Understanding Economic Development and Emerging Trends

Understanding Economic
Development and Emerging Trends
Prepared for: Maine Downtown Center
Presented by: Jim Damicis, Senior Vice President
January 30, 2019

Jim Damicis
Senior Vice President
• Immediate Past President, Northeastern Economic Developers
Association (NEDA)
• IEDC, Economic Development Research Program, International
Economic Development Council & Course Instructor
• Collaborator – Communities of the Future
• 25+ Years Experience in Economic and Community Development
Email: jim@camoinassociates.com
Website: www.camoinassociates.com
Twitter: @jdamicis
Linkedin: www.linkedin.com/in/jdamicis
Blog: www.camoinassociates.com/navigator

Introduction and Economic
Development Overview

What is Economic Development?
Job stability
and creation
Planning, Organizing, and Acting to
Support the Economy
Common end goals:
Tax base
stability and
growth
Diversification
of economy
and tax base
Wealth
creation and
diversification

Economic Development is Accomplished
Through…
Tools and techniques:
 Business retention and expansion
 Business attraction
 Global trade and foreign investment
 Workforce development
 Business technical assistance
 Innovation and entrepreneurial support
 Quality of place/place-based development
 Community development
As well as:
 Planning
 Organizing
 Implementation
 Resource development

More than just goals and tools!
Economic development operates within a
dynamic system of:
People Networks Organizations
Key functions: Interactions, relationships,
communications, collaboration

Economic Development: A Holistic System
Workforce Business
Attraction,
Retention &
Expansion
Local & Regional
Economic
Development
Quality of
Place
Innovation
Entrepreneurship
Incubation
Acceleration
Real Estate
Sites
Infrastructure
& Planning
Land and Site
Development
Redevelopment
Downtown
Corridor &
District
Development
Land Use
Regs
Zoning Planning Marketing
Place-
making
Elements a Municipality can Affect

Trends Affecting Our Economic Future
Workforce.
Workforce.
WORKFORCE.
Ecosystems
Tech of
Everything
Quality of
Place
Rapid Change
and
Uncertainty

Workforce
Since we emerged from the
financial recession of 2008-
09, access to talent has
become the top challenge
identified by companies
everywhere we work, across
all sectors. Onondaga Community College
Short term training that leads to living wage jobs.
Image Source:
http://www.sunyocc.edu/index.aspx?menu=979&collgrid=552
Phlebotomist Medical Billing
Line Cook Manufacturing

Workforce Trends
• Workforce is regional, not local
• Diversity – immigration – movement from a problem
to be dealt with to economic opportunity
• No one answer, all of these are important:
• Service jobs
• Middle skills jobs
• High tech
• Technical and soft skills
• Lifelong blended learning – traditional as well as non-
tradition higher education – task economy
• Growth of the gig economy and independent workers

Tech of Everything
It’s no longer only about precision
and advanced machinery. Digital
technologies and platforms are
transforming every sector - Internet
of Things (IoT), data science and
analytics, virtual and augmented
reality, AI, sensors and more!
Everything is connected and
communicating.
Trends Affecting Economic Future
Technology Alliance of Central NY (TACNY) –
Mission Controllers at Pine Grove Middle School
Healthtech
Fintech
Industry 4.0 - Manutech
Supply Chain Tech

Technology Trends
• Smart Communities
• Gigabit demand –delivering a gig of speed is the new goal.
Demand being driven by:
• Mobile consumerism, governance, etc.
• Cloud based services
• Big data
• Tele-health
• 3-D printing and related manufacturing technologies
• User content provision – uploading data, videos, audio, etc.
• Entrepreneurs and small businesses
• Demand for redundancy, reliability, and choice/competition
• Internet of things, artificial intelligence

Ecosystems
The strength of an economy
depends on not only what
assets it has, but how those
assets connect and interact
internally and externally.
• Innovation & entrepreneurship
• Building trust within networks
• Creative collisions ESHIP Summit 2017: Ecosystem
Builders 2025 Vision

Place
Trends Affecting Competitiveness
People want authentic,
connected environments that
inspire creativity and generate
the exchange of rich ideas that
will support their own personal
and professional pursuits.
Talented people aren't looking
for a job; they are seeking an
environment that stimulates and
inspires.
Downtown Syracuse

Place-Based Economic Development
• Geography still maters: access to workers/talent, access to
market, housing, transportation and logistics, and digital
infrastructure & culture
• High quality, diverse amenities - attract and retain workforce
• Buy local, regional sourcing, local and regional branding
• Sustainability and resiliency
Trends Affecting Competitiveness

Questions Comments Discussions

Economic Development
Success Requires Implementation!

