David Robinson has again been published on the topic of economic development this time focused on how smaller communities can create jobs through the use of tourism and other economic development tactics that play on their regional strengths. Small Town Economic Development, published by McFarland Books, is a collection of recent articles by experts presents stories of small-town America’s struggle and describes innovations and practices behind successful revivals. David Robinson contributed an article entitled “Tourism Impacts Economic Development.” Mr. Robinson illustrates how tourism can be part but not all a rural community can do to provide an economic revival. Small Town Economic Development was edited by Joaquin Jay Gonzales, III, Roger L. Kemp and Jonathan Rosenthal, and it outlines a wide range of small community economic development strategies successfully at work. The book can be found at McFarland Books.
The Montrose Group recently completed a comprehensive economic development strategy for Shelby, Ohio. Key action steps suggested by Montrose include:
- Creating a regional PPP to operate economic development in the city
- Aggressively marketing Technology Park and the Shelby Industrial Park
- Launching a technology-based economic development strategy known as Start-Up Shelby focused on developing entrepreneurial advisors, a tech company boot camp, STEM workforce, community investment fund and a “makers space” to act as the center of tech company start-up activity
- Utilizing Ohio’s Downtown Redevelopment District program to redevelop historic properties as central to attracting Millennials and re-creating an economic center for the city
The kick-off is a well-established football tradition most Ohioans are aware of. For serious students of state of Ohio government, the kick-off for the state of Ohio capital budget bill starts with a standard guidance memo from the Director of the Ohio Office of Budget and Management. On September 25, 2017 Governor Kasich’s OBM Director Tim Keen released the FY 2019-20 state of Ohio capital budget guidance memo to state agencies and other organizations that may be eligible for state of Ohio capital funding in the upcoming capital bill.
Keen’s state of Ohio capital budget guidance memo is anything but exciting. It is a highly technical document closer to a legal analysis of what and how capital budget items for the state of Ohio should be submitted. Though boring, the OBM capital budget guidance memo has some very important information in it for those planning to seek capital budget requests. The guidance memo again defines “capital” items to include the “cost of acquiring, constructing, reconstructing, rehabilitating, remodeling, renovating, enlarging, improving, and/or equipping facilities.”
In addition, the memo outlines what projects are eligible for capital budget funding either from a state agency or a community project. State capital appropriations are funded primarily through the issuance of State bonds. Capital budget projects funded through State bonds must (1) fall within the authorized purposes for State bonded debt set forth in Article VIII of the Ohio Constitution and (2) meet federal tax law requirements for tax exempt bonds. To be eligible for bond funding in the State capital budget, a project must fall within the capital purposes authorized by the voters as set forth in the Ohio Constitution such as: highways; local government infrastructure; parks and recreation; natural resources and conservation; higher education facilities; elementary and second public school facilities; facilities to house branches and agencies of State government and their functions, including State office buildings and facilities; correction and juvenile detention facilities, mental health and development disabilities facilities; cultural, historical and sports facilities; and research and development (including coal research and development) and site development. Also, the Ohio Revised Code and federal tax law also contain provisions that govern the allowable uses of bond proceeds for capital projects, including the types of projects and expenditures, and the extent to which non-governmental entities (both private for-profit and not-for-profit) can benefit from the project.
Finally and most importantly for local communities, the Keen FY 2019-20 state capital budget guidance memo acknowledged that the upcoming capital budget will contain the popular community projects that funds arts, sports, economic development, historical, parks, health care and other priority community projects. The release of the Keen FY 2019-20 guidance memo in late September indicates planning and lobbying should begin right away for those seeking state of Ohio capital budget funding. It is anticipated Governor Kasich will rely on local business organizations to make recommendations for capital budget community project funding but members of the Ohio House of Representatives and Ohio Senate will have their own application project. The Keen FY 2019-20 guidance memo does not outline how large the capital budget bill will be and it is likely to start small in the eyes of Ohio’s Governor and grow larger as members of the Ohio General Assembly get more engaged in the process.
