Community Development Applied Research Seminar Series
April 8, 2010
Like mom and apple pie, building a green economy sounds like something all Americans would support. Who wouldn’t want economic development with the added virtue of environmental friendliness?
Still, it may be unrealistic to expect that we can have it all. Economic transactions always imply tradeoffs, so it may be that one person’s green project is another one’s pink slip.
The Federal Reserve Bank of Cleveland is interested in helping evaluate policies that can achieve green goals while also providing a lift to the economy, or at least making it no worse off. Toward that end, on April 8, 2010, the Bank hosted a seminar on Green Recovery as part of its Applied Research Seminar Series. Some of the nation’s leading researchers joined with on-the-ground practitioners to discuss the role of the environment in urban economic development.
The Green Revolution in Building: Private Interests and Public Purposes
John Quigley, University of California, Berkeley
Perhaps you have driven past a new office complex that touts itself as “Green” and wondered—so what? Well, it turns out that the green revolution in building is a pretty big deal. Buildings account for 40 percent of our consumption of raw materials and energy. More than half of all wood not burned is used in buildings. About a third of all greenhouse gas emissions can be traced directly to what goes on in buildings. And occupants of buildings themselves have an incentive to pay attention to energy usage, as almost 10 percent of their costs go to energy.
Quigley, the Donald Terner Distinguished Professor of Economics at UC Berkeley, said that the profitability calculation for investing in a green building tilts toward doing it: Environmentally sound buildings are likely to result in savings by virtue of using fewer resources, insuring against future energy price increases, and the ability to charge higher rents. This can increase the economic life of buildings, reducing depreciation—helpful qualities on any corporation’s balance sheet. Examples of features that are part of the green-building certification process include: wood from local sources; low–fume paint; more windows (to provide more natural light), and; solar panels.
But are these expected financial benefits significant? Quigley studied the economics of green buildings in comparison with otherwise identical but not green buildings. The aim was to control in a systematic way the characteristics of the properties under study and then identify potential sources of savings.
In his sample, Quigley found that rents for green buildings are indeed higher—by 2 percent to 3 percent, or as high as 9 percent when factoring in the impact of higher occupancy rates. Green buildings also fetch 16 percent more than their non–green counterparts when sold. “If this is correct, it suggests substantial economic returns to investing in green buildings,” Quigley said.
The implication is that green building investments are not only doing good for the environment, but doing well by the investors. The average non–green building in Quigley’s sample would be worth $5.5 million more if it were converted to green. To date, however, much of this activity is taking place in California, so implications of the research for Northeast Ohio are less straightforward, especially if we are not willing to assume that consumers place the same value on green buildings across geographies.
Estimating Homeowners’ Demand for Improved Water Quality in Lake Erie
Elena Irwin, Ohio State University
Can cleaning up Lake Erie increase home values in Northeast Ohio? That was essentially the question that Elena Irwin tackled in her study, as part of a broader research project that looks at the connection between the presence of high–quality environmental amenities and regional economic growth.
Irwin began by honing in on the marginal implicit contribution that water quality has on home values; that is, the impact of a clean or dirty lake nearby on homes whose values are otherwise determined by the usual suspects of size, school quality, and access to work.
The preliminary results strongly suggested that the water quality of Lake Erie significantly affects nearby housing values. Making the lake more swimmable and improving water clarity bestows a $2,000 to $8,000 bump in property values, Irwin found. Similar analyses could look at the economic benefits of a cleaner lake in driving regional economic growth, not just housing values.
Irwin’s study poses a number of follow–up questions: Even if water quality improvements are achievable, what is the most efficient way to bring them about? How much in the way of public funds would be necessary? In all, Irwin and her colleagues at Ohio State remain interested in investigating the feedback loop between the economy and regional economic growth—humans have impacts on natural resources which feed into the biophysical process, which affects environmental amenities such as lakes that attract people in the first place.
Sustainable Strategies for Land Reuse, Policy, and Practice
Terry Schwarz, Cleveland Urban Design Collaborative, Kent State University Bobbi Reichtell, Neighborhood Progress
Irene McLaughlin, co–author of Blighted and Abandoned Properties Solution Project for South Western Pennsylvania
Bob Gradeck, University Center for Urban and Social Research, University of Pittsburgh
Research is useful, but at some point it has to go for a test drive in the real world. Terry Schwarz, with the Cleveland Urban Design Collaborative at Kent State University, said it may be possible to use Cleveland’s vacancy and abandonment problem to its advantage by putting sustainable development in its place. With 3,300 acres of vacant land and 20,000 vacant parcels in Cleveland alone, the opportunities abound. The Urban Design Collaborative is developing a citywide strategy to deal with Cleveland’s portfolio of surplus real estate. The Re–Imagining Cleveland Vacant Land Study has more than 50 projects happening throughout the city to test land reuse strategies, such as tying together green spaces, restoring ecosystems, generating energy, and planting community gardens.
Most of the projects are happening on the city’s east side, where vacancy is more rampant. The next step in the effort is to use data from the first study to refine new projects.
