New Orleans is missing a key ingredient for its big business renaissance – Big businesses.
New Orleans is playing catch-up. A decade after Hurricane Katrina decimated the city, causing more than $135 billion in damage and leaving 80% of the area under water, New Orleans leaders are fighting to reinvent the “The Big Easy” as a destination for something other than Mardi Gras, beignets and big bands — big business.
To say their mission is ambitious would be an understatement. Unlike other major U.S. cities that rebounded in the wake of devastating disasters, such as San Francisco and Chicago, New Orleans was a city in decline long before Katrina struck. After the oil bust of the 1980s, the city lost nearly 55,000 jobs in key industries like manufacturing, mining and warehousing, according to a report by Loyola University. By the mid-1980s, one in eight workers were unemployed. In 1999, the annual median income was $27,000 while the poverty rate, at 28%, was twice the national average. “When we think about New Orleans today as it continues to recover, it’s important to keep that historical context in mind,” says Stephen Barnes, an economist at Louisiana State University. “The metro area in general had seen lackluster growth for many years before the storms.”
There has been some progress, but New Orleans has yet to get on a level with Houston or Atlanta. If it wants to stay competitive, it’s going to have to win on several fronts: convince big businesses to move their operations to New Orleans and bring jobs with them; make sure residents get the education needed to fill those jobs; and help small businesses scale up. We spoke with economists and city leaders to see how big business in New Orleans is faring so far.
As much as New Orleans is investing in legacy industries like water transport, it’s also eager to establish itself as a haven for technology and engineering. In many ways it’s succeeding. New Orleans has become a staple on just about every “best cities” list for tech and startup growth over the last few years. This is no small feat considering there was virtually no technology industry in New Orleans pre-Katrina. Still, the city has yet to launch the next Etsy or Twitter, although there are promising businesses such as iSeatz, a travel booking software development firm with revenues of over $1 billion, and GE Capital Technology Center, a branch of GE that opened in New Orleans to much fanfare in 2013.
But if there’s one thing other tech hubs have that New Orleans doesn’t, it’s a highly educated workforce, says Jacob Vigdor, an economist at the University of Washington who studied New Orleans’ economy in the wake of Hurricane Katrina. “Cities that have [thrived] in the post-industrial era have had top-notch research universities and a highly educated population,” says Vigdor. “New Orleans can be really good at what it does, but it’s not realistic to think it can be good at something it historically has never been good at.”
Just 27% of New Orleans residents have a bachelor’s degree or higher, according to Census data. That’s not far off from the national average (30%) but pales next to major tech magnets like Seattle (57.4%), San Francisco (52.4%) and Austin, Texas (45.6%). French videogame maker GameLoft opened a studio in New Orleans in 2012 but in an interview with Forbes, a company representative said it was hard to find qualified candidates for certain jobs, and that three-quarters of employees were from out of state. (We asked GameLoft if those numbers are still accurate but haven’t gotten a response.) Jim Fowler, CIO of GE Capital said his firm ran into similar challenges when GE decided to open its new technology center. Only half the company’s 230 employees are from Louisiana. GE launched an internship and apprenticeship program with the University of New Orleans to help create a pipeline for graduates into the industry—16 alumni have been hired so far.
These shortcomings are nothing new to city leaders. In 2013, NOLA Mayor Mitchell Landrieu, in conjunction with the New Orleans Business Alliance, debuted “Prosperity NOLA”, a five-year plan to transform the city’s economy by 2018, the year that will also mark its tri-centennial. Educating the city’s workforce and homing in on income inequities are two of the biggest pillars of the initiative. In our recent coverage of post-Katrina New Orleans, we wrote about several of the fruits of this initiative, including a program that trains minority workers for jobs tied to major expansions like the new terminal at the city’s major airport, and the growing cushion of startup incubator programs aimed at helping small businesses.
“We need to try to get some corporate headquarters to relocate to New Orleans and trying to make that happen makes me wake up at 3 o’clock in the morning at least three times a week.” –Quentin Messer, President, NOLA Small Business Alliance
But arguably, the city’s most ambitious strategy is to focus on attracting anchor institutions — major corporations that not only produce thousands of jobs but also tend to lead to the growth of supporting businesses. In the ‘60s and ‘70s, those might have been major oil companies. But as Chevron, Exxon and others have deserted New Orleans to run their operations elsewhere, the city has had to come to grips with the fact that they may never return. Then there’s the prospect of dealing with another hurricane like Katrina. That’s why some firms decided to move further inland after the storm, boosting business growth and jobs in bordering parishes like Jefferson and St. Tammany. The share of jobs based in Orleans Parish was already on the decline before Katrina and fell sharply afterward, from 43% in 2000 to 34% in 2013, according to the Data Center.
