Louisville/Jefferson County is the principal city of America’s 42nd largest metropolitan area, a 13-county, bi-state region with a 2006 population estimated at 1.2 million. It is the largest city by far in Kentucky, but it is neither Kentucky’s capital nor its center of political power.

The consolidated city, authorized by voter referendum in 2000 and implemented in 2003, is home to 701,500 residents within its 399 square miles, with a population density of 4,124.8 per square mile.² It is either the nation’s 16th or its 26th largest incorporated place, depending on whether the residents of smaller municipalities within its borders, who are eligible to vote in its elections, are counted (as local officials desire and U.S. Census Bureau officials resist). The remainder of the metropolitan statistical area (MSA) population is split between four Indiana counties (241,193) and eight Kentucky counties (279,523). Although several of those counties are growing rapidly, the new Louisville metro area remains the MSA's central hub, with 57 percent of the population and almost 70 percent of the job base.

Centrally located on the southern banks of the Ohio River, amid an agriculturally productive, mineral rich, and energy producing region, Louisville is commonly described as the northernmost city of the American South. Closer to Toronto than to New Orleans, and even slightly closer to Chicago than to Atlanta, it remains within a day’s drive of two-thirds of the American population living east of the Rocky Mountains.

This location has been the dominant influence on Louisville’s history as a regional center of trade, commerce and manufacture. The city, now the all-points international hub of United Parcel Service (UPS), consistently ranks among the nation’s top logistics centers. Its manufacturing sector, though much diminished, still ranks among the strongest in the Southeast. The many cultural assets developed during the city’s reign as a regional economic center rank it highly in various measures of quality of life and “best places.”

Despite these strengths, Louisville’s competitiveness and regional prominence declined during much of the last half of the 20th Century, and precipitously so during the economic upheavals of the 1970s and ‘80s. Not only did it lose tens of thousands of manufacturing jobs and many of its historic businesses to deindustrialization and corporate consolidation, it also confronted significant barriers to entry into the growing knowledge-based economy because of its poorly-educated workforce, lack of R&D capacity, and risk-averse business culture.

In response, Louisville began a turbulent, two-decade process of civic and economic renewal, during which it succeeded both in restoring growth in its traditional areas of strength, most notably from the large impact of the UPS hub, and in laying groundwork for 21st century competitiveness, most notably by substantially ramping up university-based research and entrepreneurship supports. Doing so required it to overhaul nearly every aspect of its outmoded economic development strategies, civic relationships, and habits of mind, creating a new culture of collaboration.

Each of the three major partners in economic development radically transformed themselves and their relationships with one another. The often-paralyzing city-suburban divide of local governance yielded to consolidation. The business community reconstituted itself as a credible champion of broad-based regional progress, and it joined with the public sector to create a new chamber of commerce that is the region’s full-service, public-private economic development agency recognized as among the best in the nation. The Commonwealth of Kentucky embraced sweeping education reforms, including major support for expanded research at the University of Louisville, and a “New Economy” agenda emphasizing the commercialization of research-generated knowledge. Creative public-private partnerships have become the norm, propelling, for instance, the dramatic resurgence of downtown.

The initial successes of all these efforts have been encouraging, but not yet sufficient for the transformation to innovation-based prosperity that is the goal. This report details those successes, and the leadership, partnerships, and strategies that helped create them. It begins by describing Louisville’s history and development and the factors that made its economy grow and thrive. It then explains why the city faltered during the latter part of the 20th century and how it has begun to reverse course. In doing so, the study offers important lessons for other cities that are striving to compete in a very new economic era. 

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Executive Summary

Tax increment finance (TIF) is a popular and potentially powerful tool for places that need economic development the most yet have the least to spend. By allowing jurisdictions to use portions of their tax base to secure public-sector bonds, the mechanism allows fiscally strapped localities to finance site improvements or other investments so as to "level the playing field" in economic development.

However, poorly designed TIF programs can cause problems. Not only can they increase the incentives for localities to engage in inefficient, zero-sum competition for tax base with their neighbors. Also, lax TIF rules may promote sprawl by reducing the costs of greenfield development at the urban fringe. It is therefore critical that state legislatures design TIF rules well.

