What Economic Development Isn’t

By Dr. Frederick Steinmann

In my last blog, “What Economic Development Is”, I spent a great deal of time outlining different specific economic development efforts or strategies (economic development marketing and attraction, neighborhood and community development efforts, small business and entrepreneurial development efforts, workforce development and training efforts, technology transfer and technology-led development efforts, and real estate and land reuse development efforts) and different economic development goals (job creation, job retention, tax base enhancement, and quality of life).  I’d like to take this opportunity to talk briefly about what economic isn’t and more importantly, what economic development shouldn’t be.

In states like California, where either the voters or the state legislature have passed restrictions on the amount and types of revenue local governments can collect like 1978’s Proposition 13 in California, local governments often end up substituting true economic development efforts for “revenue development” projects and strategies.  In their 2005 book, “Guide to California Planning”, William Fulton and Paul Shigley go to great pains to demonstrate how local governments in California attempt to justify obviously non-economic development efforts, such as publicly subsidizing the development of big box retailers, auto dealerships, convention centers, and hotels, on economic development grounds.

According to Fulton and Shigley, “When crafting an economic development strategy, individual local governments are often hampered by their own geographical boundaries from doing anything useful in a broad economic sense”.  Given the very real geographical limitations that many local governments throughout California are forced to deal with and the mounting pressure to compete with other local governments for increasingly rare sources of new sale tax revenues to fund the public’s demand for an ever increasing amount of public services, Fulton and Shigley point out that local governments tend to focus instead on two “highly parochial goals” that are often passed off as the local government’s overall economic development plan.  These two “highly parochial goals” include:  1) drawing investment into distressed urban or rural areas that otherwise would not thrive, and 2) increasing the city’s tax revenue, rather than jobs or general economic growth.

In California, local governments have typically ended up “fiscalizing” their land use as a way of drawing investment into their own distressed urban and/or rural areas and as a way of increasing the amount of locally generated public revenue collected by the local jurisdiction.  As defined by Fulton and Shigley, local governments fiscalize their land use when “…cities and counties use their powers to encourage the sale or redevelopment of valuable property, and many communities zone vast tracts of land for tax-rich commercial and industrial development even though they are in dire need of more housing…” or other types of land use that would encourage more stable, long-term, local and regional levels of economic growth.

In some cases local governments, at least prior to the 1993 reforms of AB 1290, would place vast tracts of undeveloped, suburban land into newly formed redevelopment project areas in order to either capture the inevitable increase in new property tax revenue that would have occurred naturally once the undeveloped land was fully developed or for the purpose of using the redevelopment powers of tax increment financing to publicly subsidize the construction of new convention centers, hotels, auto dealerships, and large big box retailers.  Either way, local governments had historically used redevelopment to fiscalize existing land uses.

Prior to the 1993 AB 1290 reforms, local jurisdictions argued that the creation of new convention centers, hotels, auto dealerships, and even large big box retailers created jobs and turned un-used land into productive, economically viable developments.  But these types of development – convention centers or big box retailers – rarely create the mid to high paying and mid to high skill level jobs that offer individuals genuine opportunities for general upward mobility, all of which are basic and fundamental goals of a true economic development plan.

Fulton and Shigley further argue that, “This intense focus on tax revenue as economic development is the result of two things.  First is the general belief – valid until recently – that local governments in metropolitan California can take basic economic growth for granted.  Second is the scarcity of tax revenue collected by Proposition 13 and its tax-cutting offspring”.  Although local governments often tout the latest hotel development or the latest mega mall or the latest big box retail development as evidence of its ongoing commitment to local economic development, these types of development tend to satisfy the need local governments have to generate more locally collected tax revenue but ignore the more basic economic growth concerns.

Many cities and counties throughout the state of California have sought to use planning and economic development to pursue the short-term goal of maximizing the amount of locally generated tax revenue collected by local governments.  Very little consideration is given to either the types or quality of the jobs different types of development create.  This lack of consideration is compounded by the sad reality that local city and county governments in California spend little effort on the many other aspects of economic development.

