“We believe in a balanced budget”

September 2011

(Part 2 of 3) Conversation with Mick Cornett, Mayor of Oklahoma City – resisting temptation to leverage – attracting large companies to the city – the shrinking role of unions.

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Here is the transcript of the video.

1. Low unemployment and the government as a majority employer

Emmanuel Daniel (ED): We hear a lot about what’s happening in the U.S. today from an international perspective. But what’s the view like from inside looking out? I’m very pleased to be able to speak with Mick Cornett, the Mayor of Oklahoma City.  And we want to start right out and ask you, where Oklahoma is today in terms of its economy relative to the national economy, and how you would distinguish that because all the numbers that we see appears to be telling a very different story.

Your unemployment rate is not what the national average is looking like. It’s 5% rather than 9%. Your city budget is looking very strong. You’re not as leveraged as many other cities in the U.S., so what is your perspective of the country from where you sit?

Mick Cornett (MC): Well, we have separated ourselves from the national economy. The United States economy, right now, is not very good. Consumer confidence is very low. Politicians are struggling, turning on each other, at gridlock it seems, and the American public’s getting fed up with it. I think, in general, they are expecting their elected officials to create jobs. When they don’t see that happening, they’re upset.

And they’re scared. Oklahoma City has separated itself from all of that chaos. Consumer confidence in Oklahoma City is very high. I’ll give you an example; I read somewhere that in the first week in August, consumer confidence was at some level – some historic low in the United States. That same week in Oklahoma City, we opened up a factory outlet mall full of “shoppings,” 100% occupied. We had 161,000 people show up at the mall shattering all industry records, and they’ve been keeping these records for 30 years.

So the very same time period, where consumer confidence is at some level of nadir, here at Oklahoma City, we have this huge influx of people ready and willing to spend money. And consumer confidence is so critical to driving your economy because if people start sitting on their money, the money doesn’t turn over.

ED: So give us a perspective on Oklahoma City, the economy. It’s not a city that’s dominated by big name corporations. It sounds like a city that is driven a lot by small business. It sounds, to me, to be a city which is quite spread out, so it’s not just a city, but the value chain of the economy spreads out into the country and so on. What makes Oklahoma City a kind of an economy that you can practically “ring fence” from the national economy?

MC: Here’s what we did. In the 1960’s, ‘70’s, and ‘80’s, we were very reliant on the energy industry – oil and natural gas. Well, the energy industry goes like this – and our economy went like that –so we went through this boom and bust cycle. Coming into the early ‘90’s, coming out of one of those bust cycles, we specifically said, “We’ve got to diversify our economy.” We made specific, strategic decisions to move into areas like aviation, the biomedical sector. We made investments in tourism. We’ve always had a fairly strong government sector, and that’s a good sector to have in a recessionary time.

I think that diversification has been key because the energy industry has done pretty well, but we no longer are reliant on the energy industry. I think it’s probably 4% to 6% of our employment, maybe 10% of our wealth, but still, just a small fraction. And so whereas a generation ago, people would’ve looked at a commodity price to determine Oklahoma’s economy, they would’ve said, “Well, what’s a barrel of oil?” And, “What’s a bushel of wheat?” Today, you would say, “What is the level of natural gas?” You know, what’s the cubic natural gas providing?” But generally, we’ve diversified so much more.

ED: Yes, but still, what your detractors say is that Oklahoma City has a lot to do with government as the anchor economy, or economic driver.

MC: I wouldn’t say it’s an anchor, but it’s a really nice part of the economy to have.

ED: And that’s because?

MC: Well because those jobs typically have benefits, they’re pretty stable. You know, there’s not a whole lot of people getting laid off or hired. And it’s nice to have a significant government sector in your economy. Now we can all argue that the government’s too big and needs to be downsized. That’s a different argument, but what I’m saying is as a Mayor, do I like having a government sector in my economy? Absolutely, I think it’s important to have.

ED: And this is federal government?

MC: It’s really all of them. We do have quite a few federal employees. We have a large Air Force Base in our city. We also have a large Federal Aviation Association presence in our city. And then we’re the capital of the state, so we have a lot state employees.

