility of the project.”

How would ERA evaluate CentrePointe’s feasibility now that the ‘equity financing’ has fallen through?

Not well, we suspect.

::

We took the liberty of re-running ERA’s estimates with more realistic (but still quite generous) assumptions:

  • The developer estimated that he would spend about $250 million on the old CentrePointe design. While there are few specifics, he has used a figure of $200 million for the new design.  We adjusted construction spending down by 20%.
  • The developer assumed they could get higher occupancy levels (over 71%) even though they were charging 50% more per night than the Lexington hotel market.We adjusted hotel occupancy to market levels – a more reasonable 62%.
  • The developer has claimed to be able to sell two-thirds of their condominiums at the outset of the project. We adjusted expectations down to about 20% at the outset, and we never expect full occupancy of the 63 condos without drastic reductions in property price.
  • The developer assumes a $26 to $27 per square foot rate for its office, retail, and restaurant leases.  We’ve adjusted those assumptions down by about 20%. Such an adjustment still leaves these CentrePointe spaces as the highest rents in the Lexington market.

These adjustments to the CentrePointe business model have a number of economic ripple effects: Lower spending, lower sales, lower profits, fewer jobs created, lower quality of tenants, and lower tax revenues.

Using these more realistic assumptions, our estimate is that CentrePointe will generate incremental state and local taxes worth only $21.5 million ($16 million of that would go to the state, and the remaining $5.5 million would go to Lexington).

::

As long-time critics of the CentrePointe project, we hear a common counter-argument: that CentrePointe is a private development on private property and that we and our community leaders have no business questioning the project.

CentrePointe is a private development on private property.

But CentrePointe also has a number of externalities that make it of public interest. It would require significant public investment in new infrastructure and facilities to support the new development.

And while TIF projects are targeted to public improvements, the reality is that about half of the $50 million publicly-financed CentrePointe TIF projects would most directly benefit CentrePointe’s developer: the parking garage, sidewalks, pedways, and other infrastructure.

It is highly unlikely that the developer would go forward with the project without the public subsidy of these elements – despite his prior threats to do so.

A second TIF reality is that the public bears a disproportionate part of the risk of the new development: In return for putting up $50 million of our money today, taxpayers are promised an unreliable trickle of future tax payments over the next thirty years.

So despite what many of CentrePointe’s defenders – including Lexington’s mayor – say, CentrePointe’s TIF program does amount to a public subsidy of the private development of CentrePointe.

And when we apply a realistic analysis, that CentrePointe TIF subsidy is a truly awful investment.

In return for committing $50 million in new debt (and paying another $50 million in interest on top of that), taxpayers get a return of just $21.5 million.

Local government would lose almost $7 million on its $12 million investment, while the state would lose $21 million on its $37 million investment.

And despite the developer’s indignant none-of-your-damn-business attitude toward public inquiry on CentrePointe, it clearly is a public issue with public dollars at stake.  The CentrePointe TIF is little more than outright welfare for the developer and his project.

The CentrePointe TIF is a spectacularly bad public investment, and every attempt should be made to rescind the TIF approval.

The proposed redesign of CentrePointe should be a time for community leaders to rethink the community’s investment in CentrePointe.

At a time when our public budgets are under extreme duress, now is not the time to spend extravagantly on a wildly speculative private development such as CentrePointe.

No responsible business would make this kind of investment.  Our governments shouldn’t either.

The Tombstone at CentrePointe

Rob Morris 3 Comments CentrePointe , , , , , , ,

We last wrote about CentrePointe one year ago this week.

In Tangled Webb, we wrote about the folly of the CentrePointe development, capping a series of posts chronicling our growing skepticism about the downtown Lexington project’s financing and viability.

We then stopped writing about CentrePointe because there wasn’t much left to say.

Four months later, Business Lexington reprinted Tangled Webb, prompting an aggressive and condescending response from CentrePointe’s developer, in which he simultaneously attacked us, bloggers in general, and Business Lexington.  He asserted that we knew “little about commercial real estate development or the potential and viability of this project”.

Time would tell.

NewCP
New v. old CentrePointe designs

A New CentrePointe?
Yesterday, finally admitting that his financial backing had failed and that his initial design wasn’t viable, the developer submitted a smaller design for CentrePointe to the Courthouse Area Design Review Board (CADRB).

The new tombstone-shaped design (shown at right, superimposed over the older design) is 210 feet shorter than the one that the CADRB had previously approved.

The project still proposes a 237-room J.W. Marriott, along with office and retail space.  The upper tiers of the project would house 63 high-end condominiums (scaled back from the originally-proposed 91).

The developer asserts that “progress is being made” on “more conventional financing”.

What is the CADRB?
Within Lexington’s crazy-quilt of planning bodies and agencies, the CADRB is a five-person board commissioned by the Urban County Council to oversee a small portion of downtown called the Courthouse Area Design Overlay Zone.  The CentrePointe site falls within this irregularly-shaped zone.

In 2008, the CADRB approved the developer’s demolition of several long-neglected-but-historic buildings on the site – including Morton’s Row, which had some of Lexington’s oldest commercial buildings.  In June 2008, the CADRB approved an initial design for CentrePointe, issuing an “authorization permit” good for one year.  The CADRB  then approved a modified design again in November 2008.

