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06-B PEDC Budget 2007-2008 DRAFT RESOLUTION NO. f:attorney\reswork\current\PEDC Budgert Appr 2007-2008 August 21, 2007 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PARIS, TEXAS, ACCEPTING AND APPROVING THE PARIS ECONOMIC DEVELOPMENT CORPORATION BUDGET FOR THE FISCAL YEAR OCTOBER 1,2007, TO SEPTEMBER 30, 2008; MAKING OTHER FINDINGS AND PROVISIONS RELATED TO THE SUBJECT; AND PROVIDING AN EFFECTIVE DATE. WHEREAS, the Paris Economic Development Corporation has presented its budget for the fiscal year beginning October 1,2007, and ending September 30,2008; and, WHEREAS, it is appropriate that said budget, attached hereto as Exhibit A, be accepted and approved; NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PARIS, TEXAS: Section 1. That the findings set out in the preamble to this resolution are hereby in all things approved. Section 2. That the proposed budget for the Paris Economic Development Corporation, for the fiscal year beginning October 1,2007 and ending September 30,2008 be, and the same is hereby, accepted and approved. Section 3. That this resolution shall be effective from and after its date of passage. PASSED AND APPROVED this 27th day of August, 2007. Jesse James Freelen, Mayor ATTEST: Janice Ellis, City Clerk APPROVED AS TO FORM: W. Kent McIlyar, City Attorney p R I S Paris Economic Development Corporation Paris Economic Development Budget Overview Prepared for the City of Paris, Texas By Pete Kampfer, PEDe In the 1980's the Texas State Agency for Economic Development operated with a budget of $1.5 million annually. Today the economic development corporations in Texas, supported by the sales tax, spend more than $300 million a year on economic development. The economic development function is no longer driven solely by the smoke stack chaser with an incentive package in hand. The cookie cutter presentation is no longer good enough; each development opportunity must be considered on an individual basis considering what is right for the industry and what is right for the community. To compete in today's industrial revolution we must be constantly innovative to address new productivity potential in a global economy. Paris has a great history of pro- active leadership in economic development going back to working with railroads, the utility companies and now the economic development corporation. Paris and Lamar County have the potential to have a steady economic growth over the next decade (l.5%/year) if we maintain an open mind, are prepared with necessary infrastructure (water, sewer, streets and highways, electricity, and broad band communications), provide necessary dollars and a pro-active leadership. Nationwide we are facing a shrinking pool oflabor while Texas and Paris have an available labor force that can be a location advantage and a potential for growth. The key to utilizing this advantage will be in education. Can we train this potential workforce to meet the jobs of tomorrow? Business should have a major interest in education, primarily because of what business and industry are spending to prepare the workforce. The Paris Economic Development Corporation (PEDC) will continue to be the focal point for the development of Paris but we must continually work to be innovative in what we do. The PEDC Strategic Plan develops specific actions and programs that take advantage of Paris' strengths and mitigate weaknesses in order to accomplish the Council's charge. It focuses the activities of the PEDC by concentrating on those programs that have the best chance of succeeding. The Strategic Plan involves the process of: · Establishing goals and objectives; · Concentrating on limited issues; · Developing general policy recommendations; and · Implementing specific actions. Integral to the process of selecting goals and objectives is the acknowledgment that there are restraints on the program and activities selected for inclusion. Besides the legal restrictions that dictate how the sales tax revenues can be spent, there is the reality that to be successful the efforts of the Corporation must be targeted. The PEDC Strategic Plan is founded on the retention, expansion, and attraction of industrial/manufacturing activity. This economic sector offers Paris the best potential to expand and diversify its economic base, thereby creating and upgrading job opportunities and the Paris quality of life. The development and attraction of primary employers performing value-adding services and drawing new dollars from outside the immediate, limited confines of the Paris market will best accomplish this long-term objective. The long term commitment to economic development will be focused in the following areas: · The retention and expansion of existing industry. · The marketing of Paris to recruit new industry. · The coordination and cooperation of all Paris entities to encourage the entrepreneurial spirit for start-up business and small business development. · The development of the community's infrastructure and training to support industry. Attached here is the PEDe Strategic Plan reflecting the above long term objectives and the Budget to implement the Plan for your consideration. Best Regards, Pete Kampfer Executive Director, PEDC PARIS ECONOMIC DEVELOPMENT CORPORATION Revenue Statement 2007-2008 Anticipated Cash Position 9/30/07 (These funds will be carried over to 2006/07 budget) Revenue 2007-2008: Estimated Sales Tax Estimated Interest Paris Packaging Payments Total Current Revenue $1,062,500 20,000 384,000 Total Resources Committed Funds: Bond Debt Payments C-Tech Loan Payments Ind. Park Loan Payments Chamber of Commerce 387,000 181,568 226,500 297,740 Total Commitment of Existing Funds 1,092,808 Available Funds For Projects 2007-2008 $1,373,692 Long Term Obligations (as of 9-30-07): Bonds Payable (over 11 years) C-Tech Debt Payable (over 10 months) Ind. Park Debt Payable - est. (over 2 years) Total Long Term Obligations $1,000,000 1,466,500 2,466,500 2,578,000 181,568 480,942 $3,240,510 PARIS ECONOMIC DEVELOPMENT CORPORATION 2007 -2008 BUDGET ACCT. BUDGET PROJECTED BUDGET # DESCRIPTION 2006-07 2006-07 2007 -08 0001 New Industry Projects 645,240 35,000 686,846 C-Tech $1,000,000 Debt 219,638 219,638 181,568 Industrial Park 0 0 0 Industrial Park Debt 226,500 226,500 226,500 TCIM 0 0 0 Texas One Program 5,000 5,000 0 0002 Existing Industry Projects 645,239 0 686,846 Paris Packaging 387,000 387,000 387,000 Hearne St. Extension 0 0 0 Campbell's Training 50,000 50,000 0 We Pack 0 0 0 SUB TOTAL I 2,178,617 923,138 2,168,760 1001 Office Equipment 3,000 6,800 3,000 0201 Office Supplies 4,000 7,500 6,000 0202 Postage 6,000 3,000 6,000 --------- -------------------------------------------------------------------------------------------------------------- SUB TOTAL I $13,000 I $17,300 I $15,000 0301 Communications 3,500 3,500 3,500 0305 Special Services Fees/Consultants 25,000 65,000 25,000 0306 Travel 20,000 25,000 25,000 0307 Subscriptions 1,000 1,000 1,000 0310 Miscellaneous 1,000 1,000 1,000 0311 Associations 3,000 4,100 4,100 0315 P romotionall Advertising 25,000 35,000 35,000 0349 City Services 0 0 0 0350 Compensation - Director 67,000 48,962 69,677 0351 Compensation - 2 clerical positiom 53,133 29,906 76,913 Director Auto I Bonus 0 13,500 16,500 Chamber Administration Fee 10,000 10,000 10,000 Utilities 0 5,000 10,000 Audit 3,750 5,050 5,050 SUB TOTAL $212,383 $247,017 $282,740 0610 Reference Materials I 0 ~I 0 0610-11 Contingency 0 0 --------- -------------------------------------------------------------------------------------------------------------- SUB TOTAL $0 $0 $0 TOTAL EXPENDITURES $2,404,000 $1,187,455 $2,466,500 ., _. ~ ~ ... -.' .~ ~ .- June 2007 To the Paris, Texas Community: Over the last thirty years, virtually every rural county in the United States not located on the Interstate Highway System has suffered economic decline. The rate of decline was typically very gradual. A small manufacturer would close one year, a year or two later another, some people would move away, a retail store would close, and on and on. Like erosion of soil, it was not recognized by community leaders until the economic problems became acute, when nothing would grow. After World War II, virtually every county in the United States grew economically. There was no memory or history of decline. As a result, community leaders in these areas either did not recognize the problem, or if they did, failed to take any action as they likely assumed it would simply restore itself. In Texas, there are 206 counties with a population smaller than Lamar County. Among these, 74 of them have fewer people living there today than in 1982. Over the last 20 years, Lamar County grew economically and in population. Additionally, the agricultural industry grew both in crop and livestock production. However, between 2000 and 2006, the county experienced a loss of 342 manufacturing jobs, 7% of the available jobs in this category. The year 2001 was a particularly hard year with the loss of 392 manufacturing jobs, 8% of the total available jobs in this category that year The long term prognosis for this area is not good. There is every indication Lamar County will now join the rest of the rural counties by falling into economic decline. This simply means there will be less money available for everything. Property values will likely decline and more people will have to move away. This is the likely scenario, unless the community decides to stop it from happening. This area is at a crossroads. It stands in time where most other rural counties stood twenty years ago. The advantage it has is having learned from their experiences what happens if a community does nothing about economic decline. The difference, many times, between a strong economy and one which is faltering, is "community leadership." Recently, I toured the Paris Junior College. During the tour it was pointed out to me that PJC was one of the first community colleges in Texas. Can you imagine the controversy within your community which surrounded the election when Paris residents voted to tax themselves for this progressive idea? I suspect there was more than one person who was against it. For a community Paris' size to have such foresight and leadership to cause one of the first community colleges to be built in Texas is admirable. In the Economic Development Plan created for Paris, I have identified a series of tasks and programs which need to be implemented to prevent future decline and to cause economic growth. I am sure you will fmd some of the ideas better than others. But the question before you now is simple. Do the residents of Paris have the will and leadership to fight to preserve your community, or will you simply do nothing and allow it to fade into the night? Having met so many nice people in Paris during my research, I am confident I know which choice you will make. Sincerely, Peter Kampfer Executive Director, PEDC Table of Contents Synopsis of Economic Development Plan - Five Year Goal Introduction What is a "Local Economy?" General Economic Development Plan Page 1 Page 6 Page 8 Page 9 Existing Industry Program Recruitment Program Start-Up Program Economic Development Organization Page 9 Page 10 Page 12 Page 14 Geographic - Economic Strengths and Weaknesses Page 16 Real Estate Labor Transportation Utilities Education Local Government Quality of Life Page 17 Page 21 Page 24 Page 26 Page 28 Page 31 Page 32 Community Education Page 33 Funding the Plan Page 34 Five Year Plan - Chart Page 36 Employer Incentive Program (Matrix) Page 40 Principles To Guide Paris Economic Development Policies Page 43 Lamar County - Paris Economic Development Plan Economic Development Plan - Synopsis Lamar County has had a history of growing economically over the years while most of the rural counties in the United States have been declining. While it has grown in size, the quality of the growth, relative to the standard of living of the people who live and work in the county may actually be on the decline. Lamar County and Paris may now face the same fate as most of rural America. Already suffering from the loss of manufacturing jobs, projections show the area will continue to decline economically over the next twenty years. Therefore.... It is the goal of the Paris community to diversify the local economy, cause it to grow in size, and significantly improve its quality over the next twenty years. · The Task: Over the next twenty years, Paris will create approximately 3,000 primary industry jobs. The wage for the jobs created should be about 120% of the county average wage in the year they are formed. This task shall be assigned to: Paris Economic Development Corporation (PEDC). To reach the long term goal a comprehensive economic development program needs to be initiated. Additionally, the community needs to create a portion of the new primary jobs as soon as possible to prevent the economy from declining. Therefore, over the next five years, goals for the community include: 1. Create approximately 500 new primary industry jobs. 2. Develop 500 acres of improved, approved industrial real estate. 3. Educate the community on the need for a comprehensive economic development program. Below are key issues and tasks vital to the achievement of the five year goal. A chart showing these issues and tasks appears at the end of this report. Goal # 1 - Create approximately 500 new primary industry jobs 1. The present economic development existing industry program will have to be expanded. A. The Task: Within the next six months, the PEDC will expand this program. This task shall be assigned to: PEDe. B. The Task: Within the next twelve months, all primary industry "type" businesses will be identified. Staff from PEDC will have confidential meetings with these businesses to determine what action the community can take to encourage more employment. This task shall be assigned to: PEDe. Paris Economic Development Corporation Page I Lamar County ~ Paris Economic Development Plan 2. The present economic development recruitment program will have to be expanded. A. The Task: Within twelve months, the PEDe staff will redesign the web site reflecting the format of the IEDC data standards. This task shall be assigned to: PEDe. B. The Task: Within two years, a recruitment plan will be created and the funding expanded. This task shall be assigned to: Economic Development Corporation cooperating with the Texas Economic Development Council. C. The Task: Within three years, an expanded recruitment program should be initiated, including employing a full time professional to implement the program. This task shall be assigned to: PEDC cooperating with the Texas Economic Development Council. 3. An economic development "Start-Up" program will have to be created. A. The Task: Within one year, a plan will be developed to create an economic development Start-Up Program which shall include identifying a funding source for the ownership of an incubator facility and the management costs of the program. This task shall be assigned to: A special taskforce created by the PEDe. B. The Task: Within two years the PEDC will begin to coordinate the acquisition of the incubator and implement the Start-Up Program. This task shall be assigned to: PEDe. C. The Task: Within two years, sources of venture or start-up capital should be identified. This task shall be assigned to: A special taskforce created by the PEDe. D. The Task: Within three years, the Start-Up Program will be fully operational including having a building, a relationship with a group to counsel the businesses, a relationship with the Paris Junior College, and a multi-county out-reach program. This task shall be assigned to: A special taskforce created by the PEDe. 4. In order to expand the existing economic development program, more funding is necessary. Paris Economic Development Corporation Page 2 Lamar County - Paris Economic Development Plan A. The Task: Within six months, propose and secure from the City an increased ED Budget to cover the increased costs of the expanded economic development program for the next three years. This task shall be assigned to: PEDC in cooperation with The City of Paris. 5. To be competitive in the economic development marketplace, a Business Incentives Program is needed. A. The Task: Within six months, the community shall re-establish criteria to determine the conditions under which a primary employer will receive an incentive to expand in or locate to Paris. This task shall be assigned to: PEDe. B. The Task: Within two years, the PEDC shall identify a source of funding for the costs of providing a comprehensive business incentives program such as worker training, grants, and loans. This task shall be assigned to: PEDe. Geographic - Economic issues influence the profitability of primary businesses, making these issues pertinent to a Business Incentives Program. The Paris community should reinforce its strengths and cure its weaknesses to become more competitive. 6. Most businesses looking to locate would prefer to lease or purchase an existing building which exactly meets their facility needs. A. The Task: Within one year, the community should create a "virtual building" and use it in its recruitment program. This task shall be assigned to: PEDC Marketing Staff B. The Task: Within two years, the community should design and construct a speculative building. This task shall be assigned to: PEDe. 7. The availability of a trained or trainable workforce is one of the most important issues to a company. A. The Task: Within two years, the community will develop a comprehensive worker training system which has the ability to create and fund customized training programs for qualified primary businesses. This task shall be assigned to: Paris Junior College. Paris Economic Development Corporation Page 3 Lamar County - Paris Economic Development Plan 8. A commercial airport, one which provides direct air service to major hubs, is essential to most businesses today. A. The Task: Within one year, the community will devise an ongoing plan to create more air traffic at Cox Field. This task shall be assigned to: The City of Paris. 