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									   The McAllen Self-Sufficiency Project:

Changing the Face of Economic Development




                       by

               Dominique Halaby,

               Executive Director

Valley Initiative for Development and Advancement

               1715 E. Pike Blvd.
               Weslaco, TX 78596
                 (956)447-0600
            dhalaby@vidacareers.org
                                          TABLE OF CONTENTS


  INTRODUCTION              ………………………………………….                                      4
  AREA BACKGROUND           ………………………………………….                                      4
  ROLE OF SKILLS IN THE MODERN ECONOMY ………………………….                                 8
        TECHNOLOGICAL CHANGES          ………………………….                                 8
        GLOBALIZATION       …………………………………..…..….                                   9
  PURPOSE                   ………………………………………….                                      12
  CONCEPTUAL FRAMEWORK ………………………………………….                                           12
  ECONOMIC DEVELOPMENT …………………………………….……                                           12
        TEXAS SALES TAX     …………………………………….……                                      12
        GRASS ROOTS APPROACH      ………………………………….                                   15
        MCALLEN SELF-SUFFICIENCY PROJECT  ……………….…                                 17
  PROBLEM STATEMENT         ………………………………………….                                      18
  PUBLIC INTERVENTION       ………………………………………….                                      20
  METHODOLOGY               ………………………………………….                                      27
  RESEARCH DESIGN           ………………………………………….                                      27
  HYPOTHESES                ………………………………………….                                      28
  SAMPLING FRAME            ………………………………………….                                      30
  ASSUMPTIONS               ………………………………………….                                      31
  DATA ANALYSIS             ………………………………………….                                      32
  RESULTS & ANALYSES        ………………………………………….                                      34
  HYPOTHESES TESTING        ………………………………………….                                      37
  CONCLUSIONS & RECOMMENDATIONS………………………………….                                      43
  APPENDIX                  ………………………………………….                                      46
        FLOW CHART          ………………………………………….                                      46
  REFERENCES                ………………………………………….                                      47




This report was prepared by Dominique Halaby, the Executive Director of the Valley Initiative for
Development and Advancement (VIDA). Mr. Halaby is also a doctoral candidate at the H. Wayne
Huizenga School of Business and Entrepreneurship at Nova Southeastern University.

For more information on VIDA or the McAllen Self-Sufficiency Project, contact Mr. Halaby at:
                    Valley Initiative for Development and Advancement (VIDA)
                             1715 E. Pike Blvd, Weslaco, Texas 78596
                                        Phone: (956) 447-0600
                                          Fax: (956) 447-0400
                                   Email: dhalaby@vidacareers.org
Abstract

The Rio Grande Valley‟s economy is directly linked to its ability to develop a skilled workforce.
Understanding this, leaders of a grassroots organization pushed for the passage of a referendum
outlining the adoption of a new sales and use tax on May 3, 1997, enabling the approval of tax
revenue for job training. Since then, the City of McAllen has invested $2.451 million in job
training through the McAllen Self-Sufficiency Project (MSSP).

MSSP is an innovative partnership between the community college, the local education service
center and a community-based workforce intermediary founded by Valley Interfaith.

Since the projects inception, 1,465 area residents have been aided in their quest for self-
sufficiency. Of those, 792 were enrolled in job training. These participants received training to
become a nurse, mechanic, paraprofessional or various other demand occupations at STC. They
also met weekly with a VIDA case manager to identify and address financial and emotional
barriers. This process has resulted in an 85.4 percent retention/graduation rate. Furthermore,
MSSP graduates are staying in the area. Unemployment insurance records indicate that 88.9
percent are employed in the McAllen MSA.

Successful completers went on to earn an average quarterly wage of $7,375.84 or $29,503.36 per
year. Which is a dramatic increase from the $1,824.06 quarterly or $7,296.24 annualized wages
they made before entering the program.

When the increase of earnings are factored in and adjusted for emigration, the Net Present Value
of the return on this investment is 111 percent. For every dollar spent in MSSP, the city receives
$2.11 back in additional sales tax, property tax and other fees. That amounts to a net benefit of
$5.112 million.




                                                3
It is not enough to create a job market that has enabled those with few skills to finally be able to
grasp the first rung of the ladder of achievement. Most generally, we must ensure that our whole
population receives an education that will allow full and continuing participation in this dynamic
period of American economic history.

                                                      Alan Greenspan, Federal Reserve Chairman
                                                                    National Skill Summit 2000


                                        INTRODUCTION


Enhancing one‟s skills typically has enormous benefits for those receiving the added training.

Employees with higher skills generally earn more than their lower skilled counterparts. But what

impact does the offering of training programs have on the community in which they reside? Do

the benefits received by the community outweigh the cost to provide the services?


This report looks at past and current changes in the business climate and analyzes how the City

of McAllen is able to address those changes by enhancing the skills of their residents through the

McAllen Self-Sufficiency Project.

                                       AREA BACKGROUND

Between the years 2000 and 2030, the Texas population is expected to grow by 50 percent, far in

excess of the 33 percent expected growth of the nation, (Sharp, 1998). The Texas/Mexico border

and the Hispanic population are expected to lead this surge. The Rio Grande Valley encompasses

the four southernmost counties on the southern tip of Texas, directly across from the Republic of

Mexico. According to latest Census figures, Cameron, Hidalgo, Willacy and Starr Counties have

a population estimated at over 1.2 million residents, with approximately half of this total residing

in an urban setting, (Census, 2005).


The City of McAllen is located just 4 miles north of the Mexican border and 73 miles from the

Gulf of Mexico. It has a population of 106,414 that spans across 46 square miles, (Census,
                                                 4
2005). As a result of its proximity to Mexico, the area is comprised of 80.3 percent Hispanics

with 76.1 percent of the residents speaking a language other than English at home, (Census,

2005).


The McAllen Metropolitan Statistical Area (MSA), which includes the neighboring cities of

Mission, Edinburg, Pharr and Hidalgo consistently ranks as one of the fastest growing regions in

the country, (Gilmer, 2001). With a combined population in excess of 560,000, plus an

additional 1.2 million in the sister city of Reynosa, Mexico, the McAllen MSA is the fourth

fastest growing MSA in the nation, (Texas Real Estate Center, 2005). In the last 10 years,

McAllen has seen a surge in new home construction as measured by the number of commercial

building permits issued, (Cisneros, 2001). The city has also seen an increase in sales tax revenue,

(Cisneros, 2001). Retail sales are thriving. In 1997, (as reported in Census, 2005) per capita retail

sales were 64 percent higher than the state average, $15,479 vs. $9,430. Moreover, McAllen is

showing no signs of slowing down. The Texas State Data Center predicts that by 2040, the

McAllen MSA will become the fifth-largest MSA in Texas ranking behind only Dallas, Houston,

Austin and San Antonio, with a combined population in excess of one million, (Texas State Data

Center, 2004).


Despite these signs of growth, this area also ranks as one of the poorest areas in the nation,

(Cisneros, 2001; Gilmer, 2001; Sharp, 1998). In 2003, the average per capita income of the

McAllen MSA was the lowest in the nation at $15,184, less than half of the national average,

(Lenze, 2005).


Though the unemployment rate has dropped sharply over the last ten years, (See Figure 3)

McAllen still has the highest unemployment rate in the state for any metropolitan statistical area,

(Lenze, 2005).
                                                 5
                  Figure 3. McAllen MSA Unemployment Rate, 1995 to 2005




                  (SOURCE: Bureau of Labor Statistics, 2006)




A key element of the high unemployment rate is the low level of high school completion. In

2000, only 50.5 percent of the McAllen MSA (i.e. Hidalgo County) population aged 25 and over

graduated from high school or had a General Educational Development (GED) diploma,

(Census, 2005).


The Federal Reserve Bank of Dallas reviewed this border issue and others in a June 2001 report

titled The Border Economy. According to The Border Economy, the “limited tax bases of nearly

all border counties” make the benefits of improving educational attainment a necessity,

(Fullerton, 2001). Increases in education lead to increases in income, which in turn, increases

retail and real estate sales. These increases in sales proportionally increase the revenue a

community generates from sales tax and property tax, (Fullerton, 2001). The authors of the

report found that Hidalgo County is losing $1.262 billion annually due to a large number of

residents without a high school diploma. This is the amount of the cumulative personal gain if

the county‟s high school graduation rate was brought up to the state average. This amounts to a

$3,600 annual increase, or an approximate 25 percent increase in per capita income, (Fullerton,

2001).
                                                      6
In a separate component of the report, the Federal Reserve concluded that there are high salary

jobs along the border. In fact, individuals with some college often earn more along the border

than in other Texas cities, (Taylor, 2001). The problem, reiterated in a July 22, 2001, McAllen

Monitor article, is that the “low educational levels keep average wages down for workers without

high school and college degrees,” (Spivey, 2001).