Before the financial services crisis of 2008-09, money for growing companies was cheap and easy to access. Private banking options were many and those banks were generally aggressive in competing for loaning money to growing companies. Times have changed. Banks hold 117% more cash and 493% more securities in 2015 than in 2010 based upon regulatory requirements tied to the liquidity coverage ratio which creates a minimum deposit requirement according to the Federal Reserve Bank of Cleveland Fourth District Federal Reserve. Also, banks held $69.5B in cash and $79.5B in securities in 2015 compared to $32.1 B in cash and $79.5B in securities 2010 according to the Cleveland Fed. More troubling, private loan growth is up only 25% in the current economic recovery compared to 64%, 30%, and 87% in 2001, 1990-91 and 1981-82 recession recoveries according to the Treasury Department. Growing companies are facing a cash crunch as a result of federal regulations requiring American banks to keep substantial funding in reserve.
States like Ohio have an answer for this capital crunch. That answer differs based upon the stage and industry of the company seeking capital.
All companies start with an idea. Most likely early company funding starts with the owners, their friends, family and whatever fools they can find. If the idea is technology related, Ohio offers an important source of funding through the Third Frontier program. The Ohio Third Frontier Technology Validation and Start-up Fund’s goal is to create greater economic growth in Ohio based on start-up companies that commercialize technologies developed by Ohio institutions of higher education and other Ohio not-for-profit research institutions. The Technology Validation and Start-Up Fund has been designed to: support protected technologies developed at Ohio research institutions that need known validation/proof that will directly impact and enhance both their commercial viability and ability to support a start-up company, and support Ohio start-up and Ohio young companies that license validated/proven technologies from research institutions. The next round of funding through this program is in the middle of December and having a university partner is essential.
Moving into beyond the idea stage into the incubation stage offers these companies access to a wide range of Ohio regional venture capital firms. While not Silicon Valley, Ohio offers a range of venture capital firms serving all corners of the state for a diverse industry base as listed below.
- JumpStart– focuses on an array of technology sectors, including companies founded and led by women and minority entrepreneurs;
- Cleveland Clinic– focuses on medical devices, products and companies spun out from the institution’s researchers;
- Lorain County Community College– focuses on tech-based companies that are in the imaging or incubating phase of development with special focus in the Northeast Ohio region;
- LaunchDen Capital Fund– primary focus on orthopedic companies;
- Bizdom– focuses on web- and tech-based start-up companies- Dan Gilbert, Detroit based fund;
- Case Western Reserve University– focuses on medical technology, business software, advanced materials, fuel cells, and energy storage;
- Mutual Capital Partners– focuses on healthcare (medical devices and diagnostics) and information technology (business-to-business and mobility software) sectors;
- North Coast Venture Fund– focuses on biomedical, pharmaceutical, and software sectors;
- Valley Growth Ventures– Y-town, focuses on software, energy, advanced materials, and additive manufacturing sectors;
- Rocket Ventures– focuses on medical technologies and software applications which include imaging, surgical instruments/equipment, implant devices, regenerative medicine, and software applications developed for business and healthcare;
- NCT Ventures– focuses on adtech, big data, enterprise software, heath information technology, logistics, and marketplace and retail technology sectors;
- Rev1Ventures– focuses on life sciences (specifically in the areas of pharmaceutical, biological and gene therapies and spin-out companies from Nationwide Children’s Hospital’s Research Institute), software, information technology, additive manufacturing, alternative energy, and other sectors;
- TechGROWTH Ohio– focuses on digital interactive media, biosciences, bio-agriculture, and advanced energy sectors;
- CincyTech– focuses on a variety of Ohio Third Frontier targeted industries, including software, medical technology, life sciences, consumer digital, and other aligned sectorsin the region;
- Cincinnati Children’s– focuses on the biomedical sector; and
- Accelerant– focuses on advanced materials, advanced manufacturing, sensors, healthcare, information technology, aerospace, situational awareness, and surveillance systems sectors.
