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INCLUSION
ARE THEY CHARITABLE NONPROFITS? Do all economic development groups deserve to be considered charitable nonprofits? Matthew Rossman doesn’t think so. In a 2014 research paper called “Trickle Down Charity,” the Case Western Reserve University law professor argues that many economic development groups should not be able to qualify as 501(c)(3) nonprofits. That means they’re considered charities in the eyes of the Internal Revenue Service, which allows them to receive tax-deductible donations. Rossman argues that many economic development groups across the country shouldn’t be considered charities. As examples, he mentions Cleveland’s JumpStart and a St. Louis-based biomedical incubator, which provides some of the same functions as Cleveland’s BioEnterprise. Traditionally, JumpStart and BioEnterprise have focused mainly on providing assistance to hightech companies, such as software developers and medical device makers. Rossman said many of the jobs those companies create go to people who have college degrees — people who don’t typically need charity. BioEnterprise didn’t provide a counterargument, but here’s one it could use: In addition to economic development, its mission includes
improving public health. JumpStart noted that it has always worked to help “disconnected populations,” such as women and minorities. And both organizations could argue that they help local companies that are at a disadvantage because most venture capital firms are based on the coasts. Those activities make their cases stronger, Rossman said. He praised local economic development groups for ramping up their efforts to help people who live in Northeast Ohio’s inner cities (see adjacent story). But he added that they should try to make sure each business they help will result in jobs or some direct benefit for the people who need the most help. “I don’t think they are there quite yet,” he said. He cited an IRS legal memo from 1990. The memo (General Counsel Memorandum 39883) was used to decide whether the IRS should give 501(c)(3) status to an unnamed economic development group formed to help businesses in a depressed part of the country. The memo said the group would not be considered charitable “because it encourages private business development while only incidentally furthering social welfare purposes.” However, the memo does not carry the weight of law, and the IRS has not enforced it, Rossman said. — Chuck Soder
NORTHEAST OHIO LAGS BEHIND The number of people employed in the city of Cleveland fell by 7.4% from 2009 to 2013, while most of the country was recovering from the recession, according to household surveys conducted by the U.S. Census Bureau. That rate, which excludes people who aren’t looking for work, grew by 2% in the suburbs during that period, according to an analysis of the statistics conducted by the Fund for Our Economic Future. The same trend appears in Akron, Youngstown and Canton, though the stats aren’t quite as extreme.
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And for the most part, the number of jobs actually based in Northeast Ohio’s suburbs grew from 2000 to 2010, while the number based in the region’s four core cities shrank by 2% to 3%, according to a study by the Brookings Institution. Nationally, the trend started to reverse itself between 2007 and 2011, but Cleveland didn’t entirely close the gap, according to a third study by City Observatory, an Oregon-based think tank sponsored by the Knight Foundation. — Chuck Soder
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Regional Competitiveness Council, are pushing to make sure that all programs emerging from the conversation are inclusive. Those conversations are influencing how JumpStart and other local economic development groups approach inclusion. So are the funders of those groups, Martin said. “I don’t think we ever have a conversation with a funder where it’s not brought up,” she said.
Core competency Creating jobs in the suburbs is important, according to Fund president Brad Whitehead. But he argues that it’s more important to create jobs in Northeast Ohio’s core cities — especially “middle-skill” jobs that pay enough to support families. “Any job is a good job, but some jobs are better than others,” Whitehead said. This issue affects everyone in Northeast Ohio, even people who live and work in the suburbs, Whitehead said. The whole region will suffer if its core cities suffer, he said. Urban poverty forces taxpayers outside the city to pay for more social services. Plus, creating jobs in the core reduces suburban sprawl, which means taxpayers don’t have to keep building more roads and sewers. “It’s not only the right thing to do — it’s the economically sensible thing to do,” Whitehead said. The Fund and the Cleveland Foundation don’t force economic development groups to follow their lead. But they do inform them
about these issues. And in some cases, they provide funding that makes inner city programs possible. For instance, in October, a group of students from Cleveland’s John Adams High School toured a Solon factory owned by Swagelok, which makes valves, fittings and other parts for fluid systems. In the process, they met Leo Adams, who is black and grew up near John Adams. He told them about how he became a supervisor at Swagelok — and how the company helped him earn his bachelor’s degree. The Cleveland Foundation helped Magnet cover the cost of that trip and others like it. It’s also helping Magnet bring a program that connects high school students with paid manufacturing internships to Cleveland. Plus, Magnet also has been working with more companies in poor inner city neighborhoods because of its work with the Cleveland Foundation and the Fund for Our Economic Future, according to Greg Krizman, senior director of marketing at Magnet. “It is certainly on radar screens around here, no question,” Krizman said. Other economic development groups are putting more emphasis on economic inclusion, too. For instance, BioEnterprise is trying to figure out how to help high school and undergraduate college students get into bioscience careers. Team NEO, which focuses on business attraction, recently received a Cleveland Foundation grant that it’s using to attract more site selectors to the city.
Seeking solutions So what can economic development groups do to spark major job creation in the urban core? For one, they need to form deep relationships with other minority business associations, according to Darrin Redus Sr., who led JumpStart’s economic inclusion efforts from 2006 through mid 2013. Those networks are full of people who could become employees, CEOs, investors and advisers for companies that could create jobs in the urban core. And when they get involved, they’ll inspire their colleagues to lend a hand. “They become part of the solution,” he said. The Greater Cleveland Partnership is working on that. Inspired by how JumpStart and other local economic development groups team up to help startup companies, GCP’s Commission on Economic Inclusion is forming an overlapping sister network that will focus on making sure that minority-owned businesses can get the help they need from the organization that’s best suited to provide it, Hall said. The group, which at the moment consists of nine organizations, launched a pilot project involving four minority-led companies in December. But no matter how effective economic development groups are, it will take a long time to repair the region’s inner cities, according to Redus, who now consults with other cities on how to make their economic development efforts inclusive. “What has taken generations upon generations to build is not going to get fixed overnight,” he said.
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