Look What You Can’t Get Away With Anymore: A Case Study on Economic Development Incentives

But the deal was approved with no opportunity for public vetting, and even now Mason leaders either can’t or won’t answer this key question: How much will new P&G employees net the city in income taxes? Without knowing the answer to that question we don’t know how long it will be before the income offsets the benefits Mason is giving P&G.

Economic packages are the the cost of attracting new development in the current global business climate – but communities must go into them with all of the facts, and it’s not at all clear that Mason did.

–“Questions remain on Mason incentives” From the Editorial Board, Cincinnati Enquirer (http://www.cincinnati.com/story/opinion/editorials/2015/03/19/questions-still-unanswered-incentives/25013003/)

——-

I debated hard about whether to write about this one.

I have two problems:  First, the town in this story is close to where I live, and I know some of the city staff members.  Second, my husband is with P&G.  He has worked at this facility in the past and will probably work there again in the future.  And I will be the first to say, from long personal experience, that this company does a consistently better job of corporate citizenship that almost any multinational company you will encounter.

But.  There’s a crucial cautionary tale here, and it’s one that neither you nor your electeds can afford to ignore.

First, note the level of scrutiny being given to the deal by the newspaper, and coming from no less than its Editorial Board.  From where I sit, an editorial from this historically conservative publication criticizing a local incentive deal is unusual enough.  To give that attention to an incentive deal in a suburban community is even stranger (if you know Greater Cincinnati, you know that Mason is an major suburb, but it’s still a suburb).  Like most old-line newspapers, the Enquirer usually focuses on the center city and pays relatively less attention to the suburbs.  On top of that, this paper has been historically sympathetic to most of Greater Cincinnati’s big businesses, including P&G.

I think it’s an important indicator of how the general public (and press) perception of incentives is changing. Prior to 2008, when this surburb was the hot spot of the fastest-growing county in Ohio, when revenues for places like this seemed destined for long-term growth, I doubt anyone at the Enquirer or anywhere else would have given this deal a whole lot of thought.  Certainly not enough to schedule a phone conference with the editorial staff.  But even though Mason’s overall desirability in the region is still extremely high, a broad zeitgeist of strained budgets and future budget uncertainty has shifted general attention more intensively onto a spot that would have sat largely in the shadows a few years ago.

If a historically conservative masthead is raking a suburban community over the coals for an incentives deal involving one of the region’s favorite corporate citizens, what’s the likelihood that your incentive deal will sneak past your professional media — or the amateur muck-rakers in your town who have much more of an axe to grind and might have fewer professional qualms about laying into you?  Our incentive deals were maybe not newsworthy when we were all flush with money, but now the kleig light has been turned squarely on us.  You might survive the scrutiny, but you’re probably going to take some bullets in the process.

Second, note what happens when the mayor tries to work around the information that he does not have.  Although his points are probably reasonable assumptions with regard to the spin-off impacts from moving a lot of high paying jobs to this facility, he has nothing to go off of except his assumptions.  And not surprisingly, it doesn’t go well.

Developing relatively solid, numerical estimates of the costs and benefits of a deal like this isn’t rocket science. You don’t need an economics professor or a REMI model or a consulting budget that requires a bonding issue.  You can probably do a reasonably good job with a pen and paper and a high school diploma.  In fact, that’s probably a better approach than the usual black box impact study because you and everyone looking at it can understand what you’re doing.  But regardless, you cannot get away anymore with not doing the math.

If this is new territory for you, check out Elaine Harpel’s Smart Incentives for a good grounding and sound policy and process guidance.  You can also take a look here and here for my take on incentives, which is also in the Local Economy Revolution book.

I wish Mason well, and I hope that they can use this as a catalyst to help their bright minds prepare for scrutiny next time.  But this should set off some warning bells for all of you:

Do the math and be prepared to talk about it.  Because you will probably have to.
Oh, and if anyone knows how I can make sure that my husband ends up in an office where his cell phone actually gets reception after he moves there, would you let me know?

Get better stilts: Uncertainty and The Number

Here’s the latest from my friend, regional analysis wizard and former real estate developer Dr. Peter Mallow, in our series of explorations about how the way we do economic analysis often sets us up for trouble.

In this one, Pete is taking on one of my favorite we-all-know-it-but-we-don’t-want-to-admit-it-and-then-it-bites-us topics: the fact that even our best predictions are built on inherent uncertainties.  We can’t avoid that, but we can’t pretend it doesn’t exist, either.  So we ought to know what we’re looking at, and deal with it.

 

You can read Pete’s previous work here and here, and your can review an annotated version of a presentation we do here, and if you’re really a glutton you can listen to one of our presentations here.

Take it away, Pete!

___

If you read the past couple of posts on this topic, you learned that The Number can often be misleading or plain wrong.  For those that missed those posts, “The Number” refers to the new dollars, jobs, and taxes that an economic impact analysis claims will materialize from a new public project or a company coming to town. The expert or software has done some kind of magic with the data and returned a single Number that supposedly best describes how great the public project or company will be for the community.

People like The Number because it’s simple and it’s easy to understand.  However, it is almost always, by definition, wrong.  Even the best intentioned, well-meaning analysis is most certainly wrong when it reports one Number – that’s Statistics and Probability 101. We often excuse our Number’s lack of accuracy when we realize how far off The Number was through some variant of “garbage in, garbage out.”  We easily claim that the data or assumptions driving the analysis were flawed, and we can blame some combination of uncontrollable factors.

