What’s Up with Opportunity Zones?

Opportunity Zones were one of the big, and underreported, legislative achievements of this Congressional session.  Part of the late 2017 Tax Cuts and Jobs Act, the proposal provides generous capital gains tax credits to investors who back projects and businesses operating in designated Opportunity Zones.  These zones are intended to be located in low income census tracts or areas of particular economic distress.  States designate these zones, and, to date, the U.S. Treasury Department has designated more than 8,700 such zones around the country.

There’s still a lot of uncertainty about how this program will work.  Opportunity zone boosters estimate that the program could incentivize an additional $30 billion of new investments into designated zones.   That number seems high to me, but, for now, I remain hopeful and optimistic about the program’s potential.

I expect that we’ll be seeing a lot more discussion on the state of opportunity zones as the program’s rules and procedures are clarified and actual implementation begins.  Watch this space for further updates.  In the meantime, I encourage interested folks to check out a new Opportunity Zone update report from the Council of Development Finance Agencies which discusses how state officials are managing the programs.  In addition, the Urban Institute continues to be an excellent source of information on opportunity zone implementation as well.  A sampling of their recent studies can be accessed here.

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The Impact of Military Bases in Pennsylvania

Last week, the Pennsylvania Military Community Enhancement Commission (PMCEC) released a new study that assesses the impact of military installations on Pennsylvania’s statewide economy and in regions that host these facilities.  The research effort was led by the University of Pittsburgh’s Center for Social and Urban Research  (EntreWorks Consulting also provided support for the project).   The study finds that military installations are a key driver of state and regional economies, accounting for 56,000 jobs and $11 billion in total economic output in 2016.   The study examines statewide impacts, and also offers local assessments for each of Pennsylvania’s 13 major military installations.  The report will be of greatest interest to Pennsylvanians, but it offers a number of broader insights and lessons as well.   In many ways, Pennsylvania’s military bases are unique.  The state is not home to major training facilities, or large military operations.  Instead, nearly all of the state’s defense workers are civilians who work in sectors like logistics and distribution, manufacturing, and maintenance/repair.  As such, there are close linkages between military and civilian industries, and the potential for closer industry partnerships and synergies is great. The PMCEC and its partners are working closely to be good partners to DoD, and to help ensure that Pennsylvania remains a welcoming place for the military.   You can access the summary impact report and individual base reports here.

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Talent Development and the Expansion of Child Care Services

On my recent travels around the US, talent and workforce development is clearly the No. 1 issue regardless of location.   In urban, rural,and suburban locales, employers are facing big challenges in finding and retaining talented workers.  There are many factors at work here, and many workforce development programs have been addressing core challenges related to skills and training.  But, the causes are more complex than a skills mismatch.  Workforce shortages are driven by other factors too–including housing availability/affordability and child care.   If you can’t afford to buy a home or raise a child in a community, your prospects for a rewarding career there are pretty slim.

Forward thinking communities around the US are starting to proactively these issues.  (Check out some useful background from CED and the Upjohn Institute).  My home community of Arlington, VA is becoming a national leader on this front.  It has just released and approved an excellent plan as part of an ongoing Child Care Initiative.   The Arlington economy is booming, so housing costs and child care costs have been skyrocketing, creating great financial challenges for parents. In fact, the project’s research estimates that child care costs an average Arlington family around $42,000 per year.  The new plan takes a holistic look at the issue, and includes dozens of recommendations.  Big early steps include additional subsidies to defray child care costs, zoning revisions to encourage creation of new facilities, and new training programs to build a stronger local talent pool of child care professionals.  This is an ambitious plan, but it’s got potential.  If the talent wars continue, more communities around the US will need to take this type of holistic look at issues affecting local families and workers.

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Rethinking Retirement for the Gig Economy

Freelancers and gig economy workers have become a regular feature of the today’s economic landscape.  While these folks love the freedom and flexibility of the 1099 Economy, they also fear the precarious nature of freelancing, especially when it comes to paying for health care and retirement.  An interesting new survey sponsored by Small Business Majority examines small business owner and freelancer attitudes toward retirement savings and benefits.   To sum up, it’s not a good situation today.   A large share of surveyed small business owners (with less than 25 employees) uses freelancers on a regular basis, thanks to the benefits of these more flexible work arrangements. These freelancers receive no health or retirement benefits from these gigs, but full time employees face a similar fate as few small business owners can afford to provide benefits. In fact, 57% of surveyed small business owners provide no retirement benefits to their employees. This should not be a surprise, since the owners rarely fund retirement benefits for themselves either.  Only 39% of surveyed owners felt that they had sufficient savings for retirement.

The reasons for this lack of investment in benefits are not complex:  retirement plans are too costly and too complicated.   Nearly 75% of business owners would like to see more incentives to encourage retirement savings and to provide benefits to gig economy workers as well.   Sixty-nine percent supported the creation of multi-employer benefit exchanges as means to support the provision of health, retirement and other benefits.

Too many people are living and working in precarious conditions where they are one injury or one bad break away from financial ruin.  New structures for a new social safety net are clearly needed, and, as this survey suggests, there is growing support for action.

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What Matters for Local Government?

Local government officials must often operate in reactive mode, responding to crises or other pressing events of they day.  But, good leaders know that they must be reactive and proactive, acting to advance the future prospects of their community over the long run.  An interesting new survey from Government Business Council offers useful insights about what matters on this front.  The survey asked state and local government officials to identify the issues and focus areas that they deemed most important to their own and their community’s long term success.  Their top concerns relate to the economy and fiscal health, as the largest share of respondents identified taxation, budget and finance as their top priority.  Promoting economic development ranked number 2, followed by infrastructure and transportation.  I was somewhat surprised to see issues such as health care and social services rank low on the priority list, but this may be due to the fact that few local officials have a direct role in the provision of these services.