Implementation “Must Haves”

Factors for Economic Development
Implementation Success
Trust
Internally and
externally
Process &
Procedures
To build trust in the
process
Leadership
Adaptability and
leading through
uncertainty
Communications
Open and active,
across networks
Capacity
Ability to function
within a system of
networks
Adaptability
Respond and adapt to
external changes
New Funding Models
Reduce reliance on
government entities
Ongoing assessment
Continual improvement
and efficient use of
funds

Strategies and Actions Should Be:
Compatible - with community vision
Feasible - given strengths & weaknesses
Implementable - given leadership & resources
Change-making - addresses difficult and urgent challenges
Innovative - enables forward movement on promising
opportunities though new and innovative ways

Implementation “Must Haves”
• Shared sense of urgency
• Clearly articulated vision and
commitment
• Local champions
• Widespread participation and buy-in
(or rather “join in”)
• Good information (not necessarily
perfect)
• System for measurement for learning,
adjusting, building trust

• Lack of shared community vision –
polarity
• Apathy or complacency – satisfaction
with status quo
• Poor working relationships among
stakeholders
• Feeling of disconnect among citizens,
leaders
• Inadequate volunteer support
• False expectations and impatience
• Lack of leadership
• Consumed by data and information
Common Barriers

• Don’t bite off more than you can chew! Break
projects into smaller digestible components
based on your organization’s and partners’
capacity to implement
• Understand what you can have impact over – i.e.
at local level you can impact land-use, zoning,
permitting, customer service
• Give collaboration and engagement within
region, diverse stakeholders, and the public more
than lip service – design and implement together
• Get comfortable making collective decisions
without perfect information and predictable
outcomes
• Market externally AND internally
Lessons From the Field

Camoin Associates 24
Sample Action Implementation Matrix

Market
Feasibility
Financial
Feasibility
Citizen/Political
Feasibility
Organizational
Capacity
Technical
Feasibility
Ingredients for a Successful Project

Economic Development Tools –
Market Analysis

Understanding the supply and demand in the
market for economic uses:
• Residential
• Commercial
• Industrial
• Specialty
Local and regional supply and demand with
consideration to national and global trends
Market Analysis

Residential Market Analysis
Types
• Single-family, single units
• Multi–family, multi-units
• Continuum of care: aging, independent, assisted, nursing
Variations
• Seasonal vs year-round vs short-term rental
• Market vs affordable ownership vs rental
Key factors being determined through analysis:
• Level/volume of supply and demand
• Style and type of housing
• Amenities
• Price points

Data to determine demand:
• Population growth
• Population characteristics:
o Age
o Income
• Household size and make up
• Market segmentation
• Employment status
• Commuting trends

Data to determine supply:
• Number units
• Units by type
• Stage of development:
Actual, permitted, subdivision approvals
• Age of units
• Vacancy amount and rate
• Rental vs ownership
• Construction costs
• Economic environment and growth trends, local,
regional, national, global

Key data sources:
• Census of Population and Housing www.census.gov
• On The Map https://onthemap.ces.census.gov
• Department of Labor – Maine
www.maine.gov/labor/labor_stats/index.html
• Department of Labor - US www.bls.gov
• Municipal Offices
• Developer/builder/broker interviews
• ESRI www.esri.com/en-us/home
• EMSI www.economicmodeling.com
• CoStar https://costar.com

Commercial Market Analysis
Types
• Style and type Class type - A, B, Co-working
• Amenities
• Price points – lease and sale
• Employment trends and projections in “office demand
industries”
• Commuter patterns – where workers come from and go to
• Transportation and telecommunications infrastructure
• Workforce/talent
Office
Retail/
Restaurant
Hotel Recreation

Commercial Market Analysis
Key data sources:
• Department of Labor – Maine
• Municipal Offices
• CoStar https://costar.com

Retail/Restaurant/Hospitality/Recreation
Market Analysis
• Amenities
• Transportation and telecommunications infrastructure
• Population - Daytime vs nighttime
o Seasonal demand and visitation
o Age
o Income
o Education
o Commuter patterns – where workers come from and go to
• Market competition in region - market area retail gap
analysis – sales vs expenditures
• E-commerce trends

