Tools of the Trade

Many of the strategies and methods discussed in this series can be found in more detail from two of APA's Planning Advisory Service (PAS) Reports: An Economic Development Toolbox: Strategies and Methods (PAS 541) and Community Indicators (PAS 517).

2008 Economic Development Toolbox

Part One: Potential Economic Development Strategies

A strategy is a "collection of actions and activities that help achieve a predetermined goal" (Blakely and Bradshaw 2002, 167). The following describe potential strategies local governments can use, either alone or with other institutions, to carry out their economic development vision:

• Coordinate economic development programs and support services
• Business development
• Development incentives and financing
• Business attraction and retention
• Workforce education and training
• Land supply analysis for business growth
• Infrastructure investment
• Investment in quality of life factors conducive to business innovation

Part Two: Strategy 1: Coordination of Economic Development Programs and Support Services

Intraregional Coordination, which works at the very broadest level of coordination, is the effort to avoid competition among communities within a region. There are various degrees of intraregional coordination. At one end of the spectrum is the establishment of a formal organization to perform an economic development planning, financing, recruitment, and retention function. At the other end is informal coordination that entails the jurisdictions within the region talking to each other on a regular basis or on an ad-hoc, as needed basis for specific issues.

One component of intraregional coordination would be pooling resources to attract companies to the region. This could occur in an informal setting as well as through a formal organization. The motivating factor for this coordination is the recognition that job creation and retention have economic effects that spill over city boundaries. If a company comes to a central city, for example, workers from nearby suburbs can benefit by commuting to those jobs. Businesses in the entire region would benefit from all workers spending some of their money in their home city or nearby, and from the new business making some of its purchases within the region.

At some point, though, the firm has to decide on a city or county within the region, and jurisdictions realize that, despite the spillover economic effects, the city where the firm locates receives the added benefit of property tax revenue. Regional tax-base sharing can be used to:

• Mitigate the potential intraregional competition in the quest for more property tax revenue;
• Reduce disparities in fiscal capacity — per capita property valuation — among local units of government (which often results by chance or geographic location; and
• Provide needed revenues at different points in a community's life cycle.

Part Three: Strategy 2: Business Development

Business Skills and Management Training for Small Businesses

Small business assistance centers provide accessible management training, counseling, consulting, and research services, for small firms. Programs respond to the needs that individual businesses identify in the areas of technology transfer, management, financing, marketing, and workforce training. A variant on small business centers is entrepreneurship training in which high schools and community colleges establish business programs. Another component is an annual or semi-annual business start-up fair where prospective entrepreneurs can meet with those who have experience launching a business or who can offer other useful support services. At a start-up fair and economic development agency places fledgling businesses in contact with low-cost or no-cost mentors (such as retired executives) who could provide advice for small businesses in the area of management, marketing, accounting financing, and other skills.

Business Incubator

In this strategy, a public entity acquires or constructs a building and provides, or arranges provision of, low-cost space and support services for start-up businesses in targeted industries, with graduation criteria. The goal of an incubator in not simply to provide low-cost space, but to provide shared support services smaller companies might not be bale to afford on their own. The goal is also to foster synergy through the communication and proximity of incubator tenants.  Mentoring and business advice is often provided by the entity operating the incubator and through linkages to the Small Business Administration, retired executives, or local colleges.

An economic development agency could provide the inspiration and initial guidance for an incubator; it could also provide land and buildings at favorable lease rates. Because of the high degree of involvement required for incubator formation and management, however, an economic development agency might have to look to a separate organization to take the lead on developing, operating, and managing an incubator.

Part Four: Strategy 3: Business Attraction and Retention

Many state departments of community development, tourism bureaus, and regional chambers of commerce employ a variety of business attraction and retention techniques as a matter of course.  Local governments may undertake them as well, although they may be more suited to a nonprofit group or a private marketing firm. 

Marketing to Attract Businesses

Before an economic development agency or local government undertakes a program to attract a business, the objective of the program should be clear. That is why many marketing strategies employ the technique of targeting; identifying a group of firms the development organization wants to reach. Targeting usually focuses on sectors with growth potential, linkages to existing businesses in the area, and reasons to be attracted to the particular region or local government setting because of particular competitive factors (Canada 1995, 59). 

