Economic Development 101
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This document summarizes a presentation on economic development building blocks and facilitating deals. The presentation covered topics such as economic development program elements, incentives and financing tools, and closing development projects. It provided an overview of tax increment financing, revolving loan funds, and other funding mechanisms available to municipalities. The development process and roles of public and private sector players in projects were also examined.
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Economic Development 101
- 1. Presented by Gary Becker Vierbicher Associates 2013
- 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. Creating a Strong Economic Development Program BUILDING BLOCKS Wisconsin Economic Development Association www.weda.org 3
- 4. Wisconsin Economic Development Association www.weda.org 4
- 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. Wisconsin Economic Development Association www.weda.org 6
- 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. Finding Growth in Surprising Places Wisconsin Economic Development Association www.weda.org 8 Source: Youreconomy.org, copyright 2012
- 9. Place of Greatest Potential Wisconsin Economic Development Association www.weda.org 9 Edward Lowe Foundation copyright 2011
- 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. 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. 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. 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. Wisconsin Economic Development Association www.weda.org 14
- 15. Understanding What is Available and Appropriate INCENTIVES AND FINANCING TOOLS Wisconsin Economic Development Association www.weda.org 15
- 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. 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. 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. Example of Tax Allocation Source: Vierbicher Associates
- 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. Area could be undeveloped and without public services, or it could be a blighted and under-utilized area. Source: Vierbicher Associates
- 22. Site could be intended for industrial development, blight elimination and redevelopment or mixed-use development. Source: Vierbicher Associates
- 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. 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. 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. 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. 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. 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. 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. 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. Understanding How to Facilitate Successful Projects CLOSING DEALS Wisconsin Economic Development Association www.weda.org 32
- 33. Types of Projects • Build-to-Suit • Speculative • Greenfield • Redevelopment & Reuse Wisconsin Economic Development Association www.weda.org 33
- 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. 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. 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. 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. 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. Moving from Project to Deal Inquiry Definition Hurdle Negotiation Closing Closed
- 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. 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. 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. 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. 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. 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. Taking a Principled Approach ETHICS & CONFIDENTIALITY Wisconsin Economic Development Association www.weda.org 46
- 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. 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. Open Records • Beaver Dam Case, open meetings, open records • Public/private partnerships • Closed sessions Wisconsin Economic Development Association www.weda.org 49
- 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. 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. 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. 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. Wrap up • Questions that were not covered? • Follow up thoughts? Wisconsin Economic Development Association www.weda.org 54
- 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
Editor's Notes
- Welcome Introduce self, WEDA and this project: The Wisconsin Economic Development Association was interested in bringing a better understanding of general economic development practices and terms to local leaders so they will be better informed when making decisions for their community’s economic future. Better informed public officials generates more support for the work that needs to be done to allow business to thrive and communities to grow. This course will be approximately three hours long, but please stop me with questions along the way. If there is any area of the presentation which needs more time, let me know. (you might want to go around the room and have them introduce themselves too, if it’s a mixed group, or for your benefit so you know who is there)
- Review the agenda briefly describing each section (you might want to go around the room and have them introduce themselves too, if it’s a mixed group, or for your benefit so you know who is there) Item #3 is a group of definitions and set of basic concepts on how practitioners approach the practice of economic development 4. Broad overview of tools available, with a specific focus on TIF, then a description of other available programs and tools. This section will give them a taste of the process, and the work that is done prior to them seeing a project for a vote. An important topic, ethical behavior in economic development is critical for the behavior of the practitioner as well as the elected official.
- Review each section of the triangle. Ask the audience where they think the are on this spectrum of understanding. Then ask them where they want to be.
- There are many definitions of economic development. Describe some of the ways different communities focus on different areas. Also point out that as companies become more efficient with their operations, job creation will not be the best measurement of success. Capital investment also indicates success…..