Retail/Restaurant/Hospitality/Recreation
Market Analysis
Key data sources:
• On The Map https://onthemap.ces.census.gov/
• Department of Labor – Maine -

Types:
• Large
• Small
• Flex
• Heavy, light, warehouse/logistics integrated
• Economic growth
• Presence and growth in manufacturing, warehousing and
logistics
• Infrastructure: energy, transportation, logistics
• Employment and wages
• Permitting Land/building availability
Industrial Market Analysis

Industrial Market Analysis
Key data sources:
• Department of Labor – Maine -
• Municipal offices

Economic Development Tools –
Feasibility Analysis

Understanding the financial conditions investment
• Costs and benefits
• Opportunities and constraints
• Likelihood for a return on investment
For economic development include both public (fiscal
impact analysis) and private (pro-forma) financial
feasibility
Important to note: a project can be feasible in the
market (there is demand in excess of supply) and not
be financially feasible (the financial conditions don’t
warrant the risk/investment
Financial Feasibility Analysis

Public Fiscal Impact Analysis
• Costs vs benefits (revenues) to government entity – for
development projects typically on local government
Key concepts of fiscal impact: Average vs marginal cost
• Average - use the average per unit cost to estimate
future impacts of new activity
• Marginal - what is the “added new” amount resulting
from just new activity - requires understanding how
much new activity can be absorbed without adding new
capacity i.e. building, vehicles, employee

Costs:
• Operating for supporting
programs and services -
ongoing
• Infrastructure – water, sewer,
roads, facilities, etc. – fixed
• Debt
• Opportunity cost – how it
compares to other investments

Revenues:
• Taxes
• Fees and charges
• Other

Private Feasibility Analysis
• Costs vs income
With considerations for:
• Level of initial investment
• Internal Rate of Return (IRR)
• Debt service
• Cash flow
• Time value of money – net present value

What is a pro forma?
 Set of calculations that projects the financial return of a real estate
project
 Shows cash flows to a developer/investor over time (typically 10 years)
 Assumes property is sold off after 10 years
 Predicts the future
 Built on MANY assumptions
 Lots of real estate jargon
 Challenges?

Pro Forma Inputs
 Land and Site Costs
 Construction Costs
 Operating Assumptions
 income and expenses
 Absorption
 Real Estate Taxes
 Project Financing
 Capitalization Rates

Two Measures for Feasibility
 Internal Rate of Return (IRR)
 What is the return of a
project for a
developer/investor?
 Excel IRR formula using
project cash flows (years 0-
10) as range
 Target IRR varies significantly
by project and investor
 15% is a commonly used “rule
of thumb” for market-rate
projects
 Debt Service Coverage Ratio (DSCR)
 Will the project generate enough
income to cover debt service
payments?
 1.25 is the standard minimum

Pro Forma Template
 Easily enter up to 10 use types
 Ability to compare “apples to
apples”
 How do uses compare on a SF basis?
 Which uses are subsidizing others?
 What’s killing the project?
 Calculates IRR, DSCR, and Funding
Gap

So your project’s a dud, now what?
 Understand what’s driving the low return
 High construction costs
 Low rents
 High taxes
 Slow absorption
 How can these factors be mitigated?
 Can costs be reduced by building a more modest product?
 How far can rents be pushed in the market?
 Look for alternative sources of capital to close the funding gap
 Tax credits – historic, housing, new market, etc.
 Abatement programs
 TIF
 Grant programs

What is Tax Increment Financing (TIF)?
• A financing method used to catalyze economic
development.
• It allows future property tax revenues from
development project to be dedicated and utilized to
support the project and related economic
development.
• Property tax benefits from project used to help finance
infrastructure enhancements related to / required for
project development and/or project costs.
• TIF can be utilized to support public and private
development costs.

