Archive for ED Planning

Montrose Group Finalizes Athens County Economic Development Council Comprehensive Economic Development Strategy

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The Montrose Group recently finalized a comprehensive economic development plan for the Athens County Economic Development Council. This comprehensive strategic economic development plan is providing an economic road map for Athens County, Ohio through a planning process following the Learn, Listen & Do model that included research into the economic makeup of the region, analysis of available workforce, development of an industry cluster analysis, community comparisons on costs of doing business, economic development and demographic makeup all leading to a SWOT analysis that defines the opportunities and challenges for Athens. The Montrose Group conducted strategic community listening sessions including public surveys and an action plan tied to land use, workforce, tax policy, infrastructure, and quality of life strategies geared toward the development of high-wage jobs.

Downtown Housing and Tax Abatements

Urban centers have been booming with the growth of multi-family residential units. Look at Ohio:

  • Downtown Dayton has 204 units are under construction and another 432 units are in the development phase;
  • Downtown Columbus has over 5700 residential units constituting a growth in residents of 132% since 2000;
  • Downtown Cleveland has over 8000 residential units; and
  • Downtown Cincinnati leads them all with over 8200 residential units.

Many of these urban communities are benefiting from a desire of Millennials to move back to the urban core but they are also using tax incentives to create a level playing field with the less costly suburban housing market. Urban centers are typically complex development sites with existing buildings, property owners and struggles to find the parking and other amenities that are cheap and easy to build when transforming a field of corn into homes. Also, the development of housing and mixed use developments in the urban core benefits the entire region as it breathes new life into downtowns which serve the entire region as a central business district and often a regional or national entertainment center. The public policy and economic benefits of homeownership in urban, downtown centers is even stronger. Homeowners traditionally are more connected to the success of their community as they are invested in the value of that neighborhood. Clearly, supporting the development of downtown housing is a confluences of the current residential market, good public policy and smart economic development.

How can communities big and small create a downtown housing marketplace. The solution generally starts with determining the best tax incentive scheme to use. The Ohio Community Reinvestment Area (CRA) program is an economic development tool administered by municipal and county government that provides real property tax exemptions for property owners who renovate existing or construct new buildings and is the prime economic development tool driving downtown housing growth. Community Reinvestment Areas are areas of land in which property owners can receive tax incentives for investing in real property improvements. The program is delineated into two distinct categories, those created prior to July 1994 (“pre-1994”) and those created after the law changes went into effect after July 1994. The CRA Program is a direct incentive tax exemption program benefiting property owners who renovate existing or construct new buildings. This program permits municipalities or counties to designate areas where investment has been discouraged as a CRA to encourage revitalization of the existing housing stock and the development of new structures. Local municipalities or counties can determine the type of development to be supported by the CRA Program by specifying the eligibility of residential, commercial and/or industrial projects.

For a post 1994 CRA, the tax exemption percentage and term for commercial and industrial projects are to be negotiated on a project specific basis. If the proposed exemption exceeds 50%, local school district consent is required unless the legislative authority determines, for each year of the proposed exemption, that at least 50% of the amount of the taxes estimated that would have been charged on the improvements if the exemption had not taken place will be made up by other taxes or payments available to the school district. Upon notice of a project that does not meet this standard, the board of education may approve the project even though the new revenues do not equal at least 50% of the projected taxes prior to the exemption.

Many downtown residential tax abatement programs are beginning to approach the 15 year mark of their life. Recently, Ohio law was changed to permit the period of the tax exemption for a dwelling to extended by a legislative authority for up to an additional ten years if the dwelling is a structure of historical or architectural significance, is a certified historic structure that has been subject to federal tax treatment under 26 U.S.C. 47 and 170(h), and units within the structure have been leased to individual tenants for five consecutive years. However, this change to state law does not help many other apartment and condo owners who will struggle to compete without their current tax abatement.

First Quarter 2017 Venture Capital Investments Grow

Access to venture capital is a critical measure of a region’s success with technology based economic development as early stage technology companies struggle to gain funding from traditional sources such as banks. U.S. venture capital investments saw signs of growth in First Quarter 2017 versus investments in Fourth Quarter 2016 based upon reports from PricewaterhouseCoopers LLP, the National Venture Capital Association, and PitchBook.

