Economic Development 101

Presented by Gary Becker
Vierbicher Associates
2013

Agenda
1. Overview of the session
2. Introductions
3. Economic Development Building Blocks
4. Incentives and Financing Tools
5. Facilitating and Closing Deals
6. Ethics – confidentiality, open records, etc.
7. Wrap up
2
Wisconsin Economic Development Association
www.weda.org

Creating a Strong Economic Development Program
BUILDING BLOCKS
www.weda.org
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www.weda.org
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Economic Development
…in a Nutshell
Economic Development is a program, group of
policies, or activity that seeks to improve the
economic well-being and quality of life for a
community, by creating and/or retaining jobs
that facilitate growth and provide a stable tax
base.
Source: International Economic Development Council (IEDC)
www.weda.org
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www.weda.org
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Public Policy Matters
• Recognize assets
• Plan and set priorities
• Enhance capacity
• Apply resources
strategically
• Reduce risk and cost
• Garner return on $
• Create a competitive
environment

Finding Growth in Surprising Places
www.weda.org
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Source: Youreconomy.org, copyright 2012

Place of Greatest Potential
www.weda.org
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Edward Lowe Foundation copyright 2011

Paradigm Shifts:
Economic Gardening
Philosophy Technique
Phi-los-o-phy
a system of principles for guidance
Tech-nique
a body of specialized
procedures and methods
Edward Lowe Foundation copyright 2011

Forming a High-Road Economic
Development Strategy
Leverage
Assets
Value
Proposition
Priorities &
Goals
Align
Resources
Budget People
Deploy
Resources
Projects Initiatives
Measure
Results
Dashboard Outcomes

Establishing Economic
Development Priorities & Goals
• Priorities must be data-driven
• Goals often grow out of “ah-ha’s” (priorities)
• Goals should be big but simple (BHAG’s)
• It’s about direction, not time
• Goals are not activities

Just Do It
• Least successful part of the process
• Think of it “strategic doing”…not planning
• Start with low-hanging fruit
• Measurable goals lead to visible success
• Build a dashboard of performance indicators

www.weda.org
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Understanding What is Available and Appropriate
INCENTIVES AND FINANCING
TOOLS
www.weda.org
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Incentives and Financing Tools
• Municipalities have many financing options at
their disposal.
• Every development is different and should be
treated as such.
• Factors to be analyzed with each tool:
– Cost/benefit, or risk/reward
– Payback period
– Goals of the community
www.weda.org
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Incentives and Financing Tools continued:
Overview of the Toolbox
• Tax Increment Financing
• Revolving Loan Funds
• WEDC investment guidelines and tools
• CDAs/RDAs/BIDs
• IRBs
• Levy
• Tax Credit Programs
• Private sector participation
www.weda.org
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Tax Increment Financing (SS66.1105)
• How TIF Works
– Partnership between municipality, school district, county
and technical college
– Joint Review Board has authority
– Work to encourage development in a defined area
– Tax revenue generated from new developments is used to
pay for improvements to area which benefit the new
developments
– Once improvements are paid off, district is closed and all
jurisdictions have the benefit of the increased revenue
– District can be large area or single properties
www.weda.org
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Example of Tax Allocation
Source: Vierbicher Associates

Tax Increment Financing
• When TIF is needed and appropriate
– “But for…” clause
– Difficult site/project in normal circumstances
– To meet the goals of the community
– To prepare an area for development
www.weda.org
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Area could be
undeveloped
and without
public services,
or it could be a
blighted and
under-utilized
area.

Site could be intended
for industrial
development, blight
elimination and
redevelopment or
mixed-use
development.