In view of this, an analysis of the way TIF is designed and utilized in Missouri shows that:

• Missouri law creates the potential for overuse and abuse of TIF. Vague definitions of the allowable use of TIF permit almost any municipality, including those market forces already favor, to use it. Weak limits on its use for inefficient inter-local competition for tax base touch off struggles between localities. And the inclusion of sales tax base in the program tilts it toward lower-wage jobs and retail projects, which rarely bring new economic activity into a region.
  
  
• Thanks to these flaws, TIF is used extensively in high-tax-base Missouri suburban areas with little need for assistance in the competition for tax base. This is especially true in the St. Louis metropolitan area. There, TIF money very frequently flows to purposes other than combating "blight" in disadvantaged communities' its classic purpose. In fact, less than half of the 21 St. Louis-area cities that were using TIF in 2001 were disadvantaged or "at-risk" when evaluated on four indicaters of distress. On another measure, just seven of the 20 suburban areas using TIF fell into the "at-risk" category.
  
  
• TIF is also frequently being used in the outer parts of regions' particularly in the St. Louis area. Most notably, only nine of the St. Louis region's 33 TIF districts lie in the region's core. Conversely, 14 of the region's 38 TIF districts lie west of the region's major ring road (I-270). These districts, moreover, contain 57 percent of the TIF-captured property tax base in the region. By contrast, the Kansas City region shows a pattern more consistent with the revitalization goals of TIF. The vast majority of the districts lie in the region's center city, though the huge size of the city means many are still geographically far-flung.

In sum, poorly designed TIF laws are being misused at a time when state and local fiscal pressures require every dollar be spent prudently. As a result, a potentially dynamic tool for reinvestment in Missouri's most disadvantaged communities threatens to become an engine of sprawl as it is abused by high-tax-base suburban areas that do not need public subsidies.

For these reasons, Missouri would be well-served by significant reforms in the laws governing TIF:

• The allowable purposes for TIF should be more strictly defined to target its use to places with the most need for economic development.
  
  
• Higher level review of local determinations that TIF subsidies will support net contributions to the regional or state economy (the "but-for" requirement) should be implemented.
  
  
• Local TIF administrators should be required to show that TIF subsidies are consistent with land-use and economic development needs both locally and in nearby areas.

If such reforms were put in place, TIF could be returned to its attractive main purpose: that of providing resources that would not otherwise be available to localities that badly need them to promote needed economic development and redevelopment.

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Louisville/Jefferson County is the principal city of America’s 42nd largest metropolitan area, a 13-county, bi-state region with a 2006 population estimated at 1.2 million. It is the largest city by far in Kentucky, but it is neither Kentucky’s capital nor its center of political power.

The consolidated city, authorized by voter referendum in 2000 and implemented in 2003, is home to 701,500 residents within its 399 square miles, with a population density of 4,124.8 per square mile.² It is either the nation’s 16th or its 26th largest incorporated place, depending on whether the residents of smaller municipalities within its borders, who are eligible to vote in its elections, are counted (as local officials desire and U.S. Census Bureau officials resist). The remainder of the metropolitan statistical area (MSA) population is split between four Indiana counties (241,193) and eight Kentucky counties (279,523). Although several of those counties are growing rapidly, the new Louisville metro area remains the MSA's central hub, with 57 percent of the population and almost 70 percent of the job base.

Centrally located on the southern banks of the Ohio River, amid an agriculturally productive, mineral rich, and energy producing region, Louisville is commonly described as the northernmost city of the American South. Closer to Toronto than to New Orleans, and even slightly closer to Chicago than to Atlanta, it remains within a day’s drive of two-thirds of the American population living east of the Rocky Mountains.

This location has been the dominant influence on Louisville’s history as a regional center of trade, commerce and manufacture. The city, now the all-points international hub of United Parcel Service (UPS), consistently ranks among the nation’s top logistics centers. Its manufacturing sector, though much diminished, still ranks among the strongest in the Southeast. The many cultural assets developed during the city’s reign as a regional economic center rank it highly in various measures of quality of life and “best places.”

