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Economic Development 101

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Economic Development 101

  1. 1. Presented by Gary Becker Vierbicher Associates 2013
  2. 2. 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
  3. 3. Creating a Strong Economic Development Program BUILDING BLOCKS Wisconsin Economic Development Association www.weda.org 3
  4. 4. Wisconsin Economic Development Association www.weda.org 4
  5. 5. 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) Wisconsin Economic Development Association www.weda.org 5
  6. 6. Wisconsin Economic Development Association www.weda.org 6
  7. 7. 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
  8. 8. Finding Growth in Surprising Places Wisconsin Economic Development Association www.weda.org 8 Source: Youreconomy.org, copyright 2012
  9. 9. Place of Greatest Potential Wisconsin Economic Development Association www.weda.org 9 Edward Lowe Foundation copyright 2011
  10. 10. 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
  11. 11. 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
  12. 12. 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
  13. 13. 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
  14. 14. Wisconsin Economic Development Association www.weda.org 14
  15. 15. Understanding What is Available and Appropriate INCENTIVES AND FINANCING TOOLS Wisconsin Economic Development Association www.weda.org 15
  16. 16. 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 Wisconsin Economic Development Association www.weda.org 16
  17. 17. 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 Wisconsin Economic Development Association www.weda.org 17
  18. 18. Incentives and Financing Tools continued: 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 Wisconsin Economic Development Association www.weda.org 18
  19. 19. Example of Tax Allocation Source: Vierbicher Associates
  20. 20. Incentives and Financing Tools continued: 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 Wisconsin Economic Development Association www.weda.org 20
  21. 21. Area could be undeveloped and without public services, or it could be a blighted and under-utilized area. Source: Vierbicher Associates
  22. 22. Site could be intended for industrial development, blight elimination and redevelopment or mixed-use development. Source: Vierbicher Associates
  23. 23. Source: Vierbicher Associates
  24. 24. Incentives and Financing Tools continued: Tax Increment Financing • 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. Wisconsin Economic Development Association www.weda.org 24
  25. 25. Incentives and Financing Tools continued: Tax Increment Financing • 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 Wisconsin Economic Development Association www.weda.org 25
  26. 26. 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) Wisconsin Economic Development Association www.weda.org 26
  27. 27. 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 Wisconsin Economic Development Association www.weda.org 27
  28. 28. 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 Wisconsin Economic Development Association www.weda.org 28
  29. 29. 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 Wisconsin Economic Development Association www.weda.org 29
  30. 30. 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 Wisconsin Economic Development Association www.weda.org 30
  31. 31. 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. Wisconsin Economic Development Association www.weda.org 31
  32. 32. Understanding How to Facilitate Successful Projects CLOSING DEALS Wisconsin Economic Development Association www.weda.org 32
  33. 33. Types of Projects • Build-to-Suit • Speculative • Greenfield • Redevelopment & Reuse Wisconsin Economic Development Association www.weda.org 33
  34. 34. 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
  35. 35. 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 Wisconsin Economic Development Association www.weda.org 35
  36. 36. 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
  37. 37. 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
  38. 38. 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?
  39. 39. Moving from Project to Deal Inquiry Definition Hurdle Negotiation Closing Closed
  40. 40. 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.
  41. 41. 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
  42. 42. 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
  43. 43. 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
  44. 44. 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%
  45. 45. 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?
  46. 46. Taking a Principled Approach ETHICS & CONFIDENTIALITY Wisconsin Economic Development Association www.weda.org 46
  47. 47. 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 Wisconsin Economic Development Association www.weda.org 47
  48. 48. 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. Wisconsin Economic Development Association www.weda.org 48
  49. 49. Open Records • Beaver Dam Case, open meetings, open records • Public/private partnerships • Closed sessions Wisconsin Economic Development Association www.weda.org 49
  50. 50. 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 Wisconsin Economic Development Association www.weda.org 50
  51. 51. 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. Wisconsin Economic Development Association www.weda.org 51
  52. 52. 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. Wisconsin Economic Development Association www.weda.org 52
  53. 53. 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. Wisconsin Economic Development Association www.weda.org 53
  54. 54. Wrap up • Questions that were not covered? • Follow up thoughts? Wisconsin Economic Development Association www.weda.org 54
  55. 55. 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) Wisconsin Economic Development Association www.weda.org 55

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