Sate of the Madison Region: Where are we? Where do we go from here?

“Our region’s economy is not immune to recession, as has been clearly demonstrated over the past couple of years,” noted Jennifer Alexander, president of Thrive, an eight-county economic development organization.

On the heels of its annual “State of the Madison Region” report, which shows a decline in key economic indicators, Thrive has issued a call to action for a strength-in-numbers, regional approach to regain lost traction and drive economic growth. That includes successfully addressing challenges associated with existing business retention and growth, export growth, and quality of life.

The State of the Madison Region Report

Each year, Thrive presents the State of the Madison Region Report, an objective analysis of the economic performance of the Madison Region. The report reflects Thrive’s holistic approach to economic development and includes metrics related to innovation, quality of life, and health; as well as measures more often associated with the economy such as employment rates, business growth, and income. The report evaluates the Madison Region’s performance over time and compares it with the performance of the United States, Wisconsin, and five Peer Regions: Lincoln, Nebraska; Columbus, Ohio; Salem, Oregon; Columbia, South Carolina; and Richmond, Virginia.

Recessionary Madison

The “State of the Madison Region” report shows the number of businesses in the region is declining. Between 2008 and 2009, the number of businesses in the region fell by 2.2%, which stands in stark contrast to the 6.5% growth recorded here between 2001-2009. Yet that 6.5% growth lagged behind four of our five peer regions and the U.S. as a whole. For example, establishment growth in Richmond, Va. was 18.2% in those years; Lincoln, Neb. 16%; and Salem, Ore. 13.5%.

While the Madison Region still maintains one of the lowest unemployment rates in the country, everything is relative. Between 2007 and 2009, the height of the recession, the Madison Region lost 25,000 jobs, from 524,000 to 499,000, and the unemployment rate rose from 4.7% in 2008 to 7.8% in 2010.

On a positive note, when compared to its peer regions, the Madison Region has a lower unemployment rate than all but Lincoln, Neb. Moreover, the national rate of unemployment, 9.6%, is nearly two points higher than the Madison Region.

The Madison Region’s 499,403 employed workers continue to fill a variety of occupations. Relative to its peer regions, Madison has particular strengths in education and health services, manufacturing, public administration, and leisure and hospitality. Looking at employment by sector, education and health services accounts for 166,000 jobs, or 24%; trade, transportation, and utilities represent 97,736 jobs, or 20%; manufacturing, a strength of Wisconsin and the Madison Region, accounts for 63,252 jobs, or 13%; and leisure and hospitality represents 50,670 jobs, or 10%.

However, Thrive cautions against reliance on these industries alone.”The industries that have made our regional economy competitive in the past will not be the only components that make our economy competitive going forward,” said Sean Robbins, executive vice president of Thrive. “This report has shown us that we all need to share a healthy sense of urgency as we explore new ways to grow the region.”

The Importance of Innovation

Given that scientific innovation has produced roughly half of all U.S. economic growth in the past 50 years, the region’s ability to maximize research and development in the commercial marketplace will go a long way in determining how we perform as a region. More than $1 billion in federal research funds came into the University of Wisconsin-Madison in 2009, making UW the third-largest research university in the nation. UW’s $1 billion in federal research grant income is nearly double the amount reported in 2001. In 2008, UW research continued to dwarf that of universities in our peer regions, though Ohio State University in Columbus has gained significant ground during the decade.

Another important measure of the innovation economy, Small Business Innovation Research and Small Business Technology Transfer grant awards, are designed to stimulate technology innovation in the private sector. The Madison Region has averaged 56 awards each year between 2005 and 2009, just over three quarters of Wisconsin’s total awards in this program.

While a tremendous amount of work is being done to help innovators develop businesses, the region’s overall business and job growth numbers still lag behind peer regions.

“Wisconsin and the Madison area in particular have a long history of innovation around technology transfer,” said Tom Still, president of the Wisconsin Technology Council, “but like all things innovative, it’s never a stagnant process.”

Collaborate or Deteriorate

Thrive is taking steps to help the Madison Region work together in a more coordinated, proactive approach to economic development.

