Innovative Approaches for Regional Economic Growth

Innovative Approaches for Regional Economic Growth

U.S. Macroeconomic Trends #MIGlobal

U.S. annual average real GDP growth

Quarterly US Real GDP vs Previous Quarter (Annualized) U.S. real GDP US Real GDP 10% 2002-07 AVG = 2.77% 8% 6% 2009/H2-15 AVG = 2.11% 4% 2% 0% -2% -4% -6% -8% 2008-09/H1 AVG = -2.89% -10% 2016-17 Estimated AVG = 1.50% Source: St. Louis Federal Reserve Bank FRED Database (GDPC1).

Weekly US Initial Unemployment Claims, Seasonally Adjusted Weekly Weekly initial Initial unemployment Unemployment claims Claims suggest Suggest the U.S. jobs market is functioning the US Jobs Market exceptionally is Functioning well even with slower GDP Exceptionally Well even with Slower GDP 750,000 500,000 250,000 0 Source: St. Louis Federal Reserve Bank FRED Database (ICSA)

1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Unemployment Rate (Percentage) U.S. unemployment rate US Unemployment Rate 12% 10% 8% 6% 4% 2% 0% Unemployment averaged 6.1% from 1960-2015, with two-thirds of the observations between 4.5% and 7.5%. Source: Federal Reserve Bank of St. Louis FRED Database (UNRATE), CME Economics Estimates.

1949 1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017 Year-over-Year Percentage Change U.S. personal consumption (PCE) inflation US Personal Consumption (PCE) Inflation 12% 9% 6% Since 1994, Core PCE Inflation has been between 1.0% and 2.4%, averaging 1.7%. 3% 0% -3% Source: Federal Reserve Bank of St. Louis FRED Database (PCE, PCELFE). Estimates for Q2/16 - Q4/17 by CME Economics.

U.S. PCE core inflation & federal funds rate US PCE Core Inflation & Federal Funds Rate 8% 6% Fed Funds Rate 4% 2%? US PCE Core Inflation 0% 1993 1997 2001 2005 2009 2013 2017 Source: Federal Reserve Bank of St. Louis FRED Database (PCEPILFE, GS10)

U.S. core inflation & treasury 10-year yield

Treasury 10-year yield minus core inflation rate

Defining the Environment for Urban Revitalization #MIGlobal

Urbanization is bringing people closer to economic opportunity Share of rural vs. urban population by region, 2011 Percent Urban Rural 100 69 60 55 49 29 27 21 18 80 79 82 71 73 60 40 20 31 40 45 51 0 India Africa Asia China Oceania Europe Latin America North America Source: United Nations Department of Economic and Social Affairs.

Center cities and walkable suburbs attract a large share of metro venture capital investment Percent San Francisco, CA San Jose, CA Boston-Cambridge, MA New York, NY Los Angeles, CA Washington, D.C. San Diego, CA Chicago, IL Austin, TX Seattle, WA Center City Walkable Suburbs Other Total VC investment (US$ billions) 0 10 20 30 40 50 60 70 80 90 100 8.5 5.0 3.3 3.0 2.4 1.1 0.9 0.7 0.6 0.6 Source: Richard Florida.

Recent trends in car and transit use may point to a shift in transportation preferences Index, Jan. 2000 = 100 120 115 Vehicle miles traveled 110 Transit ridership 105 100 95 90 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: American Public Transportation Association Quarterly Ridership Report.

Cities have the opportunity to lead on energy efficiency U.S. energy consumption Energy Star certified buildings Industry 24% Transportation 28% Buildings 48% Number of buildings 500 443 435 400 300 200 100 318 303 289 0 Los Angeles Washington, D.C. Atlanta New York San Francisco Source: Environmental Protection Agency.

Goods exports are a key component of major city economies Rank Metro Goods Exports 2012 (US$ billions) 1 Houston, TX 64.2 2 Los Angeles, CA 56.5 3 Chicago, IL 44.7 4 Dallas, TX 37.5 5 Seattle, WA 35.3 Rank Metro Goods Exports 2012 (US$ billions) 6 New York, NY 32.8 7 Detroit, MI 31.5 8 Portland, OR 27.6 9 San Jose, CA 26.4 10 San Francisco, CA 23.3 Source: U.S. Department of Commerce.

Recommendations for urban revitalization rebuilding the central core sustaining viable neighborhoods repurposing vacant land for new activities using assets to build cities competitive advantages re-establishing the central economic role of the city using economic growth to increase community and resident well-being building stronger local governance and partnerships building stronger ties between legacy cities and their regions making change happen through strategic incrementalism rethinking state and federal policy toward legacy cities. Source: Brookings Institution.

Source: ICIC. Creating a cluster initiative

The virtuous growth cycle of cities creates wealth New Arrivals of People & Companies Thicker Labor Markets & Company Formation Learning, Innovation, & Increased Skills New / Better Infrastructure & Amenities Increased Wealth & Tax Base Higher Productivity Source: Taimur Hyat.

