Monday, July 30, 2007

The DIA Expansion: Fullfilling the Vision

There was great news today for Metro Denver economic development wonks. Jeff Leib’s article in the Denver Post, “$1.2 billion makeover for DIA” ( ), explains that Denver is issuing municipal revenue bonds to pay for major airport expansion items such as new gates, a commuter jet terminal, a new automated baggage system (sound familiar?), the FasTracks commuter rail station at DIA, and additional parking facilities. I plan to devote a future blog about design considerations for Denver’s “Train to Plane” rail connection.

DIA is expanding its facilities and infrastructure to accommodate increasing traffic. This is an important milestone in the history of aviation in Denver. DIA was envisioned as an economic development engine for Denver in much the same way as DFW airport is for the Dallas Metro Area. Building DIA was always a strategically sound idea based on the fact that Denver’s location, between the population centers on the West Coast and the Midwest, makes it a natural transportation hub (see my blog from July 13, 2007, “Spatial Isolation and Punching Above Denver’s (Population) Weight”) . Denver needed an airport farther away from the urban core of the city with room to expand as traffic increased and with space for appropriately sized and configured runways to handle weather related challenges in Denver. DIA is one of the few major airports in the country with plenty of room to expand its facilities and with flight paths into and out of the airport over relatively sparsely populated land. I personally fly Jet Blue out of John F. Kennedy Airport in New York regularly and as Jet Blue has grown and expanded, the airspace around JFK has gotten so congested that flights regularly suffer from serious delays. This summer in particular has been a nightmare. Reducing this congestion will be a really hard thing to do for JFK and most other large airports in the United States because they can’t expand the same way DIA can.

DIA suffered a number of set backs early in its history including the abandonment of the Denver hub by Continental Airlines and problems getting the first attempt at an automated baggage system running. Just as air travel industry was hitting stride in Denver, the events of 911 and the resulting airline financial problems sent the whole industry into a downward economic trajectory. However, Denver’s natural strategic advantages as an air transportation hub have allowed DIA to steadily build into a powerhouse as United Airlines retained Denver as a hub, Frontier Airlines was launched from a base at DIA and has expanded tremendously and more recently as South West Airlines has aggressively entered the market. The airline industry will always have cyclical ups and downs and Denver needs to be prepared for the downturn which will eventually follow today’s boom in travel, but DIA is positioned to play an increasingly prominent role in the national air transport system and to help drive the Denver Metro Area’s economic growth.
Photos provided courtesy of Denver International Airport.

Wednesday, July 18, 2007

The Opportunities and Risks of the 2008 Democratic National Convention

Congratulations to Denver Mayor John Hickenlooper for his well deserved second term in office. Expectations are a mile high. The new term will offer many opportunities and challenges. Perhaps none is bigger than an event I alluded to in my July 13, 2007 blog -- Denver's once-in-a-century opportunity to host a major national political convention. When the Democratic Party comes to town to formally select its 2008 Presidential nominee, it will be 100 years after Denver hosted its first major political convention.

In 1908, when the Democratic National Convention was in Denver, the city was trying to lure residents from the East Coast to the Rocky Mountain West and was in the midst of a major building effort based on then Mayor Speer's embrace of the City Beautiful movement. Today, Denver competes in a fierce struggle to lure global talent, capital and businesses and is experiencing an extended period of urban revitalization and construction.

The 2008 Democratic Convention is an unparalleled opportunity to show the world all that Denver has to offer. Its a chance to add luster to Denver the brand - and to place the metro area into the consciousness of decision makers from around the world as Denver will become the media capital of the planet for a four day period. It will also bring a multi-million dollar economic windfall to several sectors of the metro economy.

With this opportunity comes increased risks --- labor strife, political protest, financial shortfall, logistical snafus and, unfortunately, the possibility of a terrorist attack. If Denver wants to fulfill its aspirations, rise in the rankings of great cities and host future events like the Winter or Summer Olympics, it must successfully manage these risks.

I believe the "can do" spirit of Colorado can make the convention a huge success for Metro Denver, the State of Colorado and the entire region but it will take long days and late nights of planning, hard work and dedication and flawless execution.

Good luck to Elbra Wedgeworth, Mike Dino, Mayor Hickenlooper, Governor Ritter and the people of Colorado.

