EP 11: Insiders' Guide to Local Economic Development
Mash 'play' for a personal crash-course in local economic development -- with high-value tools, tips and insider knowledge -- in this special, extended episode featuring a couple of pros who know both sides of the business -- public and private -- and where they can pair up to make a difference for cities and towns of any size. It's important to recognize that economic development isn't just one thing. It can take one of many directions, each with its own terrain and set of tools for positive outcomes. Our expert guests, Mac McCarley and Ron Kimble -- among spotlight speakers at the League's recent CityVision 2016 conference, where the bulk of this episode was recorded -- break it down for us and offer hugely important know-how. Anyone can learn from this episode, whether you're a locally elected official, a town administrator or resident curious about what all goes into business recruitment or downtown development. Don't miss this one. Show notes: Ron Kimble - http://charlottenc.gov/CityManager/AboutUs/Pages/Interim%20City%20Manager%20Ron%20Kimble.aspx Mac McCarley - http://www.parkerpoe.com/attorneys/dewitt-f-mccarley CityVision 2016 coverage - https://www.nclm.org/PROGRAMS-SERVICES/PUBLICATIONS/LINCED-IN/2016/Pages/default.aspx?issue=38 Followup notes from Episode 10: New report/manual, 11/16, "Selecting Trees to Grow in Cities" - http://www.srs.fs.usda.gov/compass/2016/11/03/selecting-trees-to-grow-in-cities/ CityLab article, "The Big Green Payoff From Bigger Urban Forests" - http://www.citylab.com/design/2016/10/the-big-green-payoff-from-bigger-urban-forests/505913/ Smithsonian.com, "Why Public Health Researchers Are Looking to Urban Trees" - http://www.smithsonianmag.com/science-nature/why-public-health-researchers-are-looking-urban-trees-180960985/?no-ist Governing article, "Phoenix's Ambitious Plan to Beat the Desert Heat" - http://www.governing.com/topics/transportation-infrastructure/gov-phoenix-shade.html
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Transcript
On this episode of Municipal Equation. Economic development comes in many different shapes and sizes. And the lessons and the practices and the protocols and the things that we do, believe it or not, they're they're scalable.
They can happen in the smallest of communities and they can happen in the largest. Local economic development secrets as told by pros in the business. My name is Ben Brown and this is Municipal Equation from the North Carolina League of Municipalities. Episode 11. So I'm gonna be mostly hands off with this episode. Last time around, I mentioned that the North Carolina League Of Municipalities had just held its annual conference and that tons of useful information came out of it. Info that really anyone can use, whether it's a new idea for an elected official or a town employee or any resident who wants to see his or her city grow, recruit new jobs, new businesses, new planning layouts and so on. For one of the sessions I attended about the business of local economic development, I brought my digital recorder and hooked it up to the soundboard just in case I could get something that might make for good audio in a future episode. Well, as it happened, the entire talk was excellent and so was the follow-up Q and A segment and I'm gonna play the whole thing here with really no editing other than for audio quality. The two speakers you're gonna hear are Ron Kimball and Mac McCarley, both having a wealth of experience in local economic development, local level economic development. Kimball has worked with the city of Charlotte since 2000 and most recently as its interim city manager. McCarley, who used to work as the city attorney for Charlotte, now works with the Parker Poe law firm in the Queen City and professionally advises local governments and private sector clients. Just so you have him straight, here's Kimball. Business friendliness is an attitude. It's a culture. And here's McCarley. I wouldn't say don't try this at home, but I would say don't try this at home without a lawyer. And I'm gonna stay out of it until the wrap up at the end. So enjoy this extended episode of Municipal Equation from the North Carolina League of Municipalities annual conference in October. One last note, a lot of this pertains to North Carolina's economic development laws, but they may be common to other states as well.
Well, good morning again. We wanted to try and get a sense of who is in the audience. We didn't know exactly how to do this. So we were thinking, for those of you who live in cities and towns under 5,000 population, raise your hands.
Mhmm.
And then maybe 5,000 to 25,000 population, and then those above 25,000 population. I've got a pretty good mix. So how do we hit the sweet spot with all of you? That's what we gotta figure out. But there are some things that are are very much common and very consistent no matter who we are, no matter what we are, no matter where we live in North Carolina. So we wanted to kinda delve more into that. Mac, any other opening comments before we dive right in?
Y'all enjoying the conference so far?
