Charged with protecting public health and safety, governments have responded to the pandemic by supporting critical infrastructure, especially in healthcare. They’ve established new sources of funding, improved coordination between agencies, and supported vulnerable populations, rapidly deploying stimulus funding while trying to monitor its use and effectiveness. At the same time, governments have been operating in an uncertain fiscal environment and adapting in real time to budget shortfalls. These challenges were met while the officials themselves worked remotely, in large part, and adapted to virtual meetings like many of us.
Within the state and local government response, economic development has played a central role. In many cases, these officials “focused local” to help support the small business community and facilitate worker retention and re-employment. This has been a departure from the pre-pandemic status quo for many. As one economic development official in the Midwest recently shared with me, “Before the pandemic, I spent very little time on our small business community. Today, it’s about a third of my responsibilities and growing.”
To this end, states and localities have implemented new small business grants and loans. Many have created new programs to help manufacturers transition existing operations to produce personal protective equipment (PPE) and other supplies critical to fighting and treating COVID-19. States such as New Jersey, New York, and Texas have recalibrated their legacy financial incentives programs to ensure awardees wouldn’t default on their agreements due to layoffs or other shortfalls caused by COVID-19.
Many economic development officials across the country have collaborated with the business community regarding the present labor shortage and return-to-work initiatives. The events of the last several months have shown that economic development is more important now than ever, something that will continue to be the case going forward.
The Next Normal Workplace
As the U.S. economy gradually reopens, the economic development community is turning its attention toward the future — “the next normal.” Everyone within this sphere — government officials, business leaders, investors, developers, workers, site selection consultants — is trying to anticipate what comes next in terms of a return to the physical office, the future of remote work, necessary investments in new collaborative technology, changes in corporate real estate strategy, potential ridership on mass transit, the frequency of business travel, and other issues. The situation is fluid, and there are few clear answers now. However, it is helpful to look at current trends to try and assess how the labor environment is evolving and what it might look like in the future.
Many economic development officials across the country have collaborated with the business community regarding the present labor shortage and return-to-work initiatives. A recent EY Work Reimagined Survey of over 16,000 employees across multiple industry sectors and employers worldwide found that 9 in 10 workers want flexibility in where and when they work. More than half (54 percent) of employees surveyed would consider leaving their job after the pandemic if they are not afforded flexibility, with millennials being twice as likely to leave their jobs as baby-boomers.
These expectations for ongoing flexibility may present a challenge to many business decision-makers. Area Development’s 35th Annual Corporate Survey, released in March, reveals that three-quarters (76 percent) of businesses have not changed their corporate real estate strategy in response to COVID-19. In addition, 51 percent of the business leaders surveyed indicate that they have only temporarily transitioned to an increase in remote workers, while just 13 percent indicate that such a transition is permanent.
As employers seek to attract and retain top talent, they will be increasingly expected to offer a flexible work environment. And offering such flexibility can come at a significant cost to businesses in the form of technology platform upgrades, reimbursements for high-speed Internet and phone expenses, and the procurement of in-home equipment such as monitors, printers, and headsets. In addition, a higher incidence of remote workers may create new income tax withholding obligations for their employers as residences in multiple states supplant previously concentrated places of work.
While the business community attempts to embrace a new flexible workplace, another key trend has emerged within the private sector — a widespread emphasis on environmental, social, and governance issues (commonly referred to as “ESG investing”). With matters of climate change, social equity, and business ethics increasingly in the public consciousness and across the headlines, large commercial enterprises have begun to establish new goals for reducing greenhouse gas emissions, supporting diversity and inclusion, developing community engagement, prioritizing employee safety and wellness, ensuring equitable compensation, protecting data privacy and security, and more.
As employers seek to attract and retain top talent, they will be increasingly expected to offer a flexible work environment. Though employee expectations are among the factors driving this trend, executives are facing pressure to place ESG at the forefront of their business strategies from several sources. In its 2020 Proxy Season Preview Report published in February 2021, the EY Center for Board Matters found that 98 percent of investors evaluate ESG performance based on corporate disclosures. In addition, sustainably invested assets represent $1 of every $3 of U.S. assets under professional management. More than 150 members with $4 trillion in purchasing power are using the Carbon Disclosure Project (CDP) supply chain program to request ESG information from approximately 10,000 suppliers worldwide. Nearly 6 in 10 consumers are willing to change their purchasing habits to help reduce negative environmental impacts. And yes, millennials are more likely to seek employment at a company because of its stance on social and/or environmental issues.
Given all this, many corporate boards and C-suite executives are concluding that ESG is integral to their overall sustained success in attracting talent, investors, suppliers, customers, and consumers. However, there is another driving force behind this paradigm shift — new regulation. Since the beginning of 2021, the SEC has made four separate announcements related to ESG, including that it will begin to review companies’ climate change disclosures. The SEC also announced the formation of a new Enforcement Task Force on Climate and ESG Issues to proactively identify ESG-related misconduct and misstatements.
An Inflection Point for Economic Development
The transition to a more mobile and dispersed workforce, as well as the integration of ESG into core business strategy, presents a unique opportunity for those who practice economic development. Officials who have in the past concentrated their message on the availability of a skilled workforce, access to markets, and high quality of life in their communities, may choose to think creatively about how they can help business leaders satisfy the refocused expectations of their many stakeholders. An economic development official previously concerned with labor cost differentials between competing metropolitan areas may be well-served to demonstrate how his/her community is compatible with a business’s long-term plans to improve diversity, equity, and inclusion, or perhaps how it has the right local assets to help the company achieve its carbon-neutral or carbon-negative objectives.
Examples of this creativity are already emerging throughout the country.
- Virginia has harmonized its incentives programs with telework situations. Executives are facing pressure to place ESG — environmental, social, and governance issues — at the forefront of their business strategies.
- Georgia now offers tax credits to employers that implement formal telework arrangements to help offset the incremental cost of remote work.
- Louisiana, Oklahoma, and West Virginia are among several states that are offering newly available incentives intended to attract teleworkers and self-employed individuals into their communities.
- New Jersey has recently legislated new incentive programs to help address food deserts and foster what it calls equitable economic growth in underserved neighborhoods, and it is welcoming business and public participation. In addition to the significant federal tax sustainability proposals, over 30 states currently have pending legislation that would create, extend, or expand programs intended to help improve the economics of commercial renewable energy projects.
As the U.S. emerges from the pandemic, economic developers have an opportunity to integrate some of the lessons learned and new ways of thinking into their overall approach. The large-scale project attraction efforts and financial incentives programs that economic development departments are known for are likely to remain a priority. However, officials also find themselves at a turning point that offers them the opportunity to develop targeted approaches that support new norms in the workplace, promote inclusive economic recovery, and place ESG at the center of their value proposition to business.