Dallas at the Tipping Point A Road Map for Renewal. Executive Summary

Transcription

1 at the Tipping Point A Road Map for Renewal Executive Summary April 2004

2 Preface In September 2003, The Morning News approached Booz Allen Hamilton a global leader in strategy and technology consulting for corporations and government clients around the world to assess the effectiveness of city government. In engaging Booz Allen, The News sought an independent perspective on three questions fundamental to the City and its future: 1. What are the key challenges facing the City of? 2. How well is City Hall positioned to cope with these challenges? 3. What does the City of need to do to position itself for long-term success? Booz Allen and the senior reporting staff at The News developed an extensive database of information about the municipal government and about life in the City. The Firm also conducted extensive research about other cities similar in size (designated as peer cities 1 ) in order to compare performance to others. The News surveyed 2 the City s customers the residents and businesses of to provide a human face to the statistics and analysis that underpin the findings. This report follows a number of prior studies of the issues facing the City of. In 1995, The News published Learning from, side-by-side front-page articles examining the problems facing and exploring how the Michigan city widely considered a textbook case for 20th-century urban decline could hold lessons for. Several books 3 have highlighted concerns about the future. The private sector has also periodically developed plans to drive toward a better future. 4 To our knowledge, this report is the first comprehensive assessment of the City s operations, structure, and quality of life that also offers a strategic view on and where it is headed. For this reason, Booz Allen employed techniques in its analysis that were developed for corporate strategy assessments. Throughout the engagement, the team viewed as both a major urban center and a business, and applied best practices from the corporate world in its analysis and recommendations as if the team were working on behalf of a Board of Directors. So it is no accident that what follows will, at times, read more like a corporate strategy assessment than a report written by a municipal think tank. The report is written without paying homage to the political sensitivities that typically pepper discussions of governments. It is also blunt. It is written for citizens who want the unvarnished truth and have neither the patience nor the time to cut through layers of political wrapping. For long-time residents and community leaders, this assessment may be a tough read. The data paint a picture of a city and a community that are failing on many of the most basic dimensions. It warns that the consequence of business-as-usual will be to see go the way of declining cities like becoming a troubled, hollow urban core. At the same time the report provides an optimistic view. It identifies many of strengths and finds in them an opportunity to build upon the City s advantages. It provides a roadmap for the future that is both specific and actionable. Like most of the readers of this report, we live and work here in the City, and we wish to see our community thrive. Most of all, this report sends a clear message the future is in no one s hands but our own. That message is always both encouraging and daunting, but we believe it is the right place to begin planning for the future. Here, then, is a report to the management team (City Hall) and the shareholders (the community) of Inc. We hope it will be the beginning of a strategic transformation that leads the City into this new century with a renewed sense of opportunity and confidence. 1 Because the focus on the incorporated City of and City Hall specifically, we selected peer cities where city governments were serving populations of similar size. As a result, commonly referenced regional peers such as Denver or Atlanta did not make it into the peer city set because the populations of their incorporated core cities were either significantly smaller (Denver, Atlanta) or significantly larger (Chicago) than the City of. 2 Morning News commissioned a Citizen Poll in October 2003 through Blum & Weprin Associates, Inc. 3 Books include: Civic Culture and Urban Change Governing by Royce Hanson, Darwin Payne s Big D: Triumphs and Troubles of an American Supercity in the 20th Century, and Michael Hazel s : A History of Big D. 4 For example: The Plan, The Southern Sector Initiative, and A Balanced Vision Plan for the Trinity River Corridor.

3 1 at the Tipping Point A Road Map for Renewal Sumary of Findings is a city with tremendous natural advantages. It has a low cost of living, a diverse economy, one of the highest productivity levels of any of its peer cities, a vibrant high-income community, a fast-growing immigrant population, and an optimistic attitude. also has a solid infrastructure base and in the southern part of the city enjoys the natural beauty of the nation s largest urban forest. From the outside looking in, still enjoys a reputation as the cosmopolitan center of the South the eponymous city of movers and shakers reflected in the popular 1980s television program. By all rights, should be booming like many of its peer cities that experienced population growth above the United States average over the last 50 years,,, and (see Exhibit 1). Instead, the City is lagging behind on many key indicators. More worryingly, is falling further behind with each passing year. The City is rapidly losing its position as the region s economic core, the quality of its workforce is relatively low, and it is increasingly home to a transitional population rather than a community of middle-class families that live and work here. Exhibit 1 City Population Change and Average Annual Percentage Change ( ) Population Change (Millions) Average Annual Percent Change 6% 5% 4% 3% 2% 1% 0% 1% 2% United States 0.0% 0.7% 0.6% 1.3% 1.2% 1.3% 1.0% 2.0% 2.0% 2.4% 2.5% 2.6% 3.2% 4.5% 5.1% Southwest Peer Cities Other Peer Cities Note: Data represents the City limits, not the Metropolitan Statistical Area, unless otherwise noted. Source: U.S. Census Bureau