9. High speed telecommunications capability will become even more important in the future. A. The Task: Within one year, the community will create a "Telecommunications Task Force" to evaluate the current telecommunications system in the area and devise a plan to create a "21 st Century" system in the future. This task shall be assigned to: A special taskforce created by the PEDe. 10. Institutions of higher education have been a catalyst for economic growth in many communities. A. The Task: Within one year, a special task force comprised of business, government, and educational leaders will investigate how other community colleges in the United States have interfaced with their community to enhance economic growth. The task force will then create a plan which interfaces with Paris Junior College in efforts to enhance the Paris economy. This task shall be assigned to: A special taskforce created by the PEDC and PJe. B. The Task: Within two years, the Paris business community, county & city government, and the PEDC will implement the plan recommended by the task force and form a partnership with the Paris Junior College to create long term programs to directly help to improve the economy of Paris. This task shall be assigned to: PEDe. 11. The "Business Climate" created by local government can have a positive or negative influence on the local economy. A. The Task: Within one year of employment, the PEDC Executive Director will prepare a report detailing issues created by the county and city government which have a positive or negative influence upon the primary employers in the county. This task shall be assigned to: PEDe. Paris Economic Development Corporation Page 4 Lamar County - Paris Economic Development Plan Goal # 2 - Develop 500 acres of improved, approved industrial real estate Economic development is ultimately a real estate transaction. The most important issue relative to the "site selection" process is having an actual site. 12. Under the following schedule, Paris shall develop and expand a multi-use "industrial park," 500 acres in size, which shall be marketed exclusively to qualified primary employers. A. The Task: Within one year, PEDC will purchase additional land and continue development of our existing industrial park. B. The Task: Within one year, the horizontal development ofthe Paris Industrial Park shall commence and criteria for the sale or lease of the land shall be established. This task shall be assigned to: A special taskforce created by the PEDe. Goal #3 - Educate the community on the need for a comprehensive economic development program 13. In order for Paris and Lamar County to be successful, the community must be united and supportive in this effort. 14. Few areas have been able to implement a successful economic development program without the support of the "community." A. The Task: Within three months of the adoption of the Plan, the community will be provided with a series of presentations regarding the need for and the content of the Plan. This task shall be assigned to: PEDe. B. The Task: On an annual basis, the community will be invited to participate in a gathering to discuss the status of Plan implementation. This task shall be assigned to: PEDe. Paris Economic Development Corporation Page 5 Lamar County - Paris Economic Development Plan Introduction In some communities... Local governments have the financial resources to provide not only police and fire departments, but also money to create parks and recreation programs, well- maintained streets and sewers, and necessary capital projects, even though taxes are low. Local government and community leaders spend time planning for a dynamic future, not burdened with how they will cope with the needs of the present. The downtown is clean, crisp, and vibrant, and is the center of community activity. Neighborhoods are safe, full of well-manicured lawns and homes, which are kept like new because of the pride the people have in their community. The corporate and business community is a generous giver to cultural projects and programs, which enlighten the residents. Most people have short commutes to their jobs, freeing hours of their day to spend time with their families and friends. Schools are well financed, filled with the top teachers and modem equipment, providing the community's children the best chance to prepare for a dynamic future. The best and brightest students come home after college to find good career jobs waiting for them, who in turn raise their families in their "home town," building generations within the community, adding to its social strength. In other communities... Local governments struggle financially to provide even the basic services, burdened with the cost of caring for the needy, the impoverished, the unemployed, and taxes are as high as the people can afford. The downtown lays dormant, full of vacant stores, which attract indigent occupants. Homes, with barred windows, stand in disrepair, with trash and broken down automobiles littering lawns full of tall grass. Churches and charities have little to give to the people except hope for a better future. Under-funded schools do their best to "fill the day" for the youth of the area as they have few resources to cope with the overcrowded and understaffed classrooms. The smartest youth must leave the area to find financial opportunity in another town. The difference between these two communities is the condition of their local economies. One is growing economically and is vibrant, the other declining and growing poorer. Communities cannot control the national or state economy. But they can create programs, which will enhance the condition oftheir local economy. Throughout the United States, thousands of communities have established economic development programs. Some are very aggressive, others passive in their effort. However, communities, which do nothing, are destined to endure a declining economy, causing the quality of life for their residents to erode, as they will gradually become poorer and poorer. Paris Economic Development Corporation Page 6 Lamar County - Paris Economic Development Plan Paris and Lamar County has had a history of growing economically over the years while most of the rural counties in the United States have been declining. While it has grown in size, the quality ofthe growth, relative to the standard of living of the people who live and work in the area, has been on actual decline for several years. Lamar County now faces the same fate as most of rural America. Already suffering from the loss of manufacturing jobs, projections show the area will continue to decline economically over the next twenty years. I However, these projections are based upon the assumption the community will not do anything to prevent it from happening. The Paris community has the opportunity to influence its "economic future." By creating an aggressive economic development program, it can keep the area from declining and cause it to grow, improving the standard of living for all. Pete Kampfer, Executive Director, PEDC (hereafter called Researcher) has been employed to create an Economic Development Plan for the City. Components of the Plan include not only this document, but also the following: · Historical, Comparative Economic Analysis of Paris which details the history of the economy, identifies its most important components, and compares the economy to the rest of the nation. · Business Incentives Program for Paris which describes various investments made by communities to assist in the expansion or relocation of primary businesses. · Target Industry Study which identifies the industrial sectors most likely to locate in Paris. The Plan was created by the Researcher after creating these studies. The Researcher met with four focus groups, comprised of more than 40 citizens, to gather their input regarding the nature of Paris and the need for a program. This Plan presents a series of issues regarding how to improve the economy. Following each issue is a recommendation by the Researcher as to what the community needs to do. Throughout the Plan, there is continuous reference to the Paris community. Economic development influences all businesses, all levels of local government, and virtually every resident in an area. There is no one person or organization which can cause an economic development program to be successful. All stakeholders need to be involved, hence the reference to the "community." I For a detailed description of the Lamar County economy, please consult the Lamar County Baseline Study. Paris Economic Development Corporation Page 7 Lamar County ~ Paris Economic Development Plan However, before the community can support improving a local economy, it first needs to know what one is.... What is a "Local Economy?" A local economy is a geographic area in which a preponderance of the population lives and works, earns and spends. The place of work is where the wealth is created; the place of residence is typically where the wealth is spent. Money flows into the local economy as a result of the activity of the "primary industries." Primary, or contributory industries, are those which sell their goods or services outside the geographic boundaries of the local economy, thus importing wealth to the area. The imported wealth or money is mixed and churned within the economy, circulating from business to business, person to person, until it is eventually consumed and leaves the area. A local economy will grow and expand, decline and fall, in direct proportion to the amount of wealth being imported to the area. A vast majority ofthe businesses, as well as their employees, depend upon the wealth being imported to the area by the primary industries. These are known as dependent or consumptive industries. Typically, for everyone primary job created, there are between two and three dependent jobs also created. The "quality" of a local economy, which determines the standard ofliving for the people who live and work in an area, is determined by the wages paid within the primary industries. For the most part, the average wages paid to workers employed in the dependent jobs will approach but rarely exceed the wages paid in the primary industry sectors. If the primary jobs are "low-wage," then the overall economy will be a low-wage economy. If the primary industries are high-wage, then the overall standard ofliving in the area will be pulled upward toward the "high-wage" level. Local economies with multiple (diversified) primary industries have the best chance of having a stable economy over an extended period of time. Typically, if one ofthe contributory industries declines, there are others which are still contributing, perhaps even growing, and thus preventing a significant economic decline in the area. Areas which depend upon one or two primary industries are in a precarious position. Should their main contributor fail, the entire economy will collapse. An area will grow in size by adding more primary industry jobs, which import more money into the economy. An area will grow in "quality" if a preponderance of the new primary jobs pays a wage higher than the area average. Paris Economic Development Corporation Page 8 Lamar County - Paris Economic Development Plan General Economic Development Plan It is the goal of the Paris community to diversify the local economy, cause it to grow in size, and significantly improve its quality over the next twenty years. In order to accomplish this, the county needs to have a net gain, from 2007 to 2027, of approximately 3,000 primary jobs. The wage for the jobs created should be about 120% of the county average wage in the year they are formed. Economic development is the activity which increases the size and improves the quality of a local economy through the formation of new primary industry jobs. The Paris community must initiate and fund an aggressive economic development program to prevent economic decline in the future. If the program is successful, the overall size of the economy will grow and its quality will improve. The community focus interviewed by the Researcher agreed. They were asked: "How aggressive should the Paris community be regarding its economic development program?" On a scale from I to 5, with I meaning "do nothing" and 5 meaning "very aggressive program," the participant response averaged 4.8 (very aggressive program). There are three basic programs which the community needs to implement. All are of equal importance and include: · Existing Industry Program - Expansion and Retention · Marketing - Recruitment Program · Start-Up Program - Entrepreneurial Development Due to Paris' geographic location, it is likely a large number of the new jobs which need to be created will be generated from the Existing Industry Program and the Start-Up Program. Existing Industry Program One of the most important yet least expensive economic development programs is the Existing Industry Program. The program is designed to retain and encourage the expansion of contributory businesses already present in the area. This is accomplished by reducing the cost of doing business and expanding the markets as much as possible for these companies. The more profitable a company is in the area the more likely the company will remain and expand in the community. Research has shown, aside from market conditions, the principal reason a company moves from one community to another is "local community attitude." Local community attitude encompasses a wide range of factors from local taxation, fees, and regulatory requirements. Paris Economic Development Corporation Page 9 Lamar County - Paris Economic Development Plan However, many times it simply is how the community treats the company when the company has a problem, which is caused locally. Persistent problems for a company, large or small, add costs and time to the operation of the company, which motivates the company to seek another location when it needs to expand or retool. The most important element of an Existing Industry Program is quality and confidential communication between the economic development organization and the employer. This communication leads to problem solving activity for the employer by the economic development organization. Recommendations: . For the first five years, the annual milestones are fairly modest for the number of net new contributory jobs necessary to be created in Paris to reach the economic goal. In the immediate future, most of the new jobs will be created from existing primary employers. The Paris Economic Development Corporation presently conducts a modest Existing Industry Program, due to staff constraints. This program needs to be expanded as soon a possible. When meeting with primary employers, the typical issue discussed is: "How can we help you, do you have any problems? The issue should now be: "What will it take to cause you to hire more workers?" Utilizing software and survey tools it has available, the Paris Economic Development Corporation needs to aggressively assist the companies as much as possible in this endeavor. . In the future, additional staff personnel will be needed for this program. The existing primary employers in the county are the best opportunity for the area to generate new jobs. As a result, significant emphasis needs to be placed on this program. The Task: Within the next six months, the PEDC Director will expand the Existing Industry Program. The Task: Within the next twelve months, all primary industry "type" businesses will be identified. Staff from the PEDC will have confidential meetings with these businesses to determine what action the community can take to encourage more employment. Recruitment Program A Recruitment Program is necessary to increase the number of contributory employers in Paris. This will improve the quality, increase the size, and add consistency to the local economy. Paris Economic Development Corporation Page 10 Lamar County - Paris Economic Development Plan The program should focus upon business entities, which are contributory in nature and will benefit from the geographic-economic assets of Paris and Lamar County. The specific activities of a Recruitment Program are very similar to those of a private company, which sells a product or service. There are three basic steps, which need to be taken by both: 1) Determine what you have to sell. 2) Identify who wants to buy it. 3) Establish a plan to contact and sell to the potential buyers. Most areas believe what they have to "sell" is a community. This is not the case. What an area has to sell is a geographic location, which has certain assets and characteristics, and which are conducive to profitability for a private company. A discussion regarding Paris' assets follows. After making an inventory of its assets and characteristics, a community should then determine what type of contributory businesses or industrial sectors can make the best use of them. A plan is then created to contact and sell the community to these companies. A Recruitment Program can be very expensive and time consuming. Visible results may not be seen for years after its initiation. The actual list of marketing activities for a Recruitment Program is very similar to that of a private company's marketing - sales program. The following is a list of some of the marketing activities which most community recruitment programs include: . Advertising in trade journals and industry magazines . Direct mail . Cold calling . Visitation program . Public Relations - Image Program . Attend trade shows of target industries · Attend association conferences of site selection professionals . Web Site . Develop a relationship with site selection consultants . Develop a relationship with commercial real estate brokers Paris should not anticipate hitting a home run with its recruitment program. A home run would be one large employer, hiring thousands of workers at high wages. A vast, vast majority of economic development projects involve businesses which will employ between 25 and 75 people. Annually, the Southern Economic Development Council publishes a list of "projects" completed by its members located in 17 southern states. In 2004, this list included about 480 projects. Only seven ofthem employed more than 500 people and only 20% employed more than 100 people. Paris Economic Development Corporation Page II Lamar County - Paris Economic Development Plan The Target Industry Study provides a group of business sectors upon which the area should focus its marketing effort. However, an aggressive recruitment program should not be initiated until the issue of attractive, available real estate is resolved. Recommendations: · The Paris Economic Development Corporation presently has a web site. A web site is vital as most site selectors conduct a vast majority of their initial research regarding communities on the internet. The web site is understandable and easily accessed. However, it lacks the specific data needed by site selectors and this should be corrected. The Economic Development Corporation should follow, as much as possible, the International Economic Development Council's "data standards." This format and its data standards have been developed by site selectors and they will look for information in this format. The data standards, which include approximately 1,200 data items, can be very onerous to complete and maintain. However, as much local information should be included as possible. · The marketing program, after the