How to make US economic development great again

Economic development has gone through some major transformations over the past decade, in my professional opinion. Almost the entire industry has faced and weathered not only the largest economic recession of the past 75 years, but the frozen tundra of the following decade of fizzled economic confidence as well. 

It really wasn’t much of an economic recovery – in fact, you could say it was rather anaemic, and remains on an unsteady footing at time of writing. People, especially the baby boomer workforce, have lost faith in all forms of government, and rightfully so. 

The government did an awful job of managing the post-meltdown situation and, in fact, with their draconian use of the Internal Revenue Service, the Feds inflicted a post-meltdown death knell to many Americans. The additional pain of enforcing unforgivable tax payments on failed small businesses and failed entrepreneurs mostly made up of the US middle class, has now officially caused the middle class to become extinct. 

Not the top 2%

The travesty is that the top 2% were allowed to feed on the carcasses of the middle class’s lost wealth, and derive huge subsidised benefits while doing so. Most Americans will not soon forget the mortgage Troubled Asset Relief Program handouts at their expense, and the huge loss of homeownership due to this fiasco.

“Widening income inequality, diminishing social mobility, commodity scarcity, and technological advances that enhance productivity at the cost of putting more people out of work all threaten to further dampen growth worldwide. The result of leaving these headwinds (long-term structural impediments) unanswered will be economic depression – a catastrophe for which existing policy tools are ‘impotent’,” international economist Dr Dambisa Moyo has said.

The positive recent response to President Donald Trump’s election and Washington reform will be short-lived if there is not a definitive policy developed and implemented to address human productivity and opportunity to be meaningfully employed within an affordable and stable economic growth environment. There is no greater need now than true economic development leadership and a return to useful skills, rather than the current rhetoric-driven philosophy. 

Loss of expertise

The economic development field has seen an exodus of our most seasoned economic advisors, which was mostly due to a lack of opportunities, in the post global recession. Most of the institutional brain trust just chose to retire or leave the profession. The loss of institutional leadership knowledge was staggering and the lost art of piecing together public-private financial transactions has been exponentially devastating on the failure to rebuild growth.

Now, a decade later what I see repeatedly is an entire new breed of economic development staff. Basically, they have little (if any) deal transaction experience. Their main role is a combination of glorified cheerleader and Siri; what hurts is they don’t know what they don’t know. 

The entire concept of ‘if not but for’ just garners a dumbfounded look. Recently I was inspecting a site for a client and made the comment that the site was nowhere near shovel-ready and the economic developer asked me “what does that mean?” I was horrified at their genuine lack of knowledge on one of the most rudimentary concepts of their job’s basic understanding.

Still hope

Now there comes a glimmer of good news. With these recent new whiffs of economic growth and a dash of investment confidence, there also come some new opportunities for economic developers to learn the art of the deal in this post-recession economy.

Creating gap financing that is subordinated to traditional long-term debt is still a necessary component of small and medium-sized companies’ financial investment needs. The new tax act has given us a golden lining for just such an opportunity to offer the recovery of some of these lost skill sets. 

With the anticipated permanent changes to the economic distressed population based tools through the new opportunity zones, there is new life in deal structuring that can really be impactful. These new opportunity zones allow qualified investors ($1m-net-worth) the ability to reduce to nearly zero their capital gains tax on profits created within the zones after 10 years. With these new zones, an economic catalyst has been birthed that is attractive to those with capital. 

Not only can you exponentially increase your clients’ internal rate of return and return on investment, you can combine these targeted investments with new market tax credit (NMTC) investments (20-25%) of project gross cost with a forgivable back end of up to 45% of the principal, up to $50m size cap. The NMTC can act as the subordinated secondary position debt portion of the public sector contribution as well.

To make things even better, both programmes can also now be coupled with the FDI opportunities of the EB-5 programme, which can allow for subordinated debt from investors from foreign countries seeking a green card to permanent citizenship in the US. In many cases, all three programmes overlap their boundaries for qualified census tracts. This can provide a range of either $500,000 per job or $1m per job of EB-5 funding. The trifecta of economic development new age investment tools is now available to become useful to astute economic developers that want to learn how to roll their sleeves up and lead positive economic change in their locales. 

When you combine the tax abatements with forgivable subordinated debt and FDI funding, this can create a powerful lure for economic investment into key areas to create living wage jobs and revitalise economically distressed areas.  

Revisit old strategies

To shore up our navigation through the economic anaemia of a very unpredictable economy, cities and towns will need to return to public sector-driven capitalisation. These local economic developers need to dust off the old revolving loan and seed capital strategies from the 20th century and bring critical public sector gap debt to the negotiating table. This will require modern economic developers to learn how to invest such funds wisely and accept higher levels of risk than traditional lenders in order for our economic recovery to truly succeed. 

Hope is a huge benefit that the US has always nurtured and had an abundance of. It has been this hope for a better life that has propelled its success. With proper knowledge of mastering the combining of these programmes, modern economic developers could infuse hope back into the general populace and that will kickstart the American Spirit to truly lead the world again as the beacon of freedom of all types.

This is especially needed for the rebirth of economic confidence within our general citizenry. Unless we meet this economic headwind with our best efforts, we risk the death of US’s greatest asset, the spirit of hope within our citizens. 

Don A Holbrook is a corporate site location and economic incentives adviser based in Las Vegas, Nevada