Strategies for Reducing Poverty in Inner Cities: Stimulating Private Sector InvestmentThe Opportunity Dividend SummitDetroit, MIMarch 2, 2010

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Summary

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Poverty in the Inner City Challenges Faced by Inner City Firms and Solutions

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ICIC’s Research Drives Inner City Job Creation

Inner cities face serious poverty and related challenges that can be alleviated through business development strategies.

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Inner cities, by definition, are urban cores with high poverty and unemployment rates and low median income levels.

We define inner cities as contiguous census tracts in central cities that are economically distressed with:

Poverty rate 20% or higher

• Poverty rate 1.5x times or more than their MSA

• Median household income ½ or less than their MSA

• Unemployment rate 1.5x or more than their MSA

Two of the three criteria:

or

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Inner cities are also home to one-fifth of U.S. poverty and one-third of minority poverty.

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Source: State of the Inner City Economies (SICE) database; ICIC analysis.

0.1% of U.S.Land Area

31% of U.S. Minority Poverty

19% of U.S. Poverty

8% of U.S.Population

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Poverty can be targeted more effectively through business development and job creation.

Solution to Poverty

Shift emphasis from the consequences of poverty: transfer payments, Medicaid, etc.

Job Creation and Firm Formation

to

We need a strategy focused on building businesses in inner cities.

Starting and owning businesses, as well as moving up the management hierarchy, are the most sustainable ways to build income and wealth in inner cities.

To reduce poverty, cities need to create jobs that are geographically and occupationally accessible to inner city residents.

Inner city economies will not prosper by a focus solely on regional economies - they have special economic issues and opportunities.

In a typical U.S. region, inner city residents hold:

22% of the jobs in the inner city

11% of the jobs in rest of the central city

7% of the jobs in the rest of the region

Creating 1,000 new jobs for inner cityresidents would require:

450 jobs in the inner city

850 jobs in the rest of the centralcity

1,450 jobs in the rest of the region

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“Jobs anywhere” are not enough. Often inner city residents can’t access jobs in the rest of the region.

Overall inner city performance has significantly trailed regional performance.

Job Growth CAGR

Net Job Change

Rest of Region

1.2% + 6.7 m

Rest of Central

City0.9% + 1.4 m

Inner City

- 0.1% - 50,000

1998-2007

In ten years, the largest 100 inner cities created no net jobs.

Source: State of the Inner City Economies (SICE) database; ICIC analysis.

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The findings from ICIC’s 10 years of research on the fastest growing inner city firms have broad implications for inner city firms and policy makers.

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WorkforceDevelopment

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Selected findings from 10 years of data on fast growing inner city firms.

Limited access to capital and a heavier reliance on debt for growth have impeded Inner City 100 firms from achieving the same scale and growth as comparable U.S. firms.

Inner City 100 firms have used government contracts and SBA loans to scale their businesses.

Inner City 100 firms hire more local inner city residents and spend more on employee training, generating lower turnover and higher productivity.

CapitalAccess

Government

WorkforceDevelopment

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These data have implications for all inner city firms.

Capital markets are not addressing the inner city business market well. •Make businesses aware of alternative sources of financing

- Inner City Capital Connections (ICCC), a national program, stimulates equity capital flow to underserved inner city markets, by matching inner city businesses with investors

• Create a new business model that combines advisory services, technical assistance and capital

Government contracts tend to provide a more stable base of revenue from which inner city firms can grow.

• Help businesses acquire government contracts and SBA loans

Utilizing and investing in the local workforce can result in greater employee loyalty and productivity

• Tie training programs to the types of skills required by local businesses

CapitalAccess

Government

ICIC’s research team focuses on ways to use policy work and city engagement to improve the local environment for businesses and reduce poverty in inner cities.

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ICIC’s research continues to generate new ideas to reduce poverty in inner cities.

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Capital Access• Uncovering the gaps and barriers preventing additional capital investment into

inner city businesses and economies.

Inner City Industry Clusters • Evaluating the growth and market opportunities for inner city industry clusters such

as construction, housing and real estate (CHRE), retail, healthcare and industrial.

Green Jobs• Identifying emerging green job opportunities for inner city residents

Industrial Cities• Constructing strategies for industrial legacy cities on how to redeploy assets

Anchor Institutions•Understanding the role of anchor institutions in economic development

Influencing Federal Policy•Presenting policy recommendations to the Obama Administration

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Federal policy reform would help reduce poverty in inner cities.

ICIC presented policy recommendations to the Obama Administration on strategies to reduce poverty in inner cities in October 2009.

• Focus on inner cities as distinct and important components of regional economies, including their distinct asset bases:

• Key physical infrastructure

• Educational, medical, and cultural institutions

• Diverse population of workers and entrepreneurs

• Maximize the assets of inner cities, being attentive to their varied market conditions

• Capital needs

• Land use policies

• Investments in infrastructure

www.icic.org

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