The shift in employment outlook to more highly skilled workers will undoubtedly create a new

labor market, (TIP Strategies, 2005). It is also expected that the supply of unskilled labor will

outpace the number of unskilled jobs, (Carnevale, 1999).


The expected increase in the number of low-skilled workers in the total labor force “will further

depress the employment opportunities for the least skilled workers,” (Carnevale, 1999).


As the population continues to grow, so too, will the supply of labor. Yet, analysts are expecting

the need for high-skilled workers to outpace population growth, (Taylor, 2001). This is a clear

indication that the border does not suffer from a labor shortage, but a skills shortage. The border

region has an ample supply of individuals in need of employment, yet they lack the necessary

skills to assume key positions in high-skilled occupations.


This labor demand/labor supply mismatch can often result in an economic condition of structural

unemployment, (Osberg, 2005). Structural unemployment occurs when individuals in need of

employment do not have the skills required by area employers, (Osberg, 2005). Such a situation

is often the result of “flaws in the educational system, technological advances, hiring practices,

population growth and uneven distribution of growth,” (Manpower, 2005).




                                                7
                               Textile Industry

                               The year 1995 marked what many consider to be the beginning of the end of the
                               textile industry in South Texas. In a region with a per capita income of only $6.35
                               per hour and chronic double-digit unemployment, the importance of having a job
                               could not be overstated. When Haggar Clothing Co. and Fruit of the Loom, Ltd.
                               announced the loss of 1,340 jobs in the region, many leaders were unprepared to
                               deal with the influx of residents looking for work, (Comptroller, 2004).

                               Soon after, Haggar, Converse, Levi Strauss & Co., and Williamson-Dickies
                               announced additional lay-offs and plant closures. By the time the final textile plant
                               closed in 2003, over 8,000 textile workers had lost their jobs due to foreign
                               competition, (Rocha, 2003).

                               In an area widely regarded as one of the poorest regions in the nation, these
                               closures proved devastating for not only the workers, but their families and the
                               community within which they reside.




                  THE ROLE OF SKILLS IN THE MODERN ECONOMY

Technological innovation, global competition and a shift in the economy (from manufacturing-

based to service-based) has not only created new opportunities for the workforce, it has also

enhanced the risk that workers‟ skills will become obsolete, (Ferguson, 2002; Gattiker, 1995). As

a result, securing gainful employment for low and semi-skilled workers has become increasingly

difficult, (Gattiker, 1995). Without intervention and innovative projects, this condition is likely

to worsen, (Enchautegui, 2001).



                                      Technological Change

As was the case during the Industrial Revolution, changes in technology continue to redefine the

skills needed in the workplace. The automation of menial tasks and the advent of robotics has

prompted many large manufacturing firms to displace less skilled workers with more efficient




                                                   8
automation equipment, (Hockeynos, 2001). Conversely, the skills needed to operate and

maintain costly automation equipment are highly sought after and often well paid positions.



According to Texas Perspectives, which reported data from the Department of Labor‟s Bureau of

Labor Statistics, “although job titles frequently remain the same while innovation is taking place,

over time, employers have less demand for manual dexterity, physical strength for materials

handling, and for traditional craftsmanship. In the printing industry, for example, electronic

composition methods have replaced long-standing craft skills, and employment of compositors

and typesetters has declined sharply,” (Hockeynos, 2001).



                                          Globalization

At the time Fredrick Taylor studied scientific management in 1911, the manufacturing process

was shifting from small craftsman to large facilities built on the specialization of tasks and the

assembly line. Today, the dominant change in U.S. business processes has been the outsourcing

of low-skilled production abroad. Not only has this reduced the need for low-skilled workers in

the U.S., it has increased the demand for more highly trained and more educated U.S. workers to

oversee the production abroad, (Hockeynos, 2001).



In the context of workforce development, technological innovation and globalization have

created an environment of instability, (Weinstein, 2003). The changing competitive environment

and leveling of the business playing field has enabled businesses to start, expand, contrast and

collapse at a faster rate than ever before, (Weinstein, 2003). As a result, roughly one-third of all




                                                 9
jobs are in flux and without intervention and innovative projects; this condition is likely to

worsen, (Weinstein, 2002; Enchautegui, 2001).



But with this growing rate of employment uncertainty, many community leaders are asking

whether or not a public organization should risk giving incentives that shift the tax burden from

large corporations to the existing taxpayers and small businesses? And are there alternatives to

increasing employment opportunities for community residents?



                                           PURPOSE

The purpose of this report is to aid local workforce development board members, local city

leaders, as well as state and federal policy makers in establishing priorities that maximize a

community‟s return on investment of economic development programs and assists them in

ensuring that their community contains a viable long-term job training strategy.



This study will seek to address whether or not income and higher education are related.

Furthermore, this study will seek to determine if expending local funds to make education and

job training available to area residents is a viable economic development strategy and if the

benefits of the project could be extended to other communities.



                               CONCEPTUAL FRAMEWORK


One would be hard pressed to find an argument against the positive impact education has on

individual income. The direct link between educational attainment and income has long been

established, (Surette, 1997; Crosby, 2000; Lopez-Acevedo, 2001). The more schooling one



                                                10
receives, the more money they can expect to earn. It is this access to education that serves as the

foundation for a prolific career, (Carnevale, 1999).


However, the aggregate impact of the educational attainment of a community and the impact on

the community‟s prosperity are only recently being considered, especially along the

Texas/Mexico Border.


Quantifying investments in human capital and measuring it against some level of productivity is

extremely difficult. Nobel laureate Gary Becker was the first economist to link productivity to

education and to measure the rate of return of education in the United States. Becker‟s human

capital theory (1962) is built on the premise that workers with higher education are more

productive, therefore, earn more. Becker‟s human capital theory is arguably “the most important

theory that is used to study vocational training,” (Tome, 2001).


Since Becker‟s initial works, other economists have expanded the model to account for the

relationship between education and lifetime earnings, (Tallman, 1992).


As Becker focused on the relationship between education and productivity, Theodore Schultz

argued that improvements in inputs could be attributed to human capital, (Tallman, 1992). He

postulated that increases in inputs were a direct (or at least an indirect) result of increases in

workers‟ acquirement of knowledge, learning ability and/or mental or physical ability, (Tallman,

1992). This, according to Schultz, is evident when increases in outputs exceed increases in

measurable inputs, (Tallman, 1992). It is on this ground that he argued that the value of human

capital is as high as, if not higher than, the value of capital equipment, (Tallman, 1992).




                                                 11
                                ECONOMIC DEVELOPMENT

According to a large number of economic analysts, the potential benefits of locating a large

employer into a community could outweigh the costs by a factor of four to one, (Schroeder,

2005; Martinez, 2005; Hall, 2005). But one thing these analysts generally fail to factor is the

accuracy of the projections, (Weber, 2002).


There are numerous cases in which large corporations are offered incentives to locate and create

new jobs in their area. Take the case of RJ Reynolds Tobacco Company. In 2003, RJ Reynolds

requested $160 million from the state and local governments of North Carolina in return for

promising to create 1,000 new jobs, (Hall, 2005). Unfortunately for the residents of North

Carolina, RJ Reynolds has now announced lay-offs of 1,600 jobs, (Hall, 2005). But economic

uncertainty is not limited to North Carolina. General Motors in Ypsilanti, Michigan, Playskool in

Chicago, Illinois, Volkswagen in Pittsburg, Pennsylvania, and Titan Tire in Brownsville, Texas,

have all announced sizable lay-offs after receiving substantial subsidies from local government,

(Schroeder, 2005; Martinez, 2005; Weber, 2002).


