Urban wealth, economic growth in WV cities - Beckley, Bluefield & Lewisburg News, Weather, Sports

Urban wealth, economic growth in WV cities

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Brooks McCabe Brooks McCabe

Brooks McCabe is managing member and broker of West Virginia Commercial LLC. He has been involved in commercial and investment real estate for more than 30 years, and he also is general partner of McCabe Land Co. LP. He has served in the West Virginia Senate since 1998, and is a special project consultant to The State Journal.

The degree to which West Virginia prospers in the future will depend, to a large extent, on the prosperity and growth of its cities.

Christopher Kennedy, a professor in the Department of Civil Engineering at the University of Toronto, wrote the book, “The Evolution of Great World Cities: Urban Wealth and Economic Growth.” Although the book focuses on the major cities in the world, there is much to be gleaned from his analyses that can help guide West Virginia to a more prosperous future. Kennedy’s definition of the wealth of a city is not based on its economic output or income, but rather the value of the tangible assets owned by its citizens. This is a very different approach than normally taken in describing the development of cities. Understanding the implications of this approach can have a fundamental impact on how to plan for and manage the growth of West Virginia’s cites and the state’s economy as a whole.

Wealthy cities “are those that are home to citizens with highly valued holdings of financial, real estate and other assets.” Stocks and bonds, residential housing, commercial buildings and business equity are the main components of urban wealth, according to Kennedy. The wealth of a city is the sum total of the market-based assets controlled by its citizens. If West Virginia is to truly prosper, an understanding of the implications of this perspective is imperative. Converting income into long-term wealth is the objective. Locally owned and controlled wealth is the end game. Manufacturing facilities owned by global corporations provide jobs and a sound economic base, but it is not the same thing as creating places-based urban wealth. These large corporate investments are a vital part of the economy and can drive much economic activity. For a city to grow and control its own future, the citizens need to be converting their income into investments which can be controlled by local entrepreneurs.

How does this affect West Virginia and its ability to put into place a sustainable growing economy driven by urban wealth and economic growth? Tax policy is one place to start. Tax credits can be an important tool in bringing external corporate investment to the state. But it must be remembered that even though those policies bring jobs, this is not the same thing as creating urban wealth. Increasing the property tax base and expanding employment opportunities are vital components of economic development. However, for long-term, sustainable growth in West Virginia’s cities, locally controlled wealth must be created and encouraged to stay in place. For this to occur, the tax credit strategy must be balanced with tax policies that assist in the creation and maintenance of locally controlled wealth.

Corporate tax rates need to be reduced. The tax on equipment and inventory needs to be eliminated. If West Virginia wants to join the aggressive ranks of states concentrating on wealth creation, it needs to look toward the gradual elimination of the personal income tax. These taxes need to be replaced by other, more business-friendly tax policies. At some point, a constitutional amendment focusing on property taxes and the more equitable funding of public education will need to be addressed in a serious manner. These changes in tax policies are not for the faint hearted. If West Virginia is to stop the flow of its business leaders relocating their residencies to no-income tax states such as Florida and Tennessee, these tough tax policy decisions need to be seriously considered. For our cities to grow and prosper, West Virginia needs to become the “go-to” state for wealth creation and preservation.

An aggressive, state-based venture capital industry also is imperative to create urban wealth. The new economy is where much of the wealth will be created in the coming decades and this wealth will be concentrated in our urban areas. West Virginia has the beginnings of a new economy in North-Central West Virginia. Huntington and Charleston also are getting into the game with the research programs at Marshall University and the research efforts at MATRIC. However, the state’s ability to commercialize emerging technologies is severely hampered by the lack of adequate venture capital. The problem on the horizon is that as these technologies reach the stage of commercialization, they may well be forced to relocate to other states that can provide proper funding. The venture capital and investor support base in the Pittsburgh area dwarfs anything found in West Virginia. This inadequacy needs to be addressed in the near term if West Virginia is serious about creating and maintaining wealth from the new economy. We know knowledge workers gravitate to creative urban areas. What needs to be internalized is that these exciting places to live must also have the place-based wealth to support the growth of these new industries. Unfortunately, West Virginia’s cities are woefully weak in this vital area.

Kennedy believes that in addition to urban wealth, the fundamental components of growth are culture, innovation and infrastructure. West Virginia has most of these key components in place. What the state lacks are the economic and tax policies that encourage wealth creation and preservation. To correct the situation requires a different mindset and a change of focus. It is more than just recruiting new industry into the state. It is about creating wealth within our citizenry. It is about encouraging the growth of local capital. It is about reinvesting that capital in new and innovative businesses. And most importantly, it is about keeping our successful business leaders in West Virginia and not encouraging them through tax policies to change residencies to no-income tax states. Urban wealth and economic growth in West Virginia are about creating and preserving the wealth of our citizens. It is that simple, yet surprisingly hard to implement. Maybe the time is right for a new direction — one focused on wealth creation and not just recruiting new jobs. Both are needed, but wealth creation provides the sustainability needed to control our own destiny.