Tailoring Incentives to Support an Economic Development Strategy

January 28, 2013

By:Kathleen Baireuther, TIP Strategies

The New York Times’ United States of Subsidies series published in December of 2012, raised a number of issues surrounding the use of business incentives by state and local governments. The Times “tallied thousands of local incentives granted nationwide and has found that states, counties and cities are giving up more than $80 billion each year to companies.” The article also identifies 48 companies that have received over $100 million since 2007 and highlights the disparities in incentive awards among states through a searchable database of incentives.

Not surprisingly, the series has generated a great deal of discussion among development professionals. Although the $80 billion figure has been questioned for its inclusion of sales tax rebates, many of the key challenges surrounding business incentives discussed in this series should not be overlooked. The tactical hurdles associated with negotiating with private companies, measuring economic impact, tracking return on investment, and establishing mechanisms to monitor compliance are important to any community engaged in negotiating performance agreements.

At TIP Strategies, we appreciate the complexity of negotiating a policy for the effective use of incentives. If structured well, however, incentives are one of the many tools available to economic development practitioners that can be applied by community leaders to help shape the direction of a local or regional economy.

We were recently engaged by a client to analyze the incentives policies of peer communities. A review of the peer communities identified in the city’s strategic plan, major employers, and target industries resulted in the identification of eight possible competitors. Information around each community’s incentives policy, review process, compliance requirements, and return on investment metrics was gathered through phone interviews and web research October-December 2012. A brief summary of our key findings is below:


• Communities with formal incentives policies tended to also have a clearly-articulated incentives process and compliance review. Interviewees noted that the combination of a strategic plan for economic development and a formal incentives policy allowed them to negotiate performance agreements with more confidence. City councils generally upheld existing strategy documents and incentives policies when voting on specific deals.

• Many of the communities were willing to share examples of performance agreements. Overall, these contracts are highly-customized, detailed documents that include a number of provisions to protect the municipality in the event of non-compliance by the business partner. The agreements generally provide for a series of specific remedies, such as interest on fees owed to the city, as well as the cost of pursuing payments associated with a clawback agreement.

Performance agreements are often “back-loaded.” Under this model, business partners are required to complete a formal reporting process before incentives (often in the form of tax rebates) are awarded. Agreements are generally tied to a timeline and are capped at a maximum dollar amount per year.

• Austin, TX, and Charlottesville, VA, do not generally award large incentives packages. The approval of local incentives makes it possible, however, for state funds to be leveraged as part of a negotiation on a case-by-case basis. For example, in the performance agreement between the City of Austin and Facebook, $200,000 in City incentives was awarded over a 10-year period. The State of Texas added $1.4 million to the deal.

• Many incentives policies that were developed prior to 2005 are currently being re-evaluated. Austin, TX, and San Diego, CA, for example, both plan to re-vamp their incentives policies during 2013 and have already assigned special committees with the task of reviewing existing policies.

• Although almost every community interviewed conducts some form of economic impact analysis prior to entering into a performance agreement, not all communities have clear, stated processes to evaluate return-on-investment on an ongoing basis. Of the communities interviewed, Austin, TX, has the most transparent and consistent compliance process.

• The strategic planning process can serve as a platform to enter into conversations about roles and responsibilities around economic development activities in a region and clarify expectations among parties. For example, the Portland Development Commission and the City of Loveland, CO, both have updated strategic plans that attach “responsible parties” to key strategies and actions. The importance of a strategic plan for regional efficacy in economic development is also highlighted in the 2012 Performance Audit of San Diego’s Economic Development Program. Not only does this audit highlight the role of a strategic plan, but it also emphasizes the how the City can play a central, coordinating role for the entities involved in economic development in the region.

Health Centers Find Opportunity in Brownfields

December 11, 2012

By: Ronda Kaysen
Via: The New York Times

Spectrum Health Philadelphia
PHILADELPHIA — The community health center rising on a derelict corner here in West Philadelphia never would have broken ground if not for the asbestos inside the building that was demolished to make way for it. Because of the contamination, Spectrum Health Services received a $2 million federal cleanup grant, the first piece of a $14 million construction financing puzzle.

When complete, the 36,000-square-foot building will provide a new home for a health center that has been squeezed into a deteriorating strip mall nearby for decades. It will also be the latest in a nationwide trend to replace contaminated tracts in distressed neighborhoods with health centers, in essence taking a potential source of health problems for a community and turning it into a place for health care. In recent years, health care facilities have been built on cleaned-up sites in Florida, Colorado, New Hampshire, Minnesota, Oregon and California.

