Five Trends Will Drive Economic Development in 2017

See your future… be your future—this advice from the movie Caddyshack may evoke laughter in many thinking of the actor Chevy Chase providing guidance to a young caddy in this 1980s film but understanding future trends has a major impact on economic development.  Demographic and economic changes coming matter to local and state policy makers, business leaders and economic development officials seeking to survive a global economy. Five trends will drive the economic success of local and state economies in the coming year. This trends include:

  • Automation
  • Millennials
  • Domestic Energy Production
  • Assault on Economic Development
  • FDI Growth

Automation is not a new topic. It has been making America’s manufacturing industry the most competitive and productive in the world but it is also played a large part in dropping the number of manufacturing jobs in the U.S.. About 9% of the US workforce is in manufacturing and this total has dropped from over 30% in the 1950s.  By 2035, 47% of U.S. jobs might be at risk due to advances in computers, automation, and artificial intelligence. Robot industry experts estimate the average fast food establishment will switch 1.2 workers from counter service to other tasks as remote order taking, delivery by robotic applications grow with the tipping point in 2020

Restaurants, like the retail banks use of ATMs reducing the need for bank tellers, will become less of a job source.  E-commerce purchases over trips to the mall will create Grayfield Malls and driverless cars and trucks will transform our roadways and eliminate Ms of transportation related jobs.

The importance of the Millennial generation will continue.  Millennials are the largest population pool in America right now.

This large pool of workers is a substantial economic asset for the nation and regions are battling to retain and attract this generation much more focused on quality of place.  Millennials like mixed use development patterns, are prone more to walk, bike or take an uber than drive their own car.  Big towns and small looking to recruit this generation need to revitalize their Downtowns into walkable, mixed use developments where people can live, work and play.

America remains in the Age of Energy.  While low oil and natural gas prices have slowed domestic energy production, the explosion of shale oil and natural gas is making America energy independent and creating a substantial opportunity to access reliable and cheap energy to retain and attract energy intensive companies in heavy manufacturing and technology industries where the cost of energy is a major factor when deciding where to locate.

A disturbing trend driven from the politics of the left and the right are attacks on economic development organizations.  The Speaker of the Florida House is attacking Enterprise Florida and legislation actually passed the House that would eliminate the organization.  Economic development organizations should watch these developments closely, develop economic development strategic plans to justify the use of tax incentives and to build stronger connections between companies and elected officials.

Finally, a major new growth opportunities lies in attracting Foreign Direct Investment (FDI).  China, who spent two decades sucking out American manufacturing jobs, now is shifting production and manufacturing facilities to the United States.  In fact, in 2016, China’s FDI in the U.S. was up 359%.  China’s manufacturing economy is the size of the American manufacturing economy.  Rising wage rates and an economic slow-down coming to China are driving Chinese money to the stability and strength of the U.S. economy.  Regions looking to grow should be sowing the seeds for a Chinese invasion.

Trends cannot be stopped but can be prepared for.  Communities adopting strategies to capitalize on these trends will be the economic leaders for the next several years.

Montrose Group Completes Delaware County, Ohio Economic Development Strategy

The Montrose Group is proud to announce the completion of Delaware County, Ohio’s economic development strategy.  The economic success of Delaware is even greater than most think with income levels, college graduation rates and other measures of economic development success double national averages.  The challenges Delaware County needs to address often relate to addressing a $500 M infrastructure gap.  Read about how the Montrose Group suggests an Ohio success story become even greater.

Montrose 1st Quarter 2017 Economic Snapshot Illustrates Mixed Results

The 1st Quarter 2017 economic data illustrates mixed results for the nation and targeted states.

Demographic data is a strong indicator of the potential for economic success and regions demographic and economic indicators vary widely.

Personal income increased $57.7 B (0.4 %) in February, 2017, disposable personal income increased $44.6 B (0.3 %) and personal consumption expenditures increased $7.4 B (0.1 %).

Unemployment rates were lower in March, 2017 in 17 states and stable in 33 states and the District of Columbia and the national unemployment rate declined by 0.2 % to 4.5 %.

Foreign Direct Investment (FDI) in the U.S. continues to increase.  FDI in the U.S. grew to $420.7 B in 2015, an increase of 68 percent from 2014.

Total domestic energy production fell for the first time in years driven by low oil and natural gas prices according to the U.S. Department of Energy.  However, the United States remains on the road to energy independent driven by increases in natural gas production.

Trump Tax Reform Focused on Economic Growth

President Donald Trump shifted the focus of Washington into Republican friendly territory- tax reform.  The goals for Trump’s Tax Reform Plan is to grow the economy and create millions of jobs, simplify the tax code, provide middle class tax relief, and lower the business tax rate.