But this is an over-simplification of the problem. Uncertainty is, fundamentally the real problem, and most of the time uncertainty is the root cause of the Number turning out to be wrong.  Uncertainty exists everywhere in the analysis, whether the data is finely tuned or back of napkin.  Yet we give the uncertainty inherent in our analyses very little attention.

To better understand uncertainty, think of walking on stilts.  The smaller the base of the stilt the harder it is to balance and walk. The width of the base of the stilt represents how certain you are that The Number is actually correct.  In this case uncertainty takes the form of four different stilts – more on that in a moment. But think for a minute about the width of those stilts – how strong or weak, stable or wobbly, each one of them could be.

people on stilts
I think these guys need wider stilts. From Flickr Creative Commons

The more certain you think you are of your analysis results, the more narrow the range of results you will consider as possible outcomes.  If you’re so sure of your analysis that you can say, “this number is, most definitely, absolutely, the thing that is going to happen!”  then the stilt holding you up is very narrow- in fact, it’s only one number wide.  If you know that there’s a range of possible outcomes – if the results could vary – then admitting that range of possibilities means that your stilt is wider and more stable –its strength does not depend on just one number.

We know instinctively that wider stilts mean a stronger and safer walking experience.

If we build our plans on the basis of one Number, and we don’t account for other possibilities, then it is as though we are walking on very skinny stilts.  All it takes is a little variation, something relatively minor to go wrong, and the plans we made on the basis of those assumptions will go all to pieces.

 

There are four of these stilts, or types of uncertainty: The economists have defined them with the following words:

  • Stochastic,
  • Parameter,
  • Heterogeneity, and
  • Structural.

Don’t worry, we will peel back the jargon.

Here’s the main thing to remember: uncertainty is always present – you cannot escape it.  But by understanding the types of uncertainty, and carefully checking your “stilts” to make sure they are as wide and solid as possible, you can have greater confidence in The Number.

Here are the four basic types of uncertainty that we need to check our stilts for:

 

Stochastic Uncertainty (aka randomness)

Stochastic uncertainty is the randomness of life.  It basically means that you don’t know exactly what will happen until after the thing happens.  Here’s an example: if you toss a coin into the air, you know it will either be heads or tails. But which one?  You won’t know the answer until you toss the coin.

In terms of economic development there will always be some randomness about the project or new company that you cannot control nor predict – at least, not until after it has happened.

 

Parameter Uncertainty

A parameter is a set of measurable characteristics that define an object. How you define these characteristics is not set in stone, and if what happens differs from the parameters, then the results will be different as well.

For example, a high tech industry can be defined the types of jobs it contains (i.e. computer scientists, executives, sales people, administrative, engineers, etc.).  The specific mix of these jobs will be different for every company.  However, when you are looking at the economic analysis of a high tech industry, you will be working within a parameter – you will be using an assumption about the types of jobs that a new company within that industry will employ.

If a new company says it will bring in 1,000 new jobs, it’s possible that their employment could include any possible combination of job types that equal 1,000. But based on the type of industry, the economic impact analysis will probably assume a certain set of parameters – a typical or average or idealized mix of job types that it assumes the new business will create.  But this specific business might not fit those parameters.  If the new company ends up with a larger than typical number of remote sales jobs and administrative people, for example, then the parameter assumptions that fed into the economic impact analysis.  When that occurs, The Number will not reflect what actually happened.

Another way to think about parameter uncertainty is our coin example from before.  We know a fair coin has a 50 percent chance of landing heads.  However, if we toss it 100 hundred times and find that 54 were heads.  Is this wrong?  No, it is parameter uncertainty.  Just because we know the odds are 50-50 doesn’t mean that 54-46 isn’t entirely possible.

 

Heterogeneity Uncertainty

Heterogeneity is a complex way of saying no two jobs are the same. Take, for example, a cashier job at Costco and one at Wal-Mart. Both positions require the same tasks and responsibilities, but people working in those jobs may be making very different wages for doing fundamentally the same work. In the economic impact analysis, we usually assume an average or typical or idealized income, but what actually happens can vary widely from that assumption.

 

Structural Uncertainty

Structural uncertainty is inherent any type of methodological approach, like the process used to develop any kind of economic study.  Economic impact analyses can be done in a number of different ways, ranging from complex input/output methods, to simple arithmetic estimates, and any number of methods in between.  They can also be done for different time periods. The choice of the method, the time period and how the parameters interact cause structural uncertainty. Remember every model is an abstraction of reality. Yet all too often only one model and its parameters are provided as the best abstraction of reality.

Uncertainty is always present. If you don’t analyze how uncertainty impacts the assumptions that are holding up your studies, that uncertainty will eventually make matchsticks out of the wooden legs that you’re standing on. But there is good news: you can make informed decisions to reinforce your analysis based on your analysis of uncertainty.

Most importantly, exploring and admitting uncertainty will probably lead you to report The Number as range of possibilities – a set of numbers, rather than a single one.  Think of that range as the width of your stilts — the wider the range, the stronger the base, the less the uncertainty, and the more credible your estimates of jobs, dollars, and/or tax receipts will ultimately be.

APA 2013 — Sessions, events, awesome people…and maybe some blues. Or something.

Just a quick note for you planning types that I’ll be doing two sessions (read: I am an idiot) at the American Planning Association’s annual conference next week in Chicago.

On Saturday, April 13 at 4:00 PM, I’ll be talking about the future of web-based fiscal impact modelling with Doug Walker of Placeways, LLC and Chris Haller of Urban Interactive Studios.  We’ll be digging into two different web-based fiscal impact models, telling the truth about what worked — and what didn’t work — and thinking about what communities can do to capitalize on the explosion of analysis and communication power that these tools can bring to decision-making today.  Sound eggheaded?  Well, I hear that Chris has a guerilla app that’s launching this weekend, so you never know what will happen… especially if someone brings some bananas… what?