4 2 Exhibit 2 Performance Across Quality of Life Indicators 2,500 2,000 1,500 1, % 8% 6% 4% 2% 0% 35% 30% 25% 20% 15% 10% 5% 0% City Economic Development: Gross City Product Per Capita Average Annual Percent Change ( ) 9.3% 7.4% Public Safety: Violent Crimes Per 100,000 Population (2002) 32% % 3 2 City % Public Health: Public Hospital Beds per 1,000 Uninsured Persons (2002) % 4.2% 4.0% % 3.3% , % 2.6% % 2.3% 1,316 1,371 1,577 2,055 2, % City % 2.2% % ,200 1, City % , Public Education: SAT Scores (2002) ,055 1,004 1, City City % Traffic and Transportation: Average Annual Hours Delay Per Person (2001) Environment: Percentage of Good Air Quality Days Per Year (2002) 81% 78% 77% 75% 72% 61% % 54% 50% 49% 6 6.2% % 42% 41% 39% 39% City % No Percentage of Citizens Ranking as #1 Concern Note: Data on charts is sorted from best to worst. Source: U.S. Census, FBI Uniform Crime Reports, School Districts, U.S. Housing and Urban Development Department, U.S. Environmental Protection Agency, American Hospital Association, Texas Transportation Institute, UCLA Center for Health Policy Research Driving, or at least accelerating this trend, is performance on core quality-of-life indices. The city suffers from high crime rates, poor public education, difficult commutes, declining air quality, and a lack of high-quality family housing. If an aggregate quality-of-life index were created, weighted according to the things that matter most to its residents, 1 would rank near the bottom among its peers (see Exhibit 2). However, does not see itself as a city in crisis. Buoyed by the natural growth in the region, city leaders can point to a wide range of statistics that suggest things are okay. But our analysis reveals the unmistakable signs of decline. The City s unemployment rate is 27 percent higher than in the surrounding metro area. 2 Sales tax revenue is declining as the suburbs capture a greater share of retail activity. And despite increasing overall property values, the commercial tax base is producing a lesser share of the revenue mix (and, in the most recent year, less in absolute terms) For the first time, residential property in 2003 generated more tax revenue than commercial property. Perhaps most troubling, a Morning News survey of area executives makes clear that is becoming an increasingly unfriendly place to do business. The data indicate that is a city in crisis. 3 And while it is still early enough to intervene, the decisions the City makes in the next few years will either put it on a path of steeper, more visible decline or help the community assume its natural role as the cosmopolitan center of the Southwest. Exhibit 3 illustrates the challenge. Exhibit 3 Cycle of Decline "Tipping Point" Busineses and individuals migrate to the surrounding areas It is hard to work with City Hall. There s a lot that the City doesn t do for business City staff doesn t understand business needs. All these diminish the feeling that you can get anything done. Many local businesses give up and move to the suburbs. City Business Leader Quality of Life Declines Tax burden increases Hollow Core Resources for city services decline The tax base declines Infrastructure requirements under-funded Source: Booz Allen Hamilton 1 Morning News Citizen Poll, October Average between January 2002 and December 2003, Bureau of Labor Statistics. 3 We should note that most of the publicly available data and analysis on cities tends to obscure rather than highlight differences in urban performance. The Federal Government has a habit of aggregating municipal performance data into metropolitan statistical areas that encompass both the city itself and the surrounding suburbs. These data, which measure across different governments and communities, diffuse responsibility and make cities like which are surrounded by strong suburban communities look like better performers than they really are. We did not follow that trend. Although this created signifi cant challenges in terms of data collection and analysis, it allowed us to make direct comparisons across cities and their governments.

5 3 We think of urban centers as complex human ecosystems in which natural assets attract resources and capabilities that enhance the strengths of the whole. The resulting virtuous cycle creates urban centers such as,, and, where strength builds upon strength. But as in all ecosystems, when one critical part of the system breaks down, there is a cascading effect that creates a cycle of decline. It is often impossible to know where or when the breakdown reaches the critical level the tipping point but once it has reached this stage, the cycle of decline feeds on itself: the quality of life declines; businesses and individuals migrate to the surrounding areas; the tax base declines; and the infrastructure becomes under-funded. As these negative pressures increase, so do the tax demands on citizens and businesses. The inevitable result: resources available to fund city services decline further eroding the quality of life and accelerating the cycle. stands at the verge of entering a cycle of decline. Moreover, it is clear from our review of the City s governance structure and operations that business-as-usual will not break this cycle. On its current path, will, in the next 20 years, go the way of declining cities like 4 a hollow core abandoned by the middle class and surrounded by suburbs that outperform the city but inevitably are dragged down by it. The City s natural advantages and the strength of the region will slow the decline, but they will not stop it. However, this decline is neither inevitable nor irreversible. A comparatively modest set of changes to the City s governance structure, combined with a set of focused actions to improve its quality of life, can alter the trajectory and break the cycle. These recommendations are outlined below. Embracing them will require political and personal leadership from the City Council, the Mayor, civil servants, and community leaders. Root Causes of the Decline While many factors have contributed to the current difficulties from macroeconomic forces to population changes much of the solution lies in re-thinking City Hall. city government labors under an antiquated City Charter that is ill-equipped to cope with current challenges. The architecture of city government dates to 1931 when was a mid-sized Southwestern city with 260,000 residents. The traditions that grew up around this structure have left the City more than any of its healthier peers with a highly fragmented decision-making process and a diffused governance model that makes it all but impossible to maintain focus on the key objectives. Much of the public commentary regarding the city government focuses on the role of the mayor and the city manager (i.e., which one serves as the chief executive). In our view, this debate is a distraction. This review discovered ample evidence of successful cities that have city-manager-as-executive model like as well as mayor-as-executive models. Either model can work so long as operations of the city government are transparent and, most importantly, questions of who does what are clearly resolved. Successful organizations need clear alignment between accountability (who is held to account for delivering results), responsibility (who is tasked with taking actions to deliver the results), and authority (who controls the resources to deliver). When accountability, responsibility, and authority become misaligned, organizations are plagued by inaction and finger-pointing. The City structure fragments the lines of accountability, responsibility, and authority among too many individuals and groups. The result is that everyone and no one is accountable. Citizen satisfaction with key services such as crime prevention and streets has eroded in the past 10 years, 5 and while costs for comparable basic services are largely the middle of the pack among its southwest peer set, citizens are paying more in personal safety and in increased tax rates. For example, lacks sufficient police on the street and citizens are paying by living with a higher crime rate. does not recycle (in any material manner) and citizens 4 For an earlier comparison between and, see The Morning News story Learning from, December Morning News Citizen Poll, October 2003; City of Citizen Poll, 1993.