The Trump Tax Plan reduces the 7 tax brackets to 3 tax brackets for 10%, 25% and 35% but the plan also doubles the standard deduction, keeps tax relief for families with child and dependent care expenses, 401K savings, home ownership and charitable gift tax deductions.  To pay for the general tax reduction, President Trump proposes to reduce or eliminate deductions by steepening the curve of the Personal Exemption Phaseout, the Pease Limitation on itemized deductions, eliminating all tax deductions on individual tax return, except the deduction for home mortgages and charitable gifts, such as the deduction on medical and dental expenses, real estate taxes, casualty and theft losses, expenses related to tax preparation fees, expenses relating to job hunts, a deduction for the amount that individuals pay for state and local income taxes and the value-based portion of car registration fees, phasing out the tax exemption on life insurance interest for high-income earners, and ends the current tax treatment of carried interest for speculative partnerships that do not grow businesses or create jobs and are not risking their own capital.

To foster job creation, the Trump Tax Plan proposes to repeal the Alternative Minimum Tax, Estate Tax, the 3.8% Obamacare tax that hits small businesses and investment income, shift down to a 15% business tax rate down from 35% and shifting to a territorial tax process that taxes only the income earned by a company within a country—thus eliminating double taxation in an effort to promote more corporate headquarters to locate in the U.S.. A one-time 10% tax on the estimated $2.5 Trillion in corporate revenue brought back into the U.S. from global markets would be levied to promote U.S. investment.

Lobbying on the Trump Tax Plan will be aggressive but this plan is clearly a centerpiece to Republican efforts to address the economy.

Ohio TIF Law Under Attack Again by Ohio General Assembly

Ohio’s Tax Increment Financing (TIF) law is the most important economic development program tied to the development of infrastructure used in the four corners of the state and state legislation, House Bill 69 chips away at its potential future success.  TIFs are a mechanism available to municipalities, townships, and counties to finance public infrastructure improvements and, in certain circumstances, residential rehabilitation. TIFs operate by authorizing a county, municipal corporation, or township to grant a real property tax exemption with respect to the incremental increase in assessed valuation of designated parcels after the designation.

Owners of the property make payments in lieu of taxes to the political subdivision that created the TIF equal to the amount of taxes that would otherwise have been paid with respect to the exempted improvements (“service payments”). TIFs thereby create a flow of revenue back to the political subdivision that granted the tax exemption equal to the amount of property tax that otherwise would have been paid on the increased property value to finance infrastructure or residential rehabilitation projects.   A TIF may be comprised of specific parcels or may be what is called an “incentive district.” An incentive district TIF is an aggregation of individual parcels in an area of not more than 300 acres that is enclosed by a continuous boundary and that satisfies certain criteria of economic distress or inadequate infrastructure.

TIFs drive economic success across the state and the program is highly popular.  The Ohio Development Services Agency reports over 1200 existing TIF agreements in 64 of Ohio’s 88 counties.  As the chart below based upon Ohio Development Services Agency illustrates, regions growing use TIFs aggressively to develop the infrastructure to serve planned capital investment.

Ohio’s TIF program prohibits certain revenue from select special-purpose tax levies may not be diverted by an incentive district TIF. Some portion of the service payments must be paid to the taxing authorities levying the special-purpose taxes to reimburse them for revenue foregone due to the tax exemption. The levies are not actually imposed on the TIF property – the property is legally tax-exempt – but the TIF service payments are paid to the taxing unit as if the levy were imposed instead of being diverted to the TIF fund.

Special-purpose levy reimbursement payments are required only under certain conditions. The TIF must be an incentive district TIF created on or after January 1, 2006, and the reimbursed levy must be approved at an election held on or after that date. If the levy is a renewal or replacement of a levy originally imposed before that date, only an increase in effective millage is reimbursed.

The reality is the more local government funding sources that are excluded from TIF funding the less effective a TIF is as an economic development tool.  The challenge for efforts to create high wage jobs is there are really few tools to replace the TIF to develop infrastructure funding.

Ohio House Bill 69 proposes to add township fire, emergency medical, and ambulance levies to those for which reimbursement payments must be made by a municipal incentive district TIF.

Reimbursement payments would be required only if the township levying the tax provides fire, emergency medical, or ambulance services in the incentive district. The board of township trustees would be authorized to waive the reimbursement requirement or to negotiate an agreement for partial reimbursement with the municipal corporation creating the incentive district TIF. Such reimbursement payments would not be required for incentive district TIFs created by counties.

