The power of economic diversification in our communities

We’re spending the rest of this summer talking about our data-driven, equity-focused approach to economic development and producing prosperous, resilient places—from the team that makes it happen. Catch up with the full series of posts, essays, and reports on this page.

Beyond the devastating effects on a community, economic disasters can present an opportunity for change by highlighting a risky over-dependence on a single industry sector and motivating local leaders and planners to invest in the long-term resiliency of their community. Our work on the economic development team at Smart Growth America seeks to strengthen local economies through diversification—one of the most effective ways to increase long-term economic resilience.

As of 2021, there are approximately 78 nuclear power plants at different stages of operation—19 or which are currently being decommissioned with an additional eight scheduled for closure within the next five years. Absent major changes, the majority of the nuclear power plants in the U.S. may close in the next few decades. 

Whether it is a large factory, corporate headquarters, or a power plant leaving town, the departure of a dominant local employer doesn’t just represent a blow to the corporation—it often imposes a series of significant economic challenges on the local community.

When national utility companies like Entergy or Duke Energy have large facilities—nuclear or otherwise—in smaller or more rural towns, they tend to be the area’s largest source of employment and local tax revenue. According to the Nuclear Energy Institute (NEI), each nuclear power plant in America employs between 500 and 800 long-term workers on average. For every 100 jobs at the power plant—many of which are high-education, well-paid positions—roughly 66 additional jobs are created in the local community including lasting, high-paying opportunities for local residents and organizations from a wide variety of social, economic, and professional backgrounds. These opportunities, in conjunction with the almost 7,000 construction jobs that are typically created during the construction phase of a standard nuclear reactor, represent a total of $40 million in labor income every year

And we’ve seen this in practice with our work in local communities that are home to nuclear power plants over the last year. Although these plants don’t typically account for the majority of the local labor force in absolute numbers, they often contribute a significantly larger portion of local tax revenue through property taxes, payroll and income taxes, and other sources of public revenue that support the local budget. For example, the Maine Yankee Nuclear Power Plant operated in Wiscasset, ME for 25 years until its closure in 1997. During its operation life, the plant employed over 500 workers of which the majority lived within 20 miles of the facility. At the time of its retirement, the nuclear plant contributed $12 million annually in local taxes, covering 90 percent of the Wiscasset’s municipal budget for schools, fire protection, and other public services. A year later, a different nuclear power facility ceased operations in Zion, IL resulting in the loss of over 50 percent of its tax base, significant cutbacks to local services, higher local taxes, and an unsustainable increase in the portion of rental housing.

(You can read more about these closures and their effects in Smart Growth America’s piece What you might now know about the inevitable closure of nuclear powers plants across the US)

Case in point: Douglas, AZ

The city of Douglas was incorporated in 1905, 4 years after copper mining ores from nearby Bisbee, Cortland, and Nacozari started expanding into the area. After about two decades, Douglas was producing almost 12 percent of the copper mined in the United States and exporting 7 percent of all the copper used in the world, with its two principal smelters operated by Phelps Dodge and the Calumet and Arizona Mining Co.Global copper prices severely collapsed after World War I, which triggered a series of economic events that contributed to the downfall of the Phelps Dodge Company smelter in 1987. The Phelps Dodge plant ended up being relocated to a smelter in Silver City, NM after the company was confronted with strict environmental regulations requiring measures to reduce harmful sulfur dioxide emissions. Douglas’ economy was severely disrupted because of the area’s reliance on copper mining. The closing of the plant led to the loss of almost 400 jobs and $9 million in annual payroll — and a much more severe impact on local tax revenue when considering property and sales taxes lost. Learn about the steps we’ve created and how Douglas has taken to diversify and strengthen their economy.

These complex situations present communities with an uphill battle as they consider how to respond to the loss of so much tax revenue and a skilled workforce that may retire or leave town after the power facility’s closure. There’s no easy answer, but communities can exponentially increase their chance of long-term success by developing a strategy for economic and fiscal sustainability—including opportunities for diversification and expansion—and an efficient plan for deploying any relief aid they can get from the federal or state government.

It is important that local governments begin addressing over-reliance on a single industry or company for employment and tax revenue as soon as they can—whether the closure has already happened, is in progress, or might happen in the foreseeable future. As we work with these communities, here are some of our core principles for improving economic resiliency:

  • A diversified economy provides a more stable environment for small businesses, which tend to be the most vulnerable in turbulent times, to grow and thrive: A healthy mix of businesses of different types, sizes, and industry sectors generates a sustainable dynamic where local establishments can support one another as the economy expands and evolves over time. Fostering space for a variety of industries that support the local supply chain and labor market is a powerful method to strengthen the local economic network by allowing businesses across the spectrum to grow with the economy. As the local economic network expands, it creates additional space for both existing businesses and prospective start-ups to find opportunities in new spaces within the market.
  • Prepare for long-term stability and resistance to disruptive events like the COVID-19 pandemic and subsequent recession: When a community’s economic stability does not depend on a single industry or company, disruptive events like a recession or transitions in political leadership do not typically have such a profound impact on the local economy. When one industry takes a hit, other local lines of commerce and industry have the ability to maintain a tax base that supports important services like schools, police, waste collection, and much more. Increased revenue diversification can help local governments address the departure of a major employer and any future economic storms by positioning their community for a mix of stable and high-growth revenue sources. Over time, local economies become resilient enough to digest these crises and minimize the disruptions in their way towards a more prosperous future. 
  • More power over local economic development planning: When the local economy does not heavily rely on a single large employer or market sector, it provides a degree of stability that allows investments in the community’s long-term vision and goals to be productive and worthwhile. By diversifying the sources of local revenue and employment, local leaders and planners have more flexibility to invest in their community’s prosperity proposition without being forced to prioritize a particular employer or industry’s retention. Instead, they might turn to a consistent diversification strategy that will enrich the overall quality of life for community members and businesses.

Diversification is one of the most effective ways to increase long-term economic resilience.

Economic diversification can bring a wide range of benefits at the community and regional levels. Being able to rely on a wide range of public revenue and employment sources improves cross-industry cooperation and mutual benefit, productivity rates, and the health of the local labor market.

Most importantly, economic diversity increases regional resiliency and stability. A diverse region is better positioned to respond to economic blows like the recession generated by the COVID-19 pandemic; macroeconomic events like this will always affect certain industries more than others, but the affected industry will likely not trigger a cross-industry recession spillover if it doesn’t take up the majority of the space. The risk, ultimately, is distributed more evenly. Beyond the devastating effects on the community, economic disasters can present an opportunity for change by highlighting over-dependence on a single industry sector and motivating local leaders and planners to invest in the long-term resiliency of their community.

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