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Five Hard Questions for Build Back Better Applicants

Below is the Nowak Metro Finance Lab Newsletter shared biweekly by Bruce Katz.


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September 15, 2021

The announcement of the Economic Development Administration’s (EDA) $1 billion Build Back Better Regional Challenge (BBBRC) has created a scramble not seen since the 2017 competition for Amazon’s HQ2.

While the Amazon HQ2 competition focused on winning the physical presence of a single (very large) employer in a single location, the BBBRC seeks to strengthen a wide range of industry clusters, spanning healthcare, advanced manufacturing, AI, clean energy, ag-tech, and more, across dozens of regions and equip a geographically diverse set of communities to have dynamic and resilient local economies. Ultimately, 20 to 30 regions will each receive between $25 million and $100 million to execute on economic development strategies to grow industry clusters.

As a result, in dozens of communities, broad networks of public, private, civic and community institutions are coming together quickly to reach consensus on their leading economic clusters and to design multi-stakeholder and multi-jurisdictional economic development strategies and applications for federal investments before the program’s application deadline of October 19th.

The scramble has been set off by four intersecting factors. In the process, it has raised difficult questions about how to orient a local economy for transformative use of federal investments.

These factors are:

First, the BBBRC is the opening act of the Biden Administration’s multi-year wave of ambitious federal actions to remake economic development and American competitiveness. The BBBRC itself is aimed at advancing US competitiveness by scaling distinctive industry clusters, driving quality job growth and achieving equitable outcomes. Leveraged correctly, the BBBRC will be the beginning of purposeful and intentional industrial policy that allows places to build on their distinctive strengths in distinctive ways.

The funding being made available through the BBBRC represents the Administrations ambitions for this to be much more than a “one and done” exercise. The funding — up to $500,000 for technical assistance grants awarded to 50-60 regions, and between $25 million and $100 million for project execution awarded to 20-30 final applicants — is large by the traditional standards of the EDA, but small by the size of metropolitan and regional economies. As such, the real win is for local economic stakeholders is in building the foundation for long-term economic transformation. This win requires thinking in transformative ways about what it will take to leverage their economic position over multiple years and across multiple, mostly compartmentalized and yet to be fully-determined federal investments across innovation, infrastructure, human capital, placemaking, small business and beyond. Executing on this well requires focused cross-sector collaborations.

Second, the BBBRC is smartly structured as a multi-phased process. The 50 to 60 winners of Phase 1 of the challenge (announced in December 2021) will receive Technical Assistance funding to concretize and develop specifics for 3 to 8 projects that will unlock economic potential, with final applications due in March 2022. The 20 to 30 winners of Phase 2 investments will then receive funding to carry out these projects, with money set to arrive in September of 2022. This sequencing of general narrative, strategy design and project delivery has been used successfully by the federal government before, namely by the Department of Housing and Urban Development with its Choice Neighborhoods program. The end result is more thoughtful applicants, more refined applications, more impactful projects, longer-lasting collaborations and an expanded field of sophisticated practitioners across the country.

Third, the BBBRC is smartly structured as an exercise in collective learning and field building. The truth of the matter is that the federal government does not know what Building Back Better means for a similarly sized metropolitan areas (Detroit versus Denver) or a large versus a small or mid-sized metropolitan area (Denver versus Duluth); nor should it! These economies have radically different economic starting points as well as differing assets that are affected by market and societal dynamics. Rather than micromanaging, the federal government is permitting communities to innovate in ways that are fit to place and fit to purpose. This represents an understanding from the federal government that America’s historic economic dynamism and innovation comes from the fact that we are a fundamentally large and diverse country with new ideas, products and specialties bubbling up from below. As a result, the federal approach is likely to lead to more rather than less innovation and a community of practice that can ultimately adapt lessons from first mover communities to fast followers and beyond.

Fourth, the Regional Challenge is happening at lightning speed. The federal government is not always known for moving fast, but the EDA is serious about changing that through the BBBRC. The challenge’s Notice of Funding Opportunity was published on July 22, 2021; applications for Phase 1 grants are (incredibly) due October 19, 2021 and funding will be announced for Phase 1 winners by December 8, 2021. That’s a lot of work to do in a short time, even when working relationships are well established, norms and models are well codified and stakeholders are able to meet face-to-face in creative, white-boarding sessions.

The upshot of these four factors: local coalitions of public, private and civic stakeholders must focus the efforts of their cross-sector organizing on projects and sectors that can lead to long-term, sustained, economic success that brings along populations that are usually excluded. This takes rigorous work and some creativity – and the race is on.