6 4 are paying $50mm to develop more landfill space. does not champion water conservation and citizens will pay for new aquifer development, years earlier than originally expected. While the city management team is providing basic services to citizens at a reasonable cost today, their ability to ensure long-term efficiency and effectiveness of city services will continue to be compromised as long as the city operates without a strategic plan. A stark contrast exists between the governance structure of and that of its peers. Consider the example of crime across each of the three key dimensions of accountability, responsibility, and authority. According to a 2003 Morning News poll, public safety is the single most important quality-of-life issue for residents of. But accountability for public safety is vague and diffuse. The police chief, mayor, City Council, and city manager all feel accountable for making citizens safer, responsible for designing and executing a strategy, and each has some authority over financial and human resources. Yet no one is focused on how to reduce crime rates. The mayor, for example, has weekly meetings with the Police Department, the City Council members have discussions with substation commanders, and the city manager has established an operational review of the Police Department even while the city searches for a new chief. The police chief, the one who should be accountable and responsible for lowering crime rates and who should have the authority to allocate financial and human resources across the department functions, tends to focus mostly on input measures: e.g., reducing average response times. This pattern repeats itself across the city s services. From public safety to business development to longterm budgeting, there is little alignment between accountability, responsibility, and authority. Our analysis of city services reveals a second structural weakness in governance model: poor transparency. Democracy, like business, thrives on openness. But city government is the least open city among its peers. This is the result not of malicious obstruction by city officials, but rather a lack of selfexamination. Measuring one s performance over time and against the performance of one s competitors is an essential sustaining force behind today s modern global business enterprises. Ironically, our research revealed that on many dimensions and a few other cities have more information on than does ranging from its fi re cost loss index to the number of research questions asked per librarian. Where does have clear performance measures, they tend to be short-term and input-focused for example, the number of work requests or the number of units inspected rather than being output focused (e.g., number of streetlights working). In our experience, successful performance management needs a combination of both input- and output-focused performance measures with a clear connection between cause and effect. The consequences of the City s structure and performance-management system go far beyond diminishing the quality of city services. Because accountability is so diffused, no one seems to have a clear incentive to create and manage a long-term strategic plan. is unique among its peer cities in that it has no such plan, no set of clear objectives, and no programmatic approach to building for the future. Even in those few departments that have looked ahead, there are insufficient measures to drive progress. Perhaps this is an almost inevitable consequence of the governance model, which leaves no one accountable or responsible for developing and executing a strategy. It is, however, something that must change if is to stem the decline. Changing Course If the root cause of decline is, in large part, an artifact of the government s structure and practices, then it is here that we must begin if the city is to truly change course. We believe the city needs to embark upon a holistic transformation along three dimensions: strategy, structure, and services. Each of these dimensions is discussed briefly in turn. I. Strategy needs a strategic plan that is realistic and actionable. And while we do not wish to be overly prescriptive in what this plan should contain our experi-

7 5 ence suggests that sustainable strategies are co-created by the management and the stakeholders our analysis suggests three strategic imperatives. Imperative One: Improve the Quality-of-Life Index A programmatic approach is needed to reduce crime, improve education, and encourage economic growth (the other dimensions of the quality-of-life index are lower on residents priority list). Successful approaches to each of these are already well understood. From New York s crime reduction success to Cleveland s success in economic development, there is little mystery as to basic building blocks for improving quality of life. What is missing in is a comprehensive focus and a crossdepartment program for delivering the change. We should note that we fully appreciate that the city government does not control the quality of education. This does not mean, however, that it has no role (or bears no responsibility) for improving it. Alone among most of its peers, City Hall has no systematic approach for bolstering neighborhood schools by improving the physical environment and fostering community involvement. Because education is so central to the City s economic future, City Hall is responsible to its stakeholders for building an active, results-oriented partnership with Independent School District (DISD). Imperative Two: Attract Middle-Class Families to the City needs to create an environment that attracts target customers to the city. This means creating a living environment that can compete effectively with the suburbs for middle-class families and a business environment that attracts and retains anchor employers. This will entail encouraging growth in the stock of affordable family housing and family neighborhoods, fixing the intra-city transportation problems, addressing air pollution, and improving crucial services. It involves creating a strategic development plan for the southern sector that delivers a sustainable development of the Trinity River Basin while preserving and enhancing its natural beauty. (Addressing the quality-of-life concerns will help substantially, but the City needs to do this with an eye toward not only its current population but also its expanded target customer base.) Imperative Three: Address the Under-Funded Liabilities The City is at risk of an economic crisis as an eroding tax base collides with a set of long-term, under-funded liabilities. is currently facing an investment deficit. Beyond the investment deficit implied in the qualityof-life index, the City has a negative net-asset position of $241 million, 6 and large infrastructure bills in areas such as water mains, storm sewers, and streets will be coming due within the next two decades (see Exhibit 4). Exhibit 4 Governmental Unrestricted Net Assets/(Defi cit) (1) 2002 Fiscal Year $1,000 Unrestricted Net Assets ($MM) $500 $0 $500 $509 $487 $198 $111 $107 $99 $79 $21 $105 $131 $179 $221 $241 $1,000 $1,500 $1,296 $1,459 (1) Governmental unrestricted Net Assets/(Deficits) is the portion of net assets that can be used to finance day-to-day operations without constraints established by debt covenants, enabling legislation, or other legal requirements Source: City Comprehensive Annual Financial Reports; Booz Allen Hamilton City Annual Financial Report.

8 6 This, coupled with a rapidly escalating retirement burden that will materialize as the baby boomers in city government begin to retire, will put enormous financial strain on the community. As of the 2002 annual report, pension funding was in the bottom quartile of peer cities and was under-funded by $2.1 billion. 7 The gap is now so large that the City of can no longer put off addressing the problem. With an estimated 39 percent of the city s tax role coming from commercial real estate and 42 percent from residential real estate in 2003, even a modest decline in commercial and residential property values (like those we have seen in recent years in,, and elsewhere) will devastate the long-term financial plan. The estimated 23 percent of total general tax revenues that come from sales taxes are already dissipating as retail activity moves to the suburbs. As an aside, we would note that receives less federal and state grant money per capita than any of its peer cities. 8 While grants in will naturally be lower than some peer cites because it does not operate Enterprise Funds such as public hospitals, transits systems, major airports and ports the city s efforts are worth scrutiny. For example, if we just looked at the operating and capital grants and contributions for governmental activities, Texas peers and attract $5 and $75 more person respectively ($6 million to $90 million) while attracts $3 less per person. However, adjusting the fi gures for block grants (lump sums allocated to cities) and areas not consistent across cities (e.g., health services, aviation), falls below the other cities ( by a small margin and and by larger margins). Moreover, fi gure appears to represent more trusts/funds than grants compared to the other Texas cities e.g., $2.8 million Golf Improvement Trust and $3.0 million Walker Consent Decree (which the city is legally required to fund), among others. These three strategic imperatives reflect the need not only to break but to reverse the cycle of decline described above. Underpinning the strategy and each of these imperatives must be clear performance measures that track progress (both input measures, such as police on the streets, and outcome measures, such as crime rates). Each improvement in a core component of the city s ecosystem will have a positive effect on improving another. Lower crime rates will encourage people to stay in the city people living in the city increase sales tax revenues, and so forth. And while this virtuous circle is encouraging and offers the hope of a way out, it also comes with a warning: addressing only the politically expedient elements of the strategy will likely fail. Each part of the ecosystem needs to be improved or the broken parts will overwhelm the improvements. II. Structure We believe it is time to fix the City Charter. Again, we wish to emphasize that our analysis suggests the debate over an executive mayor versus an executive city manager is not the central issue. provides an excellent example of a highly successful council-manager structure. But the charter does need to be updated to provide much clearer roles and responsibilities and to simplify the lines between accountability, responsibility, and authority. The updated charter should, in our view, embed the following principles into the City s being: A strategic plan which guides decision making A chief executive who is accountable for effective administration of the City Elected officials who are responsible for setting strategy, objectives, and goals Performance assessments which are systematic Performance measures which are input- and outcomefocused A balanced budget which reflects the priorities of the City s strategic plan The City s long-term financial footing which is never compromised Capital improvements which are linked to the strategic plan Stakeholders who are fairly represented 7 Police & Fire Pension: unfunded liabilities $746mm, cumulative deferred unrecognized loss $543mm; Employee s Retirement Fund: unfunded liabilities $536mm, unrecognized loss of $258mm. 8 City Comprehensive Annual Financial Reports, Fiscal Year 2002.