What’s a fiscal impact model?  You can read my explanation here, and a little information about one of the models here.  Per usual, I’ll post a podcast and annotated slides in the next week or two — after I find out what the heck these guys have to say.

On Monday, April 15, at 9:00 AM, I’ll be talking about building Small Business Ecosystems with Carolyn Dellutri of Downtown Evanston, Inc. and Taylor Stuckert of Energize Clinton County.  Taylor himself will be worth the price of admission, especially if some of his recent hard-earned luck can rub off on anyone else.  Not only is Energize Clinton County winning an APA National Planning Achievement Award for Innovation in Economic Development and Planning, and he was featured in Fast Company Magazine’s recent article on ” 7 People Under 30 Who Are Changing Our World,”   BUT…. he just successfully defended his thesis for his Master of Community Planning.  Like last week.  How freaking cool is that?

Does that Energize Clinton County thing sound familiar?  Well, it should…especially if you read or listen here very often.  Here’s a link to an awesome podcast that I did with Taylor and Chris Schock, his partner in crime at the county…awesome because of them and their story.  I mostly just held the recorder.  And Evanston?  In addition to having a completely kick butt downtown that Carolyn shepherds, it’s the home of my alma mater, where I’m proud to say they do it the right way.  If only the wedding ecosystem that Carolyn will describe existed back in the dark ages when we got out of school….  I’ll get audio and annotated slides posted for that one as well.

So, I’m gearing up for a busy, exhausting, exciting and energizing week of hanging out with the best and the brightest — these guys, and you.   If you’re going to be at  APA, send me a note at della.rucker@wiseeconomy.com or on Twitter at @dellarucker.  I’m hoping to catch up with a lot of you and hear your stories about how you’re making great things happen where you live and work.  And I might have a notebook or a recorder in my pocket.

I’m even toying with an impromptu tour of NU’s campus or a night at the Kingston Mines.  You never know….

 

Driving the new project off the lot and ignoring the re-appraisal

One of my regular correspondents is Charley Bowman, a career city administrator and now managing partner of Economic Development Data Services. Charley sent me this comment last week in response to my annotated presentation and podcast from my talk with Peter Mallow about deciphering and avoiding getting snowed by economic and fiscal impact studies.

Maybe because of his grogginess, Charley came up with a  clear and unforgettable way of explaining an uncomfortable truth: the combination of declining value and unintended consequences that tends to take the bloom off of those shiny new infrastructure projects we get all excited about.  But I’ll let him tell it.

I should point out, however, that I am either not old enough or not cool enough to have any clue what the Sea Level reference is about.  Knowing Charley’s music cred, it’s probably a little of both.

___

Good morning Della:

I am up early…the coffee effect is negligible. However, rambling onward..multipliers, economic impact…

I am thinking this morning that a new project is a lot like driving a new car off the lot. It has diminishing value over time. Every project has a strain on water, sewer and road systems. The project may or may not pay for future services – police fire, road maintenance, zoning, building inspection, recreation, schools, etc.

I once likened economic development to that of a junkie.  Eventually, the supply runs out or the quality deteriorates and you/the communities are strung out again.  It is the unintended consequence, “the agonizing re-appraisal” (to steal a lyric from Sea Level – “it’s your secret”).  But we don’t do that re-appraisal, since the Economic Development director then wants to be a city manager. Look at how many city managers have built their careers on ED — yes, guilty as charged.

At the same time, in this age of measuring everything, there has to be a measurement, a logic to doing/accepting the project. As economic development folks, we have to come up with a rationale for the tax break, the gift of land, etc. and compute it as an Return On Investment.   The difficult part is in applying the crystal ball to the alleged increase in value of the project  — and the accompanying increasing cost of municipal service (salaries, health insurance, infrastructure costs).

I think it is indeed possible to create an estimated model, but it is like trying to find the Holy Grail…

I need your help: does economic development make a difference?

The great fun of blogging is always the feedback.  But when you have thoughtful critical thinkers for readers, the way I do here, sometimes their comments shine a bright and uncomfortable light on one of those spots where it might be easier to just leave in the shadows.

One of those came up last week in response to my article about Consultants as Wizards [expletive deleted].  After discussing with the person who wrote this comment, I changed his name (just in case his department head or city manager stumbles across it).  But I felt that the questions he raised were too important to be left in the comment thread… and since these are questions that I am grappling with myself, I felt it was necessary to bring it out into the open.

I’m going to paste in the original comment from William P below, and then give you my perspective after that.

____

The more I see everyone’s comments and the original blog post, I am thinking that the profession of Economic Development is beginning to revolve around two universal axioms (neither of which are good in my opinion).

First, economic development seems to be more about the process than the product. From my perspective as a low-key half-time ED professional, economic development is nearly 85-90% about marketing and relationship building. I understand how those activities can play a role, but it’s role that seems too pronounced. What exactly are we marketing and how are these relationships going to help? Do we understand what differentiates us from our competitors in the economic development realm?

The second axiom is that economic development is more about outputs than outcomes. We get all excited when the new report comes out, or the new branding initiative hits or when the new restaurant breaks ground. And yes, that is important, but when do we go back and measure the effectiveness of those efforts? Are those jobs created by that restaurant moving the needle? Does that new watering hole instantly become a community asset? Did that new glossy handout convince anyone?

___

More process than product, and more output than outcome.  William’s point is pretty damning: from his perspective in the trenches, the economic development profession doesn’t seem to be actually making a difference.  Ow.