On July 8th, 2009 the developers sought – and received – an early extension to their November 2008 authorization permit.   That third permit expires less than 30 days from today.

The Overlay Zone is intended to “encourage growth and redevelopment in the downtown area, while preserving and protecting the unique features and characteristics of the area.”  As outlined in its bylaws, the CADRB has 5 mandates:

  • promote those qualities in the environment which bring value to the community;
  • foster the attractiveness and functional utility of the community as a place to live and work;
  • preserve the character and quality of Lexington’s heritage by maintaining those areas which have special historic significance;
  • protect investment in those areas;
  • raise the level of community expectations for the quality of its environment.

Since initial approval, the CentrePointe site has been, by turns, a pit of rubble, a dust bowl, a pond, and, now, a horseless horse pasture with huge signs heralding how CentrePointe is “Coming Soon”.

By issuing demolition and construction permits for the CentrePointe site, the CADRB failed on every one of its own mandates.  The development has failed to bring value to the community.  It has failed to deliver the promised 900 jobs.  It has failed to preserve the character and quality of Lexington’s heritage.  The fantastical proposal never had the right scale or proportion for the Overlay Zone. Along every dimension, CentrePointe has been a collossal failure.

In light of that multidimensional failure, now is the time for the CADRB to take corrective action.

New design, same old problems
NewCP2While scaled back in height, the new ‘Pointe-less’ design for CentrePointe is no less problematic than the old one.  It fails to address some of the project’s deep, long-standing flaws. These include:

Financing: While the developer asserts that progress is being made on new funding, this is actually a step back from previous assertions that funding was already in hand.  On June 4th, 2009, the developer assured the Lexington Forum that he had two ready sources of funding if his dead mystery financier’s estate didn’t come through.  Yesterday’s application for extension made it clear that those sources failed as well – if they ever existed at all.

Capital flows to the most promising investments, even in a difficult economic environment.  The fact that the developer has yet to secure funding for CentrePointe speaks volumes about its quality as an investment.

Business Model: The developer has continually asserted that he has a ready list of tenants for the property.

But there are enough problems with his business model assumptions to call the viability of the entire project into question.

  • Analysts hired by the developer assumed that the J.W. Marriott hotel could achieve higher occupancy rates – at start-up – than surrounding hotels even though the Marriott would charge 50% higher room rates.
  • While the number of million-dollar condomimiums has now been scaled back to 63, that is still far too many for the Lexington market to absorb (when only 10 million-dollar properties sold in all of Lexington in 2008).
  • The one retail prospect that the developer has named as ‘interested’ in the project wasn’t really that interested.

Vague Assurances & Broken Promises: The developer has offered many claims – but little substance – with regard to the project’s viability.  He has repeatedly decommitted from previous promises.  When challenged, the developer usually responds by playing either victim or bully – and, sometimes, both at once.

It is time to openly challenge the developer’s overreaching claims and blithe assurances.

Scale: CentrePointe’s proposed tower has never had the appropriate scale for the historic character of the Overlay Zone.  The CADRB’s approval of the initial designs and subsequent re-approvals were mistakes.

Now is their chance to undo those mistakes.

Accountability for CentrePointe
Before issuing a fourth permit, the CADRB needs to require the kinds of accountability for this iteration of CentrePointe that was missing in the project’s earlier phases.

They have a responsibility to ensure that our community does not end up with – in the words of former Councilmember Don Blevins Jr. – a “vertical Lexington Mall”.

When the developer presents CentrePointe’s new design to the CADRB on June 30th, the board should do the following:

Ask the tough questions.  Especially the ones which weren’t answered the first time.

  • Does the developer have financing in hand, or is he just ‘working on it’?
  • What, exactly, happened to CentrePointe’s previously ‘rock-solid’ financing?
  • Can the developer really build the design being considered?
  • What is the business model for this property?  Will that model really work?
  • Is this design really consistent with the unique character of our downtown?

Require documentation.  Don’t accept the developer’s word at face value.  His proven inability to deliver on previous promises mean that he should be required to document the stability of his financing and his business model before any design is approved.

Rethink prior approvals. As mentioned above, the CADRB made a mistake by approving the old design of CentrePointe.  Don’t just rubber-stamp the new ‘tombstone’ design.  Make sure it works with the surrounding community.

The Overlay Zone exists for a reason.  On June 30th, The CADRB should fulfill their duty to ensure responsible economic development within the Zone which preserves the unique character of our downtown.

The old design of CentrePointe didn’t do that.

The new one still doesn’t.

The CADRB should reject the application for extension.

It is time to put a stop to the empty promises.  It is time to stop enabling this kind of overreaching incompetence.  It is time to end the delusional fantasy of CentrePointe.

The Limits of Local

Rob Morris 10 Comments Ideas, Local ,

I am a strong proponent of ‘buying local’ – purchasing goods and services from local businesses to boost the local economy.  I made a case for Local First in our recent To-Do List for Lexington series late last year.

PB080070But I’m not a local ‘purist’.  There are times when buying local is just not practical.  And there are times when non-local competition creates a healthy diversity for local consumers (and providers).