As an economic development consultant, I’m of course pleased to see economic development marked as a high priority.  It was the number one concern for officials operating in smaller communities and smaller states, reflecting the local importance of creating new job engines and perhaps reflecting the place-based economic divides facing America today.  This priority focus on economic development was strongest among elected officials (compared to professional staff), but was strong across categories and across all types of officials, regardless of their department or function.

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Regulatory Hacking

Last week, I attended a book release event for Regulatory Hacking: A Playbook for Startups, by Evan Burfield with J.D. Harrison.  Evan is well-known in DC tech circles as one of the co-founders of the 1776 startup network.  I’m not a fan of the term regulatory hacking, but the basic concept raised by the book is extremely important:  the most exciting and consequential business growth opportunities today are mainly found in highly regulated markets.  Examples include drug discovery, agtech, autonomous vehicles, unmanned aerial vehicles, and artificial intelligence.  Succeeding in these markets requires more than crafting a cool new app.  Entrepreneurs will need to understand how regulations affect market development.  They can’t just “hack” their way through problems, but will need to work carefully to ensure that new products, services, and technologies improve our lives and do no harm, while also making money along the way.  As the book notes, “the easy problems in tech have been solved.”

Regulatory Hacking is very strong in making this case, and in providing a playbook for how to succeed in these new market structures.  The new market realities also suggest that building businesses may become more challenging in the years ahead, as time to market and the cost to develop new business models will increase.   Complex markets create complexity.  So, while the potential for growth is profound, the path to success will not be easy.  Hard problems will require sophisticated solutions that involve new approaches to business, closer collaborations between government and the tech sector, and a good dose of patience as well.

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The Latest from Bucksport, Maine

I’ve posted a few times about Bucksport, Maine, a small Midcoast town near where our family has a house.  I’m a huge fan of Bucksport, but the town has had a rough go of it in recent years.  The biggest blow came in 2014 when the local paper mill, a long-time economic anchor, shut down, cutting around 500 jobs (in town with around 5,000 residents).  This was a tough blow, but the town has come together in tremendous ways. The biggest news has been the decision from Whole Oceans to construct a $250 salmon farm on the old paper mill site.  That’s exciting news, but I’ve been even more excited about how the community came together to deal with the plant closing and to create a strong community spirit.  That’s the real heart of this story.

A number of groups have been in on this work, but Bucksport Heart and Soul has been one of the key players.  This community initiative uses tools and approaches pioneered by the Orton Foundation that empower  local people to take control of their town’s future destinies.  This effort has been very successful in Bucksport.  If you want to get a flavor of the process, and get ideas for your own community, I encourage you to take a look at a new document from the group that lists 82 community-generated ideas for making Bucksport a better place. While I doubt that they’ll be able to follow up on all 82 ideas, this is yet another sign that local people have good ideas about transforming where they live.  You only have to ask them!

 

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The Main Street Fund: An Idea whose Time has Come?

Last week, the DC-based Hamilton Project released a number of studies looking at the state of entrepreneurship and business dynamism in the US.  The core analysis took a deep dive into why US business dynamism is declining.  Startup rates and firm survival rates are down, and job growth from new firms is also declining.   The researchers point to decreased competition as a core causal factor:  industry consolidation (especially in formerly small business intensive sectors like retail) and a growth in occupational licensing are among the many factors that make it harder for new firms to start and to gain market traction.   The study also offers a number of small scale recommendations related to occupational licensing as possible means to address these market barriers.   The project also suggests a bigger idea as well—A federal Main Street Fund that could make as much as $5 billion available for state investments in entrepreneurs and small businesses.   The fund would be managed by the US Economic Development Administration, with funds provided to states based on population, demographics, and economic activity.   It would also include penalties for states that created major new incentive programs–it is designed to generate new funding tools that support home-grown businesses and prevent inter-state battles for corporate relocations.

As a long time advocate for home grown business development and a critic of many tax incentive programs, I’m pleased to see ideas such as the Main Street Fund get some public attention.  While I question the political feasibility of this idea,  I like the concept of a data-driven fund that helps fund innovations in entrepreneurial support programs while also discouraging “the war between the states” for corporate headquarters and other facilities.  This is a debate worth having!

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Rural Development in the 2018 Farm Bill

Today, the US Senate continues to debate the 2018 Farm Bill, also known as the Agriculture Improvement Act of 2018. The Farm Bill is a big deal, setting policies in myriad areas from food stamps to nutrition programs to commodity payments.   The Farm Bill typically provides authorization for various rural development programs, although this important piece of the debate rarely generates much attention.  I hope to see this change in 2018.  I’m especially intrigued with a new proposal from Sen. Gillibrand (D-NY) known as the Rural Jobs and Investment Act.  This bill, and an expected related amendment to the Farm Bill, supports a smart expansion of current rural development efforts.  Among other things, it creates a new RISE (Rural Innovation Stronger Economy) program at USDA to further incentivize partnerships that support innovation-driven economic development in rural areas, and to allow USDA investments in incubators, accelerators, and maker spaces. It also tweaks current rules to help encourage the development of new equity investment pools focused on rural America.  This amendment should be offered for consideration during the Farm Bill debate.   Its passage should be good news for entrepreneurs across rural America.

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EntreWorks Insights, June 2018 edition now available

The latest edition of our quarterly e-newsletter, EntreWorks Insights, is now available.  This issue looks at innovative economic development ideas in the states.   You can learn more and subscribe here.

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