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Slide 1: Focusing San Francisco's Economic Strategy: From Goals to Strategic Priorities Ted Egan, Ph.D. ICF International
Slide 2: Outline ■ ■ ■ ■ Overview and Rationale Goals and Objectives of the Economic Strategy Impacts of San Francisco Industry How San Francisco Works: The Structure of our Economy Understanding Viability: The Dynamics of Change Recommended Target Industries, and Strategic Priorities ■ ■
Slide 3: Targeting and Economic Strategy ■ Economic development plans increasingly work with specific industries for two main reasons: • Industries require specialized economic foundations, e.g. workforce, physical infrastructure, regulatory system, etc. • Industries have different fiscal and labor market impacts, and essentially can put the City on different growth trajectories. ■ Two criteria are important: • Does the industry provide the kind of positive economic impacts that reflect the goals and objectives of the strategy? • Is the industry a viable strategic growth target for San Francisco?
Slide 4: Goals and Objectives: Proposition I ■ The San Francisco Economic Strategy was authorized by Proposition I in 2004, which voters approved Proposition I focuses on: • Job creation • Opportunities for vulnerable populations • Tax revenues • Small business ■
Slide 5: Goals and Objectives: Community Survey ■ In Spring/Summer 2006 an online survey asked respondents their values for the strategy. The top 5 goals and objectives are listed below (points out of 5) Score out of 5 4.33 4.31 4.22 4.18 4.18 ■ Goal Retaining existing businesses in the City Creating more jobs and new employment opportunities Investing in infrastructure to enhance residents' and workers' quality of life. Ensuring stability in the City’s economy Encouraging new industries to grow in the City
Slide 6: Goals and Objectives: Focus Groups and Public Meeting Large Economic Strategy Goal Business Create jobs and expand economic opportunities for all residents Focus on creating economic opportunities for low income residents Improve neighborhood quality of life issues Sustain and strengthen the City's economic base by retaining locally owned businesses Strengthen the City's tax base and expand revenues for services Promote economic growth and innovation by attracting and growing new industries Encourage entrepreneurship and support independent small business development Preserve industrial jobs and businesses Small Business Chamber Businesses NEDOs Community Industrial Groups Businesses Workforce Development Real Estate
Slide 7: Industries Advance the Goals and Objectives Differently Goal Create job opportunities by building on our strengths to promote greater overall economic growth. Ensure greater inclusion and equity in job opportunities, with an aim to reducing inequality. Ensure a sound fiscal footing for the City by encouraging industries with a positive fiscal impact. Industry Characteristics Identify San Francisco industries with high local multiplier effect. Identify San Francisco industries that create quality job opportunities for residents without a university degree. Identify San Francisco industries that generate more tax revenue than they consume in services.
