More than money: Alternative incentives that benefit companies and communities

Construction in Raleigh, N.C.

Post adapted from Smart Incentives

Specialized services can complement financial incentives, while taking the concept of a partnership between business and community to a new level. Guest blogger Swati Ghosh, the International Economic Development Council‘s Director of Research and Technical Assistance, reports below on an interesting new paper addressing these and other alternative incentives.

Of all the tools that economic developers use to attract businesses to their community, incentives are the most controversial. Typically financial in nature, incentives are direct subsidies to businesses in the form of tax breaks, loans or grants. Proponents maintain that such subsidies are necessary to grow jobs locally as they reduce the cost, or risk, of doing business in a community. Critics, on the other hand, argue that there is no direct link between economic activity and such business subsidies, and some even suggest that they are a drag on economic growth.

Economic developers should closely follow an emerging alternative – programs and services that assist businesses but are not direct financial subsidies. Termed alternative incentives, these are investments in community programs that strengthen the business climate or that help a particular business in a way that benefits the broader community. They are a win-win: For businesses, alternative incentives can reduce the cost or risk of doing business in a community, yet communities retain these investments even if a firm shuts down or relocates to a different community.

IEDC’s Economic Development Research Partners program has developed a new paper focusing on alternative incentives. It is not an argument against the use of financial incentives; rather, it advocates for increased use of alternative incentives either alone or in conjunction with financial incentives. The paper, “More than Money: Alternative Incentives that Benefit Companies and Communities” (PDF), examines five categories of alternative incentives:

  • Talent/Workforce development
  • Real estate and permitting
  • Research and data
  • Networking and promotion
  • Infrastructure improvements

The paper is based on a survey of the IEDC membership to understand usage of over 40 different types of alternative incentives. It also includes several examples of organizations that have successfully utilized alternative incentives for business attraction and expansion, alone or in conjunction with other financial incentives. The paper concludes with recommendations for ways that economic developers can use alternative incentives effectively:

  • Focus on building relationships
  • Examine your organization’s strengths and utilize them creatively
  • Offer a wide spectrum of services
  • Bring along the key stakeholders
  • Focus on the needs of the community

As scrutiny, clawback provisions and other restrictions on the use of financial incentives increase, it may be beneficial to examine other options to support businesses. Alternative incentives not only stay in the community, but bring less of a burden in terms of monitoring and legal costs – benefits that every community and EDO can agree on.

Business Incentive Initiative

This post was written by Ellen Harpel, founder of Smart Incentives and president of Business Development Advisors LLC (BDA), an economic development and market intelligence consulting firm. Post originally appeared on Smart Incentives blog.

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Local businesses in New York City’s West Village. Source: Flickr user wallyg

City leaders have many concerns about the cost and effectiveness of economic development incentives in their communities, as we learned from the session on economic development financing tools during last year’s Congress of Cities. A new initiative working to develop best practices for evaluating incentives at the state level will help local elected officials whose communities use state incentive programs for business attraction. It should also provide some guidance for cities striving to assess their own local incentive programs.

The Pew Charitable Trusts recently announced the launch of the Business Incentives Initiative. This Initiative will help improve data collection, management and reporting within state incentive programs in order to “improve decision-makers’ ability to craft policies that deliver the strongest results at the lowest possible cost.”

Pew and the Center for Regional Economic Competitiveness will engage leaders from seven states (IN, LA, MD, MI, TN, OK, VA) to develop best practices for evaluating economic development incentives by:

  • Identifying effective ways to manage and assess economic development incentive policies and practices.
  • Improving data collection and reporting on incentive investments.
  • Developing national standards and best practices that states can use to successfully gather and report data on economic development incentives.

As project manager Jeff Chapman explained in an interview with Bloomberg BNA:

This initiative builds on Pew’s ongoing project to help state policymakers implement ongoing evaluation of economic development incentives. As states work to measure the effectiveness of these programs, they often find they lack the data needed to determine whether an incentive is producing the expected outcome. Further, there is currently no source that has identified and compiled the best practices on how to overcome this obstacle.

All states were invited to submit proposals to participate, and seven were selected. They have agreed to commit top decision-makers from economic development, revenue, and other relevant state agencies to work intensively with Pew throughout this 18-month program. Each of these seven states has also already begun to address the challenges associated with economic development incentive program management and evaluation. The Pew team will work with the states to develop and implement tailored solutions for each state, while also paving the way for development of best practices and training that will be available to all states.

I am pleased to be part of the Center for Regional Economic Competitiveness team working with Pew on this important effort. Our role will be to leverage our economic development and incentives expertise to provide technical assistance to the states.

