Turning Moxie Into Money: How Cities Can Use Targeted Investments to Help Local Businesses Thrive
Detroit's Motor City Match program is a model other cities should emulate.
The following blog post is part of the City Accelerator initiative, a collaboration between Governing, the Citi Foundation and Living Cities that aims to speed the adoption of innovative local government projects within and across cities that will have a significant impact on the lives of their residents, especially those with low incomes.
Paradise Valley was the business district and entertainment center of an African-American residential area in Detroit known as Black Bottom from the 1920s through the 1950s. In the '20s, the black population in Detroit grew from 41,000 to 120,000 as new migrants from the South arrived daily to seek employment in the automobile industry. And in the 40s, this area became renowned for its music scene, where artists such as Ella Fitzgerald, Duke Ellington, Count Basie and Pearl Bailey performed regularly. The cramped near east side neighborhood of Black Bottom was one of the very few areas where blacks could live. More than 300 black-owned businesses in Paradise Valley, ranging from drugstores, beauty salons and restaurants to nightclubs, bowling alleys and theaters, served residents’ daily needs. It is also where Aretha Franklin’s father, C.L. Franklin, built his first church.
In the 1960s, as part of one of the most controversial mass gentrification projects in the city’s history, the Black Bottom neighborhood was essentially bulldozed in favor of urban renewal programs and the construction of freeways.
By the mid-2000s, Detroit’s financial situation had become dire. It suffered significant population loss due to a variety of factors. One of the challenges the city faced was trying to operate with a population of approximately 945,000 when it once accommodated 2 million residents. In addition, the Harmonie Park neighborhood on the edges of downtown Detroit had vacancy rates of more than 80 percent, drugs had seeped into the community and crime was on the rise. The idea of Paradise Valley was nearly lost.
To correct the situation, the city’s economic development agency made a bold move to purchase and manage much of the existing real estate in the area, invest in infrastructure and beautification, and add programming of public spaces to promote cultural vitality and interaction. By 2015, Harmonie Park boasted a renaissance of sorts with numerous restaurants, an active music and arts scene, and even a popular cigar bar.
To build on the momentum, the city put out a request for proposals to redevelop the area in keeping with the culture and spirit of the historic Paradise Valley. Through that process, the city secured five development teams – four were led by African-American investors and one was led by an immigrant, who will invest more than $50 million in new projects including a boutique hotel, commercial spaces, a high-end restaurant and additional residential housing. This project honors the legacy of Paradise Valley and creates opportunities for developers of color to play an active and needed role in the revitalization of Detroit.
Part of the city’s success can be attributed to the fact that it strategically drove investment and opportunity to ensure that economic inclusion, market growth and community revitalization is led by those who would be most affected by action or inaction. The Motor City Match program – a concept that aims to help incubate businesses from idea to open – is a large part of that strategy. The program recognizes that the revival of Detroit’s urban corridors lays in the hands of the local community. As such, Motor City Match launched a quarterly business plan competition that provides businesses with grant dollars, connects them to lenders, matches property owners with businesses, and provides business planning and other technical assistance.
After nearly four years this program has supported more than 1,150 entrepreneurs, activated 367 spaces and 3.1 million square feet, provided $6 million in grants to local businesses and leveraged nearly $40 million in private investment. Neighborhoods across Detroit such as Grandmont Rosedale, New Center and Southwest Detroit are just a few of the areas that have experienced significant small business growth and increased density due to Motor City Match. In addition, more than 61 percent of the businesses that have received support were formed by Detroit residents and 78 percent of the businesses were firms owned by people of color.
JD Givhan and Geraldine Wooten, two siblings who founded J&G Pallets in 1992, are an example of Detroit residents who have found success through Motor City Match. In 2016, J&G won a $100,000 grant through the Motor City Match program which allowed it to expand to a third location, hire an additional eight employees and grow revenues by 20 percent. Sans this critical investment led by the city, this expansion would have been much more difficult, and chances are those jobs would have likely gone to another community.
D2D, which helps buyers identify local suppliers who know the market and can offer good value, is another example of a city-led program that aided in boosting economic development for Detroit. This program recognized the latent capacity in local businesses and created a curated channel to connect purchasers and contractors. Through targeted outreach, capacity development and articulated intentionality, the D2D program was able to help small- and medium-sized businesses increase their revenues from roughly $500 million to $830 million in just three years.
The goal of each of these programs was to grow specific types of businesses or geographies, increase capacity for these companies, and confront issues which were clear pain points for local residents or businesses. Motor City Match recognized a need for jobs, retail and anchors in neighborhoods citywide and facilitated that development through matching property owners and businesses, providing diverse capital and offering technical assistance. And D2D brought together major anchor institutions around the idea of local procurement and created an avenue for quality businesses which historically lacked access to an opportunity to augment their network, portfolio of projects and revenues. Equally as important, companies’ participation in these projects were the result of their performance, hustle and value proposition.
The lessons from these initiatives provide field-tested tactics that communities can do to effectively employ economic inclusion strategies:
1.Identify a geography or specific population you are aiming to impact (i.e., Central City, 7 Mile and Livernois, immigrants, etc.).
2.Assess which pain point (i.e., retail, an anchor employer, development, small business growth, etc.) is most realistic to confront given budget, political will, competencies, timeline and interests.
3.Confront the challenge with an initiative, program or policy that is scalable, metrics-based and merit-based.
4.Include local businesses, residents and organizations in developing the program and helping to implement it.
5.Employ a targeted approach to address the specific problem versus blanket policies or generic quota requirements.
6.Identify and raise flexible capital as many of the solutions that will work may require bundling and leveraging capital in non-traditional ways.
7.Commit to success and hunker down on a medium- to long-term investment in achieving the desired outcomes.
In many cases, cities fail to recognize the immense influence government working cooperatively with businesses and philanthropies can have in strengthening local businesses. Marginalized communities of color often have incredible talent, creativity and business savvy. However, they need tools, capacity building and opportunity to transform their moxie into revenue, profitability and ultimately wealth. Cities can and should lead in this work as they wield incredibly powerful tools which are essential to build successful economic inclusion strategies. These diverse tools include the bully pulpit; the power to convene and encourage action; budgets; access to diverse businesses, civic and philanthropic leaders; information; demographic and other insightful data; and the ability to move across an interdisciplinary, cross-functional landscape.
Through the City Accelerator’s work on Local Business and Jobs Growth, the cities of Atlanta, El Paso, Long Beach, Newark and Rochester are proving out economic inclusion’s value to their cities’ long-term economic vitality and the competitiveness of the country, especially given the demographic shift of the nation towards a country comprised mostly of people of color by 2043. Activating an inclusion strategy may seem challenging, but it is necessary for the economic well-being of everyone. Cities have the position and capacity to lead in driving economic inclusion and should be at the forefront of that charge.