06-B PEDC Budget 2007-2008 - Laserfiche WebLink

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Lamar County - Paris Economic Development Plan Industrial Resource Centers, allows a given amount of public fmancing to support service to a larger number of fIrms. Another method is to facilitate the formation of industrial networks, as has been done by the Northern Economic Initiatives Corporation. Such groups of fIrms may share ideas on improving productivity, increasing exports, or improving worker training. By working simultaneously with a number of fIrms in an industrial network, a local economic development program can potentially have an enhanced effect on the local economy. Guiding Principle 13: Capital Pro2rams Run Exclusivelv bv Government Often Lead to Political and Manal!ement Difficulties. The experience of the Capital Access Program in Michigan suggests that there is a market for medium risk business fInancing that is not fully served by our existing fInancial system, and that can be served with appropriately designed government assistance. The loss rate on Michigan's Capital Access Program is currently running about 2.9 percent. This compares with a typical bank loss rate on small business loans of less than one percent. The higher loss rate on CAP loans strongly suggests that most if not all of the business borrowers under this program would not have received conventional bank fInancing. To fully justify the program, we would need to fInd social benefIts of this program, for example in expanded employment opportunities that justify the partial government subsidy under this program for the higher risk. Unfortunately, economic development programs that address gaps in capital markets are frequently run as direct government loan programs. Direct government involvement creates management diffIculties for government offIcials unaccustomed to making business loans. Moreover, offIcials making direct loans and investments face political pressures to make unsound loans to businesses with political connections. On the other hand, there may also be media and public pressure to avoid any loss whatsoever on the government's fInancing efforts. Thus, programs providing direct government fInancing for businesses are diffIcult to run in a high quality manner over the long-run. Economic development programs that encourage private financial institutions to address gaps in capital markets, such as the Capital Access Program, may make more sense. Guiding Principle 14: There is Some Evidence That Well-Staffed and Tar2eted Enterprise Zones Can Attract Jobs. but Enterprise Zones Have Inherent Limitations as an Approach to Providin2 Job Opportunities. The "enterprise zone" concept is a technique of geographically targeting economic development programs. Enterprise zones vary among states and cities in whether they emphasize tax breaks, infrastructure improvements, public services, or job training. What they have in common is that the subsidies are geographically pinpointed. There is some evidence that enterprise zones in Indiana have reduced unemployment claims, and in particular that the Evansville, Indiana enterprise zone has helped increase employment in the zone. Enterprise zone success seems greater in states that designate fewer zones. Enterprise zone success is associated with having greater staffIng effort to administer the zones. The apparent success ofIndiana's program may occur because Indiana's zones receive a percentage of the zone tax breaks to help support enterprise zone staff. The limitation of the enterprise zone concept is that neighborhoods are not labor markets. Enterprise zones may be an important community development strategy, improving the physical appearance and morale of distressed neighborhoods. But we would not expect, in our mobile, commuting society, that many of the new jobs in enterprise zones would go to zone residents. Paris Economic Development Corporation Page 52