real estate issue is resolved, should be expanded significantly in the future. Direct focus should be placed upon the industrial sectors identified in the Target Industry Study. Additional staff will be needed in the future to assist with this program. The Task: Within twelve months, the economic development staff will redesign the web site reflecting the format of the IEDC data standards. The Task: Within one year, an expanded marketing plan will be created. The Task: Within two years, an expanded recruitment program should be initiated, including a full-time professional employee to implement the program. Start-Up Program Nurturing home grown companies, which are contributory in nature, is becoming more and more popular throughout the United States. Understanding Microsoft was once a "start-up" company; communities are placing greater and greater emphasis on "growing their own" economy. A business start-up program under the Economic Development Corporation is not a general "business assistance program" popular in most communities, which is designed to help a person start any kind of business. The Small Business Administration, local community college, and even the Chamber of Commerce many times have programs which guide a person in establishing general businesses from a travel agency, to a plumbing supply store, to a small restaurant. Paris Economic Development Corporation Page 12 Lamar County - Paris Economic Development Plan An economic development program is concerned with creating new companies which, when they evolve, will be contributory in nature. They will eventually sell their products or services outside the area and will not be dependent upon the local economy. They will import wealth to the area. There are several elements relating to a "Start-Up" program. Facility or Incubator The most important feature is to have a facility in which a company is formed and a product or service is developed. The space provided to a company is usually relatively small, 500 to 2,000 square feet, and the tenants typically share equipment and machines. It is in the incubator that the company develops its products or service, determines the market, and raises the capital to create the business. The rent to the company can be subsidized; however, the trend is not to reduce rent, but to provide other services. Quality Counseling Many great ideas never find their way to the market place as the individual has no idea how to do it. Additionally, most "ideas" are not great, and have no market potential. One of the most important features of successful start-up programs is the advice and counsel by individuals with experience on how to take a new idea and cause a company to be created. The counseling involves examining the marketability of the product or process, running patient searches, teaching the principles of how to run a business, and explaining how to be an "entrepreneur." University Relationship Typically the most successful Start-Up programs are in communities which have a relationship with a university or junior college. The new company is able to interface with experts in the field the company is pursuing, accessing the latest technology and ideas. Many universities will partner with the incubator start up program, allowing access to equipment and student assistants. Venture Capital In order for the company to begin in the incubator or to expand outside, venture capital or business financing needs to be available. Recommendations: Long term economic growth for most rural areas will be dependent upon the expansion of its existing industry and the creation oflocally grown industries. As a result, Paris needs to have an active, professionally managed start up program. The community needs to complete the following: . Secure funding for the purchase of an existing or the construction of a new 10,000 square foot building which will serve as an "incubator." Paris Economic Development Corporation Page 13 Lamar County - Paris Economic Development Plan · Seek out an organization which can provide the services and counseling necessary to assist the potential companies. Preferably, this service can be provided by PJc. However, a private company might have to be employed. · The Paris Junior College should discover means to step into the shoes of a typical university regarding this program. This includes having facilities available along with academic resources. The current curriculum is not as comprehensive as a four year university with research activity, but the community college is the only higher education program available. Therefore, it needs to find ways to assist the start-up companies as much as possible. · After the preceding steps have been completed, the Paris Economic Development Corporation should create an outreach program, informing not only Paris, but all surrounding counties that the program is available. Additional staff will be needed to implement this program. The Task: Within one year, a plan will be developed to create an economic development Start- Up Program which shall include identifying a funding source for the ownership of an incubator facility and the management costs of the program. The Task: Within two years the economic development organization will employ an individual who will coordinate the acquisition ofthe incubator and implement the Start-Up Program. This individual will also coordinate the Existing Industry Program. The Task: Within two years, sources of venture or start-up capital should be identified. The Task: Within Three years, the Start-Up Program will be fully operational including having a building, a relationship with a group to counsel the businesses, a relationship with the community college, and a multi-county out-reach program. Economic Development Organization Presently, the economic development program is being implemented by the Paris Economic Development Corporation. It has contracted with the Lamar County Chamber of Commerce to conduct the day-to-day operations. The Executive Director of the PEDC conducts most of the economic development activity. However, his ability to succeed is limited as one person simply cannot do it all. The economic development program is under budgeted at the present time. In order to have a comprehensive program, (Existing, Recruitment, and Start-Up) the issues identified in this Plan will have to be addressed and implemented. As a result, the current staffing and funding for the organization will have to be increased. Additionally, the Business Incentives Program needs to be expanded and many of the geographic - economic weaknesses need to be addressed. Paris Economic Development Corporation Page 14 Lamar County - Paris Economic Development Plan Funding: Economic development organizations are funded in many ways throughout the United States. Some groups receive 100% of their funding from local government, others 100% from the private sector, and still others have a mix of both. The key to most successful programs, however, is having a dedicated or long term source of funding for the programs. Because having to raise money constantly drains staff resources, programs which are not adequately funded typically fail. Recommendation: The Paris community needs to make a long term commitment to economic develop by providing the necessary funding for the general operations of the program. The Task: Within six months, propose to the PEDC Board and City government an expanded economic development program for the next three years. Business Incentives: More and more communities have come to the realization that primary employers are the wealth generators for their communities. As a result, more and more are aggressively recruiting these businesses to their areas. An integral part of the process is offering financial incentives to these companies to defray the costs related to expanding in or locating to an area. A tax abatement program is in place for Paris, but this incentive is not always the most desired by a company. A separate descriptive narrative regarding incentives has been created for the Paris Economic Development Corporation recommending it create a Business Incentives Qualifying Program which is located at the end of this Plan. The Business Incentives Qualifying Program is a mathematical matrix that assists the community in determining what incentive should be offered to a company and under what conditions. Recommendations: To overcome the geographic - economic deficiencies of the county, the area must be aggressive regarding community investments or incentives. The incentives should be offered to new and existing companies. In addition to tax abatement, the community needs to have available: . Local money to pay for training. . A cash fund to pay for cash grants. · Control of the industrial property with the ability to discount the cost of the land. . A low interest loan pool for smaller companies. The Task: Within six months, the PEDC shall establish criteria that determine the conditions under which a primary employer will receive an incentive to expand in or locate to Paris. Paris Economic Development Corporation Page 15 Lamar County - Paris Economic Development Plan Geographic - Economic Strengths and Weaknesses. A primary employer sells its goods or services outside a local economy, importing money to the area. As a result, the company is not dependent upon the local marketplace and does not have to be located in the community. A retail store depends on the local market and the site selection criteria focus upon proximity to that market. Traffic counts, sign visibility, purchasing power of the customers and many other factors influence where a retail store would choose to locate. What determines the location of a primary business is a series of geographic - economic factors. The importance of each issue varies among industry sectors. The geo-economic issues determine if a company will be profitable being located in a particular area. Communities which are very strong in most or all of the factors have the best chance to have a strong economy. Those which are weak have to find ways to overcome this disadvantage. The following is a lengthy list of geographic - economic issues. For each, the Researcher has graded Paris based upon the following scale. Strength - Weakness Very Somewhat Average Somewhat Very Strong Strong Weak Weak 5 4 3 2 1 As previously mentioned, the Researcher met with focus groups to gain community input. Participants in the focus groups were asked to grade Paris on the same issues. For each issue, the community grade is provided. The reason the Researcher asked for this input was to measure the "impression" the community had toward the strength or weakness of the issue. The typical citizen is not expected to have a working knowledge of the nature of these issues, and in some cases, the Researcher and the community do not agree. The grades reflect the relative strength of the issue, with 5 being the strongest. After a discussion regarding the issue, the Researcher makes a recommendation for action by the community. Paris Economic Development Corporation Page 16 Lamar County - Paris Economic Development Plan Real Estate There are two basic issues regarding real estate which relate to economic development. The first is the availability of sites or buildings for existing or new primary employers to occupy. The second is housing for the employees of companies expanding or locating to the area. Real Estate RESEARCHER Community Cost - Availability of industrial sites. 2.5 3.4 Cost - Availability of existing buildings. 2.0 3.1 Cost - Availability of housing for hourly workers. 4.5 4 Cost - Availability of housing for executives. 4 4 Industrial Sites: The most important issue relative to economic development is the availability of "improved, approved" real estate upon which a company can construct a facility. Without having a site, a company (new or existing) cannot construct a facility for which it will hire its employees. "Improved" means the horizontal infrastructure is in place at the site. Basically the land is "building ready." "Approved" means all zoning issues, which would enable the company to begin construction, have been enacted by local government. The lack of either improved or approved designation places a cloud of uncertainty on the property and companies will not consider the land as "available" for their purposes. Communities which do not have a supply of industrial real estate have little hope of improving their economy. Not only is the availability of industrial real estate important, but also is its cost. Communities which have a limited supply of expensive property are at a competitive disadvantage with areas which have comparable locations at a lower price. Communities which have an abundant supply of inexpensive real estate have the greatest competitive advantage. It is not an accident the strongest local economies have an abundant supply of properties. The Reno-Sparks area, one of the fastest growing economies, has a 5,000 acre park. The Raleigh- Durham North Carolina area, one ofthe best economies in the nation, built itself upon the 7,000 acre Research Triangle Industrial Park. The economic development organization in Amarillo, a direct competitor of Paris, has the financial resources to purchase and develop "as much land as they need." Paris Economic Development Corporation Page 17 Lamar County - Paris Economic Development Plan The issue of real estate is so important, that today, more than 70% of the counties in the United States which have economic development programs have "community or government owned industrial parks." Presently, Paris has a limited supply of property. To reach the economic goal set forth of3000 primary industry jobs, 500 net usable acres will be needed over the next twenty years. To be successful, the community not only needs to have the land available but it also needs to control the property, relative to price and use. Recommendation: Paris must create an abundant supply of inexpensive, improved, approved industrial real estate which it can offer to primary employers under favorable terms and conditions. The Task: Within two years, the PEDC shall purchase and develop a multi-use "industrial park," 500 acres in size, which shall be marketed exclusively to qualified primary employers. · Within one year, PEDC will purchase additional land and continue development of our existing industrial park. · Within one year, the horizontal development of the industrial park shall commence and criteria for the sale or lease of the land shall be established. Existing Buildings: Most businesses looking to locate would prefer to lease or purchase an existing building which exactly meets their facility needs. The reasons include: 1) the facility cost is certain (as opposed to uncertain construction costs), 2) there typically are not any zoning or community issues to confront, and 3) the time necessary to begin production is truncated significantly compared to constructing a facility. The most desirable situation for a community is to have a plethora of modern, existing buildings available which meet the specific structural needs of a business and are ready for occupancy on the desired date. Few, if any, communities in the United States are in this position. Between 1988 and 1992, there was a collapse of the commercial, industrial marketplace. As a result of overbuilding, millions of square feet of new industrial and office space were available for immediate occupancy at depressed prices. This space has since been absorbed and commercial developers are reluctant to construct speculative product. After the "dot-com" boom busted in California and Oregon, there was and still is an abundant supply of modern office - high tech buildings available. However, on a national basis few communities have vacant, modern buildings which have been constructed in the last ten years that specifically meet the needs of most industrial users. Communities which have constructed speculative buildings, however, have a competitive advantage. Paris Economic Development Corporation Page 18 Lamar County - Paris Economic Development Plan Prior to constructing a speculative building, a community must fully understand its potential market in order to design a marketable structure. The potential market is determined by the type of existing primary employers located in the area. Paris has a handful of existing, vacant structures. However, they are aged and are likely not suitable for most potential companies. On the short term, Paris should not consider constructing a speculative building. Since Paris has few non food processing primary employers, the marketplace for such a speculative building cannot be determined. Funds which might be used for a speculative structure are better allocated for other activities described in this plan. Since the important features of an existing building are a shortened time frame for the business to occupy the facility, along with known costs, an alternative to constructing a speculative building is to "pre-design, site plan, and cost estimate" several types of facilities on several parcels of land. These are considered, in the economic development field, as "virtual buildings." Computer generated pictures are created and used as marketing tools. The virtual buildings are, in essence, pre-permitted by the government, expediting the approval process. The cost of the facility is "ball parked" giving the company an idea of how much the building will cost them in a given community. Recommendation: · The Paris Economic Development Corporation should review the facility needs of the companies which have made inquires over the last two or three years to determine the most frequent or desirable structure requested. When specific parcels of industrial property are building ready, a "virtual building" should be designed on one of the parcels which reflect the most marketable product. This should be used in the marketing program. · After several hundred acres of industrial property are available and after the initiation of the expanded marketing program, the community should construct a speculative building. The Task: Within one year, the community should create a "virtual building" and use it in its marketing program. The Task: Within two years, the community should design and construct a speculative building. Housing: Housing availability and the cost thereof influences the wages paid to workers and the ability to attract management to a community. Paris Economic Development Corporation Page 19 Lamar County ~ Paris Economic Development Plan In some areas, the cost of worker housing is so high companies are forced to pay wages which exceed market thresholds for their industry. As a result, the business must move from the area, outsource production, or go out of business. In many rural