|
 Uncertain
Future for Tech-Based Economic Development
July 14, 2003
By
James
Klein, Larta VOX Editor
In
the last ten to twenty years, several regions of the
United States have developed strong local economies
based on fast-growing high-technology industries. Encouraged
by these successes, public and private sector groups
in many regions have launched initiatives to promote
high-technology development of their own. This trend
first started in the 1990's, when the growth of Silicon
Valley spawned a large number of initiatives, each tagged
with the "silicon" moniker. Some examples:
Silicon Hills (Austin), Silicon Alley (New York) and
overseas, Silicon Fen (Scotland). Now, with the bursting
of the tech "bubble", the trend has abated
only slightly, supporting the notion that economic development
lags market realities. Some tech-based economic development
programs have been cut as a result of states' budget
shortfalls, but others are being created in the hope
that they'll attract and grow new businesses, which
will increase future tax revenues.
While
economic Development means many things to many people,
any discussion of tech-based economic development inevitably
leads to a discussion of incubators. To many economic
development initiatives nationwide, it also means redesigning
government programs like Enterprise Zones and redefining
such development staples as industrial parks and office
parks in order to spur technology business development.
These projects have had mixed results, affected as they
are by larger economic trends; state, federal and local
politics; and the success or failure of individual participating
businesses. And while tax breaks (available in Enterprise
Zones, for example) and utility discounts (Offered in
most state and regional economic development packages)
help, it takes more to make businesses succeed. Nevertheless,
a strong federal commitment, combined with creative
local coalition building has contributed to the continuing
popularity of technology-oriented economic development
programs.
Federal
Commitment
Many
economic development programs are funded through federal
grants and a combination of state and local matching
funds. Much of the federal portion comes from the Department
of Commerce's Economic Development Administration (EDA),
which was created to generate jobs, help retain existing
jobs, and stimulate industrial and commercial growth
in economically distressed areas of the United States.
EDA has invested more than $16 billion in grants and
generated more than $36 billion in private investment.
EDA provides direct grants, on a cost-share basis, for
projects that will create and retain private-sector
jobs and leverage public and private investment. Nationwide,
EDA supports 320 Economic Development Districts (EDDs),
staffed and operated locally, to help communities meet
long-term economic challenges. Some of these programs
continue to support technology initiatives even after
the enchantment with tech incubators has somewhat worn
off in the aftermath of the tech industry downturn.
Despite
the sullied reputation of the technology economy, tech-oriented
economic development projects continue to be funded
around the country. The current White House administration
is committed to technology-based economic development.
The Commerce Department issued a report recently to
forward President Bush's goal of helping American communities
compete in an increasingly complex, technology-driven
world. Strategic Planning in the Technology Driven World:
A Guidebook for Innovation-led Development explains
how communities can succeed in planning and promoting
technology-based economic development. The guidebook
examines successful regional economic development initiatives,
describes the "how to" of strategic planning
for successful development, provides guidance for conducting
a regional assessment, and includes a list of technology
tools and resources for strategic planning.
"President
Bush is committed to strengthening the nation's economy.
Economic development practitioners identified information
on local technology strategic planning as a critical
need. This guidebook provides the information and resources
needed for communities to enhance their ability to plan
tech-based economic development projects that will enhance
their success in attracting private-sector investment
and high skill/wage jobs," said Assistant Secretary
for Economic Development David A. Sampson.
Enterprise
Zones
An
Enterprise Zone is a defined geographic area in which
businesses can claim certain state income tax savings
and other advantages. Though the evidence is lacking
to conclude that companies have a greater success rate
in enterprise zones, or that these programs significant
contribute to a state's overall economic welfare, companies
are continuing to move into enterprise zones around
the country. As should be expected, often the companies
that move into these zones do so only in order to use
the incentives, with no longer-range plan to deal with
changing circumstances in their industry or business
(which may affect their overall growth more than the
small uptick provided by the incentives).