State Representative Bob Cupp (R-Lima) is the House sponsor.  Representative Cupp testified this bill gives townships the choice of collecting the reimbursement, waiving it, or negotiating a partial reimbursement of the money the levy would have raised but for the TIF and the bill only applies prospectively and to TIFs created by municipal corporations where townships provide the fire, emergency, or rescue services.  The Ohio Township Association testified in support of the legislation and the Ohio Municipal League provided interested party testimony that noted the potential negative economic impact of the legislation.

House Bill 69 sponsor Rep. Bob Cupp is a well-respected majority party member of the Ohio House. He is probably the most qualified member of the General Assembly who has served in local government, Ohio Senate, Ohio Court of Appeals, Ohio Supreme Court and now the Ohio House of Representatives.  Economic development advocates should be very concerned about passage of House Bill 69 and should contact David Robinson if they have any questions on the matter at drobinson@montrosegroupllc.com.

 

Four Critical Zoning Steps that Impact on Economic Development

Land use regulation includes traditional zoning, mixed- use, and Houston or no-zoning.  All three approaches to land use regulation impact economic development. Traditional zoning is the regulation of land use based upon a separation of uses. Highly localized, it developed in the early 20th Century and is now widely utilized in communities throughout the United States. Local governments typically play a role in regulating the use of land as part of the real estate development process.

Cities and townships predominantly use the traditional “Euclidian Zoning” approach. Planned Unit Development is a form of traditional zoning that regulates the use of a larger parcel of land in urban, suburban, and rural communities. Mixed-use zoning is used selectively in targeted urban neighborhoods to revitalize a commercial strip often through the creation of an Urban Overlay zoning strategy. Transit-Oriented Development is a form of mixed-use zoning that regulates land use and promotes development at prime transit stations. Houston, Texas is the only major city in the United States that does not have a zoning code, but the economic success of this city makes their zoning approach worthy of review.

The zoning process is an interaction with neighbors, local government staff and elected officials, and the developer, all with the hope of achieving agreement on what use is permitted on a specific piece of property. Many successful zoning applications start with an aggressive pre-application approach that begins with meeting the local government zoning staff and impacted community. Early completion of a traffic and engineering studies pay big dividends later. Next, those seeking zoning changes obtain written service commitments for public sewer and water services, engineering approval of the legal description, and outline an of the economic model and time constraint for the project.

The project may then be prepared to actually file a zoning application. The zoning application includes a statement of compliance to the comprehensive plan applicable to the area, detailed legal descriptions of all site plans, elevations, and construction materials palette. Project drawings illustrate how the proposed development “fits in.” Also, the zoning applicants provide certification of financial capability to execute the project if approved and a vicinity map showing names of neighbors.

Notice is then provided to all persons mandated by the zoning ordinance/resolution, mailed to the tax mailing or street addresses, through publication in a newspaper of general circulation or posting a sign(s) on the property. Once the zoning application is received by the zoning official, the staff reviews for accuracy and completeness and hearing is held before a regional planning commission. A written recommendation to the jurisdictions planning commission is then created, and ultimately a vote is taken on the zoning by the city council. However, in many jurisdictions the citizens still retain the right to place a referendum on the ballot to overturn the zoning action by city council or a township trustee.

Successful zoning campaigns are part art and part science and involve four critical steps.

  1. Follow the statutory outline. It is critically important to follow the statutory process generally outlined by state law but implemented at the local government level. Statutory outlines provide for not just mundane procedural steps such as how to provide notice of the zoning change but major issues such as who actually decides whether the zoning is approved, what is the basis for this decision and who hears the appeal if the zoning request is denied.
  2. Recognize agility as well as the law matters. However, agility is required to win approval of controversial projects.  Turning a corn field into a factory or fulfillment center makes perfect sense to an economic development official but will look like the end of Western Civilization to the neighboring property owners.  It often makes sense to hold private listening sessions with area residents to get some perspective on what they would like to see from a project design standpoint.
  3. Get your homework done. Winning a zoning campaign like doing well in school requires study and preparation.  Hearing questions during a zoning hearing that have never been thought of before is not what you want.  Surviving public meetings happens through proper preparation to ensure that all the required studies and utility service agreements are in place.  Completion of these reports is a critical homework assignment that is a key to success.
  4. Find third party advocates. Finally, zoning campaigns are won through the help of friends.  Surviving zoning public meetings demand that local economic development officials take part and communicate the value for the community of job creation and capital investment.  Local government leaders need to support the project request in person at public meetings—a tough request that is sometimes necessary to success.  Neighbors who gain design and land use concessions through negotiations or have their property purchased need to find ways to support the project.