Here at Smart Incentives, we have emphasized the importance of data, analysis, transparency and accountability in economic development incentive use. The lack of quality data regarding compliance and effectiveness is a significant problem for the economic development field and policymakers trying to do what’s best for their communities. The Business Incentives Initiative represents a notable step forward in enabling smart incentive use in all states.

HarpelEllen Harpel is President of Business Development Advisors (BDA) and Founder of Smart Incentives. She has over 17 years of experience in the economic development field, working with leaders at the local, state and national levels to increase business investment and job growth in their communities. 

Contact: eharpel@businessdevelopmentadvisors.com or ellen@smartincentives.org. Follow Ellen on Twitter @SmartIncentives.

Can Cities Survive on Love Alone?

Although For the Love of Cities by Peter Kageyama was published in 2011, the book, concept and author have been gaining popularity recently by a breadth of cities and city-loving organizations.

Kageyama calls for city leaders to take on the task of giving “love notes” to the community. Yes, that right, love notes or emotional capital, in the form of parks, arts, open space, local culture, play, walkable spaces. These create emotional connections and attachment between people and their cities.

It is certainly well documented that a thriving quality of life, or “lovability” as the case may be, supports growth and helps people feel attached to their communities.

But in the context of what this means for local governments, is Kageyama’s “lovability” theory the answer cities have been waiting for? Can cities survive on love alone? Here’s my take.

Lovability is not a silver bullet. Although coffee shops, dog parks and cultural events are critical to retaining and attracting residents and businesses, “lovability” is not a sufficient condition to bolster economic growth and retain/attract talent in places that are truly struggling.

A community needs a baseline level of economic health and employment opportunity before quality of life becomes a driving force, i.e. no amount of dog parks can solve Detroit’s underlying economic challenges.

This isn’t to say struggling cities shouldn’t strive to enhance quality of life/lovability, but they need to do it along-side the difficult work of addressing critical challenges like economic development, workforce skills, infrastructure and youth violence.

Chelsea mich clock tower

Chelsea, MI is a case in point for the mutual support that can exist between “love notes” and functional services. Nearly 30 years ago, the downtown association, elected officials, community banks, Chamber of Commerce, small business owners, and regulatory departments worked together to fully invest in returning its rundown downtown as the epicenter of the community. The catalyst for attracting storefronts – love notes, in the form of the the Purple Rose Theatre Company and a local restaurant.
The partnership tapped Chelsea native and long-time resident, actor/musician Jeff Daniels, who founded the nonprofit theater Purple Rose. The restaurant, the Common Grill, was given space to open in an old vacant department store in the middle of the downtown. The theater and restaurant not only enhanced local culture and attachment, but brought patrons into downtown and allowed for pedestrian traffic in other shops.

Create a culture of authentic engagement. Cities can do much to create lovability and attachment, but more important, how can cities tap this attachment for authentic civic engagement that drives change in the community?

Through support of the John S. and James L. Knight Foundation, NLC recently released Bright Spots in Community Engagement, a scan of communities across the country to better understand how local governments are empowering residents to advance the well-being of their communities.

Creating a culture of authentic engagement involves:

  • Reaching a broad spectrum of networks and representatives from all facets of the community, particularly those not typically engaged
  • Using new tools and strategies, particularly those that tap the power of technology, i.e. open data
  • Using a range of strategies (both traditional and more innovative) to engage residents. This helps reach more populations and leads to greater sustainability
  • Knowing when to lead and when to providing more subtle leadership in the form of support and collaboration where efforts are well underway from the grassroots
  • Making the physical and digital space available for engagement (schools, libraries)

For example, in the city of Philadelphia, partnerships across sectors have led to an open data and technology initiative that has attracted the city’s co-working spaces, venture funds, local foundations, emerging technologies, press and universities.

“My belief is that if we keep helping these good guys [in City Hall] do good work, their colleagues will need to learn the value of partnering with engaged citizens,” noted Alex Hillman of Indy Hall, a co-working space in the city dedicated to neighborhood development.

The city of Philadelphia is an active participant, serving as a convener of key stakeholders, providing access to data systems, using the mayoral bully pulpit to bring attention and lend credibility to the initiatives, and institutionalizing this strategy through the mayor’s executive order on open data and the appointment of Mark Headd, formerly of Code for America, as the city’s first Chief Data Officer.

Cities across the country, like Chelsea and Philadelphia, are not only developing creative ways to help residents feel love for their cities, but leveraging this love into long term economic and fiscal impact and authentic civic engagement.

When it Comes to the Skills Gap, Perceptions Matter

This is the second post in a series this week discussing different perspectives on the results of NLC’s 2013 Local Economic Conditions Survey.