With this background and less than five weeks to go before applications are due, communities would be wise to develop concrete answers to the following five questions as they sharpen their pitches.

1. Are you modeling a new form of behavior that bodes well for long term success?

In theory, scaling clusters should be a team sport that requires disparate entities to work together across different jurisdictions, sectors, disciplines and capital and service providers. Some places like Cleveland, Indianapolis and Pittsburgh, to their credit, have built strong ecosystems with patient philanthropic and corporate support. In each of these places, collaboration has not happened overnight; it has been hard-won through multiple decades of work intensely focused on economic impact (grounded in rigorous analysis) and getting serious leadership commitment — of time, money, and political capital — across sectors. We write about the Pittsburgh and Indianapolis models in much more detail in chapters 4 and 5 of New Localism.

During her tenure as Governor of Rhode Island, Secretary of Commerce Gina Raimondo (whose influence is visible in the EDA challenge) cultivated a similarly collaborative ecosystem. Her Real Jobs RI initiative made a paradigmatic shift in workforce development by taking a company-driven, train-and-place approach, in which skills training closely aligns with cluster strengths, market opportunities and company needs for specific knowledge and competencies. The state now boasts tight connections between companies, business intermediaries, government and key secondary and post-secondary institutions and activities and recognizes that every industry — from commercial fisheries to manufacturing to health care to financial services — feels the impact of advances in technology.

In most communities, however, collaborating to compete is still a work in progress, even across practitioners and organizations that characterize themselves as “economic developers.” Bespoke partnerships routinely exist, between, for example, a single community college and a specific major employer. But broader collaborations are more difficult to start and sustain, partly because the incentives, cultures, languages and modus operandi are radically different across different sectors in the economy and different kinds of institutions.

We see the EDA’s BBBRC as a clarion call for economic coalition building: no matter where you are in the process, now is the time to strategically grow bespoke collaborations into bigger ones, to put new wind in the sails of broader collaborations around a specific focus, and to build out new capacity for established and successful broad-based collaborations. Ultimately, whether or not this leads to a grant in this particular challenge, it will pave the way for the long-term victory: a dynamic, competitive and inclusive local (and ultimately national) economy.

2. What is the problem statement or opportunity statement that drives the cluster strategy? Identifying a distinctive industry cluster via quantitative analysis is only the first step in designing a successful economic proposition. The good news is that the federal government collects a substantial amount of data around industries, which allows individual communities to compare and contrast their strengths and weaknesses with a level of precision and granularity uncommon in many countries.

As a refresher, an industry cluster requires the geographic concentration of connected businesses, suppliers and skills- and service-providers. Clusters require secondary and post-secondary institutions to equip workers with the skills they need to succeed, research institutions to enhance competitiveness through innovation and access to capital and technical assistance to enable entrepreneurship and the commercialization of new products and services.

However, identifying a cluster strength is only a starting point for strategy design. A national competitiveness agenda requires localities and regions to understand either what is holding their place back (e.g., the absence of cluster- or company-driven skills building) or gives them a leg up during a period characterized by rapid technological progress and market disruption (e.g., the electrification of the auto sector, the rise of technology driven precision- and personal-medicine). It also requires localities and regions to focus around inventing (or more likely deploying) converging technologies that cut across multiple industries.

Communities should ideally prepare problem statements (or opportunity statements) to tease out the multiple strategies, investments and relationships that must be made to unlock the full potential of local and regional economies over the next decade or so. Ideally these statements should grow out of pre-existing analyses and plans like the STL2030 Jobs Plan or the Cleveland region’s Blueprint for Manufacturing. The Build Back Better application should be a down payment on what must be a broader suite of investments over time.

Care must also be given to aligning strategies and replicating successes in ways that account for varied market realities. Cluster led success stories in cities and metropolitan areas that are blessed with Tier 1 research institutions may or may not translate to communities without those kinds of strengths and the commercialization possibilities that they enable. The bottom line is that developing a good BBBRC proposal comes down to what we’ve previously called the Dolly Parton principle of economic development: “find out who you are [or what your economy is] and do it on purpose.”

3. Is your geography selected for authentic market reasons or mere political calculations?

Different kinds of clusters (e.g., advanced production versus service industries) come to ground in ways that naturally tap the distinctive offers of different parts of a metropolitan area or region and require investments that harness these differences for collective impact. Because of the geographically distinctive nature of particular clusters’ political economies, there is a real danger that cluster strategies disintegrate into mere political horse-trading (e.g., funding an infrastructure project in county x as a quid pro quo for a center of research excellence in city y).