                                          Texas Sales Tax


In Texas, local economic development projects got a boost from the Texas Legislature when they

passed The Development Corporation Act of 1979 (the Act) authorizing local governments to

create a nonprofit (development) corporation to collect and use sales tax proceeds (up to ½ cent)

for the administration of economic development programs, (Abbott, 2004). Though the Act was

first passed in 1979, it was not until the 1989 legislative session that the ability to impose a sales

and use tax was authorized, (Abbott, 2004). In 1991, the Texas Legislature expanded the

traditional economic development uses outlined in Section 4A of the Act, by enabling



                                                 12
municipalities to elect to operate under a new Section 4B, (Abbott, 2004). This created an avenue

for local governments to invest in a wide array of civic projects in addition to commercial

projects, (Abbott, 2004). In 1999, the Texas Legislature amended the definition of commercial

projects for both sections of the Act, to include facilities for education, job creation, retention

and training, as well as targeted infrastructure, and job training program related expenses,

(Abbott, 2004).


Though the Act authorizes the funding of job training programs, very little is being spent on such

programs. In 1997, the Texas Legislature passed House Bill 1410 requiring all local economic

development corporations to annually report their revenues and expenditures, (Texas

Comptroller, 2005). According to those reports, from 1997 to 2004, Texas cities have

collectively generated over $2.263 billion in sales tax revenue, but have invested less than 0.6

percent or $15.7 million in job training, (Texas Comptroller, 2005). Of the nearly one-thousand

municipalities that collect economic development revenue through the sales tax, the City of

McAllen accounted for only 2.85 percent of the total revenue generated in Texas, yet accounted

for nearly 26 percent, or $4,042,182, of the total training expenditures, (Texas Comptroller,

2005).


In the Rio Grande Valley (the Valley), there are 29 such corporations which operate as either a

4A or 4B organization, (See Figure 1). The regulations which govern job training programs,

reads the same regardless of the corporation status, (Abbott, 2004).




                                                13
Figure 1: Total 4A/4B Sales Tax Revenue for Lower Rio Grande Valley, 1998-2003

                   Type of Tax and      1998             1999              2000          2001          2002          2003
                   Year Enacted
Cameron County
Brownsville        4A [½¢] 1/1/1992     $4,073,891       $4,196,483        $856,379      $5,348,720    $1,919,381    $5,903,494
                   4A [¼¢] 4B [¼¢]
                   4/1/2002
Harlingen          4A[¼¢] 10/1/1990     $3,195,144       $3,444,361        $3,433,060    $3,733,715    $3,753,300    $3,764,811
La Feria           4A [¼¢]10/1/1990     $184,012         $225,636          $299,694      $336,808      $327,930      $343,607
                   4B [¼¢] 7/1/1995
Laguna Vista       4A[¼¢] 10/1/1995                                                                                  $17,481
                   to 12/31/2002;
                   4B [¼¢] 1/1/2003
Los Fresnos        4B [¼¢] 7/1/1995     $84,381          $81,000           $71,023       $88,460       $91,165       $96,070
Port Isabel        4B [¼¢] 1/1/1995     $258,589         $265,118          $290,351      $343,613      $309,476      $324,329
Rio Hondo          4A[¼¢] 1/1/2001;                                                      $25,026       $41,530       $43,012
                   4B [¼¢] 1/1/2001
San Benito         4A [¼¢] 1/1/1993     $561,332         $624,331          $641,053      $667,194      $615,262      $767,261
                   to 12/31/1994; 4B
                   [¼¢] 1/1/1995
South Padre Is.    4A[¼¢] 10/1/1992     $366,647         $392,947          $420,299      $429,364      $450,191      $461,715
Hidalgo County
Alamo              4B[¼¢] 10/1/1998     $0               $200,598          $241,820      $260,094      $258,374      $289,894
Alton              4A [¼¢] 4/1/1996     $21,581          $41,160           $44,444       $50,596       $78,822       $102,672
                   4B [¼¢] 4/1/1996
Donna              4A [¼¢] 4/1/1996     $365,138         $392,366          $435,520      $463,132      $495,062      $519,796
                   4B [¼¢] 4/1/1996
Edcouch            4A [¼¢] 4/1/1994     $62,733          $35,900           $35,000       $40,000       $40,000       $37,400
                   4B [¼¢] 4/1/1994
Edinburg           4A [¼¢] 7/1/1990     $1,448,272       $1,482,854        $1,826,471    $1,979,601    $2,092,749    $2,194,387
Elsa               4A [¼¢] 4/1/1994     $184,084         $197,961          $179,526      $167,446      $260,215      $186,488
                   4B [¼¢] 4/1/1994
Hidalgo            4A [¼¢] 4/1/1990     $110,891         $148,931          $177,031      $190,987      $224,455      $296,762
La Joya            4B[¼¢] 10/1/1994     $31,000          $31,491           $37,706       $49,996       $54,568       $55,792
McAllen            4B[¼¢] 10/1/1997     $6,810,548       $7,885,589        $8,842,281    $9,259,710    $9,812,083    $10,393,934
Mercedes           4A [¼¢] 4/1/1990     $183,647         $189,000          $230,000      $214,367      $251,883      $261,150
Mission            4A [¼¢] 7/1/1990     $1,247,716       $1,459,510        $1,474,688    $1,608,814    $1,769,881    $1,885,206
                   to 12/31/1994; 4B
                   [¼¢] 1/1/1995
Palmview           4A[¼¢] 10/1/1990     $0               $146,000          $100,000      $181,415      $118,366      $169,059
Penitas            4A [¼¢] 1/1/1994     $0               $0                $9,545        $5,200        $2,350        $2,650
Pharr              4A [¼¢] 4/1/1990     $1,162,748       $1,377,998        $1,637232,    $1,740,808    $1,848,201    $1,851,289
Progreso           4A [¼¢] 7/1/1993     $34,000          $25,829           $63,986       $14,714       $20,255       $14,328
San Juan           4B [¼¢] 1/1/1996     $245,115         $272,171          $334,460      $348,394      $350,497      $329,798
Weslaco            4A[¼¢] 10/1/1990     $1,167,432       $1,265,275        $1,382,797    $1,449,023    $3,093,540    $1,513,235
Starr County
Rio Grande City    4A [¼¢] 7/1/1994     $421,110         $457,495          $485,390      $507,653      $370,967      $592,923
                   to   12/31/2001;
                   4B [¼¢] 1/1/2002
Roma               4B[¼¢] 10/1/1995     $116,301         $166,460          $177,369      $201,241      $226,201      $213,518
Willacy County
Raymondville       4A [¼¢] 7/1/1992     $203,137         $220,358          $240,061      $232,787      $199,616      $194,740
TOTAL                                   $22,539,449      $25,226,822       $23,967,186   $29,938,880   $29,076,321   $32,826,801

SOURCE: Texas Comptroller of Public Accounts as reported by TIP Strategies (2005)




                                                                   14
                                                     VIDA is a way in which we generate a new
                                                     way of looking at things. It is a way of
                                                     economic development that has at its center
                                                     the training of people and educating people
                                                     for good paying jobs that are available in the
                                                     Valley for Valley people.

                                                                            Father Alfonso Guevara
                                                                 St. Joseph the Worker Catholic Church &
                                                                                  Valley Interfaith Leader




                                      Grass Roots Approach

One of the first communities in Texas, if not the first, to expend sales tax revenue on job training

was the City of McAllen. In 1997, a group of community leaders with Valley Interfaith began

laying the foundation to advocate for a community-based organization dedicated to helping area

unemployed, underemployed and low-income residents get the skills they need to secure a high-

skilled, high-wage job, (McPherson, 1995).


Valley Interfaith is a grass-roots organization that originated out of a series of meetings between

the Industrial Areas Foundation and key Catholic leaders in the Valley in 1982. From these

humble beginnings, Valley Interfaith has grown to encompass over 40 churches and schools, and

represent over 60,000 families. The organization‟s mission is, “...to build power for sustainable

social, economic and political change through institution-based leadership development and

action,” (Friedus, 2001).


It is with this mission in mind that several local leaders conducted “research action” or “house

meetings” with area businesses to determine which occupations were in-demand and which ones

paid a living wage, (Friedus, 2001). The idea was to train those people in desperate need of

employment to assume those jobs that area employers were having difficulty filling.




                                                15
The leaders of Valley Interfaith pushed to develop an organization that was modeled after a

workforce intermediary in San Antonio titled Project QUEST. They wanted to develop a

program that drew from Project QUEST‟s mission “to demonstrate the social and economic

benefits that can be achieved through investments in long-term training for those who otherwise

would not have the opportunity,” and that would help put in place protective measures to

minimize area communities‟ future vulnerability to sudden economic changes, (Campbell, 1994).