One
of the most comprehensive studies of Enterprise Zones
was done at the Carnegie Mellon Center for Economic
Development. The study, Cluster-Based Community Development
Strategies: A Guide for Integrating Communities with
Regional Cluster Strategies, released March 19, 2002,
emphasizes the best practices of the most successful
Enterprise Zone projects. The study used several criteria
to measure the effectiveness of Enterprise Zones, including
the actual number of jobs created, and the number of
qualified businesses participating in the programs.
Two
states that have used Enterprise Zones extensively are
New Jersey and California. Few programs have proven
more successful than the New Jersey Commerce & Economic
Growth Commission's nationally acclaimed Urban Enterprise
Zone (UEZ) program. Since 1984, it has been a hallmark
for urban revitalization and a cornerstone for economic
growth and development. Enterprise Zones were created
in California to stimulate business investments in areas
that are economically disadvantage as well as spur job
growth in areas of high unemployment. The state of California
has designated 39 locations as Enterprise Zones. Companies
participating in California Enterprise Zone projects
receive income tax relief and other benefits, including
tax credits on up to half the wages paid to qualified
new employees, and for sales taxes paid on equipment
purchased for manufacturing or production purposes.
There is no comprehensive study of California's success
in promoting job growth, sustaining communities and
building an economic base through the use of enterprise
zones, and the limited anecdotal evidence that is available
in such cities as Los Angeles does not support a definitive
conclusion as to their effectiveness. However, Marina
del Rey benefited well. The area was designated an Enterprise
Zone shortly after the riots in L.A. in 1992, and by
1996, the area's growth mirrored the extraordinary rise
of the dot coms. Since the burst of the bubble, other
tenants have moved into space formerly occupied by the
high-flying dot coms, and the area remains a hub of
economic activity, primarily in the service and support
industries like marketing and logistics.
Some
states are jumping on the Enterprise Zone bandwagon.
Officials in Maine announced a plan May, 2003 to create
eight enterprise zones to promote economic development
around the state. Companies within the enterprise zones
would receive special tax breaks and other incentives.
Despite considerable efforts to advance the plan, however,
there is growing opposition from those who argue in
favor of more investment in education, health care and
infrastructure improvements rather than benefits for
corporations. It was reported at the end of May, 2003
that Minnesota will create several "tax-free zones"
for businesses. Gov. Tim Pawlenty, who has championed
the controversial concept, is expected to sign legislation
that will establish up to ten "Job Opportunity
Building Zones" (JOBZ) in greater Minnesota. Revenue
forecasters now estimate the potential costs of the
JOBZ program to be at least $5 million annually. Officials
in Southington, Connecticut, home to the largest enterprise
zone in Connecticut, announced recently that six industrial
companies have made plans in 2003 to relocate their
operations to Southington.
Incubators
and Technology Centers
Even
incubators, which have largely fallen out of favor,
are attracting federal technology-oriented economic
development grants. Pennsylvania's Pottsville/Schuylkill
Technology Incubator announced May 16, 2003 that it
had received a $400,000 federal grants from the EDA.
The Montana Technology Enterprise Center in Missoula
County received $702,540 from the EDA to fund construction
of Phase II of the MonTec business incubator. The Ben
Hill-Irwin area Joint Development Authority of Fitzgerald,
Georgia, and Fitzgerald Water, Light & Bond Commission
got $1,300,000 in federal EDA grants for the development
of a new technology business park.
The
City of Anderson Redevelopment Commission, and Anderson
University in Anderson, Illinois was granted $1,603,000
by the EDA to construct a manufacturing technology-based
business incubator to be known as the Anderson Business
Development Center. New Jersey City University in Jersey
City, New Jersey received $1.5 million from EDA to rehabilitate
a vacant building for use as a computer-technology business
incubator facility. The City of Alexandria, Louisiana
won a $900,000 EDA grant to support the renovation of
a building for a business incubator. University of Texas
at Arlington, Texas received a $1.4 million EDA grant
to assist in acquiring and renovation an existing office
building as the Arlington Technology Incubator.
A
proposal was presented early May, 2003 by a coalition
of development groups seeking to build a showcase technology
facility in Franklin County, Pennsylvania. It is hoped
the 25,000 square-foot building will be constructed
using federal EDA grants, which are expected to pay
for as much as half of the anticipated $2 million cost
to develop the facility. The Franklin County Area Development
Corporation and Chambersburg Area Development Corporation
are partners in the plan to purchase a six-acre tract
in the business park for the high-tech, multi-tenant
building.
