2013 Local Economic Conditions: What’s up with Commercial Property?

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

NLC’s 2013 Local Economic Conditions (LEC) Survey, which was released last week, showed overall improvement in local economic benchmarks over the last year. But it also demonstrated that certain indicators are lagging behind, such as the commercial property market. With over half of city officials reporting that commercial property vacancies and values are still a problem in their communities, it’s evident that the effects of the Great Recession still linger.

Improvement in Property Tax Indicators

The sharp uptick in city officials reporting improved commercial property values and vacancies from 2010 to 2011 can be explained fairly simply: the economy – real estate market included – was bouncing back from rock bottom after the combination of fiscal stimulus and monetary easing measures were introduced and implemented at the federal level.  These measures helped to accelerate purchases of distressed assets that could be moved at attractive price points.

The results of the LEC survey show that local officials saw a leveling off of the commercial property market in 2012. While many analysts predict that the market will continue to improve in 2013, they are mostly in agreement that the recovery will be slow.

Commercial Real Estate Prices

Vacancies vs. Values

Commercial property vacancies was the only measure that had less city officials reporting an improvement over the last year, while the perception of commercial property values continued to improve. Although it was a very small decline (4%), it is worth noting why there may be a disconnect between values and vacancies.

Many of the factors that are driving values are related to the ability to finance commercial real estate deals and trading activity. As prices approached pre-crisis levels earlier this year, Bloomberg reported a “’renaissance’ in the issuance of commercial mortgage backed securities…particularly for lower-quality properties, because financing will be more available.” And the CoStar Group reported that “both the investment grade and general commercial segments were heavily traded as improving market fundamentals and attractive yields relative to other asset classes drove strong investor interest in commercial real estate.”

Meanwhile, vacancies continue to persist. In the fourth quarter of 2012, Reuters reported that the office vacancy rate stood at 17.1 percent, “far higher than the 12.6 percent recorded at the end of 2007.” The article also highlights the fact that without a strong recovery in labor markets and employment, office vacancies will continue to stagnate. The National Association of Realtors notes 10.8 percent vacancy rate in retail markets in the fourth quarter of 2012 and a 10.1 percent vacancy rate in industrial markets. NAR expects marginal improvement in these metrics over the course of 2013.

Looking Ahead

Based on the results of the LEC survey, the commercial property market should continue its slow recovery through 2013, though this is far from certain. According to local officials, unemployment (52%), business permits (49%), and retail (48%) are all improving in their communities, which should breathe new life into the market.

A robust recovery in commercial property is crucial, as cities depend on a healthy property market and business environment to provide tax revenues for essential services. 

The Latest in Economic Development

This week’s blog discusses NLC’s 2013 Local Economic Conditions Survey results, a new ranking of state and metro-area small business friendliness, Detroit’s downtown development, a new economic development initiative announced by Mayor Angel Taveras of Providence, Rhode Island, and the economic impact of Major League Baseball. Comment below or send to common@nlc.org.

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NLC released the results of its 2013 Local Economic Conditions Survey today. From the press release: “The 2013 survey of city’s chief elected officials signals a sluggish overall economic recovery in cities and towns across the United States, despite a broader national recovery. While just over half (52%) of respondents reported improvement in unemployment, two-thirds of city officials said that persistently high unemployment rates continue to cause economic instability in their communities. Further, the changing nature of the economy has underscored the need for local workforces with skills appropriately matched with local employer demand, but data from cities reflects that a skills gap is actually becoming more prevalent.”

Thumbtack, partnering with the Kauffman Foundation, released a ranking of state and metro small business climates this week. The report found that while tax rates don’t necessarily carry a lot of weight in determining small business friendliness, licensing requirements have a significant effect. Co-author of the report Nathan Allen says of licensing: “The time [small businesses] have to spend on it can become a serious burden to their growth.” Utah, Alabama, and New Hampshire topped the small business climate ranking of states; and Austin, Virginia Beach, and Houston topped the list of metro areas.

In related news, Mayor Angel Taveras, of Providence, R.I.,  announced a plan to strengthen the city’s economy by becoming more small business friendly. To that end, he is supporting an initiative to expedite the application process for small business permits. This will be accomplished by allowing online submissions and a system of status updates that will inform small businesses of their application’s progression.

