Encouraging Economic Development

The nature of economic development practice has changed significantly over the last two decades to focus on competitively-advantaged industry clusters and the elements necessary to attract firms within those clusters. Maximizing the benefits of the new highway will require the utilization of these contemporary strategies tailored to local circumstances.

Select the tools below. Tools in gray boxes are not recommended for that level of planning capacity.

LEVEL 1: LEVEL 2: LEVEL 3: LEVEL 4:
See Increasing Local Fundamental Planning Capacity Tax Abatement Tax Abatement Tax Abatement
Economic Development Strategic Plan Economic Development Strategic Plan Economic Development Strategic Plan
Tax Increment Financing Tax Increment Financing Tax Increment Financing
Special Improvements Districts Special Improvements Districts Special Improvements Districts
Agricultural Development * Agricultural Development * Agricultural Development *
Agri-Tourism and Tourism Corridor Planning * Agri-Tourism and Tourism Corridor Planning * Agri-Tourism and Tourism Corridor Planning *
Indiana State Economics Programs * Indiana State Economics Programs * Indiana State Economics Programs *
Competitive Industry / Targeted Industry Studies Competitive Industry / Targeted Industry Studies Competitive Industry / Targeted Industry Studies
Brownfield / Infill Development * Brownfield / Infill Development * Brownfield / Infill Development *

* Tools Under Construction

States and local units of government began to develop economic development programs in response to a series of economic downturns in the late 70s and early 80s. Initially economic development efforts consisted primarily of the offering of incentives to reduce costs and influence the location decisions of business. During this period, a city or region competed to offer the lowest public sector costs in hopes of capturing relocating businesses. Critics suggested that long-term competitive advantages of particular areas drove actual location decisions and that short-term tax breaks had little effect. They surmised that firms merely used these incentive negotiations to lower the cost of doing business in their preferred location.

The primary goals of current economic development are attracting private investment and creating jobs. Many economic development efforts also seek to create a positive fiscal impact (growing new tax revenues faster than increasing new service costs). Over time, economic development practice has expanded to include a focus on the following strategies:

Focus on competitively advantaged industry clusters emerged to address concerns about use of incentive packages. Rather than “shooting at anything that flies,” cities and states began to use knowledge of the local economy to fine tune and focus the use of incentive programs. The basic premise of the competitive advantage and industry cluster approach was that communities and regions provided some industry groups (clusters) with an economic environment that enables them to be more successful in that area than in other regions. As competitive advantage theory gained traction cities and states across the nation engaged in studies to identify their competitive industry clusters and adjusted economic development policies to focus on nurturing them.

One of the most important aspects of the competitive advantage approach was a focus on locally skilled and specialized workforce. Economic development efforts expanded to include programs directed to increasing the skills and productivity of the local workforce.

In response to the workforce focus that emerged from the competitive advantage approach and, in part, to Richard Florida’s notion that creative and innovative people were the driving force behind new business start-ups and greater economic activity, recent economic development efforts have focused on developing and supporting a quality of life that makes a city/region attractive to creative human capital.

The discussion below provides some practical advice about adopting a successful, contemporary economic development approach on the local level.

As the notion of what constitutes economic development has expanded, so has the responsibility of the economic development practitioner. First, it has become essential that economic development practitioners build the partnerships required to address the community’s quality of life and thus support economic growth.  Economic development practitioners should consider a wide range of public, private, not-for-profit, and university-based partners.  For example, in the new economy, supporting the arts, culture, and general quality of life (to make the region attractive) are as important as education and workforce development programs (to increase worker productivity), capitalizing on competitive industry clusters and research universities (to develop new, local industries), and the development of incentive packages (to attract major employers to the region). While the list of potential partners will vary by community, economic development practitioners should consider those described above and others that may be unique to their community and mission.

Secondly, while economic development programs are primarily directed towards attracting private investment and creating jobs, sound economic development practice must consider the impact on the local tax base (new costs attributable to the development compared to new tax revenues). An analysis of tax impacts should consider any property tax revenues generated by the new facility and any local income tax attributable to employment at the facility relative to the new public costs generated by the project and by any new employees who move to the community.  If the project attracts a large number of new workers to the community it is particularly important to consider the impact on the local school district.  Any study of tax impact on the school system should consider new property tax attributable to residential construction and the ability of the local school system to absorb new students prior to the need for new hires and new construction.

While economic development projects that have a continuing positive impact on the local tax base are desirable, it should be recognized that some projects may be slow in offsetting increased costs for governmental services with local tax revenue and still be beneficial to the community.  For example, in a community that has been suffering from population loss and the attrition of local shopping, dining, and entertainment facilities, the attraction of 500 or more new workers may be thought of as an investment in the long-term quality of life in the community.

Finally, patience is an important attribute in any economic development strategy.  Communities must believe in the integrity of their carefully considered economic strategies. The first opportunity may not always be the best opportunity.  If the community’s economic development strategy suggests that there are higher and better uses for a parcel of land than are offered by a particular opportunity, communities may consider passing on the current proposal while working to attract a more desirable project. In doing so, the community can ensure that land and resources required to develop the more desirable project will be available.

The economic development tools presented here are organized in three categories (basics, local incentives, and strategies).  These tools provide practitioners with the capacity to develop programs and address issues related to incentives, competitive industries, and workforce development.  Many of the tools provided in other sections of the tool kit provide practitioners with the capacity to address issues related to the quality of life in the local community.

The basics section includes the development of economic development plans and the state programs that support local economic development efforts. Tax abatement, tax increment financing, and special improvement districts are included in the local incentive section. The strategy section includes: agricultural development, agricultural tourism and tourism corridor planning, competitive industry/ targeted industry studies, and brownfield development programs.