Transcript of Remarks:

Thank you Chairman Wagner and Chairwoman Candaras for this opportunity to share our ideas for strengthening the Commonwealth’s economy.

From our founding in 1996, MassINC’s mission has been supporting the growth and vitality of the state’s middle class. With a focus primarily on state level policy, we have learned that we can be most impactful in fulfilling our mission by concentrating on the role of places. As a relatively small state, Massachusetts has little control over macroeconomic forces, but we can do our utmost to ensure that the Commonwealth’s communities are productive places to live and work in today’s economy.

MassINC research, prepared jointly with the Center for Labor Market Studies, shows that the Massachusetts economy has been underperforming its potential for quite a long time. In the 1990s, we created jobs at slower pace relative to the nation. Our position worsened considerably during the last decade. Between 2000 and 2010, Massachusetts ranked 46 among US states in job creation. In particular, we struggled to create new jobs for middle skill residents. Hundreds of thousands of middle class families left the state as a result. This has led to rapidly increasing income inequality. Forty years ago Massachusetts had one of the most equal income distributions in the nation; today, the Commonwealth ranks among the most unequal.i

A hollowing out of the middle class has a very pronounced impact on communities. In 1990, more than two-thirds of families in the Greater Springfield area lived in middle income neighborhoods. The most recent figures show that middle income neighborhoods are home to just 42 percent of families. The share of the regions families living in both affluent and low-income neighborhoods has doubled over the last two decades.ii

This growing income segregation injures families isolated in cities that simply don’t have adequate resources to prepare youth for success in the state’s knowledge economy. But it’s also harmful to our Commonwealth because it undermines cities that should be engines in our regional economies.

We say “should” because they’ve got valuable existing infrastructure, the economic activity created by large hospitals and universities, and authentic urban form that is increasingly desirable to a new generation of residents and businesses.

The problem is simply that the market can’t realize these opportunities because real estate values at present are too low to justify the costs of undertaking redevelopment. We need public support for projects that have both the scale and the quality to demonstrate value, so that others can follow in their path developing with private financing.

Currently, the state lacks the tools to support these “transformative projects.” Subsidies that cities rely on to support redevelopment are often restricted to historic structures. When the development that might generate the most revitalization is a vacant lot, there are very few options. Similarly, we subsidize sidewalks and traffic lights, but a commercial building that would attract jobs to an area, strengthening the market for both residential and retail space, is very difficult to support with the current toolset.iii

Because we are missing essential tools to build the kind of mixed-use urban development that creates real value in a city, the very significant investments we are making in our Gateway Cities are underperforming. Over just the past five years, the state has placed approximately $4 billion of capital investment in Gateway Cities, with more than half of these dollars coming in the form of educational facilities, which certainly could be weaved in a much tighter way into strategic plans for economic development and neighborhood revitalization.iv

We have also heard frequently that because tools to do the work are limited, cities don’t put enough local dollars into planning and economic development functions. This leaves them without the full complement of staff needed to execute very complex redevelopment projects with private sector partners.

H. 311 would go a long way toward providing tools and incentives for both strategic coordination across programs, and capacity building at the local level. It would also significantly increase the level of investment in our Gateway Cities. While we appreciate how difficult it will be to allocate these funds at a time when resources are insufficient to meet so many compelling needs, we believe that these investments must be considered fundamental. Without concerted action to increase their fiscal position over time, Gateway Cities will face long-term structural challenges that would prove to be dire and ultimately more costly for the taxpayers.

Conversely, if we get this right, we can solve some stubborn challenges. Strengthening Gateway Cities will tap a reservoir of housing supply and reduce the state’s housing crunch. Supporting efficient growth will concentrate development in areas with existing infrastructure. Removing barriers to growth in developed cities will also help the state protect the quality of life in small towns and rural areas – a unique asset that must be preserved.

For the last several years, MassINC has tried to amplify the warnings of economists who have noted that the state’s recovery would likely lose steam if regional economies outside of Boston didn’t participate in a stronger way. That’s exactly what we see happening. With a 7.2 percent unemployment rate, Massachusetts now ranks 29th among states. The uneven recovery is felt disproportionately in our Gateway Cities, whose residents make up less than one-quarter of the state’s labor force but nearly one-third of the unemployed. In Springfield and Holyoke, after five years of recession, unemployment is still at 12 percent. Gateway Cities on the South Coast face significantly higher unemployment rates. These conditions merit a strong state response. Transformative Redevelopment legislation would create a lot of jobs quickly. And the fiscal strength and productive environments for living and working these projects could produce would certainly support sustained growth over the long term.

REFERENCES

i See Andrew Sum and others. “Recapturing the American Dream: Meeting the Challenges of the Bay State’s Lost Decade” (Boston, MA: MassINC, 2011).

ii See Benjamin Forman and Caroline Koch. “Geographic Segregation: The Role of Income Inequality.” Federal Reserve Bank of Boston, Communities & Banking, Fall 2012.

iii MassINC detailed the market gap that prohibits redevelopment and the tools needed to support transformative projects in a recent report. See Alan Malach and Benjamin Forman. “Transformative Redevelopment: Strategic State Policy for Gateway City Growth and Renewal” (Boston, MA: MassINC, 2013).

iv These preliminary estimates are drawn from analysis of state capital spending between FY 2009 and FY 2013 in a forthcoming MassINC research report.