Companies graduating on to having an actual product or service ready to offer customers will often look to angel investors for their next round of financing. Ohio again has a diverse group of angel investor groups that operate all over the state that include:
- North Coast Angel Fund– focuses on healthcare (medical devices and diagnostics), biotechnology and software sectors;
- Queen City Angels– focuses on advanced materials, aeropropulsion power management, fuel cells and energy storage, medical technology, business and healthcare software, sensing and automation technologies, solar photovoltaics, situational awareness, and surveillance systems sectors;
- East Central Ohio Tech Angel Fund– focuses on companies in rural Southeast Ohio with new proprietary, barrier-to-entry technologies;
- Ohio Tech Angels – focuses on information technology, advanced materials and life sciences sectors; and
- Impact Angel Fund– focuses on bioscience/medical, advanced materials, automation, energy and power management, surveillance, and information technology sectors.
Companies ready to grow in the marketplace that are beginning to produce jobs are primed for a conversation with JobsOhio. The state’s private sector economic development organization offers a wide range of economic development loan programs tied to job creation and capital investment. JobsOhio focused on industries such as biohealth, IT, advanced manufacturing and aerospace and aviation with established or expansion stage companies generating revenues. JobsOhio wants more than half of the company revenue to come from other private capital sources and they will require job creation and retention, efficiencies gained, additional payroll, fixed-asset investment commitment, project return on investment, project location, within a three year timeframe. JobsOhio Growth Loans range from $500,000 to $5,000,000 for fixed-asset investment.
For companies moving beyond the start of the marketplace and shifting into full-fledged sustainability, the state of Ohio offer the Innovation Ohio Loan Fund. The Innovation Ohio Loan Fund provides capital-funding for Ohio companies with limited access to capital and funds from conventional financing sources due to technical and commercial risk factors associated with the development of new products or services in targeted industries. They finance up to 75% of allowable project costs with loans typically ranging in size from $500,000 to $1,500,000 with a job creation and capital investment required. Again, targeted industry sectors include: Advanced Materials; Instruments, Controls and Electronics; Power and Propulsion; Biosciences; and Information Technology. Innovation Ohio Loans are focused on established Ohio companies with a minimum of two years of operating history and revenues generated developed a proven product for a proven market have customer orders and reasonable prospects for rapid sales growth have attracted third party capital and has reasonable prospects of continued backing from such investors. Allowable costs are defined as costs that can be capitalized under applicable generally accepted accounting principles (GAAP) and a 5 – 7 year loan term at a fixed rate up to 25% of the allowable project costs.
Ohio is blessed with many public financing options for growing companies facing a cash crunch. Understanding which source to gain the funding from and how to negotiate is the only challenge.
Smart Communities embrace technology as the key to their economic future. The first step in building a smart community is defining the elements of a smart community and what the economic benefits are from achieving that status.
The economic benefits of becoming a smart community are substantial. Successful technology based economic development is a well-established, five drivers of regional economic success—along with advanced manufacturing, global trade, advanced services and energy. Successful regional technology economies are built on Science, Technology, Engineering and Mathematics occupations. STEM occupations consist of nearly 100 specific occupations consisting of 6 percent of U.S. employment counting nearly 8,000,000 jobs. STEM jobs are high-wage positions paying on average $77,880 and only 4 of the 97 STEM occupations had mean wages below the U.S. average of $43,460. The creation of smart community operating systems for cities also suggests substantial economic gain. According to a study by Accenture, Smart City solutions applied to the management of vehicle traffic and electrical grids could produce $160 billion benefits and savings through reductions in energy usage, traffic congestion and fuel costs.
Beyond the benefits of pervasive Smart City technology, the potential gains from the deployment process for such technology are also significant since telecom operators are expected to invest approximately $275 billion in infrastructure, which could create up to 3 million jobs and boost GDP by $500 billion.
