Let's Do Better With Economic Development Incentives

by Jim Simon

by Jim Simon

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Yesterday, I was fortunate to be the instructor of CALED’s Advanced Certificate course on Business Retention and Expansion, where we spent a full day diving into the purpose, structure, and best practices for retaining businesses.  Studies have demonstrated that roughly 4 out of every 5 new jobs created in a city are a result of existing business growth.  The overwhelming number of businesses that close are not a result of failure, but rather a result of acquisitions, consolidations or other corporate decisions.  Yet, we continue to hear about incentives for new businesses as critical to economic development success.  

I get that, after all, you don’t break out the “big scissors” when a business stays in town for another year, and it would be hardly exciting to run for city council on the record that during your tenure, 99% of the businesses stayed around.  So incentives, particularly financial in terms of rebates, continue to be the area of effort and investment.  Few EDOs talk about the amount spent on business retention versus incentives for recruitment.  From Amazon HQ2 to Foxconn and others, throwing tax dollars at a project seem to be the measure of impact.

As evidenced by the Brookings March 2018 study, these incentives are missing the greater need beyond the project they aim to benefit.  For example, the study found that poor Latino and Black residents were left out of any benefit from the resulting project, that workforce investments for the existing community were rare, and the existing workforce rarely benefited from incentives. Meanwhile, nearly billions are being spent annually by communities across the country under the banner of necessary economic development. 

These sobering realities were startling for our group of 3 dozen economic developers, but rather than simply feeling incentives are not good policy, we need to be seeking much better parity between these incentives and the fundamental purpose for economic development to begin with.  Certainly it’s difficult, particularly where tax revenue growth is often central to the focus for California communities, but I see an opportunity for California to do better.  Irlanda Martinez and I will be back at Fresno State for CALED’s Keys to Local Economic Development course on October 21-24, 2019 where we will look into how communities are getting more results and the best practices that can be employed in your communities.  Hope to see you there!

CALED “State of California Economic Development”

With changes in resources and economic trends, the approach to economic development efforts in California have changed significantly in recent years. Prior to 2012, cities could rely on tax increment funding from Redevelopment Agencies (RDAs) to fund economic development. With Redevelopment dissolution, cities now must get more creative with limited funding sources. These trends have made this a challenge for local authorities. Economic development efforts have become more concentrated, shifting the focus from programs to projects. Furthermore, cities rely more heavily on regional economic development efforts or even developing multi-city strategies to market an area. Additionally, multiple partners, investors, and stakeholders, have increased transparency, which can lead to more complexity to getting a project done.

Nevertheless, local governments can do a lot to support economic growth in their jurisdictions, the following are some examples:

  • When selling city owned property, officials should aim to leverage those assets for the greatest economic impact, rather than just seeking the highest sale price.

  • With assets they continue to hold, local governments should also evaluate opportunities to leverage them for greater economic benefit.

  • Cities need to understand what it means to be “business friendly” and seek process improvements in order to attract more businesses to locate in their city.

  • Cities should embrace housing projects at all income levels. Recognizing the role that housing affordability plays in attracting and retaining a talented workforce, not to mention helping people improve their quality of life, some cities have started to warm up to housing developments, but many are still slow to react.

  • Cities should be aware of legislation at the state level that may affect resources and opportunities, and make their voices heard in order to inspire legislators to add tools for local economic development.

CALED 2019 Training Conference

RSG is counting down the days until the California Association for Local Economic Development’s (CALED) 2019 training conference on March 27-29! This year, the conference will be held in Anaheim, and the theme is “Make It Happen.” With four general sessions and 24 breakout sessions, the conference will focus on how economic developers are improving California communities by building meaningful relationships, crafting and executing strategic plans, and connecting to key resources.

 RSG is proud to be a part of the CALED community. Principal and President Jim Simon is on CALED’s Advisory Board Committee and co-chairs the Economic Development, Finance, and Real Estate (EDFRE) Committee. Senior Associate Suzy Kim serves as a member of the EDFRE Committee. Associate Dominique Clark is on the 2019 CALED Conference Steering Committee and manages CALED’s Local Economic Advisory Program (LEAP) in Southern California.

Out and About

February 20-23rd - RSG will be continuing their presence this year at the annual CSMFO Conference being held in Riverside, California.  Hitta Mosesman, Principal, will be participating in a panel titled “Cannabis – Is it a solution to your General Fund Deficit?”  She, along with fellow panelists, will help shed some much-needed light on the decision for cities to utilize the recent law passage permitting the sale, cultivation and manufacturing of recreational cannabis to help subsidize funding for general fund budget deficits.  RSG will also host a booth in Exhibit Hall D where those interested can inquire about the various product and service lines we offer.

March 7-9th - RSG will be an exhibitor at the upcoming annual Housing California Conference in Sacramento, CA.  As a leader in the affordable housing industry, RSG looks forward to joining others at this event where industry leaders work together to make a collective positive impact in the housing industry.  Tara Matthews, Principal along with Greg Smith will be attending the conference and would love for you to stop by our exhibit to talk “housing”.

March 14-16th - RSG will be participating in CALED’s 38th Annual Training Conference held in Monterey, California as both a presenter and exhibitor.   The conference provides a collaborative space where leaders from California’s economic development industry can come together to network and learn new industry tools.  Jim Simon, Principal and CALED committee member will take part in a discussion titled “Do We Have Redevelopment Back?” in which the panel will discuss the tools available to economic developers on real estate projects and what lies ahead.    RSG’s Suzy Kim and Dominique Clark will also be present at our exhibit to discuss RSG’s strong presence in the Economic Development Industry as well as the products and services we offer. 

Facing a Unique Economic Development Challenge? Consider Taking a LEAP!

Recently, RSG partnered with the California Association for Local Economic Development (CALED) to assist with the expansion of CALED’s Local Economic Advisory Program, often simply referred to as LEAP. LEAP is an innovative technical assistance program helping cities, counties, and other communities across California achieve their economic development objectives. The program features one- or two-day events during which four leading economic development experts visit a community to tackle a specific strategic, policy, or program challenge presented by community leaders. The event culminates with the experts’ presentation to elected officials, staff, and business leaders, outlining near-term recommendations and action steps.

What kind of economic development challenge could be meaningfully addressed by a team of experts in just one or two days? Below are what we’ve found to be the top 3 characteristics of challenges that make perfect candidates for LEAP:

1.       A specific, clearly defined challenge…but no clear direction on where to start

2.       Visionary City/County staff eager to utilize an out-of-the-box approach to address the challenge

3.       Community leaders that are willing and available to participate in the process

Interested in participating in LEAP? Click here to learn more about the program!