In South Western Pennsylvania, planners have been buys developing tools to transition vacant properties from “liability to viability.” McLaughlin described some techniques for communities to acquire and remediate properties that otherwise would stay empty and contribute to neighborhood blight. It is no small task. Toward that end, the region is creating a shared technical services entity to support implementation of these neighborhoods strategies.
One tool is the Pittsburgh Neighborhood and Community Information System, which maintains more than 100 property indicators in Allegheny County. To build sustainable communities requires good data, which is what the Community Information System is all about. It keeps data on land use, ownership, delinquency, and so forth. On top of that, it creates strategic applications of public information so that it’s easier for users to get what they want out of the data.
Better Amenities or Better Business Environment: Would Either Be Effective?
Stuart S. Rosenthal, Syracuse University
Cleveland is suffering from severe population loss. The metro area’s population fell by 58,000 people between 2000 and 2008 and was particularly acute among people younger than 50. So how might one endeavor to stabilize Cleveland’s population? Should the focus be on improving the region’s amenities by making it a more attractive place to live? Or should it be on making Cleveland a more attractive place to do business?
Rosenthal’s answer: “In a world with limited public resources to devote to guiding economic development, at the margin, you’re likely to get a bigger bang for your buck if we focus on what we can do to make it a more attractive place to business.”
Cleveland does have amenities that make it attractive, including Lake Erie, a world famous symphony, major league sports franchises, and some innovative neighborhoods. At this stage, the marginal gains from investing more on amenities may be small. But the payoff from making the city more attractive to business is likely to be larger, Rosenthal said. Skilled workers between the ages of 20 and 35 tend to move to business–friendly towns, so if you want to build up your younger population, there needs to be a clear focus on business. “Towns without thriving business environments will have a hard time hanging on to younger, highly educated individuals which are so important to a vital workforce and economy.”
To achieve a more business–friendly environment involves policies that reduce the costs of regulation and taxes and cultivating opportunities to enhance business clusters. Perhaps encouraging skilled foreign immigrants to settle in Cleveland would help build a stronger workforce.
Green Jobs in Strong Market Cities versus Weak Market Cities
Robert Pollin, University of Massachusetts–Amherst
Pollin’s recommendations for implementing green projects have been incorporated into the $787 billion American Recovery and Reinvestment stimulus program. For years, the conventional wisdom on environmentally friendly programs and jobs was, “You can get one or the other, but there are substantial tradeoffs,” Pollin said. “Protecting the environment would have to come at the expense of job creation and vice versa.”
Well, perhaps not, Pollin argues. “Embedded in the stimulus program was precisely the opposite idea that investing and building in clean energy environment could actually be an engine of economic growth,” Pollin said.
Pouring money into any project will create jobs, Pollin acknowledges. The key question is how many jobs can clean energy projects create relative to spending in non–clean areas, making it a source of net–job creation. To answer that question, Pollin looked at a leading driver of clean energy programs—building retrofits. By his calculations, each $1 million spent on building retrofits produces 17 jobs. By contrast, 5 jobs are created per million of expenditures on fossil–fuel–oriented projects, such as with oil and coal. That gives a net 12 jobs for clean energy programs over non–clean energy programs. The reason for the differnece is that clean energy activities are both more labor intensive and domestically centered than oil and coal projects.
The arithmetic follows: every time you take $1 million out of fossil fuel and direct it into clean energy, you create 12 jobs. But it’s given that clean energy jobs are likely to pay less because productivity is lower, and may involve lesser–skilled workers.
Pollin calculated that $150 billion per year—or about 1 percent of GDP—is a reasonable, sustainable number for public investment in clean energy. That level of investment would net 1.7 million jobs. If spread out through the country, places like Cleveland could create more than 10,000 jobs and see unemployment fall by 1 percentage point. “Building a clean energy economy is a transformative agenda,” Pollin concluded. “We have gotten past the point where we think of saving the environment as a tradeoff with job creation. It is an enormous opportunity to create decent jobs and to fight poverty throughout the country.”
Evergreen Cooperative Initiative
Ted Howard, Democracy Collaborative, University of Maryland
In a time when everyone, it seems, is scrambling to create jobs, how do you begin in a weak market region like Cleveland? One promising way is through the Cleveland Model, a comprehensive program that aims to create jobs for underemployed residents of Cleveland. Moreover, these are green jobs.
The strategy has five parts:
- Focus on an anchor institution purchasing locally. In this case, the anchors are in Cleveland’s Greater University Circle, with the anchor being the Cleveland Clinic.
- Create new community–based businesses. An example is Evergreen Cooperatives, which serves as an incubator for new businesses including a laundry service.
- Be “Green.” The Evergreen Cooperative Laundry, for example, which uses environmentally friendly products and less water than conventional laundries.
- Link to expanding sectors of the economy. In Cleveland, the health care industry is a leading driver of growth.
- Ensure financing and management to move to scale. The Evergreen Cooperative Development Fund was established toward that end.
The goal is to create between 500 and 5,000 new jobs for local residents in the neighborhood. Instead of major local institutions spending their money elsewhere, many new jobs could be created if they used local sources of workers and goods. “If we could create 5,000 good–quality jobs in these neighborhoods, then we can reach a point that we can have a rebuilding of the economy and that can have a transformative effect on the area,” Howard said.