The recession of the last two years has again focused attention on how local governments address the mechanics of securing the tax base, job generation, and restructuring internal systems to facilitate economic development.
Communities have recognized that many of the pre 2007-8 economic development processes and tools may not be applicable in the post recession economy. Further, the foundation of a resurgent economy must be based on forging new economic policy. Regardless of the conditions, economic development policy is the base to which planning, zoning and code enforcement trace their roots. It is also the driving source by which local governments interact with the business and development community.
Geneva Analytics, Ltd. contends that there is a co-dependence between government and economic development; the co-dependence is rooted in three fundamental principles:
- The success of local government is directly dependent upon the success of the citizens and the economic base of the businesses and industries upon which their livelihood is based.
- The economic health of the citizens and business community is dependent upon the growth of household income, access to quality education and the expansion of employment opportunities throughout the community and region.
- Municipal government must provide cost effective, proactive, efficient management of municipal services that directly benefit both citizens and businesses alike.
The economics of both Federal and State government are driving local governing bodies to restructure for self-reliance. Municipal government must take steps to reduce costs and improve efficiency by adopting management strategies such as restructuring, reorganizing, re-engineering, rightsizing, and privatization.
Where feasible, local government must implement programs to recover costs through user, development impact, and urban growth management fees and benefit assessments.
However, where the steps taken to reduce and recover costs and its economic base are still not generating sufficient revenue to fund general services, the City will eventually be forced to adopt one or more of the following strategies:
- Encourage land uses, developments and businesses that pay their way from non-discretionary taxes (sales, property, subventions)
- Discourage land uses, developments and businesses that do not pay their way
- Reduce services
- Raise discretionary taxes (business license, utility users, etc.)
Communities, where service levels are lower and/or discretionary tax rates are higher, operate at a distinct disadvantage in their ability to retain and attract businesses. To remain competitive, communities must seek to shape their economic base by pursuing land uses, developments, and businesses that will pay their way from non-discretionary revenue sources.
Stated another way, the non-discretionary tax structure will shape a community’s economic base by influencing the community’s strategies with regard to land use and economic development/ redevelopment. If the non-discretionary tax structure and economic base generate insufficient revenue to fund municipal services, then the community will be forced to reduce services and/or raise discretionary taxes.
Physical Presence, Fiscal Impact & Revenue Productivity
The typical business expects the city in which it is located to provide police, fire, infrastructure, and other vital services to support and protect its business operations. This includes its customers, suppliers, and employees. In return, the city should expect each business to fund its fair share of the services provided.
When a business generates insufficient revenue to fund its fair share of municipal services, the city’s residents and other businesses must subsidize the difference through reduced services and/or additional taxes.
Unfair and inequitable sharing of the local tax burden becomes less tolerable and more apparent as each city becomes increasingly dependent on its own economic base to meet its service funding needs.
In pursuing fiscal self-reliance strategies that provide for fairness and equity, it is important to ascertain answers to the following four questions:
- Who generates revenue to the City?
- How much revenue is generated?
- Who benefits from the City’s services?
- How much is benefited?
What is Economic Development?
While there is no single definition that incorporates all of the different strands of economic development, the phrase typically can be better described in terms of objectives. These are most commonly described as the creation of jobs and wealth, and the improvement of quality of life.
Economic development is also a process that influences growth and restructuring of an economy to enhance the economic well being of a community.
For the local government, economic development must address four major policy areas:
- Policies that the government undertakes to meet broad economic objectives including:
- Reduction of unemployment
- Increased opportunities for upward employment mobility
- Improved conditions in which the business community operates and sustainable growth.
- Policies and programs to provide services, including:
- Building and maintaining streets and highways
- Improving educational quality and opportunities that relate to readiness for employment
- Providing medical access to the disadvantaged
- Policies and programs explicitly directed at improving the business climate through specific efforts, business finance, marketing, neighborhood development, business retention and expansion, technology transfer, real estate development and others.
- Policies that identify and provide support for economic development programming that meets or exceeds those of “peer cities.””
- These policy areas are best addressed by a blend of aligned business retention, business recruitment and focused strategies that incorporate the requirements that may have been or need to be adopted in the community’s general/comprehensive plan.
How Does Aligned Economic Development Policies Address the Issues & Challenges?
The goal of economic development is to create an environment that will enable businesses to operate competitively and successfully, thereby providing the means for all citizens of the community to maintain or increase their household income and standard of living.
Looking at economic development in the schematic below, starting with basic economic principals and then examining the applications of the principals and results shows why economic development is the critical, underlying element of the overall health of a community.
Businesses relocate or expand in locations where the business climate is favorable to their industry. By targeting specific sectors, aligning their regulations, policies and other site location factors, a community can create a business climate favorable to an industry or group of industries.
Communities must focus available resources on clearly defined targets and outcomes. These targets include shorter-term objectives, which require immediate attention, and longer term strategies that provide for a stable economic base and sustainable growth.
Today, it is imperative that local governments move beyond the conceptual and planning stages. With resources razor thin and competition heating up, cities must move quickly and decisively to develop policies that advance their economic agendas. They must aggressively pursue a courses of action that gains them the tactical and strategic advantages necessary to gain a dominant share of their market.