More visible property-based approaches, such as real-estate driven and land reuse strategies, tend to dominate local government economic development efforts.  After all, can you even name a city or a county that has taken the time and invested the resources to develop a comprehensive technology-based and tech-transfer economic development strategy?  What about a proper small business and entrepreneurial-based development strategy?  Or how about a comprehensive economic development marketing and attraction strategy?  Even neighborhood and community  development efforts and workforce development and training based economic development strategies are hard to come by and are often left to local universities, community colleges, trade schools, and primary schools with little to no meaningful input volunteered by the local government.  Sure, there are some local governments that invested heavily in these non-property based economic development strategies.  But they tend to be the exception and not the rule.

Simply put, these less visible non-property based economic development strategies, despite their importance to creating long-term, stable, levels of local and regional economic growth, are simply ignored and replaced by the more visible property-based approaches that generate the maximum amount of new publicly collected tax revenues.  But even though convention centers and retailers are important parts of a local community’s efforts to stimulate long-term, stable, levels of local and regional economic growth, they are insufficient by themselves to get the job done.  Sure, they can generate a ton of new publicly collected and locally generated tax revenues.  But they offer little in terms of what they offer to the long-term economic health, vitality, and development of our local communities.

For local governments to get serious about their economic development efforts two things have to happen.  First, local governments need to start developing more balanced economic development approaches.  A balanced approach combines the use of property-based approaches (i.e. supporting the construction and development of new convention centers or new hotels) with the use of broader non-property based approaches (i.e. supporting the development of new research and development facilities that develop and market new technologies or even new methods of production and manufacturing).  A balanced economic development approach would also consider both short-term and long-term goals.  In the short-term, local governments need to generate and collect enough public tax revenues to support the public’s demand for various services.  But in the long-term, local governments need to ensure that new mid to high paying and mid to high level skill jobs that offer future generations meaningful opportunities for general upward mobility and improvement are routinely created within the local and/or regional economy.

Second, and this is really a topic for a future discussion, local governments need to start working together and start working regionally on wider regional economic development efforts with other local governments.  To be blunt, it absolutely astonishes me that in a relatively “small” geographic area like the Los Angeles-Long Beach Metropolitan Statistical Area (MSA), there are over two dozen separate local redevelopment agencies – each one pursuing the exact same set of strategies in the hope of attracting the exact same retailers and land uses.  Over the past 20 or so years, more and more of our local economic activity has become organized at the regional level.  If you are a business in Long Beach, do you really care if your customers come from Long Beach or Los Angeles or Manhattan Beach or Ontario or even Boston or New York City?  Of course you don’t.  All you really care about is that you have enough customers to remain profitable and in business.  But so much of our current economic development efforts are still rooted in 20th Century local approaches.  Although this aspect of what needs to change is unlikely to happen anytime soon, it’s time that we begin discussing our local economic development efforts using a regional economic context.

Dr. Steinmann’s next article will post on November 8, 2010.

Dr. Frederick Steinmann is currently the Managing Principal of his own firm, EDSolutions, LLC.  Dr. Steinmann began his professional economic development career with the Reno Redevelopment Agency in the City of Reno, Nevada.  Since then, Dr. Steinmann has worked for the Nevada Small Business Development Center, Bureau of Business and Economic Research (NSBDC-BBER), and as an intern for the Carson Economic Development Department in the City of Carson, California.  Frederick has also worked as an independent contractor for David Rosen Associates, one of the elite consulting firms in California specializing in redevelopment and affordable housing development.

Dr. Steinmann recently earned his Doctorate in Policy, Planning and Development from the University of Southern California.  Frederick completed and defended his dissertation, titled “The Twilight of the Local Redevelopment Era:  The Past, Present, and Future of Urban Revitalization and Urban Economic Development in Nevada and California”, in December, 2009.  Frederick is also a current and active member of the International Economic Development Council (IEDC) and the American Planning Association (APA).  Frederick also holds a Bachelors of Science (2002) and Masters of Science (2004) in Economics from the University of Nevada, Reno.


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