Purpose of TIF
• The State enables municipalities to utilize TIF’s to
achieve the goals of:
• New employment opportunities
• Improve and broaden the tax base
• Improve the general economy of the State
• To reach these goals municipalities can use TIF’s for
improving districts within their boundaries for the
following kinds of development:
• Industrial, Commercial
• Transit-oriented
• Arts
• Residential (in support of commercial development or
affordable housing)
• Downtown

Property Value and Fiscal Formulas
• Property valuation impacts the $ amount municipalities:
• Receive in state aid for education and municipal revenue
sharing
• Pay in county taxes
• Formulas based on the premise that the higher the
property valuation, the wealthier the community and
therefore the less it should receive from the state and
the more it should pay to the county.
• An increase in property valuation results in:
• Less state aid for education
• Less municipal revenue sharing
• More county taxes paid

TIF Bottom Line
• Tax Increment Financing (TIF) allows
municipalities to "shelter" increases in
valuation resulting from economic
development from state valuation increases
for up to 30 years.
• This allows municipalities to avoid losses
due to state and county fiscal formulas.
• However, revenues from "sheltered"
valuation under the TIF program cannot be
used for General Fund purposes and must be
used for specified purposes related to the
project. These are determined at the time
the TIF agreement is developed and
approved.

TIF Bottom Line
• TIF can support economic development and be a fiscal
benefit - If the municipality wishes to support economic
development as a matter of policy, TIF offers an opportunity
to significantly reduce revenue losses due to state and county
fiscal formulas
• Revenues must be used for specified allowable uses and not
General Fund Purposes
• Revenues can be shared between municipal uses and/or
incentive to developer/business
• Can be structured so that even with incentive to
developer/business, the municipality is better off fiscally than
if it were not to provide TIF – due to formula impacts

TIF Tips
• Fit use of TIFs into long-term economic development
strategy
• Consider TIF within mix of financing options
• When using TIF revenues to benefit businesses/developers,
what you provide to one will be serve as benchmark for
future requests
• TIF policies can help direct decisions on when and how to
use, can be tailored to meet community’s long term
objectives
• Impact Analysis can be used to better understand fiscal
impacts of projects and use of TIF
• Once TIFs used, implement system for tracking values,
revenues, and expenditures throughout the duration

Types of TIF in Maine
• Economic Development
• Downtown
• Transportation Oriented
Development
• Affordable Housing

Definition of Downtown for Purposes
of Tax Increment Financing
The traditional central business district of a community
that has served as the center of socioeconomic
interaction in the community, characterized by a
cohesive core of commercial and mixed-use buildings,
often interspersed with civic, religious and residential
buildings and public spaces, that are typically arranged
along a main street and intersecting side streets and
served by public infrastructure.

Downtown Tax Increment Financing
• Must be part of a downtown
redevelopment plan
• In addition to review for
statutory compliance by the
Commissioner of DECD,
require review by the
Department of Agriculture,
Conservation and Forestry;
and the Department of
Transportation to assist the
DECD Commissioner in
making a decision.

Downtown Tax Increment Financing
Districts
• Offer greater flexibly than traditional Economic
Development TIF’s
• Are exempt from state caps on amount of acreage and
valuation which municipalities can place within all their TIF
districts
• TIF revenues can be used to finance public facilities and
improvements if the public facilities or improvements are in a
downtown tax increment financing district and the entire tax
increment from the downtown tax increment financing district
is committed to the development program.
• TIF revenues can also be used to finance costs of constructing
or improving facilities or buildings leased by State or
Municipal Government that are in approved downtown tax
increment financing districts.

Why Downtown’s Matter
• Downtowns and community centers are the heart and soul of
community rich in history. They are difficult to create and therefore
must be nurtured.
• They are unique living systems that foster important interactions
and collisions (residents, workers, businesses, visitors, entrepreneurs,
artists, etc.) in a connected environment and are therefore critical to
the emerging local and regional economies.
• Downtown areas and community centers offer places where people
from different cultures, ethnicities, generations, socioeconomic
statuses, etc. are brought together, creating a mix of perspectives
and ideas that simply cannot be found in suburban and exurban
areas but are essential for innovation.
• Strategically designed mixed-use projects and transit-oriented-
development systems combined with connected smart cities
applications stimulate interactions that are necessary to drive a
strong economic system. Downtowns are places where this all
comes together!

