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Smaller Communities Can Offer Your Company a Helping Hand

Some smaller communities are offering prospects their own road crews to prepare privately owned sites for development.

November 2011
Anyone who's lived in a small town knows how friendly the nation's less populated communities can be. People tend to be neighborly, down-to-earth, and eager to be helpful to one another. That attitude can find its way into the business of economic development too - civic leaders, hoping to land a deal, may come up with enticements a bit different from big-city incentives. Just as a neighbor might drop by to help you bag up the autumn leaves, a smaller community may be willing to lend a hand when it's time to develop the site of a new factory.

"Some of our outlying towns are more willing to do these kinds of things to spur economic development," says Ira Korn, managing director at Coldwell Banker Commercial Meridian in Rochester, N.Y. "They're able to put up workers for infrastructure, grading, and excavating. They have a county entity that essentially functions as a construction company."

Certainly, it's not out of the question for a community to pay for infrastructure improvements to help land an attractive project, notes Mark Barbash, an Ohio economic development consultant who has served as chief economic development officer for the Ohio Department of Development. "We frequently saw communities paying for public right-of-way infrastructure needs to improve access or increase sewer or water treatment capacity," he says, recalling the many deals he witnessed while in state economic development. "That's a very common strategy."

However, we're now talking about municipality built or funded roads and site preparation projects on the development site itself - not on public land, but on private property. It's not common, but it's happening here and there. It seems to make a lot of sense for smaller cities or counties that happen to have decent-size street or highway departments.

Using Local Resources to "Sweeten the Pot"
According to Al Jones, a Montana consultant in economic development and business growth, who has spent time in state economic development there, it's often surprising "how large county road departments are, even in rural counties. There may be 50 to 250 people and a range of heavy equipment, and quite often their own gravel pits."

"They're looking at these workers as a fixed expense," Korn observes. "They're paying these guys and have the equipment, no matter what." So, says Jones, why not use such resources to sweeten the pot and help attract a new business to town? "They can be excavating or digging holes for sewers and water extensions, or providing gravel for rail spur beds," he points out. They can be building parking lots or roads, or grading the site, or conducting a wide range of other site preparation. "[These communities] already employ these people and own the equipment," he says, so in the view of these governments, they aren't spending any more money than they were already spending.

In that regard, it makes economic sense for smaller communities that otherwise may not have deep pockets for luring developments. But even that's just the start of the economic argument. In some cases, says Jones, the value of these kinds of improvements can count toward a community's contribution when it's trying to land state or federal economic development funding. "It can provide a local match for federal and state grants," he says. Consider a community that is required to kick in 20 or 30 percent in order to put together a $10 million recruitment package. "Cities struggle to come up with a match," he notes.

Using local resources also means that the dollars spent on the project stay at home, which is always an attractive consideration from a political and economic perspective, and may be all the more critical when the economy is sluggish. And it keeps local workers working.

Then there's the issue of timing, Jones continues. Depending on the situation, contracting out site preparation work may stretch out the timetable, while pulling in the locally owned bulldozers, trenchers, graders, and dump trucks can be a timesaver.

Plus, he adds, an upfront local contribution of this nature might be just what the economic development prospect needs to make the project work. Sure, many companies are thrilled to land a generous break on their property taxes, but they can only enjoy the benefit if they've succeeded in raising sufficient capital in the first place to start and complete the project. "By addressing this upfront, you're really reducing the total capital of the project, and it can make it a lot easier to get it done," Jones says. "You're actually making more of a difference."

Political, Legal & Other Implications
Not everyone is sold on the concept, though. Barbash says he didn't see this kind of deal being done while he was involved in Ohio's state economic development operation. "I did not see communities paying for infrastructure development or roadway improvements on private property," he says. "I think there is a whole range of political, policy, and legal implications for a community doing that. There are potential problems in terms of liability if it's not done right."

Beyond that, there are potential legal considerations that arise when public funds are spent on private property. There may be laws relating to public bidding and prevailing wages that come into play. And governmental leaders could face political questions regarding how well aligned the public expenditures are with community needs, as opposed to the needs of a private developer.

Korn, who has observed this idea in action in his part of upstate New York, says it's much more likely in smaller towns, where the atmosphere may be a bit more laid back and informal. "The larger communities would never do this," he says. Still, smaller towns often don't have as many economic development tools in their toolkits. "They are trying to do these deals for anything that might create jobs," Jones says. And for a smaller town, the upside often outweighs such downsides as potential liability. In their view, he says, "If you're looking at liability, you really shouldn't get out of bed."

There may be some inconvenience, of course, as some local public jobs wait while the development work gets the attention of the road-building crews, Korn says. "They may have to reprioritize their own projects and may have to put their stuff on the back burner." But again, the promise of jobs is worth a bit of trouble in the eyes of these civic leaders.

Thinking Outside the Box
There are other ways to think outside the box and come up with unconventional arrangements, Barbash notes, without spending public dollars on private property. "A trend I have seen is slightly different," he explains. "In order to get work done more quickly, some communities will allow the developers to construct public improvements and then be reimbursed by the local government."

It's almost the opposite arrangement, in fact. Rather than having county road crews working on the private site, in these cases private contractors hired by the developer are working on public infrastructure improvements leading to the site. "It works as long as they do it to public, government standards," Barbash says, "and typically, private developers are using standards even higher than public standards."

As for the notion of using public resources to help bring a private site up to snuff, it still seems to be something of a novelty. But just because it's uncommon doesn't mean it's not worth thinking about, according to Jones. "I think it's more of an opportunity than a trend."

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