With the recent release of the March jobs numbers, we are quickly reminded that what may finally seem like recovery must be viewed with cautious optimism. Our first blog post in this series dug deeper into the realities of what appears to be a strong and growing real estate market, one in which residential property improvements have largely overshadowed lingering and detrimental challenges in the commercial property market.

This post examines city officials’ perceptions about the labor market as well as skills challenges that may be posing structural barriers to sustained local and national recovery.

Concerns Over Skills Gap

The changing nature and composition of the economy has highlighted the necessity of a local workforce with skills that are appropriately aligned and matched with employer demand.

Unfortunately, more than one in two city officials (53%) report that current local workforce skills are posing a problem for the economic health of their communities. Nearly nine in 10 city officials (88%) note that workforce alignment has not improved over the past year.

Percent of City Officials Reporting Change in Workforce Skills Match to Demand of Local Employers, source: Local Economic Conditions 2013

Perception vs. Reality

We know that a so-called “skills gap” is not the only driver of challenges in the labor market. A skills gap is often the perception, or face, of a much more complex and tangled web of trends relating to a shrinking labor force, long term unemployment, underemployment and divergent hiring patterns.

The facts are stark: the labor market is shrinking, the economy is not creating enough jobs, and those dropping out appear to be in the prime of their working years, ages 25-54. The longer this continues, the more likely this pool will become unemployed in the longer-term, with deterioration of skills, networks and trust in the market to provide opportunity for them.

As reported in the Atlantic, “We increasingly have a bifurcated labor market…the job market looks normal for people who have been out of work for less than 6 months, and horribly dysfunctional for people who have been out of work longer than that.”

In addition to a shrinking labor market and longer-term unemployment, we are also facing an under-employment problem.  A Wall Street Journal analysis of recent U.S. Labor Department data shows that “284,000 graduates—those with at least a bachelor’s degree—are working minimum-wage jobs in 2012, including 37,000 holders of advanced degrees. That’s down from a peak of 327,000 in 2010, but double the number in 2007 and up 70% from a decade earlier.”

This is a problem in and of itself, with increasing college debt burdens and decreasing wages, but more so, because many with higher skills are taking middle and lower skill jobs, crowding those at the low end of the skills ladder out of the job market.

This rings particularly true given that we are seeing less job creation at the higher-end of the skills spectrum.  Brookings recently released a study finding that employers are indeed hiring more readily across the U.S., but that this is driven by industries such as construction, hospitality and healthcare.

A middle-skills gap appears to be a reality, particularly in the industrial trades, which have received decreased attention in high schools over the years from parents and guidance counselors as viable career options.  But even in these sectors, claims of uncompetitive wages, undesirable locations and work shifts, and poor hiring practices and systems are also at play.

Perceptions Matter

So, at the end of the day, a skills gap is but one of a host of challenges undergirding potential structural issues in the labor and jobs markets. Regardless, local officials, apparently nearly 90 percent of them, have been confronted with the reality of businesses telling them that they cannot find qualified workers.  This threat of employers picking up and moving, or choosing to hire or locate elsewhere, means that businesses are not happy and are not or will not be job creators for the community.

Cities across the country, from Avondale, Ariz. to St. Paul, Minn., are exploring ways to be both responsive to their business community while also tackling the heart of these complex problems in order to open pathways to employment for their residents.

They are partnering with businesses, workforce systems, economic development organizations, educational institutions and other stakeholders to examine the depth and scope of labor market issues and to educate residents for available employment. They are also placing greater responsibility on the business community to provide training opportunities for potential and current employees and engage in more sensible hiring practices.

Leading City Issues of 2012: Snapshot from CitiesSpeak.org

Jobs and the economy, sustainability, government performance, youth violence prevention, community design, and, wouldn’t you know it, beer, emerged as leading city themes of 2012.  We surveyed the most read posts of the year from NLC’s CitiesSpeak.org blog to get a snapshot of the top local issues on the minds of readers. In order of most viewed content:

  • Cities Court Craft Breweries
    Craft breweries have caught the eyes of local officials and economic developers and they are encouraging the development, growth, and attraction of these companies.   Beer photo
  • “New Urbanism”: What Does it Mean to City Leaders?
    The term new urbanism brings about visions of the constructed reality of Truman Burbank—played by actor Jim Carey in the 1998 Hollywood movie, The Truman Show.  The movie depicts Burbank’s fabricated made-for-TV life in his made-for-TV small town and was filmed on location in Seaside, Florida.
  • Economic Benefits of Green Cities
    From energy efficient strategies for buildings to increasing opportunities for recreation and tourism, cities are taking action and seeing returns on their sustainability investments.
  • Anything New in Economic Attraction?
    Business attraction has been and continues to be an essential part of economic development for many communities. In the context of difficult political, economic and fiscal realities, have economic attraction strategies changed?