“These health care providers are getting good at it,” said Elizabeth Schilling, policy manager for Smart Growth America, an advocacy group. “They have internalized the idea that this is an opportunity for them.”

Because these sites are contaminated, many qualify for government tax credits and grants, providing health centers with vital seed money to build. Community health centers, by design, exist to serve populations in poor neighborhoods, where there also tend to be available but contaminated properties like old gas stations, repair shops and industrial sites.

In fact, many of the country’s 450,000 contaminated sites, known as brownfields, are in poor neighborhoods, according to the Environmental Protection Agency. These tracts are disproportionately concentrated in poor communities because contaminated sites are more difficult to redevelop if property values are depressed. Banks are often reluctant to finance construction on a property that might require a costly cleanup.

“In communities where the real estate market isn’t working that well, you end up with a brownfield,” said Jody Kass, executive director of New Partners for Community Revitalization, a brownfield advocacy group.

“It’s a Catch-22,” said Phyllis B. Cater, chief executive of Spectrum Health Services. “The environmental issues are significant and yet there are scarce resources for communities to do the cleanup and remediation that’s required.”

But if the state or federal government provides the first piece of financing, other funders are more likely to fall into step.

Community health centers, in particular, are under pressure to grow. By 2015, the number of Americans who rely on community health centers for care is expected to double to 40 million from the 20 million who relied on the centers in 2010, according to the National Association of Community Health Centers. The Affordable Care Act allocated $11 billion to expand these centers. Of that, $1.5 billion was allotted to construction.

But finding a viable site is not always easy. It took Spectrum 15 years to find its new home on Haverford Avenue. The original building, an aging medical office, went up for auction in 2007 after the owner was arrested on a tax evasion charge. Spectrum bought the property for $650,000. Ms. Cater speculated that if Spectrum hadn’t bought the site, it most likely would have fallen into disrepair like the decaying row houses and the dilapidated bodega across the street that Spectrum hopes to redevelop eventually.

Spectrum currently occupies 10,000 square feet in a rundown strip mall four blocks away. The center is divided among three crowded spaces, so employees must walk outside to get from the medical offices to the billing department. The treatment rooms are dreary and cramped, with holes in the drywall and collapsing ceiling panels.

“I’ve seen better centers in rural Mississippi. This is not how you support a community,” Ms. Cater said.

When it opens next summer, the new, three-story center will have 34 exam rooms, eight dental rooms, a spacious community center and a full-service laboratory. It will also employ twice as many people as the current facility, adding 66 jobs to Spectrum’s payroll.

The 50-year-old building was in poor shape, but it was the presence of asbestos that allowed Spectrum to qualify for the critical first piece of financing: a $2 million brownfield redevelopment grant from the federal Department of Housing and Urban Development. The organization also received an additional $2 million H.U.D. loan that was tied to the brownfield grant, a $1.7 million redevelopment grant from Pennsylvania and $3.45 million in other loans.

“Brownfield cleanup dollars tend not to be very big dollars, but they’re important dollars as a funding mix,” said Allison Coleman, chief executive of Capital Link, a nonprofit group that helped Spectrum secure financing for the development.

There is no data on how many health centers sit on cleaned brownfields. The effort is gaining traction, however, particularly in Florida, where local government officials, environmental advocates and health center developers have led an ad hoc movement. As an incentive, the state provides developers who redevelop a brownfield into a health center with tax credits of up to $500,000.

Supporters in Florida have toyed with various names for the concept, like Doc in a Box, healthfields and Highway to Healthcare.

“The concept in Florida has proven to be not only needed, but viable,” said Michael R. Goldstein, an environmental lawyer in Florida who specializes in brownfield redevelopment. “We are just at the beginning of the journey here. I predict that in the next two years we’ll have close to two dozen across the state.”

The first of these centers to open in Florida was a tiny clinic in Clearwater on a redeveloped abandoned gas station in 2001. Since then, other health center organizations have opened similar facilities around the state.

In 2010, Tampa Family Health Centers opened an 18,000-square-foot facility on the site of a former Saturn dealership that had underground fuel storage tanks, hydraulic lifts in its service center and oil disposal tanks. The $6.7 million project was partly financed with federal stimulus money.