The debate is over—high technology regions produce communities with high income jobs. Developing the high-tech region is the goal for most communities and getting there involves three clear steps: build a Smart City wireless network to transform local government services; create a STEM workforce; and develop capital access sources for high-tech start-ups.
Building and recruiting technology companies is more credible if the local government embraces technology. On the backs of state of the art 5G wireless technology, the development of wireless, small cell networks are creating economic and public service benefits for taxpayers across the nation. Smart Community networks flow over a 5G wireless telecommunications system built on a series of small cell sites and the network serves a range of government and utility services typically through sensors built on streetlight or utility poles throughout a community. This wireless network provides real time public safety and traffic data that helps big and small communities create safer streets and better flows of traffic. Accenture again notes substantial traffic benefits from smart community networks—that includes reducing traffic congestion by 40% saving drivers and operators in medium-sized cities approximately $100 million annually. Traffic management systems can help deliver these benefits and, thanks to 5G’s ultra-fast speeds, cars will be able to “convoy” or “platoon” in groups, increasing road vehicle capacity, while providing substantial energy savings for vehicle owners. And if autonomous cars are supported by Smart Traffic Management systems, congestion could decrease and deliver additional productivity and quality-of-life improvements to residents. Parking applications and energy savings through smart meters through this network offer substantial public benefit as does public safety. Chicago currently uses its 4G network to provide real time video which allows first responders to assess a scene before arriving. Deployment of 5G in a Smart City will enable the integration of all video surveillance, with access to specific locations, pole by pole, in ultrahigh definition. This capability would allow responders to use facial recognition to identify known criminals or spot missing persons before arriving on the scene. More importantly, the collection of this new data source provides a potential private sector revenue model that makes its deployment financially possible for most communities. Communities seeking to develop smart community networks need to embrace the location of private telecommunications company’s smart networks, adopt right of way ordinances supportive of this smart network and permit and encourage the building of a sensor network throughout the city that enables the community to run a smart community network.
STEM workers constitute about 5 percent of the U.S. workforce but accounts for more than 50 percent of the nation’s sustained economic growth. STEM workforce strategies start early in the educational process and increase the number, rate, and diversity of undergraduates in STEM disciplines and align undergraduate education with STEM industry workforce in targeted areas. They also build STEM alliances among business, education and government. Colorado’s STEM strategy is a national model. STEM-EC is a Colorado based coalition of business and education leaders connecting industry and the K-16 academic community to graduate more STEM students. Industry partners include Qwest, Lockheed Martin Space Systems, BB2e.com, Sun Microsystems, Hewlett Packard and CH2M HILL. Colorado’s STEM effort illustrates that it starts with the leadership of the business and education community. The link to industry is an essential element as the academic community needs assistance in identify specific STEM fields in which jobs are available and what specific training and curriculum structure prepare students for STEM jobs.
Finally, developing regional capital access funds is another important step in building a smart community. No one is Silicon Valley—who has half the venture capital in the United States. That being said, even small communities can build a regional capital access fund by leveraging local business, government and bank assets to spur innovation and the creation of start-up companies. Start-up, technology oriented companies struggle to gain financing from typical sources. Small and large communities alike bring government, not for profit, foundations and financial institutions together to develop regional community capital access funds. A Regional Community Investment Fund provides capital to small business and entrepreneurs and encourage investment and development of underutilized and underused assets in the community, including downtown revitalization by providing gap financing for small business and entrepreneurs, and redevelopment project investments. National models for regional Community Investment Funds are based upon the success of the Nebraska Community Foundation and its Hometown Competitiveness Network, West Carrollton, Ohio’s Community Investment Fund and the Community Capital Fund in the Pioneer Valley of Western Massachusetts. The goal will be to raise funds over a 2-year timeframe and should tap into local wealth to make investments in the fund, and those individual’s needs and desires to give back to the community. These regional investors should be approached to bring value and protection to their investment. Investors should be given options of expected return: 1% annual return for a one-year commitment, 2% annual return for a three-year commitment, and 3% annual return for a five-year commitment. There should be no “promise” of return as risk is inherent in these investments but investors should be given some expectation about the potential return on their investment. To ensure proper operation of the community investment fund, an outside financial advisor should be hired to help it attract investments into the fund as well as manage the fund, the investment, and the assets moving forward. Investments should focus on local companies considering company creation or new real estate development projects by providing unsecured loans, subordinated loans, convertible debt, royalty finance, and the right to purchase stock at a specified price.