ED: Right. How long did it take for Oklahoma to come to that level where there’s some kind of resonance between all the different constituents of the economy from the time of losing that pole position during the oil and gas period?

MC: Well, the 1980’s were very poor for Oklahoma. And the 1990’s were a little better. Then in this decade we’ve done pretty well. It’s been gradual, but I would say, in the last seven or eight years, our economy has been about as good as you’re going to find anywhere in the United States.

ED: Your ability to collect taxes, your, your sales tax invoices, and your receipts have been looking very good?

MC: We’re in a boom time. Our sales tax revenue is up 5% to 10% a year in the last year or two, coming out of the recession. That’s unexplainably high.

ED: Reflect with me, this resonance you have in your economy, which is so different from the rest of the United States today. What do you think holds it together? What is it that gives that sense of confidence for the community to ‘tick’ and to continue shopping as if they’ll still hold onto their jobs and things will be fine.

MC: Unemployment is low as you mentioned. It’s the lowest unemployment rate in the United States. So that’s part of it. There’s still a strong work ethic in Oklahoma, so I think Americans as a whole are starting to become lazy and, and less likely to want to work. In Oklahoma that strong work ethic still holds true. We’ve also been very successful in building the quality of life. I think in the 21st century, what you’re seeing is the highly educated 20-somethings of the world, who can live anywhere they want – people with choices – are being very specific and choosy about where they want to live.

We’re winning a lot of those battles. So you have a lot of influx of highly educated people moving to Oklahoma City. The Kauffman Foundation, based in Kansas City, recently selected us as the most entrepreneurial (sic) city in the country – most “start-ups” per capita. So these small businesses are tapping into that young talent pool and it’s all working. But it’s that quality of life that Oklahoma City has created that’s really the key because in the past, people moved to where the jobs were. In the future, the jobs are going to where the people are. Right now the people are gravitating toward places like Oklahoma City.

ED: Okay, let’s project what you do have in Oklahoma outwards into the rest of the country. What do you think that the rest of the country could or should be doing better in order to look like Oklahoma?

MC: Well, first of all, we have very little traffic congestion. That’s very important. I know people that live in Southern California that spend an hour and a half each way to work.

If you do that every day that’s three hours in your car. In Oklahoma City that’s probably five or ten minutes. And that weighs down the quality of life. Do you really want to spend your time in your car? We also have very affordable housing. A house in Oklahoma City that might cost $200,000 might be a million dollars or more on the East or West Coast. And so on the East and West Coast, you have a young generation that’s come up, and that American dream of owning their own home doesn’t even seem achievable.

In Oklahoma City, it’s still very achievable. So we have a low cost of living, and we have higher than average salaries. So there’s a “bubble” there. There’s a discretionary income opportunity. And when a person has discretionary income – because their expenses are low and their salaries are high – they have money for things like restaurants, and sports tickets, and things like that so they can enjoy life.

2. Cultivating home-grown businesses, attracting MNCs and the diminishing role of unions

ED: Haven’t the investment bankers got to you yet in terms of how you can “ramp” up your city budget, and do more interesting things? You know, build better highways and bring in the large corporations and so on?

MC: Well, we would love to have better access to capital. I think, historically, Oklahoma City’s suffered from an access to capital. It’s getting a little better now. I think people are starting to believe in Oklahoma City a little bit more, and it’s a little bit easier. But you know, with the last banking issues of 2008, loans are just hard to get in general.

It’s harder to qualify for a loan. So I think banks are still kind of “tight,” and I think that’s one of the reasons that growth is not going.

ED: So the way in which the California banks work – going out on a road show to get loans, the banks in Oklahoma, weren’t doing that. Is that what you’re saying?

MC: That’s right. Well, we had a hundred banks fail in the 1980’s in Oklahoma.

We learned from that. And our banks became much more conservative. And we’ve prospered, partially because of that conservative nature.

ED: Okay. That’s number 1, but what about the investment bankers? Do they come in there and ask you to look at your receipts, and collateralize them, and generate even more receipts when the “going” was good?

