SPECIAL REPORT: Benchmarking the economies in "Big Ten" college towns

By Melissa Preddy

Nine months ago, Tera Johnson officially launched a dream, presiding over the first shift at her new $14 million Wisconsin Specialty Protein whey-processing plant in Reedsburg near the University of Wisconsin.

Next month, Johnson’s “Teraswhey” brand of protein supplements will hit the shelves in 200 Whole Foods markets nationwide, and her factory will produce 1.5 million pounds of the powdered whey made from cheese-making byproducts gleaned from local dairy operations.

Johnson expects to generate $7 million in 2010 sales and is confident of a profit. She credits low-interest equipment loans and other forms community-based start-up support for helping nurture her new business amid an economic storm.

And starting a business near a university town, with its rich science, agribusiness and economic development resources, was an added boost for Johnson. It’s a dynamic that entrepreneurs and leaders across the Big 10 region increasingly are trying to foster as a way to enrich and diversify the Midwest economy.

In the Madison market, an aggressive long-range strategy has aimed at growing young businesses without sacrificing quality-of-life factors that draw both an elite workforce and an educated, affluent consumer base.

“We were hiring manufacturing employees when everyone else was laying them off,” said Johnson, who fielded 450 applicants for 20 plant positions in March. “And the response to our brand has been way more than I anticipated. We were excited before, but now it’s really wonderful.”

The story of Wisconsin Specialty Protein and others like it illustrate in part why Madison, Wis., leads the Big 10 university towns in inflation-adjusted gross domestic product growth this decade, from $44,718 per capita in 2001 through $49,399 last year despite the recession’s toll.

For some years, the region surrounding the University of Wisconsin has nourished a forward-looking business development strategy that capitalizes on strengths ranging from its food-processing expertise to the state’s “angel investor” tax credit to a loyal alumni base.

Madison is on top of its game but by no means alone on the playing field. To varying degrees, all of the Big 10 host communities are working on community-university partnerships and forging business-friendly strategies that play up their assets, from computer simulation advances in Iowa City to nanotechnology in State College, Pa.
Some of these university cities are buoyed by their larger metropolitan areas, which analysts say explain GDP growth in the University of Minnesota and Northwestern University territories.

Others, like standalone Columbus, Ohio, are holding their own by building on decades-old expertise and adapting it to new-economy lines of business.

“These are highly diverse locales – trying to lump them together would be a mistake,” said Morton Marcus, director emeritus of the Indiana Business Research Center at Indiana University. He’s studied Midwest economies for four decades and says many university towns are doing better of late at promoting themselves as business centers.

Michigan, MSU bank on research corridor

The urgency behind the efforts is reflected in the numbers.

In Ann Arbor and East Lansing, GDP figures are flat or sagging this decade, knocking Ann Arbor from first among its Big 10 peers in 2003 to the fourth last year. The Lansing/East Lansing market held steady in the No. 7 spot but cities with aggressive plans, like State College, Pa. and Madison, forged ahead.

Ann Arbor has dipped from an inflation-adjusted per-capita GDP of $48,936 in 2003 to $45,480 last year – in part due to the loss of thousands of white-collar jobs when Pfizer Corp. phased out its 175-acre research center there throughout 2008 and recession-hit industries like construction and transportation contracted.

Ann Arbor’s unemployment rate leaped from 6.0 percent in October 2008 to 8.8 percent in October 2009. The Lansing market also saw a dramatic increase in its jobless rolls over the same period, from 6.9 percent to 10.6 percent, in part due to the automotive slowdown. Michigan as a whole suffers from the nation’s worst job market, and economists don’t forecast a complete recovery for decades.

Like their counterparts, Ann Arbor and East Lansing increasingly are focused on building more diversified economies.

“We’re catching up,” said Jeff Smith, project manager for the East Lansing Technology Innovation Center, a new business incubator. “I think we are doing much better now. We are catching up to the nation’s best and we certainly are ahead of the curve.”

He points to the three-year-old University Research Corridor partnership between the University of Michigan, Michigan State University and Wayne State University, which aims to leverage expertise and more than $1 billion a year in research dollars across the three schools into business and technology development. By uniting, the three schools are a powerhouse of talent, funding and facilities with few peers nationwide.

“It’s a sea change,” Smith said. “Similar efforts are bubbling up all over.”

“The schools have to demonstrate that some economic drive is taking place as a result of their existence,” he said — particularly in a climate where every bit of state funding is hard-won. “Historically their mandates have been to host research and to generate an educated workforce by granting degrees. Now, they need to demonstrate that there is job creation and business development taking place for every dollar they receive.”