communities, there has never been a market demand for high quality executive housing. As a result, few are available. Executives resist when asked to consider locating to these communities, as the quality of the home in the rural area will be much lower than what they are accustomed to. Additionally, the executive is reluctant to build an "executive" home fearing a loss upon resale. From an examination of the Paris housing market, there appears to be a sufficient selection of housing for all income levels at a very reasonable price. To the surprise of the Researcher, there is a large supply of modem executive homes (2,500 to 4,000 square feet). This is unusual for a rural community and should be considered an advantage for Paris. Strategies to Meet Future Housing Challenges To meet housing challenges, a variety of housing strategies should be pursued. Those applicable to implementation efforts include: · Sponsoring and promoting urban density housing. New examples of successful, high-quality housing and mixed-use development must be created to demonstrate economic feasibility and encourage acceptability among the public. · Assembling and inventorying housing sites. Public/private land assembly agreements can facilitate the assembly ofland suitable for new housing to support employment districts. The public sector would enter into agreements with real estate brokers for the purpose of attaining listings, or option agreements for the sale and purchase of the parcels. Following the assembly, plans and bids could be solicited from homebuilders, based on specifications provided by sponsoring governments. · Maintaining quality neighborhoods. The study recommends a comprehensive property maintenance and code enforcement program. · Anchoring employment districts with public investment. Attractive, viable employment districts are critical to the county's economic future. A well developed strategy for planning and public investment for these districts is essential. · Facilitating neighborhood renewal near employment districts. Regulatory mechanisms that can promote and facilitate neighborhood renewal proximate to employment districts include flexible zoning as a redevelopment incentive; federal, state, and local financial incentive programs; and a more expansive use of community redevelopment area plans and tax increment financing. Paris Economic Development Corporation Page 20 Lamar County - Paris Economic Development Plan As Paris approaches build-out, the supply ofland designated to accommodate primary employers is shrinking. Without well-located land, the city cannot effectively compete in the race for a sound, strong economic future. To support a robust local economy, development efforts must focus on maintaining adequate real estate to meet the needs of primary employers and other uses that will benefit the community. The increased housing costs that accompany build-out represent a significant challenge to future economic prosperity. If a high quality oflife is to be maintained in Paris, these issues must be addressed through the deliberate creation of a variety of residential options, available to a range of income levels. This includes enabling the creation of housing in or near employment districts. Criteria should be established for locating residential uses in proximity to employers, to minimize conflicts between adjacent uses and to protect land suitable for primary employers from conversion to residential use. Recommendation: PEDC should coordinate improved housing development with the City of Paris Planning Commission and local industry representatives. Labor The issue of "labor," its availability, suitability (skills), reliability (work stoppages), and costs, is one of the most important issues influencing the site selection process. Labor RESEARCHER Community Current skill level of general workforce. 2.0 2.5 Training opportunities. 3.5 3.3 Labor - Management relations (work stoppages). 4 3.9 Current wage rates. 5.0 2.9 Labor availability. 4 2.9 Current Skill Level of General Workforce: The majority of the workers in Paris are employed in relatively low skilled positions in the retail, services, and food processing industries. The overall skill level of the workforce is medium low. This is a significant deterrent when trying to recruit higher wage employers which need higher skills. When a site seeker for a higher wage company sees this situation, then the availability of trainable or "under-employed" workers is considered. Under-employment is a situation when a worker has educational attainment, special training and/or physical skills in excess of what is needed for the workers current job. An area might have a large number of under-employed workers for several reasons. Paris Economic Development Corporation Page 21 Lamar County - Paris Economic Development Plan 1. A high wage employer closed or laid-off workers. The displaced workers accepted positions requiring lower skills at lower wages. 2. The area has excellent schools with high graduation rates but few employment opportunities requiring the education provided. The workers, wanting to remain in the community in which they grew up, accept "whatever" positions are available in the community. 3. The area is a "nice or exciting place to live" and as a result draws college graduates who accept lower paying jobs just so they can live in the area. From a review of the employment situation in Paris, it does not appear there are a large number of under-employed workers. The educational attainment of the general population in Paris is well below national norms for college graduates (Lamar - 9%, USA 15%), although high school graduate rates are significantly higher (Lamar - 33%, USA - 28%). Where the general skill level of the workforce is low, it will be difficult to recruit high wage, high skill employers to the area. Recommendation: No specific action can be taken at this time regarding this issue. Over an extended period of time, after the community adds "higher-wage, higher skilled jobs," the skill level will gradually improve. Training: Absent a trained workforce, employers require workers be trained in the specific tasks necessary to conduct the business. The availability of "training" is one of the most important issues relative to the community selection process. Typically, training is conducted by the local community college or vocational school. In some areas of the country, training facilities are not available. This places those communities in a competitive disadvantage. Not only is the availability of training programs needed, but the cost of the training of a local workforce is an important issue. More and more employers expect the community to bear the cost of preparing the workforce prior to hiring. The Paris Junior College has made a diligent attempt to be pro-active relative to training workers for local employers. The leadership of the school has demonstrated its willingness to customize programs to the needs of private business. Recommendation: The Paris Junior College should be prepared to expand specific training programs when required for primary employers. Funds should also be available from the community to pay for company training as an incentive to locate in the area. Paris Economic Development Corporation Page 22 Lamar County - Paris Economic Development Plan The Task: Within two years, the PEDC will develop a comprehensive worker training system which has the ability to create and fund customized training programs for qualified primary businesses. Labor - Management Relations: Of great concern to many production employers is the "reliability" of the workforce. In some areas of the United States, there is an extreme adversarial relationship between management and labor. This has caused frequent work disruptions (strikes) in the past. Communities which have had a history of management - labor problems are shunned by most employers. Paris does not have such an environment. Recommendation: There is no specific action the community needs to take regarding this issue relative to economic development. Currents Wage Rates: An employer, regardless of the skill level needed, will pay a wage relative to the marketplace. In high cost areas, an employer will likely have to pay a wage higher than the national average. For the same job in a lower cost area, the wages would be lower. The average earnings for a wage and salaried worker in Paris are 76% of the Texas average and 73% of the national average. This places Paris in a very competitive situation. The national average wage for a business which manufactures steel tanks and containers (NAICS 3324) is $46,600. It is reasonable to assume an employer in this industry would only have to pay 73% of this amount ifit operated in Paris. This is not a bad thing for Lamar County, as 73% of $46,600 is $34,018, which is slightly above the area average wage. Recommendations: There is no specific action the community needs to take regarding this issue relative to economic development. Labor Availability: The number of workers available for hire within a marketplace is of concern to employers. In very tight labor markets, when unemployment is extremely low, employers sometimes have difficulty finding enough workers with the proper skills to employ. Under this situation, employers usually have to pay a higher wage than normal to secure the workers needed. This principle applies to the general workforce. Primary industry employers typically pay a wage higher than the area average. As a result, these employers usually do not have a problem finding enough people who want to work for them. The problem is the "quality" of the worker. Paris Economic Development Corporation Page 23 Lamar County - Paris Economic Development Plan However, there is likely an abundance of available labor for higher paying jobs. If a potential employer placed an advertisement in the local newspaper, stating the business would pay $31,000 per year, the company would likely receive more than 3,000 applicants. Additionally, at that wage scale, workers would also be available from all of the surrounding counties. As previously mentioned, the problem Paris has relative to labor is the availability of trained or trainable labor; supply is not the issue. Recommendations: There is no specific action the community needs to take regarding this issue relative to economic development. Transportation Systems The cost of moving products and people has always been an important issue relative to economic growth, for the nation and communities. The cost of transporting products to market, via land, sea, and air, has always been one ofthe determining factors of most manufacturing businesses. Sometimes high transportation costs can be overcome by other geographic economic features of an area such a low taxes, utilities, and wage rates. Transportation Systems RESEARCHER Community Highway system external to area. 1.0 2.9 Roadway system internal - Commuting time 4.0 3.9 Railway 2.5 3 Commercial airport 3.5 3.5 Seaport - cargo/container 1.0 1.4 Motor carriers 4.0 3.7 Highway System External to Area: Virtually every rural area in the United States which does not have access to the Interstate Highway System and is not adjoined to a metropolitan area has been on economic decline for the last 10 to 30 years. Their remote location has been a deterrent to the expansion oftheir existing production employers and to the recruitment of new companies. Since Paris is not located near an Interstate Highway, it is placed in a significant competitive disadvantage with rural areas which have access. Served principally by two lane roads in all directions, it is a relatively remote location. Recommendation: Paris should continue its long term efforts to connect the county via a limited access four lane roadway west to Sherman on highway 82 or south to 1-30 on highway 24. Paris will also have to use business incentives to overcome this problem. Paris Economic Development Corporation Page 24 Lamar County - Paris Economic Development Plan Commuting Time: Traffic congestion in some metropolitan areas has caused workers to endure lengthy commutes to their worksite. Oftentimes the commute can be as long as one hour. Not only is this a "quality of life" issue for the employee, but employers begin to have trouble retaining their workforce when commuting times exceed 30 minutes. The Census Bureau determined the average commuting time in Paris to be 16 minutes in 2000. This is the lowest time the Researcher has discovered; the Texas and national average are both 25 minutes. Recommendation: There is no specific action the community needs to take regarding this issue relative to economic development. Railway: During the 1970's and 1980's, as a result of reduced market demand, many railroad companies abandoned rail lines and spurs in rural communities. The rights of way were sold or donated to the local government and the rails were sold for scrap metal. Paris is fortunate to continue to have rail service. Rail service is a market driven industry. Should a new employer need to ship via this method, the rail companies will likely accommodate the user. Recommendation: The Paris Economic Development Corporation should monitor the rail service availability. Direct communications should be made with the rail companies serving the area to discover if there are any issues that would reduce service to the area. Commercial Airport: Virtually every county in the United States has an "airport." A vast majority ofthese are general aviation facilities which serve the local recreational flyer. A commercial airport, one which provides direct jet air service to major hubs, is essential to most businesses today, as their employees need to travel to meet with customers, or customers need to travel to the business. Communities which have air cargo capability provide an additional service to many manufacturers which make high value, low bulk products. Communities which are not located within a 60 minute drive to a commercial airport are placed in a significant competitive disadvantage. An extremely large number of companies simply will not locate in an area which does not have a commercial airport. Paris has scheduled commercial air-freight service. Air service for Paris is one of the most important transportation assets the area has. Without it, the opportunity to expand the economy will be greatly diminished. Paris Economic Development Corporation Page 25 Lamar County - Paris Economic Development Plan Recommendation: Paris must make every effort to maintain the existing scheduled air service and to increase market demand for flights to Paris. One means to do this would be to expand the educational outreach program at the Paris Junior College. The Task: Within one year, the community will devise an ongoing plan to create more air traffic at Cox Field. Seaport: There is no seaport in Paris. Motor Carriers: Due to the large agricultural industry in the county, the area is served by several freight haulers. Recommendation: There is no specific action the community needs to take regarding this issue relative to economic development. Utilities: For many industries, "utilities" are an integral part of the production process. Communities which have an abundant supply of inexpensive energy and large volumes of water have a competitive advantage. Utilities RESEARCHER Community Electric power 2.0 3.0 Sanitary sewer 3.5 3.9 Potable water 4.0 3.7 Natural Gas 4.0 3.8 Telecommunications 4.0 3.6 Electric Power: Paris has sufficient electric power capacity to service heavy industry users. Businesses which use extremely large amounts of electricity in their process (electric fired steel mill) often seek a lower cost state such as Texas, and the cost in Paris is not competitive with surrounding states. More generation is needed to offset demand, and by cheaper means. Recently TXU discontinued the construction of several new coal fired plants in north Texas. Nuclear powered plants would now be a good alternative. Recommendation: PEDC needs to articulate and lobby this issue relative to economic development with area electrical generation companies. Paris Economic Development Corporation Page 26 Lamar County - Paris Economic Development Plan Sanitary Sewer: The ability to serve industrial sites with sanitary sewer is important. The first consideration is the removal ofthe human waste ofthe workers at the facility. Paris has the treatment capacity to meet this need if the sanitary lines are taken to the site. The second issue, however, is the capacity of the treatment plant to process industrial waste, principally water used in the process. Some companies, especially food processors, use large amounts of water, the volume of which exceeds the capacity of the local treatment plant. Recommendation: The County should cause sanitary sewer lines to be extended to future industrial sites. Future industrial sites will be determined after a discussion by community leaders on the best means to provide industrial property in the future. The planning for waste- water treatment capacity will be essential for industry recruitment and expansion. It may be necessary to plan a pre-waste water plant in our improved Paris Industrial Park. Potable Water: Paris has a sufficient supply and treatment capacity to service the population and the general needs of industry. However, due to the "rationing system" in Texas, there is an issue of the availability of large quantities of water for industrial purposes. This places the area in a competitive disadvantage for several high value food processors. Recommendations: When improving the Paris Industrial Park, which will be discussed later, the community should make every attempt to secure as great an allocation of water as possible via area lakes. Natural Gas: Paris has a sufficient supply of natural gas, which might be needed by industrial users. Recommendation: Aside from causing gas lines to be extended to new industrial areas, there is no specific action the community needs to take regarding this issue relative to economic development. Telecommunications: There are two issues regarding telecommunications. The first is the availability of broadband internet connection. This is available in the area and meets the needs of most businesses. The volume or capacity of broadband usage is likely limited, meaning there is likely insufficient access to accommodate a bulk user such as internet service provider, call center, or a corporate headquarters. Paris Economic Development Corporation Page 27 Lamar County - Paris Economic Development Plan However, high speed telecommunications capability will become even more important in the future and the area needs to continuously improve and expand its capabilities. Recommendation: Evaluate the present day system and capability and plan to expand