Potential Local Economic Impact of EPA’s Proposed Coal Plant Regulations

by Rob Camoin 9. April 2014 15:54

Potential Local Economic Impact of EPA’s Proposed Coal Plant Regulations

The environmental impacts of coal fired power plants, in the form of acid rain, have been thoroughly studied and well documented.  It is not the intention of this article to support or refute those studies or claims, but rather to acknowledge there are local economic changes underway as a result.  In September 2013, the US Environmental Protection Agency (EPA) published its “new source performance standards” (NSPS) or regulations limiting the amount of emissions permitted for new coal and natural gas fired power plants.  Many economists suggest that these, and the still-to-come regulations for existing coal plants, are going to reduce new plant construction, force the closure of existing power plants, reduce the supply of energy and eventually result in higher energy costs and employment reductions, particularly for high-energy users like manufacturers.  Additionally, the availability and relative affordability of natural gas through newer extraction technologies has created opportunities for cleaner gas fired electricity production putting further downward pressure on coal demand.  While these economic scenarios may or may not all come to fruition, there are market forces that, combined with increased regulation, will have significant influence on plant closure decisions. 

Whether regulatory or market force driven, the economic and fiscal implications could be significant for states and local communities that host existing coal fired power plants or produce coal.  The purpose of exploring this topic over the next couple of months is to inform readers and help the economic development community assess whether the market and regulatory environment will impact their economies and tax base.  In this article, the first of a series, I will introduce the regulatory and market factors that are transforming the production of electricity. The second article will include a summary of an actual facility threatened by closure in Tompkins County, NY and what this closure could mean to local jobs and tax revenue.  Finally, a third article will explore the technological advances being made in clean coal and how coal producing communities might better prepare themselves in what is becoming a high-tech globally competitive industry.

But first, if you are an economic development official wondering if this topic is even relevant to you, click here to view a map with the location of existing coal fired power plants.  For a map that illustrates the production of coal by state, click here, and for more information about how much of your state relies on coal generated electric power, click here.

If you continued reading this article, you probably saw from the links above that coal produced electricity touches almost all of us, some more than others.  Most of us either reside in a state that produces it (mining), you have a power plant in your region that uses coal to produce energy or it is a significant source of energy for your businesses. 

So let’s get started with Coal Power 101 straight from the EPA. Depending upon the information source, approximately 40-50% of the United States’ electricity is generated from coal.  Coal is a fossil fuel formed from the decomposition of organic materials that have been subjected to geologic heat and pressure over millions of years. Coal is considered a nonrenewable resource because it cannot be replenished on a human time frame. The activities involved in generating electricity from coal include mining, transport to power plants, and burning of the coal in power plants. Initially, coal is extracted from surface or underground mines where it is then cleaned or washed to remove impurities before it is transported to a power plant—usually by train, barge, or truck. Finally, at the power plant, coal is burned in a boiler to produce steam that is run through a turbine to generate electricity. When coal is burned, carbon dioxide, sulfur dioxide, nitrogen oxides, and mercury compounds are released. For that reason, coal-fired boilers are required to have control devices to reduce the amount of emissions that are released, but these filters cannot capture all the harmful emissions.  According to the EPA, the average emission rates in the United States from coal-fired generation are: 2,249 lbs/MWh of carbon dioxide, 13 lbs/MWh of sulfur dioxide, and 6 lbs/MWh of nitrogen oxides.1

Now a quick primer on the EPA’s new NSPS. Concern over global warming has resulted in new regulations that have established emission thresholds for U.S. plants.  Among these thresholds, the new regulations set a maximum for new coal-fired power plants of 1,100 pounds of CO2 equivalent per megawatt hour. Based on research conducted by David W. Kreutzer, Ph.D. Research Fellow in Energy Economics and Climate Change at the Heritage Foundation, the average existing U.S. coal-fired power plant emits almost 1,800 pounds of carbon per megawatt hour and even the latest, most efficient, supercritical power plant in West Virginia emits 1,700 pounds per megawatt hour.2    

The EPA has acknowledged that the energy industry in this respect is in transition and that the abundant supply of low cost natural gas and reduced electricity demand, combined with growing environmental concerns and subsequent increased regulations around coal, are expected to eliminate investment in new coal powered plants.  In fact, no new plants are expected to be constructed in the foreseeable future. 

So what does new plant regulations and changing market conditions have to do with existing coal powered plants, you ask?  With regulations for new plants published, the EPA is now turning its focus to existing coal powered plants.  New NSPS for existing plants are expected to be introduced this summer, with a final rule in June, 2015. The emission thresholds that are established will determine which coal plants may then need to invest in additional control devices, convert to gas or consider closure.  It appears that the uncertainty over future regulations combined with market conditions is already impacting investment decisions regarding existing coal plants.  The U.S. Energy Information Administration (EIA) recently reported that nine additional existing coal-fired electric power plants have been scheduled for retirement. EIA has revised its forecast for coal-fired plant retirements upward twice since November, 2013. The newest retirements reduce generating capacity by 5.4 gigawatts, on top of the 20 gigawatts of retirements announced by EIA earlier this year. These losses are in addition to the 40 gigawatts of retirements it forecast just four months ago. Most of these retirements, totaling 65.4 gigawatts, will take place by 2017.3

Whether through increased regulatory uncertainty with coal power production or the market forces of natural gas, there are clearly two trends now occurring: 

 

1.     New coal sourced production plants will be reduced if not eliminated in the U.S. for the foreseeable future; and,

 

2.     A portion of existing coal sourced production facilities will continue to be permanently closed.

 

So what could this all mean to your economy?