9 7 In order to avoid becoming overly prescriptive, we would merely note that the Charter s architecture should be viewed against three themes to guide its creation. 1. Align the accountability, responsibility, and authority of individuals, departments, and boards. Provide clarity through defined roles, statutory obligations, and performance contracts. 2. Connect the goals and objectives of elected leadership, the strategic plan, and department operations through: (a) the objectives of City Council standing committees; (b) the rules governing City Council agendas; (c) performance measures for department heads; and (d) the performance contracts of the clevel executives the city manager, city auditor, city attorney, city treasurer, and city secretary. 3. Create transparency into the achievement of goals and objectives through outcome-based performance measures across the organization from Council standing committees to city departments to the city attorney office. Work cooperatively with local media to develop and publicize periodic report cards for the City. And move the reporting obligations, timing, and format out of the political arena and into a statutory requirement. III. Services The focus of city services needs to be directly linked to the city s strategy. In some respects, therefore, changing course in city services should be addressed after a strategic plan is complete and the structural issues are resolved. However, we believe that the strategic imperatives and the organizational principles can provide sufficient guidelines to begin the process. Effectiveness Each of the key service areas should, in our view, develop an approach and a resource plan that links to the key strategic imperatives. (These can be updated later once a formal strategic plan is adopted.) The plans need to include explicit statements of: (a) the objectives and how they link to the broader city agenda; (b) how their success will be measured; (c) what operational changes will drive the desired improvements (and why); and (d) a resource plan that addresses these drivers. This more disciplined approach begins to put in practice a cause-and-effect approach to running services one that more closely mimics the business discipline used in most companies. We would also encourage the City Council to create small groups of one or two council members (analogous to subcommittees in a board of directors) who would review and challenge these plans. This challenge process is highly successful in the private sector when its intent and practice is to improve the quality of the plan rather than to prove someone right or wrong. The idea here is a simple and intuitive one. Business managers make a case that by investing in certain assets, putting in place specific programs and capabilities, and taking a particular approach to the market, they expect to generate specific results. The challenge process is intended to ensure that the cause-and-effect relationship that underpins the strategy is robust. Once the case is proven, the manager commits to delivering the results with predictable consequences if it fails. Where businesses often go astray is in leaving implicit the cause-and-effect assumptions about how the market is structured and how it will react. A combination of disciplined strategic analysis, a constructive challenge process, and strong performance management minimizes this risk. In other words, the council subcommittees should not sit in judgment of the plans but rather should be collaborators in making them effective. The subcommittees would be accountable, along with the department heads, to the council for delivering effective plans that deliver results. Efficiency The revised service plan also needs to include opportunities for improving efficiency by: (a) quantifying the efficiency gap versus best-in-class service providers; (b) identifying the key causes of the gap including a comparison of best practices from other cities; and (c) adopting practices calculated to close the gap. More effective use of

10 8 information technology and automation, more aggressive pursuit of managed competition solutions for non-core activities, and shifting effort from low-value to high-value activities are among the steps we would expect to see in each department. With a holistic transformation along the three dimensions of strategy, structure, and services, the City can reverse the decline. Concluding Thoughts If the City of were a corporate client, we would note that it has fallen significantly behind its competitors. We would warn that its product offering is becoming less and less compelling to its core group of target customers (tax-paying residents and businesses as well as sustaining institutions). We would further caution the management that they are in an especially dangerous position because overall growth in the market (the region and more broadly the Southwest) is masking the depth of its underlying problems. We would explain that in our experience, companies in fast-growing markets are often those most at risk because they frequently do not realize they are falling behind until the situation is irreversible. Put into the language of business, we would note that is under-investing in its core product, has not embraced best practices throughout its management or operations, and is fast becoming burdened by long-term liabilities that could bankrupt the company if the market takes a downturn. We would project that is becoming structurally uncompetitive versus its local competition (the surrounding communities) as well as its regional competition (other Southwest cities). Again, if were a corporate client, we would find it all too easy to explain what has gone wrong. The company is too inward looking it lacks the type of customer focus that successful businesses require. We would note that there is no shared vision or over-arching strategy that ties the business together. We would observe that the business operates in uncooperative silos rather than as a cohesive whole. At its root, we would argue that the management system is highly fragmented and unclear meaningful performance measures are practically non-existent, and without a strategy there is no obvious way to create clear accountabilities that will align the parts. If the City of were a business, we would outline a program that began with articulating a clear and sustainable strategy. We would restructure the management system to create alignment and clear accountabilities, and we would put in place a performancemanagement process with teeth to drive the change. We would then create a transformation program for each department that aligns resources, practices, and focus with the overall strategy. Inevitably, we would anticipate changes in key management and leadership positions that put the appropriate mix of change agents and turnaround experts in key positions. But is not a business. It has no shareholders or market discipline to drive change. The City has no Board of Directors demanding improvement. There is no CEO to make the tough choices and to be held accountable. And absent a sustained, focused effort, the type of turnaround required is all but impossible. Instead, creating the type of change requires to stem the decline needs an act of bold political leadership. The path forward, in our view, is clear. The need for action is equally clear. What remains unclear is who, if anyone, will provide the sustaining leadership to help the City change course. So we conclude as we began: is a city with tremendous natural advantages. It has a low cost of living, a diverse economy, one of the highest productivity levels of any of its peer cities, a vibrant high-income community, a fastgrowing immigrant population, and an optimistic attitude. also has a solid infrastructure base and in the southern part of the city enjoys the natural beauty of the nation s largest urban forest... By all rights, should be booming like many of its peer cities that experienced population growth above the United States average,, and. The ecosystem is nearing a crisis. Embracing the strategic, organizational, and tactical imperatives laid out here will allow the city to thrive. Ignoring them will lead to a hollowing of its urban core.