• Methods for funding TIDs
– City borrowing (GO Bonds)
• Increments are used to pay off the debt
– Pay-as-you-go (also called “Developer Funded”)
• Developer pays costs up front and as property taxes are
paid by developer, a reimbursement (%) is paid back to
developer until incentive is paid off.
• Many municipalities like this because risk is on the
developer, not the municipality.
www.weda.org
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• Managing TIF risk
– Would development occur without the use of tax
incremental financing?
– Do the benefits of the proposal outweigh the
anticipated tax increments to be paid by the owners
of property in the overlying taxing districts
– What are the economic benefits of the TID and are
they sufficient to pay for the costs of improvements?
• increased employment,
• business and personal income,
• property value
www.weda.org
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Revolving Loan Funds
• Primary goal is to provide gap
financing in a start-up,
expansion, new development or
redevelopment project
• Incentive is typically lower
interest rate than private bank
• Many RLFs are regionalizing…as
are housing rehab programs
(CDBG / HUD changes)
www.weda.org
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WEDC Tools
• For Businesses
– Direct Loans
– ED Tax Credits
– Jobs Tax Credits
– Training Grants
– Industrial Development Bonds
– Angel and Early Seed Investment Tax Credits
– Technology Development Fund
– Export Assistance
www.weda.org
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WEDC Tools
• For Municipalities
– Brownfield Grants (site assessment and cleanup)
– Community Development Block Grant Funds
• Planning
• Blight
• Public Facilities
– Capacity Building Grant
– Downtown Development
• Mainstreet Program
www.weda.org
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Community Development Authorities /
Redevelopment Authorities (SS 66.1335)
• a separate body politic for the purpose of
carrying out blight elimination, slum clearance,
urban renewal programs and projects and
housing projects.
• Power to borrow money, condemn property, buy
and sell property.
• May also act as agent of city for planning and
carrying out housing and redevelopment
programs
www.weda.org
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Business Improvement Districts (BIDs)
(SS 66.1109)
• Financing mechanism for downtown
improvement organizations
• Businesses must agree to form BID
• Special BID taxes are reserved for improvements
in the district, approved by the BID Board
• BIDs fund former Mainstreet Districts and other
organizations which work to improve business
districts
www.weda.org
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Other Funding Mechanisms
• Levy – don’t overlook utilizing general tax
revenue to meet development goals
• Private sector – Foundations or other community
benefactors are often willing to contribute to
important projects that mean something to them
or their family
• WHEDA tax credits – fund a variety of projects
from Low Income Housing to commercial
developments in certain qualifying areas.
www.weda.org
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Understanding How to Facilitate Successful Projects
CLOSING DEALS
www.weda.org
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Types of Projects
• Build-to-Suit
• Speculative
• Greenfield
• Redevelopment & Reuse
www.weda.org
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Development Project Process
1. Predevelopment
2. Market, financial and political feasibility
3. Site engineering & analysis
4. Financing
5. Contractor negotiations & public approval
6. Construction
7. Marketing
8. Building occupancy & management

Private Sector Players & Roles
• Developers
– Most often take the lead
– Respond to an unmet market need
– Create market demand
– Respond to public sector initiatives & incentives
– Receive a “Developer’s Fee” as compensation to manage the
project
• Investors – recruited oftentimes by developers to fund a project
• Lenders
• Architects, engineers, contractors, attorneys
• Property managers
• Tenants
www.weda.org
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Public Sector Roles
Facilitator Role Initiator Role
(Reduce Risk)
• Regulatory
• Infrastructure
• Streetscaping
• Façade improvement
• GAP FINANCING!
(Participant)
• Land assembly
• Feasibility analysis &
conceptual designs
• Selecting a developer
• Providing partial financing
• Selling or leasing land
• Building project specific
infrastructure

Initiator Role Checklist
 A strong need to develop a specific
property or area where private sector is
unwilling to invest
 Political will to withstand the risks of
development
 An agency or organization (e.g.
economic development corporation)
with expertise and resources to prepare
properties for development

Getting Your Arms Around a
Project
• What is the project?
• What development priority
is being served?
• What type of development
project is this?
• Where is the project in the
development process?
• What might be your role in
the project?

Moving from Project to Deal
Inquiry
Definition
Hurdle
Negotiation
Closing
Closed

Four Ways Communities Can
Facilitate a Deal
1. Reduce the development cost to lower a
developer’s front end costs and reduce the
amount that has to be financed.
2. Reduce mortgage / financing costs to lower
the debt service of a project
3. Reduce operating costs to improve the cash
flow of a project
4. Facilitate the process of redevelopment
through programs and policies.