it in the future. The Task: Within one year, the community will create a "Telecommunications Task Force" to evaluate the current telecommunications system in the area and devise a plan to create a "21 st Century" system in the future. Education: Education and training programs can be a significant catalyst for economic growth. Many of the strongest economies in the United States have used their educational resources to drive the development of their economies. Universities and community colleges serve to prepare and train the workforce. The quality ofthe local public school system sometimes influences the site selection program when a large number of executives are being asked to move to an area. Education RESEARCHER Community A. Four year and post graduate university 1.0 2.1 B. Technical- vocational school 2 3.5 C. Community college 3.5 4.3 D. Public school system - quality thereof 3.5 3.5 Four Year and Post Graduate University: Sometimes the presence of a four year university can be one of the most important tools to cause economic growth for an area. Universities with post graduate programs, especially those in new technology disciplines, can be one of the most important reasons a local economy grows. The words "can be" were used twice in the above paragraph. This is because in seven out of ten university towns the school has not caused economic growth unless there was an increase in enrollment. In most university towns, the school imports to the area a great deal of money. It therefore contributes to the economy. However, most schools do not grow unless the legislature allows them to. Therefore, their impact is "capped" pretty much in line with inflation. In a vast majority of the communities in which a university is located, the university does not have any interest in assisting the region in economic development. As a result, there is little if any economic growth as a result of its presence. Paris &onomic Development Corporation Page 28 Lamar County - Paris Economic Development Plan The exception to this is when the university becomes a partner with the community or region to improve the local economy. One of the specific missions of the institution is to "utilize the resources and talent of the university community to enhance the regional economy." This is accomplished by joining with the community's economic development program to provide academic resources to the local business community. There is no four year university in Paris. However, Texas A & M University does have an outreach program to assist businesses. Recommendation: Take advantage of any programs offered by Texas A & M University which will assist in expanding the local economy. Approach Texas A & M University with the idea of creating a counseling team which can assist in creating a "Start-Up" program for Lamar and other rural counties. Community College The Paris Junior College serves as the only institution of higher learning in the area. As a result, it is a very important asset. It also serves the dual purpose of being the vocational school for the area. The Jewelry Training Program is an interesting component of the school. It actually serves a Primary Industry function as it imports money to the area and increases air traffic at the airport. The leadership of the College is extremely interested in participating in economic development programs. This is good, as they will have to be very proactive in order for the community to be successful in improving the local economy. The College is going to have to step into the shoes of a four year university, providing as much as possible, academic resources and facilities to the primary employers in the area. Recommendations: . The Junior College should be prepared to offer customized, fast track training for businesses which are qualified by the Paris Economic Development Corporation. . The Junior College should attempt to create more programs like the Jewelry Training Program. Such programs add intellectual expertise to the community, increase air traffic, and give the community notoriety. . The Junior College should place itself in a position of direct assistance to the occupants of the Start-Up incubator, enabling them to access instructors, facilities, and student assistants. . The Junior College should direct future curriculum programs toward "new technology" disciplines. . The Junior College should provide direct assistance to the occupants of the Start-Up incubator, enabling them to access instructors, facilities, and student assistants. Paris Economic Development Corporation Page 29 Lamar County - Paris Economic Development Plan . The Junior College should consider allowing the business Start-Up incubator to be constructed on its campus. The Task: Within one year, a special task force comprised of business, government, and educational leaders will investigate how other community colleges in the United States have interfaced with their community to enhance economic growth. The task force will then create a plan which gives direction to the Paris Junior College on how to create new programs to enhance the economy. The Task: Within two years, the Paris business community, county & city government, and the economic development organization will implement the plan recommended by the task force and form a partnership with the Paris Junior College to create long term programs to directly help to improve the economy of Paris. Public School System The quality of the local public school system becomes an issue when a company is considering locating several management personnel to a community. If the system is poor, the company will experience resistance by these individuals if their children are presently attending a system of high caliber. Sometimes, the ability to transfer key personnel influences the site selection process. However, a community should not make improving the local school system an economic development issue. If the quality of the local schools is not as good as it should be, then they should be improved for the benefit of the children in the area. Yet there is a direct correlation between the quality of a local economy and the quality of the local schools. When an economy is growing, especially in quality, then the taxable base grows, enabling the school system to finance a better program. In declining economies, the financial resources are not available to pay for the top teachers or the most modern facilities. The quality of the Paris public schools is not being evaluated as an asset or liability for the economic development plan. However, if Paris economy grows in size and quality, there will be more money available to improve the local school system. Recommendation: There is no specific action the community needs to take regarding this issue relative to economic development. Local Government: Local government, including city, county, township, or regional organizations, plays an important role in influencing the local economy. Policies enacted locally can create an atmosphere conducive to economic growth. Economic development organizations in most of the strongest local economies have the complete cooperation oflocal government officials relative to creating a business friendly environment which enables profitability for primary employers. Paris Economic Development Corporation Page 30 Lamar County - Paris Economic Development Plan There is unfortunately a long list of communities which have fallen into economic decline as a result of the actions of local governments. Due to the promulgation of excessive regulations and punitive taxes, these areas have been losing their primary employers to communities which have a more favorable business climate. Local Government RESEARCHER Community Property taxes 4.0 3.0 Income taxes NA NA Fees and assessments 4.0 3.2 Business climate 3.5 3.2 Property Taxes Locally levied property taxes have a significant impact upon companies which have a large capital investment in their facility. Paris has a relatively high property tax rate and this will be an issue if Paris competes with communities in lower tax rate states such as Texas. Recommendation: Mechanisms need to be in place to abate or reduce the property taxes for qualified companies. Income Taxes Some cities, mostly in the Midwest, have enacted municipal income taxes. Since there is no locally levied income tax in Paris, this is a positive issue. Recommendation: There is no specific action the community needs to take regarding this issue relative to economic development. Fees and Assessments Locally levied fees and assessments have added significant costs to primary employers in some areas. Most of these communities are located in California, Florida, Oregon, and most of the states on the eastern seaboard. Many times the fees are enacted to create a new revenue source for local government. In lieu of increasing taxes on the voting residential population, the corporate community is mined for more money. Excessive fees and assessments are not an issue in Paris. Recommendation: The community should resist attempts by local government to add special fees, charges, assessments, or taxes against its primary employers. Business climate Paris Economic Development Corporation Page 31 Lamar County - Paris Economic Development Plan The overall business climate is a reflection of how cooperative local government is with its primary employers. In some communities, there is an adversarial relationship between government employees and the business sector. Some of this is caused by the "political philosophy" of the government worker, perhaps at the direction of elected officials. In today's political arena, it is not uncommon for a government worker to carry the position that "business is evil." In fact, along the eastern and western seaboards of this county, this attitude is pervasive. As a result, many communities have not only levied excessive fees and taxes upon the business sector as previously mentioned, but have manifested a regulatory climate so restrictive primary employers must literally move from the area. There will always be business people who will complain about local government, even in communities which are the most cooperative. However, research has shown the most frequent reason (aside from market conditions) a primary business will move from one community to another is how it has been treated over the years by the community. The community, in this case, is usually local government. Recommendation: The community should insist the city government be as cooperative as possible, within the limits ofthe law, with primary employers, including expediting their needs when necessary. The Task: Within one year of employment, the PEDC Executive Director will prepare a report detailing issues created by the county and city governments which have a positive or negative influence upon the primary employers in the county. Quality of Life: Quality of life in essence refers to the "livability" of an area. In this regard, beauty is in the eye of the beholder. The residents of virtually every community in the United States believe where they live is the best place to be. There is nothing wrong with this as community pride is very important. However, some communities indeed have more "amenities" than others. These might include more parks, better schools, walking paths, abundant recreation programs, museums, and other cultural facilities. In communities which do not have such amenities, if you asked the residents "would you like them" most would say yes. Then ask if they are willing to pay for them. The answer is usually no. Communities with the greatest amount of quality oflife amenities are usually those with the strongest economies. They have the parks and museums because there is more wealth in the area to pay for such things. The importance of "quality of life" issues relative to economic development has been overstated in recent years. Some economic development consultants have advocated that the "livability" of an area is the most important site selection criteria. It is not. A company must first consider all of the economic issues stated above prior to examining "quality of life" issues. If an area does Paris Economic Development Corporation Page 32 Lamar County - Paris Economic Development Plan not show itself to be a profitable location, all of the parks and museums in the world will not influence the decision to move to an area. As the Paris economy grows, there will be more wealth available to pay for more quality of life amenities. Recommendation: At the present time the community should resist using economic resources, which could go toward an economic development program, to create "quality of life" amenities. After the economy improves there will be financial resources available for such projects. Implementation of the Economic Development Plan Each program or issue previously described included recommendations and tasks which need to be considered or implemented. There are two issues, however, which will influence all ofthese issues: community support and funding for the programs. Community Support: Few areas have been able to implement a successful economic development program without the support of the "community." The term "economic development" is not understood by most people. When individuals do not understand something, they usually resist it. In order to be successful, The Paris community must support the program--politically and financially. As a result, the Paris Economic Development Corporation, in conjunction with all other stakeholders, needs to launch a community education program. The program should describe the implications of not working to improve the economy, how it will gradually decline, and its impact upon virtually every facet of the community. The Plan itself should be explained, why each program is needed, who will do it, and especially why it will cost what it does. Most important, the benefits of being successful should be thoroughly presented, along with the consequences of failure. Community education is vital in order to secure a dedicated funding source for the program. Recommendation: . Several presentations to the community regarding the need for and the content of the Plan should be given by the leadership of the community. At these presentations, representatives of all branches of government, the educational system, and the business community should be participants, demonstrating a unity of effort. Paris Economic Development Corporation Page 33 Lamar County - Paris Economic Development Plan · Copies of the Economic Development Plan and all support studies should be made available to the general public. · Community forums regarding the economy and the status of Plan implementation should be held on a regular basis. The Task: Within three months of the adoption of the Plan, the community will be provided with a series of presentations regarding the need for and the content of the Plan. The Task: On an annual basis, the community will be invited to participate in a gathering to discuss the status Plan implementation. Funding the Plan: It is a characteristic of the strongest economies in the United States to have active, well financed, and professionally managed economic development programs. In order for Paris to be successful, funding needs to be provided to finance the various elements of the Plan. The following chart provides a general pro forma budget for implementing all of the previously described programs. Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Economic DeveloDment Corn. Operations & Staff 324,500 356,950 392,645 431,910 475,100 522,610 574,872 Additional Marketing 85,000 95,000 105,000 115,000 125,000 135,000 145,000 Industrial Park Land Purchase 2,500,000 Infrastructure Development 2,000,000 1,000,000 500,000 Maintenance 50,000 55,000 60,000 65,000 70,000 75,000 80,000 ~ Purchase & Rehab Incubator 750,000 Incubator Maintenance 30,000 32,500 35,000 37,500 40,000 42,500 45,000 Consulting Company 25,000 27,500 30,000 32,500 35,000 37,500 40,000 Speculative Buildin9 1,000,000 1,000,000 Incentive Program Training 70,000 80,000 125,000 150,000 175,000 200,000 225,000 Grants 70,000 80,000 125,000 150,000 175,000 200,000 225,000 ~ ~~~~~~~ Total 3,954,500 2,776,950 1,922,645 2,031,910 1,645,100 2,262,610 1,384,872 Not shown is the income side ofthe program. The land at the industrial park will not necessarily be given away; most of it will be sold, albeit at a low price. Additionally, there will be rent paid on both the incubator and the speculative buildings. Recommendations: While there is always resistance by the public to increase taxes to pay for the general operations of government, the money generated from this tax will be a direct investment by the people to preserve and enhance their local economy. The return on their investment will be multifold. Paris Economic Development Corporation Page 34 Lamar County - Paris Economic Development Plan Virtually every business enterprise must routinely expend funds, that is, reinvest in itself, to modernize its operation and remain competitive. Manufacturers must purchase new equipment; software companies more powerful computers; and airlines better planes. A community is no different. Paris, more than ever, must invest in its future, or the future is in doubt. The funds generated by the tax will be legally restricted to be used to implement an economic development program. Specifically, the money would be used to fund: . The purchase and development of the industrial park . Training programs for primary employers . Other incentives, such as a property tax rebate program instead of an abatement program, low interest loan pool, cash grants . The business start-up program and incubator . The general operations of the economic development organization including the marketing program . Specific academic programs at the community college which are designed to enhance the local economy . Speculative buildings By providing an adequate flow of money through this investment, the community will have a very good chance of being successful in expanding Paris' economy and improving the standard ofliving for all who live and work in the area. The Task: A long term source of funding should be maintained. Conclusion Paris has the opportunity to direct its economic future. Unlike most rural communities which have suffered significant economic decline over the last 30 years, it still has the financial resources to initiate programs which alter its present downward trend and cause the economy to grow both in size and quality. This will improve the standard of living for all Paris residents as well as provide the financial resources necessary to afford many of the "quality of life" amenities desired by the people. However, improving the economy will not come about by accident. It will take a commitment by the entire community to implement an aggressive economic development program. Paris Economic Development Corporation Page 35 Lamar County - Paris Economic Development Plan Paris Economic Development Plan Five Year Goal Goal # 1: Create 500 new primary industry jobs. Task Completed By Completed When 1. The present economic development existing industry program will have to be expanded. B. Within the next twelve months, all primary industry "type" businesses will be identified. Staff from the economic development organization will have confidential PEDC June, 2008 meetings with these businesses to determine what action the conununity can take to encourage more employment. 