Ten Steps to Brings Jobs and Businesses Back to Cleveland and Other Big Cities

Reducing crime and taxes, improving zoning laws and adding transparency can spur growth
Policy Brief 90

Cleveland is one of the best examples of a big American city struggling with the economic transitions and transformations brought about by today’s globally competitive services-based economy. As manufacturing jobs have declined and moved out, Cleveland has struggled to reinvent itself. The city has experienced “fits and starts” as part of this process. The redevelopment of the Flats Entertainment District along the Cuyahoga River and Gateway sports complex earned the city the brief title of a “Comeback City” in the 1990s, even as the city’s population continued to fall and lost ground to the suburbs. Although the city’s population appears to have stabilized near 430,000 (less than half its peak population in 1950), its share of the metropolitan area’s population has fallen to 20.8 percent (from a peak of 72 percent in 1920). While much of the relative decline of the city as a share of the metropolitan area would have happened regardless of the city’s efforts—rising income, the spread of the automobile, and quest for more land for housing would have bolstered suburban growth—the city of Cleveland has struggled to retain households and businesses even when abundant land is available for redevelopment. Large swaths of the Cleveland’s inner city neighborhoods are pock-marked with vacant, underutilized land cleared of abandoned buildings. The city includes 3,300 acres of vacant land and 15,000 abandoned buildings according to the Cleveland Urban Design Collaborative at Kent State University and the Cleveland City Planning Commission.

Thus, Cleveland, like many older industrial cities, continues to struggle as it attempts to adjust to a more globally competitive, services-based economy. Moreover, the city’s position in the metropolitan area is more precarious than ever; the city of Cleveland now competes with 42 independent cities in Cuyahoga County alone. As the largest city, Cleveland has important advantages, including access to major highways and railways, a large labor force, and the location of large corporate offices and headquarters for companies such as Sherwin Williams, KeyCorp., BP, Eaton Corporation, Lincoln Electric Holdings, and the Cleveland Clinic. Nevertheless, the city’s competitive edge has eroded as people and businesses have chosen outlying cities and counties to locate and expand their businesses rather than the city of Cleveland and its downtown. These challenges are not unique to Cleveland. They represent real modern-day constraints that require recognition, adaptation, and a response from elected officials.

What can Cleveland do? First and foremost, Cleveland must go back to basics before local officials can think about complex, layered strategies for revitalization. Without these basics, a foundation cannot be established for successful, long-term economic growth. We have identified ten practical policy initiatives that, if implemented comprehensively and diligently, would level the playing field and provide “game changing” levels of competitiveness that could provide a foundation for restoring vitality and prosperity in cities.

1. Protect Life and Property. Violent crime per capita has increased 16 percent, and nonviolent crime 10.7 percent in the city of Cleveland between 2000 and 2007 according to the Federal Bureau of Investigation. While forcible rape fell dramatically, these gains were offset by dramatic increases in murder (38.5 percent) and robbery (41.8 percent). Similarly, slight drops in theft were offset by a 32.3 percent increase in burglaries. Citizens and families need to feel safe and secure before they will be willing to invest in the long-term future of a city. Indeed, perhaps the most basic function of government is to ensure the personal safety of its residents and businesses. Given the rise in robbery and burglary (entering into buildings to commit crimes), the police department should consider allocating resources based on neighborhood need and preference. One approach would be to establish neighborhood crime districts that more closely match neighborhoods. The five police districts that currently cover the city with uniformed police personnel could be further subdivided so that neighborhood crime districts can provide direct input into setting spending levels and prioritizing street-level programs for their neighborhoods. This would build on community-oriented policing strategies but also empower citizens and property owners at the street level by providing a direct means of engagement with the Division of Police.

2. Eliminate the Municipal Income Tax. Declining cities struggle with a declining revenue base, and understandably search for new ways to maintain revenues. Some taxes, however, are more punishing than others. Income taxes, in particular, have the unintended consequence of reducing incentives to generate wealth and provide strong disincentives for entrepreneurship. Cleveland’s 2 percent earnings tax, while not the highest in Ohio, penalizes wealth creation. You won’t find city income taxes in fast-growing cities like Austin, Las Vegas or Phoenix. Cleveland should phase out the city income tax entirely as an effort to start luring workers back to the city. This could be accomplished through graduated reductions over time, starting with 1) exempting the first $50,000 in personal or business income, and 2) reducing the overall rate to levels below nearby jurisdictions. Property and sales taxes are both more stable and more efficient ways to raise revenues.