11 Addendum Details to Executive Summary SELECTED DETAIL OF FINDINGS Natural Advantages The Hollowing Core Diminishing Quality of Life Unmistakable Economic Signs The Cycle of Decline City Services Limited Vision Accountability Responsibility Authority Why the Core Matters to the Region Methodology

12 1 at the Tipping Point A Road Map for Renewal Addendum Details to Executive Summary Natural Advantages Like most Southwestern cities, has a low cost of living, driven primarily by a relative abundance of land and comparatively low tax rates. The bottom-line impact for both businesses and individuals is that a dollar of income in is worth nearly twice as much as in. (See Exhibit 1.) Moreover, has a diverse economy and is less susceptible than many of its peers to economic damage in the event of a downturn in an individual industry. (See Exhibit 2.) also enjoys the second-highest economic productivity of all its peers. gross city product of $81,800 per person is more than twice that of San Antonio s and nearly $10,000 higher than. (See Exhibit 3.) Exhibit 1 Cost of Living Index (Q3 2003) Exhibit 2 City Economic Dicversity (1) (2000) Economic Diversity (1) Index Relative to (2) More Economic Diversity Than Exhibit 3 Gross City Product (1) Per Capita ($000) (2000) Less Economic Diversity Than (1) Economic Diversity calculated as a Herfindahl-Hirschman Index across nine major SIC codes (2) City of Economic Diversity Index minus Peer City Economic Diversity Index Note: Data represents the City limits, not the Metropolitan Statistical Area, unless otherwise noted Source: U.S. Census Bureau, U.S. Housing and Urban Development Department Cost Of Living Index * * U.S. Average * *, CA,, TX,, OH, and, TX are based on nearby cities Note: Data represents the City limits, not the Metropolitan Statistical Area, unless otherwise noted Source: City Comprehensive Annual Financial Reports Gross City Product Per Capita ($000) (1) Gross City product is composed of 1) compensation of employees (payroll, benefits, etc.), 2) indirect business tax license fees, certain taxes, etc. and 3) property type income (rental income, dividends, etc.) Note: Data represents the City limits, not the Metropolitan Statistical Area, unless otherwise noted Source: U.S. Census Bureau, U.S. Housing and Urban Development Department

13 2 The City also has numerous infrastructure advantages many of which are not fully appreciated or fully utilized that benefit both businesses and individuals. Among these are: plentiful land, a world-class air-transport hub, and advantages in climate and geography. Real estate: With 17-percent of its land mass available for development 1, has more affordable real estate than any peer city with the possible exception of. Transport: While lacks a seaport, the -Fort Worth International Airport is a world-scale business and cargo gateway that provides a base of economic activity and jobs for the region. In addition, has one of the most extensive public transportation networks among its southwestern peers, allowing mobility within the city and between the city and the suburbs. Geography: is located in the center of the nation s fastest growing region and is well placed as a north-south hub for the North American Free Trade Zone. Moreover, the mild climate is not only physically comfortable but also minimizes wear and tear on buildings, streets and other physical assets. Finally, while the name in much of the world conjures images of urban landscapes popularized by the City s namesake television program, many would be surprised to learn that is home to the largest urban forest in the nation. The Trinity River Basin asset is perhaps least appreciated and most underutilized asset. has a vibrant high-income community. Over twothirds of the population lives in zip codes where the average income per capita exceeds the U.S. average. Only four other cites have a higher wealth concentration than,, and. has a fast-growing immigrant population, which helps drive economic growth through abundant supplies of labor and high levels of consumer demand. Between 1995 and 2000, experienced the greatest immigrant population growth. In 2000, nearly 8-percent of residents of age 5 and older had migrated from outside of the United States within the previous five years. Recent immigrants made up 7-percent of s population, placing it second. also has the advantage of its citizens. Despite deep concerns in many areas, citizens are more satisfied with life in than they were 10 years ago. 2 And despite concerns about trends toward becoming less business friendly, business leaders 3 cite the City s strong entrepreneurial spirit and can-do attitude as a key asset in creating the dynamic business market that exists today. The Hollowing Core With such natural advantages, could be called the cosmopolitan center of the Southwest. However, during the decade of the 1990s, growth of the City s overall gross product lagged all its Southwest peers with the exception of, and lagged growth in its suburbs by five percentage points a greater gap than in any other peer city with the exception of. (See Exhibit 4.) Exhibit 4 Gross City Product Growth (1) Performance ( ) Population Average Annual Percent Change Below U.S. Average Above U.S. Average 6% 5% 4% 3% 2% 1% 0% -1% 1.7 5% Balt.. U.S. Average = 3.9% U.S. Average =1.3% -2% 0% 2% 4% 6% 8% Below U.S. GDP Above U.S. GDP Gross City Product Average Annual Percent Change Southwest Other Peer Suburbs (1) This chart shows total GCP change, not per capita change Note: Data for the cities represents the data for the City limits; Data for the suburbs represents data for the MSA or PMSA excluding the data for the City Source: U.S. Census Bureau, U.S. Department of Housing and Urban Development 1 Land available for development excludes government owned, public open space and non-profit land and excludes parking lots and roads; Source: Central Appraisal District Morning News Citizen Poll October, Morning News Business Leaders Survey November, 2003