From our understanding, the EDA is focused on funding projects that solve economic problems with the BBBRC. Having more counties or even states as part of a cluster application clearly satisfies a kind of political math; whether they actually scale clusters and solve the economic problems that EDA is concerned with is a debatable proposition. Communities should do everything possible to ensure that the geographies selected for the BBBRC reflect true nodes of production, innovation, skills and logistics. Going forward, geographically mapping clusters (and their disparate economic arrangements, institutional relationships and supply chains across jurisdictional lines) will need to become a more sophisticated exercise, with long standing implications for public and private investment.

The political and economic strengths of cities will come to bear in two especially dramatic ways as the tussle over geography proceeds.

On the market side, city strengths will undoubtedly emerge around the organic rise of innovation districts near advanced research institutions in the cores of cities. These districts reflect the innovative economy’s demand for co-location, proximity and density so that companies, researchers and entrepreneurs can share ideas rather than invent in isolation. Innovation districts will arguably gain more significance post pandemic (as an investable asset class) as central business districts are disrupted by remote work.

On the political side, cities will play an important role through establishing executive buy in. It is of paramount importance that the proposal that a metro or region advances has unified executive backing across the region, from industry executives, institutional and education leaders, unions and worker organizations, and political leaders. Along with being best-practice for good economic development, this is crucial for proposing a coherent, well-fleshed out proposal to EDA. As proposals scale up to include whole metros — and even whole regions — it will be vital for City Hall leadership to speak with a unified voice to represent the interests of the city (in our view, it is not ideal if all this money blows through the country and the net result is, for example, 30 more suburban office parks).

4. Are your institutions or intermediaries built for success?

For decades, economic development in the United States has mostly focused on “what” strategies to pursue to unlock competitive advantages (e.g., a plethora of tech incubators and accelerators populate the landscape). Less attention has been given to “how” cities and metros design, finance and deliver successful strategies in seriatim.

That is beginning to change. City and metro leaders increasingly recognize that many of the institutions built in the 20th century to govern and finance cities are now inadequate to the task and are experimenting with new kinds of institutions and intermediaries that are more fit to 21st century needs and possibilities. The ecosystems built in Cleveland and Indianapolis rely on strong business leadership groups like the Greater Cleveland Partnership and the Central Indiana Corporate Partnership. The most advanced innovation districts in the country, like the Cortex Innovation Community in St. Louis, are stewarded by strong organizations as well as cluster intermediaries like Bio STL. Tulsa is creating a new Public Authority on Economic Opportunity to adapt European models that capture the appreciation in land value for continuous reinvestment in public goods and services. Cincinnati and Erie have built nonprofit development corporations with the ability to drive large scale urban transformation. Philadelphia is exploring a new intermediary to maximize the deployment of public infrastructure resources across multiple public agencies for the formation and growth of Black- and Brown owned businesses.

The message is clear: transformative impact however comes when institutions and intermediaries have the capacity, capital and community standing to operate across market cycles and in ways that build public wealth for the long haul.

5. Is your focus on equity fully baked into the application or merely an afterthought to meet selection criteria?

This brings us back to the first question! Modeling good behavior requires new constituencies to be at the table in meaningful ways, including leaders from communities that have traditionally been left behind by our existing economic systems. In most communities, the building of advanced industries has occurred with little emphasis on reducing racial or spatial disparities; in fact, the opposite has often occurred. This is true even when innovation hubs or districts are located blocks away from neighborhoods of high poverty, which is common in most U.S. cities. Successful efforts around supplier diversityworkforce developmentinclusive entrepreneurship and neighborhood revitalization exist, but they are exceptions rather than the rule and rarely deconstructed in ways where they can be easily adapted from place to place. It will be vital to successful proposals — and to longer term impact — to link inclusion and innovation together as the fundamental premise of a BBBRC application. We intend to provide more guidance on the meaning and practice of “equity” in the coming weeks.

Concluding thoughts: Building Back Better means Doing Thing Differently

As we have written before, the COVID pandemic exposed our county’s racial and spatial disparities in ways never experienced before. In the same vein, the early wave of federal investments under the Biden Administration are stress testing local institutions and networks. The BBBRC serves as a serious nudge to create a country that’s more dynamic and competitive, oriented toward the future, and leaves fewer workers behind. But creating real change is a messy and difficult process, as many applicants are currently learning. Asking hard questions now will hopefully help resolve some of this early messiness and prepare places for the torrent of federal funding that comes later. To build back better, communities must start to do things differently.

Bruce Katz is the Founding Director of the Nowak Metro Finance Lab at Drexel University. Colin Higgins is a Senior Research Fellow at the Lab. Steven Gu was a Graduate Research Fellow at the Lab this past summer.