Building a smart community has big economic and public benefits. The economic reality of technology and innovation is driving economic success to regions embracing this change and will likely leave behind communities that fail to succeed in this new world.
Ohio’s campaign to replace Governor John Kasich appears to be heating up as the 2018 Primary Election draws closer. Policy discussions, political attacks and independent expenditure mailings all illustrate the Ohio Republican Governor’s race is in full gear.
First, the policy fight. Lt. Governor Mary Taylor, trailing badly in fundraiser efforts, went “old school” and starting rolling out policy positions on major issues. Taylor grabbed headlines across Ohio when she rolled out here health care plan for what she will do as Governor on this important topic. Lt. Governor Taylor announced she would not support the continued Medicaid expansion permitted due to funding from the federal government based upon passage of Obamacare. This made headlines because her announcement constituted a major shift in the position of the Governor and her running made in the last two General Elections—John Kasich. Kasich in fact is the leading Republican, nationally supporting the Medicaid expansion as he continues to garner national media attention as Washington struggles to find an answer for health care policy. Lt. Governor Taylor earned some credit for taking a policy position on an issue that constitutes over 50% of the state operating budget spending. However, opponents will surely point out she did nothing to stop the Medicaid expansion as Lt. Governor when half the states in the Union decided not to accept the Obamacare funding.
Northeast Ohio Congressman Jim Renacci launched the first attack of the Republican Primary campaign. Treating his Republican Primary Election opponents like they are from Columbus, Congressman Renacci attacks Mike Dewine, Jon Husted and Mary Taylor as “Fat Cats.” https://www.renacciforohiofirst.com/renacci-ohio-releases-first-television-ad/. Renacci loaned his campaign $4 M and his spending his money on television advertisement campaign to try and boost his low name ID and damage the brand of his better known opponents. He is also attempting to connect with the Trump voters who gave the President an overwhelming victory in Ohio over Hilliary Clinton. Pundits question whether these “Trump Voters” will actually vote in a Republican Primary. Trump’s efforts in Alabama to elect a Republican Senator appointed to fill the seat of Jeff Sessions did not prove successful and provide more fodder for Renacci’s opponents.
Finally, an independent expenditure campaign supporting Jon Husted’s candidacy is also hard at work. Billionaire philanthropist Clay Mathile donated $1 million to a super PAC that is backing Republican Jon Husted for governor next year, according to federal campaign finance filings.
Between late April and the end of June, Ohio Conservatives for Change raised $1.3 million from four donors: $1 million from Mathile, $125,000 each from Mt. Vernon residents Thomas Ratin and Karen Buchwald Wright and $50,000 from Medical Mutual. Direct mail pieces have begun landing in Republican Primary voters’ mail box with the goal of building the name ID of Husted with core voters. The mail pieces have been positive, profile pieces with the obvious goal of defining Husted in a positive light.
All these battles have not moved the favored candidate, Ohio Attorney General Mike Dewine who continues to run a successful General Election campaign focused on opioids and other election matters of interest to the broader voter based. Dewine benefits from 30 years of campaigns and a strong name ID. More battles are coming as the 2018 Primary Election are coming in the near future.
Dave Robinson will be speaking at Innovate New Albany on September 29 from 11:30am to 1pm. His topic, “Addressing the Capital Crunch,” gives helpful information to entrepreneurs and small- and mid-size businesses regarding the types of capital they can access. This is a free event (lunch included), but registration is required. For more information, visit innovatenewalbany.org.