Trending topics in the Economic Development industry today are the “Skills Gap” and the “Talent Gap,” where manufacturers are missing key skill sets today, and demographic trends point to a lack of warm bodies to fill jobs in the future.
Communities are organic beings. They grow or shrink; they can thrive or become ghosts. They can become physically diseased with blight and outdated infrastructure or face social plagues such as drug dependence, violence or systemic poverty. But like all other beings, they can also find healing by addressing their health problems head-on; strength by challenging their current capacity; and resilience by overcoming mounting adversity.
While traveling in Ireland recently, I was intrigued by an article in the Irish Times newspaper entitled, “Immigration policy must target entrepreneurship”. While one would first think this article is about Ireland targeting entrepreneurs through their immigration policy, a majority of the article referenced the environment for entrepreneurs in the United States. It stated that 52% of the start-ups in the Silicon Valley from 1995 to 2005 have been founded by immigrants. Also, 40% of Fortune 500 companies were founded by first-generation immigrants or their children.
Toward the end of the article was finally the point that Ireland should open the door to all of Europe and the rest of the world, inviting entrepreneurs from all over go there to start their businesses. While the United States is deciding what to do about immigration, other countries are poised to capitalize on our indecision and invite entrepreneurs in. Having an entrepreneurship strategy, and opening the door to skilled talent will boost economies wherever they land, according to entrepreneur turned academic, Vivek Wadhwa, who was interviewed for the article in the Irish Times.
Consumers can order online and pick up at the store, visit the store and order at a kiosk, visit the store and order through mobile phone, visit the store or online and price compare and purchase at lower-priced store, and any other combination of options.
Have you heard of this group, Carrotmob? Information taken from their web site is summarized below:
In a Carrotmob campaign, a group of people offers to spend their money to support a business, and in return the business agrees to make an improvement that the people care about. The group is called Carrotmob because it uses the “carrot” instead of the “stick.” Traditionally, people who wanted to influence businesses would threaten or attack them. The Carrotmob movement believes people can have more influence on businesses by giving them a positive incentive to change: their money.
People want to “vote with their money” to advance their values and improve the world from New York to Paris to Bangkok. This group is building a website to make voting with one’s money easier, more effective, and more fun. Carrotmob organizers around the world have already created a growing movement. Find out more at https://carrotmob.org/.
This concept has interesting implications for the work we do as economic development practitioners. In reading a lot about innovation lately, my belief has been confirmed that innovation is just as much about applying a new concept to the way we typically do something as it is developing a new gadget or coming up with a new product. So here is an innovative way to get a business to change.
The Carrotmob concept could be applied effectively through a Mainstreet organization (or a group of passionate citizens) to create excitement around the businesses in a central business district. Like anything truly worth the effort, it takes leadership, dedication and hard work. But publicity and excitement will be generated around the idea, and who couldn’t benefit from a little more of that?
When we apply this concept to government, it sounds really similar to lobbying, however, with the Carrotmob concept, people aren’t paying the business to change rather they are giving the business their patronage so the business will have the capacity to make a change. It shows an investment of time and money on the part of a whole host of participants.
If we were to organize ourselves around an effort is there a way we could lobby for good? Think of the impact if we were to energize our constituents passionately around a proactive, positive effort or topic rather than only at the threat of something being taken away. It appears to me that more attention is turning to local efforts, grass roots groups organizing and being effective at producing results around a cause. How can you impact your community today?
Whac-A-Mole is an arcade redemption game. Once the game starts, the moles will begin to pop up from their holes at random. The object of the game is to force the individual moles back into their holes by hitting them directly on the head with the mallet, thereby adding to the player’s score. The quicker this is done the higher the final score will be.
Sitting at a local EDO Board meeting yesterday, the executive director (and only employee) was explaining to his board that he is really busy, and sometimes feels like he is just able to keep up as if he were playing a game of Whac-A-Mole. A business owner calls, an alderman calls, the state sends an inquiry which needs a response by Friday, there is a Workforce Development Board meeting, a local ribbon cutting, bills need to get paid, and don’t forget the regional conference, City Council meeting and sixteen emails that need responses.
