SEARCH

SEARCH BY CITATION

This updated version of Financing Economic Development in the 21st Century is a nice upgrade of the First Edition, and covers important changes to the economic development (ED) field since the great recession rewrote the rule book on project finance. The current version contains 16 chapters, a semester-length format. It follows the conventional ED line: avoiding mention of competing ED theories, such as Richard Florida's creative class.

A brief foreword by Ned Hill (Dean of the Levin College of Urban Affairs at Cleveland State University) traces a 200-year evolution from the roots of U.S. economic development finance for infrastructure finance of canals and railways to the present day with government issue of bonds for infrastructure projects.

The introduction by Stephen Malpezzi provides statistics on job growth, demographics, and income disparities for U.S. metropolitan areas. Malpezzi discusses debt and equity and public and private financing for the ED process, including enterprise zones and tax increment financing. Malpezzi covers public goods and market failure, with the positive externalities of job creation, and ties this to justification for public subsidies. He also outlines the remainder of the book.

The second chapter in the introductory section, “Evaluation of Economic Development Finance Tools” by Laura Reese and Gary Sands, identifies common economic development problem areas and ED tools. Reese and Sands wonder why some localities use tools with little chance for success. They observe that because unproductive subsidies can harm the local economy by draining public coffers, this may work against the goal of job creation.

The public finance section contains six chapters on specific ED tools and strategies. Chapter 3, Randall Crane's solid primer on “Public Finance Concepts,” addresses public-to-private goods, and the competing objectives of public finance, that is, efficiency, equity, and administrative feasibility. Crane discusses tax bases used to fund taxation, intergovernmental transfers, debt, and grants. He closes by noting that property taxes are essentially the fiscalization of land use (the use of land use planning and development to encourage revenue production as a high-level goal).

“Revolving Loan Funds” (RLFs), a local application of debt finance, are covered by Kelly Robinson in Chapter 4. Robinson notes that RLFs are available to small, needy, undercapitalized businesses, often in targeted urban locations. The 2,600 plus RLFs in the United States (totaling about $10 billion in capitalization), are essentially unregulated, and are not self-sustaining because relatively high default and loan workout rates among the high-risk borrowers erode the RLF capital base.

Chapter 5, “Transfer of Development Rights” (TDR), by Matt Brinkley and Patricia Machemer, evaluates the potential attractiveness and efficiency of TDR. Brinkley and Machemer note that complexity and market demand have made it a boutique ED tool, limited to only about 20 cities in the United States. They describe the basics of TDR (its sending and receiving areas and its bonus density allocations for plan compliance and infrastructure capacity maximization) and use brief case studies to demonstrate TDR's potential applications for increasing the incidence of historic preservation, affordable housing, and revitalization through the rehabilitation of structures.

Chapter 6, a high-value primer on “Municipal Bonds and Government Borrowing” by Vicki Elmer, defines general obligation (GO) bonds, revenue bonds, lease-based, and nontaxable instruments. With 50,000 instruments and $3 trillion in municipal, university, and state debt outstanding in the market, municipal bonds dwarf other ED funding sources. She covers voter approval, guarantees, defaults, tax increment financing (TIF), business improvement districts (BID), and the process of marketing of bonds.

Chris DeSousa's comprehensive chapter on “Brownfields” (Chapter 7) categorizes the regulation and redevelopment associated with contaminated land, from the national priorities list (NPL-superfund), to state-run voluntary action programs (VAP). Local government roles concerning in-kind contributions, tax breaks, and grants and loans for site investigation and remediation are set forth. DeSousa correctly concludes that brownfields are land development projects with tough but solvable site preparation and risk assessment issues.

Ziona Austrian and Eli Auerbach (the “State Role in Innovation and Entrepreneurship,” Chapter 8) focus on Ohio's pro-manufacturing programs, and describe how over $2 billion in Ohio state bonds has been used to fund high-risk, high-payoff start-ups; awards to 100 “impact firms” average almost $3 million. They provide an overview on program governance, list winners by location and type, and assess the program's economic benefits.