- Economic Development is typically thought of as the activities in the blue circle. (read through them) Community development is traditionally focused on the activities in the yellow circle. The green area is also an important focus area for communities because those activities inform and direct the activities in the other circles. A well-rounded program will exploit the strengths of a community relative to these activities while minimizing the or mitigating the weaknesses.
- Elected officials should be mindful of the items in the bulleted list. (read through them, expanding on them where appropriate) Often times communities get into a tailspin of activity that looks something like this graphic on the right. Does that look familiar to anyone? (ad lib more discussion around this slide)
- The data shows that during the past handful of years, the activities that have generated the most growth and positive net change have come from existing companies’ expansions. (review the data on the slide) Efforts invested by the community to retain and protect the companies that are in the community already will garner more positive activity and a higher return for the community than efforts invested in recruiting new business.
- This slide reiterates the focus on business retention. Add your own experiences and knowledge here…. And point out that all of the activities are important, and fit together like a puzzle to comprise a community’s complete economic development landscape/program, etc..
- Because EG is so misunderstood and over quoted I believe it is important to distinguish the philosophy from the technique First I will look into the philosophy – there are eight principles to lean on – And then I will move to the technique – some specifics about how this is very different from traditional business assistance I’ll close by showing you some models and pilot programs now in play.
- This slide reinforces the process of a success ED program. The community’s leaders should keep in mind the fact that they as a City Council or Village Board can focus on a value proposition, and set priorities and goals once they have identified the assets in their community. A focused process like this lets everyone keep in mind why they are doing this, why they are supporting processes and projects. Aligning resources to then focus on the goals and priorities causes them to consider why they are budgeting or voting to approve a specific investment in a project, person or program. They as elected officials then authorize deploying the resources to achieve the goals by empowering staff to pursue projects and initiatives. As elected officials they should understand how projects and initiatives (success) should be measured. In a future slide, they will see the impact and importance of measuring results over time as opposed to in comparison to other communities or simply based on goals set.
- Here you can expand on the importance of data in decision making Embellish on each point..
- Setting goals does not achieve results. Action needs to happen before results will appear. Expand on strategic doing vs. strategic planning….. Plan for quick wins or easy success projects (for example, blight elimination and code enforcement can make a huge difference to a community’s curb appeal and shows quick improvement )
- This dashboard is used by Economic Development Washington County to show results over time in addition to results against a goal that was set for a specific period of time. This has been very motivating and energizing to review for their board of directors. Review each data point and offer a few more items that could be measured…..
- Are there any questions on the information we just reviewed? Does anyone need a break before we start the next segment?
- This slide is self explanatory…. It would be good to point out that while many communities establish policies for their incentive programs, it’s important to remember that every deal and every development is different, with different needs , different players, and different potential outcomes so it may not always fit the program if one exists. Flexibility is important in establishing guidelines if they feel that is necessary.
- These are some of the many financing options for municipalities when it comes to ways to fund projects or programs. We will get into TIF in detail and spend time reviewing some of the others as well.
- Self explanatory
- Take some time to make sure the attendees understand the way this works……
- It is important for the practitioner and staff to understand the deal inside and out before recommending to a group of elected officials support for a project. It is also important for the elected officials to consider all of the impacts of a project and the future benefit as well as the immediate benefit of any investment they may make. This tool was created for very specific reasons and if used properly can be very effective with minimal risk to a community.
- Explain the process…
- Ask for questions
- Continue to explain and ask what the experience in their community has been with TIF. Is the school district and county supportive? Did this explanation clear up any misperceptions? Are there additional questions?
- Often communities used GO Bonds for public infrastructure and make improvements up front to an area of the community such as an industrial park, downtown, blighted area, etc.. Pay as you go is a way of agreeing to a public contribution to a project but not paying the developer or business until they first pay their property taxes. An agreement is negotiated prior to the development occurring for full understanding of how much will be paid and returned each year until the agreement has been satisfied.
- Also to consider, what are the effects if the City or Village does NOT participate in a deal with TIF? What could possibly occur in the future outside of the development but because of an investment by the municipality at this time?