As an economic developer we have to be good at so many things, especially if we are sole practitioners in a one-person operation. We have to know the specifics of a solid business retention program and along with that, the ins-and-outs of a successful business. That alone is enough information and learning to keep a person busy for lifetime. In a small operation it’s not enough just to do business retention/expansion activities all day long (although that is the most important work we undertake). Economic developers also have to be good marketers. We market the community to outsiders (site selectors, businesses, visitors, partner organizations located elsewhere, etc.) as well as local stakeholders and residents. We also market our efforts to our funders and supporters. And marketing isn’t just being able to sell. Marketing includes knowing what makes a good web site and how to actually reach out to those with whom we need to connect.
Oh yeah, we have to be fundraisers too. And it is important to understand workforce development, entrepreneurial development, strategic planning, organizational development, technology, and so much more.
How do we even know we’re making progress? I have always said, “Economic development is not a game for the impatient”. By focusing our individual efforts on the needs of the businesses in the community we will make the biggest impact. That focus will lead to becoming adept at financing issues, workforce development issues, expansion issues and more.
The practitioner who was playing Whac-A-Mole told his board that he will drop everything for a business that needs his assistance. That’s the right attitude. The next challenge lies in how we communicate those results to our stakeholders. Stay tuned for next month’s blog!
Deals are really just transactions between two or more willing parties each trying to achieve their own economic ends. For the public sector those economic ends usually are focused on job creation, increased property values (in terms of adding tax revenue) and the resulting incomes for residents generated from the new or retained jobs. States, cities and villages have employed a variety of tools or resources with money in some form usually being at the center of what is brought to the table. A recent example which received statewide notoriety was a state agency offering future state income tax credits to a private company in exchange for retaining and creating new jobs. Aside from what some people feel was an offer made or negotiated outside the public’s purview it appears to have been a measured plan to make an offer of future state revenues in exchange for new private jobs now. There would be no current assets offered so there’s nothing out of pocket on the front end. Usually it’s the other way around; private companies receive benefits now in exchange for jobs and taxable developments to be delivered at some point in the future.
Cities employing loans and grants from federal and state agencies and local tax incremental financing assistance are the usual resources tendered to the private sector. In that environment money is granted or loaned to a private business entity but how much is enough money to make a deal happen without leaving too much money on the table? Good question but no single answer. One problem often befalling many cities is their tendency to compete against one another making an offer richer to entice a new development. Some companies play one community against another or in the worst case threaten to leave a community which is a dastardly form of hostage taking. (Ask one self is that the kind of partner you want your community to do business with?) There usually are few exact formulas for how much money to offer. One federal agency may regulate that no more than $10,000 per job is acceptable and another may expand the offer to $20,000 per job or more in extraordinary circumstances. Due diligence is key to making offers of public funds. How well do you know your private partner? What kinds of jobs are being created? Are the proposed new jobs at the entry level of the workforce or positions requiring formal education and high end technical skills and in what sector will those jobs be created? What wages will be paid? Usually the higher the wage the greater the multiplier effect of money swirling throughout the local economy.
Two basic gauges of public deals are 1) the ratio of public dollars to private dollars committed and 2) the payback period. Obviously one public dollar for every 15 dollars of private investment is a far better ratio than a 1:5 ratio. But there’s no exact acceptable ratio because it depends in part on where communities are on the development spectrum. Cities which are desirable places to live and have a complex economy negotiate from a different position than communities which are just beginning a development program and are struggling to spark economic activity. In the case of the latter an acceptable ratio may be one public dollar for three private dollars. Obviously the more public funds needed to invest in a deal will have an effect on how long it takes for those public dollars to be recovered. If a community offers $1M toward a manufacturing project and private investment is planned to create a facility with a property tax liability of $50,000 per year then the payback period is 20 years (not considering index adjustments or the value of any new jobs created). It’s also important to judge the end use of the public and private funds. Is the investment for an industrial building or is it for equipment? Equipment alone doesn’t contribute to local tax revenues. Going just a bit deeper then, is a public contribution of $1M solely for equipment a good investment? It may be but the question then becomes what is the public benefit? With no new private property tax revenues and no new jobs what is the purpose of the public contribution?
