Economic Development 101

Presented by Gary BeckerVierbicher Associates

2013

Wisconsin Economic Development Association www.weda.org

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Agenda

1. Overview of the session2. Introductions3. Economic Development Building Blocks4. Incentives and Financing Tools5. Facilitating and Closing Deals6. Ethics – confidentiality, open records, etc.7. Wrap up

BUILDING BLOCKSCreating a Strong Economic Development Program

Wisconsin Economic Development Association www.weda.org 3


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)



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


Source: Youreconomy.org, copyright 2012

Place of Greatest Potential


Edward Lowe Foundation copyright 2011

Paradigm Shifts: Economic Gardening

Philosophy Technique

Edward Lowe Foundation copyright 2011

Phi-los-o-phya system of principles for guidance

Tech-niquea body of specialized

procedures and methods

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


INCENTIVES AND FINANCING TOOLS

Understanding What is Available and Appropriate



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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


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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


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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

Example of Tax Allocation

Source: Vierbicher Associates


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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

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.




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• 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.


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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


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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)


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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


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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


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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


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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


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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.

CLOSING DEALSUnderstanding How to Facilitate Successful Projects


Types of Projects

• Build-to-Suit• Speculative• Greenfield• Redevelopment & Reuse


Development Project Process

1. Predevelopment2. Market, financial and political feasibility3. Site engineering & analysis4. Financing5. Contractor negotiations & public approval6. Construction7. Marketing8. 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


Public Sector Roles

(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

Facilitator Role Initiator Role

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 DealInquiry

Definition

Hurdle

Negotiation

Closing

Closed

EDC – Broker

Administrator & Chair

Taskforce

Board

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

• 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

Predevelopment Master Development

Cost-Benefit AnalysisImpacts• 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?

ETHICS & CONFIDENTIALITY

Taking a Principled Approach



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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


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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.


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Open Records

• Beaver Dam Case, open meetings, open records• Public/private partnerships• Closed sessions


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Beaver Dam Case Issues:“Quasi-Governmental” Test

1. Control group, management, and audit2. Funding sources and purpose3. Clients (type & number)4. Mission (governmental?)5. Nature of services performed6. Office location and appearance7. Sources of administrative support8. Asset distribution and benefit


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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.


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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.


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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.


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Wrap up

• Questions that were not covered?• Follow up thoughts?


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Contact Us

Kristen Fish, CEcD, Executive Director715.581.4339 [email protected]

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)

mailto:[email protected]

Government & Nonprofit

Economic Development 101