“We need to try to get some corporate headquarters to relocate to New Orleans and trying to make that happen makes me wake up at 3 o’clock in the morning at least three times a week,” says Quentin Messer, president of the New Orleans Business Alliance. “We went from a city that arguably was the center of the American energy industry in the ‘60s-’80s, and unfortunately we’ve ceded that to Houston.” City leaders are looking to healthcare to fill that gap. In 2012, Ochsner Health System, a nonprofit healthcare provider, moved its headquarters to New Orleans. A new veteran’s hospital, due to open in late 2016 after several years of costly delays, will be the region’s first VA hospital in a decade and serve 70,000 veterans.
In the two years following Katrina, New Orleans lost more than 22% of local jobs, dropping from 624,000 jobs in 2004 to 491,600 in 2006. The city has since recovered about 90% of the jobs it lost, leaving a smaller but still sizable gap. Since 2011, 14,000 new positions were added. About one-third of those were added just in the last month, when the city’s new University Medical Center opened its doors. The majority of new jobs came from retailers and hotels. This isn’t the most positive sign for the city’s big business campaign but isn’t bad news for workers. The Hyatt Regency, opened in 2011, added 800 jobs. New Walmart and Costco branches brought another 800 jobs, and the next-largest job creator was a new strip mall that opened in 2013, adding 500 jobs at shops including Staples, Pinkberry and Panera Bread. Retail work isn’t highly paid (Louisiana’s minimum wage is $7.25), but a robust retail sector was something New Orleans lacked before Katrina. “I think that’s an indication of healthy natural growth in the economy, but you certainly want to have growth in your core economic driver industries in addition to those service sectors,” says Barnes.
The Port of New Orleans, a crucial contributor to the city’s economy, has been a big post-Katrina success story. The port, which now supports about 8,000 jobs, was open and running just two weeks after the storm and has seen nearly $300 million worth of investment in the last decade. More than a tenth of those funds went into the construction of a new 90,000-square-foot cruise terminal (cruise traffic makes up 20% the port’s annual revenue, a spokesperson says). A record 1 million cruise passengers passed through in 2014, up 180% from 2001. Take a drive past the ship terminals and the port gives way to an expanse of shipping containers and cargo holds packed with key imports like rubber, steel, coffee and plywood. New Orleans is the No. 1 U.S. exporter of both rubber and frozen poultry (and has the $40.3 million storage facility to show for it).
In a major coup last year, Chiquita Brands International decided to return its U.S. shipping operations to New Orleans after leaving the port for Gulfport, Miss., more than 40 years ago. Chiquita added roughly 300 jobs and increased shipping container traffic in the city by an estimated 15%. But these rewards came at a price. Louisiana committed to spending $2 million on new banana ripening facilities for the Brazil-based company, as well as paying Chiquita $10 million over the next decade to offsets costs, according to a local news report.
The city’s water transport industry is still the largest internationally traded sector in New Orleans, despite the fact that it has shed more than 4,000 jobs since 2008, according to the Data Center, a research firm that studies Southeast Louisiana. But with an average annual wage of $74,340, local leaders have been eager to work with the port to make sure locals are filling those roles.
Matt Gresham, a port spokesman, says the Port of New Orleans has been working with local institutions like the University of New Orleans and community colleges to develop training programs for high school students and graduates that feed them directly into the maritime industry. One of the biggest challenges so far has been awareness. They hope to change that with a workforce summit in October, where port and civic leaders will develop strategies to train maritime workers. “There’s opportunity to be had but in the industry as a whole, you have a lot of people who just don’t know the opportunities that are available,” Gresham says.
While the city has recovered about 90% of its previous population, it hasn’t been easy convincing people who left to return — especially minorities and the poor, two groups that, in New Orleans, often overlapped. One hundred thousand African-Americans left the city, bringing their numbers down from 67% of the population before the storm to 59% in 2013. Meanwhile, the number of white households has increased from 27% before the storm to 31%. In 2013, the median household income for African-Americans in New Orleans was 54% lower than for whites, and 20% lower than for African-Americans nationally.
Housing costs are rising, which threatens to push out poorer households. The city’s school system, which was overhauled following Katrina, has improved but changes may be too late for families with school-age children who have settled elsewhere. Many who have not returned to New Orleans may be faring better financially than they were before.
“When you’re the mayor of a city, you want the place to grow because growth is good for business and when business is good, people like you,” Vigdor says. “But from a broader perspective, if you had a family living in New Orleans and they had trouble finding jobs and now they’re making a much better life for themselves … we think that move is probably a good thing.”
For the sake of New Orleans’ future, city leaders will have to make sure that in the event of another major disaster, they won’t have to work as hard to convince people to come home again.
“We have a message to the folks — come back home,” says Messer. “Give us a second look. This is not the New Orleans you remember.”