Billionaire Dan Gilbert’s accumulation of downtown Detroit properties has been well documented. Last week, he laid out ambitious plans to develop the areas around his real estate. At the unveiling, “Gilbert’s team repeatedly emphasized possibility… to change the discussion from financial basket case to a city on the move attracting smart people and smart money.” Through his properties, Gilbert has attracted new business tenants – tech companies, an upscale grocery store, a Moosejaw retail store, and others – designed to “create street-level energy that is inviting and comfortable.”

For downtown businesses in Cincinnati, the opening of baseball season (already?) means an in-season economic stimulusLinda Antus of the Cincinnati USA Regional Tourism Network estimates the Reds’ economic impact at “hundreds of millions a year.” Entertainment events like baseball games represent discretionary spending, so if the Reds didn’t exist, the money would most likely be spent elsewhere. But there’s no doubt that the city gets a big spending boost – not to mention and influx of visitors from surrounding locales – on game days.

State of the Cities 2013: Strategically Balancing the Books

This is the sixth post in a seven-part series on trends and themes in local leadership.

The National League of Cities’ 2012 City Fiscal Conditions report  projected a sixth year in a row of declining revenues for cities, and a 25 percent decline in ending balances (reserves) over the last four years. It’s clear that the financial crisis has taken a mighty chomp out of city budgets. But America’s mayors aren’t just standing idle, letting their budgets go by the wayside. They remain remarkably optimistic, innovative, and resilient while making tough choices to balance their budgets.

Our sample of State of the City Addresses provides anecdotal evidence that while there are still hurdles that need clearing (aren’t there always?) city budgets are slowly getting back on track as the economy gradually improves. Improved budget figures have materialized due to city leaders’ willingness to make difficult choices in the face of uncertainty surrounding macroeconomic conditions and state and federal support.

Difficult Choices, Innovative Strategies

Unfortunately, there are no easy paths to a balanced budget. Most budget problems can only be solved using brute force – raise revenue, cut services, or a little bit of both. That doesn’t mean that mayors are getting greedy like Scrooge McDuck or wildly axing services like Paul Bunyan. The speeches we analyzed showed that city leaders are using holistic processes and utilizing municipal finance experts in order to move towards fiscal sustainability.

One city that exemplifies this trend is Fort Wayne, Ind., led by Mayor Tom Henry. Henry and his staff “assembled a team of local and state experts, representatives of city council and staff who are developing strategies to deal with looming budget issues.” Fort Wayne is the first city in Indiana to establish a Fiscal Policy Group, and it recently released a “framework of ideas to save the community money and bring additional revenue to the city.”

Henderson, Nev. is also strategizing to find fiscal balance while cushioning the blow to citizens under Mayor Andy Hafen’s leadership. Hafen entered office at the beginning of a tremendous fiscal crisis. Assessed property valuations decreased from $16.3 billion circa 2009 to around $8 billion today, and consolidated tax funding went from a high of $103 million down to $77 million last year. In response, the city has found ways to save money through long-term debt restructuring and a compensation reduction for executive, managerial, and professional employees. According to Hafen, Henderson is also undertaking a “comprehensive classification and compensation study” that will “ensure our ability to continue to be competitive in how we provide programs and services in the future.”

Mayor Lioneld Jordan of Fayetteville, Ark. stressed a common sense approach, invoking a quote by Harriet Beecher Stowe: “seeing things as they are and doing things as they ought to be done.” In that vein, Jordan has recently initiated a Lean Government program that will improve customer service, increase efficiency, and reduce the need for additional personnel.

Revenue Stream Uncertainty

One of the factors that has taken its toll on city budgets over the last few years is the reduction in funding for cities from state and federal sources. After the surge in funds from the 2009 federal stimulus package that was passed in the wake of the financial crisis, federal and state aid has dried up, leaving holes to fill in city budgets – this is a reality that is likely to become the new normal.

Mayor Bill Bell of Durham, N.C.  acknowledged this when he emphasized the need to continue to “plan for unpredictability in state and federal revenue sources.” The city is grappling with less state funding for transit programs and the end to the federal stimulus-funded “Home Energy Savings Program.” Further, Mayor Bell noted that Durham may have to support non-core services normally funded by the state and county, including judges, district attorney assistants, and forensic labs.