In Quarter 1 2017, venture capitalists deployed $13.7 billion to start-up companies through 1,104 deals, up fifteen percent in dollars and two percent in deals over Quarter 4 2016. An increase in mega-round funding (investments over $100 million in size) helped contribute to the growth in quarterly dollars invested, although the $13.7 billion is the second lowest quarterly total over the past two years. Regional trends were mixed, with LA/Orange County being one of the few major hubs experiencing an increase in both dollars and deals from Quarter 4 2016. Seed investments continued its two-year decline as a proportion of all deals, coming in at 25% of all deals in Quarter 1 2017, while later-stage deals were at eleven percent of all deals. Additionally, the Internet sector deal share decreased to a two-year low of forty-four percent during Quarter 1 2017 while Healthcare increased to a two-year high of seventeen percent and surpassed Mobile and Telecommunications as the second place sector for deal activity.

A summary of Quarter 1 2017 shows:

  • Regions – The Midwest came in eight out of the eighteen regions, preceded by San Francisco in first ($3.47 billion), Silicon Valley, New England, New York Metro, LA/Orange County, Southeast, and the DC Metroplex. In order, Colorado, Northwest, Southwest, Texas, San Diego, North Central , Upstate New York, Philadelphia Metro, Sacramento/Northern California, and South Central rounded out the rest of the regions.
  • Sectors – Internet, Healthcare, Mobile and Telecommunications, Industrial, and Computer Hardware and Services comprised the top five investment sectors. The additional twelve investment sectors include Business Products and Services, Software (non-internet/mobile), Electronics, Automotive and Transportation, Consumer Products and Services, Energy and Utilities, Food and Beverages, Leisure, Financial, Media, Agriculture, and Risk and Security.
  • Development Stages – Expansion Stage led with investments of $5.352 billion followed by Later-Stage ($4.844 billion), Early-Stage ($2.47 billion), Other ($760 million), and Seed ($433 million).
  • States – Top 10 investment states were California ($7.379 billion) followed by Massachusetts, New York, Colorado, North Carolina, Maryland, Texas, Washington, Virginia, and Utah. Ohio came in at nineteenth, with $81 million (down from $142 million in Quarter 4, 2016).

Exit activity continued to be slow, with 169 VC-backed exits during Quarter 1 2017, with corporate acquisitions and buyouts continuing to be the leading exit routes. Software, biotech, and commercial services sectors accounted for approximately seventy-three percent of the total exits. Finally, venture capitalists raised $7.9 billion across 58 funds in Quarter 1 2017, down approximately twenty-four percent from last year’s Quarter 1. Nine first-time funds were closed during this quarter, the most in the last five quarters.

Transportation Improvement Districts Have Big Opportunities for Project Financing

Many growing communities facing infrastructure challenges to keep up with current group and remain positioned to capture future economic development.  Transportation Improvement Districts (TIDs) are a vehicle used to solve these infrastructure challenges.  TIDs are mechanisms to raise revenue for repair of roads, highways, and bridges within a defined geographic area.  District are governed by a commission whose job is to oversee financing, construction, maintenance, and repair of highways and roads. To complete these tasks, districts must capture funding, which they do by imposing taxes, tolls, or other fees.  Revenue raised from these taxes or fees is returned to the city or county’s transportation improvement fund.  Although the U.S. Department of Transportation has acknowledged these entities, no specific regulation or provision directly addresses them.  Therefore, the formation and regulation of transportation improvement districts occurs on the state and local government level. In fact, at least two states (Ohio and Virginia) have legislation governing transportation improvement districts.

In Ohio, TIDs are created by a board of county commissioners. The TID board consists of members appointed by the board of county commissioners, legislative authority of the most and second most populous municipal corporations in the district, the board of township trustees, the county engineer, and the legislative authority of any township or municipal corporation that cannot otherwise appoint a member and is within the geographic area covered by the district. Each district is charged with financing, construction, maintenance, and repair of road and highway projects.   Ohio TIDs raise revenue for projects by levying special assessments and issuing bonds if it finds that the resulting improvement is beneficial to the general public. If levying assessments, the district cannot exceed 10 % of the assessable value of the lot or parcel of the land being assessed and all proceeds raised by the transportation improvement districts shall be applied to road or highway projects.