The new center, in a working-class neighborhood, serves about 10,000 patients a year. Situated on a busy commercial strip, the location was critical for the organization, which has 12 other centers in the area.

“This was an ideal location for us in so many respects,” said P. David Bonham, chief operating officer of Tampa Family Health Centers. “We simply knew that we had the need here.”

In some cases, the cleanup involved is extensive. In 2011, Elliot Hospital opened a 240,000-square-foot ambulatory care facility on the site of a former Tyson meatpacking plant in Manchester, N.H. The plant, which dated to the 19th century, had at one time been a slaughterhouse. Among the contaminants was a 10,000-gallon concrete tank that had stored the blood of slaughtered animals.

“We had to assure ourselves that we would be able to appropriately clean the site,” said Doug Dean, president and chief executive of Elliot Hospital. As part of the demolition, the original building was crushed and used as gravel fill for the parking lot.

The former plant had been shut for five years and added to the blight of what had become a red light district. The new $100 million ambulatory center is the first phase of a 17-acre redevelopment plan that will include an 111,000-square-foot medical office building, a three-story residential building, 13,000 square feet of commercial space and a four-acre riverfront park.

“When you look at revitalizing a community, these kinds of uses tend to be the first anchors,” said Mathy Stanislaus, an assistant administrator for the Environmental Protection Agency.

For the Centennial Mental Health Center in rural Sterling, Colo., the neighborhood eyesore, a 1920s coal processing plant, has been sitting across from Centennial’s main clinic for decades. But a local development team has begun to clean the site and Centennial hopes it will be able to expand onto part of the site, using it for patient parking.

Elizabeth Hickman, Centennial’s executive director, said: “If all goes well we will feel pretty privileged to have a piece of that corner of Sterling that nobody wanted or knew what to do with.”

A Georgia Main Street Paved in Red Carpet

December 2, 2012

By: Robbie Brown
Via: The New York Times

House from Fried Green Tomatoes
SENOIA, Ga. — Unlike so many recession-weary towns, Senoia has a bustling Main Street. Dozens of new stores have opened, including a sushi bar, an antiques vendor and an Irish pub. City Hall has been repainted with money from the soaring tax revenues.

The reason? Filmmaking.

This is the quaint, small town that plays a quaint, small town on television and in the movies. Hollywood filmmakers come here when they need a Mayberry backdrop or a row of mom-and-pop storefronts. The community of 3,300 people, 25 miles south of Atlanta, has been the site of 24 shows and movies, from current hits like “The Walking Dead” and “Drop Dead Diva” to Southern classics like “Fried Green Tomatoes” and “Driving Miss Daisy.”

With film crews bringing in money and publicity, Senoia (pronounced sen-OY) has avoided the empty downtowns and shrinking tax bases that plague many rural towns. The population has nearly doubled since 2000. Property tax revenues have risen even though the city has lowered its tax rate and the fact that Georgia, over all, has among the nation’s highest foreclosure rate.

“It has been like turning on a fire hose of cash,” said Scott Tigchelaar, the president of Raleigh Studios Atlanta, a division of an international production company.

Senoia did not lure Hollywood on its own. Georgia lawmakers helped, passing lucrative tax credits for filmmakers and promoting the state’s cheap labor costs, few unions and access to the world’s busiest airport, in Atlanta. The money brought into the state through filming — including music videos and television commercials and other projects — has soared to $879 million from $260 million in 2008.

No city took advantage of the Georgia filmmaking bonanza as much as Senoia. The first movie made here was “Driving Miss Daisy,” which was released in 1989, and a movie or television show has been filmed nearly each year since, including “Sweet Home Alabama” in 2002, “Meet the Browns” in 2008 and “Footloose” in 2011.

By far the biggest project has been “The Walking Dead,” the hit zombie show on AMC that is the highest-rated drama of all time on basic cable channels. In the current season, Senoia plays the fictional town of Woodbury, Ga., a heavily armed haven for zombie survivors. Last season, most of the filming was done at a farm outside town.

Much of life in the real town revolves around the zombie show. Main Street was closed to traffic for 30 days this summer and fall for filming. The city stopped mowing its grass to appear post-apocalyptic. Fake buildings for a bank, travel agency, law firm and bookstore were so realistic that some customers tried to walk in.

Senoia does not charge filmmakers who come to town, but it makes money in other ways. Cast and crew members dine, shop and sometimes live here. Raleigh Studios employs as many as 250 people. And store owners say profits rise by up to 30 percent during filming.

