Building a Sustainable Economy – Austin Style

AustinTexasEconDvlpmntI stumbled on something interesting yesterday.  It’s called “Building a More Sustainable Economy – Economic Development Strategy and Public Incentives in Austin“.

The study is about public support of private initiatives.  It looks at the goals of the public support, the decision-making process, and the quantifiable results.  From my reading, it appears that things went pretty well in Austin until fairly recently and then there were some projects that, to say the least, did not achieve the desired results.  The study also includes recommendations for improving the economic development and public incentives processes in Austin.

I’m not sure that I agree with all of the objectives of the group that initiated the work or all their opinions on the causes and effects of the less than successful projects.  However, I thought their analysis of the economic development and  the evaluation/decision processes was quite useful.

The full report, with its valuable appendix, is almost 100 pages.  There is a good executive summary if you’re in a hurry.

The author examines the stated goals of economic development activities, the objectives of incentives, what kinds and amounts of incentives the city is using, and what the taxpayers are getting from the public investment.  There is an admirable effort to put dollar values to the incentives to and the results from the projects, as well as the loss or return to the taxpayers.

The study distinguishes two types of incentives.  One is called “firm-based” and encourages firms to locate or expand in Austin.  The second is called “project-based” and seeks to influence the locaion and quality of development.  Based on my reading, there seems to have been more success with the former than the latter.

In grading Austin’s performance in economic development and incentive allocation over recent decades, the author notes both strengths and weaknesses.  The strengths are in clarity about the businesses desired and consistency in tying the release of incentives to private expenditures and jobs created.  The weaknesses are in analysis of the costs and benefits of project proposals and the sharing of critical quantitive information with the taxpayers.

The study identified key questions for broad community discussion of economic development goals:  “What kind of jobs and industry growth do we want to encourage?”,  “How do we want our city to grow?” and “How do we better balance economic growth with the preservation of our quality of life?”.  It was suggested that “to be effective, economic development strategies and policies must be tied to goals that are consistent with deeply held community values and visions for the future”.

The author defines economic development strategy as an effort to “create an environment that encourages private sector investment and business expansion and tries to influence the kinds of industries and activities that form the economic base of a city”.  I particularly enjoyed the first part of that definition.  He goes on to note that in fact “economic growth in a metro region is primarily the outcome of the investment decisions of thousands of private firms”.

According to the study, public incentives are only one piece of private investment decisions.  At least important are such things as appropriateness of the labor force, quality and affordability of sites, community infrastructure, including K-12 education, healthcare, utilities, water and sewer, and quality of life, including neighborhoods, personal and property safety, clean environment and cultural activities.

The key recommendations for greater economic development success and public incentive decisions include: a consistent process, a fiscally responsible process, a deliberative process, an accountable process, and a strategic process.  Again and again, the author emphasizes better cost-benefit analyses and the provision of quality and timely information the taxpayers.  Finally, the study is full of such useful resources as key questions for developing incentive policies, several model evaluation matrices, a model economic development policy and, my favorite, a prototype cost-benefit analysis.

I can’t really tell you whether or not this particular study is one of the finest available.  However, I do think it’s useful in structuring a discussion of the topics of economic development and incentive policy and provides some tools to examine your community’s objectives, processes, and results.

11 thoughts on “Building a Sustainable Economy – Austin Style”

  1. Wow, Ross.

    I’m just back in town trying in vain to catch up, whatever that means in the various spheres of my life, but this is quite a post. I’ll have to read the incentive study. It may be very timely info since Northfield will soon be interviewing consultants for the master planning of our proposed business parks. (The RFP included a market analysis, and development standards which would reflect the goals of our Comp Plan.) Thanks for sharing the link.

  2. I’m about 2/3rds of the way through the Austin document, and although the relevancy is not often there in the specific, there is a lot of really strong POLICY thinking that is applicable regardless of the community’s size. (Austin grew from 400,000 to 1.2mil in the last 35-40 years)
    And the operative word there is POLICY. That is where, IMO, we always fall down in the NF process. We never have a good discussion of the underlayment of POLICY.

    Without this discussion and the political will to hold to it for the desired LONG TERM outcome, we are always succumbing to the immediate choice presented.

    Yeah, I know y’all hate the Target example but that was a hightech industry designated (by the EDA) site , Site “A”, and it was 36 or so acres, and with the 30-some Gleason-owned acres across the Hwy, that was 70, YES 70, Acres of high tech possibility as a gateway to Northfield… what’s there now? Shopping and fast food!

    Does anybody regret that lack of political will now?

    I don’t think the Key is the ideas, NF is full of ideas; the Key is POLITICAL WILL to
    hold to a POLICY developed for a DESIRED FUTURE OUTCOME.

  3. Kiffi: Yes, but whose long-term desires? Bobo’s and NIMPU’s? What about the working stiff who wants Target and KFC? Remember, Target WAS the political will of the people; it was voted upon and it carried.

    My 20 years of Northfield experience tells me that often a minority who are trying to bend policy decisions in their favor. Three examples – the rental ordinance, the Second Street cul-de-sac, and the Comp Plan.

    1. Well then ,David , I guess your real complaint is with the City Councils, who vote for the things you don’t approve of … and that can be only 4 of the 7… just 4 who make a decision for the whole community… not those “Bobos and Nimpus” you complain about.