Valley Interfaith‟s idea was to use what was taking place in San Antonio and develop a system

built on accountability; a system able to quickly respond to local changes in the labor market and

one in which the local government can play a pivotal role in ensuring the economic welfare of its

residents, (McPherson, 1995).


Countless hours of meetings with key business leaders coupled with extensive planning brought

to fruition the creation of the Valley Initiative for Development and Advancement (VIDA), but

also the passage of a referendum outlining the adoption of a new sales and use tax on May 3,

1997, under Section 4B of Article 5190.6, at a rate of one-half of one percent, (Texas

Comptroller, 2004). Nearly nine years since the adoption of the tax, the city has received

$76.552 million in increased revenue for economic and community development projects, (See

Table 4).


Table 4. Annual Sales Tax Revenue for the City of McAllen, 1998-2005


1998           1999            2000           2001         2002         2003          2004          2005
$6,810,548     $7,885,589      $8,842,281     $9,259,710   $9,812,083   $10,393,934   $11,400,484   $12,147,531

SOURCE: Texas Comptroller of Public Accounts (2006)



The 1997 ballot outlined several initiatives, but it was the approval of tax revenue for job

training that garnished the most attention. “We are proud to be the first city in the State of Texas

                                                            16
to provide people with job skills in a formal training program,” said then McAllen Mayor Leo

Montalvo, (Texas Department of Human Service, 1998).



The authorization of sales tax revenue for job training resulted in the creation of the McAllen

Self-Sufficiency Project (MSSP), an innovative partnership between the community college, the

local education service center and VIDA.


                                McAllen Self-Sufficiency Project


The goal of the McAllen Self-Sufficiency Project (MSSP) is to make job training programs that

meet the needs of area employers accessible to area unemployed, underemployed and low-

income residents. This is an innovative partnership between the VIDA, South Texas College and

Region One Education Service Center.


      VIDA is a community-based, non profit 501 (c) 3 organization committed to helping low-

       income, unemployed and underemployed residents of the Rio Grande Valley get the

       skills necessary to secure a high-skilled, high-wage job. VIDA was created in 1995.

       Originally developed with funding from the Empowerment Zone, VIDA later expanded

       to serve several other Valley communities, (VIDA, 2005).

      South Texas College (formerly South Texas Community College) was established in

       1993 by Texas Senate Bill 251. It is the only community college in Texas to have been

       “legislatively established prior to a taxing district being approved by local voters,” (STC,

       2005). The college is accredited by the Commission on Colleges of the Southern

       Association of Colleges and Schools and is able to award associate degrees of Applied

       Science, Arts, and of Science, as well as various certificates, (STC, 2005).



                                               17
      Region One Education Service Center is one of 20 regional education service agencies

       throughout Texas. Its main objective is “to assist school districts in improving student

       performance; to assist districts to operate more efficiently and economically; and, to

       implement incentives assigned by the legislature or the Commissioner of Education,”

       (Region One, 2005).


What the three organizations brought to this project was an integration of services and

commitment to long-term solutions unseen in traditional training programs.


“This is a model project (showing how) community organizations, businesses and governments

can work together to help move people from welfare to work,” said previous Equal

Opportunity/Affirmative Action Exemplary Practice Award Winner (1999) and then Texas

Department of Human Services Commissioner Eric M. Bost, (Texas Department of Human

Service, 1998).


The winner of the Texas Workforce Commission‟s 2004 Transitional Workforce Award and

2003 finalist for the U.S. Department of Commerce Excellence in Economic Development Award

as well as recipient of Meritorious Honors from the Texas Department of Economic

Development, MSSP continues to serve as a national model in workforce and economic

excellence, (VIDA, 2005).



                                  PROBLEM STATEMENT

The movement against the use of local and state funds as private incentives is mounting a charge

from both sides of the political spectrum. Groups from the political left are arguing that welfare

programs should be helping people, not businesses, while the political right are against the use of

taxpayer incentives and view big business as bad as big government, (Barlett, 1998; Hall, 2005).

                                                18
Many community, business and political leaders throughout the United States are beginning to

question this notion of economic development. In North Carolina, a conservative think tank, the

North Carolina Institute for Constitutional Law, is mounting a legal challenge to the state and

local governments‟ investment of $280 million to Dell Computer Corporation to build a facility

in the Winston-Salem area, (Schroeder, 2005). They are arguing that these incentives are targeted

specifically to large corporations at the expense of small businesses, (Schroeder, 2005).



In 2003, the State of Wisconsin provided Air Wisconsin Airlines and Midwest Airlines $2.5

million in annual property tax exemptions. Northwest Airlines filed suit against Wisconsin

claiming that these incentives put them at a competitive disadvantage, (Schroeder, 2005). The

state court agreed and found the incentives to be unconstitutional, (Schroeder, 2005).



In Ohio, a Northeastern University law professor sued the state for their $280 million enticement

to DaimlerChrysler, alleging that these incentives hinder the flow of commerce between states,

(Schroeder, 2005). Upon reviewing the case, the U.S. 6th Circuit Court of Appeals in Cincinnati

ruled that the use of tax credits did interfere with the free flow of commerce and violated the

Constitution‟s Commerce Clause, (Hall, 2005). With the watchful eye of the nation, the U.S.

Supreme Court is scheduled to decide in the summer of 2006 as to whether or not they will hear

the case, (Schroeder, 2005).


With a movement against corporate welfare, projects like MSSP can serve as a viable alternative

to providing economic development to communities eager to attract enterprise.


This is especially important considering the scarcity of federal and state funds. Current funding

levels are inadequate to meet the education and training needs of area businesses, (Uhalde,


                                                19
2003). Using local resources to augment federal funding could ensure that the local community‟s

need for higher education and training does not go unmet.



                                   PUBLIC INTERVENTION


From a pure economic perspective, the driving force of public sponsored training programs is the

market or failures therein. The lack of an adequate supply, coupled with a high demand of skilled

labor, drives the need for publicly sponsored training programs. There is also the school of

thought that public intervention is warranted to compensate for institutional failures as seen in

areas with a high number of high school dropouts, (Friedlander, 1997; Osterman, 1996; Tome,

2001).


It is argued that low-income individuals simply do not have resources to invest in this type of

training and that their access to private funding is also limited. This greatly impedes their ability

to attend training programs, regardless of the future individual benefits, (Friedlander, 1997).


Public intervention also enables individuals in search of new skills to be steered toward

occupations that are in high-demand and pay a living wage, (Friedlander, 1997). Since the late

1950‟s, the federal government has made the enhancement of workers‟ skills an important

strategy in enhancing America‟s competitiveness in the global marketplace. The premise is that

through the enhancement of skills, workers will be able to earn more than they would otherwise,

thus increasing their societal contributions through increased tax payments and simultaneously

reducing their dependence on welfare programs, (LaLonde, 1995). But as expenditures in

training programs increased, so too, has the public‟s need for accountability, (Kornfeld, 1999;

Barnow, 2000). This has prompted much research on the economic benefits of government

sponsored training programs, (Friedlander, 1997; Veum, 1995; Schone, 2001). Some suggesting

                                                 20
that such programs have a modest effect on program participants‟ income and employment status

and little to no impact on reducing poverty or welfare usage, (Friedlander, 1997; Riccio, 1994).


One such example is an extensive evaluation of the California Greater Avenues for

Independence (GAIN) program, a statewide initiative to increase the number of welfare

recipients that become employed, which operates under the federal Job Opportunities and Basic

Skills (JOBS) program. Its findings brought mixed results, (Riccio, 1994).



The three year study of 33,000 individuals from 1988 to 1990 looked at the employment and

welfare status of program participants and performed a comprehensive cost/benefit analysis of

the six California county sites, (Riccio, 1994). Individuals were randomly assigned to either an

experimental group (those that received intervention) or a control group (those excluded but

could have received services elsewhere), (Riccio, 1994). Using this experimental method, the

study did find some positive results.



Among single parents, three years after qualifying for services, the experiment group earned an

average of $636 per year, or 25 percent, more than the control group and they received $331 less

in welfare payments, (Riccio, 1994). In the Riverside, San Diego, and Butte county sites, every

dollar of public investment resulted in a respective return of $2.84, $1.40 and $1.02, through

reduced welfare or increased tax payments, (Riccio, 1994).



