“Anchor Institutions” as Foundations of Rural Economic Health

Tom Barkin, president of the Federal Reserve Bank of Richmond

by James A. Bacon

A couple of days ago I lamented that the purveyors of the “conventional wisdom” at a recent Federal Reserve Bank of Richmond conference on rural development had little new or insightful to offer. I must offer a partial retraction. A friend has forwarded to me a speech by bank President Tom Barkin. While most of the points he made were familiar, some were new to me — and, hey, I figure if they’re new to me, someone who has been tracking rural development issues for some 30 years, they’re probably new to many others.

In that speech, “Moving the Needle in Rural Communities,” Barkin discusses the disappearance of “anchor institutions” in rural communities such as banks, hospitals and colleges. I’ve discussed the closure of rural hospitals on this blog, but always in the context of the rural health care crisis, never the rural economic crisis. I’ve also written about the travails of small, private liberal arts colleges, but, again, only in the context of higher education affordability, never the rural economic crisis. And, frankly, it never occurred to me to write about the disappearance of banks. However, the concept of anchor institutions seems to be a useful one for understanding rural economic health, and their continued erosion is a worrisome trend.

So, here’s what Barkin had to say:

The disappearance of anchor institutions such as banks, hospitals and colleges is part of the challenge. The number of rural “banking deserts” (counties with fewer than two bank branches per 10,000 residents) in the Fifth District roughly doubled between 2012 and 2017, from 18 to 37. Twelve rural hospitals in our District have closed since 2010. Another 21 hospitals—nearly 20 percent of those in our District—are at high financial risk of closing. Many rural colleges also face serious financial struggles. Ten in our District have closed their doors since 2000.

The loss of these institutions creates direct costs in terms of residents’ access to financial services, health care and education. But there are also large indirect costs. Anchor institutions provide civic leaders and high-skilled workers who can raise the aspirations of those around them. They invest in their communities and educate residents about health, careers or finances. They supply amenities that attract talent. They create incentives for other businesses and signal a community’s vibrancy.

The online version of Barkin’s speech links to a 2017 Fed article by Helen Fessenden about the market pressures facing small private colleges. These privates, which rely primarily upon tuition revenue, receive no state subsidies and have no large endowments to float them, are vulnerable to the vagaries of the marketplace.

The article listed 13 small colleges in the Fifth Federal Reserve district (which encompasses Virginia, West Virginia, Maryland and the Carolinas) that have closed since 2000. Four of them were located in Virginia — including St. Paul’s College in tiny Lawrenceville, Va. Other Virginia colleges in rural counties, most visibly Sweet Briar College in Amherst, have encountered severe financial stress as well.

Regarding rural hospitals, Barkin’s speech did not list the 12 hospitals in the district that have closed since 2010 or the 21 hospitals that are at “high financial risk of closing.” But Bacon’s Rebellion has tracked the demise of at least two: the community hospitals in Lee County and Patrick County. I would love to see the data on “banking deserts,” and I will track that down if I can find it.

I have long thought that someone needed to create a platform for the sharing of data, insights, and best practices regarding rural development. As an organization in the business of collecting economic data, perhaps the Richmond Fed can fulfill that function for Virginia and neighboring states.

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19 responses to ““Anchor Institutions” as Foundations of Rural Economic Health

  1. Bath County’s population peaked in 1930 (8,137). Today it has 4,292 people. Basically a drop in half over those 90 years. Over that same timeframe Virginia’s population increased by 3.5X.

    Forget funding and insurance. Assume everybody who gets sick has either Medicaid or Medicare. How many people are necessary in an area to keep even a small hospital in business?

    There are 1,328 rural Critical Access Hospitals (CAHs) in the US. CAHs are rural hospitals with no more than 25 beds and are at least 35 miles (15 miles in areas with mountainous terrain or only secondary roads) away from another hospital. CAHs are paid differently by CMS than traditional acute-care hospitals; their payments reflect their operating costs, rather than volumes. In other words, they are already subsidized. There are 60 million people living in rural America. Each rural CAH serves an average of 45,180 rural people.

    Let’s count people and square miles.

    Highland County, Va – 2,210 / 415 sq mi
    Bath County, Va (adjacent) – 4,292 / 529 sq mi
    Pendelton County, WVa (adjacent) – 6,997 / 696 sq mi
    Pocahontas County, WVa (adjacent) – 8,414 / 940 sq mi
    Augusta County, Va (adjacent) – 75,457 / 967 sq mi
    Waynesboro, Va (enclaved in Augusta County) – 22,628 / 15 sq mi
    Staunton, Va (enclaved in Augusta County) – 24,922 / 19 sq mi

    So, we have 144,920 people. That’s 3 CAHs. 3,581 square miles. That’s considerably bigger than Rhode Island and Delaware combined. Each of the 3 hospitals has to support 3,581 / 3 = 1,193 sq mi – which is larger than Rhode Island.

    In a mathematically perfect world the population would be evenly distributed (which it is not) and we would build our 3 CAHs to serve 1,193 sq mi by being in the middle of a circle with an area of 1,193 sq mi. That circle would have a radius of 19.5 mi.