      P.S. what’s the “Second Street cul-de-sac” you refer to?

  4. KWS: The cul de sac David L refers to in #3 must be the Way Park First Street cul de Sacs. How do you two drift so far from the point? Or, when David L strolls so far off course, why follow him over there?

    The Austin Plan. ROSS! Another thousand pages (more or less)! Spare me the pain. What about Austin Texas might be relevant to Northfield’s struggles?

    Austin, the capital of Texas. a metro population of hundreds of thousands, the home of the University of (hook em horns) Texas .. and not the home of much if any gross industry … but a lot of clean green development … and really good Mexican food. Austin, thriving on the edge of the Texas lake country, is Idyllic.

    Oh, that’s the comp, Idylic.

    Other than that Ross, what might we learn from the pages of the Austin report?

    victor

  5. Victor –

    Well, they’ve got Willie Nelson, Jerry Jeff Walker, and Billy Joe Shaver and we don’t. What else do you need to know?

    I guess I found a few things about Austin’s economic development policies to be of interest. I’m not sure I was looking for applicability as much as just some ideas worth considering.

    First, the folks in Austin seemed pretty clear about their goals. They had five to seven target industries that they would support, with financial incentives, for expansion or recruitment. Interestingly, they updated the targets every five years.

    Second, they had a really good sense of their community’s strengths and weaknesses. They had seven areas for which they evaluated their competitiveness in attracting and growing the targeted businesses. When they recognized a weakness, in one case the appropriateness of their workforce for the target industries, they worked on it. In fact, the Austin Chamber raised over $40 million to invest in workforce development.

    Third, they had a system for evaluating costs and benefits of proposed projects in place. Although after they had a couple of projects that didn’t work out so well they decided to improve this system, it was acknowledged that Austin was already ahead of many communities in this area. They determined to better estimate and track the costs, better communicate this information to the taxpayers, and get unrelated, third-party cost-benefit analyses of potential deals.

    Fourth, their economic development “toolbox” (yes, they use that term) was designed to support their investment in and pursuit of the targeted industries. In a process that was part of evaluating their community’s strengths and weaknesses, they supplemented their toolbox where appropriate.

    Finally, they worked to be increasingly inclusive in the decision-making process. Trying to find the history of economic development in Austin in an analysis of their public incentive policies, it seemed to me that for several decades, everything worked fairly well. Then they had a decade where it appears they made some bad decisions on both the target industries and the projects for incentives. It appears that the recent calls for a more informed and involved citizenry stems, at least in part, from a desire to gather ideas from a broader and deeper source.

    I hope that helps to answer your question. I’d be willing to discuss it further, as long as you’re buying the beer.

    Oh, and Austin also has Lyle Lovett, Joe Ely, and the Dixie Chicks and we don’t…

    1. Well you’re here, Ross, working hard and VMS is off at the Twins game with an old friend from St. Louis..

      What I liked best, and now I have read it ALL, is the third party, cost-benefit analysis of projects. That applies to anywhere , anyone, and any project. Don’t we all personally do a ‘cost benefit’ analysis every time we make a major financial move, even if it’s just within our household budgets? Isn’t that the best way to make a solid case to taxpayers?

      Another amazing thing, was the amount of public input they solicit, in a city of 1.2 million.

      Before you say anything about Bobos and Nimpus, David, refresh me on what those terms mean to you? I seem to have put them ‘out of sight’, ‘out of mind’.

  6. Ross: I just read the Executive Summary. It seems that Austin has a different issue from Northfield.

    Austin was investing public money in private projects without a good handle on the cost-benefit analysis. Northfield tends to implement restrictive policies without analyzing the cost-benefit of those restrictive policies.

    For example, the rental ordinance has had a significant adverse effect on people trying to sell their houses. Without the ability to rent the property while the house is on the market, options are restricted. It also increases the rental costs for the college students.

    The First Street cul-de-sac carries additional costs of maintenance, together with traffic costs.

    Without some way of judging the “value” of these projects, the matter often becomes a battle of political philosophies.

  7. David –

    Thanks for commenting. You bring up what I think is an important issue in the study.

    Based on my reading, Austin DID have a cost-benefit analysis. In fact, I would PERSONALLY say that I found it more sophisticated than many that I’ve seen in other communities.

    The concern brought up by the study, at least in my reading, was that the Austin approach did not do as well as the leadership desired/expected/demanded in terms of estimating or tracking COSTS in their cost-benefit analyses.

    PERSONALLY, I think we could do a better job with cost-benefit analysis in Northfield. I AGREE with you that it makes sense to apply this type of analysis to BOTH incentives and regulations.

    Thanks again for your comments.

  8. Ross: I can’t believe that we are agreeing again.

    Developing a cost-benefit analysis is difficult when only the economic factors are considered. It is much more difficult when cultural factors are considered.

  9. Isn’t it nice when everyone agrees… 🙂

    David, if you go back to the Austin report and go to page 72, you’ll find their outline for a Prototype Cost Benefit Analysis. It deals with both Private and Public Benefits of incentive -induced investment.

    At the bottom of that same page is a VERY important statement: “The city should have a neutral third party conduct the (continue on p.73) formal estimate. These estimates should not be done in-house by city staff or by consultants who rely heavily on the city for contracts and who might feel pressured to ‘give the city what they think they want’ “.

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