Despite these positive returns, the aggregate impact of the GAIN program was a net loss. The

study found that for every dollar invested in GAIN, 76 cents was returned, (Riccio, 1994).




                                               21
Even though the GAIN study used randomization of subjects to overcome selection bias, many

researchers argue that the increased knowledge is minimal and does not offset the cost to

perform the studies, (Mead, 1997; Raphael, 2003). Instead many researchers recommend the

expanded use of non-experimental methods, (LaLonde, 1995).



In the state of Massachusetts, a non-experimental method was used to study the effectiveness of

the state‟s employment and training system, (Raphael, 2003). Using unemployment insurance

(UI) wage records, researchers compared adults participating in training with the results to

approximately 5,000 individuals that completed assessment only but choose not to participate,

(Raphael, 2003). It was this latter group that served as the comparison or control group.



The results of the study found that the system had positively impacted the state, (Raphael, 2003).

The researchers found that the training participants received increased average annual earnings

of $2,200, (Raphael, 2003). The largest effect was for those receiving long-term occupational

training. The smallest effect was for basic skills training participants, (Raphael, 2003).



The results also varied by the type of organization providing the training. Training conducted or

coordinated by community-based organizations was found to have the largest effect on earnings,

followed by national non-profits and trade/technical schools, (Raphael, 2003).



On average, one additional year of education results in an 8 percent increase in earnings, using

1993 wages, this equated to an increase of approximately $1,800 per year, (LaLonde, 1995). But,

programs that successfully increase an individual‟s level of post-secondary education can be

costly, (Christophersen, 2002; Hockeynos, 2001; LaLonde, 1995). There are less expensive


                                                 22
publicly sponsored programs, but they tend to have a smaller impact, (LaLonde, 1995). In a

meta-analysis of training programs from 1964 to 1977, the impact on adult wages ranged from a

negative $1,850 to a positive $2,913 per year as expressed in 1990 dollars, (LaLonde, 1995). The

authors conclude that the difference is not from sampling variability, but rather from different

uses of statistical models and how the comparison groups were derived, (LaLonde, 1995).



However, when training type is compared, researchers found, especially among displaced

workers, that there was little benefit from short-term training programs but significant long-term

benefits from rigorous vocational and academic level courses, (LaLonde, 1995). In addition, they

concluded that training had a number of social benefits such as increased productivity, reduced

criminal activity and reduced social welfare, (LaLonde, 1995). In a cost/benefit analysis of the

Job Corp program, these social benefits amounted to a net $5,590 per participant, (LaLonde,

1995). This seems to suggest that funds may be better spent on groups that are most likely to

benefit and toward the development of more intensive and likely more expensive programs,

(LaLonde, 1995).



The comparison of program costs and benefits was also used in a study of Job Training

Partnership Act (JTPA) programs using the National JTPA Study, (Bloom, 1997). The authors

analyzed the impact of the training program from the perspective of the student, as well as the

perspective of society. The study utilizes data obtained from a form completed by the participant

at time of application, in conjunction with enrollment, tracking and expenditure records from 16

study sites, (Bloom, 1997). Follow-up surveys completed 30 months after the start of the

training, along with state UI wage data from 12 study sites, and Aid to Families with Dependent

Children (AFDC) and food stamp records were also collected to determine the amount of wages


                                               23
and public subsidies, (Bloom, 1997). A telephone survey of schools and their published data was

used to estimate training cost, (Bloom, 1997).



From the student perspective, the program yielded an average net benefit (earnings – subsidies)

of $1,355 and $1,683 for adult men and women respectively, (Bloom, 1997). The net social

benefit was also positive. This was determined by taking aggregate benefits subtracting the costs

of wage subsidies and taxes. This amounted to a net social benefit of $524 for men and $512 for

women, (Bloom, 1997).



A recent economic impact analysis of the community college system in Texas (Christophersen,

2002), looks at aggregate impact education has on earnings, absenteeism, health care,

incarceration and other associated social costs. The study seeks to determine the annual private

and public benefit as measured by credit hour and by individual student, (Christophersen, 2002).

It also evaluates the system from the standpoint of the student and from the taxpayer. From the

student perspective, the impact of the community college system is primarily measured through

changes in individual earnings, (Christophersen, 2002). This approach is directly inline with

human capital theory‟s postulation that education and income are directly correlated.



In looking at the system‟s impact through the view of the taxpayer, the taxpayer is further refined

to include the broad taxpayer and the narrow taxpayer. Using the broad taxpayers‟ view, the

aggregate earnings of participants is compared to the total cost of providing training plus any

savings resulting from a reduction in related social costs, (Christophersen, 2002). In the narrow

taxpayer view, the costs associated with providing the training are compared to the state and

local tax collections resulting from any associated increases in earnings, (Christophersen, 2002).


                                                 24
The researchers present the findings in terms of net present value (NPV), rate of return (RR),

benefit/cost (B/C) ratio, and payback period. Then, they generalize the results to determine

statewide annual impact, (Christophersen, 2002).



From the student perspective, the NPV of increased earnings is $28.7 million with a B/C ratio of

9.1 and RR of 26.1 percent (well in excess of the 4 percent discount rate). The payback period

for the student is 5.8 years, (Christophersen, 2002).



From the broad taxpayer view, the NPV of the social benefits were $22.3 million with B/C ratio

of 18.5. Using this view, a total savings of $18.48 for every $1 invested, (Christophersen, 2002).

Using the narrow view, the study estimates $2.57 million in increased tax collections and social

costs savings with a RR of 15.9 percent and B/C of 3.0 with a payback of 8.2 years. Even when

the social benefits are removed, the results were positive: NPV $1.525 million, RR 10.5 percent,

B/C ratio 2.2 and payback 12.3 years, (Christophersen, 2002).



This positive effect of training was echoed in a study to the City of San Antonio titled Return on

Investment (ROI) Analysis of Public Expenditures Made Under San Antonio’s Better Jobs

Initiative, (Hockeynos, 2001). The authors of this report performed an economic and fiscal

impact study of adopting a sales tax funded jobs initiative. The study reviewed several proposed

education initiatives including an evaluation of the before mentioned Project QUEST,

(Hockeynos, 2001).



The analysis assumes a 35 year work life and determines that the City of San Antonio receives

2.55 percent of individual income in the form of sales tax, property tax and other fees,


                                                 25
(Hockeynos, 2001). In addition, the study uses a 1.85 income multiplier to account for secondary

effects associated with increased employment, (Hockeynos, 2001).



The study also estimates a 25 percent departure of graduates (out-migration) and estimates

earnings based on previous research data conducted five years earlier rather than collecting data

directly, (Hockeynos, 2001). Such assumptions could lead to the understating of the program‟s

impact. Despite this, the study estimates a positive NPV of $3 million return to the city on its

$2.6 million investment, (Hockeynos, 2001).




                                               26
Let every man be occupied, and occupied in the highest employment of which his nature is
capable, and die with the consciousness that he has done his best.

                                                     Sydney Smith, 19th Century English Author
                                                      Elementary Sketches of Moral Philosophy



                                      METHODOLOGY


The purpose of this report is to determine the impact of the McAllen Self-Sufficiency Project by

studying the effects the community sponsored training program has on the earnings of program

completers and determining possible economic impact of graduate earnings on the community

within which they reside. The easiest and most common way to study the impact of the job

training program is through the use of results indicators (i.e. number of people served, the

amount of money spent, etc.). Though this is a fine tool for identifying per participant costs it

fails to adequately identify program benefits, (Tome, 2001). Accurately determining both costs

and benefits is an important element in policy making and resource allocations. To better assist

city leaders in determining program expenditures, this study will utilize impact modeling to

focus on the net economic returns to the City of McAllen.


                                    RESEARCH DESIGN


Though the primary focus is on evaluating job training as a viable economic development

strategy as measured through the costs of providing training and the benefits back to the

community, it first must be determined whether a positive correlation exists between training and

earnings.




                                               27
                                        HYPOTHESES


In order to determine the effectiveness of MSSP, this paper will test the following hypotheses:

        H1. There is positive correlation between program completion and individual earnings.

        H2. The program benefit shall be positive and exceed program cost.



To test these hypotheses, administrative data is reported from two sources. MSSP participant

data such as demographic, program activity and training type are reported using VIDA‟s

Management Information Database and Accountability System (MIDAS). Participant earnings

are reported by the Texas Workforce Commission through unemployment insurance (UI)

records.