In 2013, expect new content on a wide-range of issues, such as city fiscal conditions, business development, workforce development and post-secondary success, sustainable local food systems, municipal broadband, neighborhood revitalization, veterans housing, education, dropout recovery, afterschool learning opportunities, violence prevention, health and wellness, family financial stability, and local data initiatives.

Do Your Businesses Have the Talent They Need to Succeed?

In 2011, the 10 county region of Northeast Indiana around Ft. Wayne was the leading region for percentage of year over year job growth. The region’s success in the face of challenging economic conditions wasn’t an accident. It was the result of intentional alignment between its workforce and economic development efforts.

This concept of workforce as an economic development strategy has its grounding in very practical business retention, expansion and attraction goals.  Do businesses have the talent they need to succeed in your community?

During a workshop at NLC’s recent Congress of Cities in Boston, Beyond Skills Mismatch: Aligning Workforce and Economic Development, Fred Dedrick, Executive Director of the National Fund for Workforce Solutions, spoke about his past in the economic development realm and his efforts to attract foreign investment to the state of Pennsylvania.

“Prospects need to know that they will be able to find appropriately skilled labor. The only way to convince them is to have industry leaders in your community affirm the success they’ve had with the local talent pool.”

But what if they can’t…?

As local leaders, you won’t know unless you ask because, as Dedrick poignantly noted, “you can’t use Google to find this information.”

And this takes us back to Northeast Indiana’s story.

In 2009, the workforce development system for the region—managed through the Northeast Indiana Regional Workforce Investment Board —was dismantled and reconstructed to become a “demand driven” system. “

In this system, the customers are businesses and the products are credentials,” noted Kathleen Randolph, President and CEO of the workforce board, during the session.

“This means that anyone trained in the system learns a certified skill or degree that is needed by companies in the region,” added John Sampson, President and CEO of the Northeast Indiana Regional Partnership.

In collaboration with Sampson’s regional economy development organization, the workforce system was realigned to the needs of local companies expanding and/or relocating in the region within key growth industries, such as medical devices, transportation logistics and food processing.

Regional partners, including local economic developers, industry leaders, community investors, workforce and educational partners, and elected officials, are all tapped to help find information about talent needs and bring those skills to bear in the region.

Key to Northeast Indiana’s success is understanding industry needs, and this strategy is gaining momentum in communities across the country.

With 15,000 layoffs in the aviation sector since 2009, more anticipated with the impending closing of Boeing, and consistent recruiting of aviation companies from other states, the City of Wichita developed a regional aviation sector strategy for workforce and economic development.

One initiative in the region, the Preparation for Advanced Career Employment System (PACES), seeks to increase the number of high skilled workers.  In particular, the initiative is guided by employer driven partnerships that provide a direct value-add to the participating businesses (i.e. incumbent worker training).

The City of Wichita is a funder of PACES, but equally important, is the role of elected officials in providing leadership for the program.

During the NLC workshop, Wichita Mayor Carl Brewer identified several ways he supports the alignment of workforce and economic development through PACES:

  •  Lead planning meetings with industry leaders;
  • Attend site visits by outside funders and investors of the program;
  • Be a champion and lead by example. The Mayor not only committed project funding but also assigned senior staff to the program leadership team; and
  • Leverage partnerships to help pool resources and braid funding from those including local and national philanthropy, community based organizations, and federal government.

In the coming months, NLC will be providing resources for local leaders to help align workforce and economic development in their communities. For more information or to receive this information directly, contact me at mcfarland@nlc.org.

Embracing the Immigrant Engine

The National League of Cities’ Center for Research and Innovation has joined with Next American City to explore how cities are developing innovative models for tackling complex urban issues and strengthening their local economies.  NLC is featuring a series of case studies, and this post highlights the third and final of the series, The Rise of the New Baltimoreans.

Baltimore, along with many other cities across the country, is welcoming immigrants, and their vast economic contributions, with open arms. These local efforts for the most part are flying under the radar and happening in spite of more newsworthy (but perhaps less common) restrictive state and local immigration policies and rancorous national debate.

Economic Impact
When it comes to immigrants and the economy, the numbers speak for themselves.  According to the Partnership for a New American Economy, immigrants are responsible for nearly one in three new U.S. businesses and are increasingly likely to start a business, just as the rate of new business generation among native-born Americans is on the decline.

And these are businesses that are job and revenue generators for the economy. Immigrant-owned businesses are more likely to hire employees than are non-immigrant-owned firms and more likely to export their goods and services, finds the U.S. Small Business Administration.

