RURAL BOOMTOWNS: THE RELATIONSHIP BETWEEN ECONOMIC DEVELOPMENT
AND AFFORDABLE HOUSING

Fremont County, Colorado

In relying on a federal prison to provide economic growth, the officials of Fremont County assumed that the impact would be similar to that of the state prisons that the county had hosted for over 100 years. However, the federal prison did not bring the local jobs or revenue that were expected. Housing was inadequate for incoming employees, who subsequently moved outside of the county, and when private builders finally began to replenish the housing stock there were still a significant shortage of affordable units. Fremont County learned that dealing with a tax-exempt federal entity is a very different matter than dealing with the state Department of Corrections (DOC), and that very careful planning and capacity-building are necessary to capture revenue from it.

History

There is a local legend that when Colorado became a state, Fremont County was given the choice of the state capital, the state university or the state prison -- and it chose the prison. In fact, Fremont County already had the original territorial prison, constructed in 1871. It is still in use, along with eight other state prison facilities and four federal ones. The federal prisons are consolidated into a single campus and the state prisons into three. Until the late 1980s, Fremont County was the site of almost all Colorado´s prisons.

However, before there were prisons in Fremont County, there was the frontier. The 1859 Pike´s Peak Gold Rush brought U.S. citizens flooding into Colorado, and mining marked the beginning of Fremont County´s participation in the money economy. The previous local residents, members of the Ute people, were driven westward. The sudden population influx led to all the trappings of east-of-the-Mississippi civilization, including the rule of law -- and its enforcement through incarceration. Although very little gold was found in Fremont County itself, it was centrally located between gold prospecting areas and provided housing, industrial and consumer supplies, railroad transportation, and smelting facilities for the gold industry.

Around the turn of the century, the gold mines were almost exhausted. Coal, which had previously been used locally in gold smelters and for domestic fuel, now began to be exported further outside the county. Coal mining became Fremont County´s primary industry. As the gold fever died down, the economy had also branched out into extracting other minerals such as silver, oil, and later uranium; quarrying and/or processing rock into bricks and cement; farming (fruits, vegetables and cattle); and tourism (the Arkansas River, Royal Gorge, and Sangre de Cristo foothills). Except for fruit and vegetable farming, which lost a significant share of the Colorado market with the introduction of refrigerated trucking, these industries have remained the principal components of Fremont County´s private sector employment.

Coal mining remained a strong industry in Fremont County until the end of the 1970s, when it dwindled into one remaining operating mine. The population declined as people moved away to find work, and the county needed to replace the lost mining jobs to preserve the community. Unemployment reached a high of 11.6 percent in 1987. That same year, a local Benedictine abbey refused an offer from the Federal Bureau of Prisons to buy their land; however, this event planted the idea of attracting the prospective federal prison to another site in Fremont County. The Fremont County Economic Development Corporation´s (EDC) board of directors, made up of elected officials, bankers and businesspeople, decided to pursue the idea. As the county was already the site of most of Colorado´s state prisons, the EDC board thought that a federal prison would play essentially the same role in the economy by providing local jobs. At that time, prisoners already comprised 10 percent of the county. s population.

The Boom: The Federal Prison

As a result of this enthusiasm, Fremont County, Canon City and Florence jointly hired a lobbyist for the 1988 Colorado legislative session to get the state to bring more prisons to the county. The lobbyist tried to persuade the state to donate some of its land in Fremont County to the Federal Bureau of Prisons, but with no success. Under the direction of the EDC, the community began collecting money to buy another piece of land, so they could donate it to the Federal Bureau of Prisons themselves. After raising $123,000 by personal solicitation, including a radio appeal, the community purchased the land by the end of 1988.

In 1990, Fremont County offered no other incentives to the Federal Bureau of Prisons than an enthusiastic welcome (residents appeared on Good Morning America holding a banner that said "We want a federal prison!"). However, the Federal Bureau of Prisons accepted the land donation, and construction of the federal prison complex followed in the same year. As of 1998, the complex had four separate prisons and housed 2,500 inmates. Prison jobs accounted for 17 percent of employment, and inmates made up 17.5 percent of the population.

As the project finally came to fruition, it became apparent that the federal prison complex was not the unmitigated good the community had anticipated. Many local people found construction work, but although some local companies received construction contracts, many of the tasks involved were beyond their capacity, and only outside contractors bid on them. Outside contracting for maintenance and support services likewise followed suit.