The study tested the following functions:

Earnings = f (activity status, training type, age, gender, marital status, industry cluster,

occupational field)



Activity status = f (earnings, training type, age, gender, marital status, industry cluster,

occupational field)



The two primary variables are measured and defined as follows. Earnings are measured as the

average quarterly wages reported through UI wage records. A comparison of average quarterly

earnings is made between average wages reported before training, during training and after

training.




                                               28
Activity status pertains to current status of each program participant. Participants can either be

currently enrolled, dropped/withdrew, or have successfully completed their respective training

program.



Since wage records may take up to two quarters after they have been earned to appear in UI,

participants who graduated after December 31, 2004, are treated as active participants and are

excluded from wage calculations.



Training type is divided into two categories: general and specific. General training is long-term

(one to two years) in nature and is measured by participation in a post-secondary occupational

program with successful completion identified through the attainment of a certificate or

associate‟s degree.



Specific training is training pertaining to the needs of a particular employer or group of

employers and generally spans from as few as four weeks to as long as one year.



To avoid ambiguity, the remaining explanatory variables were recorded and treated as vector.

Age was reported in the number of years at time of entry. Gender was recorded as either male or

female. Educational attainment was accounted for as the number of years completed at time of

entry. The number of dependents was recorded at the time of entry.



Program length was recorded as the number of weeks of the selected training program. The

actual number of weeks in the program is counted separately. The industry cluster of the




                                               29
participant is categorized as belonging to one of four clusters: Business & Professional Services,

Manufacturing & Technology, Nursing & Allied Health and Education & Social Services.



Eligibility criteria (public assistance, unemployed, underemployed, or other low-income), city of

residence at time of entry and city of employment upon completion are recorded and presented to

satisfy reporting criteria.


                                     SAMPLING FRAME


The sample for this report is the universal population of MSSP participants from 1998 to 2005.

McAllen area residents that participated in a basic skills program (GED and TASP/THEA) are

reported separately and without wage data since the primary focus of these programs are basic

skills attainment and not the direct acquisition of employment.



Also, participants served under the capacity building component of MSSP are excluded from this

report as funds are provided directly to South Texas College and participation is not limited to

McAllen residents.



Thus, program data is reported for current and former MSSP participants that may or may not

have successfully completed a job training program.



In order to be considered for MSSP, participants had to meet eligibility criteria and be

recommended for program inclusion by VIDA staff. Participants had to demonstrate financial

need by successfully satisfying one of the following criteria: be receiving public assistance (i.e.




                                                30
food stamps, TANF, etc.), be unemployed, be underemployed (making less than $7.50 per hour)

with family responsibility, or be low-income as defined by the state poverty guidelines.



VIDA staff identified and pre-screened applicants desiring occupational training offered by

South Texas College. Individual aptitude skills are assessed to determine eligibility, using

standardized Reading, Math, and Aptitude/Interest test instruments. Once deemed eligible, a staff

counselor will meet with the participant at least once each week to provide support and guidance

throughout the training to assist with successful completion of the program.



In order to qualifying for financial assistance through VIDA, the subjects had to reside in the

County of Hidalgo, be a U.S. citizen or resident alien, commit to completing their selected

training program and agree to work in that occupation for no less than one year. In addition, 70

percent of the program participants had to reside in the City of McAllen. The remaining 30

percent may be residents from another city within the Hidalgo County jurisdiction.



                                        ASSUMPTIONS

In order to determine the impact educational skills obtainment has on a community, some key

assumptions must first be made:

   1. Individual earnings is not a factor of age.

   2. The present value of lifetime earnings is the same for individuals regardless of training

       assuming no post-training investments are made.

   3. The number of years employed is independent from the number of years of education.

   4. State-wide spending patterns are indicative of local spending patterns.




                                               31
   5. Past spending patterns are indicative of future spending patterns.



These assumptions are made for the sake of brevity and data collection. Further research should

be performed using actual patterns of program participants.


                                       DATA ANALYSIS

To effectively analyze the data and test the hypotheses, two steps will be performed. First, given

there are several independent variables and a need to test their effect on a single dependent

variable (earnings), a multiple regression analysis will be performed using SPSS software. This

method shall be used to test each of the first four hypotheses to determine whether a positive

correlation exists between training and earnings. To do so, a 1 percent level of significance will

be used.



The second step is to establish the project‟s effectiveness as measured through the costs of

providing training and the benefits back to the community. A narrow taxpayer perspective as

utilized by Christophersen (2002), will be adopted to determine the cost/benefit ratio.



In a similar report performed by the Texas Higher Education Coordinating Board, a discount rate

of 3 percent was used to determine the benefits of training back to the state, (Phelps, 2003). For

the purpose of this study, a more conservative 5 percent discount rate will be used.



Since Texas generates most of its revenue through sales tax collections, the researchers use a

composite rate of 3.4 percent of income to approximate this source of revenue, (Phelps, 2003).

Given the proximity and economic similarities of San Antonio and McAllen, the study will use



                                                32
the conservative 2.55 composite tax estimate established by Hockeynos (2001) in his cost/benefit

analysis of similar programs in San Antonio. The Net Present Value (NPV) of the life-time

earnings over a 35 year period will be computed using a 2 percent annual cost of living/merit

increase.




                                              33
To put the world right in order, we must first put the nation in order; to put the nation in order,
we must first put the family in order; to put the family in order, we must first cultivate our
personal life; we must first set our hearts right.

                                                                                                      Confucius

                                            RESULTS & ANALYSIS

     For two years after graduating high school, Patricia Treviño worked at a minimum wage job to help
     support her two young children. She realized that the only way to become self-sufficient was to return to
     school and to fulfill her dream to become a nurse. When Patricia applied and was accepted to the
     Associate Degree in Nursing (ADN) program at STC, she knew she would have to look for other means
     of financial support besides a Pell Grant from Financial Aid. As a McAllen resident, in need of
     assistance, Patricia heard of MSSP and applied to VIDA. The financial and emotional support Patricia
     received enabled her to complete training without sacrificing her time with her children. Through
     frequent visits with her case manager and her determination to succeed, Patricia maintained a 3.0 grade
     point average every semester for two years. Patricia states "VIDA is not just a financial support program,
     it's more like a support system and I am extremely grateful to have been a participant."

     Patricia completed the ADN Program in December 2004 and passed her state board exam. She is now
     working full time as a Registered Nurse (RN) at McAllen Medical Center earning $21.50 per hour with
     full benefits.



Since the program‟s inception, MSSP has provided assistance to 1,465 area residents. The

participants ranged in age from 16 to 60 years old, with an average age of 29.34 at the time of

entry, (See Figure 2).


                                             Figure 2. Age Disbursement

                                      50




                                      40




                                      30




                                      20




                                      10
                              Count




                                      0
                                             M
                                              19s in
                                              21 0
                                              23 0
                                              25 0
                                              27 0
                                              29 0
                                              31 0
                                              33 0
                                              35 0
                                              37 0
                                              39 0
                                              41 0
                                              43 0
                                              45 0
                                              47 0
                                              49 0
                                              51 0
                                              54 0
                                               is
                                                  .0 g
                                                  .0
                                                  .0
                                                  .0
                                                  .0
                                                  .0
                                                  .0
                                                  .0
                                                  .0
                                                  .0
                                                  .0
                                                  .0
                                                  .0
                                                  .0
                                                  .0
                                                  .0
                                                  .0
                                                  .0
                                                    0




                                           AGE




                                                        34
They also had an average of 3.27 dependents, which ranged from no dependents to as many as

nine, (See Figure 3).


                                                    Figure 3. Dependents

                                    160


                                    140


                                    120


                                    100


                                     80


                                     60


                                     40


                                     20
                            Count




                                        0
                                              .00   1.00   2.00   3.00   4.00   5.00   6.00   7.00   8.00   9.00


                                            DEP




Nearly one-third of all MSSP participants received food stamps at the time of entry. The amounts

ranged from $10 to $964 with the average recipient receiving $274.84 in food stamp assistance,

(See Table 1).