Friday, July 13, 2007

Spatial Isolation and Punching Above Denver’s (Population) Weight

One of the reasons the Denver Metro area is such an interesting and exciting place is that it has a disproportionately large concentration of urban economic activity and amenities compared to most areas its size. According to the 2000 United States Census, the Denver Consolidated Metropolitan Statistical Area (CMSA) was the 19th largest CMSA in the country. However, as the following illustrative list shows, it ranks much higher than its population would suggest in many important urban dimensions:

  • The Denver central business district is the 11th largest downtown in the country as measured by total employment.
  • Denver International Airport (DIA) is currently the 5th busiest airport in the United States.
  • Metro Denver has the second largest number of federal government employees of any metro area in the U.S.
  • The Denver metro area is one of only 13 areas to have a professional sports “grand slam” with teams in each of the four major leagues. Metro Denver has the smallest population of any metro area with a grand slam. Additionally, the Mile High City is one of only four cities which have a team from each league located within the city’s municipal border.
  • The Denver Center for the Performing Arts is the second largest performing arts complex in the country.
  • The Denver Public Library - Blair Caldwell African American Research Library is the only facility of its kind between Detroit, Michigan and Oakland, California.
  • Denver hosts one of the largest Cinco de Mayo Festivals in the United States.
  • Combined, The Denver Post and Rocky Mountain News have the 8th largest newspaper circulation in the United States.

So why does Metro Denver “punch above its weight” in terms of these economic activities and urban amenities? Historical, political and other factors play a part. For example, Denver’s role as the capital city for the State of Colorado – a relatively rare position for the largest city in a state – promotes the metro area’s economic and cultural success. Additionally, well run local governments in the City and County of Denver and the surrounding jurisdictions also make an important contribution.

However, I believe that the central reason for Denver’s strong rankings compared to other cities is its geographic location. Of all the metro areas with populations over 2 million people in the United States, Denver is the farthest from other such areas. The closest metro area to Denver with a population of more than 2 million is Kansas City which is more than 600 miles away to the east. Other cites – Phoenix (800 miles southwest), Minneapolis (900 miles northeast), Chicago (1000 miles northeast), Portland (1300 miles northwest), and San Francisco (1300 miles west) – are even further away. There are no areas with populations greater than 2 million directly north or south from Denver in the continental United States. Denver fills a very large population void in the western central portion of the country.

Denver’s physical isolation from other large population centers means that for a very geographically large region of the United States, Denver is the nearest major metropolitan center – as is accurately implied by two of its nicknames “the Queen City of the Plains” and “Capital of the Rocky Mountain Empire.” The Denver Metro area has a strong centripetal economic and cultural pull throughout the Rocky Mountain West and parts of the Mid-West.

Denver’s central location makes it an ideal transportation, logistics and distribution junction, as shown by its hub status in the national railroad and air transportation networks. This role as a transportation hub is particularly notable given that Denver is one of only a few major cities to develop without access to a navigable body of water such as an ocean, great lake or river.

When policy makers and civic leaders in Metro Denver are planning economic development strategies they should leverage Metro Denver’s geographic location and spatial isolation and be aware of the drawbacks of isolation (e.g less economic spillover from other large nearby cities). The public sector investments in developing DIA and the regional collaboration with other cities in the Rocky Mountain and Sun Belt West used to secure the 2008 Democratic National Convention for Denver are two outstanding examples of promoting economic development by playing to Metro Denver’s geographic strengths.

Wednesday, July 4, 2007

Analyzing the Metro Denver Economic Base With the Location Quotient

Metropolitan areas have groups of vertically and horizontally related businesses that form important “industry sectors” or “clusters” in the local economy. Understanding what these sectors are; how important they are to the city’s overall urban economy, what causes specific firms and sectors to locate in one city versus another; which new clusters have the best chance of taking root in a given city, and what public policy and other mechanisms help cultivate and strengthen clusters are key aspects of economic development practice.

I intend this to be the first in a series of blog entries exploring various aspects of Metro Denver’s industrial clusters. This entry limits itself primarily to the logical initial questions of “what are the most important employment sectors to the Metro Denver economy?” and “which industries are key components of the Denver economic base?” Subsequent entries will analyze the data provided in this entry and will address broader economic development questions specified in the first paragraph above.