Slide 8: Combined Impacts: Construction, Manufacturing, Wholesaling, Transportation Industry Total Growth Impact MEDIUM MEDIUM MEDIUM HIGH MEDIUM LOW HIGH LOW HIGH HIGH Middle Class Job Impact HIGH HIGH HIGH MEDIUM LOW HIGH HIGH MEDIUM HIGH MEDIUM Fiscal Impact MEDIUM MEDIUM MEDIUM LOW LOW MEDIUM MEDIUM MEDIUM MEDIUM LOW Combined (Out of 9) 7 7 7 6 4 6 8 5 8 6 Construction of Buildings Heavy and Civil Engineering Construction Specialty Trade Contractors Food Manufacturing Apparel Manufacturing Printing and Related Support Activities Computer and Electronic Product Manufacturing Furniture and Related Product Manufacturing Merchant Wholesalers, Durable Goods Merchant Wholesalers, Nondurable Goods
Slide 9: Combined Impacts: Retail Trade Industry Total Growth Impact MEDIUM LOW MEDIUM MEDIUM LOW LOW MEDIUM LOW LOW LOW Middle Class Job Impact HIGH LOW MEDIUM LOW LOW LOW LOW LOW LOW LOW Fiscal Impact HIGH HIGH HIGH HIGH MEDIUM HIGH HIGH HIGH MEDIUM HIGH Combined Motor Vehicle and Parts Dealers Furniture and Home Furnishings Stores Electronics and Appliance Stores Building Material and Garden Equipment and Supplies Dealers Food and Beverage Stores Health and Personal Care Stores Gasoline Stations Clothing and Clothing Accessories Stores Sporting Goods, Hobby, Book, and Music Stores General Merchandise Stores 8 5 7 6 4 5 6 5 4 5
Slide 10: Combined Impacts: Information Industry Total Growth Impact HIGH HIGH HIGH HIGH HIGH HIGH HIGH HIGH HIGH HIGH Middle Class Job Impact MEDIUM LOW HIGH MEDIUM HIGH MEDIUM MEDIUM MEDIUM HIGH MEDIUM Fiscal Impact MEDIUM LOW MEDIUM HIGH MEDIUM HIGH HIGH HIGH HIGH HIGH Combined Publishing Industries (except Internet) Motion Picture and Sound Recording Industries Broadcasting (except Internet) Internet Publishing and Broadcasting Telecommunications Internet Service Providers, Web Search Portals, and Data Processing Service Credit Intermediation and Related Activities Securities, Commodity Contracts, and Other Financial Investments and Related Activities Insurance Carriers and Related Activities Funds, Trusts, and Other Financial Vehicles 7 5 8 8 8 8 8 8 9 8
Slide 11: Combined Impacts: Financial, Professional, Business, Environmental Industry Total Growth Impact HIGH HIGH HIGH HIGH HIGH HIGH MEDIUM MEDIUM MEDIUM HIGH Middle Class Job Impact MEDIUM MEDIUM HIGH MEDIUM HIGH MEDIUM MEDIUM MEDIUM MEDIUM HIGH Fiscal Impact HIGH HIGH HIGH HIGH MEDIUM HIGH HIGH HIGH MEDIUM LOW Combined Credit Intermediation and Related Activities Securities, Commodity Contracts, and Other Financial Investments and Related Activities Insurance Carriers and Related Activities Funds, Trusts, and Other Financial Vehicles Real Estate Rental and Leasing Services Professional, Scientific, and Technical Services Management of Companies and Enterprises Administrative and Support Services Waste Management and Remediation Services 8 8 9 8 8 8 7 7 6 7
Slide 12: Education, Health, Hospitality, and Other Services Industry Total Growth Impact LOW MEDIUM HIGH LOW LOW MEDIUM HIGH LOW MEDIUM LOW Middle Class Job Impact LOW MEDIUM HIGH MEDIUM LOW MEDIUM LOW LOW LOW LOW Fiscal Impact LOW LOW LOW LOW LOW MEDIUM LOW LOW HIGH MEDIUM Combined Educational Services Ambulatory Health Care Services Hospitals Nursing and Residential Care Facilities Social Assistance Performing Arts, Spectator Sports, and Related Industries Museums, Historical Sites, and Similar Institutions Amusement, Gambling, and Recreation Industries Accommodation Food Services and Drinking Places 3 5 7 4 3 6 5 3 6 4
Slide 13: Summarizing the Industry Impacts ■ Successfully developing the high-impact industries means taking the San Francisco economy where we want it to go: • More job opportunities • Better job opportunities for lower-income residents • More revenue to fund services ■ But we cannot simply focus on high impact industries without considering how easy it is to encourage them to develop, grow, and remain in San Francisco.