I received the following email from a friend (I’m also not going to use his name) at about the same time, and asked for his permission to reproduce part of his comments here, because I think he’s saying the same thing in a somewhat less… well, polite manner.

__

I really liked your last blog article on consultants.  What a hoot!

As I reflect on it, I don’t think I work in economic development.  I don’t subscribe to going to every [event] that exist and other activities that seem more social than actual work.   These types of activities seem to be what economic development is all about.  I often wonder if I should try to be one of those fancy certified ED professionals, but [the question in] my mind is why?

I am not trying to be insulting, but the practice of economic development doesn’t seem to have much “practice” to it.  It just seems to be a bunch of high level BS speak based on hopes, dreams and poor assumptions.  There has to be meat to these bones, right?

__

Cartoon of used car saleman
Is this what William P is seeing?

Scuse me while I squirm for a minute.

It’s hard not to see some truth in what these two are saying.  The profession of economic development started out, historically, as a sales job —  your mission was to entice businesses to come to your town or your state. Close the deal.   Get the win.  And you don’t have to spend a lot of time around economic developers to know that for many professionals, and many communities, selling is still the primary definition of the job.  Going and schmoozing and relationship-building…it’s fundamentally the same work that the business development director of a company does.  Make the sell, or make the connection that down the road might lead to a sell.  But the sell – the win – is the name of the game.   Sure, the targets are usually smaller now than they were in the halcyon days, and now we allocate at least some of our effort to trying to make that sell to our local businesses so that they don’t pick up and go somewhere else.  But fundamentally, for many economic development professionals and organizations, the sell is still the purpose of the job.

 

There’s a problem with sales, and I say this as someone who tries to sell professional services every day:  it’s can be pretty easy to sell someone something that they don’t need, and it’s awfully easy to sell someone something that you cannot or should not try to supply.

 

For economic development, it’s  that second element that’s making me more and more uneasy.  The purpose of economic development, fundamentally, isn’t just selling more and more and more.  The purpose of economic development is to support the places that we live and work and play in – to improve their economies, help their people make a living, build the tax base that they need so that places can be kept clean and safe and comfortable.   That’s why governments and communities and businesses fund these things.

But I think we’ve all had to admit in the last 20 years, at least to ourselves, that some of our economic development “wins” didn’t turn out to be wins at all – or at least not the happy, unambiguous wins that we might have told ourselves they were.  Gave a sweet deal to a big box store and now you’re discover that your other commercial spaces are going dark?  Recruited a distribution center and now you’re finding that the rate of police and ambulance calls there are far higher than expected?  Provided tax increment financing for a shiny new office building, and now your city council is cutting the budget because tax revenue isn’t keeping up with service demands?

In a lot of cases, it’s pretty clear in hindsight that we sold something that we shouldn’t have sold – at least, not for the cheap price or with the bells and whistles that we sold it.   And sometimes it seems like we’re not learning from our mistakes.

 

There are a lot of people who are doing good, thoughtful work in economic development – who are connecting the importance of their work to the health of their communities.  There are people and communities who are trying to anticipate and head off the potential unintended consequences that some economic development projects present, and there are people and communities who are shifting toward a holistic perspective, toward growing a local economy that can provide its residents with long-term stability and resilience.

But then… there is the view from William P’s window.  And it’s not the view I want to be shown.  It shows an uncomfortable lack of critical thinking, a failing to learn from the past mistakes of the profession, and a tendency to overlook or ignore the ways in which new projects and exciting proposals can create more problems for the community we’re working for than they solve.

Instead, the view from William P’s window shows a playground-style tally sheet: points for me on this side, points for you on that side.  Get more points in my column than yours, and I win!  Simple as that.

Except that winning at that game may actually do no good at all.

 

So…I need some help here.  Who is going to come to the defense of economic development?  Who is going to tell William P that marketing and networking is actually worth that 90% of our economic development effort?  That the sale is truly the thing that economic development needs to do – that the pursuit of the next score isn’t just about the ego trip of winning the game?

Who’s going to tell him that it’s someone else’s job to worry about what happens after the sale is closed?

Some of you might assume that the last two paragraphs are rhetorical flourish. And there’s probably a little of that.  But I truly need answers to those questions.  I need to understand, for myself and for the people like William P and my email correspondent that I encounter regularly, whether or not that approach to economic development has legitimacy.  I don’t see it, and I want very much to understand whether I am missing something important.

So please, I’m serious, tell me in the comment box below.  Help me stop squirming… and help me help William P see the benefit of the economic development profession.

Won’t Get Fooled Again: annotated slides from presentation

At long last, here are the annotated slides from the presentation that Peter Mallow and I did on deciphering an economic impact study and finding the key assumptions and trigger points that will allow you to evaluate whether the economic impact study, fiscal impact study or pro forma you are looking at… actually means what you think it does.

Here’s the slides — a summary of what Pete and I said is written in the bottom half of each page:

Understanding and interpreting economic projections 2012 oki apa with annotations final

If you really want the full experience, here’s the podcast of the presentation.

And if you want to find out what happens when a redhead who believes what she said here encounters a consultant who apparently doesn’t, and you don’t mind a couple of cuss words, here you go. 

Bon appetit!

 

Podcast: Won’t Get Fooled Again – Making Sense of Economic Studies

Peter Mallow and I did this presentation last week at the Ohio-Kentucky-Indiana regional conference of the American Planning Association — and I thought the audio might be useful for you.  If you deal with development or incentive approvals, you will probably get presented with an economic impact study, a fiscal impact study, or a pro forma at some point.