14 3 suffers from a talent deficit it must compete for talent in a region that has far fewer higher education graduates than it has jobs 4. Over the last decade, growth in educated workforce has been in the bottom third of the peer group at 1.7-percent per annum with only, and experiencing lower growth rates in their educated population 5. While 29-percent of the population over age 25 has a bachelor s degree or higher average for the peer set which ranges from a low of 12-percent for to a high of 47-percent for 31- percent of population over age 25 does not have a high school degree the third highest in the peer set after and 6. In a region with a net talent deficit, the City of is not well positioned as a destination or expansion site for companies that need educated workers, an increasingly important factor in economic development. A strong correlation exists between cities adept at attracting an educated workforce and cities with a high gross city product. (See Exhibit 5.) Exhibit 5 Brain Concentration ( ) Average Annual Percent Change of Residents Over 25 Years of Age with a Bachelors Degree or Higher ( ) 12% 10% 8% 6% 4% 2% 0% Increasing Percent Residents over age 25 with Bachelors Increasing Gross city Product Growth 0% 2% 4% 7% 9% 12% Gross City Product Average Annual Percent Change (1) ( ) Attracting and retaining the more educated workforce a segment of the population that tends to highly value education for their children demands high-quality primary and secondary education. Unfortunately, the Independent School District (DISD) is weak compared to suburban districts. It also scores poorly versus its peers on a cross-city comparison. On the Texas Assessment of Knowledge and Skills (TAKS), 32-percent of schools in DISD are listed as either exemplary or recognized, compared to 74-percent of the schools in surrounding communities. From the college Scholastic Aptitude Test (SAT) perspective, 90-percent of the graduating students in Plano ISD took the exam, compared to 50-percent in DISD. Plano ISD students achieved an average score 30-percent higher than DISD students. Families with school-age children who can afford to move outside the district or send their children to private school are strongly inclined to do so. In neighborhoods that lie partly within Richardson ISD and partly within ISD, homes in the RISD portion are valued at 30-percent to 35-percent more 7. This translates into $48 million property tax opportunity cost 8 for the City. Between 12-percent and 15-percent of school age children living in DISD attend private schools. 9 In addition, DISD suffers from a markedly lower level of community support. Volunteer hours per student in Richardson ISD, an ISD with 60-percent of its student population living in the City of, averaged 18.7 hours 10, while volunteer hours per student for ISD averaged 3.0 hours. 11 The talent deficit is further aggravated by the lack of a major research university. Among the 14 peer cities surveyed, only is further from a top-50 university 12 than which is 240 miles from Rice University in. As a result, businesses not only need to rely on importing talent, but lack access to research talent and facilities. (1) This chart shows total GCP change, not per capita change Note: Data represents the City limits, not the Metropolitan Statistical Area, unless otherwise noted Source: U.S. Census 4 Since 1990, Fort Worth employment has increased by approximately 50,000 jobs per annum, 60% more than the total number of Bachelors, Masters and PhD graduates from all universities and colleges in the area; Source: Bureau of Labor Statistics 5 U.S. Census Bureau 6 U.S. Census Bureau 7 Morning News team analysis of three neighborhoods split between Richardson ISD and ISD 8 Based on the taxable value of homes in DISD 9 U.S. Census, National Center for Education Statistics 10 Morning News analysis, Richardson ISD 11 Morning News analysis, ISD 12 As ranked by U.S. News and World Report, September 1, 2003

15 4 Exhibit 6 Renter Occupied Housing (2000) Exhibit 7 Housing Stock in (2002) Percent of Occupied Housing Units 70% 60% 50% 40% 30% 20% 10% 0% Less transitional More transitional population population 65% 57% 54% 55% 50% 50% 51% 44% 45% 41% 41% 42% 37% 38% 39% Note: Data represents the City limits, not the Metropolitan Statistical Area, unless otherwise noted Source: U.S. Census 0 While DISD s shortcomings push out middle-class families, the trend is exacerbated by chronic lack of high-quality family housing. has the second-highest percentage of renter-occupied housing after San Francisco. (See Exhibit 6.) With nearly 60-percent of the housing units in the City being rental units, supports the largest transitional population in its peer set. 13 The vast majority of rental units are one- or two-bedroom apartments lacking yards and nearby parks more appropriate for singles and childless couples than families. While boasts a low average home price, analysis of the housing market suggests that the oft-quoted median home price of $138,000 is misleading. Forty-percent of the homes in are owner-occupied while most of the remainder are investment properties with lower turnover. Nearly 3 in 10 of the owner-occupied housing is valued at less than $55,000 (i.e., well below the demands and aspirations of a middle-income family). Meanwhile, there is a dearth of middle-income homes, which encourages families to buy newer entry-level homes in the suburbs (especially when the schools are better). Housing Units (In Thousands) ,000 "Single" Apartments Single Family Housing 201,000 Low Income Family Units/Low Quality Housing* 49,000 Middle Income Family Units Duplexes and Similar Multi-Family Housing 25,000 Upper Income Family Units Apartment Units * Difficult to differentiate housing stock between quality low income family units and low quality housing Notes: (1) Lower income units under $150,000 in value, middle income units between $150,000 and $300,000 in value and between 1,500 and 3,000 square feet, upper income units are over $300,000 in value. Small apartments having an appraised value per square foot of less than $80, middle income apartments having appraised value per square foot between $80 and $110, upper income apartments have an apprised value of over $110 per square foot (2) Data represents the City limits, not the Metropolitan Statistical Area, unless otherwise noted Source: Appraisal District 2002 In the interconnection among these problems educational mediocrity, lack of homegrown intellectual capital, and poor housing the outlines of the cycle of decline can be discerned. Such shortcomings mean that has an increasingly transitional population weak schools and insufficient middle-income family housing force middle-class families to find refuge in the suburbs as soon as they are economically able, while those who cannot make it out fall further behind. has experienced 18-percent out-migration to its own suburbs in the last five years, higher than any other peer city with the exception of. (See Exhibit 8, page 5.) Taken together, the analysis shows that most of housing inventory consists of low-income housing and small apartments rather than a balanced mix of housing to support a live-here, work-here population. (See Exhibit 7.) Businesses are also following workers out of the City. The portion of economic activity in the metropolitan area that takes place in the City of dropped to 46-percent in 2000 from 56-percent in (See Exhibit 9, page 5.) 13 Rent control policies in skew the market, creating a long-term rental market that is not comparable to peer cities like.