In town hearings prior to construction, Federal Bureau of Prisons staff stated that they expected to hire Fremont County residents. Average salary would be $30,000 with the highest pay at $104,600 per year. However, when the prison facilities opened from 1992 to 1994, very few local people were hired for the 1,105 jobs available. All supervisory staff were recruited from existing federal prisons. Although the prison had opportunities for advancement locally, community ties between the federal prison employees and locals were (and remained) minimal. In addition, Fremont County residents did not feel much of an affiliation with the new prison employees, most of whom were young racial minorities from urban areas -- unlike the native majority white population. As a result, 72 percent of the federal prison employees eventually lived outside the county, and staff often pursued promotions elsewhere through Federal Bureau of Prisons incentives.

All state prisons in Fremont County were located in or near Canon City, housing 4,700 inmates and employing a staff of 1,650. Since 1989 the Colorado Department of Corrections (DOC) built two new prisons and expanded two others, resulting in approximately 650 new staff positions and an increase of more than 1,650 inmates. However, as with the construction of the federal prison, DOC construction contracts were typically beyond the capacity of local businesses.

Unlike federal employees, roughly three quarters of state prison employees lived in Fremont County. As of 1998, average salary was about $33,000 and because of the large number of state prisons in the Canon City area there was opportunity for advancement without moving away. Consequently, state prison employees were much more integrated into community life. Most Fremont County residents knew many state prison employees, so they easily became aware of job openings. The DOC recruited across the state, but when opening a new prison it always recruited intensively in the local area.

During the 1990s, factors other than prison expansion also affected economic growth in Fremont County. Attracted by the pleasant climate and beautiful natural surroundings, many retirees moved into the area, who spent money and paid taxes without competing for jobs. The county also saw inmigrants arriving from California, drawn by Colorado´s lower cost of living, especially in the wake of California´s recession and natural disasters of the 1990s. As of 1996, Fremont County´s population had grown to 41,000. Roughly 15,500 lived in Canon City (the county seat), 4,000 in Florence (the other main town), and an additional 5,700 in Penrose, an unincorporated town whose residents mainly work in Colorado Springs. From 1990 to 1998, the non-incarcerated population grew 18 percent (total population growth was 27 percent).

Most local government agencies increased their staff or space to respond to new demands for services. The industrial sector also grew, providing more jobs manufacturing or processing such products as toy rockets, conveyor belts, cement, semiconductors, uranium, ceramics, motorcycles, and insulation. Residential and commercial property tax revenues increased, unemployment dropped from 6.3 percent to 3.4 percent, per capita income rose 28.1 percent, and local sales tax revenues increased 67 percent.

Growth Impact and Planning

In response to the federal prison expansion, the city of Florence (located just outside of Canon City), had to drastically increase their water and sewage system capacity. However, the funding for the $2 million improvement did not from either the federal or Colorado prison systems, but from a combination of loan and grant money from the U.S. Department of Agriculture´s Rural Utility Service (RUS). As of 1998, the state and federal prisons accounted for half of the waste processed at the Fremont County Sanitation plant, which also had to undergo expansion in 1998. The project cost $2.3 million -- $1,550,000 in grants and $750,000 from another RUS loan.

In spite of their burden to local infrastructure, the prisons were a boon to Fremont County´s higher educational system. The Colorado DOC located its training facility in Canon City, where mandatory three-week courses for all new state prison employees are held. Pueblo Community College eventually offered an associate degree in criminology, geared toward employment in federal and state prisons. The Fremont County branch of the community college also planned construction of a permanent campus in 1998 or 1999 on land donated by the Department of Corrections so that the college could offer more classes in more subject areas.

As government agencies, prisons pay no taxes; however, prison visitors and employees did contribute to increased purchases, and employees. need for housing pushed up residential property prices. However, Fremont County´s ability to benefit from increased revenues was limited by a state law that caps local tax revenues at a level based on the jurisdiction´s previous annual revenues and on the Denver/Boulder area Consumer Price Index. If revenues exceed the cap, the excess must be returned to taxpayers, unless the local jurisdiction has already passed a voter initiative providing for how the excess is to be spent. This state law limits the ability of local government to respond to economic development because, unless they hold an initiative, they cannot reinvest their growing revenues into infrastructure. By 1998, neither the county nor its two major cities had passed any such initiatives.