And it all looks impressive, and it’s usually presented by someone in a nice suit, but…we know that the rosy future that information presents could be wrong.  But we don’t know where to look in the sea of numbers, or what lever we can pull to open the curtain hiding the Wizard behind the machine.  No wonder these things make us nervous.

Peter, a crackerjack-developer-turned-PhD-candidate in regional analysis, has an amazing command of both economic theory and the real world of how deals get done (including the Back Pocket Pro Forma).  And I get a chance to not only talk about sensitivity analysis, but the social psychology that makes us overly optimistic about our ability to predict the future.

It’s a full conference presentation, so please be aware that it will take you a little time to get through it.  But hopefully it will do you some good.

Enjoy!

http://soundcloud.com/wiseeconomy/wont-get-fooled-again

 

 

Do the Math: Economic Arguments for Historic Preservation and Downtown Revitalization Webinar

Last summer I did a webinar for Heritage Ohio on making economic arguments in favor of public policy decisions to support historic preservation and downtown revitalization.  We focused primarily on the different economic lenses through which property owners and local government decision-makers have to view the economics of decisions, how short-term assumptions can lead local government folks to overestimate economic benefits to the community and underestimate long-term costs.  Heritage Ohio then put the slides and the audio on YouTube, where you can watch it.

I have spoken on this topic several times, but it’s a tough one to make any traction on, even within an hour-long presentation.  However, someone asked me where to find it recently, and I thought it might be useful to some of you as well.  I will warn you that it is an hour long, and the slides move but it’s my voice the whole way through until the moderator starts reading the questions that had been sent in.

Ironically, this was taped three days after I had a somewhat significant surgery, and Heritage Ohio kindly sent its staff down to Cincinnati so that I could do this from my living room in my flip flops. To me, my voice sounds a little softer than I am used to, but I don’t know if you’ll see any difference.   But thank heavens it wasn’t videotaped — that would have been bad news for everyone concerned.  🙂

Here’s the link:

http://www.youtube.com/watch?v=5WhvkYBVJ_w

 

OCMA National Trends in Economic Development presentation

For those of you attending the Ohio City-County Manager’s association presentation today, here is a link to the presentation, in case you want to follow along.  Gold star for you!

National Trends and Best Practices in Local Economic Final 02.22.2012

 

Mark Barbash, Jim Kinnett and I are currently developing a training program and workbook designed to help local government staff and officials learn to do the kinds of strategy development that we think will be necessary for communities to thrive economically in the new reality.  If you’re interested in exploring training options for your organization or staff, drop me a line at della.rucker@wiseeconomy.com.

Slides from APA Ohio, National Trust and Downtown Colorado presentations (also known as the Dry Throat Tour)

 For those of you that attended sessions with me at conferences in September or October, I am glad to say that I finally got the slides posted to Slideshare so that you can download them whenever you want.  As a gentle reminder, I am available for your conference, workshop, training, Little League 7th inning stretch…. maybe I should reconsider that last one….

 

Here’s the link to the session I did with Peter Mallow on economic evaluation methods.  I owe you all some examples, I am still trying to round up some good ones.  We also do have video of that session, which needs some editing… we’ll get that posted as soon as I figure it out.  🙂

http://www.slideshare.net/drucker/economic-evaluation-apa-oh-v-22

 Here’s the session with Mark Barbash and Jim Kinnett on National Trends in Economic Development.  I also need to find some illustrative examples of a couple of things from that session, which I will work on.  We do have video of most of that session, but it’s mostly the backs of people’s heads, which is what happens when you have three vertically-challenged presenters.   As an FYI, this session for us was a proof of concept for a broader training program that we are developing, so if you think some help with Economic Development for Non Economic Developers might be something your organization would find useful, please let me know.   

http://www.slideshare.net/drucker/national-trends-and-best-practices-in-local-economic-draft-41#moreList

 Here’s the session on Public Participation.  I don’t have video or audio of this session, but I am doing a reprise at the Northeast Ohio Planning and Zoning Workshop on November 18, so we’ll try to rectify that.  Stay tuned. 

http://www.slideshare.net/drucker/public-participation-oh-apa-10-20-11

After my stint in Dayton, I made a mad dash to Buffalo to present on You Can Do the Math: methods for demonstrating the economic benefits of historic preservation policies.  Here are those slides — both the slides and an audio recording will be available from the Trust.  I’ll post the links here as soon as I get them. 

http://www.slideshare.net/drucker/you-can-do-the-math-nthp-2011

 Finally, I realized that I never posted the slides from the Downtown Colorado Inc. plenary session I did in September in lovely Durango.  This presentation is a macro-scale overview of what I am thinking about lately, and what I think we need to do to reboot planning and economic development so that our communities are vibrant and resilient for the long term.  Again, I am  available for your annual conference, initiative kickoff or five year old’s birthday party.  Scary clowns and balloons not included. 

http://www.slideshare.net/drucker/an-invitation-to-build-a-wise-economy-rucker-doi 

If anything does not work, or if you have any questions, please feel free to ping me.  And remember, I supply my own batting helmet.

The biggest challenge to the Youngstown/Detroit right-sizing approach

Note: this blog post was original published in late 2009, shortly after Dave Bing took office in Detroit and when the issue of downsizing that city first began to be discussed in the popular press.  Given the image boost that Detroit received as a result of the Chrysler/Eminem Super Bowl ad, and other causes for guarded optimism that have been coming out of the city in the last year, I thought it was time to revisit this issue.  My biggest concern regarding these strategies is that I have yet to see a way to make such a massive spatial fix happen in the real world of market economics, especially in an economic setting where public sector dollars are not flowing like milk and honey.  I am hoping that some of  you good readers have some bright ideas or have seen it happen.   I’d like there to be a good answer, but I don’t know what it is.

