Sunday, March 30, 2008

A String of Positive Job Announcements Concentrated in the Energy Sector

The core function and primary concern of economic development is attracting jobs, investments, corporate operations and head offices to a region. Over the past several weeks, since the ConocoPhillips announcement, the Denver region has had an excellent string of successes in this area.

Many of the incoming jobs are in the energy or alternative energy sectors which appear poised for substantial future economic growth. RES-Americas, a wind energy company is relocating its headquarters to Broomfield from Austin, Texas. Its notable that, like the ConocoPhillips decision, this relocation did not require state economic development incentives to occur. Instead it appears to be based on the region's emerging status as a green energy cluster.

An executive at wind-turbine manufacturer Vestas said that the Front Range of Colorado is one of the finalist locations for siting a research and development hub. Vestas, of course, recently opened a turbine manufacturing plant in Windsor, Colorado. Littleton-based Ascent Solar Technologies will be expanding its production capacity with an injection of capital from Norwegian aluminum giant, Norsk Hydro ASA. AVA Solar, which makes thin film photovoltaic technology, recently decided to site its first manufacturing plant in Longmont.

Berry Petroleum, a traditional oil company, announced it is relocating its corporate headquarters to Denver from Bakersfield, California. Gas and oil companies continue to have a huge presence in the Colorado economy. According to a recently released study sponsored by the Colorado Oil and Gas Association titled Real Estate Market Impacts of Oil and Gas Industry in Metro Denver:
  • 1,1519 oil and gas firms occupy almost 11 million square feet of metro area real estate.
  • The market value of this property is $483 million with annual rents of $171 million.
  • Almost $26 million in annual local tax revenue is generated by these operations.
  • At least 26,000 workers are employed in the oil and gas sector.

However, thankfully, since the 1980s, the Denver regional economy has diversified into other areas in addition to energy, oil and gas. In the financial services sector, Charles Schwab is planning to bring about 500 new jobs to Denver from its headquarters in San Francisco and its operations in Phoenix.

It will be interesting to see if the Metro Denver Economy is able to continue this string of success in coming months in spite of the current overall U.S. economic downturn.

Saturday, March 22, 2008

The Widom of the Union Station Developer Selection Decision: The Conservative Choice was the Right Choice

I live in the New York Metro Area where there are more than a dozen sorely needed massive infrastructure projects in various stages of planning and execution. As the economy weakens, many of these projects, which are public private partnerships, are beginning to be scaled back or indefinitely postponed.

Figure I: Rendering of the Proposed Moynihan Station in New York, First Proposed in 1993 and Likely to be Delayed and Scaled Back (Image from

The Hudson Yards on the far west side of mid-town Manhattan, The Atlantic Yards in Brooklyn and Moynihan Station (the proposed new Penn Station and Madison Square Garden-see Figure I to the left) are likely to be delayed and/or reduced in scope. When projects of this magnitude and complexity get delayed or postponed, they frequently languish for years or even decades without regenerating enough momentum to be restarted. Many big infrastructure projects like the channel tunnel, which connects England and France by rail, run massively over budget.

Closer to home for Denver residents, the Auraria Campus Science Building had its State of Colorado funding eliminated due to budgetary shortfalls despite the fact that construction has already started. There is a gaping hole in the ground at the Downtown Denver Campus and a great deal of uncertainty about when and if it will be "filled in" with a new science center.

This leads me to the most important public private partnership going in Metro Denver today - the Union Station redevelopment. I have blogged previously about this project suggesting the use of green design ideas, discussing changes in the station design, and the need to integrate commercial bus service on site at Union Station.

Many people were disappointed that Union Station Partners (USPs) lost out to Continuum Partners/East West Partners (CPEWPs) on the contract to be master developer for Union Station. USPs proposed a denser development at Union Station which was closer to the original vision for the site with all of the transportation elements (bus, light rail, commuter rail, Amtrack) located underground in close proximity to each other.

CPEWPs proposed a less costly design with only the bus and commuter rail underground and the light rail above ground a couple of blocks away from the station terminal building. Critics felt this design was too much of a compromise from the original vision, complaining that it would not provide a "world class" solution for the region and that the intermodal transit connections would be inconveniently spread out. These are, of course, legitimate concerns.