So a recent Twitter discussion and this blog post got me thinking about the limits of ‘local’.  The tenor of these conversations was that a candidate for Lexington mayor [one that I personally support, by the way] was ‘disloyal’ to Lexington for using a Washington, D.C. firm to design the campaign’s temporary website.

These discussions echoed several earlier ones about the purchase of non-local services by our city’s government.

For me, the discussions raised an important question about buying local, especially with regard to public dollars and public figures:

Should buying local goods and services be a requirement or an aspiration for a political candidate?  For a local government?

The indignation of the writers seemed to imply that buying local goods was some sort of requirement – some sort of ‘litmus test’ for determining whether a candidate was good enough to run.

From my perspective, this line of thought leads to unreasonable conclusions about what disqualifies candidates (or what constitutes good governance).  For instance:

  • They can’t shop at Walmart.  Or Kroger.  Or Best Buy.  Or Home Depot.
  • They can’t eat at Chick-Fil-A.  Or Qdoba.  Or Five Guys.  Or Bonefish.
  • They can’t drive a Toyota.  Or a Ford.
  • They can’t drink Coca-Cola.  Especially the imported Mexican Coke with real cane sugar.
  • They must only drink Bourbon produced in Fayette County.  (And wait a few years until it is actually available.)
  • They can’t update their blog with an HP or Dell laptop.
  • They can’t tweet with their iPhone.  Or BlackBerry.  Or Droid.
  • They can’t watch TV produced in Hollywood.  Or New York.
  • They can’t use Microsoft Office.  Or Adobe Acrobat.
  • They can’t use Facebook.

In short: They can’t use any product or service which contains any non-local content.

Is such a list of prohibitions ridiculous?   Of course.

And that’s precisely the point: Requiring some sort of ‘purity’ in local purchasing creates an excessive, unreachable, and unproductive standard.

Buying local should be an aspiration – something we strive for, something we measure and attempt to improve, something we do more of.

Do we need our city, our political candidates, and our citizens to buy more local goods and services?  Should we actively encourage more purchasing at great local spots like Fáilte (profiled by Tom Eblen in yesterday’s Herald-Leader)?  Absolutely, on both counts.  That was why I wrote my original Local First post.

We should spend more of our money here in Lexington.  But forcing our city to spend all of our money here would stifle Lexington’s economy, and restrict us from being truly productive.

So let’s adopt a reasonable posture aimed at encouraging our leaders to buy local.

To-Do List for Lexington: Postscript

Rob Morris 0 Comment Local, Personal , , ,

(Part of the To-Do List for Lexington series.  Click here for an overview and links to the rest of the series.)

Every night we go through the same routine.

IMG_3925 After he takes his bath and gets his pajamas on, we go to his room.  I sit in the recliner, and he clambers up into my lap.  We pull a book from the shelf – the books are getting longer now – and I add a bit of vocal drama as I read to him.

His little brain absorbs everything – pictures, sounds, words.  He asks lots of questions now, too.  We finish the book, and place it back on the shelf.

I pick him up, and we say good night to mementos from his young life, scattered about the room.  It started with 2 or 3 items after finishing Goodnight Moon, but has steadily grown to a list of 13 things: a stuffed polar bear and penguin from his great-grandmother, a huge stuffed giraffe, and an array of other objects from around the room.

I take him down the hall to say a final good night to Mommy, and we go back to his room.  I sit back in the recliner as he turns out the light, and we find each other in the darkness.  I pull him up into my lap, and give him a little water to drink.  I tell him “that’s enough”, and place the cup back on the shelf.

I pull him up onto my chest, and he places his head on my shoulder.  After a few seconds of silence, I tell him I love him in Spanish: “Te amo, Carson” and he responds “te amo, Daddy”*.  He’s starting to get tired now, and his words are slurring slightly.  I then quote from one of my favorite baby books, and he matches my cadence shortly after I start: “I love you through and through – yesterday, today, and tomorrow, too.”  Then, “I love you, Carson” followed by a barely audible “I love you, Daddy”.

I hold him tight.  In the darkness, silent except for our slow breathing, I feel the twinge of nostalgia for this moment.  He turns 3 this week.  He’s growing so fast, and it won’t be too long before he needs to be independent from hugs and kisses from his dad.  It won’t be long before we won’t experience this kind of closeness.

My mind wanders a bit as I ponder our future, his future.  I am holding so much potential in my arms.  What kind of world will he inherit?

I get up from the recliner and place him in his bed.  I tuck him in with three more stuffed animals, and kiss his forehead.  He stirs a bit to get comfortable, and I leave his room. “Good night Carson.  I love you.  See you in the morning.”

::

I often get asked why I speak out so much on this blog – especially during this To-Do List for Lexington series.  Behind the questions are a variety of thoughts about my motives:

  • Some folks think that I must have an enormous ego, and that I believe that I have all of the answers.
  • Others think that I must be preparing to run for elected office, and these posts are part of some sort of political platform.
  • Some people – including members of my family – think I’m just crazy.

They’re all wrong.

I may or may not have a huge ego, but I don’t assume I have all of the answers.  I am perfectly willing to engage in democratic debate on these ideas.