The most interesting parts of this blog entry are the industry graphs and tables showing which sectors are most important to the Denver economy so I wanted to present this data in the early part of the blog entry and the provide explanation of how and why this data was developed later in the entry.

To provide a some high level information on which sectors provide employment in Metro Denver see the two graphs below which provide a breakdown of total employment percentage by industry supersector in Metro Denver. Note “supersectors” defined by the federal government and group the U.S economy into ten broad industry sectors.

Employment Percentages by Supersector
in the Nine Country Metro Denver Region in 2005

Source: Bureau of Labor Statistics

Employment Percentages by Supersector
in the City and County of Denver in 2005

Source: Bureau of Labor Statistics

When analyzing a metropolitan economy its not enough to show the broad breakdown of employment by supersector, you also need to understand, on a more granular level, which specific industry sub-sectors are part of the area’s economic base. I provide a more complete definition of economic base and the theory behind it later in the blog, but for now, think of a city’s economic base as those industries which “export” goods and services to markets outside the metropolitan economy.

Using an economic technique called the “location quotient” and a data analysis tool from the Bureau of Labor Statistics (BLS), I have estimated which industry sectors in the nine county Metro Denver Region and the City and County of Denver are part of the economic base and ranked the 15 industries with the largest location quotients.

Economic Sub-Sectors Ranked by Location Quotient
in Nine County Metro Denver in 2005

Source Bureau of Labor Statistics

Economic Sub-Sectors Ranked by Location Quotient
in the City and County of Denver in 2005

Source: Bureau of Labor Statistics

The analysis presented in this blog is based on “economic base theory” which postulates that cities have “export” sectors that produce many of their goods and services for consumers outside of the city and other sectors that primarily supply the local residential population in the city. The export sectors, also known as the economic base, are critically important to the city’s overall economic strength and vitality because they are able to penetrate markets beyond the city’s geographic boarders and bring new income into the city. Export sector income, interacts with the intra-city economy to create a multiplier effect that raises income and employment throughout the metropolitan economy. Economically healthy cities need a strong economic base as well as vibrant local support sectors.

When analyzing a city like Denver’s economic base, one readily available tool is the location quotient (LQ) which attempts to measure which economic sectors are net exporters by analyzing the composition of the city’s workforce from publically available data sources. The LQ is an intimidating sounding term but in reality it is quite simple. The basic concept underlying the LQ is that those sectors where the city has a higher concentration of employment than the United States as a whole does, are export sectors (part of the city’s economic base). Because the city has a higher than average employment in the sector it must be producing more goods and services than the local population can consume. The automobile industry in Detroit is classic example, because the “Motor City” has a higher than average concentration of autoworkers, so Detroit must be building cars for “export” to other cities. The location quotient is defined by the following formula:

The variables in the equation above stand for the following: TEc = total employment in a city, IEc = employment in a specific industry in a city, TEn = total employment in the nation, IEn = employment in a specific industry in the nation. %IEc = percent industry employment concentration in a city and %IEn = percent industry employment concentration in the nation.

· If the LQ > 1, than an industry is in a city’s economic base because the city employs a higher proportion of people in that industry than the country as a whole does and so the city must be exporting their surplus products or services which are not being consumed locally.

· A LQ =1 indicates the city is roughly self sufficient in a given industry and is not a net exporter or importer of that product or service.

· An LQ of <1 indicates that an industry is not in a city's economic base and the city is a net importer of goods and services produced by that industry. Industries with LQs which are less than 1, such as .8, may still be considered part of a city’s economic base because it can be difficult to define industry clusters with the necessary amount of specificity to use "1" as the boundry.

The underlying data used in this blog entry comes from the BLS quarterly census of employment and wages. Industry sectors are classified based on the North American Industry Classification System (NAICS), a standard used by government agencies and are reported at the supersector level of detail (breaking the economy into 10 different components) in the pie charts and at the sub-sector, or 3 digit, level of detail (breaking the economy into 92 different industry sectors) in the tables.

This blog entry was getting so long that I decided to provide analysis of the information contained in the entry in a later entry.