“From local neighborhood shops to America’s largest companies, immigrant business owners contribute more than $775 billion dollars in revenue to our annual Gross Domestic Product and employ one out of every ten American workers at privately-owned companies across the country,” notes Partnership for a New American Economy.

High-skilled immigrants now outnumber low-skilled immigrants, according to the Brookings Institute, and represent a large share of business owners and labor force in sectors that are expected to grow over the next decade, from hospitality to informational technology to health care.

For local communities, policies to attract immigrants can translate to growth and revitalization that is not only inclusive, but creates a sense of place and distinctiveness, brings new wealth and opportunities, and reinvigorates the local talent pool.

Baltimore’s Story
New Baltimore mayor, Stephanie Rawlings-Blake, started her tenure in 2011, and from day one committed to turning the tide on the city’s population loss and declining economic base.  “A shrinking city is a place unable to meet even the most basic needs of its people — basic rights that everyone should expect,” she said in her inaugural address. “A shrinking city simply cannot stand.”

The mayor’s vision of adding 10,000 families over the next 10 years rests in part on attracting immigrants, who will, both with their numbers and high rates of entrepreneurship, strengthen the city’s economy.  Over the past year, the city, along with a host of multisectoral partners, have offered home-buyer programs, language and legal requirements training, grants and other tools to help boost entrepreneurship and small businesses, and police sensitivity training.

And, as the case study details, although there are skeptics, these efforts appear to be making an economic impact:

“You could roll a bowling ball down the sidewalk five years ago,” says Chris Ryer, president of the Southeast Community Development Corporation, which focuses on the Baltimore’s Highlandtown neighborhood. “Now it’s busy.” As the existing population aged out, young families have moved in. “There’s a lot of strollers on the streets,” says Ryer.

“While many of Highlandtown’s new residents are Latino, the freshly vibrant area has attracted immigrant entrepreneurs from diverse backgrounds. The neighborhood’s 10-block commercial strip, says Ryer, houses not only a Latino-owned photography studio but an Israeli-owned grocery and a Peruvian chicken joint. Ryer cites statistics on how immigrants open small businesses at higher rates than their native-born neighbors. “We’re seeing the fruits of that in Highlandtown,” he says.”

Not Alone
The lasting impact of Rawlings-Blake’s efforts remain to be seen, but Baltimore isn’t the only city investing in immigrant-based policies and programs.

  • Boston:  The mayor established the Office of New Bostonians to reach out to the city’s immigrant population, in part by identifying official and unofficial liaisons to local communities. Another key to the effort is celebrating the contributions to Boston’s status as a world class city made by immigrants.
  • Detroit: City and business leaders created Global Detroit to revitalize the economy of Southeast Michigan. Since 2010 it is has raised more than $4 million of philanthropic investments for targeted initiatives to attract immigrants, foreign trade and investment.
  • Dayton: Welcome Dayton hopes to make that southwest Ohio city of 140,000 more receptive to new arrivals and help them along toward citizenship; among the initiative’s goals is to develop an international marketplace for immigrant entrepreneurs in an underinvested corner of the city that has demonstrated growth from recent immigrants.

As these examples suggest, cities looking to new arrivals to help support economic development also have a responsibility to help fully integrate immigrant residents into the mainstream community.

Learn more about how cities can support immigrant integration.

What’s Next
Although cities are making headway in welcoming immigrants, the need for a partnership among governmental partners is critical. The results of a weak partnership in this arena have been made poignantly clear as of late: immigrant entrepreneurship, particularly in high-skilled fields, has plateaued, according to the Kauffman Foundation.

This is due in no small part to the restrictive nature of national immigration laws that are intended to boost U.S. competiveness. For example, laws that force foreign students educated in the U.S. to return home, instead of encouraging them to use their skills and start businesses here.

Or H-1B visas, those that allow employers to hire foreign workers in specialty occupations for a temporary period of time.  They help build a high-skilled workforce, particularly in the STEM fields, but are in limited supply and not evenly geographically distributed, and the allocation of visa fees to local workforce grant programs are misaligned.

But NLC’s Leslie Wollack remains hopeful. “After languishing on Capitol Hill for several years, the results of the presidential election and the large turnout of Latino voters have helped renew the push for the passage of comprehensive immigration reform legislation. Members of Congress and the Administration are voicing optimism that an agreement could be reached as soon as early next year.”

As for their part, cities across the country are embracing the realities and practicalities of immigration as a strong path toward revitalization and growth.

Foreign Investment for Local Growth: The Case of Toledo

The National League of Cities Center for Research and Innovation has joined with Next American City to explore how cities are developing innovative models for tackling complex urban issues and strengthening their local economies. In the coming weeks NLC will feature a series of case studies on foreign direct investment, fiber connectivity, and immigration. This blog highlights the first of these, Bringing Chinese Investment to American Citiesthe story of foreign direct investment in Toledo, OH.