Coalition-building
Essential
One
of the challenges for economic development projects
is putting together the matching funds required to qualify
for government grants. U.S. Representative Tim Holden
emphasized the cooperative nature of the programs in
an interview that appeared in the Pennsylvania Shamokin
News-Item. "This really is a partnership,"
said Holden about the Pottsville/Schuylkill Technology
Incubator. "We have the Commonwealth of Pennsylvania,
which has made a significant investment of about $300,000
in this incubator. There's SEDCO, the Redevelopment
Authority, the City of Pottsville, the county commissioners
- everyone has come together for what we perceive to
be a great cause and great effort for economic development.
The federal government has already participated with
a $100,000 grant from the Department of Agriculture."
Office
and Industrial Parks
Sometimes
just providing commercial real estate is enough for
a project to build momentum and attract federal grants.
A New Hampshire state development agency announced May
16, 2003 that it will receive a $358,000 federal EDA
matching grant to the New Hampshire Community Development
Finance Authority (CDFA) to assist its efforts to build
a 39-acre corporate office park.
Regions
can benefit from government money even by improving
services in industrial parks. The City of Vineland,
New Jersey, announced June 3, 2003 that it had been
awarded a $1.66 million federal grant to boost sewer
and water services in the city's industrial park. The
grant was awarded to the City of Vineland and the Landis
Sewage Authority to help with the $2.4 million cost
of the project.
On
June 5, 2003, the Scott County Economic Development
Authority, the Virginia Tobacco Indemnification and
Community Revitalization Commission, and the Virginia
Coalfield Economic Development Authority announced a
$2.5 million expansion of the Duffield Industrial Park.
The Virginia Tobacco Indemnification and Community Revitalization
Commission agreed to grant a total of $1.66 million,
while the commission's Southwest Economic Development
Committee agreed to spend $830,000 on the project. It
is hoped the EDA will provide the remaining one-third
of the $2.5 million needed for the project.
Sector
Specific
Some
economic development projects focus on specific technology
sectors, such as the biotechnology industry. On May
20, 2003, it was announced that the Economic Development
Administration is contributing $432,850 toward the funding
of the Thomas M. Teague Biotechnology Center, a biotech
park in the City of Fairfield, Maine. The Biomedical
Research Foundation of Northwest Louisiana secured over
$1 million in federal funding to jumpstart tech-based
economic development in Shreveport, Louisiana. The US
Department of Housing and Urban Development's Economic
Development Initiative Program is providing the funding,
which will go toward obtaining land for the Foundation's
InterTech Science Park and purchasing equipment for
a $10 million wet lab incubator. Construction of the
60,000 square-foot incubator is expected to begin later
this year. The Foundation promotes economic development
by supporting enterprises that advance healthcare delivery,
medical research and medical technology. TCU California
Community Partnership, Inc. in Colton, California received
$2 million from the EDA to construct the Energy Technologies
and Resource Complex.
States
Go It Alone
States
and cities sometimes create economic development programs
without the benefit of federal money. The City of Camden,
New Jersey is offering banks and insurance companies
rebates of as much as 100 percent of their corporate
taxes for up to 10 years to relocate into or expand
operations in the city. The program has already attracted
Cigna Corp., which is considering relocating its corporate
offices and 1,500 jobs to Camden. Camden is benefiting
from a state revitalization plan that calls for the
investment of $175 million in the city over the next
five years. Minnesota will create a biotech tax-free
zone aimed at building a biotech industry on the coattails
of research at the University of Minnesota and the Mayo
Clinic. It would be located near one or both of the
institutions.
Transportation
Infrastructure
Projects
to improve transportation infrastructure to business
parks have also received federal grants. Haines City,
Montana is receiving an EDA grant to reactivate a freight
rail spur into an anticipated office and industrial
park. The city's financial commitment on the $2.8 million
project is roughly $400,000 after it receives the federal
money. The business park is currently envisioned as
a equal divide between office and industrial use. April,
2004 is projected as the date when the first boxcars
will roll into the 340-acre commercial-industrial park.
