Balanced Incentives

CF_Sign.JPGBalanced Incentives: my next musings on Cedar Falls Business First (still looking for a better name). In this post, I want to refocus our incentives to support a broad-based approach to business creation, incubation and attraction. Grab a cup of coffee, energy drink or cocktail and let's sort this out together.

Setting the table

Economic development sets the foundation for our standard of living and quality of life. From the regulatory environment to business incentives, every level of government influences our economy for better or for worse. As a city, we want to attract workforce talent and investment. People are the source of ideas, masters of process, and enablers of creation. Investment represents an agglomeration of assets that converts materials and ideas into products and services of value. Local governments often believe they can create economic development out of incentives. This is mostly false. They can mildly influence deployment of regional capital, but few jobs or business are attracted out of thin air.

First, an indisputable fact. Government does not create jobs. It sets the legal framework by which we engage in commerce, it protects property (both tangible and intangible), it provides certain infrastructure to move goods and information. But government doesn't create jobs. Government can attract job creators by offering an environment that enables the flow of capital, ideas, and people that are compatible with a business objective. With that, lets talk incentives.

Government incentives are tricky business. They represent market interventions at taxpayer expense (and risk) and usually accrue to the benefit of large enterprises. I contend market variables such as supply, demand, pricing, input costs, proximity points, workforce, regulatory burdens, and others drive true economic development.  The biggest growth driver of the future will be the commercialization of innovation - new ideas that drive demand, known and unknown.FutureForwardCF.JPG

I want to explore a new, broad-based incentive approach that will leverage our greatest assets (tangible (data, energy, logistics) and intangible (work ethic, values, safety)) to steer us toward the emerging economy built on knowledge, innovation and value-creation. If we take a queue from our citizen-driven 2025 Vision plan, this means a community supportive of entrepreneurs and start-ups.

A New, Broad-based Incentive Approach

Government has an extremely limited role in incentivizing specific behavior. Rather, government is tasked to create an environment in which all businesses, of any size, have a chance to prosper.

The economy of the future will look much different than today. Safe to say, it probably will be much less asset intensive, more knowledge-based. That means preparing a future workforce that is nimble, adaptable, global. It means building a community that appeals to knowledge workers. Incentives will play an important role, but their design should change. Incentives should be broad-based and leverage our built-in assets.

There are three types of business:

  1. Start-up/new biz - incubation
  2. Small business - growth and economic gardening
  3. Middle to large business - established enterprises

We do a reasonable job with small(ish), middle, to large business support. Especially it support is defined by TIF incentives (incidentally, I had to cover TIF in a separate post or make this one too long!!): the Old Economic Development Toolbox).But the greatest measure of economic development is new business creation and attraction.

New Business Creation

New business creation is the true essence of economic development. The start-up thrives in a certain eco-system (in fact, existing CF_BusinessEcosystem.pngbusinesses thrive in the same ecosystem too). It needs the infrastructure, networks, culture, to attract risk takers and makers. In the start-up lexicon, there are leaders and feeders. The start-up community will be driven by the leaders - these are the entrepreneurs. The feeders support the leaders and include mentors, the city, business networks, schools, and more. I'm not trying to re-write the book here so I will focus on the city. As a feeder, the city supports it through policy, regulatory environment and even minor incentives. 

First, let's talk policy, or more specifically, regulation and planning. The city supports the community in its regulatory environment. I've started a thought thread on the regulation aspect: Code Cleanse. But policy is equally important. Which policies attract business risk-takers. A clue, it isn't prohibition. It is no surprise that creators and makers are flocking to states like Colorado and Washington which have relaxed views on prohibition and divisive social issues. Tolerance, inclusion, and openness goes a long way to support the eco-system.  I have invited the city to take action in this area, I will do it again. Lastly, the way we plan our city through land-use and zoning matters. Start-ups aren't looking for retail space in an old Hardees building. They want a sense of place, comfort and belonging. Our downtown is excellent, it is the current hub of new business creation. Be it a retail storefront or a growing technology company on the second floor... coffee shops, entertainment, and events matter. It is also the location of the city's first privately run co-working and incubation space, Red Cedar at Millrace. I'll chat about policy and planning in another post (this is about incentives after all!).

Second, incentives can and will play a role. TIF districts could fund our start-up incentives for decades (a dollar to a start-up is like a 1,000 to an existing enterprise). The greatest incentive is one that reduces risk (expense) or supports the start-ups quality of life. Here are some thoughts:

  • 'Free' internet or utilities - qualified (i.e. data-intensive) start-ups should be eligible (perhaps with growing payroll criteria)
  • 'Free' rec passes (or other wellness program) - 1-year voucher for new employees of growing start-ups
  • 'Free' bike share - leverage UNI's program to enable low-cost transportation
  • Co-working space vouchers: again, qualified for target tenants
  • Collateralize loans - low-cost borrowing (with collateral) and other oversight
  • Subsidized subscription to Cedar Valley Makers Space
  • CoderDojo: support code development (or other non-school program) for workforce skills development
  • Event sponsorship: start-up events or other community activity

This is just a quick brainstorm, of course qualifications and exclusions apply, this is a targeting activity after all. But this type of sponsorship will cost far less than developing farmland for acre of giveaway. In fact, nothing is really free and the cost of incentives should be reimbursed by the TIF district to CFU, the Recreation Center or otherwise for a full and proper accounting (and it is like Peter paying Paul, we might as well pay our city first!).

Existing Business Attraction: 

ConnectHere350px.jpg

First, we need to do some real economic targeting based on our assets: data, energy, water, office/plant productivity, University, commodity processing.

I'm convinced, we (greatly assisted by the Cedar Valley Alliance) are doing a great job marketing our lightning fast data, low-cost energy, excellent logistics and abundant water. Business attraction is difficult, and the GVCA is making it happen especially with the Connect Here initiative.

UNI.jpg

Consider our University. What are UNI's greatest programming strengths? Accounting and education come to mind. Perhaps we should design a program to attract existing and incubate new companies that take advantage of our leading educational programs - accounting, education. Why doesn't Cedar Falls have satellite locations for the big accounting firms? Why are we largely left out of the large financial and risk management service sector centered around Des Moines? Why don't we have firms leveraging UNI's College of Education building teaching software, learning software, instructional consulting, remote schooling, scholastic evaluation firms? Where are the firms that use commodities like corn and soybeans? These products are abundant in our area, but I count few wet milling plants, oilseed processing facilities, animal feed, cereal processing, and all the possible by-products. Our programs and incentives need to align to these firms. And for incentive, perhaps we need to boost the soft package (the free stuff) as an incentive differentiation.

In Closing 

Cedar Falls has done a remarkable job using TIF compared to our regional peers to build out our middle to large businesses, we've attracted a few new ones too. But Iowa City/Cedar Rapids, Des Moines and Ames are the winning the new business creation battle. We need to balance our economic development programs to support existing while creating an ecosystem that supports organic business creation. Many cities have witnessed rapid decline because of legacy business decline. Many more cities identified their built-in assets and rebuilt their cities with new ideas and business innovation. Cedar Falls has the assets, we just need to seize the moment.


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