3. Reform Zoning and Planning. Cleveland should replace the existing zoning code and politicized approach to development regulation with an alternate framework that focuses on tangible, measurable impacts. Development regulations should focus on the tangible impacts of proposed development and the potential spillover impacts on city services and neighbors, not compliance with a zoning map or comprehensive plan that is outdated and unable to keep up with the changing needs of the city. No city has been able to effectively determine what land uses need to be where using a long-range comprehensive plan (and many municipal zoning codes go decades without meaningful updates). In fact, conventional zoning and planning is predicated on growth—mapping out the proper land uses for future development. Cleveland, like many large cities, is faced with managing decline and adapting to shifting economic needs that are difficult, if not impossible, to forecast in a way that is consistent with master land use planning. In its efforts to tweak development regulations to accommodate changing circumstances, Cleveland’s city development control regulations have expanded to include 13 general chapters of land-use and planning code, 30 chapters of the zoning code, and 17 chapters describing various use districts (including nine separate residential districts such as single family, “limited” single family, two family, townhouse, multifamily, “limited” multifamily, residence-office). These bureaucratic barriers prevent entrepreneurs from opening businesses and putting their property to the best use. Cleveland should consider following Houston’s example. Houston uses a market-driven, property rights-friendly approach that focuses on mitigating the impacts of development rather than prescribing what should go where and when. Mixed-use residential and retail developments can be developed in months, not years, because of this streamlined approach. Not surprisingly, Houston is more effectively accommodating its growth within the city boundaries because it provides a streamlined approach to accommodating demand for urban land uses.

4. Expand Access to Quality Education. Cleveland’s public schools graduate just 53 percent of the students entering ninth grade according to the Ohio Department of Education's report card for the 2008-2009 school year. Sixty-eight of the district’s 105 schools have been identified as needing improvement. Without significant improvement in the quality of the city public school system, the city’s economic development potential will be significantly compromised as families and households with children shun living within city boundaries. Too often, the effect of poor quality public education on economic development and job creation is under-estimated. Quality schools, are an important driver of residential and commercial business location. However, in Cleveland some outside-the-box programs exist, including independently funded school voucher programs and charter schools. A study by The Buckeye Institute in 2003 estimated that creating a citywide Education Empowerment Zone and providing student-centered school vouchers (or the public school funding equivalent) could bring 10,000 working and middle class families into the city, boost student achievement in Cleveland public schools by 21 percent through competitive pressures, stabilize neighborhoods, and boost median family income by as much as 50 percent.

5. Ensure Government Spending is Transparent and Accountable. In the 1990s, several cities embarked on transparency programs that streamlined and simplified the public budgeting process to create reports with performance measures that citizens could use to hold their local governments accountable. Former Cleveland Mayor Michael White initiated the “citizen’s budget” in this spirit as an attempt to give everyday residents and businesses the tools they needed to monitor government performance as well as track spending. Unfortunately, the citizen’s budget concept appears to have fallen by the wayside. The current mayor’s 2010 budget book is a thick, difficult-to-read, 420-page document that obscures accountability. The annual financial audit is a 210-page document that is almost impenetrable to those without training and patience. This transparency is critical in an increasingly competitive environment, but requires a consistent commitment by local leaders and public officials. The mayor and the city’s Office of Management and Budget should embark on an initiative to create performance benchmarks for major city operations that include service quality, efficiency criteria and clear indicators of policy priority. These performance benchmarks should be summarized in an easily accessible and readable document available to the general public. City department and division performance should be tied to specific triggers that ensure reform efforts are initiated, or policy priorities re-assessed, if city services do not meet these benchmarks. Among the default options for failure to perform should be managed competition, asset divestiture, or privatization.