Billion Dollar Economic Impact of Distracted Driving

At some point, what appears to be a social crisis impacts an economy.  Distracted driving has reached that point.  A 2015, National Highway Traffic Safety Administration (NHTSA) report clearly defined not just the social costs of distracted driving in the United States but also the economic costs.

NHTSA reported, in 2010, there were 32,999 people killed, 3.9 M injured, and 24 M vehicles were damaged in motor vehicle crashes in the U.S. creating an economic costs of $242 B caused by distracted driving.  Distracted driving creates lost worker productivity, increases medical, increases medical, legal, court, EMS, insurance administration, and traffic congestion costs.  The NHTSA estimates that distracted driving, in 2015, cost every American $784 representing 1.6% of the nation’s $14.96 T GDP. These costs impact the cost of government, health care, automobile and insurance coverage.  When quality of life valuations are considered, the NHTSA determined the societal harm of distracted driving in 2010 was $836 B with lost market and household productivity taking a $77 B hit, property damage $76 B, medical expenses $23 B, traffic congestion $28 B, and taxpayer costs $18 B.  The costs of distracted driving are not going down. U.S. fatalities from traffic accidents rose 7.2% in 2015 to 35,092—the largest increase in 50 years—and distracted driving played a role in 10% of those deaths, according NHTSA. NHTSA found that fatalities from “distraction-affected” crashes increased 8.8% to 3,477 from 3,197 for that period.

Not to minimize the human tool, worker productivity losses, governmental expenses and other costs of distracted driving, but this automobile driving conduct is hitting regions and states hard that are leaders in the insurance industry.  Money magazine reports that the Boston Globe reports that insurers plan on increasing auto premiums 3% to 6% on Massachusetts drivers this year, on top of increases of 6% to 9% in 2016. Insurers in North Carolina, meanwhile, have requested auto premium hikes averaging 13.8%, according to the Charlotte Observer. Drivers in neighboring South Carolina saw their auto insurance rates increase an average of 8.9% last year. Rising auto insurance rates impact consumers but also indicate the financial challenges distracted driving is having on the insurance industry.

The insurance industry is big business and has a major impact on the U.S. economy.  There were 5,926 insurance companies in 2015 in the United States (including territories), including P/C (2,544), life/annuities (872), health (859), fraternal (85), title (56), risk retention groups (239) and other companies (1,261), according to the National Association of Insurance Commissioners.

The U.S. Bureau of Economic Analysis estimates that insurance carriers and related activities contributed $450.3 billion, or 2.6 percent, of U.S. GDP in 2014.  The Department of Labor estimates the U.S. insurance industry employed 2.6 M people in 2016, and, of those, 1.5 M worked for insurance companies, including life and health insurers (811,900 workers), P/C insurers (648,200 workers), reinsurers (25,000 workers), and the remaining 1.1 M people worked for insurance agencies, brokers and other insurance-related enterprises.  State like Ohio are also leaders in the insurance industry, and the Ohio Insurance Institute points out a couple key economic data points:

  • Ohio’s insurance industry employment is now over 100,000-strong, with wages over $7 billion;
  • Ohio’s average insurance industry salary is nearly $23,000 more than the average private sector salary; and
  • Auto and homeowners insurance premiums remain affordable with Ohioans paying $150 less than the U.S. average for auto and $192 less for homeowners insurance.

Distracted driving is impacting the rates of America’s automobile insurance companies but also impacts the economic success of the regions and states that host the jobs of these companies.  Distracted driving is now a public policy and public relations issue that state governments all over the United States will have to find a way to address or the social and economic impact will continue to grow.

Ohio House Makes Dramatic Changes to Kasich Budget

The first movement in Governor Kasich’s $69B state operating budget came from leaders of the Ohio House of Representatives and the movement was a substantial.  Responding to the agreement to cut spending substantially as well as to address challenges with the Kasich budget, the Ohio House of Representatives passed House Bill 49 without Governor Kasich’s proposed tax plan and his income tax cut, made several changes impacting economic development, rolled back the proposed Medicaid expansion, made major improvements to higher education and added funding to K-12 education.