    The problem, of course, is that we lack mathematical perfection in the real world. Given the way the counties, cities and population are actually laid out we need 2.5 CAHs in Augusta / Waynesboro / Staunton and one half in the other localities. And those other localities cover 2,580 sq mi. Using our circle theory again, we get a radius of 29 miles. However, we can only afford half a hospital. Doubling the size of our circle leaves us with a radius of 41 miles.

    In other words, if we build the smallest practical hospital given US averages and we give Augusta County / Waynesboro / Staunton their due and if we place the rural hospital in the perfect place assuming even population distribution we will still have people driving 41 miles to get to the hospital.

    What do you want to do?

    The ONLY answer is either long distances to hospitals or even more subsidies for people’s lifestyle decision to live in rural America.

  2. Given miracles of print and digital news along with the collapse of quality journalism today, it should be required that, when a fellow gives a speech, and a journalist reports on that speech, the reporter’s text should link to the actual text of the speech reported on. In fact, in many cases, we’d be far better off if the reporter just got the hell out of the way.

  3. The importance of anchor institutions is well illustrated in my home county of Halifax. The regional hospital there is now the largest private employer. Over the years, it has grown from a local hospital to a regional one. If it were to close, not only would the availability health care of the residents be adversely affected, the economic impact would be serious.

    There is a trend that is diminishing the positive impact of these anchor institutions–the loss of local ownership and control. In the past, the hospital administrators have been important players in local civic affairs. The hospital is now part of the Sentara system and, with many of the management and personnel decisions being made by the home office, I doubt if the hospital management will be as active in civic affairs as in the past. The same holds true of the banks. In years past, the banks were locally owned and managed. Now, they are part of national or regional systems. Those managers, being subject to transfer, as well as looking for advancement elsewhere in the system, will not have the same level of investment in the community as in the past.

    • Excellent comment above, Dick, especially true with demise of local banks that used to fuel these small towns, how they did their business, including loans in ways that worked with the needs of small town businessmen, entrepreneurs, homeowners, home managers, and those trying to follow in their footsteps. The loss of small local banks throttles, even destroys, the healthy growth of many local small businesses, and has driven out of many towns their natural leaders. Same with health care, particularly its loss of primary care in all its lost iterations, and of services these natural leaders, bankers, doctors, businessmen and their families, provided in so many ways. Education is a far trickier subject. Indeed, most all issues in small towns are tricky.

      Towns, small or large, are extremely complicated, places where details of many many things are typically unique, full of irony, paradox, concurrent opportunities and risks. Plus town profiles today can be made to and/or are constantly changing, remixing, and arranging where change is moving a warp speed across broad fronts, compared to most history, save for few exceptions.

      With that is mind as general overall view, consider this single paragraph from Mr. Barkin’s speech. Do you see how Chameleon it might be, if seen through different lens, perceptions, values, and points to view?

      “Smaller towns are different from bigger cities. Part is demographic: Small-town populations tend to be older and have less formal education. Part is geographic: Smaller towns often are more remote and don’t have the population density to support large institutions. In addition, small towns have what we call “thinner” markets, ones with fewer employers. So if dislocation hits even one sizable employer, the whole town feels it.”

      See: https://www.richmondfed.org/press_room/speeches/thomas_i_barkin/2019/barkin_speech_20190305

      I am not being critical of speech here, only trying to open it up and narrow down parts.

    • Good point. I find it hard to reconcile the rolling up of private physicians’ practices and smaller hospitals into conglomerates as being good for anybody.

  4. With regard to education, the issue is tricky for many reasons, but insofar as closures of institutions, likely many should be closed or reformed to meet the existing and new needs of these communities. For instance the Southeastern University in DC, what had long ago been a fine institutions, had become a predator institution, that should have been closed long before it was.

    But all education institutions and systems that run them need reformation to better serve all the citizens and that includes many worthy small local and private institutions. Policy in Virginia too often appears to do the reverse, making it harder for worthy local institutions to survive, and thrive, rather than be isolated, and forced ultimately to close, or otherwise work far below their potential and what good standards and practices demand. This is a complex subject. It needs much more discussion, and openness in Virginia. Now is the time. Plus lately Virginia has shown some signs of leadership here that can affect real change. But there is much to do. Make it part of any plan for the renaissance of Virginia towns.

    While there might be a shortage local banks, healthcare, and education assets, I note that there is no declaration of a shortage of lawyers. Lawyers gain undue influence over zoning, and development decisions, including their own interests as well as that of clients, when there are too few counter-balancing leaders in and around small towns, particularly so if controlling laws are too loose and out of date, and land is plentiful. In Arlington, the new downtown had been laid out long and well before, and it was hemmed in by residential, geography, and a strong planning regime history, unlike Fairfax, that turned it into a wild west land rush. Once entrenched, economic interests are very hard go stop, much less slow, alter, or turn around. If it has not happened by now, surely it’s time to put in place new structures that better protect the public interests of all for healthy long term for towns.

