Writing Assignment
chole
PA315Chapter8StudentPPT.pptxGovernment Business Relations PA 315
Chapter 8
1
Agenda
Economic growth
Economic development
Government methods for economic development
Financial methods
Non-financial methods
2
Government Methods for Economic Development
3
3
4
Definitions of Economic Growth
Common sense definition:
Economic growth is concerned with wealth enhancement, that is increases in financial value (or loss).
Classical definition
Economic growth is the increase in the value of goods and services produced by an economy.
It is conventionally measured as the percent rate of increase in real gross domestic product, or GDP.
4
Economic Growth & Quality of Life
Economic growth is a very important factor relate to quality of life in society, but it is not the sole important factor.
Other important factors:
Democracy equality
Equality under the law
Equal opportunity (e.g., for education, employment, etc.)
The environment,
Quality of public spaces, and so on.
5
Economic Development
Economic development refers to the concerted efforts of government, business, and communities to promote economic growth, as well as the overall economic and social well-being of people in a specific area.
6
Government and Economic Development
Government policies and actions of economic development
Overall policy framework to enhance market stability and sustainable growth (e.g., tax policies)
Economic policies and practices to enhance employment, increase the tax base, and improve people’s level of living (e.g., business retention practices)
Programs and projects that provide critical infrastructure and services (e.g., affordable housing programs)
7
How Does Government Help Pay for Economic Development?
8
Tax reduction (aka tax break): Financing Methods
Abatement
A partial reduction of the property tax liability of a given piece of real estate for a specified number of years
For new or rehabilitated industrial or commercial property, blighted property
Exemption
Freedom from the obligation to pay a particular tax
For purchases, investments, and activities other than real estate development, e.g. raw materials, machinery, equipment
Manufacturing and R&D Partial Sales and Use Tax Exemption – partial exemption from state3 sales (3.9%):
Engaged in research and development All manufacturers and businesses – physical, engineering, and life sciences
Still subject to local sales tax
California caps exemption to $200 million
Credit
A reduction in the tax bill
For job creation or research and development expenses
9
9
Financing Methods
Public borrowing (based on future income from the potential property tax)
IRB (industrial revenue bond): sponsored by a state or local government entity but the proceeds are directed to a private for profit business.
Bonds are issues on behalf of a private sector business and not government.
For specific projects - finance business’ expansion, construction or acquisition of manufacturing facilities and equipment.
Federal tax exempt status on the bonds, which provides a lower interest rate.
Most of the time, a property tax exemption on the collateral
Max $10m
10
10
Hesperia and Riverside
http://www.cityofhesperia.us/261/State-of-California-Industrial-Developme
https://www.rivcoeda.org/Economic-Development/Business-Services/Industrial-Development-Bonds
11
Municipal Bonds
What is a municipal bond?
12
12
Financing Methods
Public borrowing (based on future income from property tax) –
TIF (tax increment financing):using municipal bond issued based on the expected increase in property taxes that are collected by an economic development agency.
Project will be paid with potential future property taxes from the project in question
History of TIF – California 1950’s – federal government was offering substantial urban renewal grants to communities that could come up with matching funds. The assist cities in redeveloping their blighted areas.
Principle behind TIF – if money is infused into a specific area, this will cause assessed property values to increase more rapidly through development and property sales, which triggers a reassessment of their value and generates more money.
13
13
Financing Methods
Special taxes (earmarked for development), e.g.,
Hotel tax (Transient Occupancy Tax or Hotel Occupancy Tax) – California 7%-14%
Sin tax - is a tax levied to correct the negative externalities of a market activity –
Ex. Tax on producers who pollute to reduce pollution
Special sales tax – not common in California. Texas allows for up to 2% for local economic development
14
14
Financing Methods
General fund (other than tax breaks which are reductions from the general fund)
especially as the ultimate guarantor of investments
e.g., getting better rates through municipal bonds, less risk
providing insurance programs
e.g., flood insurance in coastal areas
improvements/services that promote development
e.g., new roads and other infrastructure, special programs to assist business such as training and education, etc.
seed money (one-time grants)
e.g., development revolving funds, loan of property for charitable purpose
15
15
Financing Methods
Public-private partnerships (joint ownership which enables larger projects, public land assembly powers, and/or public backing)
public pays part of the expenses for its portion of large projects through a variety of the above mechanisms
16
16
Why public private partnerships in California?
Need to move people and goods efficiently and safely
85% of the interstate freeways are congested
overdue repairs to our transportation system
Roads, bridges and trains are strained as 40% of the nation’s imports move through California to final destinations.
Cannot finance, manage and build transportation projects
Need for flexibility and entrepreneurial ideas in light of new accountability and oversight rules the Legislature has imposed to protect taxpayer funding
One approach with a track record of success in California is through public-private partnerships.
17
Rialto, California
The private partner on that project closed its debt and equity financing for $176 million in late-November 2012.