Yeah. Yeah. Me too. Thanks. Alright. And I gotta be on my toes. I got I see Greg Phipps, council member from Charlotte. I see Patsy Kenzie. Any other council oh, there's John Autry. So it's nice to have you all. So during the question and answer, wing them at us if you want to. Okay? It's great to be with you. We do have a great state. We do have opportunities that others don't have. And, again, that's not universal across the state of North Carolina because we know there are places that are suffering. I spent sixteen years in Greenville, North Carolina before I've spent sixteen years in Charlotte. It's a little bit different, east to west, but not as much different as you might think. And the lessons and the practices and the protocols and the things that we do, believe it or not, they're scalable. They can happen in the smallest of communities, and they can happen in the largest. And, I I just wanna make sure that we have a a common, appreciation for all that we do. Economic development comes in many different shapes and sizes. We talked about in neighborhoods at the neighborhood level, economic development along corridors, economic development in uptown, economic development in new clusters like health care and logistics, advanced manufacturing, technology. We know that entrepreneurship and innovation is big, and there's a lot happening in that field, in economic development around those. Smart cities is really bursting onto the scenes and making sure that we use data, in a different way in cities and towns. There's recruitment of new business and industry that comes from elsewhere, and knowing your competition, who you're competing against, how you do it, is extremely important. And I think you've got the age old realization that most job growth comes from within. It comes from existing industries, existing businesses. It's growth of those small businesses and those medium businesses in a community. And the goal again is jobs for all. It's job a good job, a good paying job for as many people as we can in our community, not leaving people behind and making sure that there are opportunities in all the various stratas within our communities. And sometimes we do a good job of that. Quite frankly, sometimes we don't do such a good job of that. And I think that is something that North Carolina needs to pay attention to long term is jobs for all, a good paying, a quality job for all. It happens in many different sectors. It can happen in travel and tourism. It can happen in entertainment. It can happen in arts and culture. It can happen in sports. It can happen in a lot of different places. So economic development is not just one thing. It is many, many things.
Let me pick up on that. We talked about goals in there, the goal, toll, roll issue. For goals, if your goal is expanding the tax base, that will be a different goal in most instances than a jobs goal. If you're if you're after more jobs in the community, you're probably looking for a manufacturing and industry of some sort. But if you're looking to revitalize an economic corridor or a downtown that needs some help or a part of town that has slipped and you wanna catch it before it's past being able to fix. Those are very different types of programs and then let's say you've got an old textile mill in the middle of town, a 100 year old mill, that's a completely different issue too. There are different programs, state and federal tax programs that apply to that that don't apply to anything but old mill buildings. Every goal has a different set of strategies with it and frankly a different set of private partners that you're gonna work with. Let me expand a little bit on the private partner issue. In the almost five years that I've been in private practice after leaving the city of Charlotte, I've dealt with people who are small business people and represented some fortune 500 companies, some sports teams, various people from really large to really tiny. There are some common themes that will matter to you. One of them is they don't understand you. They come in with whatever lessons they learned in the last economic development deal they did without understanding the differences between laws state to state and culture community to community, the appetite the community has, the culture it has, your willingness to to deal with them on the things they want, what you can and can't do. Part of what we have to part of what I do, when I'm representing the private side is try to give them an education about who you are so that they're prepared for the process and prepared for the differences in state law that might not match their last experience in Virginia or Oklahoma or wherever it was they were before this deal. They need an education. But I also wanna encourage you to learn more about them and what their issues are. I mentioned in the larger session that you get bonus points for acknowledging to them that you understand the value of the contribution they're making to the community with the project you're talking about and also that you understand the risk they're taking with their capital. That is a big issue to them. And when your process lasts a long time and it changes as it goes along and somebody leaks to the press what's happening, they get really frustrated. And the and it's it's it's hard for me as a private practice lawyer now to talk them off the ledge and get them back into the room ready to keep working toward a common goal. On the role issue, they really don't understand all the tools that local governments have and the things that we can do for them to make a deal work. I mentioned candidly that Ron is the master of the tool kit issue, but I'd like him to talk about some of the different things that we can do past land and buildings, infrastructure, and a grant that we can do to make a project attractive to our community and to the private partner. Ron?
There there are a lot of tools that are allowed by North Carolina state law. One of them, municipal service district. You can come in with an overlay geography, and you can create a an incremental tax on top of the base tax, and you can charge what the people in that district may be comfortable with and deciding whether or not it's simply to market that particular area or community or to do something even stronger, which starts to get into the capital investment in that particular zone, in that particular district. And it is an add on to the base tax there.
That might be police service, decorative street lights.