Tourists have come from around the world. Self-proclaimed Walker Stalkers hover off the set for cast members. Keith Boldt, a truck driver from nearby Newnan, Ga., has stayed up until 4 a.m. to watch key scenes being filmed. “You get the spoilers before they air,” he said. “I’ve met almost every cast member who hasn’t been killed off yet.”

To foster tourism, the city built a replica of Hollywood’s Walk of Fame, with gold plaques honoring locally made films. Soon there will be a trolley-car tour of the filming sites.

Senoia’s slogan (“The perfect setting. For life.”) clarifies that it is a small town doubling as a movie and television set, and not vice versa. But the attention can be overwhelming.

“It feels like living on a film set,” said Todd Baggarly, owner of Founders Restaurant, whose great-great-grandfather founded the town in 1860. “One of the biggest cable shows in history films on one block of a small town in Georgia, and it happens to be our town.”

Not long ago, Senoia looked like most hard-hit rural towns. There were only seven stores on Main Street in 2006, compared with 49 today.

The largest landowner is Senoia Enterprises, a development company run by Mr. Tigchelaar of Raleigh Studios. Since 2006, his company has bought and restored more than half of the stores downtown. Using an architecture firm that specializes in historical renovations, the company has rebuilt bars, restaurants and shops as they might have looked in the late 19th century.

The result is a Norman Rockwell setting for the newly rich. Zac Brown, the country music star, owns a restaurant and concert space. There are 4,000-square-foot brownstones with elevators and five bedrooms that sell for $500,000. Developers are also planning a hotel. The goal is to attract empty-nesters from Atlanta and its wealthy suburbs who are drawn by the simplicity of small-town living, with a Hollywood twist.

“We like to say we’re 25 miles and 100 years from Atlanta,” Mr. Tigchelaar said.

Not everyone in town shares that vision. “It’s a double-edged sword,” said Wayne Peavy, the owner of an antiques store. “It’s good for business. But it’s not the small town I moved to.”

Others are embracing the changes. Mr. Baggarly has installed Hollywood props at his restaurant: a white reindeer from “The Chronicles of Narnia” film series overlooks the bar, and a bazooka fired by Patrick Swayze is mounted on the wall. “We’re buying velvet ropes,” he said. “And of course, there will be a red carpet.”

On-shoring/Re-shoring Trends in US Manufacturing

October 26, 2012

by Siobhan Dilly, TIP Strategies

It is well-known that US manufacturers have spent the past 30 years off-shoring production in pursuit of low-cost labor and economies of scale. This trend has had significant ramifications for the landscape of the US economy, in which manufacturing as a share of total employment has fallen by more than 40% since its peak in 1979. Off-shoring, however, is no longer the default choice for US manufacturers. Issues with logistics, culture clashes, intellectual property, and quality control have made on-shoring or re-shoring more attractive. According to Boeing chief executive, Jim McNerney:

“We, lemming-like, over the last 15 years extended our supply chains a little too far globally in the name of low cost. We lost control in some cases over quality and service when we did that, we underestimated in some cases the value of our workers back here.”

Companies participating in this counter-trend note a range of advantages associated with producing on-shore, from better quality control, improved responsiveness to product changes, more logistical flexibility and lower shipping costs, to simply operating in the same (or a similar) timezone. Small businesses in particular see an advantage in domestic manufacturing, which frees them from the challenges of financing the required bulk orders from Chinese manufacturers. Larger businesses have found savings by eliminating the need to send employees to China and India to oversee production processes.

A series of reports released by Boston Consulting Group has found that rising US competitiveness, next to rising costs in China, will result in 10 to 30 percent of US imports from China being moved to the US in the seven tipping-point sectors: transportation goods, appliances and electrical equipment, furniture, plastic and rubber products, machinery, fabricated metal products, and computers and electronics. Along with this prediction, BCG anticipates the return of manufacturing work to the US, along with increased exports, will create 2 to 3 million jobs, both directly from added factory work, and indirectly via supporting services. BCG also found that increased US per worker productivity means the average US worker is 35 percent cheaper then the average Western European worker, up from 12 percent a decade ago. They expect this gap will continue to widen.

The Massachusetts Institute of Technology (MIT) recently released the results of a survey as part of their Forum for Supply Chain Innovation. The survey found that 14% of 108 respondents were definitely planning to move some of their manufacturing back home, and 33% were considering re-shoring. Google, GE, Caterpillar, and Ford are examples of large companies that have announced plans to move some of their production to the US. Although this is generally positive news for the US economy, continued high unemployment indicates this trend has yet to make significant inroads.