I don’t have the time or patience to devote to political office.  I’ve seen the demands on elected representatives, and the kinds of people they deal with day-to-day.  This isn’t a political platform.  (Not for me, anyway.)

And, I’m not crazy.  Well… at least as far as my motives behind my writing.

The underlying assumption most folks have is that there is huge risk to speaking out, especially when addressing powerful interests in our city.  I could scare away customers.  The powerful could make life more difficult for me or for my family or for my employees.

And those risks may or may not be real.

But there is an even greater, very real risk in not speaking out, in being quiet.

There is the risk that we pursue the wrong kinds of economic development.  There is the risk of wasteful spending in the face of economic crisis.  There is the risk of choking off our city’s downtown.  There is the risk of further stagnation in the local economy.

There is the risk that Lexington loses what makes it a special place to live and work – that Lexington becomes less than it should be.

I find that those risks to our future far outweigh the risks of speaking out.  I would be ‘crazy’ to remain silent.

::

I want Lexington to be special.  I want it to be a vibrant, exciting, growing kind of place that my son can stay in and prosper.  I want Lexington to be better.  And I hope that you do, too.

That is why I speak out.  That is why I hope you will join me.  Let’s craft a better future for our city.  For ourselves.  For our children.

I love you, Carson.

LowellsSquare

* I know that “te amo” is usually reserved for romantic love, and that “te quiero” is probably more appropriate, but this habit was ingrained before I caught my error…  We’ll fix it later.

To-Do List for Lexington: 9. Do!

Rob Morris 2 Comments Local , , , , , ,

(Part of the To-Do List for Lexington series.  Click here for an overview and links to the rest of the series.)

Checklist Throughout this To-Do List series, we’ve talked about the kinds of things we need to do to make Lexington a better city, especially with regard to improving our city’s economic development.

In Get Real, we talked about the need to curtail boosterism – the compulsive promotion of our city at the expense of real, substantive economic initiatives.  Lexington needs to get a lot more realistic about what kinds of civic activity drive true prosperity.

We talked about promoting growth at home as the best way to attract new growth from the outside in Stop Seeking Saviors.  Rather than spending huge, speculative amounts to draw in new firms from outside the city, Lexington should target spending on growing its economy from within.

We talked about the multiplier benefits of buying products and services from local providers in Local First.  Lexington should prioritize local purchasing, development, and investing in order to supercharge its growth.

In Embrace Openness, we talked about the need for our city to adopt an open approach to serving citizens, including open access to data about our city.  Lexington should find new, more transparent ways of serving and communicating with its citizens.

We talked about how to grow, keep, and attract educated talent – talent which is currently bleeding from Lexington – in Leverage Intellectual Capital.  We must find ways to keep experienced and specialized workers – who contribute enormously to our economy – in our city.

We talked about taking advantage of Lexington’s uniqueness – including the promise of the Distillery District – in Be Original.  We must leverage that uniqueness to make Lexington a city worth visiting and worth living in.

We talked about the need for intermediate-term strategic planning as a way to connect action to vision in Plan Well.  Lexington must make thoughtful, strategic investments with its public dollars.

Then, in Demand Accountability, we talked about how good initiatives get derailed and about how we must step up to make our leaders – and ourselves – responsible for keeping such initiatives on track.

While the list covers a lot of ground, it isn’t comprehensive by any means.  For instance, we didn’t delve into the importance of the arts in our community.  We didn’t talk about becoming more environmentally responsible, and building a sustainable Lexington.  We didn’t talk about how to improve conditions for Lexington’s poor.

Our To-Do List for Lexington isn’t complete.  We’ll continue to add to it in the months ahead.  There’s a lot more to talk about…

But it is time to stop talking.  Stop complaining.  Stop whining.  Stop planning.  Stop theorizing.  We need to shift from analysis to execution.  This is a To-Do List, not a list of discussion items.

Lexington must start to do these things.

We need to ensure that leaders from across the community understand and implement these principles.  If they disagree, that’s fine, but they need to articulate why they disagree in open, democratic debate.

And if they don’t, we need to get new leaders.

We need to commit our time, money, and effort to applying these principles for the betterment of our community.

We need to go build a prosperous, beautiful, livable city.  We need to go make Lexington better.

Who’s in?

Next: Postscript

LowellsSquare

To-Do List for Lexington: 8. Demand Accountability

Rob Morris 2 Comments Local , , , , ,

(Part of the To-Do List for Lexington series.  Click here for an overview and links to the rest of the series.)

Why don’t more good things happen?

Throughout my career, I’ve had the all-too-frequent opportunity to observe how things don’t work out – in academics, in business, and in local politics.

A good share of the blame resides with ‘bad actors’ – folks who gum up the decision-making process and derail worthy initiatives.  For fun, I’ve begun a typology of these people.