One customary measure might be knowing more about the entire proposal. How much cash is the private company spending and how much is being borrowed? Commercial lenders are invaluable as partners in evaluating deals. The question becomes will a bank make the loan? Another seriously important question: does the business need the assistance? Just because a company requests financial help doesn’t mean they need it. Have the private financials been shared? Don’t be afraid to ask to see numbers on the private side. If private companies worry about sharing their financial information with a public entity for fear of public disclosure then arrange for that data to be forwarded to an agreed upon legal and accounting expert to review the information and make a judgement as to previous company performance and current financial capacity.
There are numerous considerations to be taken into account when public corporations make contributions to private entities. Making a good public economic development investment requires one set of factors under which projects and deals are initially evaluated but the real test comes at the end of the deal when obligations have been met and required goals and outcomes are achieved…or not!
How many vacant storefronts do you have in your community? How many blighted buildings mar the picturesque downtown your community could have or used to have? Do you have any commercial real estate “For Sale” or “For Rent” signs in your central business district? Questions we have heard repeatedly over the last several months are, “Whose responsibility is it to fill those vacant commercial spaces?” and “Whose job is redevelopment?”. Is the private sector responsible? Is the public sector ultimately responsible? When no one entity takes ownership of these important revitalization issues, who is left holding the bag in the end?
We work with communities who have neglected to enforce zoning codes on downtown commercial properties and now have vacant blighted buildings, which on their own are worth next to nothing. Taken in context with the rest of the neighborhood or business district, these properties detract from commerce, decrease the value of surrounding properties, attract more blight and crime and create public safety hazards.
In triage mode, public safety is the first priority. It is the building owners’ responsibility to make sure their properties are safe. If the building owner is absent or has refused to remediate the dangerous conditions the municipality has several options for fixing the issues including but not limited to the following:
1. Repair the property and bill the building owner
2. Repair the property and acquire it via tax deed (if delinquent) or condemnation
3. Acquire the property through a Redevelopment or Community Development Authority
4. Following acquisition, demolish and redevelop or remediate
5. If redevelopment or remediation is the course, make sure the property cash flows when redeveloped.
6. Sell or lease to recapture investment
When extreme blight is not the issue but your central business district is plagued by vacant storefronts, filling them with thriving businesses becomes the focus. Responsibility for progress on this front again lies with a variety of entities. Ultimately the building owner is responsible, but effort toward establishing and maintaining a thriving downtown can be contributed by a Mainstreet organization, a Business Improvement District (BID) or the municipality.
In communities where that organizational infrastructure is not in place or is dysfunctional it comes down to who has the most passion. We’ve seen communities where a small band of private sector citizens who are dedicated to their community rally support and effort to save the downtown. They may or may not ever formally organize, but the power of continued focus toward a goal almost always brings results. We have worked in one community where a single alderman has made it his goal to get to know and recruit as many retail and commercial businesses as possible. After several years, he has established himself as the go-to person for information and retail/commercial recruitment, all as a volunteer!
Years ago there was plenty of money at federal and state levels for communities to use for revitalizing, redeveloping and helping to re-energize downtowns. The CDBG program began when President Ford signed the Housing and Community Development Act in August of 1974 and the program continues to serve communities and low and moderate income clients each year. For several years after 1977the Urban Development Action Grant or UDAG program was a source of money available to support specific urban developments wherein everyone pleaded their case for the now well-known Gap financing. In fact, the UDAG Program was sponsored by Wisconsin’s own U.S. Senator William ‘The Golden Fleece Award’ Proxmire. The Economic Development Administration (EDA) was really the nation’s lead job creating agency with their Title I Program. And there were federal regional commissions supporting development as well. States had money too, so communities never really (in the larger picture) had to spend local dollars on urban redevelopment projects.