Streetscape improvements, curb and gutter, wider sidewalks, pavers on your side. Yep. It it can be used for many different purposes to grow the area and make sure that it is pronounced, it is accentuated, that there is something in it for the property owners who have to pay additional monies in order to make the area pop a little bit more than it otherwise would. And it doesn't then affect the allocation of the underlying base tax resources to the rest of the community so that you can give a little bit extra attention and treatment for the money paid in a municipal service district. You know, I don't wanna shortchange the ideas of things like general obligation bonds. In Charlotte, you'll be astounded by this number. On the ballot on November 8, we have $218,000,000 in bonds. We do it every other year. It's a going concern. It happens every two years. It is an opportunity to invest in transportation. It's an opportunity to invest in our neighborhoods, and it's an opportunity to invest in affordable housing. But you can do the same things in your communities. You can build, your infrastructure through general obligation bonds. You can also do it through special revenue bonds and opportunities that legislation allows you for special obligation bonds and special revenue bonds with a guaranteed collateral source, of repayment and return. And we've gotta make sure that you have the proper tools in place, the proper reserves, but those are instruments that can be used, municipal service districts, geo bonds, special obligations, special purpose bonds. In there are many communities who have travel and tourism dollars. You have a hotel motel tax. Not every community does. Some do. And how you leverage those hotelmotel occupancy taxes to create infrastructure investment and leveraging that benefits the community at large, rental car taxes. How many of you have hotelmotel taxes and rental car taxes? There are some communities that have them, and they use them wisely in order to leverage investments that create a return, for those communities. Business investment grants. When you are attracting new companies and new businesses to your community, we need to make sure that there's a policy underpinning. The state government may lead some of these recruitments. The local unit of government, either the county, the city, or a chamber of commerce may also, become part of that recruitment. You can develop business investment grant guidelines where you also create a return of a part of the incremental property taxes that a new company will generate in your community. It can be used as a match for the one North Carolina grant that the state might give. It can also be used for tier three counties, which Charlotte is, as a match for the job development investment grants because the state does, in some instances, bring in large incentives that are based on the, income tax that is generated over time by the new jobs, and it's called JDIG, job development investment grant. And there's opportunities for those grants to be matched by local units of government in their own programs. One last one that I'll mention that Charlotte has been able to use, and other communities can too, it's called a tax increment grant. When you have new development that occurs in your community, if there's a purpose for which that development is happening that's beneficial to the vision for that community, then there can be an infusion of a revenue stream over time from the unit of local government. It's different than a tax increment financing where you issue bonds upfront as a unit of local government. This is a reimbursement of incremental property taxes paid by a new development and a portion of those incremental taxes, and it's used to create a revenue stream back to them that allows them to do more integrated, more vertical, more mixed use type of development in a community. And it works well because it doesn't put the risk on the local government. It puts more of the risk on the private sector because they have to first build, then they have to pay the property taxes, then a portion of the property taxes paid is reimbursed and paid back to that private sector as an infusion of revenue stream that can help them build more than they otherwise would have and build in a better way, a street orientation way, a better community oriented way than they otherwise might do. Those are just some of the tools off the top of my head. Now for the fine print on what Ron just said. How many lawyers are in the room?
Okay. I want all of you to testify later that I said this. Ron just talked about giving back some property tax revenues after the company pays it. It's a grant. Thank you. It it would violate the North Carolina constitution to do what's called rebate property taxes. You can't do that. So two words of warning here. First, what Ron and I would hope to do with this conversation is highlight headlines, big issues, tops of the tallest trees, not the details. The second half of that is there are details to every one of these things we're talking about that matter significantly. The tool only works if you use it correctly and when you get into things like grants, business investment grants, where you're putting money back in the pocket of the business you attracted, there are very specific rules that go with that. So, it's not I I wouldn't say don't try this at home, but I would say don't try this at home without a lawyer. What can Parker Poe do for you today?
Another, important item that I heard is what's called a but for test. Yeah. But for this public investment leveraging, then the project would not happen. And there is, a a great need, legally and community wise to make sure that we're not allocating funds that don't need to be allocated because the project would have happened anyway. But that's a very intricate, complicated, can be interwoven test, a but for test, but for the city's business investment grant for a major employer or a tax increment grant for a commercial redevelopment in your community, but for the public investment, would that private sector have gone forward with the project that it did without that public investment? So And and be warned, every private partner you have will swear up and down that the project won't happen if you don't give them money.
It it's our job on the city side to go run those numbers and verify.
Trust but verify. And what happens is it has to be framed in a development agreement, and the agreement has to say, here's the terms of the public infusion and leveraging. And in return for the city or the county, because we do these city and county, and I'll talk about that in a minute. The county's tax rate is almost twice what the city's tax rate is. So when you do a business investment grant or a tax increment grant, the county participates, and the amount of dollars that they put in is almost twice what the city puts in, and that leverage is even more. You've gotta make sure that your development agreement covers not only what happens if this goes to its term of a ten year grant, for instance, But what happens if the project fails?
Chiquita.
Well, that's business investment. Right? Yes. Chiquita. But what you have to protect in the development agreement, what does the city or county get back if the project fails during construction? But normally, these investments don't go in until after the construction is done and either the jobs or the tax base is put in place. And then what happens if it fails before the end of the term? You've got to have clawback provisions in both your business investment grants, and you have to have clawback provisions in your tax increment grants that tend to make you whole or near whole if the project fails. In addition, what happens in a lot of mixed use development projects and retail projects and commercial projects is they hold for seven years, They squeeze out all the depreciation. They squeeze out everything, and they flip the project after seven years. Well, we're almost an equity partner. If we've infused some capital into the project, is there a return that the city or county might get when the project is flipped, a profit is made, and can you gain through that sale a portion of the proceeds of the profit that the private sector made? Because we, in effect, are an equity partner in the deal. Doesn't always work, but we've been successful in a majority of our deals and at least getting a portion of that, recovered.
Back up a minute and talk about the importance of the relationship between the town and the county.