  • There’s the Smug Know-It-All, who pretends to have all of the answers, and therefore doesn’t need or seek input from experts or the public.  The Smug Know-It-All just wants to be ‘right’.
  • There’s the Intentionally Clueless, who lacks sufficient information or sound principles for making strategic decisions, and who instead makes those decisions based upon personalities of the people involved.  The Intentionally Clueless just wants to be liked.
  • There’s the Do-Nothing, who struggles mightily to rationalize the status quo, and who hunkers down and defers decisions in the face of any initiative which promises change.  The Do-Nothing just wants to avoid doing anything.
  • And, there’s the Obstructionist, who actively blocks initiatives by constructing elaborate hurdles for an initiative, often by invoking process-related parliamentary maneuvers.

B2sstonewallweed001What is common to all of these bad actors is an unwillingness to enter into an open, rational, democratic debate on an initiative’s merits.

Notice that none of these folks are engaged in solving problems.  Instead, they pour their energy toward squelching debate, often by exhausting or diverting their opponents’ ability to continue the fight.

Attend an Urban County Council session – or watch one on GTV3 – and it is surprising to see how many of these bad actors are on the council or work for city government.   We were able to see versions of all of these bad actors on display during the Parsons Affair, when the council decided whether or not to bond the Distillery District.

Throughout Lexington’s leadership, we can see these bad actors.  We see them among our elected representatives, among public employees, in publicly-supported agencies (like Commerce Lexington or the Downtown Development Authority), and in local businesses.

More troubling, we see this behavior among our own citizens – amongst ourselves.  We know it all.  We remain clueless.  We do nothing.  We obstruct. 

We are the bad actors, too.

If we are to build a better Lexington, we must declare such behavior
unacceptable.  Then, we must make bad actors answer for their actions.

Lexington must demand accountability.  From its leaders.  And from its citizens.

::

How do we begin to make good things happen in Lexington?

By making Lexington’s leaders and citizens accountable for doing good things.  Reward them when they do the right things; punish them when they don’t.

Sounds simple, doesn’t it?  But what, exactly, do we do?  How do we really demand accountability?

Here’s a partial list of what I think we need to do.  I hope you will expand on these ideas in the comments below:

  • Speak up.  Let your representatives, neighbors, friends, and fellow citizens know what matters to you.  Write letters.  Make phone calls.  Send emails.
  • Show up.  Make time to attend council meetings or local neighborhood meetings, especially when they address issues which matter to you.
  • Inform yourself.  Find out what is happening in our city.
  • Join together.  Actively look for people with similar viewpoints, and unite your voices.  One voice is too easy to ignore; a movement is not.
  • Campaign.  Fight for your causes, and recruit others to them.  Lobby for your point of view.
  • Call ’em out.  When you see bad actors squelching public discussion, don’t let them get away with it.  Call out their anti-democratic behavior for being anti-democratic.  Make them think twice before they do it again.
  • Vote ’em out.  When representatives, public employees, organizations, or businesses continue to act in bad faith, deprive them of what they need most: Votes, jobs, or funds.
  • Persist.  Bad actors are betting that you’ll give up.  Make them lose that bet.

Gandhi urged us to “be the change you wish to see in the world”.  William Johnsen offered this pithier 18th-century version, in 10 two-letter words: “If it is to be, it is up to me.”  Both of them recognized that real, productive change takes place when we stop waiting for someone else to fix things.

If Lexington is to reach its full potential – if we are to build a better, more livable, more prosperous city – we must demand accountability from our leaders and from ourselves.  Especially from ourselves.

Next: 9. Do!

LowellsSquare

Be Original. But Be Smart, Too…

Rob Morris 3 Comments Local , , , , ,

(A fun little break from our To-Do List for Lexington series.  Click here for an overview and links to the rest of the series.)

Yesterday, we asked readers to support a $3.2 million bond issue for Lexington’s Distillery District, which includes much of Town Branch Trail.

As part of the same post, we called for Lexington to “be original“.

But we didn’t expect so much originality so soon.  And we didn’t expect it to be so completely inept…

::

As we mentioned yesterday, the Urban County Council is in a financial pinch.  And it was deciding what projects to issue bonds for, including the ever-growing bill for South Limestone streetscape construction (now at over $17 million) and early 2010 streetscape projects on Main, Vine, and Cheapside, totaling $12.7 million.

Ddimage024 At $3.2 million, the Distillery District bonds were relatively small, and the Distillery District was the only bond project which would provide infrastructure to spawn new jobs and new revenue – meaning that it was the only initiative which could provide taxpayers a return on their investment.

This return on investment is a principal feature of tax increment financing (TIF) projects.  Public funds are made available to such projects as those projects generate tax revenues back to the city.

Roughly two-thirds of the Distillery District’s bond would go directly for public improvements for direct public benefit – building out the Town Branch Trail and improving pedestrian access throughout the district.  The rest would go for researching road and utility improvements along Manchester Street (the District’s primary corridor).

::

An hour before the council met yesterday, councilmembers were sent an ominous memo [PDF link] from a former counsel (attorney James Parsons) who formerly advised LFUCG on the TIF process.

The last-minute memo appears to be a very deliberate misreading of the Distillery District request.

It creates the incorrect impression that the developer (Barry McNees) could simply pocket the bond funds and leave the city in the lurch.  As mentioned above, most of the funds would go directly toward civic infrastructure improvements, not the developer’s bottom line.  And the remaining funds would go toward research and design initiatives – also not the developer.

