Creating an economic development policy.

• Author: Kavanagh, Shayne C.

One of the most important tasks for the finance officer in economic development is to help create economic development policies. Much like the other types of financial policies a finance officer helps craft, economic development policies allow for a shared understanding of the parameters for decision making. For instance, policies help define the government's economic development goals and objectives, and the criteria for projects it will consider favorably These specifications then make it easier to evaluate actual proposals from land developers, corporations, or other private firms (which this article will collectively refer to as developers). Being able to discern which proposals most closely align with a government's interests becomes increasingly vital as more and more developers seek financial commitments from government, and fewer public funds are available to devote to such commitments.

A sound economic development policy addresses the following major elements:

* Goals and objectives for economic development

* Conditions under which public subsidization will be provided for private activities

* The financial incentives the government may use

* Performance standards for economic development projects

* How development proposals will be evaluated

* Systems for monitoring compliance with performance standards

This article describes each of these policy elements as well as considerations for putting the policies into practice.

GOALS AND OBJECTIVES

An economic development policy helps create a common understanding of the goals a government wants to achieve through economic development. Setting goals gives governments a yardstick that enables them to pursue the most appropriate economic development strategies and to decline less appropriate opportunities. For example, job creation is often a primary goal of local economic development programs. Timothy Bartik, senior economist for the W.E. Upjohn Institute for Employment Research, contends that job creation is most effective when economic development focuses on businesses that "export" outside of the local economy--their activities bring new money into the jurisdiction. Hence, a consensus to focus on job creation as an economic development goal might lead a city to develop policy instruments that encourage new and expanded export activities.

Survey research has shown that for cities with populations of more than 100,000, the two highest-priority objectives are to increase employment (48 percent rated this factor as the highest priority) and to improve the local tax base (18 percent). (1) An economic development policy can better define these kinds of broad priorities, making them a more meaningful basis for guiding decisions. To illustrate, given an objective of job creation, a policy should address the types of jobs the jurisdiction wants to create. This provides a basis for evaluating development proposals and determining which projects may be most deserving of public involvement. Some job-creation issues that a policy could address are:

* The level of education/qualifications required by the job. Higher levels of education will usually mean better levels of pay; however, local residents might not be able to fill jobs that require very high levels of education or qualifications. These types of jobs would lead to in-migration into the jurisdiction to fill the available positions. This situation might be acceptable if the jurisdiction is looking to increase population and the skill level of its workforce, but less so if its intent is to increase employment opportunities for current residents.

* The industry in which the jobs are created. If the region has a specialty in a particular industry or is following an economic development strategy oriented toward attracting a specific industry (i.e., a "cluster" strategy (2)), those types of jobs may be given a policy preference. Conversely, jobs in industries that are declining may be discouraged.

* The pay level of jobs. Higher-paying jobs are clearly more desirable to residents. Higher-paying jobs also have the added benefit of generating...