Methods for Structuring
a Public-Private Deal
• Front end assistance without any offsetting
guarantees (land write-down, direct subsidies)
• Front end assistance with guarantees to repay all or
part of the financial assistance (RLF, bonds)
• Performance-oriented assistance with explicit
contractual limits (TIF “pay-as-you-go,” forgivable
loans or credits)
• Performance-oriented assistance that is open-ended

Selecting the Right Tool for
the Deal
Least to most costly:
• Bond financing
• Loan guarantees
• Revolving loan funds
• Tax credits
• Tax Increment Financing
• Sale Leasebacks
• Grants

Two Types of Public Private
Developer Agreements
Predevelopment Master Development
• Initial memorandum of
understanding
• General terms
• Non-binding
• Establishes the steps and
timeline for getting to a
packaged project
• Outlines particular details of
the deal
• Binding
• Specific performance
information
• Specific incentive
information
• Conditions and limitations
stated

Cost-Benefit Analysis
Impacts
• Jobs-direct & indirect
• Total wages
• Employee benefits
• New capital
investment
• Supplier opportunities
• Site improvements
• New tax revenue
• New utility revenue
• Corporate citizenry
Analysis Request Working Est.
Total capital investment: $2,650,000
Jobs created (with benefits): 13
Company investment: $750,000 $1,700,000
State & local gap financing: $1,700,000 $950,000
Federal share of gap financing: $200,000 $0
State & local Gap financing per job
created: $130,769 $73,077
CDBG-based financing per job created: $15,385
Benchmark gap financinng per job: 20,000
% of benchmark gap financing per job: 654% 365%
State & local gap financing % of total: 64% 36%
Federal gap financing % of total:
Private Sector Financing % of total: 28% 64%

Key Questions for Shaping
the Final Deal
1. “But for” your involvement, how
quickly would the project happen (if at
all)…and to what magnitude?
2. What is the funding “gap” in the
project?
3. What is the “public purpose” for
participation?
4. What is the economic and community
impact generated?
5. Which economic development tools
are the best fit for the project?
6. What security and performance
requirements should you place on the
funding to mitigate the public’s risk and
ensure public benefit?

Taking a Principled Approach
ETHICS & CONFIDENTIALITY
www.weda.org
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Ethics in Economic Development
• Economic development practitioners and local
officials must conduct business with a high level of
ethical standards. Common issues faced include:
– Confidentiality with respect to business deals in
process
– Transparency and open communication on all other
activities
– Avoiding conflict of interest
– Cooperation with peers in surrounding communities
(not poaching businesses)
– Non-discriminatory behavior
www.weda.org
47

Confidentiality
• Confidentiality is probably the most important
key to a successful development deal.
• More deals have been sabotaged unnecessarily
by a breach of confidentiality.
• If your ED staff person says they are working on a
deal they cannot talk about, believe them, and
don’t pressure them to let you in on it.
www.weda.org
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Open Records
• Beaver Dam Case, open meetings, open records
• Public/private partnerships
• Closed sessions
www.weda.org
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Beaver Dam Case Issues:
“Quasi-Governmental” Test
1. Control group, management, and audit
2. Funding sources and purpose
3. Clients (type & number)
4. Mission (governmental?)
5. Nature of services performed
6. Office location and appearance
7. Sources of administrative support
8. Asset distribution and benefit
www.weda.org
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Transparency
• Details about development deals which can be
shared should be shared. However, if a deal is
not yet ready for public knowledge, it’s not that
the staff is avoiding transparency, they are
working to keep a confidence.
• ED professionals are trained in sharing what they
can, when they can and with whom they can.
www.weda.org
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Conflict of Interest
• IEDC’s language related to conflict of interest is as
follows:
– Professional economic developers will hold
themselves free of any interest, influence, or
relationship in respect to any professional activity
when dealing with clients which could impair
professional judgment or objectivity or which in
the reasonable view of the observer, has that
effect.
www.weda.org
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Other Ethical Issues
• Many communities have non-compete
agreements in which communities
will not aggressively pursue
a neighboring communities’ businesses.
• Professional economic developers operate under
a policy of non-discrimination related to all
economic development activities.
www.weda.org
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Wrap up
• Questions that were not covered?
• Follow up thoughts?
www.weda.org
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Contact Us
Kristen Fish, CEcD, Executive Director
715.581.4339 kristen@weda.org
This course has been developed by the Wisconsin Economic
Development Association (WEDA), sponsored in part by
Wisconsin Economic Development Corporation (WEDC) and
approved by the International Economic Development Council,
(IEDC)
www.weda.org
55

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