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Refocused Economic Development: Less Smoke, More Fire

Collaborative state economic development agendas may be better able to support businesses in locations where economic growth is not happening quickly enough.

Daniel H. Levine, Principal, MetroCompare (2012 Directory)
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Attracting Talent Through Immigration Policy
The overall job market might be weak but some technology and engineering skill sets are in short supply. Often companies respond by opening overseas locations where talent with these skills can be recruited. Some technology industry leaders have argued that a better alternative would be for the United States to allow "entrepreneurial visas."

Entrepreneurial visas would allow easier access to the United States for those applicants who intend to open a new business here and have already secured binding financial commitments from venture capitalists or other investors to finance the business that will be created should the visa be granted. This concept is a variation of an approach already proven in the Canadian Provincial Nominee Program through which visa applicants with difficult-to-recruit skills (in some provinces including entrepreneurial skills) receive expedited visa and citizenship processing from the federal government.

While changes to immigration policy would surely be helpful, there are some ways in which states and businesses can do a better job at tapping immigrant investor dollars available from existing programs. For example, under the EB-5 immigrant investor visa category, visas are available to applicants willing to invest a minimum of $500,000 in a business that will create at least 10 new jobs in a regional center (as designated by the INS). Obtaining designation by the INS for a regional center provides a great opportunity for businesses and states to work together to attract new talent and investment dollars - particularly when a mechanism is provided to make it easier for multiple EB-5 visa applicants to pool investments into a single project. In addition to attracting EB-5 investment dollars, collaborative relationships with the business networks created within immigrant communities can serve as a useful conduit to attracting potential foreign direct investment.

Distressed Workers

Most state economic development programs emphasize the recruitment of projects with high average wages, despite the fact that the overwhelming percentage of adults in their communities would not be qualified for the jobs expected to be created. No doubt every community envisions itself as the next high-tech, life sciences, or advanced manufacturing center. But the reality is that 72.1 percent of the U.S. adult population has never earned a degree from a four-year college or university. In Massachusetts, our most educated state, more than 60 percent of adults do not hold a bachelor's degree; and among the most educated age group in the country (those below the age of 45), 64 percent have not earned a bachelor's degree.

Economic development ought to reflect a community's aspirations. But it must also be grounded in reality. Very few states, for example, give favorable weighting in credits or incentives to projects that hire distressed or underprivileged workers. In fact, in many states such projects are ineligible for any incentive award whatsoever (e.g., those states that require that incentive-eligible projects provide above-average wages or restrict awards to only high-paying targeted industries). In many respects, this is completely backwards from what is most needed. After all, jobs that do not require a four-year degree are precisely those most at risk of going overseas.

And it's not just states that ignore jobs that are suitable for the majority of the population without four-year degrees. With the exception of the Workforce Opportunity Training Credit (WOTC), almost no assistance comes from the federal government either. Better alignment between state job hiring tax credits and WOTC (which is administered by states) would go a long way toward providing companies with a meaningful incentive to hire distressed workers.

Leveraging Anchor Institutions

One of the most important sources of employment opportunities for distressed workers are anchor institutions (such as hospitals or universities) that are located in a distressed community. Employment opportunities created by an anchor institution might be direct, or just as importantly, might be created through a redirection of the institution's vendor contracts.

The Initiative for a Competitive Inner City (ICIC) cites the example of the University of Pennsylvania doubling its local Philadelphia vendor contracts to $100 million annually. (See the ICIC's report on "Anchor Institutions and Urban Economic Development," June, 2011.) Fortune 500 companies can be anchor institutions as well. Campbell's Soup Co. (Camden, N.J.) and Whirlpool Corp. (Benton Harbor, Mich.) were each granted innovative development rights by state economic development officials to bring much needed real estate development onto or near their corporate campuses (each of which is located in a distressed community).

Leveraging the real estate development potential of anchor institutions would be greatly enhanced if the rules for issuing tax-exempt private activity bonds were relaxed for projects that benefit both private and not-for-profit parties (when the project is located in a distressed community). For example, perhaps the percentage of private activity allowed in a tax exempt bond that finances a project benefiting both a private company and a not-for-profit could be substantially increased from the current cap of 5 percent (for a project's private activity use), provided that the project is located in a specially designated distressed community (such as a federal empowerment zone).

State economic development agendas cannot influence the pace of the national economic recovery, but they can make a big difference in helping businesses and communities leverage their existing toolboxes more effectively. Less focus on the zero-sum competition between the states - and a lot more help from the federal government in terms of getting its policies better aligned with state economic development challenges and programs - would certainly be a welcome change as well.
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