Despite national election rhetoric, many at the local level are exploring foreign investments as a way to grow local economies. One such community is Toledo, OH and its mayor, Mike Bell, who has been courting Chinese investment to revitalize real estate development, grow health care and pharmaceuticals, high-tech manufacturing and transportation/distribution industries, and in the process, create new jobs and bolster city coffers.

Toledo’s Story
Like many other rust belt communities hard hit by the recent recession, Toledo is suffering a foreclosure crisis, shrinking manufacturing base, declining population, and overwhelming budget deficit. Elected in 2009, Mayor Mike Bell, proclaimed that to pass through the recession, “we just needed a bridge.” For Bell, that bridge came in the form of foreign direct investment (FDI); an investment in a community by a foreign entity that creates new businesses, provides capital for development projects, develops or expands production or manufacturing facilities or provides new ownership of an existing enterprise.

“In the spring of 2011, the city sold two long-available sites on the Maumee River: the Docks, a restaurant strip that went for $2.5 million, and a 69-acre parcel in the Marina District that went for $3.8 million that had once meant to be the home of an amphitheater and more but was now desolate. The buyer: Dashing Pacific Group Ltd., a partnership between two Chinese investors, Yuan Xiaohong and Wu Kin Hung.  Later, the 350-room Park Inn was sold for $3 million to an undisclosed Chinese investor.”

Seeing the potential of foreign investment for the community, the Mayor recently worked with the Regional Growth Partnership (RGP), University of Toledo and many other regional partners to host nearly 200 Chinese business people and officials during the Five Lakes Global Economic Forum. The goal: to help foreign investors see the opportunities in Toledo first hand.

But not everyone in the community is sold on the benefits of FDI.

The case study details how “Keith Wilkowski, a Toledo Democrat who was runner-up to Bell in the 2009 mayoral race, cautions against a city-building strategy that believes in a “cataclysmic investment” that will, once and for all, bring Toledo back. Wilkowksi cycles through Toledo’s past supposed panaceas: the Portside Festival Marketplace abandoned six years after it was built, the Owens-Illinois Building that was left by its namesake firm in 2006, the 3-year-old $150 million downtown Huntington Center stadium, the brand-new Hollywood Casino. And now China is the answer to Toledo’s prayers? “It’s both harder and more rewarding than that,” says Wilkowski.”

“And Mayor Bell, for his part, doesn’t entirely disagree. He argues that encouraging diverse, sometimes foreign, investment in Toledo is no magic solution, but it just might be part of establishing a broad, sustainable base for Toledo’s economic rebirth.  Skepticism about that path, RGP’s John Gibney, vice president of marketing and communications, says, isn’t surprising. Even those connected to and invested in the China push have their doubts. But he explains the thinking, though, driving the willingness to give it a shot. “A lot of things this community has been doing haven’t been working, so why not try it?”

Learning from Toledo
According to a 2011 survey by the National League of Cities, the overwhelming majority of city leaders (83%) felt that expanding trade opportunities and attracting foreign direct investment was important to the success of their local economies. Meanwhile, only 30 percent report being involved in foreign direct investment opportunities.

For cities across the country seeking to add FDI to their economic development toolbox, there is much to be learned from Toledo’s approach.

• Focus on key assets
The foundation of an effective FDI strategy is a clear understanding and realistic assessment of strengths and weaknesses. Toledo’s strategy is built around its key assets including waterfront, workforce and distribution access, to draw investment that aligns and builds on local strengths.

• Coordinate regionally
Local success in a global economy requires leveraging, strengthening and marketing the breath or resources available in a region – not just lies what within municipal borders. For Toledo, regional coordination of foreign investment efforts and creating a regional identity is proving both beneficial and necessary. “In the past, says Bell, local leaders were unprepared to sell the area’s merits. But more than that, in the area’s sometimes contentious political environment, they were unwilling to row in the same direction. “What we weren’t doing was functioning as a region,” Bell says, who argues that what’s good for, say, nearby suburban Perrysburg (population: 21,000) is good for Toledo.”

• Build relationships
Depending on the country, relationship building can be paramount in FDI. Toledo is being proactive in lead generation by relying heavily on networking, relationship building, and engaging a trusted “middle man” to accelerate these relationships and position the community to take advantage when an investment opportunity arises.

• Respect, understand, and educate about cultural differences
The city of Toledo and its regional stakeholders are also aware of the need to respect cultural differences, and also of the need to help bridge differences in business practices between the U.S. and China that often impeded successful investment.  For example, a session at the economic forum called “Differences in Doing Business in the USA” focused on how Chinese companies can find help navigating such issues as licensing their goods to U.S. firms, hiring a local sales rep, going in on a joint venture, and starting a subsidiary.