“Our ability to compete globally is dependent on our ability to collaborate locally and as a region,” said Gary Wolter, president and CEO of Madison Gas & Electric and board president of Thrive. “The differences between local municipalities or counties pale in comparison to the strengths that all of us share as we compete together in an interconnected world.”

To build connections between municipalities and counties, Thrive established the Capital Region Economic Development Professionals Network, a group of 50 economic developers from the eight-county region. The Network meets quarterly to develop solutions to the region’s most pressing economic development challenges.

However, as Robbins points out, “Collaboration is the starting point. In order to build the region’s economy in meaningful ways, we must take action to retain and expand existing businesses, build export-oriented businesses, and enhance the region’s quality of life.”

In Thrive’s view, long-term, sustainable economic development in the region must focus on three pillars:

  1. Retention and expansion of existing businesses

    Most of a community’s job growth and capital investment come from companies that are already located in a community. Studies have shown that 70% to 80% of new jobs created in the U.S. come from existing businesses. In response to these facts, the region’s economic development professionals have partnered with Thrive to launch BusinessLink, a collaborative effort to build relationships with businesses and to understand and address their needs. Information gathered during onsite business visits is tracked using an online software tool that will allow Thrive and its partners to evaluate common concerns and develop solutions that address the needs of business.

    One of the barriers that growing companies face is access to capital. Thrive’s Capital Growth Initiative focuses on connecting existing businesses and organizations with the financial resources they need to expand. This summer, Thrive released the Capital Connections Inventory, a catalog of the financial programs (tax credits, loans, loan guarantees, and grants) available for economic development projects in the region. Thrive staff works with businesses to help them understand which financial programs may be a good fit for their business and how those programs could fit into their capital structure.

    Statistics show tools like this are in demand. Launched in July, the inventory has been accessed online 1,000 times. Thrive staff has assisted 26 businesses and is currently working with business owners on projects valued at more than $40 million.

  2. Building export-oriented industries

    Manufacturing is considered the classic export industry, but the Madison Region also exports goods and services in a diverse array of industries including professional services, higher education, healthcare, and recreation. Bolstering export sectors creates considerable benefits because export industries are believed to generate significant multiplier effects — i.e., support additional jobs — in other sectors. Epic Systems recently surpassed American Family Insurance as the region’s largest private-sector employer, and both are examples of businesses that export their products and services to buyers well beyond the borders of the Madison Region, bringing new dollars into the regional economy.

    Thrive’s Sector Development Initiative builds on the region’s export industry strengths in manufacturing, healthcare, technology and agriculture. In each of these industries, Thrive works with business leaders to develop programs that the industry professionals feel will open new markets, increase competitiveness, further their mission, or innovate. Through these efforts, Thrive works to expand exports, create jobs, and build wealth in the region.

  3. Enhancing our Quality of Life

    Employers rely upon our regional quality of life to attract and retain a world-class workforce. Numerous communities in the region have been recognized for their top-tier educational systems, recreation opportunities, arts and culture events, healthy lifestyles, and overall livability. But as we look to the future, regional leaders will need to invest wisely to preserve and enhance this quality of life.

    While there are many factors affecting quality of life, few systems have a larger impact than our transportation system. The transportation system has a tremendous impact on land use and development patterns, the quality of neighborhoods, commuting patterns, and the accessibility of schools, community services, and commerce. Given that the Madison Region is facing major choices related to its transportation system, Thrive recently released a report titled “Mass Transit Peer Community Inventory: Lessons for the Madison Region.” The report provides insight into the transit systems of five comparable regions, and analyzed what our community leaders can learn from the experiences of other communities.

Conclusion

“Good economic growth requires tangible action, day-in and day-out,” stated Robbins. “Thrive will continue to supply objective research for the public and private sector to consider, and we will continue to put networks, forums, and tools in place to move ideas and projects forward.”

Holladay: Growing your own is key to recession survival

J. Mac Holladay agrees the “Great Recession” has changed the rules for many things, including economic development. Holladay, CEO of the Atlanta-based Market Street Services, will be in Madison Nov. 9 for Thrive’s third annual “State of the Madison Region Summit,” where he will tout best economic development practices that can help the Madison region navigate choppy economic waters.