Also threatening cities is the potential end to the tax-exemption for municipal bonds, which have “financed more than $1.65 trillion of infrastructure investment over the last decade (2003-2012),” according to a report released jointly by the National League of Cities, National Association of Counties, and US Conference of Mayors.

Incremental Improvement

In spite of this uncertainty, mayors are beginning to have more reason for cautious optimism about the state of their cities’ finances. Columbus, Ga., on the heels of reforming the city’s employee pension plan that will save taxpayers “some $25 million over 15 years while preserving benefits,” improved its bond rating from Aa2 to Aa1 (Moody’s). An independent audit of North Las Vegas, Nev. found “no findings of internal weakness” despite a reduction in property tax receipts by 56 percent over the last 4 years. And Memphis, Tenn.’s reserve fund balance and capital improvement budget has held steady over the last three years.

In her address, Mayor of Pine Bluff, Ark. Debe Hollingsworth quoted Harvard Business School professor John Kotter as saying “leaders establish the vision for the future and set the strategy for getting there; they cause change. They motivate and inspire others to go in the right direction and they, along with everyone else, sacrifice to get there.” Beneath that vision and strategy lies the budgetary framework that allows the “right direction” to be pursued. Because all the innovation in the world ain’t worth a damn if nobody can pay for it.

State of the Cities 2013: As the Economy Goes, So Goes the City

This is the second post in a seven-part series on trends and themes in local leadership.

Every year, economic development accomplishments and future goals feature prominently in mayors’ State of the City Addresses. It’s easy to understand why; as the economy goes, so goes the city. Constituents want to know that their mayor is doing everything he or she can to provide good jobs and a rich quality of life. And from our analysis of mayors’ speeches this year, it’s evident that they are fighting the good fight for economic vibrancy.

But just because economic development is a long-running city function, that doesn’t mean cities are using the same old methods.  Mayors in select cities are showing that by using tailored strategies tied to their unique city characteristics and broad-based approaches that are applicable to every locality, they are able to leverage limited resources to build complete communities.

The speeches we analyzed were chock-full of references to economic development programs and successes, but notable commonalities arose, including a strong focus on partnerships, neighborhood revitalization, and improving transportation hubs.

Building Strong Partnerships

As city governments continue to face budgetary constraints for the foreseeable future, partnerships continue to provide a way to accomplish economic development goals efficiently and effectively, and also pioneer new methods. Salt Lake City, Utah, for example, partnered with the University of Utah to convene a conference on the potential of crowdfunding to provide start-up capital for emerging technology companies. “You can expect to see more economic development partnering efforts like this from the city in the year to come,” noted Mayor Ralph Becker. This is a great sign, and something other mayors alluded to as well.

Partnerships can be used in creative ways to spark entrepreneurship à la Salt Lake City, but they can also be used to streamline regulatory processes, which entrepreneurs, small- and medium-sized businesses, and multinational corporations can all appreciate. Mayor Andy Hafen of Henderson, Nev. noted the creation of a multijurisdictional business licensing process, an initiative for which Henderson served as the regional project lead. Wichita, Kan. Mayor Carl Brewer proudly touted the merger of his city and county code services offices, which is “making it easier for our private business partners to build and grow our region.” Notice that these streamlining actions are making these cities more business friendly, while also demonstrating productive regional cooperation.

Creating Vibrant and Stable Neighborhoods

Thriving urban neighborhoods improve the quality of life for all city residents, not just for Richard Florida’s “creative class.” If done successfully, redevelopment projects can produce positive externalities for the entire population. City leaders have recognized the importance of both their downtowns and struggling neighborhoods, and are using strategic partnerships, and sometimes unconventional means, to achieve encouraging ends.

One such example is Durham, N.C.’s Southside Revitalization Project, where Duke University is providing $10,000 loans to no less than ten university employees interested in buying homes in the neighborhood. Mayor Bill Bell added, “That’s the kind of partnership and support that truly makes this community a very special place.” Another notable example is Columbus, Ohio, where the city has partnered with a local hospital in a declining neighborhood to develop a plan to “stabilize the neighborhood and encourage residential and commercial investment.”