As expected, Governor Kasich’s tax plan was the first budget item to go.  The House adopted a completely new tax plan.  The House removed the proposed tax reform plan, including proposed changes to the following taxes: income, sales, severance, commercial activity, tobacco and vapor, and alcohol.  They also struck the centralized collection proposal that would have mandated municipal income tax be collected by the state of Ohio but allowed a business to file a single annual or estimated return through the Ohio Business Gateway which a business may report and pay the total tax due to all the municipalities in which the business earned net profits.  Changes to the Ohio Local Government Fund were also scrapped.

Substantial changes impacting economic development were made to House Bill 49.  The House authorized the job creation tax credit to count employees who work from home in the job creation totals, made changes to the motion picture tax credit to require that a project must have 50% of financing secured to be eligible, priority be given to television or miniseries projects, and the Director of the Development Services Agency to charge an application fee equal to 1% of the estimated credit or $10,000 whichever is less.  The House revised the current data call center sales and use tax exemption to allow the capital expenditure to occur over 6 years instead of 5, retained funding for the Incumbent Workforce Training program at $1.25 M per year, and increased spending for the Defense Development Assistance and Ohio Edison Centers.  The House also authorized a county or municipal government to extend a pre-1994 CRA without triggering the laws enacted in 1994, and elevated the threshold for competitive bidding for port authorities to $250,000.  The House changed House Bill 49 to permits local workforce investment boards to conduct meetings by video and teleconference, and continue the ability for a county or municipality to enter into an enterprise zone agreement after October 15, 2017.  The House extended through July 1, 2019 the ability to apply the state historic preservation tax credit to the commercial activities tax, and eliminates the requirement that a new community district be over 1000 acres.  Finally, the House directed the Governor’s Executive Workforce Board to include an analysis of jobs that pay 125% of the federal minimum wage in the methodology for in-demand jobs.

The House also made major changes to the state’s Medicaid program.  They created legislative guardrails around Group VII Medicaid spending by requiring the Kasich Administration to seek Controlling Board approval on a regular basis for the Medicaid expansion, increased nursing home spending, and limited total Medicaid spending on hospitals to $6.9 B per year, and removed the non-contracting language and requires rates in effect on January 1, 2017 to continue over the biennium.

The Ohio House made several substantive changes to the higher education portion of the budget including:

  • Flat funds the State Share of Instruction and Ohio College Opportunity Grant line items;
  • Removed the proposal on textbook costs and replaces it with a textbook study requirement for public universities and community colleges;
  • Continued funding for the Federal Research Network at $3.5 M per year;
  • Provided $5 M in FY’19 for financial assistance to obtain short-term certificates;
  • Permitted a Community College to increase tuition by $10 per credit hour;
  • Clarified that tuition caps do not apply to tuition guarantee programs and removes the restrictions on increases between cohorts;
  • Exempted health insurance, auxiliary goods and services, non-instructional program fees, licensure costs, fines, travel costs and elective service charges from the tuition freeze;
  • Allowed a Community College to offer an applied bachelor’s degree if the degree is not offered by a public or private university within 30 miles and defines “applied bachelors”;
  • Required the Chancellor to investigate fees charged by institutions, prohibits the charging of any fee and permits the Controlling Board may approve the fee;
  • Required that faculty who assign textbooks must file a financial disclosure statement;
  • Reduced all clinical teaching lines by 10% in FY’18 and collapses them into one line in FY’19; and
  • Provided $750,000 for Co-op/Internship programs and provides earmarks for the 9 university programs traditionally funded through this line for their public policy schools.

The House made substantial changes to the Governor’s K-12 education plan.  They actually increased spending by $80 M—making K-12 one of the few financial winners from the House version of the budget.  They also removed Kasich’s controversial proposals to require teachers to have a private sector internships and placing non-voting business leaders on local school boards.  While the House did add K-12 school funding, Governor Kasich’s revisions to the school funding guarantee that attempts to limit paying public school districts for students they do not have survived.

House Bill 49 now moves on to the Ohio Senate who has raised questions about many of the House changes and is likely to enact additional spending cuts and policy changes to the bill with passage expected to meet the July 1, 2017 fiscal year deadline.

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.