Building more effective delivery of economic development projects.

• Author: Bliss, Daniel
• Position: Cover story

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Economic development is a notoriously tough business. Most of all, it is expensive. Local and state governments have faced more than $300 billion in cumulative deficits since fall 2008, and the most recent comprehensive estimate indicates that they spent almost $65 billion in economic development subsidies in 2005 alone--almost $70 billion if accelerated depreciation writeoffs are included. (1) That figure compares to $12.9 billion in the equivalent Regional Aid spent in the European Union, where regulators in Brussels have the power to limit economic development subsidies by local, state, provincial, and even the 27 national governments.

At the same time, researchers in the United States have documented many situations in which heavy spending on economic development may have done little more than shift economic activity within a community, rather than generating new growth. Given the huge expense and the limited government resources to pay for it, elected and appointed government officials, business leaders, and citizens need to search for alternatives that will effectively deliver economic and community development at a lower cost.

BETTER INSTUTIONAL ARRANGEMENTS

The question is whether more sensible rules and regulations, combined with better institutional organization, would allow local and state government to improve their ability to finance and mobilize economic development without putting a new burden on taxpayers. Would better institutional arrangements--community development corporations, ongoing cooperation with neighboring municipalities, better working relationships between local and state governments--allow jurisdictions to enhance their bargaining power with business, along with their ability to put good ideas into action? Doing so offers the possibility of reducing economic development costs and improving results. (2)

Both circumstantial and research-based evidence increasingly indicate that better governance can make a big difference. Disorganized policy formulation decouples the all-important mechanisms of "steering" and "rowing." For example, if one group, department, or entity does the brain storming and planning, and another handles the financing, disagreements between them often lead to many good ideas being left by the wayside. And if those two groups cover geographical areas that overlap but are not contiguous, the risk of disagreement--and therefore failure--multiplies.

In contrast, a more coherent arrangement for governance can move economic development policies into action more effectively. The common themes for success include:

* Having institutions or coalitions of stakeholders that both steer policy and make it a reality.

* Using these common institutions or coalitions to build a widely shared, community-wide vision of the future.

* Thinking regionally and bringing neighboring communities together in some way.

* Gaining active support from the state to build networks among local leaders, spread information among leaders and businesses, and foster cooperation among communities to reduce wasteful competition in the form of escalating subsidies.

A 2010 survey confirms that economic development professionals support this kind of leadership. (3) The survey, which interviewed people working on projects financed by the U.S. Economic Development Authority, indicates the need for a combination of regional coordination, organization, and leadership to maximize the effectiveness of policy implementation and delivery in economic development.

It is never too late for communities to implement interlocal or regional agreements between communities, and no start is too small. Simple transactions such as service agreements tend to trigger cost savings and lead to greater things in the future. A 2007 study of every Georgia municipality with populations of more than 2,500 found that formalized intercommunity service agreements are significantly more likely to occur in situations where transactions among municipalities, such as cooperation on street projects or mutual aid for emergency services, have already yielded savings. (4)

There is no one organizational or financial path to more successful economic development. A particularly good example, because of its politically charged nature, is annexation and consolidation of governments. The City of Hibbing, Minnesota, annexed more than 170 square miles of township territory in 1979 to create what is by far the state's largest municipality, by land area. This brought the airport and large areas of potential commercial land under city jurisdiction, creating a single entity for economic development. Yet many small town municipalities in northern Minnesota that appear similar have repeatedly failed to enact far more modest annexation proposals because of opposition from the township governments.

Larger cities such as Louisville, Kentucky, have taken a different route and merged with their county...