Although the demand for retail shops had long exceeded supply, the county´s retail sector did not responded accordingly, and resident shoppers simply took their business to other counties. Consequently, uncontrolled commercial development in Fremont County has not been a problem. Canon City, Florence, and the unincorporated area of the county were all zoned and had comprehensive growth plans, and both incorporated towns regulate growth by withholding utility extensions unless project plans meet their requirements. The county and city governments generally cooperate on zoning issues, and all required buildings to meet the Universal Building Code of 1994. Lots of 35 acres or more are not covered by zoning or building regulations, but so far uncontrolled development outside the cities has not occurred.

The advantages of economic growth were tempered by some declines in the intangible aspects of Fremont County´s quality of life. The population increase brought heavier traffic, more crime, a greater need for social services, some loss of community feeling, and a social division between old and new residents.

Housing Affordability

Due to Fremont County´s population decline in the 1980s, more housing was available and prices were lower by 1990. However, high unemployment also pulled down area incomes, and HUD calculations based on the 1990 Census identified a "significant shortage" of rental and ownership units affordable for households earning 80 percent or below of area median income. Forty-six percent of renters and 25 percent of owners in this income category had one or more housing problem: overcrowding (more than one person per room), cost burden (paying over 30 percent of income for housing) or physical inadequacy (lacking complete kitchen or plumbing).

While planning for the opening of the federal prison, Fremont County leaders predicted that the federal prison would bring increased demand for housing. When they visited another rural county with a new federal prison in order to learn from its experience, they were told to expect a sharp rise in real estate prices. They commissioned a study of Fremont County´s housing stock, which, although statistically flawed and lacking any concrete information about the prospective housing demand, showed that the housing stock was aging and could not accommodate any significant new demand.

The Federal Bureau of Prisons also attempted a survey of its employees at other institutions, revealing only that employees wanted to live in single-family homes that their budgets would not support. With these minimal facts available, local builders were hesitant to take the risk of new construction before the prison opened, and -- even if they had been willing to take the risk -- did not have the capital to build more than a few homes in advance. Ultimately, many federal prison employees lived outside Fremont County because suitable housing was not available.

As soon as construction began on the federal prison complex, demand for housing increased beyond the available supply as contractors and permanent employees moved into Fremont County after 1991. As a result of the shortage, house prices and rents increased drastically, with monthly rent for a typical three-bedroom house more than doubling from around $250 to $550. Even the larger housing developers from outside the county did not have the capacity to build very much housing in advance, and few of the newcomers could wait for a house to be built specifically for them. As transferred employees arrived, they mainly found permanent housing in Pueblo -- an expanding, unincorporated neighborhood only a 20-minute drive from the federal prison -- while others moved to Colorado Springs.

As more people migrated to Fremont County for federal prison jobs, retirement and other reasons, local builders sped to construct new single-family houses and rehabilitate many older ones. Sooner than expected, this market segment became overbuilt because (ironically) most federal prison employees had already settled outside the county. The few remaining inside were not interested in homeownership, even though the Federal Bureau of Prisons would buy and resell the homes of employees who were transferred.

In 1994, Bearpaw Joint Ventures (a for-profit developer) began building 14 single-family homes, but encountered difficulties selling them. Most people were concerned about the safety of the location and prison employees, while unafraid, disliked the site because they could see their workplace from their homes. In any case, most prison employees were satisfied with the housing they had found elsewhere. Bearpaw added 10 duplexes to the subdivision (financed privately) which proved to be more popular.

In 1996, the Fremont Schools Facilities Corporation (FSFC), a nonprofit spin-off of the Canon City School District, completed construction of the Fremont Family Center, a 52-unit housing project located in northern Canon City -- even though affordable housing was not an initial part of its plan. FSFC originally intended to provide social services, particularly preschool education, for developmentally at-risk children. In considering this challenge, the organization realized that the children were also often in need of decent affordable housing.