Learn more about how cities can promote foreign investment.

FDI in the U.S.
In recent years, local FDI strategies have gained traction as domestic investments have slowed and credit has tightened.  According to the Bureau of Economic Analysis, in 2011, U.S. FDI inflows grew by $283.4 billion, representing a 13 percent increase over 2010. Although Chinese investment is a very small percentage of FDI into U.S. communities comparatively, the amount of investment from China has been steadily growing.

But what is the impact of foreign investment on local communities?

In 2010, foreign owned businesses in the U.S. accounted for over 5 million jobs, most in the manufacturing industry, and invest $40 billion in research and development annually.

From cities as diverse as Chattanooga to Toledo to Seattle, FDI has helped create new jobs, boost wages, strengthen manufacturing and service industries, bring in new research and technology and raise productivity. FDI has also facilitated new economic activity in places that may not otherwise have attracted the necessary investment or capital, strengthened local export economies, and attracted foreign suppliers.

Although FDI holds promise for local communities, it is also important for local and regional leaders to diligently vet new investors coming into the community, and to view FDI not as a silver bullet, but one potential part of a broader economic strategy.

Read Bringing Chinese Investment to American Cities to learn more about Toledo’s efforts.

Why We Should Care about Public Sector Job Loss

Last week the Bureau of Labor Statistics (BLS) released preliminary revised unemployment estimates.  It appears that the economy actually netted 386,000 jobs this year, but only after accounting for a loss of 67,000 government jobs. This recent news compounds figures suggesting that as of August 2012, local government employment in the U.S. had decreased by approximately 650,000 jobs from peak levels in 2008.

So what’s the big deal? Shouldn’t we be satisfied with growth in the private sector and call it a day?   Well, not exactly. The underlying fiscal factors driving government job loss and the implications on the much lamented mid-wage/skills gap should give us all pause.

What’s driving the Loss?

Fiscal conditions at the local level are driving much of the loss in local government employment. According to our recent City Fiscal Conditions survey report, city finance officers report that revenues will decline this year for the 6th year in a row. This, combined with infrastructure costs, employee-related costs for health care, pensions, and wages and cuts in state and federal aid are weighing heavily on local budgets.

In response, cities are making cuts to personnel. When asked about expenditure actions taken in 2012, by a wide margin the most common response was reducing the size of the municipal workforce (48%). Additionally, they are also delaying and canceling infrastructure projects and cutting local services – actions that also have direct employment implications.

Cities are approaching their personnel cuts in a variety of ways. In 2012, the most common cut so far was a hiring freeze (45%). At least one in four cities reduced or froze employee wages (32%) or reduced health care benefits (27%).   Other personnel actions to date have included layoffs (18%), revising union and employee contracts (16%), reducing pension benefits (15%), early retirements (14%), and furloughs (11%).

Many cities used some combination of these types of actions in an effort to reduce personnel costs. Although the percentage of city finance officers reporting these actions in 2012 is, in all categories, lower than in 2011, the combination of these cuts since 2010 has resulted in a significant reduction in the size of local government workforces.

What’s the Impact?

In addition to the typical negative impacts of unemployment on the economy, such as decreased consumer spending, unemployment in the public sector has particular consequences for the quality of anticipated economic recovery and the role of government in delivering critical services.

According to the National Employment Law Project (NELP), steep cuts in state and local government employment have hit mid- and higher-wage occupations the hardest, with low wage jobs dominating recovery. The loss of government employment means that in order to find work, many with higher skills are filling low wage jobs, taking pay cuts, and crowding others out of the job market.

Additionally, the majority of the state and local jobs impacted are those that have direct implications for local service delivery. Teachers and public safety have been the hardest hit, according to the Current Population Survey. And the NLC survey finds that this year, 21% of cities are decreasing human services spending, and 25% made spending decreases in “other” services such as public works, libraries, parks and recreation programs.

Will these jobs come back?

Struggling housing markets, slow consumer spending and high levels of national unemployment will continued to drive declines in city revenues, forcing difficult cuts to the public workforce. Research indicates that we shouldn’t expect to see recovery to state and local employment before 2017.

A silver lining, however, comes as a majority of city finance officers report that their cities are better able to meet financial needs in 2012 than in 2011. Although promising, this is likely the effect of local governments coming to terms with the (clichéd) “new normal.” Cities are adjusting, they are sharing costs for services, engaging citizens to reevaluate core service needs, forging new relationships with the private sector for service delivery, and overall improving fiscal management.