In Baton Rouge, La., Mayor Kip Holden is committed to removing blight from his city. To revitalize its Smiley Heights area, the city will “partner with the state, the Baton Rouge Community College, and private investors to create a development that will house an auto technology center, residential housing, and retail.” And Columbus, Ga. Mayor Teresa Tomlinson is pushing hard for her city to enact redevelopment powers available under state law to tackle declining neighborhoods.

Improving Transportation Hubs

Airports, though sometimes unfairly taken for granted, are gateways to domestic and international markets, as well as hubs for business travel and tourism. So putting a lot of weight behind airport improvements makes a lot of sense, because they can provide a significant economic boost. The airport (and its related businesses) in Salem, Ore. contributes “2,100 jobs regionally, $65 million in annual wages, and $240 million in regional business sales.”

The importance of local and regional airports was a recurring theme in many of the speeches, from smaller communities to cities with international reputations. Auburn, Wash. Mayor Pete Lewis noted that work is beginning on a new master plan for its municipal airport. And Memphis, Tenn. Mayor AC Wharton has created an Air Task Force to develop a plan to increase air service at the city’s international airport.

Cities are also using coastal ports (those that have them) as key economic drivers. Baltimore, Md., led by Mayor Stephanie Rawlings-Blake, fought hard to improve the city’s port in advance of the Panama Canal expansion currently underway. The city’s actions in solidifying the port’s infrastructure “will help bring jobs while securing the economic future of the port for generations.” In his first term, San Diego, Calif. Mayor Bob Filner is making the city’s port, as well as its airport, high priority hubs. He noted that he will push for needed infrastructure improvements that will “[enhance] freight movement from our border through our sea port and our airport.”

Producing Tangible Results

Economic development will always be a key arrow in a mayor’s quiver. In fact, most mayors probably have a separate quiver devoted entirely to economic development. But it’s more than just having an arsenal of tools to use; it’s about putting these tools to work in innovative ways to produce real, tangible results. The State of the City Addresses in 2013 exemplify how cities employ what limited resources they have in thoughtful and creative ways.

Mayor Denny Doyle, of Beaverton, Ore. noted that “If we’re to grow our economy, the private sector needs a city government that – as a partner – is responsive and nimble.”

I couldn’t have said it better myself.

The Latest in Economic Development

This week’s blog discusses the merits of German and Swiss apprenticeship programs and college credentials, heartland startup culture, a new incubator program in Arizona, and a community benefits agreement between Columbia University and West Harlem. Comment below or send to common@nlc.org.

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A recent publication by the Richmond Fed describes the merits of German/Swiss-style apprenticeships for students, helping them transition into the working world more easily. The results speak for themselves; unemployment for ages 15-24 last year in Switzerland was 7.7%, 8.5% in Germany, and 17.3% in the US. Other factors are surely at play, but on-the-job training makes a big difference. The US still focuses largely on the attainment of traditional university degrees, leaving high-tech manufacturers looking for qualified applicants and creating a stigma that technical education is a step down. That’s not to say that college isn’t worthwhile, as university graduates tend to have better job prospects and higher earning potential in the long-term. There doesn’t have to be a trade-off though; the best approach is likely “not an either-or, but a dual system.”

Over at Bloomberg, Peter Orszag takes the view that more college graduates would contribute to faster economic growth.  He reckons that a slowdown in the rate of college degree attainment has made income inequality worse and stifled growth.

A new network is forming in Arizona called the Alexandria Network, which will place incubator-style co-working spaces in public libraries.  It’s a collaboration between Arizona State and ASU Venture Catalyst, along with the Scottsdale Public Library. The plan is to eventually scale the model across the state. The pilot program will have the support of the City of Scottsdale’s economic development team, and ASU will use “proven startup content, experienced entrepreneurial mentors, and ‘pracademic’ teaching modules” to support the new spaces. According to Scottsdale Mayor Jim Lane, “we are creating an ecosystem for success to occur in Scottsdale, and many companies here are benefitting from that.” He also adds, “…the free resources and opportunities to connect and learn from fellow business people provided through the Alexandria Network will be a powerful asset for them.”