The next section of the book, “Private Finance,” starts with Chapter 9 by Roger Newberry and Michael Berry on “Banking Institutions in Local Economic Development After the Financial Crisis.” This chapter covers lending laws pertaining to ED and to community development, especially low-income housing. Newberry and Berry's discussion of credit availability to small private and business borrowers, primarily in low-to-moderate income (LMI) areas, is especially interesting. As the authors note, the credit drought has been particularly harsh for borrowers seeking the smallest loans.

Chapter 10, “Venture Capital,” by John Freear and Jeffrey Sohl, examines “angels” and “venture capital firms” that finance entrepreneurial startups. Based on a 2008 survey of VC and Angel investors by a large national firm, Freear and Sohn characterize angels as knowledgeable, male, former entrepreneurs interested in providing a stake of up to $300,000 for about 25 percent of a new firm, and living near the firm. VC players are larger and more likely to be corporate, but have a smaller overall share of the private start-up capitalization than do angels. Companies seeking venture capital are typically located in California's Silicon Valley or the Boston–NY–DC corridor. Only about 10% of companies seeking funds find an angel or VC partner.

Henry Renski and Ryan Wallace discuss “Entrepreneurship in Rural America” in Chapter 11. Based on the Kauffman survey of rural and urban entrepreneurs, Renski and Wallace conclude that rural start-ups are smaller, are more likely to lack intellectual property (e.g., patents), and have lower growth potential than their urban peers, but nevertheless have higher survival rates than many urban counterparts. However, because government bodies are the primary source of rural funds, and because many rural efforts do not succeed, the chapter raises but does not answer the question of whether a triage strategy is needed. In other words must all areas, rural as well as urban, have ED? I wonder if perhaps limited ED funds would be better spent elsewhere.

The book's “Partnerships” section begins with Rachel Weber's Chapter 12, “Tax Increment Financing” (TIF). Weber touches on the theory, mechanics, and practice of TIF, provides a useful financial example involving present value analysis and closes with suggestions for reform.

“Development Exactions” (the focus of Chapter 13, by Michael Peddle and Roger Dahlstrom) provide the means for repayment of infrastructure by ED projects, instead of providing ED project developers with a subsidy. Peddle and Dahlstrom offer a primer on exactions (i.e., the rationale for the strategy, the different types, equity issues, levels of demand, costs and benefits) and provide a case study of the use of impact fees. This chapter is most relevant to growing areas where developers are more willing to accept the additional costs associated with exactions.

In Chapter 14 (“Financing Sports Facilities”), Robert Baade and Victor Matheson provide a financial analysis of the case for stadium development in baseball, football, basketball, hockey, and soccer—as well as for mega-events such as huge concerts, the superbowl, or NCAA regional playoffs. The results consistently show that the economic benefits of stadiums fall short of expectations. Nevertheless, these projects tend to move forward anyway because of “quality of life” and “feel-good” intangibles. Considering the huge dollar amounts at stake, this chapter should make us rethink allocation of scarce resources to sports stadiums.

“Cobbling Together Funds for Mill Revitalization” (Chapter 15, by John Mullin and Zenia Kotval, with Randolf Lyles) provides a comprehensive, 8-step redevelopment model for mill reuse and finance, supplemented by three case studies of mill redevelopment projects in Massachusetts.

Sammis White's concluding chapter, “Lessons Learned,” brings the various chapters together by identifying key strategies for job creation, entrepreneurship, and job retention. Strategic picking of investment targets (firms) and geographic or industry-type cluster selection for public investment are also addressed. White also crystallizes lessons from earlier chapters of the book.

To summarize, this book constitutes a very solid assessment of existing knowledge concerning American local economic development efforts. It can serve not only as a primer for the ED neophyte but also can be invaluable for the seasoned ED practitioner interested in the latest trends in the field. It is both a good resource and worthwhile read.