business attraction, business development, business expansion, business financing, business incentives, catalyst projects, Certified Economic Developer, Don Holbrook, economic damage, Economic Developer, economic development, economic diversification, economic incentive zones, economic policy, financing business expansion and growth, global financial crisis, great recession, public private partnerships, rebuilding local economies, USA public policy
Many of you that read my books and blogs know that while I am very passionate supporter of the concept of economic development I am not convinced nor bought into one particular leadership camp or thought group. I have attributed part of this economic mess to our own lack of visionary leadership to give those asleep at the switch a roadmap out of this dark economic abyss. I also believe economic developers have a difficult task of having to live in two worlds. On one hand they are expected to behave and use protocols of a private sector enterprise but on the other hand the CAVE (Citizens Against Virtually Everything) folks expect them to be the daily yellow tabloid telling all they know about each client as soon as they glean any information. Of course this we know leads to a road of rejection as private sector clients refuse to be subjected to crazies in the public realm until they understand what the economic benefit is for doing so. Brand values are too important to private companies to step out prematurely and get tarnished by a low acumen and aggressive NIMBY (Not In My Back Yard) crowd. None the less, economic developers must develop methods to keep this negotiation on pace and moving towards eventual agreement and then of course some level of public exposure. Not a simple job. So the average economic developer has to have a sharp legal mind, a sharp business and especially financial mind and a great set of communications skills in their possession. Sounds like a pretty talented individual. Well in the past two decades we have seen the quality of these folks diminish as more and more take flight from the quasi-public sector to the private sector. Two major reasons I believe, make this the reality, better pay and more appreciation from their constituents with huge amounts of lower stress from not dealing with the crazies at public hearings. Here is my tongue in cheek prediction, for every public hearing you avoid in your life you are adding 2 months to your life. I can’t prove that of course.
Now back to the question at hand… so part of my frustration is that today it feels like the United States and thus our huge ranks of alleged professional economic developers have not come up with the AHA solution and did a convincing enough job of getting the various levels of governments to invest in a holistic solution to lead us clearly past the remaining elements of the 2008 Economic Perfect Storm or Global Financial Crisis.
What do we know the signs are that continue to plague our sustainable recovery and reinstated economic growth?
Job Creation-we need to create more than 150,000 jobs per month just to replace those that we lose through normal attrition, retirements and death. We have not sustained job creation anywhere near that during the last 3.5 years. In fact, the number of underemployed, unemployed and just missing due to giving up is probably closer to 20% today and the numbers easily surpass 20M to 30M folks that fall into that category.
I do not believe this can be accomplished with job tax credits or extended benefits… although if coupled with some other features this would be a good foundation for getting them back to work in a dignified manner.
My own thoughts are that the workforce needs to be tested for their actual acumen and skills on a unified national standard such as ACTWorkeys (no I have no financial relationship with them). Once we know their situation then we can recommend based upon the locales employer needs the mitigation retraining they need to become gainfully re-employed. Here is the caveat they cannot collect extended benefits unless they go through this process and if they get a job while in the process the employer must allow them to finish and the program will pay them for the differential of cost for doing so. This in my opinion would do the best job of getting folks back to work. If a relocation is necessary to match someone up to their best job… then the state of the employment should offer a relocation grant of $2,500 per job to offset the moving expense. Not a bad cost for creating a new job in each state and the Feds would match that with a displaced re-employment tax credit of $7500 as a direct deduction against your Federal Tax return for that year. If there is a remainder then it can be carried over until it is 100% depleted. Now folks and communities will compete for the best employees and build the most robust economies and not be as constrained by geographic concerns.
Next we have to move onto the engine that creates the funds to make investments into new facilities, equipment and raw materials. Creating a superior local business climate is the magnate to attracting funding first from within your own region and then from far abroad. I am a huge champion of asking for 100% renaissance zone style tax-free areas within each community as long as they are targeted to a specific outcome and backed by the locals own investment into supporting the business case for why this zone should be focused on attracting these catalyst industries. If they can create a clustered focus on a catalyst industry such as Advanced Manufacturing, Clean Energy, Destination Tourism Development, Aerospace, etc… industries that will cause greater economic outcomes for the constituents through indirect and induced ancillary windfalls then I believe they should be given such opportunities.
What can these zones do to lower the cost of business… it begins with lowering the entry cost, so land grants with built out specification requirements of facilities that will upon sun setting of the tax abatements be a strong contributor to the local tax base. There are several ways to make sure the facility remains in the community operational for at least twice as long as the tax abatement. Another use would be to rebate any sales tax, inventory taxes and other local and state taxes or just exempt them during the tax abatement period. Utilities and Impact fees to the sites would be waived. All of this is within the reach of economic developers today and yet it hasn’t been enough so far in many cases.
What else can make the difference then? I believe the local economy has to put what I refer to as threshold equity into the venture (skin in the game) more than just waiving fees they need to put some cold hard cash into the investment and be treated just like any other investor… an expected return on investment and a window for being paid out or the option to convert the debt to equity. A good “Threshold Equity” platform is somewhere around 20% of the total gross cost of the project being born by the private company. Now I am not saying that EDO’s have to reach into their pocket and do so, there are many artful ways to create funding that would count towards Threshold Equity and get the respect of the private sector company… yet today I see very few EDO’s that either are willing to participate or build a tool that would allow them to do so, and/or they simply don’t understand how to do so… can’t do something that they don’t understand or know how to do yet. There lies our greatest problem in my mind. We have lost the greatest institutional financial thinkers in the industry… they have either left the industry out of sheer frustration or for greater private sector economic paychecks or consulting gigs that pay far better than the now fairly below average pay of economic developers. This is where our national and international leadership groups need to pull their proverbial head out of the sand and realize we have allowed this economic transition to linger far too long and it is having a devastating impact on individuals and communities and eventually it will greatly diminish the confidence people may have once had in the profession and practice of economic development.