6. Adopt Transparent Tax Policies. As more and more cities have engaged in mini versions of industrial policy—picking business winners and losers through various tax abatement, grant and subsidy programs—the true cost of local government has become obscured and difficult to monitor. Cleveland, like other cities, established a myriad of special districts to try to jumpstart development, from the Flats Entertainment District to the University Circle. These initiatives have diverted attention from policies that influence the broadest base of residents and businesses. Cities would be better off adopting a policy of low, broad-based taxes applied even-handedly than trying to tailor their tax code to fit the desires of specific businesses, whether they are the Cleveland Browns or the Cleveland Clinic. Particularly in an era when most jobs are created by small businesses, low overall taxes that are transparently and equally applied are least likely to chase businesses (and their employees) out to the suburbs or competitor cities.

7. Reduce Local Government’s Financial and Regulatory Burden. Cities can no longer take their position in the region for granted. Bloated government puts the city at a competitive disadvantage compared to its neighboring cities as well as its global competitors. Indeed, Progressive Insurance, one of Ohio’s largest employers, is located in nearby Mayfield Heights, not downtown Cleveland. Cities need to adopt policies that ensure services are provided with the highest value and at the lowest cost.Typically, a well-crafted managed competition process can net savings between 20 percent and 40 percent over traditional in-house provision of services. Permits should be administratively approved except in those cases where the public health and safety may be clearly compromised, with the burden of proof shifted to those challenging the permit and away from those applying for the permit.

8. Maximize the Value of Core Infrastructure. Pot holes count. A road network that links key destinations and maximizes mobility is crucial to ensure people and goods flow effectively at least cost. Well-functioning sewer and water systems are essential to support existing businesses as well as support future growth. To the extent possible, public services should be shifted to self-supporting user fees so that direct benefits can be tied to revenues raised. Public-private partnerships (PPPs) should be explored as a way to both boost quality as well as reduce costs through management and technological efficiencies. User fees and PPPs create transparency and accountability while providing a sustainable revenue stream for funding, expanding and enhancing core infrastructure and services.

9. Embrace Mobility. Unfortunately, a conventional wisdom has emerged that for some reasons cities benefit from poor traffic circulation and greater congestion. This is flawed logic, confusing cause and effect and is typically a misguided attempt to promote local retail and neighborhood businesses. In fact, slowing traffic also reduces access, making it more difficult for neighborhood businesses to remain financially viable. (Even neighborhood businesses depend on customers outside their neighborhood for substantial amounts of activity.) A well-functioning street system that accommodates through traffic as well as local traffic is essential to providing mobility to residents and access to businesses. Reducing lanes along major thoroughfares (e.g., Euclid Avenue) might make sense if the street is underutilized, but is likely to create significant obstacles to mobility if the road is already well used and serves a critical function. Transit services must complement road capacity and not attempt to substitute for other modes, particularly when alternate modes lengthen travel times and slow traffic speeds. Getting from point A to point B faster provides a competitive advantage to cities.

10. Deregulate Work and Enterprise. The Cleveland municipal code includes a Byzantine maze of more than 350 separate chapters regulating the form, function and duties of the city government, local businesses and occupations. Dozens of chapters cover the regulation of businesses, including taxicabs, sightseeing cars, bowling alleys, prescriptive drug prices, gasoline prices, Christmas tree sales, used goods, security guards, rental agencies, roller rinks and ticket brokers. Some, such as barbers, are already regulated at the state level. Most of these regulations and the licensing of businesses are unnecessary and could be more effectively handled through the enforcement of anti-fraud and sound business practice regulations. Cleveland should repeal all occupational licensing laws and substitute an administrative registration process. Licensing of occupations should be reserved for those occupations where 1) professional standards have demonstrated a clear and direct connection to service quality, 2) the state does not regulate the industry, and 3) the failure to meet existing professional standards demonstrably endangers public health and safety. In place of licensing, the city’s regulatory focus should be on compliance with laws directly tied to fraudulent or criminal activity and mitigating practices that directly and measurably impact the health and safety of residents, patrons and business owners. The city should avoid as much as possible regulating specific businesses and business practices.

In sum, Cleveland needs to focus on creating an economic climate attractive to current and prospective entrepreneurs and families. The city competes for businesses and households within the metropolitan area as well as across national borders. First and foremost, a sustainable business climate begins with taking care of the basics. Following through on the ten reforms suggested above is a first step in that direction.

Samuel R. Staley, Ph.D. is Robert W. Galvin Fellow and Director, Urban & Land Use Policy at Reason Foundation.

Samuel Staley is Research Fellow





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