2. The present economic development recruitment program will have to be expanded. A. Within twelve months, the economic development staff will redesign the web PEDC June, 2008 site reflecting the format of the IEDC data standards. B. Within one year, a recruitment plan will be created and funding expanded. PEDC June, 2008 C. Within two years, an expanded recruitment program should be initiated. PEDC June, 2009 3. An economic development "Start-Up" program will have to be created. A. Within one year, a plan will be developed to create an economic development Special Task Force June, 2008 Start-Up Program which shall include funding sources. B. Within two years the PEDC will begin to coordinate the acquisition of the PEDC June, 2009 incubator and implement the Start-Up Program. C. Within two years, sources of venture or start-up capital should be identified. Special Task Force June, 2009 D. Within three years, the Start-Up Program will be fully operational including Special Task Force, PEDC, having a building, a relationship with a group to counsel the businesses, a relationship PJC June, 2010 with the PJC, and a multi-county out-reach program. Paris Economic Development Corporation Page 36 Lamar County - Paris Economic Development Plan Task Completed By Completed When 4. In order to expand the existing economic development program, more funding is necessary. A. Within six months, an approved budget, which will cover the increased costs of the expanded economic development program for the next three years, shall be PEDC, City of Paris January, 2008 secured. 5. To be competitive in the economic development marketplace, a Business Incentives Program is needed. A. Within six months, the community shall establish criteria to determine the conditions under which a primary employer will receive an incentive to expand in or PEDC January, 2008 locate to Paris. 6. Most businesses looking to locate would prefer to lease or purchase an existing building which exactly meets their facility needs. A. Within one year, the community should create a "virtual building" and use it PEDC Marketing June, 2008 in its recruitment program. B. Within two years, the community should design and construct a speculative PEDC Marketing June, 2009 building. 7. The availability of a trained or trainable workforce is one of the most important issues to a company. A. Within two years, the community will develop a comprehensive worker training system which has the ability to create and fund customized training programs Paris Junior College June, 2009 for qualified primary businesses. 8. A commercial airport, one which provides direct jet air service to major hubs, is essential to most businesses today. A. Within one year, the community will devise an ongoing plan to create more PEDC, City of Paris June, 2008 air traffic at Cox Field. 9. High speed telecommunications capability will become even more important in the future. A. Within one year, the community will create a "Telecommunications Task Special Task Force created Force" to evaluate the current telecommunications system in the area and devise a plan by PEDC June, 2008 to create a "21 st Century" system in the future. Paris Economic Development Corporation Page 37 Lamar County - Paris Economic Development Plan Completed By Completed Task When 10. Institutions of higher education have been a catalyst for economic growth in many communities. A. Within one year, a special task force comprised of business, government, and educational leaders will investigate how other community colleges in the United States Special Task Force created June, 2008 have interfaced with their community to enhance economic growth. The task force by PJC and PEDC will then create a plan which gives direction to the Paris Junior College on how to create new programs to enhance the economy. B. Within two years, the Paris business community, county & city government, PEDC and PJC June, 2009 and the economic development organization will implement the plan recommended by the task force and form a partnership with the Paris Junior College to create long term programs to directly help to improve the economy of Paris. II. The "Business Climate" created by local government can have a positive or negative influence on the local economy. A. Within one year of employment, the PEDC Executive Director will prepare a report detailing issues created by the county and city government which have a PEDC, Existing Industry January, 2008 positive or negative influence upon the primary employers in the county. 12. In order for Paris to be successful, funding needs to be provided to finance the various elements of the Plan. A. For the first three years of the Plan, the City of Paris will fund the costs of the City of Paris January, 2010 expanded economic development program. B. Within two years, a special committee will identify long term sources of PEDC, Special Task Force June, 2009 funding for all the economic development programs. C. Beginning the fourth vear, long term sources of funding will be in place. Paris Community June, 2011 Paris Economic Development Corporation Page 38 Lamar County - Paris Economic Development Plan Goal # 2: Develop 500 acres of improved and approved industrial real estate. Task Completed By Completed When 13. Under the following schedule, Paris shall purchase and develop a multi-use A special task force created "Enterprise Park," 500 acres in size, which shall be marketed exclusively to qualified by the PEDC working with June, 2009 primary employers. the city. A. Within one year, the community will secure funding for the purchase and A special task force created by the PEDC working with June, 2008 development of a larger industrial park. the city. B. Within one year, the community will purchase the land for the park and begin A special task force created by the PEDC working with June, 2008 the approval process. the city. C. Within one year, the horizontal development of the industrial park shall A special task force created commence and criteria for the sale or lease of the land shall be established. by the PEDC working with June, 2008 the city. Goal # 3: Educate the community on the need for a comprehensive economic development program. Task Completed By Completed When 14. Within three months of the adoption of the Plan, the community will be provided with a series of presentations regarding the need for and the content of the PEDC September 2007 Plan. 15. On an annual basis, the community will be invited to participate in a gathering PEDC June, 2008 to discuss the status of Plan implementation. Paris Economic Development Corporation Page 39 Lamar County - Paris Economic Development Plan Employer Incentive Program Primary target industries are among the most desirable and sought after in the United States. Since there are a limited number of businesses that meet this profile, and since they contribute a significant amount of wealth to their local economies, many communities are offering financial incentives to attract and retain them. In order to compete in this marketplace, Paris will likewise have to offer various types of financial and non-financial inducements, such as expedited permitting, regulatory relief, low-interest loans, employee training, and property tax refunds, to qualified companies. Used wisely, competitive business incentives for companies creating high-wage jobs can act as a catalyst for economic development efforts, facilitate a pro-business climate, and ensure a trained and diversified workforce. It must be recognized, however, that without a dependable funding source and a workable implementation methodology, any incentive program will be ineffective. To ensure its effectiveness, local governments must consistently fund and implement the incentive program over time, which will require political leadership, a reliable source of funding, and an ongoing monitoring system. To assist with this process, an incentives matrix, or mathematical screening process that can be used to pre-qualify a company for particular incentives, has been created. Table I-I provides an example of criteria that could be used to determine what incentives should be offered. Each criterion evaluates a business characteristic that can be measured in numerical units, such as number of workers, dollars, square feet, or percentage points. For example, a company may anticipate creating 300 new jobs that will have an average salary of $47,000, be housed in a 100,000-square-foot building, and conduct business activity that is 100 percent primary in nature. Table 1-1 Example of Weighted Criteria to be Used in the Incentives Matrix Primary employer Wages to be paid (% of area average) Square feet of building per worker Floor to area ratio Workers per acre Wage impact jobs Real property tax per acre (current) Real property tax per acre (new money) Renovation impact points Payroll per acre Total Weight Maximum 100% 150% 250 65% 100 50 $24,000 $24,000 200% $5.230.464 Paris Economic Development Corporation Page 40 Minimum 50% 110% 500 25% 25 10 $8,000 $8,000 50% $958.918 Wei2ht 20 20 10 10 10 20 5 20 20 10 145 Lamar County - Paris Economic Development Plan Table 1-2: Incentives Matrix Applied to an Example Company Example Points Company Maximum Minimum Wei2ht Awarded Primary employer 100% 100% 50% 20 20.0 Wages to be paid 135% 150% 110% 20 14.3 (% of area average) Square feet of building 333 250 500 10 6.7 per worker Floor area ratio 51% 65% 25% 10 6.5 Workers per acre 67 100 25 10 3.3 Wage impact jobs 99 50 10 20 20.0 Real property tax per acre $13,333 $24,000 $8,000 5 0.4 (current) Real property tax per acre $26,667 $24,000 $8,000 20 2.7 (new money) Renovation impact points 0 200% 50% 20 0.0 Payroll per acre $3.133.333 $5.230.464 $958.918 10 3.8 Total 145 77.7 For each criterion, there are a specified number of available points, denoted by the variable weight, which may be earned if established targets are reached. The variable minimum represents the minimum level that must be achieved to qualify for any points, while maximum is the level at which all available points are awarded.3 Numbers falling between minimum and maximum receive a proportionate number of points. If the company falls below minimum for either "primary employer" or "wages to be paid," it will be disqualified from further consideration for incentives. Table 1-2 shows how the matrix would evaluate the example company described above. The final score is calculated by adding together the points awarded for all criteria, and dividing this number by the total of all available points, with the result expressed as a percentage. For example, in Table 1-2, the company received 77.7 points and the maximum points available equaled 145, resulting in a score of53.6 percent (since 77.7/145 = 0.536 = 53.6%). This information is then compared with a list of available incentives, each of which will be assigned a qualifying score that the company must attain before it is eligible to receive the incentive, as shown in Table 1-3. 3 The minimum, maximum, and weight values listed here are for example purposes. Actual values will be established by the PEDe Board. Paris Economic Development Corporation Page 41 Lamar County - Paris Economic Development Plan Incentive Low-interest loan for land & building purchase (not to exceed $2,500 per new job x 100 jobs) Low-interest loan for land purchase (not to exceed $2,500 per new job x 100 jobs) Low-interest loan for equipment purchase (not to exceed $1,000 per new job x 100 jobs) Table 1-3 Example Incentives and Qualifying Scores Oualifvine: Score (0/0) 75% 60% 50% The example company above would be able to receive a low-interest loan to cover the purchase price of new equipment, up to the specified maximum amount. A company that received a score of 65 percent would be eligible for a similar loan that would cover the cost of land. A company that received a score of 75 percent or higher would be able to receive loans to cover the purchase price of equipment, land, and buildings. When the matrix is applied, the greatest incentives will be offered to companies that pay the highest wage and have the highest concentration of workers in the smallest amount of space. Primary employers who pay lower wages, but retain a higher percentage of those wages in Paris-such as smaller companies that are headquartered locally-may qualify for incentives based on their impact to the community. Low-wage employers, and those that consume large tracts ofland with few employees, will be excluded from receiving incentives. Most importantly, if a company is not primary in nature, it will not qualify for any incentives. To limit competition between neighboring communities, appropriate incentive packages may be offered to qualifying employers wherever they choose to locate or expand within the county based on designated criteria. This approach will offer flexibility to employers and allow all areas of the county to share in future employment opportunities. However, primary employers are encouraged to locate on sites within the employment districts identified in the EDRP. It should be noted that the incentives matrix has been created for use by the Paris government in partnership with the local municipalities as part of a countywide economic development and redevelopment program. However, when a company chooses a location within a municipality, it is also intended that a portion of the incentives will be funded by the municipality. The local partner participation requirement is similar to that used in state tax refund incentive programs. Incentives Conclusion One ofthe principal goals ofthe PEDe is to build long-term economic vitality for Paris through the attraction and retention of jobs that pay above-average wages in targeted primary industries. These businesses and employees bring significant wealth into the larger community, creating a demand for secondary businesses and high-quality public services and amenities. If the current economic vitality of Paris is to be maintained over the long term, to counter the effects of build- out, approximately 3000 new high-wage primary jobs must be created over the next twenty years. This plan presents annual milestones, or targets for the number of new primary jobs and the associated average wages. Other important targeted indicators include the size and quality of the Paris Economic Development Corporation Page 42 Lamar County - Paris Economic Development Plan economy, and the jobs-to-population ratio. In order to successfully compete with other regions to attract and retain high-wage primary employers, the county will need to offer incentives to qualifying companies. An incentives matrix, or mathematical screening process that can be used to pre-qualify a company for particular incentives, has been developed to assist with this process. Principles To Guide Paris Economic Development Policies By Pete Kampfer, PEDe This paper contains the discussion of principles for local economic development policies. What principles should help set the 20als, or2anization, and methods used by local economic development policymakers? How should local policymakers evaluate economic development programs? GOALS Guiding Principle I: Creatin2 More Jobs in a "Broadlv Defined Market" Has Si2nificant Benefits. "More jobs" is the number one goal of most local economic development organizations. The empirical evidence supports placing a high priority on more jobs for the overall local labor market. The local labor market is an area that encompasses most local commuting flows, such as a metropolitan area. Increasing the total jobs in a local labor market significantly increases the earnings of local workers and the unemployed. Empirical research shows that an increase of ten percent in a metropolitan area's employment will increase average real earnings per person by around four percent. Half of this increase in real earnings occurs because local residents who otherwise would be out of the labor force get jobs. The other half of the increase in real earnings occurs because growth allows some individuals to be promoted to better paying occupations. The benefits of local employment growth are greater, in percentage terms, for lower income persons, less educated persons, and blacks. For example, an increase in metropolitan area employment has about twice as great a percentage effect on the income of families in the bottom income quintile (the poorest one-fifth of all families) as it does for the average family. As a result, faster employment growth in a metropolitan area significantly reduces local poverty. How can suburban employment growth help central city residents, when many city residents do not have access to these jobs? Only some metropolitan residents need have commuting access for an increase in jobs anywhere within a metropolitan area to affect all metropolitan residents. For example, if new suburban jobs go to suburbanites who formerly commuted to the central city, the resulting central city job vacancies may benefit central city residents. There is enough commuting between different communities within a metropolitan area that the entire metropolitan area shares similar, if not identical, labor market fortunes. Where jobs are located within a metropolitan area does make some difference, but not as much as the health of the overall local labor market. The benefits of more jobs are greater in local labor markets with high unemployment and sluggish growth. Such distressed areas will have a less mobile population and are probably less attractive to in-migrants. Additional jobs are more likely to increase the employment rates of current residents and are less likely to go to in-migrants. In addition, the social benefits of employing the average unemployed person are greater in a high unemployment area than in a low unemployment area. In a low unemployment area, most persons who perceive a high benefit to employment will have a job. The remaining unemployed will on average only perceive modest benefits to becoming employed-the wage rate will not much exceed the value they Paris Economic Development Corporation Page 43 Lamar County ~ Paris Economic