Slide 14: How San Francisco Works: The Structure of Our Economy ■ The economy of all cities fundamentally depends on its trading relationships with the outside world—and this is especially true in today’s globalized economy. The first step to determining which industries can grow in San Francisco is to examine our trading patterns, and understand our economic role in the world. By making our export activities more competitive, they can drive our economic growth. Local-serving industries rely on export growth and increasingly face new kinds of competition. ■ ■
Slide 15: What We Sell: Major Net Export Industries in San Francisco Industry Securities, commodity contracts, investments Monetary authorities and depository credit in Management of companies and enterprises Real estate Legal services Advertising and related services Architectural and engineering services Information services Management consulting services Food services and drinking places Machinery and equipment rental and leasing Insurance agencies, brokerages, and related Telecommunications Hotels and motels, including casino hotels Lessors of nonfinancial intangible assets Exports Less Imports, 2001 ($ billion) $7.32 $5.39 $3.10 $2.86 $2.56 $1.64 $1.49 $1.41 $1.20 $1.11 $1.11 $1.02 $0.97 $0.63 $0.62
Slide 16: What We Buy: Major Net Import Industries in San Francisco Industry Exports Less Imports, 2001 ($ billion) Oil and gas extraction Automobile and light truck manufacturing Petroleum refineries Pharmaceutical and medicine manufacturing Pipeline transportation Truck transportation Motor vehicle parts manufacturing Paper and paperboard mills Toilet preparation manufacturing -$1.21 -$1.09 -$0.58 -$0.46 -$0.35 -$0.30 -$0.28 -$0.19 -$0.11
Slide 17: San Francisco’s Trade Pattern and Economic Niche Financial & Professional Services Rest of the World High Technology Traditional & New Media San Francisco’s Economy Tourism Services Energy Capital Inflows Commodities Manufactured Goods Rest of the World
Slide 18: San Francisco’s Economic Structure: A Knowledge and Experience Economy Export Fashion Dining & Entertainment Arts & Culture Financial Services Digital Media Information Technology Biotech Environmental Products & Technologies Professional Services Knowledge Generation Publishing, Film, TV Design Attractions Neighborhoods & Places Specialty Retail Hospitality Experience Generation People Infrastructure Teaching, Healing, Helping, Protecting People Education Health Social Services Business Services Personal Services Physical Infrastructure: Making, Holding, Moving, Maintaining Things Construction/Real Estate Transportation, Distribution, & Trade Manufacturing Suppliers Maintenance and Repair
Slide 19: Implications of Our Economic Structure ■ San Francisco’s economy is really based on two core activities: • Generating new knowledge (and innovative products, services, and information from new knowledge) • Providing high-quality experiences to visitors ■ These export activities drive our economic growth: the better we do them, the greater the growth potential throughout the economy. Our human and physical support system help determine how competitive we are in our export activities. ■
Slide 20: Job Performance of the Four Major Sectors ■ On the following slides, we will examine the recent job performance of industries within San Francisco’s two major export sectors: Knowledge and Experience. We will also examine the kinds of jobs they require, and some conclusions related to strategic directions for them. In addition, industries within the two local-serving sectors—physical and human infrastructure—will be profiled to see how well their growth is matching the growth in the export sectors. ■ ■
Slide 21: Trends in the Economic Structure: Interpreting Growth-Share Matrices Threatened Leaders Concentration in San Francisco Established Leaders U.S. Average Emerging Strengths San Francisco Average Recent Growth Rate
Slide 22: Trends in the Knowledge Sector Growth Share Matrix San Francisco's Ideas Sector, 2004 6.00 5.00 Securities, commodity contracts, investments Internet publishing and broadcasting (30.8%) Location Quotient (U.S. Average = 1.0) 4.00 Credit intermediation and related activities Broadcasting, except Internet Management of companies and enterprises 3.00 Funds, trusts, other financial vehicles 2.00 Motion picture and sound recording industries ISPs, search portals, and data processing Professional and technical services Publishing industries, except Internet Insurance carriers and related activities Nonstore retailers San Francisco has broad areas of strength across the entire knowledge economy, from financial and professional services, to digital and traditional media, to software and services. The orange-colored industries indicate those with a high impact, from the earlier impact analysis. A clear distinction exists, however, between those strengths that are expanding (upper-right), and those which are declining (upper left). These differences will be explored in the next few slides. 1.00 -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% Average Annual Employment Growth Rate, 1994-2004