Building on Strengths

Some of the Big 10 host towns are ahead of Michigan in the execution of these plans. Because of their diverse geography, existing business base and other factors, there is no one-size-fits-all approach for the Midwest’s university towns. But the type of business incubators that are newly hatched in Michigan have proven worthwhile pretty much across the board.

In State College, Pa., leaders are working to offset the loss of thousands of jobs in now-defunct electronics, glass and steel factories.

“We no longer have any large, traditional manufacturing that employs more than 500 people,” said John Coleman, head of the Chamber of Business and Industry of Centre County. “It’s been a fairly dramatic change. Our growth is coming from technology, hospitality, retail and professional services.”

And while any growth is welcomed, the retail jobs aren’t replacing the $45,000-a-year wages that workers used to earn at the Corning picture-tube plant. Still, the region’s per-capita GDP is gaining, up to $31,842 last year from $28,687 in 2003.

Over the past decades, older industries have gradually been replaced by new-economy firms. The AccuWeather forecasting service was founded by a Penn State grad student, and Restek, a $75 million global chromatography business, also started as a one-man shop that now employs 250 people in the State College region and has been ranked as one of the Wall Street Journal’s Top 15 small businesses.

To entice more entrepreneurs, the region – which unlike many Big 10 towns lacks the synergy of a nearby major metro area — also is focusing on quality-of-life strategies, like enhancing its airport by adding a control tower and more daily flights to hubs like Detroit.

Coleman also points to the chamber’s business incubator, currently nurturing 35 companies.

Just launched two months ago from the incubator is NanoHorizons Inc., which uses nanoparticle research to develop technology like antimicrobial gowns and bedding that are aimed at cutting hospital infection rates.

“That also started as a university professor with an idea, and now they have a local manufacturing facility with around 50 employees,” Coleman said.

Meanwhile, as NanoHorizons moved out on its own, the incubator added another 13 start-up companies in 2009.

“We are holding our own,” Coleman said. “Most sectors are weathering the storm, and then we have this tech cluster that is growing despite everything else that is going on in the economy.”

A research-rich school combined with a desirable living environment and enthusiastic alumni helps draw prospective businesses to the region.

The incubator is self-funded by the chamber through dues paid by its 1,100 members and rent paid by incubating tenants, who in a recent survey said the on-campus office and research facilities are the key draw to the region.

“Without question it’s the space,” Coleman said. “They are in Class A office space in Innovation Park on campus. Suites that would rent for $25 to $30 per square foot are subsidized to $16 a square foot, including mail services, the use of shared conference rooms and other amenities.”

Strategically, the leases have a 90-day cancellation clause, so would-be entrepreneurs aren’t scared away by long-term financial obligations. The incubator even provides expensive lab equipment on a sort of lending-library basis.

“We have purchased hundreds of thousands of dollars worth of lab equipment that many of these companies couldn’t afford otherwise,” Coleman said. “We take vulnerable, cash-strapped companies, nurture them and graduate them out when they are ready.”

More Jobs in Iowa City

Iowa City is building on its unique strengths, too. Despite the recession, this college town has grown its GDP to $39,256 in 2008 from $36,027 five years earlier.

Even more impressive: The region actually has added employment when most markets are watching jobs and wages evaporate.

“We’ve had layoffs and companies that have closed or downsized, but from January 2006 to October 2009 we still have seen a net gain of 6 percent in our employment,” said Joe Raso, president of the Iowa City Area Development Group, which serves the region. Some months this year, the market boasted the nation’s lowest unemployment rate, at less than 4 percent.

Efforts to wean the region from jobs dependence on the University of Iowa, the medical center and state government are paying off, Raso said. Private-sector employment has grown from 50 percent a few years ago to two-thirds of local jobs now. With state revenue on the wane, diversification initiatives are even more urgent, he said.

Iowa City already has a small but diverse manufacturing sector. It’s strong in consumer goods, like Oral B toothbrushes, Procter & Gamble’s giant mouthwash and hair care and Gillette shaving products.

Rockwell Collins, headquartered in nearby Cedar Rapids, makes aviation cockpit systems, providing jobs for some 5,000 engineers and technicians, Raso said. Lear Corp. employs about 800 workers making instrument panels and other automotive components.

Manufacturing is 7 percent of the local economy. “It’s not a big component, but what we have is fairly skilled and entrepreneurial,” Raso said. Other players providing jobs at a range of skill and wage levels include educational testing and assessment firms ACT and NCS Pearson.

Retaining businesses that don’t experience a lot of cyclical volatility helps, Raso said. After all, people mostly likely are going to need to wash their hair, shave and take college board exams regardless of how the economy is doing.