FSFC received a HUD Community Development Block Grant from the Colorado Housing Finance Authority (CHFA), but wanted to use it in a way that would generate income in the future rather than just to spend it. A board member with extensive knowledge of state and federal funding sources was able to help the nonprofit put together a funding package with low enough permanent financing that the apartments. rent would cover the upkeep of the buildings, as well as the cost of a future community center with extensive social and recreational programs. Additional funding came from another CHFA grant, the federal Low Income Housing Tax Credit, and the local bank, Fremont National Bank.

In early 1997, a nonprofit developer from St. Paul was able to secure a building site in Canon City for a complex financed through the HUD Section 221(4)(b) program. After a seven-year struggle and more than one site rejection by CHFA and HUD, construction began in July 1998 on a 72-unit project called Heatherwood Apartments. A low-interest gap loan from the Colorado Division of Housing made the project possible despite the cost of the seven-year delay.In spite of the post-1990 housing glut, prices in Fremont County never decreased significantly. The county´s waiting list for Section 8 housing subsidy vouchers had 152 families in October 1993 and has been temporarily closed since January 1998. The projects described above did not add enough units to the market to significantly affect the shortage of housing at all income levels. By 1998, the rental market had eased because some renters had purchased houses, but a shortage of affordable rental housing remained, estimated at more than 200 units.

Local government officials long continued to expect private industry to meet the need for new housing; however, the executive director of the Fremont County EDC has stated firmly that its members (local businesses of all sizes) are not interested in developing housing because it "doesn´t pay for itself."

Lessons Learned

Many Fremont County residents have been pleased to have a large prison industry and point out its advantages enthusiastically: stability, safety, and no pollution. However, in bringing a federal prison to the county for the purpose of economic development, the city would have been able to extract more concessions with more thorough research and planning. Fremont County planners relied on their experience with the Colorado state prisons to assess the impact of a new prison on their community; however, they did not consider how a federal prison might be different. More research would also have enabled them to better evaluate whether they wanted a federal prison in the first place.

Because a federal prison is part of a large bureaucracy with its own policies and procedures, it is difficult for a small community to negotiate incentives or extract mitigations. In-depth research about the federal prison bureaucracy could have given the county a better idea of which incentives the system would find the most attractive and which preconditions it would or would not accept. Fremont County did not negotiate very much with the Federal Bureau of Prisons, simply offering them a free piece of land without asking for anything in particular in return.

Moreover, according to some interviewees, local leaders should have assessed their own capacity to carry out high quality planning long before the process even began. Colorado has good technical assistance available from both government and private sources, including the Department of Local Affairs, whose mission is to build the capacity of local governments. Another person suggested that the Fremont County EDC should have hired economic development staff members with more expertise.

Given that most communities do not welcome prisons, the Fremont County EDC may have possessed more leverage than they realized to require the prison to hire and contract a certain percentage of their business locally and provide far more infrastructural mitigation (particularly for water and sewage). Guarantees to hire and contract locally, however, would still not have altered the fact that Fremont County´s local businesses did not have the capacity to win most state or federal prison contracts.

Unless they are run by private corporations, prisons pay no taxes and do not fall under local planning and zoning ordinances. Consequently, Fremont County had to plan to capture new revenues from other sources such as retail sales, persuading federal prison employees to buy locally. Unfortunately, even if the county did take advantage of the opportunity to create more businesses for the prison market, it would not have been able to capture sales tax revenues due to the state-imposed cap that could only be rescinded by local ballot box initiative.

Many local businesses did attempt to provide housing for the newcomers. This would have benefitted the local economy by not only increasing revenue for local landlords and builders, but also by increasing local sales and property taxes. However, this option was curtailed for Fremont County because the Federal Bureau of Prisons survey did not give Fremont County adequate information on the housing market characteristics of its new employees, surveying only a sample of the agency´s staff at that time. In addition, even with accurate housing market information, the lack of capacity among local builders to build housing in advance would still have prevented much local revenue from being captured.

Overall, government officials in Fremont County may have been mistaken to rely on a weak private market to respond to the county´s need for affordable housing. Since low-income tenants would not have been able to supply break-even revenues for private developers, the county government may have fared better by partnering with local organizations to plan, finance and develop any expansions of the affordable housing stock.

While Fremont County´s options to deal with the prison boom were limited due to its lack of capacity in the face of one large bureaucracy, Washington County, Utah had to deal with the impact of migrating retirees -- and the other economic booms created in their wake.

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