So much of what we do economic development wise is we're joined together at the hip. And I would I would urge you, if you're not joined together at the hip, to try and get there. And I know that across the state in 100 counties and how many ever 550 towns there are, that the relationships are different from county to county. But the more that you're in line, the more you're in sync, the more you are aligned, I think the better opportunities you have for joint investment in projects, programs, initiatives, community building, where you'll be more successful because you are both investing the proceeds of what you are getting in a return. And I think it's also very important to document that you are getting an economic return. Why should it just be the private sector that gets an economic return on its investment? I think the most, strategic and forward thinking cities and counties are going to also document a rate of return for your investment of public funds in that as well. So when we do a business investment grant and we present it to city council in closed session, and the county commissioners likewise submit it in closed session to their county commissioners, we spend a lot of time talking about the return on the public dollars, the return on the public investment, the job count, the tax base expansion, the clawback provisions, and we make sure that the city and the county, as often as we can, are in lockstep on what happens with those particular grants. Likewise, on tax increment grants, it's, really great to have the county participating in road building, which they didn't used to get involved with. They have parks and recreation in Mecklenburg County. Open space, greenways, park space is extremely important. So it is incumbent upon Charlotte and Mecklenburg County, the same as it might be incumbent for you with your town or towns in that county to create a marriage between the city and the county and the private sector because you'll get much more mileage. You'll get much more, leveraging, you'll get much more infusion of capital, and you'll get better development as a result of the participation. And I know in many counties, having lived in the Eastern part of the state before for sixteen years, I know sometimes how difficult that is. But if you don't, you're not gonna be as successful as you otherwise would.
Couple other points about that. In the smaller municipality, small towns, you probably don't have an economic development officer, but you may be in a county that does. You need to be good friends with the county economic development officer but you also need other partners. You need to be in close contact with the president of the community college because they provide job training that may be important for some of the industries or businesses that want to come to your community. You need to have a great relationship with the Chamber of Commerce because they are one of the first points of contact that some of the private interests will go looking for because that's who they know. That's who they're used to dealing with. So you're gonna need a broader set of partnerships even on the public side to be able to play in the game.
Basic strong infrastructure, water and sewer capacity, the ability to lure new business and be able to grow your community with adequate water and sewer capacity as well as reasonable water and sewer rates. Because we know that we're in a competitive environment. We've got to make sure that we are competitive, each of us, as we try and deliver, those businesses to our community, and we've got to make sure that we've got a plentiful supply of water to the greatest extent possible, a conservation policy and process that tries to conserve that water supply for decades to come, and try and keep rates, distributed such that maybe developers are paying capacity fees when they develop, tap fees when they develop, and not relying upon the general overall rate burden to be shared, uniformly among all the residential customers, but figuring out the right split between developer infusion and residential, and commercial rates in water and sewer structure. Supply of electricity, supply of natural gas, all of those other things are extremely important in recruiting industry as well. Roads, I think it's common to all of us that good roads, good rail access, access to ports for delivery of products, all of those are extremely important in how we work together as a state so that we benefit each and every corner of our state. Each and every county and municipalities within those counties is extremely important for all of us, and finding out how at the state level those allocation of resources get made in a way that allows everybody to get a piece of the pie and to share and create regional, opportunities around some of the major metropolitan centers and have that, prosperity cascade to all parts of that region. Those are things I think we need to do a better job in the state of North Carolina. And I know next year, state government is gonna take up the issue of rural economic development again. I think it's important that they do that. We've got opportunities that need to be explored in all parts of North Carolina, and having that as a priority and as an impetus is important. But we gotta make sure that the revenue pie is distributed as evenly and fairly as we can, at the same time recognizing the economic engines that drive our state as a whole. And we've gotta do a better job of working together region to region.
Before we open it up for questions, I just have one other thing to say from the private side. I've gone into meetings with private clients for their first meeting with a local government and I want to tell you that first impressions are absolutely positively critical. A lot of these folks have a sales background and they look for those kind of cues. Are you excited to see us? Is this a good opportunity? Is this a group of people we wanna be in business with? You will I promise you, you'll have plenty of time later to raise all of the questions, concerns, and issues that you might have with what's going on. But the first impression you give the private partner ought to be, we are open for business. We would love to have a great conversation with you about what we could do together in this community to make it a better place for everybody. If you start off on that foot, you'll have plenty of time to talk details later, but it will make a huge difference to the private players sitting on the other side of the table.
I think in North Carolina, we have been successful in the past. And quite often, the business and industry that relocates to our community, they say when they're done. I sat in that meeting, and I didn't know which one was the Chamber of Commerce representative. I didn't know which one was the city representative. I didn't know which one was the county representative, and I didn't know which one was the state of North Carolina representative because you all sung the same song. You all were unified. You all were consistent, and you all had everything in order and had the answers to our most pertinent and important questions. And it didn't matter who answered it, it got answered, and we couldn't tell which one was giving the answer. Yeah. And that makes a huge positive impression.
They like that. Also, just now having dealt with some other states, the business processes in North Carolina are generally a bit more business friendly than the processes in many other states. So usually the private partner that you're working with is in for a pleasant surprise when they look at the length of time for a rezoning for example or for various permits. Our permit processes with a couple of exceptions around the state our permit processes are generally much more favorable and quicker. And quick is a big issue to the private sector. Speed matters.