“All of these allow for diversity in what is a fairly small market,” he said.

On the horizon? Capitalizing on the University of Iowa’s renewable energy strengths. The state already is second only to Texas in the amount of wind power generated, according to the American Wind Energy Association. And in further synergy the university offers a wind-power program through its mechanical engineering department.

Two turbine-makers, Clipper Windpower and Acciona Wind Power North America, already are located in the region. Now, the city has purchased 173 acres near these suppliers and is adding roads, sewers and other infrastructure in hopes of attracting more related businesses to its newly launched Wind Energy Supply Chain Campus.

Computer simulation, a natural outgrowth of the electronics and aviation presence in the region, is another budding industry. Already, BudCat Creations, a video game contributor, has helped develop editions of Guitar Hero, Madden NFL and NASCAR games. And the university’s National Advanced Driving simulator, touted as the most advanced of its kind, is being mined for tech transfer possibilities as well as commercial research and military applications.

“We have the potential to build these into significant industries to drive our economic growth,” Raso said.

Columbus Covets Alumni

Ideas, research, capital, infrastructure: None of it means very much without the right people pool.

That’s why a number of Big 10 cities are taking aggressive steps to lure back grads and keep future ones from fleeing the nest.

Columbus already is perhaps the most well-endowed of the Midwest university cities in terms of infrastructure – with a dedicated cargo airport convenient to rail and roads, easy freeway access, a central location and a compact metro area.

The community long has been strong in industries that aren’t especially dependent on the university synergy, such as retail, distribution, shipping and logistics. Like its counterparts, Columbus is strong in life sciences but also in financial services, insurance and high-tech firms like OCLC.

“mployment is 64 percent greater than what you could statistically expect in a region our size,” said Bill Lafayette, vice president and chief economist for the Columbus Chamber. Like many of its peers, Columbus plans to continue to build on life sciences and health care. The logistics industry should flourish – particularly connections to Asia — with rail improvements that soon will create more capacity for cargo between Ohio and Norfolk, Va.’s deepwater port.

Recently, though, Columbus has focused on wooing the 120,000 students that attend its 25 local colleges and universities – about half of them at Ohio State University.

“We have a major initiative under way to retain more of them, and younger professionals in general,” said Lafayette. “We’re trying to engage the universities and get people in their 20s, who haven’t settled down elsewhere yet.”

“To that end, we have a very well-developed internship program that hooks up people from the universities with employers in town.” The ColumbusInternships.com site offers searchable databases to both employers and students, as well as profiles of local companies and other resources.

To make central Ohio seem more palatable to students – many of whom seldom venture off their school’s main complex, Lafayette notes – the local convention and visitors bureau just launched EasyColumbus.com, billed as “Your everything off-campus guide to Columbus.” Accessible via Twitter and Facebook, the interactive site aims to lure students to the city’s arts culture, gentrified neighborhoods and other amenities that might persuade grads to stay in town instead of bolting for Chicago or points south.

In Madison, similar efforts are in the works.

A recent survey found that 61 percent of alumni said they’d consider coming back to Madison if they knew they had job opportunities waiting, said Jennifer Smith, marketing and communications director for Thrive, the region’s economic development coalition. Meanwhile, prospective entrepreneurs and businesses said that the worker pool was a top criteria for site selection.

Thrive worked with the University of Wisconsin’s alumni association to enhance the online Badger Career Network Alert service, which it says connects mid-level and executive alumni with employers.

“It’s targeted and cost-effective on both ends,” she said. “It also hits the passive market – people not actually looking for work but who might be available.”

Many of the town-gown initiatives lately, like Michigan’s URC, are stressing collaboration over competition. Coleman, of Pennsylvania, has found himself across the table from rival Purdue in brainstorming how to stay abreast of business-attraction opportunities. In Wisconsin, local communities cooperate under an umbrella Something Special From Wisconsin campaign that aims to solve distribution issues for small, local producers and assure consumers interested in the shop-local ethic.

Columbus, too, has adopted a regional branding strategy.

Eight counties and their respective municipalities have banded together cooperatively to market the region under one banner. “Once the businesses are here, they distribute themselves as they will,” Lafayette said. “There is still some level of competition, but at least our marketing message is in sync.”

He feels the Big 10 region overall should do the same.

“We have the largest concentration of brainpower anywhere in the world thanks to the Big 10 universities,” said Lafayette. “We need to harness it and be working together to a much greater extent than we do now.”

Entrepreneur Johnson concurs.

“Every place is different. My business requires the supply chain that happens to be here. Other places have other strengths. One way or the other, we need to do new things to replace the old stuff,” Johnson said.