And the memo is plain wrong on the developer’s ability to start the project – The Distillery District already has one active, successful entertainment venue (Buster’s) which employs over 30 people and, in just a few months since opening, has drawn 10,000 fans from across the region.  Other, smaller businesses are already in place, too.  And McNees has a letter of intent from a major investor to start a new distillery in Downtown Lexington.

In total, the Parsons memo appears to intentionally mislead the council on the magnitude of “dangers” associated with the project – It appears to be a blatant scare tactic designed to squelch the Distillery District.

Good News, Bad News
The good news is that the council saw through the transparent attempt to derail a worthy project.  The bad news is that they only partially funded the request (about $2.2 million).  The council narrowly (6 to 5 vote) missed approving the entire $3.2 million request.

But the Parsons affair raises a number of troubling questions:

  • Why was the former TIF advisor weighing in on this project?
  • Why did he so badly mischaracterize the project?
  • Were taxpayer funds used to craft this diversion? (If so, this taxpayer wants a refund.)
  • Who requested Parsons’ input?  Why?
  • Was Parsons directed to magnify the potential dangers to the project?  Again, by whom?
  • And where was this alarmist “DANGER, DANGER!” attitude toward TIF while Mr. Parsons was advising LFUCG on CentrePointe?

The broader question is this: Who wanted to derail the Distillery District so badly that they used such a transparent, ham-handed approach?

::

When we called for Lexington to be more original, we wanted that originality to be smart, too.  The Parsons memo was certainly “original”.  Smart?  Not so much.

LowellsSquare

To-Do List for Lexington: 6. Be Original

Rob Morris 3 Comments Local , , , , , ,

(Part of the To-Do List for Lexington series.  Click here for an overview and links to the rest of the series.)

Quick!  Think of a city you love (outside of Lexington).  Really savor that mental image.  Let your positive thoughts run for a bit.

Got it? OK.

If you’re like most folks, when you think of your favorite city, you think of one (or a combination) of a few key types of memories:

  • Places.  You remember neighborhoods, buildings, parks, alleys, establishments, etc.
  • History.  You remember important things that happened there.
  • Products.  You remember things that they have or that they produce there.
  • People.  You remember who you met and how they treated you there.

I have the wonderful affliction of loving nearly every place I visit – but always for different reasons.

I loved crawling through the historic back alleys (and patronizing the restaurants and bars) of Boston’s North End.  I had the fortune of being there in a little Italian restaurant while Italy won the World Cup in 2006.  I remember the flags, the honking, the cheering, the flavors and smells…

I loved going to Tokyo with a couple guys I worked with in my last job, and visiting the temples at Asakusa and seeing the bewildering variety of Japanese people at the temple and at surrounding neighborhoods and markets.  In one of those inexplicable cultural moments, I remember 3 separate families awkwardly approaching me to take pictures with their sons (and giving me their sons’ “business card” afterward).

I love Portland.  I love Austin.  I love Boulder.

More than anything else, I love the utter originality of those cities’ places, history, products, and people.

But Lexington is the city I chose.

::

Our city leaders often go on tours of “model cities” which Lexington might be able to learn from, including Boulder, Austin, and Madison.  In the process, they see many unique things to love about those cities.

But too often, rather than focus on what original qualities Lexington should leverage, our leadership focuses on what those cities have that Lexington does not: “If Madison has bike trails, so should we!”  (No, I’m not opposed to bike trails; I am opposed to the mindless parroting of other cities’ actions.)

Lexington must be original.

What impressions do we make on people when they visit Lexington?  What impressions do we make upon our own citizens?  What unique experiences do we create?

Here are a few which jump out at me.  I’m sure there are more I missed.  (Add your own in the comments below!)

There are the memorable places like no other – Keeneland, Ashland, Gratz Park, the UK campus, the Transy campus, Victorian Square, and the downtown pasture at CentrePointe, just to name a few.  (OK, I’m joking on the last one.)  I love the North Limestone neighborhood that Lowell’s is privileged to be a part of.

There are the memorable histories of Henry Clay, Town Branch, the East End, and the Carnegie Center.

There are the memorable world’s-best products – basketball, Camrys, horses, and bourbon.

There are the incredible people of our city – smart, thoughtful, hard-working, and funny.

When we’re looking to influence how people – tourists, visitors, job applicants, investors, business owners, our own citizens – view our city, we need to amplify our best assets.

And, when we are presented with the rare opportunity to leverage all four memorable assets  – original places, original history, original products, and original people – at the same time, we must jump on those opportunities.

Oldtarr2 Right now, we have such an opportunity with Lexington’s Distillery District and Town Branch Trail. Many people still don’t know that Lexington even has a Distillery District, so I’ll offer a brief overview.  On Manchester Street, there are several old, historic, and distinctive distillery buildings and warehouses which were last used last century to make bourbon in downtown Lexington.  They used the water supply from nearby Town Branch, a stream which used to run through the center of Lexington, but is now buried under Vine Street.  Several of Lexington’s best and brightest people want to transform the largely abandoned district into a vibrant neighborhood with entertainment, arts, shops, restaurants, and – for the first time in nearly a century – distilling.  Businesses are already beginning to open in the district, and one – Buster’s – is an entertainment venue which is already attracting notable new talent to Lexington.  The Distillery District would also be the starting point for Kentucky’s Bourbon Trail.