If you’re interested in startups, entrepreneurship, and accelerators, particularly in destinations that aren’t Silicon Valley or New York, the Wall Street Journal has a whole host of articles for you to peruse.  One of the locales WSJ features is Omaha, Nebraska, a middle-American city not exactly known for its dynamic entrepreneurial climate. But there are advantages to Omaha that aren’t always that obvious. For one, “while more and more startups are drawn to Omaha, it’s not quite as saturated with competition like New York City or Silicon Valley. That makes new businesses strong magnets for talent who are looking for fresh opportunities. Not only is it easier to recruit local talent, Midwestern transplants on the coasts are often looking for opportunities to come back home, where the cost of living is lower.” Also, in Midwestern tradition, “there’s an incredibly strong work ethic,” and “the community support for local businesses is…pretty powerful.”

Columbia University’s expansion in New York City has been a point of contention in West Harlem, but a community benefits agreement is allowing community groups access to much needed funds. The agreement between Columbia and the West Harlem Local Development Corporation entails $76 million to be disbursed to the WHLDC over 16 years. The money is handed out to community applicants in grant cycles, and the applications “paint a nuanced portrait of West Harlem.” Some of the proposals are for elbow-grease projects in community development, while others are for creative projects such as a proposal to “teach about 25 youths how to raise organic fish and produce using an aquaponic system.”

The Latest in Economic Development

This week’s blog discusses free online education, the economic impact of hosting a Super Bowl, a new ILO report, and the difficult passage from education to employment. Comment below or send to common@nlc.org.

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I don’t always agree with Tom Friedman, but when I do, it’s when he’s optimistic about free online education sites like Coursera and Udacity. Simply put, these sites have blown up. Friedman notes that last May, 300,000 students were taking 38 courses through Coursera; today, the site has 2.4 million students taking 214 courses from 33 universities. Friedman likes to imagine how these education platforms could change foreign aid, but in an economic development context, I’m thinking about how they could change workforce development.  Nothing can match on-the-job, in-person work experience, but think about how a student could learn – for free – the underlying features of, or how to operate, advanced manufacturing machinery before he or she steps on the factory floor. Right now, many of the courses offered online are purely theoretical, but this is the internet; there’s plenty of room to add more applied subjects. And, as a current Coursera user, if the student is completely committed to the curriculum, these courses do work.

The Super Bowl is this weekend. What’s it worth to the host city, in this case New Orleans? Reuters reports that “officials have estimated the economic impact of the Super Bowl on New Orleans at $434 million, outstripping a projected $238 million for the annual Mardi Gras festival the following week.” But the city has also put up big money in preparation: $350 million on the airport, $95 million on the convention center, and $300 million on the Superdome, where the game will be played. Of course, there are a number of skeptics who dispute the Super Bowl boost. CBS News reports that actual economic activity rarely meets rosy pre-game predictions, mostly due to how the forecasts are formulated. For New Orleans though, Super Bowl weekend is about more than the dollars that will flow into the city. It’s another bright spot on the long road back from the devastation that Katrina brought to this tourist-dependent destination.

Unfortunately, the International Labor Organization released a report last week that predicts a rise in global unemployment and a worsening of the “skills mismatch.” While many (including NLC) are still debating whether the data bare out a true skills mismatch in the US, the ILO uses global data to state its case. The story goes that in the crisis, many workers lost their jobs in industries that were contracting, so the chance of being employed in the same industry was slim. Being forced to switch to a new industry or sector inevitably led to a situation where the worker’s skill set was not suitable to find new employment. Another reason for persistent unemployment is that investment has not returned to pre-crisis levels. The report explains: “The indecision of policymakers in several countries has led to uncertainty about future conditions and reinforced corporate tendencies to increase cash holdings or pay dividends rather than expand capacity and hire new workers.” Get the full report here.

McKinsey has been studying the passage from education to employment – why employers are finding it difficult to find graduates with adequate preparedness for the workplace. Keep in mind that McKinsey tracked global data, but certain themes emerge, such as a disconnect between what education providers think they are offering, what students think they are getting out of education, and what employers are seeing in applicants and new hires. For example, 72% of education providers believe “new graduates are ready to work,” while only 42% of employers and 45% of youth feel this way. Also, “39% of education providers believe the main reason students drop out is that the course study is too difficult, but only 9% of youth say this is the case (they are more apt to blame affordability).” Get the full report here.

