Posts Tagged ‘economic development’

What might sustainable, local firms do with $49 mil?

In my vision of sustainable communities, I picture a thriving economy built around locally owned, independent businesses that embrace the triple bottom line: people, planet and profits. So it is that I have little patience for economic development practices prevalent in Oregon and around the country that emphasize national business recruitment over local business development. 

I believe we should be doing much more to take care of the businesses that are already here putting down roots, hiring local residents, keeping their profits local and multiplying as they circulate in the local economy and being run by owners who are active in their communities — because they live here, too.

Editors at The Oregonian lost an opportunity to underscore that point in an editorial on Saturday about last week’s announcement of the Hynix semiconductor plant closure in Eugene. The decision puts 1,100 people out of work, many of them paid well above the average Eugene wage. Hynix, like any number of tech companies wooed by Oregon officials in the past several decades, was given large state and local tax credit incentives to locate in Eugene some 13 years ago. 

Although the Hynix plant closure is an opportunity to question the wisdom of showering national or international businesses with tax breaks to locate in Oregon, The Oregonian editors say forget about it:



It’s not productive to second-guess the state’s wooing of Hynix and its use of tax incentives, as some in the Legislature have begun to do. A 2003 study by University of Oregon economics students Melinda Rowan and Jennifer Witt found that the $49 million in tax breaks and road enhancements used to lure Hynix resulted in a positive impact in taxes, wages and system development charges of more than $275 million over the first five years of its operation. Had the state not offered its incentives, Hynix wouldn’t have built its plant, employed 1,100 people and paid taxes.

Their argument against re-examining the Hynix recruitment strategy is hardly convincing. The editors conclude Hynix would not have come here without the $49 million incentive package, so the positive impact in taxes, wages and whatever system development charges would not have been realized. But that’s assuming the $49 million in incentives were not spent at all. 

What might have happened had the state and city pledged that same $49 million in 1995 for support of locally owned, independent businesses? Hynix received the equivalent of $44,500 for each of its current 1,100 employees from state and local government. What might 1,100 locally owned, independent businesses in the Eugene area been able to do with $44,500 each? Or what might 110 of the best locally owned, independent businesses in Eugene been able to do with $445,000 each?

We’ll never know the answer, but I’m not aware of any state or local economic development group even asking those questions. Businesses based and owned in Oregon are getting the short end of the economic development stick. They can only dream of government officials coming to them and saying, “We believe in you and want you to thrive in Oregon. Here’s a half-million dollar package to help you grow your business.” 

Can you imagine what a select group of Oregon’s most innovative, most environmentally and socially committed business owners and their employees could and would do to reward the citizens of this state for making a meaningful public investment in their businesses? Not all of them would succeed, of course, but I’m certain enough would to add at least the equivalent of 1,100 quality jobs. 

And most important of all, those successful locally owned, independent and sustainable businesses would keep repaying Oregon’s investment long after the 13-year life span of Hynix in Eugene.



Oregon media fails in covering economic development

State government officials across the US love to publicize their aggressive efforts to draw outside businesses to their states. And the news media rarely fails to serve up the publicity the government desires. Case in point, The Oregonian’s headline on the front of the business section yesterday: “Governor will woo Europe for eco-friendly industry.”

Being the green guy that I am, I suppose I should be at the airport on March 29 to shout my approval to the governor before he boards the plane to Amsterdam. Sorry, no can do. I long ago reached the fed-up point with economic development strategies that favor recruitment of out-of-state businesses over cultivation of in-state entrepreneurs and businesses.

My philosophy is let’s first take care of those already here. Only after public officials and programs have exhausted efforts to help our existing firms succeed should they turn their attention to business recruitment. Research I did a year ago for an Oregon economic development organization made clear to me that the state has only scratched the surface of what it could do for existing Oregon businesses and the Oregonians who want to start companies.

Author Michael Shuman says the reason for the government bias toward recruiting big investments from outside companies has much more to do with politics than economics:

Presenting the public with one deal providing one thousand jobs seems to have greater payoffs than presenting one hundred deals with ten jobs each. Politicians would rather be photographed cutting a ribbon on page A-1 than having to schlep around to a hundred places, on a hundred different days, always for page D-6 announcements in the business section.

Of course, if the media didn’t fawn all over these large recruitment coups, our politicians might change their behavior. Reporters tend to favor one factor above all when weighing the significance of business news: what’s the impact on jobs created or lost locally or statewide. Let’s say a local firm promises to add 10 jobs this year — without public subsidy. Now along comes an out-of-state corporation that is promising 500 jobs — with public subsidy. Which announcement do you think the media will pay more attention to?