Oh, and if you click the article link, you’ll see that the author is one again none other than Aaron Renn, the Urbanophile.  I am nothing if not consistent. 

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My last blog post focused on one of several points made in an article at www.newgeography.com that discussed issues around post-industrial environment.

In addition to an interesting insight into what I recently dubbed the cockroach system for entrepreneurial development (I’m betting I am going to regret that…), the article also provides a great illustration of the loss of building density in Detroit’s neighborhoods over the past 60 years.  It also presents a concept diagram of a future spatial reorganization of the City of Detroit.  That concept diagram shows a central business center orbited at a distance by small, compact villages, connected by transporation corridors and separated by what the diagram calls “opportunity areas.”

This is the first time that I, at least, have seen a concept that begins to make a little bit of sense out of the newly – popular idea that cities that have lost population could create a quasi-rural environment to enhance the quality of life of those who remain.  From a fiscal point of view, if for no other reason, that idea has not seemed workable to me because a big part of what makes it possible to deliver urban services is  the density of the users.  Ask any suburban county that has been trying to figure out how to pay for a transit system, and you’ll see what I mean.

If the users are too spread out, there aren’t enough users in the area that can be reasonably served to generate enough income to pay for it.   And that applies whether we are talking about bus lines, garbage pickup, sewer systems or fire services.  Regardless of how you feel about density, it’s pretty clear that density makes higher levels of public service possible.  What the Detroit concept does is create centers of reasonable density, which might overcome the challenges that would face a quasi-rural city made up of scattered households surrounded by large gardens or swaths of nature.

But here’s where I am still struggling: how do you do this?

How does a Detroit or a Youngstown create, or at least facilitate, this kind of massive spatial change?  Presumably, people outside of the “villages” would need to either relocate to the villages (or accept living a more rural type of existence – no bus stops, minimal road maintenance, etc.).   Obviously it would be in the best interest of the city for most of its population to relocate to one of the easier-to-serve areas, and the new conceptual model   But a property that is not in one of the villages would presumably become less valuable than a property that was in one of the designated villages. 

As we have seen with the recent housing crisis, declining property values make it all the harder for property owners to make any sort of moves.  The result, it appears, would be an “opportunity area” population that cannot afford to  escape to the center or the villages.  Being unable to afford to sell their existing “opportunity area” property for a decent enough price to afford the higher costs in the more desirable areas, they would be stuck — and given typical expectations of public health and safety services, that population stuck in the “opportunity areas” would still require at least most of the basic public services.  The city might be able to get away with not paving roads, but the police and fire departments would still find it necessary to provide public safety, and senior citizens would still need assistance, and so on.  Unless almost all of the “opportunity area” residents are able to get out on their own, the likelihood that the city’s public service costs would actually decrease significantly seems slim. 

That equasion might change if the value of the “opportunity areas” were to climb, but if the basic premise is that the city encompasses more land than its population can support economically, a land rush on the opportunity areas wouldn’t be waiting around the bend.

So (assuming a massive government-funded buyout was not in the cards), how could the population financially make the shift from dispersed to concentrated?  And is there anything that a Detroit or a Youngstown could do to help people make the private decision to relocate to a place that is better for the City to serve?

Anyone?  Anyone?

Is our community’s financial future being undermined by changing demographics?

This post is NOT mine…. I get no credit except maybe a little editing.  My friend Bill Lutz, the Community Development Director for Piqua, Ohio, has a tendency to raise well-written and thoughtful questions on Facebook notes.  This one was so insightful that I thought it deserved a broader audience.  So I am glad to hand over the page to him (which also gives me an easy way out this time, I suppose!)  
 
For sake of context for those of you who are not familiar with Ohio government structure, Ohio cities typically rely on earnings taxes for the lion’s share of their income.  Earnings taxes are just what they sound like — taxes on earnings.  If you receive an entitlement-type income, such as a pension or Social Security, and you live in a city or village, you don’t pay a local earnings tax.  You do pay property tax if you own property, and sales tax, but only a tiny proportion of those funds go to the local government. 
 
Bill, the floor is yours.  I am looking forward to what all of you have to say — and I’ll make sure Bill hears it too. 
 
Thanks,
 
dgr
 
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by William Lutz on Tuesday, October 26, 2010 at 5:07pm

One of the many facets of my job is to use statistics to paint a picture of the community.  Usually the picture that is painted is not pretty, and this is out of necessity.  Those that hand out money tend not to focus on the well to do communities; rather, they like to help those communities that can demonstrate a real need.  So, every now and again, I hit up the latest figures from either decennial Census or the Census Bureau’s American Community Survey to paint a not so rosy picture of the community.  The usual suspects end up being figures such as poverty rates, annual median income, unemployment rates.  Sometimes I dig up more obscure figures such as percentage of households headed by a female (a likely sign of poverty).

This particular day I was interested in one statistic.  In 2007, 49% of households in Piqua were receiving some sort of retirement income; either Social Security or a pension.  In 2008, our community hit an imaginary tipping point: 51% of all household received some sort of retirement income.  I immediately was taken back by the finding — over half of the households in this town are receiving income that the city can’t tax.  Yet, the residents of the community still have needs that are to be met through tax dollars.  It’s an interesting system we have created for ourselves. 