So we might summarize that up as, business friendliness. Yeah. How much do we embrace current business that wants to expand, and how easy, in quotation marks, do we make that? How heavy is the regulatory burden of fees and charges and for what purposes, but also what you gain as a community benefit when you do pay those fees and charges. So it has to be a balanced conversation because there are a lot of things that you wanna do in your communities that all can't be done with property taxes. It has to be done with a fair distribution through fees and charges. And, also, Mac mentioned the permitting process, which doesn't just mean permitting. It means rezoning, design review of plans submitted, permitting, and inspections and making sure that the inspection process is clean, that what happens when you approve a plan in the beginning and inspectors are assigned and inspectors follow the plan and follow it through to conclusion, the inspectors do have the final sign off. You would hope that any changes that come about in the field are not substantial changes from what happened when the plan was reviewed and and and permitted. And then as it got built, sometimes inspectors tend to want to go all the way to the end, make changes at the end, and are they changes that are warranted, or are there interpretations that could have been lent? And it's not just a black and white letter of the law. It's how can this be interpreted without jeopardizing life safety, other kinds of issues. And that inspector has a responsibility because he or she carries a certificate at the state level in order to make sure they're inspecting and approving these and issuing the certificate of occupancy at the end that they're doing their job in accordance with the law. It's that fine fine line between letter of the law and interpretation and how you can get to the finish line as fast as possible. Business friendliness is an attitude. It's a culture. It's not a statement. If you say it and you don't practice it, it's no good. It has to be practiced in the field, and it has to be encouraged throughout culture change in your organization. And quite frankly, in Charlotte Mecklenburg, we have some work to do. We are proud of what we've accomplished, but we are never satisfied, and we have more to do. And I do believe that we are better than most large cities in America, but that doesn't mean we don't wanna get better than what we are. And I would encourage all of you in your home communities to be as good as you can be in that area. Two things I would tell you. First, the village of Meisenheimer is open for business.
And the second point I'd make to you is at the same time you are vetting the private partner on the other side of the table by looking them up in Dun And Bradstreet and checking out their, bona fides, they are checking you out. They will call the business leaders in your community to say what's it really like. So that ongoing positive business climate in your community is critical. You can't create it the day before you meet with a new partner. It's got to be ongoing. Alright. What would you like to talk about? Questions, comments, concerns, jokes worthy of the group? Yes, sir. Really loud.
When's it appropriate to use a municipal service district concept and then talk more about clawback provisions? Specifically It normally comes about because it's a partnership. It's cooperative. It's collaborative. You don't inflict a municipal service district on an area that hasn't yet come together and doesn't want to come together. So there is a petition process quite often that is used, that the law describes how you must go forth in a planned orderly fashion in order to meet the letter of the law. And then the district is set up, and the district is allocated those funds. It's taxed by the county tax collector. Those funds are normally remitted to city government, and city then has a contract with an organization that runs the municipal service district. And, again, it's an add on, an incremental above the base property tax for cities and counties. And it has to be used for specific purposes that are defined in the enactment of the municipal service district and in accordance with state law governing, municipal service districts. Clawback provisions. I think it's extremely important that in almost any leveraging opportunity that you have, where you are doing gap financing or you're doing infusion of a revenue stream or you're acting in the but for test way. And we use but for in both luring major industry to our county and our city, and we use clawbacks of a different nature. It's how the project is handled at failure if in a mixed use or commercial redevelopment, what happens if the project fails Run without those clawback provisions. Define clawback. Yeah. Clawback means that I'll give you an example. If a business, is is, recruited to come to our area or your area, and it comes and creates the number of jobs for the first or the second year, but it may not meet the jobs beyond that for three and four and five years. If it's a five year grant, they only get the grant for the years in which they achieve the job outcome or the tax base expansion. It's usually both. And if those jobs underlying eventually go away and you've paid on the grant a couple of years, then there's a clawback that allows you to get back the the monies that were paid from the public sector. It happened on Chiquita in, Charlotte. They were there for four years. The monies that were paid were all returned after four years when they were bought by another company and split up and moved to Florida, through, another company out of Brazil. So the clawbacks are extremely important. It was it's a controversial atmosphere. The media is all over it. Are you going to get your clawbacks? Are you gonna get the money that you paid out, and now the jobs have left the community? We did, and it proves the value of making sure that you have the right, tools in place in all of your agreements with the private sector.
What tools do you think are most important for the smaller towns to focus on in their toolkit?
Community wants to be, who your partners are, and accessing the resources of those partners. So tools may very well be your community college. It may be the training that they can provide for the workforce for a new company or expanded company that would come. I believe even the smallest communities can develop a legitimate carve out of a reasonable amount if a new company was to come to your community and have an appropriate, incentive to, make sure that that company feels welcome. It won't be the turning point at all between whether or not they'll come or not, but the fact that you might have an incentive program layered with your county, because it's most often gonna be the county that is the one that's the lead generator. It's finding where your small niche is to show love. Because I think it's it's important too that it's reasonable that it's for a specific purpose that you can identify the but for. But I think if you're willing to get creative to find out a way to plug in, it gives you a seat at the table. It gives you a voice at the table. It gives you an opportunity to be heard where otherwise you might not even be a force to be reckoned with. I think it's important to have your mayor or your town administrator part of that team that is out there working with private sector in order to bring new business, expanded business, other types of business to your community.