This CPEWPs design has subsequently been changed again to move the commuter rail above ground for both budgetary and safety reasons, resulting in even less density at the site and further complaints from critics.

At the time the master developer selection decision was made in November 2006, the project's public leadership argued that level of density needed to pay for the higher costs associated with building the transportation infrastructure underground was very risky. Basically the public sector would be required to make upfront infrastructure investments partially financed by municipal bonds and would have to hope that market conditions would allow for the very dense real estate development to be successfully financed and absorbed to generate enough new property and sales tax revenue to pay off the public sector debt via a process known as tax increment financing (TIF). If economic, real estate or financial market conditions changed between the time the public sector investment was made and the real estate was developed and leased, the public sector could be "on the hook" for millions of dollars in debt without an adequate revenue stream to service the bonds.

According to a Rocky Mountain News Article featuring extensive quotes from then Denver Director of Economic Development John Huggins:

"[USPs], Huggins explained, needed almost every dollar of income projected from private development to pay off the public bonds that will fund a state-of-the-art travel hub. 'If the projected private development isn't there,' Huggins said, 'or if it comes late or if it isn't as valuable, there won't be enough money to pay back the loans. It was like a balloon inflated to the bursting point. One sharp edge and the thing would pop.'"
Since the selection of CPEWPs was made back in November of 2006, two things have happened. First, the costs of building the transportation infrastructure and refurbishing Union Station have escalated and the resulting design has been scaled back. Second, economic conditions have deteriorated. If the more expensive USPs plan had been selected, I beleive the whole project might have become economically infeasible jeopardizing the overall FasTracks Plan or causing large scale delays to the project timetable.

With the benefit of a few months of hindsight, the decision to select CPEWPs as the master developer was clearly the correct choice. Underground transportation infrastructure and greater density is a good thing for a transit-oriented development like Union Station but its an even better thing to have a transit hub that actually gets built and provides benefits to the region. A theoretically great design that never gets built or gets delayed for years or decades or that bankrupts the public purse would not be an acceptable outcome for the Denver Region.

Saturday, March 15, 2008

The Wisdom of FasTracks

The FasTracks program is working its way from planning to implementation stages along the various transit corridors. A range of issues and challenges are emerging from cost overruns and service cut backs, to engineering challenges and community opposition to the noise and disruptions associated with rail service, to the fear and pain experienced by individual property and business owners whose land is in the rights-of-way which will be acquired to build the transportation network. In the face of all these issues, it is very easy to forget the long term region-wide benefits of building such an extensive public transport system.

In the age of $100 per barrel oil and gas prices approaching $4 a gallon, growing concerns about global warming, and ever increasing world-wide economic competition among metro areas, the FasTracks investment looks wise indeed. I found this article about the growing use of public transportation based on a study by the American Public Transit Association to be a powerful reminder of the foresight of metropolitan Denver voters in approving the plan.

Tuesday, March 11, 2008

The Denver Region in Richard Florida's "Who is Your City?"

I mentioned Richard Florida in two recent blog posts (here and here). Florida, currently a Professor of Business and Creativity at the Rotman School of Management at the University of Toronto, is a well known public intellectual who specializes in issues of economic competitiveness and the role of social and demographic trends in place-making and economic development.

He has a new book titled Who's Your City? which delves into how people make location decisions. Part economic development tome and part self-help guide, this book and its associated web site, take Florida's academic work and makes it applicable and useful for everyday Americans thinking about a relocation decision.

The Who's Your City? web site has several very interesting features including a "Best Cities" section and a series of graphic maps. In the Best Cities section among small regions, Boulder is ranked as a top 5 city for young singles, mid-career professionals, families with children and empty-nesters and Denver is ranked as a top 5 large region for mid-career professionals.

The maps are also very interesting, showing how real estate prices, economic activity, innovation, personality types, gender distribution, population and other factors are spread across geography. Its very interesting to see how the Denver Metropolitan Region appears on these maps. Collectively they convey how the region is a relatively remote island of activity surrounded by economically sparse parts of the country.