 I immediately wondered if other local communities that were similar to Piqua had gone through the same type of transformation.  I looked at three other communities for which American Community Survey data was available: Troy, Sidney and Xenia [comparably-sized Ohio cities within less than an hour’s drive from Piqua – dgr].  In both Sidney’s and Xenia’s case, the percentage of retirement income households actually dropped between 2007 and 2008, from 48% to 47%.  Troy’s percentage rose from 42% to 45%, but was still the lowest of the four communities in this unscientific example.

 I then flipped the question.  I wondered what percentage of households reported wages from employment.  Of the four communities in the sample, you guessed it, Piqua was the lowest at 73.9%.  Xenia was at 78.6%, Troy 79.2% and Sidney at 82.6%.  In fact, all these percentages showed growth (or in Piqua’s case remained even) between 2007 and 2008.

 So, what does all this mean?  Well, these numbers could probably be interpreted a number of ways.  In my work in economic development, we are always told we need to do more to create more jobs.  Given these numbers, it appears that the number of retired workers in our community has actually grown.  Which leads to two thoughts.  First, if there were no job losses, we would have a job surplus, wouldn’t we?  Where would we get the extra workers to fill the positions from the recently retired?  However, in this economy, we know that isn’t the case.   So, the second throught is, if we are getting to the point of having more retired people, what is the right number of jobs to have or the right kind of jobs we need?

 I can’t see our 51% number going down.  Remember, these are 2008 numbers and things really didn’t get bad until 2009.  If this number continues to grow, it shows that a lot of people left the labor force and maybe they are gone for good; it’s hard to say.  Second, there are a lot of households with income from both retirement and wages.  I think this shows that maybe that the new employment opportunities that are being going to be wanted in the future aren’t necessarily 40 hour a week jobs, but more like part time work to supplement retirement incomes. 

 However, the greatest impact is on our local government’s bottom line.  While we still have a large percentage of households bringing in a wage (73.9%), our rates are lower than our neighbors, and as stated earlier, more than half our households (51%) have income we can’t touch.  As we look at our community’s fiscal condition, I am afraid that these means continued declining revenue for the community.  Not good news.  Especially since the amount of work we are expected to do in the local government hasn’t gone down. 

Either way, something is going to have to give.  The local government may have to look at new avenues to raise tax revenues (possibly by taxing retirement benefits) or severely cutting service. 

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Part of what so caught my eye about Bill’s thoughts was that I think this issue is going to become more and more critical far beyond Piqua and Xenia and the like.  Certainly any government that relies on earnings taxes will probably hit this issue.  Is this a case for a shift to other types of taxes? 

What do you all think?

The challenges of the Youngstown decline management model

My last blog post focused on one of several points made in an article at www.newgeography.com that discussed issues around Detroit’s post-industrial environment.

In addition to an interesting insight into what I recently dubbed the cockroach system for entrepreneurial development (I’m betting I am going to regret that…), the article also provides a great illustration of the loss of building density in Detroit’s neighborhoods over the past 60 years and presents a concept diagram of a future spatial reorganization of the City of Detroit with a central business center orbited at a distance by small, compact villages, connected by transporation corridors and separated by what the diagram calls “opportunity areas.”

This is the first time that I, at least, have seen a concept that begins to make a little bit of sense out of the newly – popular idea that cities that have lost population could create a quasi-rural environment to enhance the quality of life of those who remain.  From a fiscal point of view, if for no other reason, that idea has not seemed workable to me because a big part of what makes it possible to deliver urban services is  the density of the users.  Ask any suburban county that has been trying to figure out how to pay for a transit system, and you’ll see what I mean.

If the users are too spread out, there aren’t enough users in the area that can be reasonably served to generate enough income to pay for it.   And that applies whether we are talking about bus lines, garbage pickup, sewer systems or fire services.  Regardless of how you feel about density, it’s pretty clear that density makes higher levels of public service possible.  What the Detroit concept does is create centers of reasonable density, which might overcome the challenges that I think would face a quasi-rural city.

But here’s where I am still struggling: how do you do this?

How does a Detroit or a Youngstown create, or at least facilitate, this kind of massive spatial change?  Presumably the scattering of people outside of the “villages” would need to either relocate to the villages or live a more rural type of existence – no bus stops, minimal road maintenance, etc.    But a property that is not in one of the villages would presumably become less valuable than a property that was in one of the designated villages.  So (assuming a massive government-funded buyout was not in the cards, how could the population financially make the shift from dispersed to concentrated?  And is there anything that a Detroit or a Youngstown could do to help people make the private decision to relocate to a place that is better for the City to serve?

 

Governing at the scale of the region in Kentucky

Regional government is a touchy subject at best in most places — and one likely to get you chased out of town with sharp implements in others.  In Kentucky, however, regional government consolidation isn’t an abstract — the state’s two largest cities are both metro governments (Lexington-Fayette County for more than 30 years, Louisville since 2003).  And a  growing number of voices in Kentucky are talking about government consolidation, or at least government service consolidation, as a real possibility. 

Mayor Abramson claims big cost efficiencies in this article, but whether or not that is the case will depend a great deal on how exactly local goverments are structured.  In an analysis I helped prepare a few years ago for an Appalachian city, consolidation appeared unlikely to generate significant efficiencies because of how taxes were collected and services delivered in that particular area.  A Fiscal Impact Model, like the one hosted by the OKI Council of Governments, can be a powerful way to demonstrate whether or not cost efficiencies are possible. 

Regardless, I think that the argument that Abramson makes for a cohesive approach to economic development and community marketing is a powerful one.  And it’s a powerful impact that most regions appear to overlook.  Focusing on the economic development impacts of consolidated governments might go a long way toward building support for these particularly touchy initiatives  — certainly much sexier than increasing the cost efficiency of routine municipal services, which is often the angle that supporters push.  Yawn!)