Development Plan place on their alternative uses of the time while unemployed, in childcare, work around the house, continued job search, or leisure. In a high unemployment area, many individuals who are desperate for a job, in that their wages would vastly exceed the value of their time while unemployed, may be unable to find ajob. Guiding Principle 2: Increasine the Total Number of Jobs in a Local Labor Market Reauires Strenethenine the Local Export Base or Substitutine for Imports. Increasing the total jobs in a metropolitan area is achieved by either (1) increasing the number or sales of firms that sell to business or residents outside of the metropolitan area ("expanding the export base"), or (2) inducing local businesses or residents to substitute purchases of local goods or services for goods or services produced elsewhere (" import substitution"). Not every increase in jobs in a local firm will expand total jobs in a metropolitan area. If a firm sells locally, and its expansion does not lead to import substitution or lower costs for export-base firms, its expansion will lead to the contraction of other local firms. Expanding jobs in an area's export base firms will have "multiplier effects" on employment in other local firms. Some of the increased sales of export based firms are spent on local workers' salaries and local supplies. Local suppliers and workers in turn spend some of their additional funds on local goods and services, creating still more jobs. These multiplier effects of respending are not infmite because some of the additional money "leaks out" of the local economy, and is instead spent on goods and services produced elsewhere, or goes into savings or taxes. How multipliers vary for expansions in different firms can be calculated with an econometric model of the metropolitan area economy and information on the firm's characteristics. The local multiplier effects of an increase in jobs in an export base firm will be greater the higher the firm's wages or the stronger the firm's ties to local suppliers. Higher wages mean a greater boost to local retail demand. Local policymakers should question their consultants when they cite export base multipliers of greater than two, that is when they claim that one more job in an export base firm results in more than one additional job in other local firms. Only unusual circumstances will produce multipliers greater than three. Multipliers as low as 1.2 for low wage export-base firms with weak local supplier links would not be unusual. Export base firms include many industries and business types. Export based firms include most manufacturing firms, with the exception of locally oriented industries such as printing. Export based firms include service industries such as some computer software companies, research and development laboratories, law firms with a national clientele, banks with a national or regional market, etc. Export based firms include corporate headquarters for firms with a market outside the metropolitan area. Export based firms also include tourist industries; new money is brought into the local economy by outsiders visiting and buying. Within most industries, larger companies are more likely than small companies to be export base firms, but there are many exceptions to this tendency. More total local jobs can also be created if local businesses and consumers substitute purchases from local firms for purchases from outside firms ("import substitution"). If local businesses or consumers use more local suppliers, each dollar brought in from outside circulates more intensively within the local economy, creating additional local jobs. For import substitution to be sustainable, the use of local suppliers must be based on cost or quality advantages. If the use of local suppliers is based on civic boosterism, it is likely to quickly fade after the "buy local" campaign is over. If the use of local suppliers is based upon laws or regulations to encourage the use of local suppliers, such policies may make local firms less competitive in the export market because of their use of uncompetitive suppliers. Paris Economic Development Corporation Page 44 Lamar County - Paris Economic Development Plan Guiding Principle 3: Encourag:in!! "Hi!!her Quality" Jobs-Jobs With Hi!!her Wa!!e Premiums. More On-the-Job- Trainin2. Greater Advancement Opportunities-Has Sienificant Labor Market Benefits for Local Residents. Economic research shows that different industries pay quite different wages, often differing by 15 percent or more, for workers with similar education, age, and other characteristics. Within a given industry, different fIrms pay different wages-Qften differing by ten percent--controlling for worker characteristics. Firms also differ greatly in their policies towards worker training, and innovative workplace practices such as work teams, quality circles, and total quality management. A local area can improve economic opportunities for its workers by shifting the local mix of fIrms and industries toward those offering better wages, working conditions, and opportunities for advancement. The local mix could be shifted toward higher quality jobs by formulating economic development policies for such fIrms. Support for worker training, to be discussed further below, might also encourage fIrms to offer higher quality jobs. In addition to increasing wages and improving working conditions, better quality jobs encourage increased labor force participation. For example, in several studies, Bartik fInds that a shift in a metropolitan area's industrial mix toward a mix with a one percent greater average "wage premium" increased the average annual hours worked per person by over one. Guiding Principle 4: Local Economic Development Or2anizations Should Consider How to Increase the Modest Proportion of New Local Jobs That Go to Local Residents. Particularly Disadvanta2ed Local Residents. Local public offIcials are generally unaware how large a proportion of new jobs go to in-migrants rather than the original local residents. Empirical research on how local employment growth affects migration suggests that in the short-run (less than fIve years), 30 to 50 percent of new jobs go to in- migrants; in the long-run (more than fIve years), 60 to 90 percent of new jobs go to in-migrants. Is it legitimate for local public offIcials to be concerned about whether new jobs benefIt their original constituents versus in-migrants? Because the original residents pay much of the costs of economic development programs, they might legitimately demand that policies seek to increase their benefIts. In addition, there are benefIts to providing jobs in local economies for which people have a strong "sense of place." Studies indicate that people are, on average, willing to give up 10 to 20 percent of their income to remain in their original local area. Finally, as discussed below, there may be some fIscal benefIts to avoiding the public service costs of more in-migration. It is not simple to tell the relative benefIts for in-migrants and the original residents from a particular economic development policy or project. For example, suppose that some economic development deal encourages a branch plant to relocate into a metropolitan area. Suppose further that the relocated plant brings along with it all of its existing workers; this is particularly plausible if the plant pays high wages. Such a plant will still provide some benefIts for local workers. First, the relocated plant will have some multiplier effects, which will expand employment opportunities for local residents in local suppliers and retailers. These multiplier effects will be particularly large because of the plant's high wages. Second, even if the relocated plant's workers originally came along with the plant, there will be some turnover over time, opening up job vacancies for the original residents. The employment benefIts from this relocated plant may be lower than average, but they will not be zero. Simply requiring new businesses to do local hiring might discourage new business locations. This concern explains why aggressive city policies to push local hiring, such as Portland's JobNet program, are the exception rather than the rule. Programs that make local hiring more attractive, through customized training, may be more feasible. Paris Economic Development Corporation Page 45 Lamar County - Paris Economic Development Plan Guiding Principle 5: Job Growth's Fiscal Benefits Are Often Elusive Because of the Costs of New Infrastructure. But .Job Retention Often Has Fiscal Benefits Because It Uses Existin2 Infrastructure. Two key principles should be kept in mind in assessing the fiscal effects of economic development. First, the fiscal impact depends on the marginal costs and revenues of the additional local jobs and population that occur because of the economic development program. The marginal costs and revenue from one new job or person are usually quite different from the average costs or revenue associated with jobs and people already in the metropolitan area. Second, any evaluation must consider the capital costs of new infrastructure, not just operating costs. It is important to understand the conditions under which economic development can be fiscally unprofitable. Local tax systems are set up so that average tax revenues cover average costs. Additional jobs and people generally result in similar tax revenues per job or person as existing jobs and people, unless special development subsidies or impact fees are used. Marginal public service costs associated with additional jobs and people are, however, often much greater than the average costs. In part, marginal costs usually exceed average costs because retrofitting infrastructure to handle higher demand is expensive. Doubling the capacity of a road or water or sewer plant that already exists will usually more than double the acquisition costs. In a book on impact fees, Alan Altshuler and Jose Gomez-Ibanez indicate the potential infrastructure costs associated with new development and the complexities associated with analyzing those costs. They summarize two studies done of the fiscal impact of new development on Montgomery County, Maryland, which provides most local public services in the county and collects most local taxes. A 1969 study assumed that the costs of new infrastructure would equal the average debt costs and maintenance costs currently paid for existing infrastructure. However, this assumes that debt and maintenance costs on required net new public capital would be no higher than the costs on old infrastructure. According to this study, most taxable new business activity, without accompanying Montgomery County growth in households, produces two to six times as much revenue as its public service costs. Even if all new employees lived in the county, the 1969 report concluded that new development would be fiscally profitable for hotels or office complexes. Office complexes were estimated to produce $1.29 in local revenue for every dollar in additional public service cost they require. A 1989 study looked only at large office parks, one of the most fiscally profitable new development types in the 1969 study, and concentrated on the costs of additional highways to serve a new office complex. Unlike the 1969 study, this study looked at the actual cost of adding new highway capacity and found that the additional county revenues per office worker per year of $410 would barely exceed the $347 per worker per year that the additional highway capacity would cost. Altshuler and Gomez-Ibanez comment that "with such a slim margin, little tax revenue was left over to fund other county services that the office building might require (such as sewer, water, solid waste, police protection, or fire protection), let alone those required by the households of employees. If this result held for office parks, the most profitable form of development under the 1969 analysis, it doubtlessly was even more true of other types of businesses or residential developments." The fiscal impact on a local government appears quite favorable when we are considering an economic development policy aimed at preventing a local economy from declining in employment or population. Local economic decline will tend to lead to a proportionate decline in public revenues. But infrastructure costs will not decline. The infrastructure is already in place and has in part already been financed. It is usually infeasible to abandon much existing infrastructure, and this would only save maintenance costs. Thus, by avoiding the losses associated with economic decline, economic development policies that help retain jobs and people produce a fiscal benefit. Paris Economic Development Corporation Page 46 Lamar County - Paris Economic Development Plan Consider the Montgomery County example. If Montgomery County was a declining rather than growing county, an economic development policy that attracted an additional office park might not require additional highway capacity. The office park's revenues per worker would be about the same, but most of the public service costs in the 1989 study would be irrelevant. Guiding Principle 6: Economic Development Policies That Increase Market Efficiencv Provide Public Benefits Bevond Increasin2 Net Local Jobs. Inefficient markets supplying business with capital, training, and information may impede some businesses from starting-up, expanding, modernizing, or surviving. These problems are particularly important for small and medium-sized businesses, and minority and women-owned businesses. Many of the economic development programs already mentioned provide services to address these problems with the business development process. Such services, if they have a value to business that exceed their costs, can be socially beneficial. Even if they do not affect overall net local job growth, they can help provide better quality goods and services. For example, suppose that a local group provides training to help minorities and women start new restaurants. Suppose these new restaurants are able to out-compete other local restaurants and drive them out of business. Even if total local employment is unchanged, the local restaurant sector will be offering a better product. If the greater productivity of the new restaurants exceeds the costs of training the new restaurateurs, then local consumers are better off. ORGANIZATION Guiding Principle 7: Economic Development Or2anizations Must Participation Bv Both the Public and Private Sectors. Encoura2e Economic development programs cannot be totally publicly-run because effective economlC development requires private resources, credibility, and expertise. Public resources for economic development are limited, so these resources must be used to leverage private resources. For example, compared to 100 percent government-financed business loans, programs such as the Capital Access Program that encourage private lending can support more lending with a given government budget. As another example, charging fees to businesses for providing advice on business modernization, as is done by Industrial Resource Centers in Pennsylvania, allows more firms to be helped with limited public dollars. Moreover, compared to government agencies, economic development organizations with a private veneer may be viewed by some small businesses as more credible service providers. As one staff person of an Industrial Resource Center put it, "If I showed up with a business card saying 'I'm from the state and I'm here to help you', I'd get tossed out on my ear." But local economic development cannot be totally privately-run and financed either. The rationale for economic development programs is that the private market on its own inadequately supports some business development. If the public is to subsidize economic development, there must be some public monitoring to ensure that such subsidies achieve their social goals. Thus, regardless of whether an area's lead economic development organization is public or private, an effective economic development process must enlist the money and expertise of both the public and private sectors. Paris Economic Development Corporation Page 47 Lamar County - Paris Economic Development Plan Guiding Principle 8: Economic Development is Best Pursued on a Local Labor Market Scale. The labor market benefits of job growth or wage increases in one local community occur across the entire local labor market. Because a community's policies will not fully reflect these spillover benefits, individual communities may sometimes be insufficiently oriented towards economic development policies that create jobs and enhance wages. The fiscal effects of development in one community also spillover to the entire local labor market. In many cases these fiscal effects on nearby communities will be negative. The community advising the new business development will receive additional business property taxes, whereas the roads and schools needed by workers in the new jobs may be paid for by other communities. Uncoordinated policies pursued by many small units of government will be excessively competitive for business real estate development. Thus, the fragmented structure of most metropolitan areas, with many competing jurisdictions and little coordination, may distort how economic development is approached. This fragmented structure explains why economic development is often seen as a series of real estate deals rather than as a way of improving labor market opportunities. Local governments may end up subsidizing real estate development more than they subsidize human capital development. The local labor market is also the level at which the key resources for achieving economic development must be pulled together. Labor is the most important business input. Labor costs and quality available to a business are largely determined by the metropolitan area, not the business's neighborhood or community. To alter labor costs or quality, economic development programs must target the overall local labor market. Local suppliers to an export-base firm will also be located throughout the metropolitan area, not just in the community in which the export firm is located. Policies to improve supplier competitiveness must target the entire local labor market area. METHODS Guiding Principle 9: Marketinl!. Streamlininl! Rel!ulations and Business Problem-Solvinl! Can Often Be Cheap Wavs of Makinl! Development Happen. The "sales" and "business development" activities that dominate the time of local economic developers are plausibly cost-effective. Because such interactions with firms are idiosyncratic, there is little research on their effectiveness. But sales and business development activities focused on information and problem-solving, not financial subsidies, are