Insights on Being Business Friendly

At the 2012 NLC Congress of Cities conference in Boston, Danielle Casey, Assistant City Manager for the City of Maricopa, AZ presented on ways to make cities more business friendly. The room was packed to the brim and the panel discussion lively.

What were some of the key points that arose from the session?

  • Transparency is critical and staff accountability should be expected.
  • No city official is likely to brag about being unfriendly to businesses – everyone is doing the best they can.  To really find out, Maricopa asks customers what their experiences have been, examines best practices, and implements them. Leadership is key to driving this strategy.
  • To identify issues and opportunities for improvements, Maricopa conducted a Development Services Review (audit) under the direction of the City Manager.
  • Online permitting and customer service is becoming expected; do not underestimate the ability of technology to improve customer service. See Maricopa’s online customer service survey here.

According to Casey, to be successful in economic development, communities should adopt a holistic approach in strategizing for infrastructure development, and business attraction, retention, and expansion.

Choosing the right staff members is also of utmost importance. Staff members should be eager to find ways they can make something happen rather than state why something isn’t possible. If it requires Council approval to change a process to achieve a result that is a council priority (for example, making it fast and easy to get a business license approved), it’s the staff’s obligation to bring solutions before the Council for consideration.

Since Maricopa was such a high growth community, economic development became the City Council’s top priority to best accommodate the rush of economic activity. Thus, the staff worked to deliver a comprehensive program that allowed them to “move the needle” in an environment where large company relocations are scarce. Council participation in events like trade shows and local business visits also proved highly beneficial.

For more information on Maricopa’s economic development efforts, be sure to visit the city’s economic development web page.

The Latest in Economic Development

This week’s blog discusses an innovative, localized way to fund local development projects, two regions focused on mutually beneficial cooperation, an NPR story on insourcing, and the startup culture between the coasts. Comment below or send to common@nlc.org.

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“Why couldn’t people in the community invest in real estate right next door?” This piece in the Atlantic Cities about a pair of DC real estate investors explains that the answer is actually very complicated. After purchasing a property on H St. in the District, the pair (who are also brothers) invited local residents to “invest online in… shares as small as $100, in a public offering qualified by the Securities and Exchange Commission.” But the process was complicated by SEC regulations intended to protect unaccredited investors; so complicated that the brothers went through six law firms before they found out their plan was viable. In essence, the H St. deal used a model similar to crowdfunding, which removed the need for a Wall Street middleman. This democratized the development, which, in the future, may allow for the feasibility of unique projects usually passed over by big developers. Read the whole article. It’s a very good read.

Two groups in the Midwest and Rust Belt are banding together to promote their regions. In the Midwest, Kansas City, Omaha, Des Moines, and St. Louis are trying to promote mutual interests to create a “mini-mega-region” that can compete with larger metro areas. They are focusing on “four key areas: transportation, water, life sciences, and connecting their entrepreneurial communities.” In the Rust Belt, Pittsburgh entrepreneur Kit Mueller started RustBuilt.org hoping to link innovators within the industrial heart of America to “raise awareness of the possibilities to the nation’s coasts and around the globe.” For more on regional cooperation and economic development, check out my recent publication and corresponding blog post.

NPR recently did a piece on GE’s Alliance Park in Louisville, Ky. which explores how companies are experiencing the economic benefits of insourcing. GE found value in locating the different parts of the production chain – previously spread across different countries – to one place: “with workers in different departments physically sharing the same space… cross-interest conversations can happen more easily.” This translated to more efficient production processes without the need to cut the workforce. NPR also highlights a San Francisco hoodie company owned by Bayard Winthrop who has been more than pleased with producing his products here in the US.

It’s not a requirement that great startups be located on the coasts. Small interior cities are producing their fair share as well. In Grand Rapids, MI, Rick DeVos started a venture fund that provides small amounts of seed capital and has a Shark Tank-like system of choosing startups for additional financing. Additionally, investor Ray Moncrief “helps oversee four funds totaling $160 million… in and near Appalachia.” These funds highlight a continued focus on fostering local entrepreneurship instead of trying to land big firms. Because even though it is inevitable that some startups will flame out, “that often creates a virtuous cycle that benefits the local economy.”