  5. The concept of anchor institutions is an important one – proven over and over. It also applies in more populated areas. We’ve experienced the flight of banks, grocery stores, health care in areas of cities that aren’t thriving, too. Too often the statement is made that “someone else” will serve them.

    Thankfully, Bath county has a small hospital that does a good job and serves as a triage site before folks make the trek over the mountains. If that facility closes, it would be bad. In far southwest the health providers are few and far between and the service provided by the consolidated entity is not meeting the needs.

    Without anchor institutions, no community can thrive. We’d be wise to pay attention to what anchor institutions are missing and to look for ways to provide them, even if it’s a new way. There must be some way to compensate for the missing services.

  6. “The concept of anchor institutions is an important one – proven over and over.”

    Yes, it’s a big idea. Yet it is only one, however important, component of a larger idea and practice of building communities that before evolved after much trial, error, and refinement in most places until the invention the modern transportation, most particularly the automobile that came to dominate how American lived. Before the auto’s dominance, the essential needs of the community (until automobile masked it) was that the components parts of successful communities to the full extent possible, were made to be synergistic.

    That word means that most all parts of the community fed and sustained one another in a many ways as possible for maximum success. So, for example, if travel was by foot or ox drawn cart for daily needs you worked hard to bring most everything within close practical reach of your community.

    But when the automobile came to dominate peoples lives and dreams, that need was masked by the auto mindset and paradigm for most of 5 full decades after WW11. Hence, Tyson’s Corner. Here planners and developers built all of the same uses in the same community, namely auto dependent office buildings because the land was cheap, the adjoining Interstate was free, the resultant profits off office buildings were very high. Plus the developer and local governments could too often shift costs ancillary to those offices onto other people and jurisdictions. Costs like housing, food markets, schools, hospitals, playgrounds, courthouses. This plan worked for a while, but it was doomed to failure as now proven in Northern Virginia where it has collapsed, that is ground itself to a halt by reason paradoxically, of its own great inefficiency and dislocation that destroyed nearby communities, while it severely despoiled the lives of many people in communities near and far. Why? Because for a while, most developers in these sorts of places thought that they had no need to make sure that whole their whole communities worked, only that their own single project worked. Another words, developers for a few decades defied the learning, and wisdom, and good practices that human communities had learned, refined, and elaborated over the millennium.

    These old ways of building, including the provision of Anchor Institutions, can be seen from the bones of Arlington’s original modern down town built mostly from 1890 to 1850, the bones on which Smart Growth was born, a new idea in the automobile age built on the bones of ideas going back deep into human history. But even Anchor Institutions need an incrediable, nearly endless variety of ancillary uses that feed off those Anchor Uses, and in turn are feed those anchors uses by giving them a monumentally important purpose.

    • Correction to last paragraph above.

      “These old ways of building, including the provision of Anchor Institutions, can be seen clearly from the bones of Arlington’s original modern downtown built mostly between 1890 to 1950, and on these older bones Smart Growth was born starting around 1980, a new idea in the automobile age built on the bones of ideas going back deep into human history. But even Anchor Institutions need an incrediable, and nearly endless, variety of ancillary uses that feed those Anchor Uses, and that in turn feed off those anchors uses by giving them, among other things, a very important purpose.”

    • A keen analysis, Reed. I agree totally.

  7. There’s a certain point where my BS meter goes off when I read this sort of thing. OF COURSE, community banks have held small towns together. In my case, it was Wachovia in a small eastern NC town. But all you Republicans were hot to trot with merger mania, bigger is better, let them merge and cut rural staffing to the bone, go to ATMs and e-banking (no one could stop that) and so on and so forth. Your bank execs walked away with big bucks. And the little towns? Screwed royally. Now, 20 years later, you are (sniff sniff) somehow discovering what really happened.

  8. Correction. Dems and GOP. Jimmy Carter screwed small towns by going along and de regulated airlines. Bill clinton remerged commercial and investment banks bringing us the 2008 fiasco and all sides joined the globalization party that totally screwed small towns. And now we have to respectfully lusten to the current local Fed chief tell us it’s tough out there for rural areas.

  9. Jim, Dodd frank was a factor but by the time it came around little towns were already totally screwed.

  10. Jim, i went back to look. I do not see how dodd frank contributed to the demise ifbrural america.?how, in your opinion?

    • It is commonly accepted (at least in conservative circles) that the law imposed significant regulatory costs on banks. The big banks, enjoying economies of scale, absorbed those costs relatively easily. Smaller banks could not, which drove a wave of consolidation among community banks. I really don’t think this is controversial.

  11. Anchor institutions provide great benefit and they have been a key aspect of the strategy of Community Wealth Building, developed by the Democracy Collaborative and implemented around the US and now in the UK. Here is a recent article discussing – https://www.nytimes.com/2019/10/10/business/healthcare-anchor-network.html?mc_cid=999b560ba5&mc_eid=cec6c66b94

    Link to their work – https://community-wealth.org/

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