The media rarely scrutinizes the ROI of public subsidies for the recruitment of out-of-state firms to Oregon. It’s considered the cost of competing in a global economy, as if there is no alternative. Instead, when an outsider chooses Oregon over other states (or countries) the media celebrates it as affirmation of Oregon’s quality of workforce and life. The promise of hundreds of jobs is all that matters; not whether those jobs actually are produced and at what cost to the taxpayer.

When Dell Computer without warning closed its call center in Roseburg (Douglas County) last August and laid off 220 employees, The Oregonian reported:

Douglas County’s economy went into steep decline along with the timber industry in the 1990s, so Dell’s call center was especially welcome when it opened in 2002. Economic development officials helped lure the computer retailer with state tax breaks worth $250,000, and with $2 million worth of employee training funds largely from private organizations.

Dell’s departure presented a perfect opportunity for the paper to investigate the wisdom of showering tax breaks on outside firms, especially mega-corporations like Dell. But no such report followed.

The media is failing the citizenry and the businesses that were started and grown in Oregon. At the very least, reporters need to examine closely what public officials are doing on behalf of Oregon-based businesses and entrepreneurs and weigh that against the investments in external recruitment. In other words, stop the puff pieces on the governor’s overseas junkets and ribbon-cutting ceremonies. And start asking whether any of it really makes a difference.

If not, we have thousands of homegrown businesses in Oregon that could use the governor’s attention and support. You know, the ones that don’t demand tax breaks to do business here.


Someone’s idea of economic development

The Oregonian continues to cover the opening this week of the IKEA store near the Portland airport. Sunday’s article looked at what we might see happen here based on what has occurred in the year since IKEA opened in West Sacramento. Here are a few revealing excerpts:

• Ikea not only has delivered a tidy sales tax boost to West Sacramento…it also has attracted several big-name retailers that have provided further construction and retail jobs. In addition, the store has drawn shoppers from as far as Redding, Calif., and Reno — overnighters staying in local hotels and dining at restaurants serving dishes other than the store’s gravy-soaked meatballs.

• Within the first year, West Sacramento received $1 million in sales-tax revenue from the store, amounting to 7 percent of the city’s overall sales-tax proceeds, said Kay Fenrich, chief executive of the West Sacramento Chamber of Commerce. The figure does not take into account revenue from stores that have since flocked to be near Ikea. “Before Ikea, we had no retail,” Fenrich said. “You had to cross the bridge for furniture, sheets, a dress, anything. Once Ikea made their announcement about opening here, the other big-boxes couldn’t scramble here fast enough.”

• Ikea cites Target and Wal-Mart as competitors, but retail experts say independent discount furniture stores could at least briefly say goodbye to as much as 25 percent of the customer traffic, said George Whalin, a San Diego retail consultant who grew up in Sacramento and followed Ikea’s opening there. “Ikea impacts everybody who serves consumers who want inexpensive furniture,” Whalin said. “There’s not anybody that’s immune.”

• “They’re killing us,” said Haide Critcher, who, with her husband, opened Big Al’s Furniture in the 1960s. The large warehouse store in Sacramento, like Ikea, offers affordable furniture that sometimes comes boxed for customers to assemble.

• “Ikea put West Sacramento on the map,” said Diane Richards, West Sacramento’s economic development coordinator. “Everyone thinks you’re so much more fun and exciting.”

These observations and quotes are revealing in many ways. First, they underscore why municipalities, especially in states with sales taxes, like big boxes — they generate more sales tax receipts. From the first big box, then from the subsequent big boxes that follow magnets like IKEA. But the question is at whose expense? If people are traveling from Reno and Redding, they are not spending their money in those communities and those cities lose tax revenue as a result. Oregon does not have a sales tax, but IKEA will surely pull in shoppers from the region’s smaller communities whose business base will suffer as a result.

Second, what happens to West Sacramento tax receipts when Reno and Redding (or some other nearby city) gains an IKEA or some similar trendy big box to stay competitive in the retail arms race, as they most certainly will?

Third, even though national big box retailers tend to see other national big boxes as their competitors, it’s the independent locally owned stores that take the brunt of the competitive hit, such as Big Al’s in nearby Sacramento. Cities across Americas now share a soul-killing homogeneity as their retail landscapes are littered with the same chains. Meanwhile, the big boxes fight it out over who can extract a larger share of local incomes (and ship it off to who knows where).

Fourth, what does it say about our society when the arrival of a retailer is seen as putting a community “on the map” and making it “much more fun and exciting”? Public officials in towns across America still equate suburban strip-mall retail development with economic development and, in the case of West Sacramento, raising a town’s self-esteem. I can only shake my head.