Slide 23: Breakdown of Jobs by Education and Annual Salary In Growing Knowledge Industries Employment by Educational Attainment and Average Annual Salary: Industries in the Knowledge Sector that Have Grown in San Francisco, 1994-2004 High School or Less, < $30k 4% Bachelors+, >$70k 35% High School or Less, >$30k 8% Some College, <$40k 10% In the growing (upper right) industries, which mainly includes Internet, media, professional, and high-end financial services, about 60% of the jobs go to workers with at least a fouryear degree. About a quarter of workers have some college or a two-year degree, and most of those jobs pay more than these workers typically make in San Francisco. Only about 12% of the jobs go to workers with no college, although again most of those jobs pay better than average. Some College, >$40k 17% Bachelors+, < $70k 26%
Slide 24: Breakdown of Jobs by Education and Annual Salary In Declining Knowledge Industries Employment by Educational Attainment and Average Annual Salary: Industries in the Knowledge Sector that Have Declined in San Francisco, 1994-2004 Bachelors+, >$70k 20% High School or Less, < $30k 7% High School or Less, >$30k 10% Some College, <$40k 16% The knowledge sector jobs that have been declining in San Francisco (corporate headquarters, mid-level financial services, and film) have a very different skills profile. Over half of the jobs in these industries go to workers that do not have a four-year degree. Again most of these jobs offer better-than-average salaries to workers with a high school or community college education. Bachelors+, < $70k 29% Some College, >$40k 18%
Slide 25: Our Declining Knowledge Sector is Growing Elsewhere in the Bay Area Total Employment in Declining Knowledge Sector Industries*: San Francisco and Other Major Bay Area Counties, 1994 and 2004 70,000 60,000 Is the decline of the middle class knowledge sector job an inevitable part of San Francisco’s rising cost of living? The argument for that would be stronger if we did not observe the same industries growing elsewhere in the Bay Area —even in Santa Clara county, which has higher housing costs than San Francisco. These areas face very similar housing and labor costs as San Francisco, but have been able to expand their employment in these industries. 1994 2004 50,000 40,000 30,000 20,000 10,000 0 San Francisco Alameda Santa Clara Contra Costa San Mateo * Corporate headquarters, Insurance, Credit intermediation, and Motion Picture Production
Slide 26: Knowledge Industries Grow from Local Creativity & Innovation Like a Funnel Institutions, Creativity, Innovation Creative Talent – Number of Potential Entrepreneurs Number of Actual Start-Ups Sustainable Companies Dominant Companies
Slide 27: Job Impacts Are Different For Companies at Different Stages Company Stage of Development Creative Talent – Number of Potential Entrepreneurs Number of Actual Start-Ups Sustainable Companies Dominant Companies Multiple skill levels, full set of corporate functions, formal labor market hiring. Upper, Middle, and Lower Income Jobs. Job Characteristics Highly skilled, core knowledge functions only, personal networks. Upper Income Jobs.
Slide 28: San Francisco Has a Very Wide Funnel, But Has a Bottleneck at the Bottom San Francisco Institutions, Creativity, Innovation San Francisco Creative Talent – Number of Potential Entrepreneurs Number of Actual SF Start-Ups Sustainable SF Companies Buy-Outs/ Mergers Dominant SF Companies Relocations / Expansions Outside SF
Slide 29: Venture Capital Trends: Emerging Industries in the Bay Area Leading Emerging Industries: Venture Capital Invested in the Bay Area and the Rest of the U.S, Q2 2006 $1,600 $1,400 $1,200 Other US $1,000 $800 $600 $400 $200 $0 e ch s es ps ot e ftw hi ic ce ar nm ev i rv C en t Given our current role as a center for small, early-stage knowledge-based companies, understanding the growth trends of emerging industries is important. The six industries shown on the left lead the country in receiving venture capital investment, and the Bay Area leads all other regions in every one of these industries. Bay Area an So Se N ss og y/ ir e le s al le s W ed hn om /W s/ Bi ot ec du ct le c on Te ic Se m In du st ria l/E ne or rg y ire ol M /E n ic vi ro D
Slide 30: Regional Factors Favoring San Francisco ■ An earlier SFES report highlighted two trends that suggest San Francisco could further broaden its Knowledge sector: • Northward movement of Silicon Valley and emergence of San Francisco as a regional high technology node. • Likely increasing importance of transit to commuting in the region’s future, favoring high-density, transit-rich employment centers like downtown San Francisco. ■ While in recent decades San Francisco may not have been competitive for many emerging industries or middle-income knowledge jobs, this could change.