MC: Well, we would love to see more of that. You know, job creation in Oklahoma City does appear, to me, to be different from other places. I just finished earning my MBA from New York University, and we studied a lot of new businesses. It seemed, to me, like there was a common theme; five guys from Stanford get a patent, and grow a business, and then sell out to Google. And that’s the successful business. They had an entrance and an exit, and they made money. And that was it. In Oklahoma City, it hardly ever happens that way.

Our largest businesses in Oklahoma City usually started with one person, or maybe two. And now they’ve grown to have, maybe, 2,000/3,000 employees. And it’s very “organic” by nature. It’s a very entrepreneurial spirit. And so when you grow slowly, but gradually and solidly, I think it’s much more stable. We don’t have a whole lot of businesses relocating to Oklahoma City. We have had to grow, and organically, and expand from our existing base. So what few large companies we do have, had generally started in Oklahoma, very small, and have grown now to be very large employee sects.

ED: But as Mayor who gets elected once every four years, isn’t it tempting to go looking out for the anchor industries to come in?

MC: Yes

ED: And how’s that been going?

MC: Well, it’s difficult. I mean, just last year, we had a company called Continental Resources relocate to Oklahoma, a very large company. But you know – that’s unusual. We had a NBA franchise that relocated from Seattle, the Seattle Supersonics, relocated to Oklahoma City, and became the Oklahoma City Thunder. But relocations don’t happen all that much. I really believe your best opportunities for increasing your economy are from growing the businesses that are already in your community. And that’s how we’ve been successful.

ED: Has that influenced your philosophical thinking on how economies grow? What seems to be the problem with the United States today is that it’s looking for that “engine of growth.”

And then you, you live in Oklahoma, where you’re building them from the “ground up,” organically, and they seem to be holding the economy – that’s a multiplier effect of sorts that seems to work for you. Is that sort of working into your philosophy? If you were advising the U.S. President, what would you say?

MC: Well, first of all, I think we need to invest in our infrastructure. We have infrastructure needs that are making it more difficult for businesses to be successful. I think, in general, you’re seeing populations move to Southern parts of the United States for better weather perhaps. But if I were looking at the United States as a whole, I’d be very concerned with a lot of the larger industrial cities in the Midwest and on the East Coast because they have decreasing populations in many instances, and they also have way too much downtown infrastructure to be able to support from a real estate situation.

It seems to me that their infrastructure has a bunch of deferred maintenance, and there’s no easy fix. Oklahoma City’s not in that situation. We’re poised to win, we’re poised to grow and succeed in the coming years. I’d be very concerned for a lot of those larger Eastern cities that aren’t in the same similar situation.

ED: But the immediate future of your state budget, and also there are some issues with the pension liabilities that will be coming on stream in the next five years or so. Are you, then, suffering from a need to do something about your population? Your young population that is able to make sure that you’re going to be generating that income going forward?

MC: Well, I think the formulas that go into the pension situation for entry level is different. We don’t necessarily have pension issues at the city level. They’re minor, and something we can handle. At our state level, there’s a little bit of a problem there that they’re trying to address, but it’s probably pretty small compared with what other states are trying to deal with. There’s a change in perspective on unions in general in the United States. I think Oklahoma probably has less of a union influence than most larger cities.

I tend to think that the entrepreneurs are going to be looking for that economy that can be driven by employees with sustainable funding models for salaries and compensation. I think today, if I’m a young person and I’m looking at the jobs in America, I’m thinking to myself, you know, you’ve got to be concerned with creating long-term employability for yourself, and not long-term employment. Because I don’t think you’ll be staying with the company five, or 10, or 20, or 30 years, like the previous generation did.

3. Infrastructure-based taxes and a balanced budget

ED: You drive a programme called MAPS. By just taking a look at what you’re doing in that initiative to renew the city, to build infrastructure, and so on, and also little things, like recreational facilities, the schools, and so on. How are you funding that programme? And on the back of what value generation capability?