An examination of groups included in the North American Industrial Classification System (NAICS) will provide those involved in formulating a business attraction strategy with a starting point.  NAICS divides firms into categories that can be broken up into market segments on the basis of products and services. While it is possible to segment markets using the categories employed by the older Standard Industrial Classification (SIC) system, the system has limits that should make the planner wary (Canada 1995, 59-62)

The direct marketing techniques employed as part of a business attraction strategy can take many forms:

• Brochures or pamphlets, either general in nature or targeted to a specific industrial classification, about the region's or local government's attractions to business and industry
• Advertising in trade publications or generalized advertising supplements
• Direct mail to specific industries or locational consultants
• Participation in industry trade shows
• Telemarketing of potential businesses
• Prospecting trips to certain areas of the country (or other countries) where potential new businesses are located
• Seminars for prospective businesses
• Websites
• Maintenance of a publicly accessible database of available commercial and industrial land and buildings 

Business Retention

Local governments can help retain businesses by reducing development or operation costs with financial incentives, waivers or fees or taxes, or in-kind services. Here are some of common techniques:

• Surveys of local businesses to determine plans for changes or expansions and attitudes toward local governments
• Periodic business roundtables or breakfasts
• Regular personal visits by local government officials to businesses
• Creation of teams of top local government managers to expedite responses to problems identified by local businesses
• Publication of newsletters to local businesses
• Active involvement by local government officials in chambers of commerce and other business groups
• Appointment of local business owners or managers on local boards and commissions, even if they are not residents

Part Five: Strategy 4: Development Incentives and Financing

State and local governments offer incentives to attract or retain businesses on the theory that the incentives will lead to business investment and thus to new jobs. Those investments and jobs will produce an increase in demand for goods and services. In turn, that demand will result, through a multiplier effect, in demand for an additional round of services. Economic development resulting from incentives should also increase the tax base, allowing either expanded public services or lower taxes on residents (Peters and Fisher 2004, 28).

Local governments can offer a variety of financial incentives, either through the state or directly.  The best known is tax-increment financing (TIF). TIF is a method of financing redevelopment activities directly tied to the success of those activities.  The local government conducts a study of the need for TIF and prepares a plan for the area to be designated as the TIF district. The local government determines property tax revenue collected in that area before redevelopment occurs and borrows money by obtaining loans or selling bonds. The borrowed funds are used in various ways to improve the development prospects of the area:

• Construction or improvement of any publicly owned building, facility, structure, landscaping, or other improvement within the project area from which the tax increment funds were collected
• Paying for the installation of publicly owned utilities in the project area
• Meeting the cost of administrative, overhead, legal, and other operating expenses of the redevelopment agency created to oversee the TIF program

As private development occurs in the area, tax revenue increases, and the excess above the pre-redevelopment property tax revenue in the area pays off the loans or bonds and finances further redevelopment activities. That excess is the "tax increment" in TIF.

Another incentive is the tax-exempt private activity bond, also known as an industrial development bond. Such bonds finance land, buildings, or equipment to develop or expand businesses and have a lower interest rate than conventional financing because they are issued by the state (or in some states, by local government as well).

These are only two examples of the many options local governments have available to provide incentives for the kind of economic development they want. Any financial technique that raises money a local government can use to contribute to any of the multiple costs of development can have a similar effect. Ultimately, all these financial incentives are ways to reduce the development costs for the private sector. Those costs can be reduced by:

1. Giving money directly as a grant or loan to the development;
2. Providing in-kind services or resources (e.g., environmental impact statements, infrastructure, land); and
3. Reducing or waiving fees or taxes (e.g., reduction of impact fees; property tax abatement).

Part Six: Strategy 5: Workforce Education and Training

Workforce training programs include customized instructional approaches based on firms' requirements. A program can be part of a financial assistance package, where benefiting firms are obliged to give preference to qualified local personnel when seeking employees. Local employment programs can provide training and personal skills development programs to help especially disadvantaged social groups gain employment or acquire necessary skills. Cities can also provide online systems to provide job seekers with information about potential employers and public programs for skill development. 