16 5 Exhibit 8 Percent of 1995 Residents who Moved to the Suburbs by 2000 Percent of 1995 Residents 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 18%18% 16% 15% 14% 13% 12% 11% 10% 10% Diminishing Quality Of Life When the city is thought of as a business, middleclass families are among its core target customer group. They have higher-than-average income and are a stabilizing force in the community. So, what is driving away these key customers? In October 2003, The 8% 7% 6% 6% 5% Note: Data represents the City limits, not the Metropolitan Statistical Area, unless otherwise noted Source: U.S. Census Exhibit 9 Economic Activity (2000) (1) Suburbs with strong commercial centers Balanced Cities with strong commercial centers Suburb City Percentage Change in City Economic Activity % -4% -4% 4% -10% -9% -6% -3% 1% -4% -9% -7% -3% -1% -1% Morning News undertook a poll that, among other things, asked respondents about the most important issues facing the city of. Crime topped the list, with 32-percent of the respondents saying it was the most important issue. Number two was education with 21.6-percent of the respondents saying it was the most important issue. These were followed by economic development (16.5-percent), traffic and transportation (9.3-percent), public health care (9.3-percent), the environment (6.2-percent) and housing (5.1-percent). We benchmarked against its 14 peer cities on these key issues using a focused set of indicators. If an aggregate quality-of-life index was created, weighted based on the survey responses, performance would rank in the bottom quartile of its peers. The following pages highlight some key components of quality of life. Safe Neighborhoods While the number of violent crimes and property crimes per 100,000 persons has declined in, they declined more slowly than in the vast majority of peer cities (see Exhibit 10). Among cities over 1 million in population, has the highest total crime rate and the 3 rd highest crime rate behind peer cities and. Exhibit 10 Percentage Change in Violent and Property Crimes Per 100,000 Population between 1997 and 2002 Percent Change 20% 15% 10% 5% 0% -5% -10% -15% -20% 100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100% Violent Crime Property Crime (1) Calculated with Gross City Product and Gross Suburb Product Note: Data for the cities represents the data for the City limits; Data for the suburbs represents data for the MSA or PMSA excluding the data for the City Source: U.S. Census, U.S. Housing and Urban Development Department Note: Data represents the City limits, not the Metropolitan Statistical Area, unless otherwise noted Source: FBI Uniform Crime Reports

17 6 Exhibit 11 Violent Crimes Per 100,000 Persons (2002) Violent Crimes Per 100,000 Persons 2,500 2,000 1,500 1, Citizen Weighting = 32% (1) SanAntonio 1,577 1,371 1,316 1,223 2,055 2,073 (1) Morning News Citizen Poll, October 2003 Note: Data represents the City limits, not the Metropolitan Statistical Area, unless otherwise noted Source: FBI Uniform Crime Report Violent crimes per 100,000 persons in 2002 were used as the key indicator for quality of life. (See Exhibit 11.) Public Education The majority of school-age children in live in the Independent School District (DISD). With nearly 165,000 children enrolled, it is one of the largest school districts in the United States. Of DISD students who graduate (~78-percent of students 14 ), fewer than half 15 have plans for a four-year college. With average SAT scores in the bottom quartile among peer Exhibit 12 SAT Scores (2002) cities, DISD stands little chance of seeing significant numbers of students accepted to high-quality universities. (While using SAT scores as a proxy for quality of schools raises a number of problems a self-selection bias, etc. it is the only cross-city comparison available. In the future, tracking performance using the NAEP national test will be easier.) (See Exhibit 12.) Economic Growth average annual growth in Gross City Product per capita underperformed all of its peers between 1991 and But while there is clear evidence that for more than ten years economic engine has been slowing, it is masked by a legacy of previous decades that created one of the highest Gross City Products per capita in the country. (See Exhibit 13.) The News also surveyed CEOs and leaders of the business community. The most troubling issue for businesses was transportation the uncertainty associated with the time it takes to get in and out of the city, which hampers mobility throughout the region. The second-ranked problem was air quality, which in this context is not merely a health issue but a potential barrier to industrial expansion. If the region fails to meet federal ozone standards, federal agencies could withhold highway funds and restrict the construction or operation of plants that produce certain emissions. Exhibit 13 Gross City Product Per Capita Average Annual Percent Change ( ) SAT Score Citizen (1) Weighting = 21.6% ,070 1,055 1,0041, SanJose (1) Morning News Citizen Poll, October 2003 (2) SAT score translated from ACT score Note: Data represents the City limits, not the Metropolitan Statistical Area, unless otherwise noted Source: School Districts, SAT 14 Figure excludes students who dropped out before the 12 th grade or students with unknown status at the time of expected graduation; Source: Texas Education Agency 15 Based on the number of students taking the college Scholastic Aptitude Test Average Annual Percent Change 10% 8% 6% 4% 2% 0 9.3% 7.4% Citizen (1) Weighting = 16.5% 4.5% 4.2% 4.0%3.5% 3.3% 3.1% 3.0% 2.6% 2.4% 2.3%2.2% 2.2% 2.0% (1) Morning News Citizen Poll, October 2003 Note: Data represents the City limits, not the Metropolitan Statistical Area, unless otherwise noted Source: U.S. Census Bureau; U.S. Housing & Urban Development Department