Investors should examine investment opportunities related to urban expansion in four primary areas Urban Infrastructure Real Estate Consumer Goods & Services Agriculture Supply Chain Global need for infrastructure estimated at over $50 trillion through 2030, much of it in urban areas Global stock of institutional-grade real estate to expand from $30 trillion in 2012 to $70 trillion in 2030 Annual global demand in personal consumption expected to be over $40 trillion by 2020 Food demand projected to grow 50-70% by 2050; rural population expected to decline by over one billion by the end of the century Source: Taimur Hyat.

Detroit #MIGlobal

Detroit income statistics Source: U.S. Census Bureau; U.S. Bureau of Labor Statistics.

Detroit demographics Source: Detroit Regional Chamber.

Economic growth statistics Source: Detroit Regional Chamber.

Downtown Detroit has seen significant revitalization Source: 7.2 SQ MI..

Real estate development in downtown Detroit Source: 7.2 SQ MI..

Areas for investment to drive more inclusive growth Investing in public schools improving public transportation providing services to neighborhoods supporting development programs that provide startup or revolving loans, entrepreneurship support, business incubators and job skill training Source: That Detroit recovery? In some ways, the city is worse off than in 2010, MarketWatch.

Urban Real Estate #MIGlobal

Trends Affecting Urban Real Estate Development Development trends Changing lifestyles of Baby Boomers and Millennial to life, work and play An aging population Job recovery leading to increased pressure on cities Industry-led development of second tier cities Transit-oriented development link with infrastructure Sustainable development Financial trends REIT funds, new equity capital flooding markets Alternative debt products, mezz lending, crowfunding and programs such as EB-5 Source: Jennifer Goodman, Eight Trends Impacting Real Estate Development..

Redevelopment financing tools Bonds GO bonds Build America Bonds Private activity Targeted Tools tax increment finance special assessment districts government districts project specific district financing (e.g. Enhanced Infrastructure Financing Districts in California). Investment Incentives Historic Preservation Tax Incentives Program Federal Brownfield Tax Incentive New Markets Tax Credits Low Income Housing Tax Credits Lending Tools revolving loan funds mezzanine funds loan guarantees microenterprise finance Agency Tools grants and loan guarantees from HUD, SBA, DOE and USDA Source: Michael Mucha, Making Good Use of Economic Development Finance Tools.

Source:. Detroit Redevelopment Funding Tools

Urban Technology Ecosystem #MIGlobal

Regional innovation life cycle Source: Milken Institute.

Patents and GDP per capita In 261 U.S. Metropolitan Areas Real GDP per capita (US$ thousands) 80 70 60 50 40 30 20 10-6 -5-4 -3-2 -1 0 1 2 3 Patents per thousand people (ln) Sources: U.S. Bureau of Economic Analysis, Moody's Analytics, Science-Metrix, Milken Institute.

Source: Milken Institute. State Technology and Science Index

Automotive Technology Innovation #MIGlobal

Future of personal transportation AeroMobil 3.0 prototype

Making medium distance travel more efficient Personal transportation for trips between 50 and 500 miles is highly inefficient

New infrastructure can be developed easily Conversion of existing gas stations and rest areas

Innovations in Automotive Technology Virtual reality retail experience (Audi) Voice-controlled cars (Volvo) Smartphone connectivity to interact with your car (Ford) Uconnect system that features Apple CarPlay and Android Auto (Fiat) Airtouch: a touchscreen that doesn t need to be touched (BMW) Source: 5 high-tech car innovations spotted at CES 2016, Bankrate.

Source:.

Innovation Circle/Entrepreneurship #MIGlobal

Importance of startups Source: Kauffman Foundation.

Firms receiving venture capital when starting Detroit is below average compared to other major metro areas Source:.

Firms receiving angel investment in 2014 Detroit ranks in the bottom of major metro areas Source:.

Rising retail rents can prohibit small business growth Retail rent growth rate, year over year Source: Kauffman Foundation.

Source: Kauffman. Detroit Case Study: Bottom quarter of metro area start-up activity

Policy recommendations State or Local Funding Lease-to-Own Programs Allows business owners to begin to make payments towards owning their building, with a lower cost of capital. Pilot program started by Austin Independent Business Alliance. Similar Buy Your Building program was started in Salt Lake City to link business owners to cheaper financing from local banks. Community Ownership of Commercial Spaces Cooperative structures allow business owners and property owners to grow together and better align interests. One model is a lease structure that ties the principal to a percentage of the company s revenue. Other models include community land trusts, REIT cooperatives and community-owned stores. Government cans provide incentives in the form of tax credits for local investment, and state-wide exemptions for securities issued by the cooperatives. Regulate Lease Renewal New York City recently suggested mandates around time periods for lease negotiations, recourse to mediation, and lease extensions. Property Tax Credits for Landlords An example is the Lower Manhattan Commercial Revitalization Program that created an abatement and tax reduction option for property owners. Zoning for smaller spaces Facilitate small businesses to create with large companies by increasing the supply of smaller, zoned commercial space. Local Business Preference in Publicly Owned Building Creating favorable lease terms for local businesses, including length, extensions, and gradual rent increases. Renting city-owned space at below-market rates to community-oriented businesses Source: Affordable Space: How Rising Commercial Rents Are Threatening Independent Businesses, and What Cities Are Doing About It, Institute for Local Self-Reliance, 2016.