                                            Table 1. Food Stamp Amount

                                    N                        Valid                                      383
                                                             Missing                                  1082
                                    Mean                                                        $274.84
                                    Median                                                      $248.00
                                    Mode                                                        $224.00
                                    Range                                                       $964.00
                                    Minimum                                                          $10.00
                                    Maximum                                                     $974.00




Of the 1,465 MSSP participants, 74.9 percent reported living within the City of McAllen. This is

well within the 70 percent allotted by the Development Corporation and the McAllen City

Commission. Of these, 792 were in a long-term job training program and 673 in a basic skills

preparation course. The vast majority of job training participants were in general or transferable


                                                                     35
training, 81.4 percent, as compared to 18.6 percent in specific or customized training, (See Table

2). Demographic data is reported for both groups, but there is little variation in the participant

profiles.


                                        Table 2. Program Type

                                                                    Cumulative
                                        Frequency        Percent     Percent
                             GENERAL          645            81.4          81.4
                                              147            18.6         100.0
                             SPECIFIC
                                              792           100.0
                             Total




Since the focus of this report is on the evaluation of the long-term job training component of

MSSP, the following descriptive data pertains solely to that element of the project. The average

length of the participants selected training ranged from as little as four weeks to as much as 104

weeks. The average reported length was 66.66 weeks. Correspondingly, participants receiving

assistance from MSSP did so for an average of 51.44 weeks, which equates to 77.1 percent of the

total program training.


Training was provided in one of four clusters: Business & Professional Services (Business),

Manufacturing & Technology (Mfg & Tech), Nursing & Allied Health (Health) and Education &

Social Services (Education). The largest industry cluster was health, where nearly one-half (49.1

percent) of all program participants were trained or are receiving training in a health related

occupation, (See Table 3).




                                                    36
                                       Table 3. Industry Clusters

                                                                    Cumulative
                                           Frequency    Percent      Percent
                           BUSINESS               119       15.0          15.0
                                                 176        22.2          37.2
                           MFG & TECH
                                                 389        49.1          86.4
                           HEALTH
                                                 108        13.6         100.0
                           EDUCATION
                                                 792      100.0
                           Total


The marital status of those enrolled in job training, was almost equally divided among married

and single participants, 52.5 and 46.8 percent respectively (0.6 percent were unreported). But the

majority of program participants were female, 60 percent, as opposed to 39.3 percent male (0.8

percent unreported).


In terms of the number of trainees remaining in the area, per UI reported data, 469 of 527

completers, or 88.9 percent, were employed in the McAllen MSA (Hidalgo County).


                                    HYPOTHESIS TESTING


To test the hypothesis that there is positive correlation between program completion and

individual earnings, Pearson correlation statistical test is performed. Of the 551 completers and

drops/withdrawals, wage data was reported for 482 or 87.4 percent, (See Table 4). The results of

the correlation indicates that a there is a significant positive correlation coefficient

(r=0.144;p=0.002) between program completion and average quarterly earnings after training,

(See Table 5).



In addition, average quarterly earnings varied substantially throughout the project. The average

quarterly earnings before training was $1,813.48, while after training wages rose to $6,900.62,




                                                  37
(See Figure 4). With the correlation established, a cost/benefit analysis can be performed to

determine the impact MSSP‟s long-term job training strategy has had on the City of McAllen.



                      Table 4. Average Quarterly Earnings After Training Report



                       ACTIVITY              Mean                   N          Std. Deviation
                       Drop                   $4,439.20                  78          $3,897.24
                       Complete               $7,375.84                 404          $7,938.04
                       Total                  $6,900.62                 482          $7,509.84



                                                 Table 5. Correlation


                                                                    ACTIVITY          AVEQAT
                      ACTIVITY               Pearson
                                                                                1         .144(**)
                                             Correlation
                                             Sig. (2-tailed)                     .           .002
                                             N                                551             482
                      AVEQAT                 Pearson
                                                                         .144(**)                1
                                             Correlation
                                             Sig. (2-tailed)                  .002               .
                                         N                            482             482
                          ** Correlation is significant at the 0.01 level (2-tailed).



                                          Figure 4. Quarterly Earnings
                               $8,000


                               $7,000
                                                                           $6,900.62
                               $6,000


                               $5,000


                               $4,000


                               $3,000
                                        $1,824.06
                               $2,000


                               $1,000                    $487.40
                                  $0


                                         Before           During         After Training
                                        Training         Training




                                                         38
From 1998 to 2005, the City of McAllen has invested $3.331 million in MSSP for job training

programs, (See Table 6). Through this local allocation, the partners‟ have been able to utilize

these funds to leverage additional revenue. In that time, MSSP has leveraged an additional

$3.967 million in direct training revenue for McAllen area residents, (See Table 7).

                              Table 6. Contract Amount by Funding Cycle


 Fund       Start Date   End Date    Training          Basic Skills   Capacity     TOTAL
 Cycle
 8          10-1-04      9-30-05     $554,450          $150,550       $209,176     $914,176
 7          10-1-03      9-30-04     $537,375          $167,625       $209,176     $914,176
 6          10-1-02      9-30-03     $517,175          $194,424       $124,413     $843,387
 5          10-1-01      9-30-02     $524,550          $184,349       $124,413     $833,312
 4          10-1-00      9-30-01     $349,550          $184,349       $124,413     $658,312
 3          10-1-99      9-30-00     $349,550          $147,449       $122,895     $655,000
 2          03-1-99      09-30-99    $289,374          $73,385        $71,946      $407,697
 1          03-01-98     02-28-99    $209,000          $106,485       $116,333     $605,000
 TOTAL                               $3,331,024        $1,208,616     $1,102,765   $5,642,405




In order to determine the rate of return to the City of McAllen, program costs per completer must

be calculated. As previously outlined, the total cost to the City of McAllen was $3,331,024, but

this includes current participants who have not yet completed the program. Since participants are

likely to span multiple cycles, MSSP costs are reported as an aggregate expense; therefore, it is

necessary to derive an approximate cost per completer. Since leveraged funds have set

completion dates with no overlap, these sources reflect actual cost per completer. By dividing the

amount of direct leveraged funds expensed by the amount leveraged plus obligated a proximate

for funds expensed can be derived. This equates to 72.7 percent of total funds being expensed on

program completers. This allows the total program cost to be prorated to reflect cost per



                                                  39
completion. This amounts to $2,421,654.48 total completion cost or an individual cost of

$3,956.95, (See Table 7).



                                      Table 7. Direct Leveraged Funds


                            FUNDING STREAMS/LEVERAGED FUNDS - MSSP
 Grant ID            No. MSSP/Total       Percentage          Total Grant Amt     Direct Leveraged

 WFS                 10/53               19%                  $313,000            $59,470
 CAIP                22/74               29%                  $450,000            $139,000
 SJ                  4/15                26%                  $50,000             $13,000
 SKDF                60/158              38%                  $350,607            $223,550
 EMK                 61/87               70%                  $348,000            $243,600
 GOO                 113/252             45%                  $1,730,439          $778,697
 UW                  11/22               50%                  $10,000             $5,000
 SSF                 20/21               95%                  $560,383            $532,363
 DOL/BORDER          29/60               48%                  $502,294.96         $241,101
 H1B                 24/138              17%                  $3,000,000          $510,000
 EZ                  1/147               .007%                $1,500,000          $10,500
 WP                  5/63                .079%                $1,650,000          $130,350


 Direct Amount Leveraged                                                          $2,886,631.00
 Current Amount Obligated                                                         $1,080,772.00
 Total Leveraged                                                                  $3,967,403.00

NOTE: Basic skills and capacity components of MSSP are billed separately and have separate leveraged amounts.
Those amounts are not reported in above totals.



To measure the effect of MSSP, the difference between average quarterly earnings before

training and average quarterly earnings after training is used. This difference is annualized and

recorded as earnings in year one, (See Table 8). Assuming a 2 percent annual cost of living/merit

increase plus a discount rate of 5 percent, the Net Present Value (NPV) of the life-time earnings

over a 35 year period is computed.