It is with hope that the new BLS jobs figures, released October 5, will show improvements in the public sector.  This would be a much welcomed break in a long, difficult road for local governments, their employees and their communities; but even glimmers of recovery must be viewed cautiously.  Any further disruption in national recovery could impede this anticipated improvement at the local level.

Untangling the Skills Mismatch Debate: Implications for Local Economic Development

The skills mismatch debate underscores why a solitary focus on college completion is insufficient to build competitive regional economies.

The paradox of persistent unemployment and unfilled jobs has many analysts pointing to a  skills mismatch in the economy.  This widely accepted hypothesis has come under fire recently, with implications for local and regional economic development.

Looking deeper inside the black box of matching workers with jobs reveals more nuance than unavailable skills. A wage gap, lack of recruiting intensity, strict hiring requirements, and lack of hiring are also at work.

The Chicago Fed’s research finds that although a skills mismatch does not exist across the board, there seems to be one for middle skill jobs, or requiring education and training beyond high school but less than a bachelor’s degree.  Martin Scaglione, president of the ACT Workforce Development Division, in an interview with blogger George Lorenzo, affirms this finding from the supply side perspective. “There is not enough talent coming through the system to meet the demand for jobs at the middle-skill level, and there is an overabundance of low-skilled workers.”  Lorenzo observes that “many college graduates are being forced to take on middle-skill jobs, thus sending those who should be filling those jobs into the low skill arena,” further complicating the job market.

Analysis of future job markets finds that the share of jobs requiring more than just a high school diploma will increase from 59% in 2008 to 63% in 2018, but about 30% of all jobs will require a technical degree or certificate, not a bachelor’s degree.  The Bureau of Labor Statistics similarly finds that jobs in growth industries will be predominantly middle-skilled.

So, what does this all mean for local and regional economic development?

In the knowledge economy, talent is clearly an economic asset.  By “talent” I mean a pool of appropriately skilled labor.  The skills mismatch debate reveals that appropriately skilled will include a mix of high and middle-skilled workers and will vary to a large degree by regional job market. Expanding and enhancing the pool of talent requires integration of workforce development and economic development to address the needs of employers and provide opportunities for those in the community.

But, recent policy dialogues have conflated “talent” with a college degree, encouraging practitioners on the ground to tie a neat bow of “college for everyone” around the complex challenges of unemployment, a competitive workforce and business viability.  Why would we narrowly focus on bachelor’s degrees as an indicator of an appropriately skilled workforce, when the weight of evidence suggests the skills mismatch is as much about mid-skill jobs?

The “college for everyone” movement rests on solid foundations.  Economic development experts have long noted the key role of “human capital” (another take on “talent”) in driving economic growth.  But lacking better data, many analysts default to using the Census’ “percentage of adults 25 and older with a bachelor’s degree or more” to measure the human capital, or talent, of the workforce.  There’s also the notion that this figure drives site selection decisions, as many a top 10 list would suggest.

I’m not suggesting that a well-educated workforce shouldn’t be a goal.  But, it’s only part of the equation, and part of what makes an area attractive to business.  Businesses that are looking for a talent pool to stay productive and successful are not just looking for a high percentage of college degrees in the area.   They are looking for the right mix of skill sets.

Policies based primarily on increasing college attainment rates neglect the range of skills needed by job creators and compel the use of local talent chasing strategies.   Talent chasing favors low-hanging-fruit approaches, like building coffee shops and artist lofts, or out-competing other jurisdictions for small gains in the percentage of college graduates, rather than driving at the harder work of growing a pipeline of talent in the community.   Like smokestack chasing, too much emphasis on chasing college graduates is zero sum for national economic growth and can’t make up the gaps in skills in severely depressed economies.  Everybody wants to be Seattle, with its 50%+ population of college graduates.  But, if your city’s percentage is nowhere near Seattle’s, no amount of coffee shops, artist lofts and talent attraction will solve your underlying economic challenges.

Enhancing the talent pool includes college completion, but it also means improving education pipelines and training systems, ensuring that these are flexible enough to keep up with changes in business demands, communicating with the business community, understanding and anticipating needs of growth industries, and having a grasp on available and future human capital assets.  Places as diverse as Garland, Tex., Northeast Indiana, St. Louis, Ventura, Calif., and Seattle have created systems and partnerships to build their pool of talent and expand, retain and attract businesses.

While there is no doubt that the knowledge economy values high skilled individuals, and that communities with higher skills will be competitive, building strong economies for the long term requires creative, and often difficult, approaches to education systems, workforce development, and economic development to grow a range of skills in the community that are appropriately matched with and able to leverage job growth and local assets.

Attribution: I’d like to thank Chris Hoene and Katie McConnell for their insights, contributions and “water cooler” conversations on the complex topics of workforce development, talent attraction and the skills mismatch debate.