MC: Well, we’re been doing this for nearly 20 years now, but MAPS is a “penny on the dollar” sales tax, one percent sales tax, and it lasts for a specific amount of time, and is a political campaign; for the voters to pass it. Then we build projects that have been laid out prior to the election. So in 1993, we had a “penny on the dollar” sales tax for five years, and it ultimately built the new baseball stadium, it built some dams, so we could create some river lakes. It built a canal through our entertainment district. It improved our performing arts center, and our convention centre.

It built a new library downtown, put some improvements in the fairground. So some basic infrastructure needs, but the amount of private investment that’s followed in those areas and surrounding areas has been extraordinary. It’s been billions of dollars. We followed that up with a very similar “penny on the dollar” sales tax for our schools that allowed us to rebuild all of our inner-city school district. So all buildings have been refurbished or built anew. And then we just passed MAPS III, and the process is coming out.

But that’s for a new convention center, a new street car system, a new downtown park, a new senior wellness center, sidewalks, jogging trails, improvements on the river for canoe, kayak, and rowing, and our fairgrounds.

ED: Now to a politician listening to what you just said for who does not live in the U.S. and perhaps comes from countries where they’re a long way from creating that kind of programme that is “electable” that you can throw out to the electorate, and they can come back to you, and say that that’s what they want, to participate in that. What needs to happen in the mind of a leader to want to do a “penny a dollar” tax, instead of talking to an investment banker and collateralizing revenue streams.

MC: A couple of things interesting about MAPS that are different from most funding processes; first of all, we pay cash. So we collect the money before we spend it. There’s no debt on any of the MAPS project. That’s fundamentally unique among the way governments typically spend. The other thing is it’s a defined time period. So our citizens understand what they’re voting for, what will be built, and how long it’ll take to raise that money.

ED: So would an elected official in another country look at you and say, “Hey, but that’s what you’re supposed to be doing anyway.” Aren’t you politicizing social infrastructure?

MC: No, we’re giving the citizens a chance to determine their own tax rate. And so they’re determining what their tax rate is, and the quality-of-life amenities that they’d like to have. So you know I feel it’s a very democratic system. Basically, and fundamentally for a voter, do they believe that the city can do what they say they’re going to do? We’ve built up a certain amount of political capital, where our voters believe that we’re going to be able to complete the projects, as we said, on time, and either meet or exceed their expectations. The fact that we can do that is the reason we have been able to do it over and over again.

ED: You’re a three-time elected public official in Oklahoma. You entered as Mayor – that was the first election – and MAPS was introduced as a ticket for your first election, is that right?

MC: We were on the third generation of MAPS by the time I got here. It was deep into my second term when we voted on the third term.

ED: So it was a pre-existing programme that you built on?

MC: That’s right. I guess what you’re getting at is if the original MAPS proposal was still being built when I was elected. I was Mayor when we completed the first MAPS system. Then I was Mayor when we built most of the schools, which was our second component of MAPS. I’ve been the Mayor when we passed the election for MAPS III. And we’re in the process now of completing those projects.

ED: So for the benefit of non-Americans listening to this conversation, would there be an alternative proposal to MAP that was put out to the electorate that didn’t get through that may still be a viable proposition?

MC: Every community can do it differently. Certainly you can hire some sophisticated political poling units to go out and see what’s possible in your specific community. But I, I think, in general, passing a tax is very difficult. So, Oklahoma City is almost unique in its ability to have its citizens raise their taxes for quality-of-life amenities. The other aspect of what Oklahoma City’s political fortunes have shown is that it’s almost seamless from one mayor to the next. There’s not a bunch of stopping and starting.

In other words, when I became Mayor, no one lost their job. I retained the previous mayoral staff, and we basically just kept everything going right down the road. Too often, in any sort of executive branch there’s an election, there’s a complete stoppage. Everyone resigns, and then new people are brought in, and you stop and you start, over, and over. In Oklahoma City, it’s been a seamless transition now for over 20 years. The city management remains intact. You see city counselors remaining intact. And you see city mayors who have “cleanly” “handed off the reigns” of leading the city from one to the other.