                                                     40
                Table 8. NPV Calculation per Participant


YEAR        COST        REVENUE        NET REVENUE          PV NET REV
        0   $3,956.95                          -$3,956.95      -$3,956.95
        1               $20,306.23             $20,306.23      $19,339.27
        2               $20,712.35             $20,712.35      $18,786.72
        3               $21,126.60             $21,126.60      $18,249.95
        4               $21,549.13             $21,549.13      $17,728.53
        5               $21,980.12             $21,980.12      $17,222.00
        6               $22,419.72             $22,419.72      $16,729.94
        7               $22,868.11             $22,868.11      $16,251.94
        8               $23,325.48             $23,325.48      $15,787.60
        9               $23,791.98             $23,791.98      $15,336.53
       10               $24,267.82             $24,267.82      $14,898.34
       11               $24,753.18             $24,753.18      $14,472.67
       12               $25,248.24             $25,248.24      $14,059.17
       13               $25,753.21             $25,753.21      $13,657.48
       14               $26,268.27             $26,268.27      $13,267.26
       15               $26,793.64             $26,793.64      $12,888.20
       16               $27,329.51             $27,329.51      $12,519.96
       17               $27,876.10             $27,876.10      $12,162.25
       18               $28,433.62             $28,433.62      $11,814.76
       19               $29,002.30             $29,002.30      $11,477.19
       20               $29,582.34             $29,582.34      $11,149.27
       21               $30,173.99             $30,173.99      $10,830.72
       22               $30,777.47             $30,777.47      $10,521.27
       23               $31,393.02             $31,393.02      $10,220.67
       24               $32,020.88             $32,020.88       $9,928.65
       25               $32,661.30             $32,661.30       $9,644.97
       26               $33,314.52             $33,314.52       $9,369.40
       27               $33,980.81             $33,980.81       $9,101.70
       28               $34,660.43             $34,660.43       $8,841.65
       29               $35,353.64             $35,353.64       $8,589.04
       30               $36,060.71             $36,060.71       $8,343.64
       31               $36,781.92             $36,781.92       $8,105.25
       32               $37,517.56             $37,517.56       $7,873.67
       33               $38,267.91             $38,267.91       $7,648.71
       34               $39,033.27             $39,033.27       $7,430.17
       35               $39,813.94             $39,813.94       $7,217.88
                                       Life Time Adjust     $1,011,242.41
                                       NPV                    $427,509.45
                                       McAllen Tax Rev         $10,901.49
                                       Discount Rate                  5%




                                  41
Using the tax revenue multiplier of 2.55 percent, the NPV of each MSSP participant is

$10,901.49 to the City of McAllen. To calculate the total benefit, this rate is multiplied by 469

(adjusted for out-migration). The total MSSP Job Training has total NPV of $5,112,799.32.



By concentrating on those residents at the lower end of the socioeconomic bracket: low-income,

unemployed and underemployed, MSSP is able to maximize the project‟s impact. The aggregate

impact of MSSP graduates has a NPV for the City of McAllen of $5.112 million in tax revenue.

This equates to a 111.1 percent return on investment for the City of McAllen, (See Table 9).



                                Table 9. Benefit to Cost Comparison


                              Total Cost                       Total Benefit

MSSP                          $2,421,654.48                    $5,112,799.32
Ratio of Benefit to Cost      211.1%




The Development Corporation of McAllen‟s continued investment in MSSP has also enabled

non-participant taxpayers in McAllen to benefit by taking those currently in need of public

assistance and converting them into substantial taxpayers. The widespread adoption of a program

that increases the earnings of the economically disadvantaged residents of the area generates a

winning scenario by simultaneously increasing the community‟s tax base, thereby reducing the

tax burden shared by individual taxpayers.




                                                42
A Waggoner was once driving a heavy load along a very muddy way. At last he came to a part
of the road where the wheels sank half-way into the mire, and the more the horses pulled, the
deeper sank the wheels. So the Waggoner threw down his whip, and knelt down and prayed to
Hercules the Strong.

„O Hercules, help me in this my hour of distress,‟ quoth he. But Hercules appeared to him, and
said: „Tut, man, don‟t sprawl there. Get up and put your shoulder to the wheel.‟

                                                                            Aesop, 6th Century B.C.

                         CONCLUSIONS & RECOMMENDATIONS


Along the Texas/Mexico border, many community leaders are beginning to view education and

job training programs as a means for raising the average standard of living, (Sharp, 1998). With

the future of corporate welfare incentives in jeopardy and community leaders in 10 South Texas

cities currently considering projects similar to MSSP, it is important to identify projects that will

yield a positive return on investment for the community.


Previous research has found that training programs have two primary benefits: 1) the enhanced

skills which lead to increased human capital, and 2) the increased wages result in increased tax

revenues, (Gattiker, 1995). This is determined through the use of a gross profitability index. The

results indicate that for every tax dollar spent in general training, the government receives $1.50

in additional taxes paid by worker and the employer, (Gattiker, 1995). These results were echoed

in this report. Using a cost/benefit analysis of local investments and local returns, excluding

federal cost and benefits, it is determined that for every dollar spent in MSSP‟s long-term

training programs, the City of McAllen receives $2.11 in addition revenue.


Connecting low-income people to jobs that will pay a living wage with advancement

opportunities requires “broad systems change and buy-in from employers, elected officials,




                                                 43
community based organizations, schools and others concerned about these issues,” (Gibson,

2000).


Community leaders and public administrators “need to confront an uncomfortable truth. When

responding to scarce resources, they have long traded off quality for quantity, supporting

relatively cheap interventions (largely informational services) that spread out the available

resources over as many people as possible. This guarantees limited results and precludes some of

the most effective designs,” (Osterman, 1996).


Program length and cost must be weighed against individual earnings in addressing problems

with poverty. Any expected change in a distressed community is likely to employ extensive

resources. “But only these expensive and intensive services offer the possibility of substantially

reducing poverty among the economically disadvantaged…” (LaLonde, 1995).


Providing the training, the resources and the means to help individuals get the skills necessary to

secure a high demand occupation will positively impact the future of our community and our

children, (Fullerton, 2001; Menaghan, 1990; Sharp, 1998; Bernick, 2001; Gladden, 1999).


It is this approach that has made the McAllen Self-Sufficiency Project a model program that

should be replicated and expanded throughout Texas, especially in areas of high structural

unemployment.




                                                 44
                                 McAllen Self Sufficiency Project (MSSP)
                                                               Flow Chart
Occupations being addressed:
 Nurse (LVN, ADN & BSN)
 Sonographer                                                  Community Outreach
 Radiologic Technologist                                      Churches, Employers,
                                                               High Schools & One-
 Biomedical Technician                                        Stop Centers
 Medical Lab Technician
 Surgical Technologist
 Occupational Therapists
                                                                                         NO
 Physical Therapist Assistant                                          Interest in
                                                                                                    Referral to One-Stop
                                                                        Long-term
 Emergency Medical                                                      training?                  Center for job search
  Technician                                                                                        assistance
 Tool & Die                                                         YES
 Plastic Injection Molder
 Heating & Air Conditioning                                    VIDA for Assessment
                                                                & Individual Service
 Mechanic                                                      Plan
 Truck Driver
 Accounting Assistant
 Import/Export                                                                                     Referral to Employer
                                                                                         NO
                                                                       Accepted to                  for Customized
                                 NO
                                                                        MSSP?                       Training

                                                                    YES

                                  Complete          YES                                       YES
                                                               Referred to appropriate                   Sponsorship?*
                                  remedial
                                                               college for acceptance
                                   work?                       (South Texas College)


                                                                                                         NO


                           Remediation at college         NO                                         Referral to One-Stop
                           continuing education *                       Accepted?                    Center for job search
                           (Workforce Academy)                                                       assistance

                                                                     YES

                                                                      Start program




                                                               Attend weekly case                     Potential
                                                               management sessions                     barrier
                                                               with VIDA staff *                     identified?
                                                                                              NO
                                                                                 NO
                                                                                                            YES

                                                          YES             Issue                     Develop action plan for
                           Continue in program                          resolved?                   coping with barrier and
                                                                                                    facilitate resolution




                                                                  CONTINUE ON
                                                                FOLLOWING PAGE




                                                                       45
                                      CONTINUED FROM
                                       PREVIOUS PAGE




                                        Clinical Rotation*




                                            Successful        NO
                                           Completion?                 Work with college
                                                                       faculty to address
                                                                       deficiencies

                                          YES

                                       COMPLETION OF
                                        COURSEWORK




                                                              NO       Work with college
                                           Graduation?                 faculty to address
                                                                       deficiencies

                                         YES



                                          State Exam**




                                               Passed         NO       Work with college
                                               Exam?                   faculty to address
                                                                       deficiencies

                                        YES


                                        Specialty Training*




                                      HIGHLY SKILLED,
                                         LOCALLY
                                         TRAINED
                                       PROFESSIONAL




*For certain nursing and allied health programs only.
**For certain nursing, allied health and technical training programs


                                                 46
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