Aging water and wastewater systems and treatment facilities
Under the P3 agreement for Rialto’s water and wastewater systems and treatment facilities, the Public Utility Authority’s existing debt of $27.4 million was extinguished and Rialto received an upfront payment of $30 million from the private partner.
The private partner is paid by Rialto through a combination of monthly capital charges and operating payments. Rialto finances these payments through water and wastewater user fees and various non-rate revenues.
18
Financing Methods
Federal sources (programs funded by federal taxpayers), e.g.,
Community Development Block Grant (CDBG)
Housing rehabilitation, public works, and planning
Community Development Financial Institution
Helps distressed communities by providing federal $$
Technology Innovation Program (TIP)
Encourages government and business partners to cost share the early stages of innovation
Manufacturing Extension Partnership (MEP)
Assists in the creation of jobs, enhances productivity, and encourages competiveness through improvements and innovation
Compassion Capital Fund (CCF)
Supports local charities – job training, counseling, economic development
Job Opportunities for Low –Income Individuals (JOLI)
Supports local charities – low income individuals and families through the creation of business development and employment opportunities
19
19
Non-financial Methods to encourage economic development
20
Planning
The management process of thinking about and organizing the resources and activities in order achieve a desired outcome.
involve the critical stakeholders of the local community to establish the vision for development,
engage in public discussions,
reach consensus on goals to be achieved as well as plans in general.
21
Planning
For example:
City of Los Angeles Consolidated Planning Community Meeting
22
Zoning
The system of land-use regulation, which involves the practice of designating permitted use of land based on mapped zones separating one set of land uses from another.
Zoning regulations: e.g., acceptable activities, densities (low for single family housing and high for high rise apartments), building height, parking, etc.
Zoning for industrial or commercial use
Government also can allow for flexible zones and rules
Example – Redlands housing
23
24
Zoning for the city of Redlands
25
Marketing
Government promoting their jurisdictions as prime locations for business
Websites
Special events (e.g., Los Angeles County Fair, Riverside County Fair, San Bernardino County Fair)
Corporate executive visits
Trade shows (e.g., Expo 2015)
National advertisements
Letters to companies
Economic Development Directors – Cruz Esparza
26
Ombudsman Service
Service that assist firms to navigate the various government regulations, programs, and services
Resolving problems and complaints
Investigating commercial opportunities
Helping to identify and evaluate options
Recommending changes in policies or procedures
27
Eminent Domain
The inherent power of government to seize a private property or an individual’s rights to property with due monetary compensation, but without the owner's consent
28
What types of property are most vulnerable to eminent domain?
Almost any property can be taken for public projects – parks, schools, flood control channels, courthouses, bicycle paths, etc.
Most common are projects that include construction of new, and expansion of existing highways, major thoroughfares and light rail lines; erection of high voltage power line towers, or installation of interstate pipelines across wide swaths of rural land; expansion of city limits and related infrastructure; airports; and in some cases, public projects placed in blighted areas.
29
Who has the power of eminent domain?
States, counties, cities, transportation authorities, railroads, electric utilities; gas companies, water, school districts, housing authorities, certain non profit hospitals, and cemetery authorities
How does the process work?
First contact by letter by the condemning agency indicating their interest in your property
Pre-condemnation testing - conduct tests and studies to determine suitability for project
A written offer of just compensation along with an appraisal or summary of the value of the property. The offer cannot be lower than the amount of the appraisal and is based on fair market value of your property
Resolution of necessity establishes the public use and necessity of the project and how your property is needed
If you oppose or are not satisfied, a lawsuit can be filed
Pre judgment possession would allow at least 120 for the property to be taken
Final offers and demands are considered before the case goes to trial – settlement
Trial
Ellen Disparte vs. Redlands Unified School District
2005 – 83 year old Ellen Disparte was living on her 100 year old farm with roughly 200 animals
Redlands Unified School District wanted to build their 3rd high school in Redlands
Disparte’s farm sits in the middle of the planned campus
RUSD purchased all the surrounding properties
She refused to sell and fought back with the support of the community in Redlands
Offered 2.07 million through eminent domain
RUSD PR problem - Proposed location of future Citrus Valley High School would push Ellen Disparte off her century-old farm in Redlands.
Solution: Relocate Citrus Valley High School to nearby east Highland area
a.) Decreases current transportation dangers for Highland students
b.) Preserves quality of life for Mrs. Disparte
c.) Maintains Redlands? quality reputation
Ellen Disparte
She was given an opportunity to take her case to trial July 2006
October 2006 – Ellen and RUSD reached a settlement regarding the property
Agreement “effectively satisfies the needs and interests of both the Redlands Unified School District and Mrs. Ellen Disparte” (Heiss, 2006, p. 1).
She was allowed to remain in her home a the surrounding two acres and RUSD acquired the rest.
Superintendent stated, “We may be the only comprehensive high school in California with a feisty grandma living on a farm in the parking lot.” (Heiss, 2006, p. 1)
“Character, not circumstances, makes the man.” ~ Booker T. Washington
34