Zoning sounds easy but is often the most complicated part of preparing a site for a large scale industrial, residential or commercial project.

$75M in Ohio Historic Preservation Tax Credits Requested

The Ohio Historic Preservation Tax Credit is a popular program spurring economic development all over Ohio.  Recently, Round 18 applications were filed and demand for the program appears to remain strong. The Ohio Historic Preservation Tax Credit Program provides a state tax credit up to 25 percent of qualified rehabilitation cost during a rehabilitation project of a historic building. The program allows for request of no more than $5 million in tax credits unless approved as a catalytic project. A building is eligible if it is listed individually on the National Register of Historic Places; contributes to a National Register Historic District, National Park Service Certified Historic District or Certified Local Government Historic District; or is listed as a local landmark by a Certified Local Government.

In the last funding round, Round 17, the Ohio Development Services Agency awarded $22.8 million in Ohio Historic Preservation Tax Credits to 18 applicants planning to rehabilitate 33 historic buildings. The projects are expected to bring approximately $225.6 million in private investment in 12 communities.  The current applications under review for Round 18 were due in March. The 48 applications from the first round of 2018’s tax credits range from historic theatre renovations to restoring a single storefront. The total request equals $75,657,626. Cincinnati and Cleveland represent the most applications with 13 between the two of them; only 3 applications came from the Capital City of Columbus.

The Palace Theatre, in Columbus is currently undergoing renovations to restore the theatre to its 1926 opulence. CAPA has applied for a $1,655,159 tax credit to help with the restoration of the ornamental plaster in the auditorium and repainting to the original colors and gold leaf accents as well as building upgrades. The Inspirion Group of Cleveland, is asking for $1,392,500 tax credit to help finance the conversion of 3010 Euclid Ave., which will turn the building into market rate apartments.  Other noteable projects under the general credit request include the Traction Company Building, a 60,230 SF building in Cincinnati that The Parkes Cos. plans to convert into mixed use. The Parkes Cos. applied for $4,206,917 worth of tax credit for this project. Cincinnati’s Union Terminal is currently undergoing a $212-million renovation, an application has been submitted for the maximum $5,000,000 tax credit to go towards these improvements. NewcretImage, LLC, has plans to convert the First National Bank Building in Cincinnati into a contemporary lifestyle hotel.  NewcretImage, LLC has asked for a $5,000,000 tax credit to help with the conversion of what was once the tallest building in Ohio. Cleveland’s Terminal Tower, owned by K&D Group, also requested the maximum $5,000,000 tax credit to go towards converting 10 floors to as many as 300 apartments.   The intermediate credit request range from $210,000 to $2,000,000. In Newark, The Home Building Association Bank, also known as The Louis Sullivan Building, owned by the Licking County Foundation, asked for $1,027,000 to renovate the former bank that has sat vacant for a decade. When the renovations are complete, Explore Licking County will take over the space.

Nineteen small credit request were submitted ranging from $31,250 to $250,000. In Akron, 172 South Main is a part of the $11.8 million Civic Theatre block project, that when complete, will include shops, restaurants and apartments. Main Street Partners, the group that is developing the Civic Theatre block, has asked for $249,999 for improvements on the 172 South Main building. Sieber Vine Holding LLC, plan to convert the buildings at 620 and 622 Vine St. in Cincinnati into a large commercial space with three apartments above it. The total project is expected to be a $2 million investment. The group has asked for $249,000 in tax credits to assist with the conversion.

Some of the applications were resubmitted after being passed on in previous funding rounds.  The Illuminating Building in Downtown Cleveland’s $4,000,000 request was not chosen in 2017. They have requested the same amount in Round 18. 1731 and 1815 Elm Street in the Over-the-Rhine neighborhood of Cincinnati both missed out on the historic tax credits last round but are hoping to have different fates this time around. The Niehoff Flats request for $239,500 was not chosen last round so they have come back with a smaller ask of $135,800 for Round 18.

In Round 16, 44 applications were filed for these tax credits. There were three categories of request- general credit request, intermediate credit request, and small credit request. The general credit request range from $1.8 million to $5 million with the average request being around $3.7 million. 50% (5 out of 10) of these requests were awarded.  The intermediate credit request range from $491k to $2 million with the average request being $1.2 million.  35% (7 out of 20) of these requests were awarded. The small credit request range from $82k- $250k with the average request being around $184k. 93% (13 out of 14) of these requests were awarded.

Contact David Robinson at drobinson@montrosegroupllc.com at the Montrose Group if you have questions or need assistance in gaining funding from this competitive state program.