Education #MIGlobal

U.S. 16-to-24 year olds who have dropped out of high school By race (2013) Percent 13 12 11 10 9 8 7 6 5 4 3 2 1 0 Average White Black Hispanic By family income quartile (2013) Percent 13 12 11 10 9 8 7 6 5 4 3 2 1 0 Average Lowest Middle-low Middle-high Highest Source: NCES.

Economic mobility for children born in the bottom quintile Percent 50 40 30 Without college degree With college degree 20 10 0 First income quintile as adult (bottom) Second income quintile as adult Third income quintile as adult Fourth income quintile as adult Fifth income quintile as adult (top) Source: Isaacs, Saw hill and Haskins (2008).

Many young adults drop out of school to work Major reason Minor reason I needed to go to work and make money I just couldn't afford the tuition and fees I needed a break from school I didn't have enough time for my family Too many classes I did not think were useful It just didn't seem to be worth the money I thought many of the classes were boring I didn't like sitting in class Some of the classes were too difficult 0 10 20 30 40 50 60 70 80 Source: Bill & Melinda Gates Foundation.

Source: Milken Institute.

Source: Techcrunch

Source: BMO Capital Markets.

Source: Aspen Institute. Successful workforce training programs

Detroit Case Study: Integrating workforce training and infrastructure Pilot project at Detroit s Central High School to support storm water drainage and train local workers Parjana Distribution, a Detroit-based water management company, will install its Energy-passive Groundwater Recharge Product (EGRP) across the property Detroit Police Athletic League (PAL) and Walker-Miller Energy Services will partner with Parjana to recruit and train local residents, especially recent graduates who are not attending college Source: Detroit revitalizes neighborhoods with green infrastructure and workforce training, ICIC.

Infrastructure #MIGlobal

Macroeconomic multipliers: Infrastructure Source: Economic Policy Institute.

Economic impact of investing in infrastructure Source: Jobs for America, Milken Institute.

Supporting private investment in infrastructure Source: National Council for Public-Private Partnerships.

Emerging Sub-national P3 Entities California Infrastructure and Economic Development Bank Chicago Infrastructure Trust Colorado High Performance Transportation Enterprise Dormitory Authority of the State of New York Indiana Finance Authority Virginia Office of Transportation Public Private Partnerships West Coast Infrastructure Exchange

Example: California Infrastructure Bank Public Development Program: Infrastructure State Revolving Fund Program Economic Development Programs: Industrial Development Bond Program Exempt Facility Bond Program 501(c)(3) Revenue Bond Program Public Agency Revenue Bond Program Source: California Infrastructure and Economic Development Bank s Programs Fact Sheet

Example: Indiana Finance Authority IFA is managed by the Public Finance Director of the State of Indiana. IFA is authorized to issue revenue bonds payable from lease rentals under lease agreements with various state agencies and to finance or refinance the cost of acquiring, building and equipping structures for state use including state office buildings, garages, highways, bridges, airport facilities, correctional facilities, state hospitals and recreational facilities related to State parks. IFA also manages the Wastewater and Drinking Water State Revolving Fund Loan Programs and the Indiana Brownfields Program. Source: Indiana Finance Authority.

Michigan s infrastructure needs Driving on roads in need of repair in Michigan costs each driver $540 per year 11.1% of bridges are rated structurally deficient 88 dams are considered to be high-hazard potential. Drinking water needs in Michigan are an estimated $13.8 billion Wastewater needs total $2.07 billion State schools have an estimated capital expenditure gap of $1.3 billion Source:. Source: 2017 Infrastructure Report Card, American Society of Civil Engineers.

Detroit Case Study: A P3 Example Freeway Lighting Program First p3 in the US to reach financial close with initial private placement debt (previous P3s used private debt to refinance existing bank loans) The project involves replacing, over a two-year period, about 87 percent of approximately 15,000 antiquated lights on freeways in Macomb, Oakland and Wayne counties with energy-efficient LED lights Improving freeway lighting enhances motorist visibility and traffic safety. Conversion to LED lights, economies of scale that lower equipment costs, and transferring risk while creating incentives to a private partner, ensure effective operation and maintenance Source: Michigan Department of Transportation.

An example: social infrastructure Hospitals are particularly important to inner cities They create more inner city jobs than any other sector. Hospitals have added 190,000 jobs in inner cities since 2003, and they are the largest employers in 77 of the largest 100 inner cities.3 They also create accessible jobs. Two-thirds of healthcare jobs require an Associate s degree or less. Source: What Works for Cities: Will Hospitals Become The New Vanguard In Urban Economic Development? ICIC.