Slide 31: Key Challenges and Industries for the Knowledge Sector ■ Expanding our base of early-stage emerging industry firms: • Biotechnology / nanotechnology • Software / digital media • Clean / alternative energy • Wireless communications ■ Encouraging the retention of larger knowledge sector firms we have been losing, especially: • Corporate headquarters • Insurance and mid-level financial services
Slide 32: Trends in the Experience Sector Growth Share Matrix San Francisco's Experience Sector, 2004 6.00 5.00 Museums, historical sites, zoos, and parks The broad Experience sector includes companies in the hospitality, specialty retail, arts, culture, and recreation industries. As a sector, its growth has been one of the strongest in the City over the past decade. Many of these industries are not high-impact, although the accommodation industry is a major source of revenue for the City. Location Quotient (U.S. Average = 1.0) 4.00 Performing Arts 3.00 Accomodation 2.00 Clothing and clothing accessories stores Sporting goods, hobby, book and music stores Food services and drinking places Furniture and home furnishings stores 1.00 Misc. Retail Electronics/ Appliance Stores Food and beverage stores Amusements, gambling, and recreation Health and personal care stores -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% Average Annual Employment Growth Rate, 1994-2004
Slide 33: Experience Sector: Breakdown of Jobs by Education and Annual Salary Employment by Educational Attainment and Average Annual Salary: Experience Sector Bachelors+, < $70k 19% Bachelors+, >$70k 3% High School or Less, < $30k 42% When we look within these educational categories to examine wages, we see that most of the jobs pay below average for each level of educational attainment. 42% of the Experience sector workforce has a high school education and work in jobs paying less than $30k a year. Another 26% have some college, and work in jobs (possibly the same jobs) paying less than $40k a year. Part of the challenge in this sector, therefore, is not merely to ensure competitiveness, but higher quality experiences dependent on higher skilled, better paid workers. Some College, >$40k 5% Some College, <$40k 26% High School or Less, >$30k 5%
Slide 34: Experience Sector: Key Strategy Issues ■ Tourism is a major source of economic growth and tax revenue for San Francisco, and the experience of the city is the single biggest driver we have. But we need to continue to grow the experience sector in ways that deepen and enhance the experience, and create new forms of value for visitors. In many cases this depends on the quality of the workforce. We can build a higher quality experience economy as we build a higher quality workforce. ■ ■
Slide 35: Key Industries and Challenges for the Experience Sector ■ Upgrade the training, skills, and wages of key experience-providing workers in the visitor industries: • Retail • Food Service and Preparation • Hospitality • Personal Care and Service • Arts, Design, Entertainment Workers
Slide 36: Trends in Human Infrastructure Average Annual Percentage Change in Employment, Human Infrastructure Segments, 1994-2004 Hospitals Educational services Social assistance Industries in the human infrastructure sector, like all local-serving industries, will generally track the growth of the overall economy, unless there are changes in local demand patterns or competition from elsewhere in the region. In the human infrastructure sector, health care (hospitals) and education have been healthy sources of job growth. Most of the industries in this sector have strong middleincome job impact, and a low overall impact only because many are exempt from property tax. Nursing and residential care facilities Membership associations and organizations Personal and laundry services Ambulatory health care services -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
Slide 37: Human Infrastructure: Breakdown of Jobs by Education and Annual Salary Employment by Educational Attainment and Average Annual Salary: Human Infrastructure Sector Bachelors+, >$70k 13% High School or Less, < $30k 14% High School or Less, >$30k 9% The sector offers a decent array of middle-income jobs, especially for workers with some college. Most of the jobs held by workers with a high school education or less pay less than $30k a year, the Citywide average for workers at that level. Bachelors+, < $70k 35% Some College, >$40k 11% Some College, <$40k 18%
Slide 38: Human Infrastructure Sector: Key Strategy Issues ■ Growth in this sector will largely be determined by the strength of the City’s export sector, and overall level of job and income growth. The sector is crucial to the competitiveness of the export sectors in many ways, however, and many of the employers are in the public or non-profit sectors. There is therefore a governance challenge—more than a strategy challenge—to ensure an optimal alignment between employers in this sector and the requirements of the export industries on which the entire city depends for growth. ■ ■