I did so poorly with the microphone. They took mine away. I would add to that answer a couple things. First, tailor it to the ask of the private partner you're work working with. They are gonna come in, as I said earlier, not really knowing all the things you could do for them that might make things work. So ask them, what is it this project is? What would help this project work? The obvious answers for any community are land, buildings, infrastructure. We're all in those businesses. But it can sometimes be something as simple as putting a municipal parking lot close to their business. We're in the parking lot business. Might be as simple as adding some public facilities near where they're going. If they're gonna help you revitalize a downtown, maybe we put the public library downtown. Maybe we add some recreation ballparks down there. The other things that we're normally in the business of doing, if they would help as a catalyst or an add on to what the private partner is suggesting, then let's look at doing that. So, libraries, public buildings, parks, sports facilities, and by sports facilities, I don't mean it has to be an NBA arena. It can be as simple as a basketball court. Just things that your community is already in the business of doing, but figure out if there is a way to make that partly catalyst and partly add on to keep growing whatever it is the private partner is proposing to do. Does that answer your question?
Good. Go further. It could be as easy as curb cuts that make sense where somebody may buy a piece of property and you got multiple curb cuts and you find a way to only create one curb cut and flow the traffic from that development back onto your major street. And maybe that's the type of infrastructure improvement that cities and towns can do that improves your community from the multiple number of driveway cuts. It could be a right turn lane. It could be signal improvements at a signalized intersection. All of those are more in the sweet spot of what we should do with infrastructure in the first place. Partnerships with North Carolina Department of Transportation on state owned roads too. So NCDOT is a very important, responsible partner and we need to make sure that we're courting their involvement and their, action and their funding is harmed right now. So they're, having as much they're having trouble doing as much as they used to, but still they're an important player for how we can get major road improvements, signal improvements for our communities.
What else?
I like the partnership aspect, but the one thing that I'm concerned about as an elected official is the fact that each council comes in and each council wants to put their fingerprint on a project. So rate of return is important. Rate of investment is important. The rate of time, Can you talk about time and, you know, those kinds of things because there are projects that some are considering twenty years of financing, ten years of financing, seven and five. So can you hit on that or do you have anything that you would like to say about the time frame of those investments? Because each council that comes in wants to leave a mark.
I've seen this from both sides of the table. And from the local government side, the issue is we need to be thoughtful about our planning. We need to put it in a capital budget. Our purchasing cycle is a year long. We tend to think in calendar years. Developers tend to think with a stopwatch. There is no way you could do it as fast as they're gonna want it. Part of it is us understanding the private side's view of time and us educating them on our view. One of the first things that I do with my private clients is walk them through the steps that the local government's gonna have to take. For example, if they're gonna get a piece of property from you at a below market value, there's a process they have to go through that involves advertisements. Probably either a public hearing or some kind of upset bid process. And when I start telling them those things, they glaze over and they have this why are you doing this to me look in their eyes. But both sides need to understand the value of time. Ron?
I tend to like revenue streams that match the performance of the private sector rather than upfront dollars that commit a community for ten and twenty years, upfront by paying massive dollars upfront. That's not to say that there's not a time and place when that might happen, and we've done it a few times in Charlotte where we've issued debt, twenty five year debt for arts and cultural facilities, for example. But I tend to like pacing the infusion of public dollars to the performance of the private sector so that you haven't paid everything early and then it's maybe harder to get back later even with the clawback provisions because you may end up in a court if there's a bankruptcy or if there's something you need to protect against that in your development agreements as well. But anything is liable to happen. What you need to do is protect your risk, public risk, as much as possible and shift as much risk to the private sector as they're willing to absorb. But they probably won't absorb a 100% of it, but you need to be very, skilled in figuring out how you shift risk. But at the same time, you need to accommodate a stated or acceptable rate of return for that private sector taking that risk. So you gotta look at the internal rates of return, and you need people helping you out to evaluate whether you're being hoodwinked or whether it is real and making sure that you're scrubbing the numbers. If you put public dollars into a project, over time, then you have the right and the ability to look at their numbers behind the scenes. They that doesn't necessarily make them public numbers. They can show them to you. You can examine them. You can vet them, but you need to be looking at their numbers to be sure that it is a true but for test for your infusion account. Let me split that here just a bit. If if what you're putting money in is for very traditional municipal purposes, water and sewer,
finance it the same way you would with a revenue bond for any other water and sewer project. It's the business investment grant that all the things Ron just said absolutely apply to. That's a different animal.
Good morning. How are you? Mister Grace. Mister Grace, how are you? I wanted to make a comment, quickly, which is schools are very important, to companies thinking about relocation. So it's a great idea to make sure you have good marketing materials for your schools and they have a great website so that when people are checking that out, they can check that box. But my question for you was, a lot of what you've talked about is how to win in competition with other municipalities for businesses seeking to relocate. But how do you become a contestant? What does it take, especially for smaller towns, even to get on the list of places that are being considered so they have the opportunity to do all the things you've been talking about?