Can Regional Cooperation Work in Economic Development?

Lately, economic development incentives has been a very buzzworthy topic. The New York Times is currently running a series based on its investigation into “How Taxpayers Bankroll Business.”  The reason for this newfound focus? As always, it usually comes down to following the money. And since money is tight (on both the state and local levels), taxpayers are paying extra attention to where their money is being spent.

Unfortunately, in many cases, the funds used for economic attraction are deployed unproductively. On the local level, this can mean neighboring communities using incentives to induce companies to pull up their stakes and locate only a few miles away to the detriment of the home jurisdiction. On the state level, cities that lie directly on the border between two states can fight perpetual border wars over firms and the jobs they provide.

Competition is usually a good thing, but is this unscrupulous variety worth it, especially when tax incentives are often relatively low on a firm’s list of location priorities?

Communities that cooperate regionally can stem the tide of injurious competition among localities while improving business attraction and retention prospects. NLC’s new release: Regional Cooperation Agreements in Economic Development highlights four operational regional cooperation agreements being used in Montgomery and Cuyahoga Counties in Ohio, the Metro Denver region, and California’s East Bay.

Each region pursued its own unique path when devising the agreements, but each contained similar provisions. Here is a sample of some key takeaways:

–          Information sharing and transparency were paramount: Sharing information while respecting individual prospect confidentiality allowed communities to work together to find the best place for a business, as long as it was within the region. It also allowed cities to stay ahead of the curve, if in fact a company was planning to relocate.

–          Anchor cities signed on: In each of the examples, the regions’ anchor cities (Dayton, Denver, Cleveland, and Oakland) participated in the agreements. This gave the agreements a big boost in accomplishing a widespread buy-in on the part of other communities within the region.

–          Agreements were adapted to best fit the region: In some regions (Cuyahoga and Montgomery Counties), it made sense to create an agreement at the county level. Other regions (Metro Denver and East Bay, CA) devised agreements at an economic development organization level. Either way, the agreements accomplished the goal of developing a unified economic development strategy that benefited the region as a whole.

–          The regional agreements started slow: Regional cooperation in economic development might not be perceived as an attractive policy by certain communities in your region. The agreements highlighted in the publication did not happen overnight; they started modestly to achieve consensus from the majority of communities within the region. After this was accomplished, it opened the door to more vigorous regional cooperation down the road.

For the full version of Regional Cooperation Agreements in Economic Development complete with examples from each region profiled, click here.

Retooling Public Pensions and the Future of Public Work

The issues related to public pensions are tough to tackle. But for the long-term sustainability of our cities, these challenges must be met head on.

This was the theme of a workshop held at NLC’s annual Congress of Cities in Boston.

On hand to discuss the topic was Kathie Novak from the Center for Priority Based Budgeting; Elizabeth Keller from the Center for State and Local Government Excellence; and Councilmember Pete Constant of San Jose, Calif.

Continued budget constraints and poor investment returns have put cities in a tough spot regarding their pension funds, with many struggling with large unfunded liability balances. As of 2011, the average funded ratio for America’s cities was just 75%.

To make matters worse, the private sector has lacked sympathy for public sector plight, as defined benefit plans are just a relic for private employees while they continue to dominate the public sector.

These problems are serious, but they can be solved by using the right combination of tools.

First, city leaders must think long-term. Using (realistic) long-term financial modeling can help cities understand how short-term decisions can affect long-term financial sustainability. Second, training must be provided to elected officials and city employees so they can gain a deeper knowledge of the complex nature of pensions. Third, clear communication is important both internally and to the public to better understand the serious pension challenges cities are facing and cultivate a buy-in for realistic solutions.

What does this mean for the future workforce of cities?

Compensation packages will have to be more sophisticated, and more importantly, must be formulated to attract young and talented employees. The demographics of the workforce will soon be changing drastically as baby boomers will retire in droves.

Setting your city on the right path to fiscal health takes a heaping helping of guts and courage – pensions are a personal, and therefore emotional, issue. Short-term solutions cannot be expected. But solutions are necessary, and Councilmember Constant explained in the session (and has proven) that they are attainable even in the toughest of situations.