It’s time to embrace the changing world of economic development

Economic development has two generic approaches: export more and import less

Economic development has two generic approaches: export more and import less. The former requires local startups and growth of existing business, as well as attracting new businesses to the area. Such efforts result in additional jobs and more income to local households and businesses.

The second approach, importing less or buying local, means we keep incomes and spending closer to home, thereby creating even more jobs and income. As jobs and community income grow, more people are employed and more households form with the addition of new housing stock. The increase in population and households stimulates property development, and more retail sales occur with a wider variety of store types. This generates more taxes for local governments to provide additional services and infrastructure.

That’s how local economies work. Given that underutilized labor typically exists, and virtually everyone desires more income, the community drive for economic development is strong. Intense competition among communities often results. The most obvious form of competition at the local level comes from tax incentives governments offer to entice companies to locate or stay in the community. This has become a very popular strategy nationwide in recent decades and is justified via an expected return on investment from jobs, incomes and local expenditures. Giving back some of the taxes generated by employers to increase local incomes fundamentally makes sense.

Less publicized strategies center on land planning and the entitlement process, whereby local governments have ultimate authority over real estate development plans. As a general rule, there are decades worth of supply of industrial- and commercial-zoned land in most growing communities, which creates long-term economic development capacity based upon old economic development paradigms.

Sometimes, we find more perverse strategies, especially in metro areas where adjacent municipalities compete to maximize their fiscal position by increasing revenues and minimizing expenditures. Job and housing growth are secondary. This results from an intense desire to grow or maintain tax revenues. Under this model, retail stores are the goose with golden eggs, and residential development is erroneously considered a net public cost. Fiscal planners and local politicians pursuing this model often find support from NIMBY activism against “affordable housing.”

Fortunately, the focus in economic development appears to be shifting. It’s not jobs per se that set off the economic development dynamic. It’s putting more money in peoples’ pockets, especially after taxes and housing costs. In some cases, this may be better-paying jobs, and in other cases, it might be part-time earnings or health benefits. Certainly, these results can come from attracting and growing companies, but increasingly incremental income derives from efforts like supporting pop-up stores, identifying and investing in key local assets and transformative projects, embracing retirees and younger people looking for quality of life, workforce development through community college programs, formal internships with organizations, and a growing emphasis on promoting economic diversity that is more sustainable and complementary.

Some examples of the shift underway include the state’s efforts to target the outdoor recreation industry and heavy investment in rural broadband, mountain tourist communities’ growing emphasis on economic diversification and sustainable tourism, and the Pikes Peak region’s efforts to promote an element of economic diversity with investment related to America’s Mountain, the Olympic Museum and the National Museum of WWII Aviation. While many of these are larger-scale projects, in some cases, such as Steamboat Springs, the emphasis is on promoting “location neutral” jobs to attract young people and empty nesters who can work from anywhere. All of these efforts play on local strengths.

The recent Supreme Court ruling allowing state and local governments to collect taxes from online sales will cause another shift. With online sales expected to double and hit 20% of all retail sales within a decade, residential development will be increasingly restored to its rightful place at the forefront of community development. This should mitigate the affordable housing crisis. The ability to collect taxes based upon residential location will combine with high commercial vacancies in traditional areas to transform many existing shopping centers and corridors.

The sharing economy also plays a role. Whether it’s the growth of co-working space, ride sharing or home sharing, the market is evolving. There is an emerging trend nipping at the ankles of the NIMBY monster to favor accessory dwelling units in existing neighborhoods. This can increase household incomes, mitigate the coming massive aging in place problem and quickly provide dispersed housing options to workers and family members.

The greatest challenge to this transition is our resistance to change.

Categories: Economy/Politics, Industry Trends, Magazine Articles