This afternoon (at 4 PM), Lexington’s Urban County Council is voting on whether to issue $3.2 in infrastructure bonds for the Distillery District.  Issuing the bonds would not be a handout – the funds would be reimbursed through taxes on the new commerce that takes place within the District.  Also, the funds would be released incrementally – as new commerce takes place, more funds would be available for needed infrastructure improvements.

Ddimage027 The bonds would be used to create parts of Town Branch Trail (a greenspace and walkway along historic Town Branch), to improve pedestrian access along Manchester Street, and to look at how to improve utilities, roadways, and streetscapes along Manchester as well.

Lexington is in a financial pinch at present, and there are many on the council who just want to “wait a while” for things to get better in the economy.  The trouble with waiting is that – often – waiting turns into permanent deferral, and projects never get done.  Unlike CentrePointe – of which I have been highly critical – the Distillery District has active businesses and active investors who are ready to utilize the improvements that this bond offers.  These businesses are poised to contribute far more than $3.2 million back to our city’s coffers over the coming years.

::

Lexington has the all-too-rare opportunity to create a unique place in our city – the kind of place which ultimately would stand next to Keeneland, Gratz Park, and Ashland as one of Lexington’s “signature” locations.  We should leverage our our originality – our unique and memorable places, history, products, and people – to craft a better Lexington.

That’s why we should support the Distillery District, even in difficult financial times.

Let’s be original.

(This post is awfully late in getting up – If you don’t have time to contact your council person prior to their 4 PM vote, please do take the time to see how they voted.  And remember that for the next election.)

Postscript: The backroom intrigue as the council vote approached.

Next: 7. Plan Well

LowellsSquare

To-Do List for Lexington: 5. Leverage Intellectual Capital

Rob Morris 4 Comments Local , , , , ,

(Part of the To-Do List for Lexington series.  Click here for an overview and links to the rest of the series.)

Lexington is losing its minds.

At 100,000 strong, Lexington’s college graduates represent approximately one-third of the population over 25 [Source: US Census Bureau, American Community Survey, 2006 and 2008].

The University of Kentucky and Transylvania University churn out over 6,000 new graduates – including over 4,000 new bachelor’s degrees – each year.  With 4,000 new degree-holders per year, Lexington should have increased this talent pool from 100,000 in 2005 to about 112,000 in 2008.

But we didn’t.

Instead, even as Lexington’s overall adult population grew by 9,000 in that 2005 to 2008 period, the number of college graduates remained stuck at 100,000.  (For comparison purposes, Louisville grew from 191,000 college graduates in 2005 to 202,000 in 2008 – growth of 5.7%).

Somehow, 12,000 graduates have slipped from our economy – far more than can be explained through normal attrition (retirement, death, etc.).

The explanation: Educated talent is leaving Lexington.  We suffer from a “brain drain”.

::

In recent years, it has become fashionable for Lexington’s leaders to talk about attracting the “creative class” to Lexington.  Coined by Richard Florida, “creative class” refers to professionals who work in knowledge-intensive industries, and Florida’s theory is that this group of professionals drives economic development in “creative cities”.

When our leaders talk of the creative class, they frequently focus on diversionary amenities which will attract young creatives to our city – entertainment, events, and facilities which will make life in Lexington more enjoyable outside of work.

While not entirely misguided, the problem with this approach is threefold:

  1. It confuses cause and effect.  Is this creative environment really the driver of economic prosperity in American cities?  Or, more likely, are they the result – the pleasant side-effect – of a prospering economy?
  2. The flagrant boosterism which permeates Lexington’s attempt to attract new talent often comes at the direct expense of retaining the talent we already have, as Steve Austin ably points out.
  3. It assumes that the creative class is something ‘out there’.  Lexington already has a creative class.  And we must cultivate it here first.

Instead of focusing on amenities, Lexington should focus on crafting a vibrant economic engine which will keep the educated talent our city produces and which will create real demand for those amenities.

::

Who’s leaving?

When we see that Lexington has lost 12,000 college graduates in 3 years, our impulse is to look for an exodus of newly-minted degree-holders, and to start thinking about what we could do to retain our newest, youngest graduates.

And while the loss of a departing new graduate’s energy, potential, and future is certainly tragic, there is an even-more-profound tragedy which Lexington must actively address: the loss of the experienced employee.

When experienced employees with college degrees leave Lexington, they injure our economic engine far more than a young graduate.  Experienced employees represent significant investments in training, dollars, relationships, know-how, and, well, experience.

In aggregate, these experienced employees are vast pools of expertise which create enormous economic advantage for Lexington.  They have more income than recent graduates.  They provide more tax revenue.  They have higher property values.  They spend more money in the local economy, which creates more local jobs.  They tend to add more value to their companies.

This is the primary reason I have been so publicly critical of Lexmark’s implosion.  Every few quarters, Lexmark announces fresh rounds of layoffs and “restructuring” which shed dozens or hundreds of local employees.  Many other employees have left of their own accord.