Recent Downtown
Tax Increment
Financing Districts
• Yarmouth
• Lisbon
• Rockland
• Cape Elizabeth
• Portland
• Houlton

Tax Cuts and Jobs Act of 2017
Opportunity Zones Program provides tax
benefits to encourage private investment
in low income communities
Purpose

Source: https://go.bakertilly.com/contactbtc0618
68
Designated
Census
Tracts

1. Defer Existing Gain
3. Eliminate Future Gain
2. Reduce Existing Gain
Tax Benefits

The Investor has a pre-existing capital gain.
Instead of paying today, pays in 2027 when
filing 2026 return.
Time-value-of-money (@9% ~ 50% reduction)
70
1. Defer Existing Gain
Tax Benefits

The Investor has a pre-existing capital gain.
If QOF held at least 7 years, a 15% step-up in
basis, therefore a 15% reduction in tax.
If QOF held at least 5 years, a 10% step-up in
basis.
71
2. Reduce Existing Gain
Tax Benefits

72
Tax Benefits
If the Investor holds to QOF investment for at
least 10 years, the gain on the OZ investment
can be fully sheltered from tax.
(cost basis raises to FMV)
3. Eliminate Future Gain

IRR could be increased by
2-3 percentage points.
e.g. annual return of 8%
becomes 11%
Marginal project becomes
an investment-worthy one.
73
What does
this mean?
Tax Benefits

QOZ Fund
QOZ Business
via Partnership
or Stock
QOZ Business
Property
$
???
Investor
with a Capital Gain to Shelter
$
$ Tax
Benefit
Business
investment
return
74
Definitions and Deal Structure

1. Qualified Opportunity Zone (QOZ) – Census Tracts as
designated by Treasury
2. Qualified Opportunity Fund (QOF) – Investment vehicle
taxed as partnership or corporation, formed to invest in
qualified OZ property. Self-certifies to IRS and meets tests
annually (90% of assets in OZ property).
3. Qualified Opportunity Zone Property (QOZP) – Can be
either (a) ownership of stock or partnership interest in a
qualified OZ business, or (b) qualified OZ business property
4. Qualified Opportunity Zone Business Property (QOZBP) –
tangible property purchased after 2017, either new
construction or substantial renovation, used in OZ

5. Qualified Opportunity Zone Business (QOZB)
a) 70% of tangible property is QOZBP – i.e.
construction/renovation after 2017 in an OZ
b) 50% of gross income derived from OZ
c) “Substantial portion” of intangible property used in the
conduct of business
d) Less than 5% of property is non-qualified financial
property (think: securities, but excludes working capital
held as cash or cash-equivalent)
e) Not a “sin business”
77

QOZ Fund
(QOF)
QOZ Business
via Partnership
or Stock
QOZ Business
Property
Investor
with a Capital Gain to Shelter
$180 days from
gain*
90% rule six
months after first
QOF month
Up to 31
months for
real estate
“Original Use”
or Substantial
Renovation
$
$
Cannot be a
disregarded
entity for tax
Benefit #3 – Elimination of
Future Gain – Only
Applies to the QOF Itself

79
Example Deal for Manufacturer
2019
Manufacturer wants to expand, needs to make a $40mm investment in real
estate. Investor has a $10mm capital gain from sale of stock in Jan 2019, forms
QOF in Feb 2019 and invests $10mm – can now defer tax until Dec 31, 2026
2019-2021
In March 2019, QOF creates RealEstateCo and invests $10mm. RealEstateCo
borrows $30mm, buys land, builds $40mm building, leases it to Manufacturer on
a gross lease (not NNN)

Example Deal for Manufacturer
80
Dec 31, 2026
Investor pays capital gain on only 85% of original gain (i.e. $8.5mm vs $10mm)
2029
Investor sells interests in QOF for large gain. Because held more than 10 years,
basis is stepped up to FMV, so gain is zero. No tax due.
Return w/o tax benefits = 7%, investor says “no”
Return w/tax benefits = 10%, investor says “yes”

Articles and other content:
www.camoinassociates.com/navigator
CDFA Guidance:
www.cdfa.net/cdfa/cdfaweb.nsf/resourcecenters/OZ.html
Articles, Content, Investor Fund Lists: www.novoco.com/
Best Maps: go.bakertilly.com/contactbtc0618
81
Resources

Economic Development
Special Topics

Equity & Inclusion in Economic
Development
Tension between:
Growth, Jobs, Wealth, Tax Base, Investment
VS
Access, Wealth Distribution. Opportunity for all

Equity & Inclusion in Economic
Development
Ways to Address:
• Affordable housing
• Accessible and affordable transportation
• Workforce development – pathways and
lattices
• Healthy community initiatives
• Support for incumbent small businesses and
entrepreneurs
• Asset based development

www.camoinassociates.com/navigator
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