Despite these strengths, Louisville’s competitiveness and regional prominence declined during much of the last half of the 20th Century, and precipitously so during the economic upheavals of the 1970s and ‘80s. Not only did it lose tens of thousands of manufacturing jobs and many of its historic businesses to deindustrialization and corporate consolidation, it also confronted significant barriers to entry into the growing knowledge-based economy because of its poorly-educated workforce, lack of R&D capacity, and risk-averse business culture.

In response, Louisville began a turbulent, two-decade process of civic and economic renewal, during which it succeeded both in restoring growth in its traditional areas of strength, most notably from the large impact of the UPS hub, and in laying groundwork for 21st century competitiveness, most notably by substantially ramping up university-based research and entrepreneurship supports. Doing so required it to overhaul nearly every aspect of its outmoded economic development strategies, civic relationships, and habits of mind, creating a new culture of collaboration.

Each of the three major partners in economic development radically transformed themselves and their relationships with one another. The often-paralyzing city-suburban divide of local governance yielded to consolidation. The business community reconstituted itself as a credible champion of broad-based regional progress, and it joined with the public sector to create a new chamber of commerce that is the region’s full-service, public-private economic development agency recognized as among the best in the nation. The Commonwealth of Kentucky embraced sweeping education reforms, including major support for expanded research at the University of Louisville, and a “New Economy” agenda emphasizing the commercialization of research-generated knowledge. Creative public-private partnerships have become the norm, propelling, for instance, the dramatic resurgence of downtown.

The initial successes of all these efforts have been encouraging, but not yet sufficient for the transformation to innovation-based prosperity that is the goal. This report details those successes, and the leadership, partnerships, and strategies that helped create them. It begins by describing Louisville’s history and development and the factors that made its economy grow and thrive. It then explains why the city faltered during the latter part of the 20th century and how it has begun to reverse course. In doing so, the study offers important lessons for other cities that are striving to compete in a very new economic era. 

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A Q&A with Dennis Lower, president and CEO, Cortex Innovation Community

As leaders scan the landscape for strong examples of innovation districts, their tour is hardly complete without learning of the Cortex Innovation Community—an innovation district in the heart of St. Louis. We sat down with Dennis Lower, president and CEO of the Cortex Innovation Community to learn what kinds of interventions and instruments are driving their success.

What is the Cortex Innovation Community?

Cortex is the region’s largest innovation hub, generating 3,800 tech-related jobs and over $500 million in investment in the last 14 years. It’s located close to downtown and built on the intellectual assets and resources of St. Louis’ leading universities, a premier health care provider, and the Missouri Botanical Garden. The focal point is the 200 acres of old industrial land that one time separated these institutions but that now stitches them together. At full build-out, Cortex will likely generate $2 billion of development and create 13,000 jobs.

What sets Cortex apart from other innovation districts?

Of course, every district is distinctive and unique, building off its local character, culture, and assets. What sets Cortex apart, I would argue, is that we literally have billions of dollars of academic, cultural, and recreational assets in the neighborhoods that surround the district, which other places simply do not have.

We are bookended by two universities—Washington University and St. Louis University—each a magnet for international students and each with a reputation for research and academic excellence. Washington University, for example, was one of five consortium members funded by the National Institutes of Health to map the human genome. These universities, together with the University of Missouri-St. Louis, are the academic bedrock of our local innovation ecosystem.

Recent demographic analysis tells us we are now the most diverse employment environment in the region no matter how you slice it, including by age, ethnicity, and educational attainment.

Another Cortex advantage is the neighborhood that surrounds us. In addition to historic housing, the Grand Center arts district is to the east, to the west is Forest Park, which contains the St. Louis Zoo, fine arts and history museums, two golf courses, the St. Louis Science Center, abundant walking and biking trails, and the internationally renowned Botanical Garden. Restaurant corridors are to the north and south. I tell you all this to say that Cortex is where innovation, tech, culture, and community collide—and people are hungry for this mix.