Seeking employment which can utilize their expertise, these folks often leave Lexington.  Many who remain in Lexington are underemployed.  When so many highly-trained experts in engineering, software development, logistics, and marketing leave our city, it is an enormous hit to the local economy.

Lexington must find ways to solve this exodus of talent (in both new graduates and experienced employees).  We need to be creative in how we grow, keep, and attract smart people.

Lexington must leverage its intellectual capital.

::

How do we grow, keep and attract smart people?  We need to start by helping to create new local jobs.

There is a common misconception that all job growth in the US comes from small businesses.  But business size isn’t the determining factor; business age is.  The Kauffman Foundation found that all job growth in our country comes from young businesses (regardless of their size).  Entrepreneurial ventures founded in the last 5 years drove all job growth in our nation’s economy.

When we think about entrepreneurship, our focus is often (again) on our younger generations.  We are drawn to stories of Gates, Jobs, Dell, and Zuckerberg launching wildly-successful ventures from their dorm rooms or garages.  They came so far from such modest beginnings.  In Lexington, we see this youthful energy and creativity exhibited in Awesome, Inc. (who are awesome, by the way), a local business incubator.

They make really compelling stories.  But the meteoric rises of Microsoft, Apple, Dell, and Facebook are so compelling precisely because they are so rare.

And they misrepresent the realities of the entrepreneurial world.

In another counterintuitive study, the Kauffman Foundation found that older, more experienced workers actually start new businesses at higher rates.  Other studies have found that the vast majority of technology startups are founded by people 35 or older.  And where do many of those older entrepreneurs come from?  Often, from large corporations.

So how do we create new jobs in Lexington?  How do we keep and attract members of the “creative class”?  How do we stem the bleeding of expert talent from our city?  Here’s a starting list for leveraging our intellectual capital.  I hope you will add to it:

1. Fuel the entrepreneurial engine.  From experience, I can tell you that starting a business is daunting hard work.  There is the bewildering array of legal and tax implications.  There are a variety of financial hurdles.  And, unless you’ve done this sort of thing before, there is a ton of on-the-job learning about what you don’t know about starting a business.

Lexington (LFUCG and Commerce Lexington) should strive to streamline the start-up process far more than they do today.  Our city should embrace entrepreneurs as they seek to create new jobs for our economy.

We should help them flatten the usual barriers to getting a business started.  We should provide forums for getting enrepreneurs connected with other talents and businesses which can assist them in the setup and growth of their businesses.  We should give them open access to critical business data about our city.  We should give them some amount of preference in local bidding contracts.  We should provide them with essential training in operating their businesses (e.g., If they are brilliant engineers, that doesn’t always mean that they are brilliant marketers or financial analysts).

When possible, we could even provide them with financial support or space (such as setting them up in the plentiful space available in Lexington’s Distillery District).

In short, Lexington needs to foster the conditions under which entrepreneurs can create jobs.

2. Grow our pools of expertise.  Our mayor frequently talks about how Lexington’s 3 H’s (Horses, High tech, and Healthcare) form the foundation of our city’s economic development strategy.  Those sectors may be the right ones to leverage going forward.

But when we think about stopping our exodus of talent, we need to think in more flexible terms than specific industries.  A supply chain manager leaving Toyota has a unique skillset (how to get things made overseas, optimizing inventory, logistics, etc.) which can carry over to a variety of other – not necessarily high-tech –  industries.  A marketer leaving Lexmark has a vast array of experiences with retailers, ad agencies, design firms, and product strategy which could be redeployed to, say, UK Healthcare.

In addition to choosing strategic industrial sectors, we should also choose strategic, functional areas of expertise that we can tap into as one industry wanes and another expands.  Some ideas? Supply chain, marketing, sales, engineering (multiple types), software development, etc.  (Add your own in the comments below.)

Not every employee currently leaving Lexington will want to become an entrepreneur.  But nearly every one wants a job.

As companies like Lexmark shrink, Lexington should seek to actively funnel their fleeing employees to growing local enterprises like Alltech, UK Healthcare, HP’s Exstream, or some new entrepreneurial venture.  We should inject some “liquidity” into the local job market, so that finding local opportunities is an easier, more streamlined process.  When we learn of new layoffs, our city should mobilize to keep that valuable talent local.

We shouldn’t allow employees, especially experienced ones, to leak from our economy.

3. Coordinate and amplify existing efforts.  Today, we have a patchwork of agencies and institutions which have missions to grow Lexington’s economy and provide jobs.  We have one person working on economic development in the Mayor’s office.  Commerce Lexington is given tax dollars to help produce new jobs, but is unable to show that they have actually created any.

We should coordinate such efforts in a more strategic, consistent, coherent, and effective way.  We should designate a person or an agency who has accountability for results – especially for job growth in our city. That entity should also have responsibility for fueling our entrepreneurial engine and for growing our pools of expertise.

And then – and this is really important – we must hold them accountable for the results they get.

::

The loss of 12,000 educated Lexingtonians shows us that our city needs to work hard to grow, keep, and attract talent.  If we create the mechanisms to create new entrepreneurs while simultaneously magnifying our existing expertise, our economy should have the raw materials to begin growing again.

Next: 6. Be Original

LowellsSquare