In 2001, the City of Newburgh, New York received $1,750,000
from the EDA to provide road, water and sewer infrastructure
to support the creation of a 17-acre Medical Technology
Office Park and the construction of an 8,460 square-foot
Medical Technology Incubator Building.
Some
Programs Cut
Opponents
of economic development find a tenuous connection at
best between economic development investment and returns,
citing the example of the State of Texas, which was
dead last in its program spending on economic development
per capita, yet ranked 19th in per capita GSP. More
recently, in 2000, California was dead last in per-capita
spending on economic development programs and eighth
among the states in per capita GSP.
Hundreds
of academic studies on economic development have been
published in peer-reviewed journals over the last decade,
covering everything from tax-incentive and job-training
programs to property tax abatements and enterprise zones.
These studies have shown mixed results and returns from
these programs, and they generally reinforce skeptics'
observations. Terry Buss of Suffolk University produced
an academic report on economic development programs
in 2001 in which he examined 300 academic papers on
the subject, and concluded: "Studies of specific
taxes are split over whether incentives are effective,
though most report negative results."
Whether
the evidence is irrefutable or not, it is clear that
some enterprise zones will not be refunded. When the
Louisville Enterprise Zone program expires at the end
of 2003, it will bring an end to tax breaks and other
incentives for the roughly 1,300 qualified businesses
in the zone, reported the Southern Illinoisan newspaper.
The loss of the project, which is part of Kentucky's
Enterprise Zone program, is expected to significantly
hinder the metro area's ability to attract new businesses.
At 81.77 square miles, the Louisville zone is the largest
in the country in terms of size. The State of Louisiana
has nine other enterprise zones in Hickman, Ashland,
Covington, Owensboro, Lexington, Knox County, Campbell
County, Paducah and Hopkinsville. The 20-year designations
for the zones begin to expire at the end of 2003, and
some of them will probably not survive the forthcoming
budget battles. Other zones may face the same problems
receiving new funding as those encountered by the Louisville
project. The Michigan Economic Development Corporation
(MEDC) is coming under increasing scrutiny as Michigan
tries to reduce its mounting budget deficit. Legislators
in Oregon are considering eliminating tax breaks totaling
$225.3 million, including exemptions for e-commerce
enterprise zones.
Other
programs are struggling with companies that fail to
meet designated targets. Cincinnati and Hamilton County
in Ohio are reporting a sharp increase in the number
of businesses failing to meet job growth and investment
targets required in tax break contracts established
to save the companies millions, as reported in the Cincinnati
Enquirer. It is estimated that 30% of the companies
involved in tax-abatement programs fail to meet requirements.
City and county politicians are reviewing each agreement
and determining whether these firms should continue
to benefit from the tax breaks. A Hamilton County report
shows 36 of 119 companies fell short of job and investment
projections. County staffers recommend eliminating tax-break
pacts with four of these businesses.
Getting
The Word Out
Some
programs are struggling because they can't find businesses
to take advantage of their generous incentives. As reported
in the Washington Business Journal, the District of
Columbia has the authority to grant as much as $225
million in Enterprise Zone funds each year to local
hotels to pay for renovations and makeovers. So far,
however, none of the roughly 36 eligible hotels has
applied for the money, while others in the District
are spending millions of dollars of their own money
on makeovers, preparing for the throngs of conventioneers
who are expected to pack the new Washington Convention
Center. The problem is that most hotels within the D.C.
Enterprise Zone don't know about the money. The low-interest
loan program is administered by the DC Office of Planning
and Economic Development, which is taking steps to close
the information gap.
Mixed
or inconclusive results, a stale economy, and continuing
budget woes will increasingly put economic development
programs under the microscope and possibly onto the
guillotine. In the final analysis, however, these programs
are neither all good nor all bad. Economic development
can work well when it is properly planned, executed,
and publicized, but the vagaries of politics and the
uncertainties of the future leaves the ultimate fate
of these programs in question.
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