- Self explanatory. Ask the crowd for their knowledge of an RLF in their community/county/region….
- This slide lists the programs the state has developed for businesses. The Wisconsin Economic Development Corporation (former Dept. of Commerce) has many tools to assist in specific projects as well as local programs.
- This slide describes tools available through the state for municipalities. New tools include the Idle Industrial Site Redevelopment Program (explain that) and the Community Development Investment Grant Program (CIP) . (also explain that one)
- Does your community have an RDA or a CDA? These entities have unique powers that aid a community in the development process on a separate level than at the City Council or Village Board level.
- Ask if they have a BID. What is their history with downtown improvement.? Is it a focus area now?
- Success communities combine many kinds and sources of funding to create vibrant business districts. Don’t overlook the opportunity to program money into the general fund for the important work of economic and community development. Often private sector sources of funding can be found but community members may not want to be organized into an formal group like an Angle fund. Do you have community members who would be interested in contributing to the right deal for the good of the community?
- Any questions? Break time? You should be a little over half way to 2/3 done with the presentation/time at this point.
- Describe the various types of development projects…..
- This eight step process has been identified and taught by the International Economic Development Council (IEDC). It may or may not always work this way but these are the components of the development process from a textbook perspective There are many points along the way where economic development practitioners or staff get involved in the process. If a development is coming to the community for public participation, you have every right to review their financial pro formas and try to understand the financial mechanics of the deal. This should be done at the staff level to ensure the deal is viable and that if an incentive is requested, it’s justified and truly needed.
- These are the players who are often involved in the process at some point.
- As the public sector, your staff members or ED professionals often take a form of one of the roles identified here. Communities who are truly encouraging development in a specific location often try to lead as the initiator. Many times they become the facilitator when projects come to the community on their own.
- When the need arises to be an initiator, the checklist here is important to keep in mind. Most often, developments that need political support need an investment of time, money and political capital. As elected officials, this is where you can show some true leadership.
- The staff member or practitioner will need to have a thorough understanding of a project in order to present it effectively to you as elected officials. These are also good questions for you to ask when you become aware of a potential project.
- A significant amount of work is done on most projects before they are presented to an elected body for approval or consideration for any kind of public support. There are also several places from which the project may come: realtor, business, contractor, developer, site selector, etc…
- Not every deal will require a financial investment. Here are some ways to facilitate a deal.
- Additional information from previous slide….
- Many deals include a combination of financing mechanisms. (provide any direct experience with deals you’ve seen which combine any of the incentives above)
- Many municipalities will see this kind of process in special zoning districts. This process is not typical in every deal.
- Job creation is only one benefit to a community of a new or expanded business. Walk attendees through a cost benefit example and give examples of each of the bulleted impacts.
- Elected officials should keep this information in their minds when analyzing a deal, but also remember that staff and ED professionals have put a lot of time into this even before they see the mechanics of a deal.
- This is the last but not the least important part of the presentation.
- This slide reviews the topics covered more in-depth on the next few slides.
- Any examples you can share?
- Describe the Beaver Dam Case and some of the issues surrounding open meetings and open records. Ask if they have ever had an experience with some of the intricacies of this issue.
- Many ED organizations are “quasi-governmental” and would be subject to open meetings and open records under the ruling. Some of these factors play into determining if an organization is subject to this ruling.
- Sometimes elected officials think ED professionals are hiding things from them or doing things in secrecy. Many deals would be derailed if word got out prior to the appropriate timing. It isn’t that things are being done in secret for subversive reasons, it’s an effort to protect the integrity of the deal…….
- Self explanatory. Does anyone have an example or story to share?
- These agreements are only as good as the level of trust between municipalities. As a best practice communities should not try to poach companies from neighboring communities. The state will not participate in a deal in which this appears to be the case.
- Thank them for coming. Pick up any extra handouts and bring them with you! Thanks!