Those waters are choppy because the small business formation that has led the U.S. economy to recovery after past recessions has been absent so far.

“There is a great deal of difficulty in seeing that repeat itself this time,” Holladay noted, “because compared to the 2001-2003 recession, when 8% of the jobs were lost by companies with fewer than 50 employees, 41% of the jobs have been lost by small businesses this time. Combine that with very extreme credit issues and small business growth becomes a big question mark.”

There is no question, in Holladay’s view, that the recession has changed how communities compete for jobs and talent. It has accelerated a trend in which there is more emphasis on the two of the three traditional legs of the stool — helping existing businesses grow and encouraging new business formation — than on the third leg of wooing companies from other states.

Still, his strategic advice to the 993,380 denizens of the Madison region is that investments in quality of place and workforce not only help local business, they encourage firms to “come to you,” as Google and Microsoft have done here. Holladay has friends who worked for IBM for 25 years and moved six or seven times, but that’s not happening as much now. “More and more, they are putting branch offices or service centers in places where the talent is,” he said. “The Internet and broadband has made it possible for people to do business anywhere they want.”

Increasingly, they want a presence in university communities like Madison, which have been hurt by the recession but have weathered it better than most. Holladay understands this very well. He has served three Chambers of Commerce and is the only individual to lead state-level economic development organizations in three different states: Georgia, Mississippi, and South Carolina.

In Georgia, where he has witnessed discoveries at Georgia Tech University transform the economy of Atlanta, this has been accomplished by attracting scholars from around the world, by transferring technology from the lab to the marketplace, and by public-private partnerships like the Georgia Research Alliance. The Alliance attracts $30 million annually in support from state government, and its board of directors is dominated by the CEOs of major corporations. “Because major companies are involved in the Research Alliance, they are co-sponsoring research,” Holladay noted.

The biggest change Holladay has seen in economic development is this emphasis on relationships. His company advises communities like Austin, Texas, which has turned business retention into an art form by building relationships with companies like Samsung, which located a semiconductor plant there a few years ago.

“When I interviewed the man who brought the Samsung facility to Austin, I asked him how he felt about this facility. He said, ‘It is my child.’ So I went back and told the head of the Chamber, ‘You’ve got to take care of this man.'”

Apparently, they did because Dr. H.K. Park, now retired as president of Samsung Electronics America, chose Austin again when it came time to build a new and expanded $3 billion semiconductor plant to replace the original facility. “He didn’t even look anywhere else,” Holladay said, “so the point is you’ve got to maintain relationships with the businesses you have.”

Thrive Snapshot

The selected metrics provide insight into economic changes and the direction of the eight-county Madison region. When drawing conclusions about conditions in the overall region, it is important to note that economic trends may vary among individual counties. Furthermore, the size of Dane County’s economy relative to other counties in the region often influences aggregate regional economic trends.

A large portion of sales and use taxes fall on tangible personal property and services, so changes in taxable sales provide one measure of spending activity. Above average per-capita sales suggest that a county captures more dollars from non-local consumers, local consumers are spending at greater rates, or the county has a large share of firms that sell high-cost products (automobiles). January-August per capita sales-tax collections were down in all eight counties in the Madison Region; the regional average fell by 11.2% and 14.5% in 2008 and ’09, respectively.

Source: Wisconsin Department of Revenue. Per capita calculations are based on population estimates and projections from the Wisconsin Department of Administration. *State total calculations are based on only those counties with a 0.5% local sales tax (60 in 2008, 61 in 2009 and 2010)

According to the Wisconsin REALTORS Association, annual home sales in Thrive’s eight-county region increased between 2008 and 2009 in every county except of Rock, which experienced a decline of 3.6%. This chart shows the comparison between the second quarter of 2009 and the same period of 2010, when all but one Madison Region county — Sauk — reported an increase in existing home sales.

Source: Bureau of Labor Statistics — Quarterly Census

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