As Bill Miller of the Trumbull County, Ohio, Planning Commission has said for a long time, “We live at the scale of the region.”  And we know that local jurisdiction boundaries don’t much matter to businesses, as long as they don’t get in the way. 

What do you think?  Would merged goverment services be worth it where you live?  Do you think your region’s economic development would get better?

http://nky.cincinnati.com/apps/pbcs.dll/article?AID=/AB/20091106/NEWS0103/911070332/

So what was the Fiscal Impact Analysis Model intended to do?

As I outlined in the last post on this topic, OKI’s Fiscal Impact Model was designed to provide every community in the OKI region with an off-the-rack option for fiscal impact analysis, instead of requiring everyone have to have that analysis custom-made (and, as a result, most communities not looking at fiscal impacts at all.)  However, for OKI, the challenge was less like designing a series of suits for people of different sizes, and more like designing a series of suits for people whose arms and legs stick out from different places.  If you’re going to develop a first-of-its-kind fiscal impact model, starting out with a region that includes three states, about a dozen different local government structures and more flavors of taxes and services than the local UDF ice cream chain, is not exactly beginning with an easy assignment.

So why would someone take this on?  OKI is the Metropolitan Planning Organization for the Greater Cincinnati region, which means that it is reponsible for distributing federal transportation funds, among a lot of other things.  OKI’s leadership realized as far back as the early 2000s that they had to take a more proactive approach to the issues of sprawl and land use because population trends in the region were quickly outstripping the foreseeable supply of transportation funds.  An MPO doesn’t have any power to influence local land use decisions, but the MPO becomes responsible for funding the transportation systems demanded by those new residents.  Some MPOs deal with this challenge by… well, by not dealing with it, but OKI created a strategic plan for influencing land use planning in its region, with the long-term goal of conserving transportation funds. 

One of the recommendations of that strategic plan was to create a Fiscal Impact Model.  There are  a handful of fiscal impact models available nationally, ranging from a simple web-based estimate to a 6-mb Excel file developed by the Federal Reserve.  But each of these has notable shortcomings, either in terms of the value of the information generated, or in terms of its clarily and its ability to be used in day-to-day decisions.   Given three different states, one of which has a largely different local tax structure from the others, creating that model was understood from the start as a ground-breaking proposition. 

Next: how a fiscal impact analysis usually works, and how the OKI Model moves the needle.

The OKI Fiscal Impact Model — Finally ready to roll!

I spent a huge amount of time over the past year working with the Ohio-Kentucky-Indiana Regional Council of Governments and the University of Cincinnati School of Planning and Center for Economics Education and Research to develop a fiscal impact model that I think we can safely say is the most statistically sophisticated and the most user-friendly  fiscal impact analysis tool that exists, anywhere.  It’s an amazing resource, and the first media coverage of its rollout is here:

http://communitypress.cincinnati.com/apps/pbcs.dll/article?AID=/C2/20091103/NEWS/911030305&source=nletter-news

This is not exactly a Pulitzer Prize winner (it would have helped to spell the OKI Regional Planning Manager’s name right), but it does gives a little picture of what the potential impact of this tool is.  Since the article doesn’t really explain what it is, though, I’ll use the blog to give a little more explanation.  This will be the first of several articles designed to introduce people to fiscal impact, fiscal impact models, and how the OKI Model works. 

What’s fiscal impact?

A fiscal impact analysis is a process for estimating how a change in land use will cash flow from the local government’s perspective.   A fiscal impact analysis calculates the amount of revenue that would accrue to a local government as a result of a proposed development or plan scenario, and then it estimates the cost of the services that such a land use is likely to require. 

As you can tell, the first part is usually relatively straightforward (tax rate X units to be taxed, minus any credits or adjustments), and the second part is usually where it gets tricky.  Most governments know how much money they spend on different public services, but they don’t know what their actual per-unit cost is to deliver that service — they don’t know whether services to one type of land use cost more or less than another.  They might come up with an average, like an average cost per police run or average maintenance cost per lane mile, but those are more approximations for budgeting than actual information.   I wrote about this issue in a previous blog that highlighted the opportunties for better service cost management that would be available to local governments if they segmented and analyzed their data better.

The point of a fiscal impact analysis is to make the best possible estimate based on the information available.  And sometimes the information available is pretty slim.  But think about it: if your elected officials had a clear idea of how much it would cost to serve a new development, versus what revenues it would generate, how would that change land use planning decisions? 

Most of the time communities that want to know these answers conduct a fiscal impact study or pay a specialist to do the analysis.  They often come out with great information, but there’s two problems.  One, a fiscal impact study of a particular community is necessarily going to be limited by how the local government organizes and details its financial information.  If costs are lumped together, even the most diligent analysts may find that they simply have to make some educated guesses.  The second problem, of course,  is the cost of a one-off analysis. 

In recent talks I have been comparing a one-community fiscal impact analysis to a custom-made suit, and a fiscal impact model to a suit off the rack.  Both of them work; one fits almost perfectly, and one fits not quite as well (but still pretty darn good).  But the model makes fiscal impact available to local governments that could not afford the custom treatment.  And because the OKI Model draws on more than one community’s information, it can compensate for limitations, or just plain strangeness, in the local data.  Kind of like designing a suit after looking at hundreds of others, instead of trying to invent one from scratch.

So you could say that OKI wanted to make good suits available to everyone in their region, including communities that couldn’t afford the custom work.   Interested in how the story turns out?  Stay tuned!