The public school system is obviously a key player in this strategy, being responsible for primary and secondary education in the city, but other groups can also play important roles, particularly for workforce training. The local community college system, local businesses, nonprofit workforce training groups, and economic development agencies can all use their resources to address workforce-training issues.

Part Seven: Strategy 6: Land Supply

Monitoring Land Markets and Providing Adequate Buildable Land

Government land-use policies affect the supply of buildable land for commerce and industry, as well as residential development. Shortages in various categories of land use can result when local governments fail to adapt land use designations in the face of increased demand (Bollens 1998).

Without an accurate land inventory, public policies affecting the amount of land available for development may regulate growth too rigidly. Consequently, they can have disastrous effects on the price of raw land. In addition, when infrastructure is not properly sized, due to uncertain knowledge about the actual supply of buildable land, the government pays more for public facilities.  Also, imperfect information about land supply and availability multiplies the risk of private development decisions. Such risk and uncertainty make development more expensive because greater-risk projects require higher investor returns. Market uncertainty limits competition, as fewer developers are willing to invest time and money in the process.

While monitoring land-use change used to be a time-consuming task, modern geographic information systems (GIS) make the effort a great deal easier. To that end, many communities are instituting land market monitoring systems — focusing on the availability of buildable land and the rate such land is being consumed for urban development — to evaluate the demand for and supply of land (Knaap 2001; Mouton 2000). GIS is used in the tracking process.

Industrial, Technology, and Business Parks

Government can combine its ability to acquire property and assemble land with its ability to build infrastructure (roads, utilities, etc.) and create an industrial park or business park to meet the specific needs of sought-after industries (ULI 1998, ch7). The private market normally does this, but government has the added advantage of being able to use public land and eminent domain.  Additionally, it can focus on a public purpose like job creation rather than on making a profit through the development. A redevelopment agency, as authorized in some states, or a community development corporation could lead the public development or an industrial or business park. 

Brownfields

A brownfield is an abandoned, idled, or underused industrial and commercial facility where expansion or redevelopment is complicated by real or perceived environmental contamination.  Since one cannot be aware with certainty of all the chemicals and materials ever used on industrial or commercial premises, or of the level of care with which they were stored, used, or disposed of, the class of land with "perceived environmental contamination" can potentially encompass any lot or parcel ever used for industrial purposes and even for certain commercial purposes (auto repair shops, for instance).

The brownfield problem — a reluctance to purchase and develop already-developed sites due to the perception they may be polluted — exists to the degree it does because of the nature of liability under federal and state laws regarding the cleanup of contaminants and the assessment of the costs of that cleanup.  The Comprehensive Environmental Response, Compensation, and Liability Act, commonly called CERCLA (42 U.S.C., Sections 9601 et seq.), was adopted with the purpose of holding parties responsible for the pollution of land liable for the costs of removing the pollution and restoring the land to its natural state.

But the language of the statue is somewhat broader: the past and current owners and operators of premises where hazardous substances have been released are financially responsible for the cleanup of the contamination. CERCLA essentially imposes liability for contamination of land upon the past and present owners and users of the land regardless of their culpability in actually polluting it.

Nonetheless, brownfield sites are often located in areas convenient to housing and transportation.  Local governments see them as a resource, particularly since new infrastructure would not need to be extended, and their reuse would ensure a continuation of compact development patterns.

Land Assembly

Land assembly means the public sector acquires land and buildings, either on the open market or through eminent domain, or it makes use of land already under public ownership to promote economic development. Purchase of adjacent land parcels can be used to assemble a larger parcel under single owner. The land and any buildings are then made available to public or private developers, usually through a bidding process.