relatively cheap, and government intervention in this area has some rationale. These activities involve providing information on the local community to business prospects, and helping resolve problems that businesses have with local government regulations, taxes, and services. Providing basic information to businesses requires relatively modest expenditures on economic development staff. Providing information, particularly information on government regulations, services, and taxes, is a legitimate public activity. Private information markets are imperfect, and public or quasi- public agencies have some comparative advantages in obtaining and providing such information. Trying to resolve problems that "customers," including business customers, have with government activities, without compromising public goals, is one way of making government more effective and responsive. "Business development" becomes more questionable when it turns into public real estate development: government using zoning and condemnation to redevelop land. Absent a public subsidy, such government-based proceedings can be seen as one way of overcoming the problem of the "holdout landowner": the one landowner in an area who refuses to go along, at a reasonable price, with an overall area plan. Unfortunately, many government-sponsored redevelopment projects use large public Paris Economic Development Corporation Page 48 Lamar County - Paris Economic Development Plan subsidies-the Faneuil Hall development project in Boston for example-and such large subsidies are more open to question. Guiding Principle 10: Providinl! Financial Subsidies to Individual Firms is Likely to be Expensive Per Job Created. but May be Useful if Done in the Ril!ht Circumstances and if Carefully Desil!ned to Maximize Benefits and Minimize Costs. Providing tax abatements or other financial subsidies to the location, expansion, or retention of individual firms is probably expensive per job created or retained. This high cost per job is suggested by studies of the effects of overall local business tax rates. In a recent review, Bartik shows that, on average, a ten percent reduction in state and local business taxes increases local employment and business activity in the long-run by around three percent. These tax effects are similar for different business location decisions. For example, studies of branch plant location decisions also find that ten percent lower state and business taxes increase the plants locating in a local economy by around three percent. These estimates assume that business tax reductions are fmanced by increased personal taxes, or decreased transfer payments to individuals. Some studies find that business tax reductions, if financed by reducing spending on local education or roads, may reduce a local economy's employment. These estimated tax effects imply that state and local governments would have to give up around $3,800 per year in business tax revenue to create or retain one additional job in a state or metropolitan area. Business tax reductions do affect some business location decisions, providing additional tax revenue. But these tax reductions also go to business activity which would have occurred in the local economy without the subsidy. The lost revenue from this unaffected business activity more than offsets the gain in tax revenue from new business activity. In addition, a full fiscal calculation would need to consider population growth and public service costs. One could argue that the high cost per job created of general state and local business tax reductions need not imply a high cost per job created of discretionary tax subsidies. A local policymaker with perfect knowledge of each company could avoid subsidizing companies that would have located in the local area anyway. But in the real world, tax subsidies can rarely be targeted systematically. Once tax subsidies are provided one firm, the political pressure is overwhelming to provide subsidies to all firms. Furthermore, policymakers lack sufficient knowledge to avoid subsidizing companies that would have located in the local area anyway. A more reasonable assumption is that targeting subsidies is so difficult that discretionary tax subsidies have about the same cost per job created as general business tax reductions. Tax differentials within a metropolitan area have larger effects. Some studies suggest that a ten percent reduction in business property taxes - e.g., from a two percent effective rate to a 1.8 percent effective rate-in one community in a metropolitan area, holding the property tax rates of other communities constant, may increase the business activity in that individual community by 20 percent. Tax differentials within metropolitan areas have larger effects than tax differentials across metropolitan areas because individual communities within a metropolitan area are closer substitutes for one another, from the perspective of a business choosing a location, than different metropolitan areas are for one another. These effects of tax differentials within a metropolitan area are so large that it might appear that an individual community could gain both revenue and jobs from lowering business property tax rates. Such a strategy is in the long-run ineffective. Most of the community's new jobs will come from other communities within the metropolitan area. As a result, local labor demand will not be much affected. Furthermore, other communities in the metropolitan area will respond to one community's lower business taxes by adopting their own tax reductions. If all communities within a metropolitan area offer the same business tax reductions, then no individual community gains a competitive advantage over other Paris Economic Development Corporation Page 49 Lamar County - Paris Economic Development Plan communities in the metropolitan area. Jobs will be created in the metropolitan area from these business tax reductions, but at the high cost of $3,800 per year per job. Is it worth providing tax subsidies or other financial subsidies to encourage job creation in a metropolitan area, given that such policies cost around $3,800 per year per job created? Such a policy may be sensible if pursued in the right local economic environment. In a high unemployment metropolitan area the typical unemployed person is likely to be so desperate for a job that the social benefits from their obtaining a job may exceed $3,800 per year. Spending $3,800 per job may also make sense if the jobs provide particularly high wages or large amounts of on-the-job training, or are more likely to go to local residents. Although local policymakers cannot easily target subsidies on the firms most likely to be affected, it is more feasible to target subsidies on firms that pay higher wages and provide extensive training. In addition to the benefits for workers of higher wages, higher wage firms will have greater multiplier effects. Some economic development programs have adopted some targeting criteria based on job quality. For example, Pennsylvania requires that firms receiving financial subsidies from the state be certified to be "firms." Subsidies can also be designed to encourage training and hiring of local residents. For example, many state and local education and training institutions, such as the Durham Technical Institute mentioned above, provide subsidies to new or expanding firms for training local workers. Subsidies to attract new firms or encourage firm expansions are more cost-effective if more of the subsidy is upfront. The typical U.S. business has a short time horizon. For example, a recent survey of corporate executives indicated that they used a real interest rate of 12 percent--or an ordinary nominal interest rate of 16 percent when inflation is 4 percent per year-to discount future cash flows. Such a high real interest rate means that local subsidies provided ten years in the future have little effect on corporate decisions. A more effective strategy provides subsidies up-front: larger, shorter term property tax abatements; immediate subsidies of training costs; providing low cost land or infrastructure to the new or expanded facility. This assumes that local residents and local governments should use real interest rates of less than 12 percent in making decisions. This assumption seems reasonable because local governments can usually borrow money at less than 12 percent over the inflation rate. Another advantage of front-loaded economic development subsidies is that they force local leaders to deal with the costs of subsidies during their terms in office. Twenty-year property tax abatements pass on costs to political successors, which encourages irresponsible decisions. A disadvantage of front-loaded subsidies is the risk that a company will take the subsidy, and then quickly leave. A "runaway plant" is less likely for higher wage firms that make extensive investments in both human and physical capital, so this risk can be reduced by targeting subsidies towards higher wage firms. In addition, local policymakers can include "clawback" provisions to recover some of the subsidy if the firm leaves too soon. One way to implement clawbacks is to provide the upfront subsidy as a forgivable loan, which over time is converted to a grant if job creation goals are met. Clawback provisions in economic development subsidies have been upheld by the courts, but only if such provisions are in writing and are explicit about the company's obligations. For example, the city of Duluth won a late 1980s court case against a company which had received an industrial revenue bond from the city. The IRB included a written agreement prohibiting the transfer of equipment purchased with the bonds. The company went ahead and transferred the equipment elsewhere. Duluth won an injunction prohibiting future transfers of equipment. On the other hand, the city of Yonkers lost an early 1980s suit to prevent a plant closing by the Otis Elevator company. The city had previously provided below-market priced land to facilitate the plant's expansion. The city lost the suit because its agreement with the company did not specify the length of time that Otis had to remain in Yonkers. Paris Economic Development Corporation Page 50 Lamar County - Paris Economic Development Plan Guiding Principle 11: Imnrovin2 Labor Ouality in a Way That is Resnonsive to Business and Worker Needs Can Play a Crucial Role in Local Economic Development. Improving local labor quality is crucial to firms because so much of business costs are labor costs. The issue is whether economic development policies targeting individual firms can be effective in improving local labor quality. One study indicates that government grants for customized job training, when the job training is tied to a firm's technology upgrading efforts, can be effective in promoting improved productivity. Holzer and his colleagues found, in their study of a Michigan program giving grants for technology-related training, that product scrappage rates went down significantly more in assisted firms than in comparable unassisted firms. Product scrappage rates went down enough that the program's economic benefits probably exceeded the costs of the job training grants. Beyond the effects of customized worker training efforts on firm performance, there may be benefits to workers from providing more support to firms for training and upgrading their workforce. As argued by Paul Osterman in his book Employment Futures, if firms have more financial support for worker training, and better information on effective training techniques, then firms have an incentive to change their technologies and human resource systems. Firms which receive more support for worker training may compete more on the basis of quality than on low wages, and may emphasize retaining their workers and worker upgrading rather than simply hiring and laying off in the open labor market as demand shifts. Such firms may provide workers with better wages, more job security, and greater upward mobility. Subsidies for customized training should be focused on small and medium sized businesses, and on training that increases worker productivity in a variety of businesses. We know that small and medium sized businesses, due to fmancial constraints and higher worker turnover, are least likely to currently provide on-the-job training. Firms have less incentive to invest in training that will make workers more generally productive, because such training may make workers more attractive to other firms. Subsidies to large firms or for fmn-specific training may subsidize training that the fmn would have done anyway. Guiding Principle 12: Proerams Can Be Desiened That are Effective in Providine Businesses with Useful Trainine and Knowledee. There is some evidence that programs that seek to provide businesses, particularly small and medium-sized businesses, with training and advice, can be effective in improving firm performance. Industrial extension services and small business development centers, which provide businesses with information on modernization, training, exporting, or business planning, seem to have been fairly effective at times. Several surveys have reported that a sizable proportion of the business clients of such programs felt that the program had beneficial effects on their employment, productivity, costs, or sales. Moreover, a recent study by Benus indicates that entrepreneurial training and start-up assistance to potential entrepreneurs can significantly increase the rate at which these entrepreneurs start up new businesses. Benus and his colleagues at Abt Associates studied U.S. Labor Department funded programs in the states of Washington and Massachusetts that provided interested unemployment insurance (VI) recipients with training and assistance in developing a business plan, and a lump-sum payment of their remaining VI entitlement upon achievement of certain specified business planning goals. In Massachusetts, 47 percent of the treatment group entered self-employment, compared to 29 percent of those in a control group; in Washington state, 52 percent of the treatment group entered self-employment, compared to 27 percent of the controls. A problem with programs providing business advice and training is how to achieve sufficient scale to have a large impact on the local economy. Charging fees, as has been done by Pennsylvania's Paris Economic Development Corporation Page 51 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 Lamar County - Paris Economic Development Plan EVALUATION Guiding Principle 15: The Effectiveness of Manv Economic Development Pro2rams Can Be Evaluated Throu2h Relativelv Cheap Survevs. The many economic development programs that provide services to fIrms-information, training, advice, etc. ----can be evaluated relatively cheaply by written surveys of the businesses that are clients of these programs. Clients of these programs do not have strong incentives to lie about their experience. But, surveys are unlikely to be effective for programs that provide tax subsidies, loans, or other fInancial subsidies to fIrms. Even if such programs had no effect on the fIrm's location decision, fIrms receiving such fInancial assistance might want to claim that the program had an effect, either because such a claim is legally necessary to receive assistance, or in order to keep the program alive for possible future use. Surveys are likely to be more useful if they are as comparable as possible over time, and, to some extent, across different programs. If surveys ask comparable questions, then government managers can get some sense of how the quality of economic development services differs over time or across programs. The Urban Institute has published a book, Monitoring the Outcomes of Economic Development Programs, that provides a comprehensive guide on how to conduct surveys of the business clients of state economic development programs, including suggested survey instruments, advice on how to distribute the survey, etc. The suggestions of this guide have been tested in evaluating economic development programs in the states of Minnesota and Maryland. Conclusion Economic development is a diffuse area of policy for which only small amounts of public funds are available. Effective local management of economic development requires careful targeting of the limited public funds, leveraging of private resources, and cooperation of different groups in the local labor market area. The policy implications of this paper can be restated as follows: . An important priority for limited public funds for economic development should be to encourage local educational and training institutions to be more responsive to the training needs of small and medium sized businesses in the area. Customized training funds should be focused on fIrms that seem most likely to offer higher quality job opportunities to local residents, and should be focused on training that is useful in a variety of jobs. Firms should pay for a portion of training costs. . Another priority should be public support for quasi-private information and training services for small and medium sized fIrms and start-up fIrms, helping them determine how to export and modernize, and helping with management issues. Firms should be charged some fees for these services, in order to stretch limited public funds and provide an incentive for good service performance. Where possible, these services should seek to work with groups of fIrms to encourage cooperation to solve some of their problems. The quality of these services should be regularly evaluated through surveys of the business clients ofthese programs. Paris Economic Development Corporation Page S3 Lamar County ~ Paris Economic Development Plan · Public support of business capital needs is best provided by encouraging private financial institutions to provide somewhat higher risk fmancing to small and medium sized businesses. Government can be a banker, but the hat does not fit well. · Higher unemployment areas may legitimately be interested in providing tax and other financial subsidies for a variety of economic development projects. Such subsidies should be focused on export-base firms, import-competing firms, or their suppliers, and higher wage firms. Subsidies should be provided up front with c1awback provisions if certain job creation goals are not met. · To the extent possible, local governments should avoid destructive competition for business real estate projects with other nearby jurisdictions. If feasible, economic development efforts should be coordinated across the entire local labor market. The focus of local economic development efforts should be on stabilizing the local tax base and improving overall labor market opportunities for local residents. Paris Economic Development Corporation Page 54