I think I think it starts even with a downtown that you're proud of, a downtown that is a showcase, a a downtown that means something, that the community rallies around a focal point in the community, that your infrastructure is good, that water and sewer, that roads, that police and fire, that that all the services that you provide are good, that you have a vision for your community that targets certain places, when I say places, certain industries or certain businesses that you want to recruit and rally around. I think it's that you show a unified voice and that you have those education folks, those county folks, those cities folks, those business folks together with you and you're presenting that unified front. I think you do need to size up who are are you actually competing against, and how do you measure yourself against those other communities that are doing the very same thing, and how do you get that edge? I do think it's about leadership. I do think it has to come from not only the elected body, it's gotta come from the administrative staff together, working harmoniously together because the worst thing is a fractured government in any way, shape, or form, fractured government between city and county, fractured government, between a government city versus private sector, gotta make sure we're aligned.
Two points I'd add to that. First, in today's world, your website is probably a private partner's first real look at you. Make sure that your website is one of the best out there. Whatever you spend on that, consider it economic development dollars. The second point is there is a whole industry around nationwide economic development. There are economic development conferences for people. There are magazines for site selection. You have to tap into that industry and that market to put yourself out there in a way that the folks who are looking will know that you're available. There is a whole industry for that.
I think it's having a skilled workforce. You've got to have the right folks trained at the right level or able to be trained at the right level in order to grow business and grow industry in your community. And how you network and partner and communicate and collaborate with those that provide that much needed training in your community is gonna be extremely important as well.
We we looked at water, education, and all the essentials that are necessary. However, broadband is crucial for investors. So can you just share a little bit on broadband, what we offer to prospective private investors?
I think that it's a it's a new infrastructure, not so new. It's probably ten years old at least, but being able to allow that kind of, fast service, is important. It's extremely critical. It's gonna be the pathway to the future because it's the pathway to the world right now, and it's the opportunity to engage worldwide. Charlotte is a global city and Charlotte is a global for a number of reasons, but it's gonna be part of that fiber optic gateway to the world as well. So I would encourage you, to do what you can to have the service as quality and as beat up as it can, full well knowing that everybody can't be that immediately. It's gonna take time. It is the new infrastructure
and the new utility. So Google has not yet come to the village of Meisenheimer. We're we're waiting. We're looking. We're on the lookout. We're checking every day. Not there yet. But don't give up. If you're from one of the smaller communities, the issue is, do you at least have good Internet access? It might not be that good, but Internet access is one of the it'll be in the top 10 of the check marks of private partners gonna look at to see if this is gonna work for them. And and digital inclusion, digital divide, making sure that that service is available
to as many of your residents as possible directly to the home. And if it's not to the home, it's to a library, it's to a recreational center, it's to a place where it can be accessed readily by all parts of the community
opportunities for all. I'll just mention one short thing about the village of Meisenheimer. Here's an economic development thing that they did. They don't have any commercial businesses within the city limits of the village. The only two things there, the operating things there are Pfeiffer University and Greystone, Charter School. What they did was put on the ballot an initiative for Liquor by the Drink in hopes that they could attract a restaurant. That's an economic development approach, preparing yourself to make yourself ready for the partner you want. The referendum passed 39 to 12. Ben, in the back.
At the risk of being thrown out of the room, our our situation is more management than trying to attract business. Is there any kind of formula or guidelines for for determining how much business is appropriate in a town as a, in relationship to your residential community? Is there any way of determining that?
I think each community has to make that determination for themselves. And how does it feed to the overall property tax base, the overall property tax rate, the tax base positioning, where that tax base is located in a community. Is it more in the downtown? Is it on the fringe? Fringe? Is it in the green fields? I think it's not a set formula on how much residential versus commercial versus industrial. I think it's the right mix for that community and how can a community sustain itself through its neighborhoods, through its where its commercial development is occurring and where its job pace is growing and then layered with its industrial. It's clear though that the mix, the cities that have that mix are gonna be the cities that are going to sustain themselves longest, period of time because they don't rely upon one cluster and one area for its emphasis, and they can withstand,
recessions and downturns in the economic climate when they are more balanced in their their approach. But it is difficult when your community is defined by one particular thing. For example, if your main street is lined with antique stores, you're the antique store town. Village of Meisenheimer, you're the education village. It's hard to make a 90 degree turn to the right to pick up something different when you've already got a community identity. The first question you need to ask is, are we gonna build on the identity we've got or are we going to add to that in some way? And the tactics for doing those two things may be different.
I wanna talk for a moment about neighborhoods because people who grow jobs in a community, a business, need great places to live. And I think many times maybe overlooked piece of economic development is the strength collectively of all your neighborhoods and the strength of neighborhoods that are close by the areas where a lot of the jobs are created and are happening. And, I think making sure that investment of some of your public tax dollars are for specific specifically for the neighborhoods that need that kind of help and assistance, I think that neighborhoods are extremely important. It really is important when you go through rezonings and you have commercial and industrial that may be in close proximity to residential and making sure that all voices are heard in the process that builds the community and that the community is participating and the community is aware of the direction
that, that your city is going. Got about five minutes left. Couple more questions? Yes.
If you're a county seat town and think of yourself as being fairly progressive and think that perhaps county government is not so, when do you just so? Really? When do you say to heck with them, we're gonna do do our things. They wanna come along and get on the bus fine, but we're not gonna park the bus on the side of the road and wait for them?