Slide 39: Job Trends in Physical Infrastructure Average Annual Percentage Change in Employment, Physical Infrastructure Segments, 1994-2004 Heavy and civil engineering construction Waste management and remediation services Warehousing and storage Truck transportation Construction of buildings Building material and garden supply stores Real estate Administrative and support services Repair and maintenance Motor vehicle and parts dealers General merchandise stores Gasoline stations Merchant wholesalers, nondurable goods Telecommunications Merchant wholesalers, durable goods Electronic markets and agents and brokers Printing and related support activities Transit and ground passenger transportation Couriers and messengers Rental and leasing services Food manufacturing Support activities for transportation Specialty trade contractors Many jobs in the physical infrastructure sector are high impact, both because of their strong multiplier effects, and the percentage of middleincome jobs that each offer. Unfortunately, most of these industries have been losing jobs in San Francisco, with Construction and Truck Transportation being the main bright spots. Many manufacturing industries on this chart—and other export-oriented manufacturing industries not shown—have declined dramatically. -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0%
Slide 40: Physical Infrastructure: Breakdown of Jobs by Education and Annual Salary Employment by Educational Attainment and Average Annual Salary: Physical Infrastructure Sector High School or Less, < $30k 22% Bachelors+, < $70k 13% Bachelors+, >$70k 1% Most of the jobs held by workers in the physical infrastructure sector pay an above-average wage for workers at that level. 30% of the workforce has a high school education and earns over $30k a year, while another 19% of the workforce has some college and earns over $40k a year. Some College, >$40k 19% Some College, <$40k 16% High School or Less, >$30k 29%
Slide 41: Knowledge Sector & Physical Infrastructure Growth, 1995-2000 Average Annual Employment Growth by Sector in San Francisco, 1995/96-1999/2000: Advanced Services, Local-Serving Industrial, and Tradeable Industrial (manufacturing) 15.0% Total Knowledge Sector Local-Serving Industrial Tradeable Industrial (manufacturing) During the dot com boom, the local-serving industrial sector grew alongside of the advanced services sector that led the city’s economy. Export-oriented industrial jobs—essentially, the manufacturing sector– declined significantly during this period Although there was a significant change in the city’s population during that time, and many employers were displaced, in aggregate the growth of the Knowledge Sector created more job opportunities in the localserving PDR sector. 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% 1995-1996 1996-1997 1997-1998 1998-1999 1999-2000
Slide 42: Knowledge Sector & Physical Infrastructure Growth, 2000-2004 Average Annual Employment Growth by Sector in San Francisco, 2000/01-2003/2004: Knowledge Secgtor, Local-Serving Industrial, and Tradeable Industrial (manufacturing) In 2001, the City began to lose knowledge sector jobs in the dot com bust. Immediately, it also began to lose local-serving PDR jobs. What this means it that the growth of the advanced services sector has not cost the city PDR jobs. Rather the growth of the City’s knowledge and experience economy sustains local industrial suppliers. During the recession, the more vulnerable, and disconnected, tradable PDR sector declined faster than other, stronger sectors of the economy. And faster than it did during the dot com boom. 5.0% 0.0% -5.0% -10.0% -15.0% Total Knowledge Sector Local-Serving Industrial Tradeable Industrial (manufacturing) -20.0% -25.0% 2000-2001 2001-2002 2002-2003 2003-2004
Slide 43: Physical Infrastructure Sector: Key Strategy Issues ■ Employment in the physical infrastructure industries is most viable when it is closely linked to growth in the export activities—such as construction, and most at risk when it depends on outside markets—such as food manufacturing. Strategies for the sector should revolve around strengthening those linkages to local markets by promoting collaboration between industrial producers and local end-users. ■
Slide 44: Conclusions: Four Key Strategies for San Francisco’s Economic Future ■ Strengthen the linkages between the local-serving industrial sector and growing elements of the export base. Continue to invest in, and diversify, the engines of innovation in the knowledge sector. Retain growing knowledge sector companies within San Francisco to retain mid-level occupations. Raise the value in the experience sector to increase revenue and expand the range and wages of jobs. ■ ■ ■
Slide 45: What Happens When We Succeed? ■ If San Francisco can do those four things successfully, it will create an economic dynamic that will: • Maintain and enhance the viability and diversity of San Francisco’s export base and ensure stable economic growth • Maximize the retention and creation of middle-income occupations in San Francisco, reducing income inequality. • Support the development of industries with a positive fiscal impact on San Francisco.