A Co-Working Space For People Who Give A Damn Explodes In Los Angeles

October 11, 2012

By: Zak Stone

The co-working network The Hub’s L.A. outpost just opened, but it’s already taking off. The model: Less leased office space than collaborative space for people with shared values.

If you find yourself at the Hub L.A. on a post-industrial block of downtown Los Angeles, you’ll encounter all the features you might expect from a co-working space: Raw-wood planters and ample natural lighting. Zig-zagging communal tables, ready to host a row of MacBooks. Wall-sized white boards marked up with words like “inspire” or “collaboration.”

But click “Apple + F” on the Hub’s website, and you won’t find the word “co-working” written a single time. Rather, co-founder Nick Kislinger calls the Hub a “members’ space for people who give a shit.” While the 4,000-square-foot former warehouse may be ideal for cranking on a laptop all day, those in charge of Hub L.A. insist that the physical space is just the beginning of an exclusive social experience and community–portending a model of co-working spaces that’s more like a Soho House for social impact professionals.

While many co-working spaces feature business accelerator workshops and social events, CEO and co-founder Elizabeth Stewart says that the Hub will go beyond that to serve the “whole person” with programming for “personal development or professional development.” And they’ll attempt to create a new community of urban entrepreneurs united around sustainability and digital media.

That means putting a cafe on-site, and organizing events like a release party for a book about “changes in consciousness,” a lecture on permaculture, a workshop on sustainable infrastructure, or a short-film festival.

And it also means letting the right kind of person in. On the application, members must demonstrate a commitment to social impact through their professional aspirations. Individual memberships range from $25, which gets an open invitation to the events, to $510, for unlimited access to the space (about twice as much as full-time access to more typical co-working spaces downtown). According to Kislinger, a “dedicated impact media lab” geared at “Inconvenient Truth-style” media-makers will soon open.

So far, the concept seems to be working. Despite only being officially open for little more than one week, nearly 100 of 600 slots for members have already been filled, according to Stewart. Two four-person mini-offices, called “hub-lets”–which require at least a six-month lease–are already occupied by OkCupid Labs and Verynice, a consultancy for social design.

And it also means letting the right kind of person in. On the application, members must demonstrate a commitment to social impact through their professional aspirations. Individual memberships range from $25, which gets an open invitation to the events, to $510, for unlimited access to the space (about twice as much as full-time access to more typical co-working spaces downtown). According to Kislinger, a “dedicated impact media lab” geared at “Inconvenient Truth-style” media-makers will soon open.

So far, the concept seems to be working. Despite only being officially open for little more than one week, nearly 100 of 600 slots for members have already been filled, according to Stewart. Two four-person mini-offices, called “hub-lets”–which require at least a six-month lease–are already occupied by OkCupid Labs and Verynice, a consultancy for social design.

New Campaign Highlights Apparel ‘Made in Los Angeles’

August 23, 2012

By: Jeff Tyler
Via: NPR Marketplace

A sewing machine
Jeff Horwich: Today, the apparel industry’s largest trade show kicks off in Vegas. And this year, the mayor of Los Angeles will be there, promoting a “Made in LA” campaign.

Here’s Marketplace’s Jeff Tyler on the surprising rise of a new American clothes-making hub.

Jeff Tyler: At this factory in downtown Los Angeles, large knitting machines transform yarn into fabric. What distinguishes this city from fashion hotspots like New York or Paris?

Pat Tabassi: We’re a great hub for the casual ‘L.A. chic’ look.

Pat Tabassi is marketing manager for Design Knit, a textile manufacturer. She says the company considered relocating to Shanghai, but decided the move would add time to their production process.

Tabassi: It’s really about efficiency. Because everyone wants to get their goods out as quickly as possible.

Los Angeles specializes in what’s known as ‘fast fashion’ — style as set by celebrities. Ilse Metchek is president of the California Fashion Association. She says L.A. designers have a moving target.

Ilse Metchek: You have 10 weeks to define what’s hot. And in 10 weeks, it’s not.

Companies based here can jump on a trend before it goes out of style.

Metchek: That’s what we’re all about. Built-in obsolescence.

From the home of built-in obsolescence, I’m Jeff Tyler for Marketplace.