Well, I didn't say wait. I think I think you make a good point that you still have to move. But I think that you may, in the long run, move bigger, better, faster, more appropriately if you have a partnership with me. That it doesn't mean that if you can't get that, that you you yourself don't proceed and go the direction that you need to go. We are tied together, the cities and counties in North Carolina
because everybody who's in the city also pays a county property tax as well as the city tax. And so it's very important to be together as much as we can. The two things you give up when you part with the county are the potential of getting their property tax into some sort of reinvestment grant. And second, you give up the appearance of a truly united front as you're pitching the deal to the private sector. And and they will notice the second. They might not understand the first until it's explained to them. But let me just quickly give you a snapshot of the rest of the country, though. In most states, you have a lot more local government units. There are a lot more cities and towns. There's a county unit. There's separate school districts with taxing power. There's all kinds of water districts and everything else. Most of the private parties, when they get here and find out that they only have to deal with two local governments, a city and a county, and then the state, they are delighted. So it's an easier pitch. But if there are two available and only ones at the table, they're gonna ask questions. Follow-up on the, broadband. The North Carolina Department of Information Technology has a section called NC Broadband that offers services to help you do surveys and try to figure out what you need. Thanks for that addition. Got it. One more.
Synthetic tiffs being used in, blighted neighborhoods where, for instance, in High Point, we have a showroom district. But those showrooms are empty except for four weeks out of the year. So the city is considering some on some of our members are considering dropping a project in the middle of a blighted area where there isn't any really foot traffic and considering using the synthetic TIF. What are the perks and or risk in doing that in a blighted area?
Alright. First, let's define synthetic TIF. A real TIF is where you actually fund the project on bond financing out of the increased tax revenues that come from the project you finance. Very few of those have been done in North Carolina, and and one of the first ones failed. So it's not a popular vehicle. The synthetic TIF is basically an accounting, device within the city where we're going to look at what was the tax revenue from this area before the project, what is the increment afterward, and that's the amount that we will commit to the project as our contribution from the public side. Now, Ron, answer the question.
That's what we call a TIG, tax increment grant, instead of a synthetic TIF. We changed our name to distinguish it from tax increment financing. There is a way. You you have to first test the market. You've gotta make sure that if this development does indeed occur, that it can be sustainable, but it may require a larger infusion of capital. That's why, for instance, in Charlotte, if you're in a nondistressed area, and we have maps and zones which speak to this, that if you're in a nondistressed area, you might only get a 45% return of the, grant over time, over ten years. But if you're in a distressed business corridor because the market capture is not as strong and doesn't occur as early, it may be a 90% tax increment grant awarded to the private partner that you have checked fully out. You've looked at the market studies. You've looked at their their plan. You've examined the business pro form a. And the but for test speaks to the fact that it needs to be a higher infusion. So we ratchet ours in two different forms, 90% in distressed corridors and 45% in nondistressed corridors. It's a way of recognizing the fact that in those corridors, the market needs a little bit of more boost in order to grab hold. But what you've gotta be sure is the project is still still sustainable over the life of the tax increment grant. You want it to be sustainable beyond the life of the tax incremental grant. You want it to be a a project and a program and a development that lasts for the fifty year cycle. And a key issue
more years ago. A key issue will be assigning the risk of that development not throwing off the increased revenues that you expected. And the question is, is the city gonna hold all that risk? Are you gonna ask the the private partner to hold it all? Or are you gonna share it in some way by a formula?
And that's why the formula is tied to the taxes paid by the developer after it's built, and they pay the property taxes each year. The grant back is a portion of the property taxes already paid by the developer. It's it it limits the risk to local government. The development may fail, but you won't be out the cash because then the developer didn't pay the property tax in the first place.
We're done.
Hope you enjoyed that. I'd love it if you could email me your economic development solutions. What kind of creative thinking have you seen work in your community? Let me know and I'll include that in the following episode. You can reach me at bbrown@nclm.org. After the last episode about the surprising science and economics of trees in cities, I got a lot of feedback and there was also a coincidental amount of news stories that cropped up related to that topic right at that time. For one, governing magazine looked at a plan from the city of Phoenix, Arizona to expand its urban forest for the benefit of shade. The goal is to cover 25% of the city over the next twenty five years. CityLab also had a story about a new report from the Nature Conservancy concluding that trees are pretty much the only cost effective solution addressing deteriorating air quality and rising urban temperatures And that wording is as reported by CityLab. Meanwhile, the League of Wisconsin Municipalities told me they were celebrating forty years of the Tree City USA program from the Arbor Day Foundation, which among other things highlights city's dedication to urban forestry and preservation. Also, the Pacific Southwest Research Station of the US Forest Service followed up with me to say that Doctor. Greg McPherson, who you heard in that last episode, had just come out with a manual that helps city planners and urban foresters better predict how trees will go in their specific climates along with what types of ecological and economic benefits come along with those trees. I'll put a link in the show notes for this episode and the tree episode so you can learn more. Thanks for listening. All past episodes are at soundcloud.com/municipalequation or at nclm.org. Make sure you're subscribed on iTunes or Google Play or whatever service you prefer and follow on Twitter at muniequation. That's at m u n I equation. This podcast is made possible by the North Carolina League of Municipalities online at nclm.org. Talk to you soon. This is Ben Brown.