Cortex Innovation Community is also a tax-exempt 501(c)3 that oversees the design and development of the innovation district. What makes your nonprofit unique in managing this district?

Cortex has been designated the master developer to transform an old industrial district into a center for innovation and commercialization. We are in a particularly advantageous position because the state and the city have granted the 501(c)3 powers of eminent domain, the power to abate taxes, and the power to approve or reject building plans. From a traditional economic development perspective, these powers have been critical in overcoming obstacles that land speculators sometimes put in our way. We have not had to use this power very often, fortunately. Only a handful of properties were acquired under the threat of eminent domain, and we reached an impasse only twice, sending us to court to purchase those properties. We take this responsibility seriously and only use eminent domain powers sparingly. We have a good reputation with the public as a result.

Can you describe one accomplishment you are particularly proud of?

We knew that to jump-start an innovation district it was essential to build entrepreneurial density. We developed an unorthodox strategy of sorts in that we built a concentration of innovation assets all within a block of each other. Today, we have six innovation centers, each with its own community and programming: the Center for Emerging Technologies, a traditional technical assistance incubator for information technology, bioscience, and consumer/manufacturing products; the BioGenerator, an accelerator with shared wet lab space and $3 million of shared core lab equipment; TechShop, a premier maker work space for prototyping and creating; the Cambridge Innovation Center–St. Louis, a co-working office and lab startup space); Venture Café–St. Louis, a shared public space for the startup community to meet weekly with 8 to 12 unconventional breakout educational sessions; and IdeaLabs/MedLaunch, a unique university graduate/undergraduate incubator that develops new technology to solve clinical problems. This strategy is working beyond our wildest expectations. It’s the “secret sauce” for supercharging our district’s innovation ecosystem. 

Venture Café: one of the six innovation centers that weekly draws together over 500 entrepreneurs from all technology sectors.

Can you highlight one particularly interesting innovation or invention coming out of Cortex? 

Let me highlight two. We have over 200 companies in Cortex—there’s too much innovation happening here to highlight only one!

First, we have a medical device company that is changing the way infectious diseases are diagnosed. Its products can rapidly detect bacterial infections, determine if the infection is resistant to a range of antibiotics, and provide clinicians with patient-specific guidance to treat infections quickly and accurately. Their first product can diagnose urinary tract infections in just three hours.

And then we have a company tackling the biggest challenge in agriculture today—preventing insects, diseases, and weeds from destroying food crops. This company is developing a cost-effective technology to produce and topically deliver RNAi for agricultural crops. Put simply, this technology helps plants develop desired genetic traits without the use of genetically modified organisms, or GMOs. This could be transformative.

Many people have asked us how innovation districts are supporting inclusive growth. There is a concern that innovation districts are focusing on innovation to the exclusion of employment of city residents, who may not possess the skills or education the district’s businesses are seeking.

We look at inclusion as an integral part of our work and mission at Cortex. We currently have six inclusion initiatives and will soon introduce two more. One of those is the development of a magnet high school in the St. Louis Public School District, the Collegiate School for Medicine and Biosciences. Working closely with the school district’s superintendent and an important group of institutional and civic leaders, we have been developing an urban high school centered on one of the major strengths of our Cortex sponsors—bioscience. We recruited our first class in 2013, providing instruction in a small, temporary school, and in 2015 moved to a permanent location that can support 400 students.

The students come from all across the region, representing the largest spread of zip codes of any regional public school. Currently, 53 percent of the students are African American, 23 percent are Asian, and 22 percent are white, representing a great mix. Last year’s proficiency testing in math and English revealed that we ranked first across the entire public school system. I find this particularly gratifying because a number of incoming freshmen were not performing at grade level. What this tells us is given the opportunity, creative teaching approaches, and a supportive structure, these kids will excel quickly. With our incoming 9th grade class this August, we will have a full complement of freshmen to seniors, graduating our first class in 2017.

Perhaps one of these students will find the next cure for cancer. To me, this illustrates an important part of our district’s DNA—to grow and cultivate innovation talent for the future.