18 7 Transportation Certainty Consistency in travel time is an important issue for business management and employees alike. When uncertainty is high it can dramatically lengthen the commute. For example, if commute times vary frequently between 30 minutes and an hour depending on the day, commuters need to allow extra time to cover the bad days, rather than assuming the average. This uncertainty exacts a toll on the stress levels of individuals who risk arriving late for work, and on businesses that risk low productivity levels as well as delays in the movement of goods. has a high level of travel time uncertainty. Commute times incur an average of 36 hours of traffic delays each year a higher level of variability than in any other city with the exception of and. When accidents or construction impede traffic flow, commutes can vary significantly dayto-day. While has fairly good public transportation infrastructure, utilization has actually decreased from 7-percent of workers to 5- percent between 1990 and , meaning that the burden on roads has increased commensurately. Causes for uncertainty range from weak mobility strategies (e.g., unsynchronized signal lights) to ill-timed construction projects to, simply, too much traffic on the roads. (See Exhibit 14.) Exhibit 14 Average Annual Hours of Traffi c Delay Per Person (2001) Average Annual Hours SanAntonio (1) Morning News Citizen Poll, October 2003 Note: Data represents the City limits, not the Metropolitan Statistical Area Source: Texas Transportation Institute Citizen (1) Weighting = 9.3% SanDiego Exhibit 15 Percentage of Non-Elderly Population Uninsured (2000) Percentage of Non-Elderly Populaltion Uninsured 35% 30% 25% 20% 15% 10% 5% 0% 23% 23% 24% 22% 19% 16% 15% 15% 16% 17% 13% 13% 30% 25% 26% Note: Data represents the Metropolitan Statistical Area Source: UCLA center for health policy research, Disparities in health insurance and access to care for residents across U.S. cities Health Care Access has one of largest populations without health insurance among our peer cities. (See Exhibit 15.) Since the uninsured tend to wait to visit a doctor until they have an emergency the most costly kind of treatment it is no surprise that has one of the highest numbers of emergency room visits per capita (5 th highest among peer cities at 615 per 1,000 uninsured persons). While has been able to keep up with the emergency room visits thus far, it is clearly under strain, and costs are soaring. The cost of caring for the uninsured at Parkland Hospital has doubled in the last four years. (See Exhibit 16.) Exhibit 16 Public Hospital Beds per 1,000 Uninsured Persons (2000) Public Hospital Beds Per 1,000 Unnsured Persons Citizen (1) Weighting = 9.3% (1) Morning News Citizen Poll, October 2003 Note: Data represents the City limits, not the Metropolitan Statistical Area, unless otherwise noted Source: American Hospital Association, US Census, UCLA Center for Health Policy Research 16 U.S. Census Bureau

19 8 Exhibit 17 Air Pollution Removed ( 000 lbs.) per Square Mile and Percentage of Tree Cover (2002) Tree Cover (Percentage) Air Pollution Removed Per Square Mile ('000 lbs.) Note: Data represents the City limits, not the Metropolitan Statistical Area, unless otherwise noted Source: American Forest Air Quality is increasingly struggling with air pollution. While the City has relatively little industrial pollution, vehicle emissions continue to increase and has relatively little natural tree coverage in aggregate to aid in air pollution removal. (See Exhibit 17.) Air pollution impacts the pace of economic activity, as some citizens are unable to go outside on dangerous air pollution days without health consequences. It also hampers local competitiveness as businesses that might otherwise locate here choose to invest elsewhere to avoid the penalties of having to cut operations on bad air days. While all peer cities have seen an increase in moderate bad air days over the last 10 years, experienced a 122-percent increase, the 5 th largest increase after (436-percent), (232-percent), (179-percent) and (131-percent). Moreover, is one of the few areas in the United States that has failed to meet air quality attainment requirements. However, the percentage of good air quality days in, the indicator we are using for the quality-of-life index, is slightly above average for the peer set. (See Exhibit 18.) Exhibit 18 Percentage of Good Air Quality Days Per Year (2002) Percentage of Good Air Quality Days Per Year 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Citizen 81% (1) 78% Weighting = 6.2% 77% 75% 72% (1) Morning News Citizen Poll, October 2003 Note: Data represents the Metropolitan Statistical Area Source: U.S. Environmental Protection Agency 61% 55% 54% 50% 49% 44% 42% 41% 39% 39% Quality Housing Eleven-percent of the total households in suffer from physical stress such as overcrowding and lacking basic amenities such as complete kitchens or plumbing facilities. An additional 28-percent of the total households in suffer from economic stress, with greater than 30-percent of their income going to housing costs. Many of the Southwest and California peer cities with economic stress levels higher than are cities where people are more likely to make a conscious decision to trade-off a higher housing cost and incur physical housing stress for the higher quality of life. (See Exhibit 19.) Exhibit 19 Housing Economic Stress (2002) Percentage of Households with Housing Cost Burden >30% of Income Percentage of Household 40% 35% 30% 25% 20% 15% 10% 5% 0% Citizen (1) Weighting = 5.1% 36% 34% 34% 33%32% 32% 30% 29% 29% 29% 28% 27% 25% 24% 23% (1) Morning News Citizen Poll, October 2003 Note: Data represents the City limits, not the Metropolitan Statistical Area, unless otherwise noted Source: U.S. Housing and Urban Development Department

20 9 Exhibit 20 Percentage Change in Sales Tax from Previous Year ( ) Exhibit 21 Percentage of City of Tax Roll from Residential, Commercial and Business Personal Taxes 100% Percent Change from Previous Year 20% 15% 10% 5% 0% -5% -10% Plano 2002 Percent of Property Tax Base 80% 60% 40% 20% 0 31% 51% 18% % 45% 21% % 39% 24% % 45% 19% % 41% 20% % 39% 19% 2003 Business Personal Commercial Residential Source: and Plano City Governments and Comprehensive Annual Reports Unmistakable Economic Signs While signs of weakness in are often obscured by strong regional growth, indications of the cycle of decline are apparent: The tax base is dwindling as the suburbs provide more of what the city once provided from jobs to shopping to culture fewer people need to come into. As a result, experienced slower growth in sales taxes in 1999 and 2000 and a faster decline in 2001 and 2002 compared to one of its largest suburbs, Plano. (See Exhibit 20.) property taxes are also on a disturbing trajectory. While the property tax base has grown steadily Source: County Appraisal District over the last 10 years, it has been through residential property appreciation rather than commercial property base growth. (See Exhibit 21.) The unemployment picture is similarly troubling. Even though the unemployment rate has been higher than the region and most of its peer cities, the depth of this problem has not been commonly understood. In the 24 months from January 2002 and December 2003, unemployment rate averaged 2.5 percentage points higher than Texas and 2.9 percentage points higher than the metropolitan region when adjusted for City. (See Exhibit 22.) Exhibit 22 Unemployment Rate (Jan Dec. 2003) Unemployment Rate (Percent) Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Region excl. City Texas Region City Source: Bureau of Labor Statistics