Part Eight: Strategy 7: Infrastructure Provision

Communications infrastructure, water supply, sewers, roads, sidewalks, parks, public transit, and airports are critical components of an area's development capacity and long-term competitiveness. Businesses rely on infrastructure to conduct their work and transport their goods and services.  Also, a well-maintained city looks good, making it a pleasant place in which to live and work. Local government is responsible for most of these infrastructure components and can therefore exert significant influence on development type and pattern. An economic development agency can suggest infrastructure improvements to other departments. 

Capital Improvement Programming and Funding 

The capital improvement program (CIP) — a five — to six-year schedule of capital improvement projects — is one of local government's most powerful tools for implementing a local comprehensive plan and supporting both commercial/industrial and residential growth. By carefully selecting and timing capital projects, the CIP process can ensure that a local government:

• repairs and replaces existing infrastructure;
• meets needs in mature, growing, and redeveloping areas;
• coordinates activities or various government department; and
• ultimately influences the pace and quality of development in a community.

The CIP document itself consists of project descriptions along with schedules and tables showing revenue sources and expenditures by year. Capital improvements include major nonrecurring expenditures for such projects as civic centers, libraries, museums, fire and police stations, parks, playgrounds, street construction or reconstruction, sewage and water treatment plants, water and sewer lines, and swimming pools. Costs associated with capital improvement projects include architectural and engineering fees, feasibility studies, land appraisal and acquisition, and construction.

Part Nine: Strategy 8: Creation of a Quality of Life Conducive to Business Innovation

"Quality of life" is a term used to describe various, sometimes intangible factors that make a community attractive to live. A quality-of-life strategy assumes government of some type of public/private partnership is able to have a significant influence on these factors and improve them over time.  In theory new businesses will be attracted to communities with the most appropriate combination of factors, and existing businesses will expand for the same reason. People also use quality of life indicators to measure neighborhood and community desirability.

Part Ten: What Can Local Governments Do to Affect the Amount and Type of Economic Development?

Even though government cannot affect all the factors important to economic development, it can have a significant impact through both its traditional role as public service provider and regulator, and its entrepreneurial role as a deal-maker and business recruiter. Of these two roles, the former is essential — government must provide quality basic services and an efficient regulatory environment if it wishes to create economic development. Providing further incentives to businesses are optional — whether it makes sense depends on what government can reasonably offer the extent to which such offerings are necessary to attract firms, and the cost of those offerings.

Some traditional and entrepreneurial roles for local government involvement in economic development include the following:

• clearing and assembling adequate land for business (zoning, urban renewal, and similar devices);
• underwriting risk (industrial development bonds, tax abatement, low-interest loan programs);
• providing amenities and infrastructure (construction of utilities, tax increment financing, urban renewal);
• promoting economic development (participation in chambers of commerce, economic development organizations, trade missions, other non-profit groups);
• providing job training, or establishing or supporting institutions that provide job training (e.g., community colleges and technical schools);
• changing the tax structure to promote economic development; and
• modifying regulations that are seen as burdensome to business.

Part Eleven: National Level Indicators Developed for the United States

• Economic
• Capital assets
• Labor productivity
• Total materials per unit of investment and Per Personal Consumption Expenditures
• Investment in research and development as a percentage of gross domestic product
• Economy management index
• Consumption in government expenditures per capita
• Home ownership
• Percentage of households with housing problems
• Vehicle ownership, fuel use, and travel per capita
• Percentage of renewable energy

• Environmental
• Contaminants in biota
• Timbergrowth-to-removals balance
• Metropolitan air quality non-attainment
• Status of stratospheric ozone
• Greenhouse climate response index
• Greenhouse gas emissions
• Waste inventory
• Surface water quality
• Land use
• Ratio of renewable water supply to withdrawals
• Rate of use of fisheries
• Invasive alien species
• Soil erosion rates
• Outdoor recreational activities
•  Biodiversity

• Social
• Access to telecommunications
• Educational attainment by level
• Life expectancy
• Educational achievement rates
• Percentage of children living in poverty
• Number of people in census tracks with 40 percent poverty
• Citizen participation
• Access to health care
• Homelessness
• Population
• Children living in families with at least on parent present
• Crime rates
• Teacher training and applications of qualifications
• Wealth distribution
• Contributing time and money to charities