So many communities are stuck in that same era where spending money on their downtowns is considered 2nd or 3rd tier priority behind law enforcement, emergency responders, streets/bridges, utilities and staffing costs in all departments. However, if we all believe that approximately 80 percent of new jobs are created by small business and 80 percent of job growth comes from existing businesses, then the aggregate of small downtown businesses really (when taken as a whole) may be the largest corporation within one community (considering retail and service provider job numbers and wages paid). If city halls extend themselves to support and finance single companies employing 2,000 residents, why then wouldn’t city councils and village boards support their downtowns?
Whatever the history and the economics are no redevelopment projects (large or small) come cheaply. Many communities get by with making small contributions for hanging flower baskets, benches, banners, bicycle racks and a variety of terrific downtown events. These are, indeed, needed amenities but most every practitioner would have difficulty categorizing those investments as ‘redevelopment investments’.
Acquiring property, environmental testing, demolition, real commercial rehab of the downtown building stock, constructing new public facilities, investing in private developments and preparing fully-improved sites for immediate development are all expensive activities. Spending money is completely necessary to have a successful job-creating, visitor- attracting, revenue- producing vital downtown. There are fewer and fewer of state and federal funds available now than in the past 20 years and TIF funding in many cases is only utilized when common councils and village boards have a deadlock tight agreement ensuring a committed and immediate private payback to an initial TIF investment. There’s not much risk in that deployment of TIF dollars and usually not much payback either in terms of supporting the largest corporation in your community.
Nothing is free. If one wants his or her community to flourish then one has to spend money. If money isn’t invested, then that downtown will fall further and further behind other communities which are using all sources of redevelopment financing available to them including general revenues. That’s right. Local tax dollars need to be invested to initiate and sustain the type of redevelopment investments that will make a downtown vital and a long time serving contributor to the overall community and economy. It goes to the notion of… If you don’t invest, you’ll always just be staying one day ahead of yesterday.
Several years ago Redevelopment Resources partners were responsible for administering several areas of municipal government including economic development, housing and downtown redevelopment . Over that time staff worked to revitalize the downtown area and we did so; starting out with streetscaping improvements, installing banners, benches and flowers, coaxing owners to fix-up their old buildings, planning, worrying about sign ordinances, organizing committees and talking a good line about the importance of revitalizing a downtown area.
We focused on all the usual start-up elements that contribute to a nicer downtown than what had existed for decades. But after awhile those kinds of hit-‘n-miss basic improvements just weren’t enough to energize or elevate our program to the next level.
After years of following and promoting these modest-styled activities one of our community leaders told me very directly during one of our many conversations to just… “Do something!” After all of our initial efforts, I felt scolded for not having done enough. So staff began to take a bit of a different approach:
• used both local and federal funds to acquire railroad property and other vacant or underutilized land;
• supported new events;
• capitalized a $750,000 commercial rehabilitation program and renovated historic buildings;
• conducted environmental studies and remediated contaminated property;
• our Mayor and Common Council approved purchase of an entire block of buildings to create a town square
• placed more emphasis on business development and recruiting the right mix of developments.
Ultimately our downtown was fortunate for a local group of investors (who had been participating in and supporting all our previous programs) would acquire a division of a local company and constructed a 100,000 sq foot office building bringing several hundred jobs downtown. From that point on more investors began to view our downtown as something more than the proverbial “The Little Engine That Couldn’t”. Indeed, we could do more and the community (both public and private) responded with investing in more developments. Over the past 10 years this Wisconsin community has invited over $100M+ of rehabilitation projects and new developments in office, medical, hotel, housing and retail business into its downtown.
In this case the success in revitalizing our downtown was that the community listened to that earlier encouragement to “Do something”! For communities everywhere, the message might be that there’s no time to waste. If you have any role in your community, “Do something” and do it now!
[Thank you Bart Kellnhauser for your support, encouragement and contributions].