ED: As a Republican, you are raising taxes, you are creating jobs. You’re an organic economic builder. Does that put you, somewhat at odds with the national Republican agenda?

MC: When you put it that way, it does. But our taxes are really not that high. It’s just that we’ve allowed our citizens to vote on them. If the citizens had turned it down the taxes would’ve dropped. So I don’t necessarily look at it as, “we have raised taxes,” we’ve allowed our citizens to determine their tax rate. And the citizens seem very comfortable with the current tax rate that it is.

ED: So at the national level, do you think that the whole question of raising taxes has been simplified way “too over”?

MC: Yes.

ED: The country is not able to respond to specific needs and instead, it’s like, “Any tax is bad. Any tax means you’re on this side, and more tax means you’re on that side, basically.

MC: Yes – two thoughts to that. First of all, at the federal level, taxes are applied upon you, you don’t get to go to the poles and vote on them. You’re just told what the tax rate is and you will pay it. Secondly, I don’t know that the American citizens actually look at the federal taxes and say, “This is what I’m receiving from it.” All they see is some level of “money squandered.” The perception is that the money is not being spent well. In Oklahoma City, they can see the projects that we’ve built. There is a perception that the money is being spent well and responsibly.

Therefore, they’re willing to go to the polls and tax themselves for it. We have political capital that’s built up, and doing what we said we’re going to do in a quality manner. The federal government doesn’t have that same political capital on its voters.

ED: What’s your commitment to the balanced budget? Do you think that it’s an important pillar of your economic model, or are there points in which a city, a state, a federal government, needs to get “off balance” in order to deal with certain priorities?

MC: At the city level, we have a balanced budget. At our state level, we have a balanced budget. So I believe at those levels, it’s appropriate. At the federal level, we’ve just gotten so “out of whack” – we have such a deficit that I think a balanced budget amendment would probably be appropriate just to start bringing us in line. I don’t necessarily know that you have to have a balanced budget at the federal level every year. I tend to think you can run into some level of debt, but we’ve let it go way too far. You can’t be creating money at the rate we’re creating it and think that that’s sustainable.

ED: I’m interviewing you here in Singapore. As Asians, looking at the U.S., and looking at what’s happening in the U.S. today, we sometimes wonder why can’t the U.S. make all the right decisions in terms of what it needs to do to, to get its economy going, basically. You’ve spent some time traveling in China, in Vietnam.

What are some of the perils you think that there are between Asian economies and specific economies, like, Oklahoma, and also, what do you think of potential bridges that can be built that would continue that formula that we’ve always had – that benign trade relationship, which worked well for the last 30 years.

MC: Well, part of the problem in the United States, is the partisanship. So you have, largely, the two parties – Republicans and Democrats fighting each other and not a lot gets accomplished. In Oklahoma, we’ve done a good job, especially in Oklahoma City, of getting things done –of realizing that partisanship just gets in the way of good government. So I think that’s one aspect that the United States could learn. I am not partisan by nature.

I’m for getting things accomplished and “moving on down the road.” I think as far as what the United States can – or the rest of the world can look at the United States, and how we can work together, education is one aspect of it. I think the United States has a number of great institutions, and I know a lot of people from around the world gravitate toward the United States.

ED: Actually, Oklahoma seems to have a good number of international students.

ED: In fact, they’re staying in Asia, by the way, they go to Oklahoma because all you do is study. You don’t get distracted. You know, it’s a small town. You have a good quality of life, and so on.

MC: We do. We love having students from around the world coming to Oklahoma City. Maybe they stay, and maybe they go back around the world. We’re comfortable with that either way. I think technology is another thing that’s bringing the world closer together. You know the idea of being able to move commerce electronically I think, is a big step forward for the world economy.

Without it, I think we’re back in the 1400’s and on ships. But with technology today its a very small world. The United States has some work to do. We’ve “lost our way,” in a certain sense. I think we have to get back to what we do best. And if we do, I think we can still “write the ship,” and be the world’s leading economy. But I’ve seen the charts. If we don’t change our manner of ways, we’re not going be the world’s leader in economy forever.


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