Communities across the country are recognizing the tremendous resources nonprofit anchor institutions—such as hospitals and universities—can provide as engines of inclusive and equitable economic development. Increasingly, cities—often led by Mayors—are launching comprehensive strategies to leverage these institutions to address challenging problems of unemployment, poverty, and disinvestment. In 2014, several cities, including Chicago, Baltimore and New Orleans, have launched community building and job creation strategies that revolve around anchor institutions; and in Cleveland, a decade old collaboration of philanthropy, anchor institutions, and the municipal government continues to rebuild economies in some of the poorest neighborhoods in the city.
The ongoing fiscal crisis at all levels of government is putting tremendous stress on local economic development efforts designed to create family-supporting living wage jobs, revitalize local economies, and bring back wealth to our communities. Through their procurement and investment practices, anchor institutions represent a new source of economic development financing, but their enormous potential is so far largely unrealized. Unfortunately, the federal government has been largely missing in action in terms of creating the right policies to support cities in harnessing the full economic might of their anchor institutions.
Nearly 20 years ago, Harvard Business School Professor Michael Porter noted that urban university expenditures were nine times greater than spending on all federal urban job and business development programs combined. That number is surely much greater now.
Today, universities, hospitals and other anchor institutions wield considerable economic power in a community. Hospitals and universities are responsible for more than $1 trillion of our nation’s $17 trillion economy (about 6% of GDP). In addition, these “eds and meds” control well over $500 billion of endowment investments and they employ roughly 8% of the national workforce.
Anchor institutions are place-based enterprises, firmly rooted in their locales. Other anchors include community foundations, cultural institutions such as museums and performing arts centers, and municipal governments. Typically, anchors tend to be nonprofit corporations. Because they are “sticky capital”—in contrast to for-profit corporations which may relocate for a variety of reasons, such as lower labor costs, more subsidies, fewer environmental regulations—anchors have an economic self-interest in helping to ensure that the communities in which they are based are safe, vibrant, and healthy.
A particular opportunity is presented by emerging institutional “buy local” strategies which drive anchor procurement and investment locally, substitute imports, and recirculate money two or three times in what economists call a “multiplier effect.”
In Cleveland, University Hospital’s “Vision 2010” initiative drove 92% of a $1.2 billion construction and procurement effort into the local and regional economy (at the height of the 2008-09 recession), benefiting more than 100 local minority- and female-owned businesses. In Philadelphia, the University of Pennsylvania has systematically shifted nearly $100 million of procurement annually into the distressed West Philadelphia neighborhoods adjacent to its campus. In southern Ohio, the University of Cincinnati has allocated more than 10% of its $1 billion endowment to local investments intended to stabilize and revitalize the city’s Uptown District. Finally, in Boston, Northeastern University has seeded an economic development fund with $2.5 million to enable local businesses to expand and hire more employees.
The latest innovation in the field involves mayors using the power of their office to develop and implement multi-anchor strategies aimed at strengthening local economies. In March 2014, World Business Chicago, a not-for-profit economic development organization chaired by Mayor Rahm Emanuel, launched Chicago Anchors for a Strong Economy (CASE). The goal is clear: identify ways to connect the city’s anchor purchasing needs to local firms, thus producing a stronger and more integrated local economy. Earlier this year, Baltimore Mayor Stephanie Rawlings Blake launched the Baltimore City Anchor Plan (BCAP) which focuses on place-based opportunities to connect anchors and neighborhoods—particularly those that are disinvested and most in need of equitable development linked to employment for low-income residents. And in mid-September, Mayor Mitch Landrieu of New Orleans launched the Economic Opportunity Strategy to “recruit, train and connect the hardest to employ to real jobs and match local businesses to strategic opportunities for growth.” Anchor institutions, among the city’s largest purchasers of goods and services, have been identified as key partners in the new strategy.
Many have imagined how much more powerful these local anchor-based economic development strategies could be if the federal government were to provide a policy framework that would encourage anchors to align their business practices (purchasing, investment, hiring) to explicitly benefit the communities which they call home. After all, the vast majority of anchors are quasi-public institutions that receive substantial taxpayer resources ranging from university research grants to hospital Medicare reimbursements, and, of course, generally do not pay taxes themselves. Shouldn’t the federal government provide greater encouragement to these beneficiaries of public funds?
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In 2008, just as President Obama was taking office, the Anchor Institution Task Force (AITF), a consortium of universities engaged in community work (full disclosure: I sit on its steering committee) presented the incoming Administration with a set of specific policy recommendations, arguing that “the federal government can and should play a catalytic role in engaging anchor institutions in democratic partnerships with their communities, cities, and regions.”
These recommendations for federal action were based on a long history of governmental encouragement of both universities and hospitals in their civic roles. From the Land-Grant College Act of 1862 and the GI Bill and the formation of the National Science Foundation in the 1940s and 50s, to today’s implementation of the Affordable Care Act and its requirement that nonprofit hospitals file Community Health Needs Assessments with the IRS, the federal Government has helped shape the direction of higher education and health care in America.
It is past time for a new federal policy strategy to help cities leverage the economic might of their anchor institutions to benefit communities—particularly low- and moderate-income communities that have been marginalized by growing wealth inequality, low-wage work, and dwindling resources focused on their needs.
Editor’s note: A new report from CAP Senior Policy Analyst Tracey Ross explores strategies for how the federal government can encourage universities and hospitals to use their vast economic resources to increase community revitalization and economic growth. Read it here.