 

1.     If there is a coal powered facility in your community and it exceeds the final emission thresholds established by the EPA there could be a direct loss of well-paid power plant jobs.

 

2.     Property assessments for operating power plants, particularly in rural regions, are typically significant relative to a taxing jurisdiction’s total assessed value.  These taxing jurisdictions, including school districts, could be severely negatively impacted as permanent closure will affect valuations.

 

3.     While electric demand has been declining, an eventual increase in demand after the supply of power has been reduced will put upward pressure on prices for resident and commercial users until an equilibrium of supply and demand has been restored.  Increasing prices, relative to other locations around the globe (i.e. China continues to rapidly expand its power supply system) will impact U.S. global competitiveness.

 

4.     U.S. coal production during fourth quarter 2013 totaled 239.1 million short tons. This was about 6.8% lower than the previous quarter and 4.2% lower than fourth quarter 2012. The fourth quarter of 2013 coal production was the lowest since the second quarter of 1993.1  If you are a community and state that is a net coal producer, declining demand will likely reduce mining and extraction employment.

In the follow-up article next month, we will identify areas of the country that are most vulnerable to these energy trends and conclude by exploring the local case of the Cayuga Operating Company. The Cayuga Operating Company is a coal powered electric production plant located in Tompkins County, New York facing closure. We will explore what this closure could mean to local jobs and tax revenue for the community.

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Data Love: U.S. Census Flows Mapper

by Christa Franzi 9. April 2014 15:35

U.S. Census Flows Mapper Overview

The U.S. Census Bureau created the Census Flows Mapper to provide data users an easy way to analyze county-to-county migration patterns across the U.S. The application consists of an interactive mapping tool to visualize migration flows and provide quick access to migration data with a one-click download.

Website:  http://flowsmapper.geo.census.gov/flowsmapper/map.html

Geographies: U.S. Counties

Years available: ACS 5-year surveys 2006-10, 2007-11

Purpose: Map the county-to-county migration flow patterns across the United States.

Application for EDOs: One of the toughest economic development challenges for many communities across the U.S., particularly in smaller more rural communities, is population loss. The U.S. Census Flows mapper can help economic developers understand where their residents are moving to based on income and education attainment characteristics, which can then be used in resident retention strategies. Conversely, this tool can be used to gain insight into the types of people attracted to a community and where they are coming from.

See how we are using this data in Somerset County, ME in the Featured Indicator: Net Migration Flows.

Quick tips: There are several small tabs across the top of the map window that provide additional data and customization functions that let you save the data to Excel or export the map to a PDF. If you are looking for definitions, click on “About This Map”.

Not Available!?!?!: As you choose different education or income characteristics in the mapper, you will notice that there are a lot of grey counties, which means “not available”. ACS has strict disclosure avoidance measures and if not enough people responded to the survey the data is not reported.

Want more info? Here is a helpful Tutorial.

Questions this data can answer:

  • From which counties did we gain the most residents?
  • We seem to be losing “affluent” households. Are they moving to adjacent counties or farther away?
  • From which counties did we gain the most residents with a college degree?
  • How much domestic migration is occurring between our county and other counties across the U.S. with similar industry clusters? (Would need to combine migration data with information form the U.S. Cluster Mapping Project)

  

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Featured Indicator: Net Migration Flows

by Tom Dworetsky 8. April 2014 10:45

Net Migration Flows

Camoin Associates is working with the Kennebec Valley Council of Governments (KVCOG) on an economic development plan for Somerset County, Maine, a largely rural county that is a popular destination for outdoor adventurers. As part of this project, we are working with KVCOG to gain a better understanding for what types of people, visitors and residents, are attracted to this unique rural region. To help answer this, the Camoin team has been analyzing socioeconomic and demographic data, including data from the U.S. Census Bureau’s Census Flows Mapper. This useful resource shows net migration flows for every county in the U.S.

The charts below show the counties with the most inbound and outbound net migration for Somerset County, based on 2007–2011 American Community Survey data. During this period, there were a total of 1,171 inbound migrants and 1,405 outbound migrants, yielding a net outflow of 384 residents. The color of the bars indicate the county’s Census region. The charts serve to answer the following questions:

·         From which counties did Somerset County gain the most residents?

·         To which counties did Somerset County lose the most residents?

We see that the county that sent the most residents to Somerset County was Waldo County, Maine, located just to the southeast. In fact, three of the top four counties were in Maine, and six of the top ten were in the Northeast. We uncover a similar pattern for outbound migration, with the top two destination counties of Somerset outbound migrants being Kennebec and Cumberland counties in Maine. Moreover, seven of the top receiving counties were located in the Northeast. While it is expected that migrants would be more likely to move between spatially proximate counties, there are several counties that appear to be geographic outliers. The second most popular county of origin was Comal County, Texas, with counties in Alabama, Arizona, and Virginia also making the top 10. The most popular destination counties included Montgomery County, Texas; Brevard County, Florida; and Buena Vista County, Iowa.

 

 

Why is this important?

Demographics are a key component to understanding the economy of a region. Analyzing migration patterns can provide insight into what attracts people to a certain area, and insights gained from migration analysis can be used to guide further research. In the case of Somerset County, we might try to find out what impelled Somerset residents to move to neighboring Kennebec County, or what drew Waldo County residents. Additionally, we might explore what attracted the unexpectedly large number of migrants from certain counties in other regions. Net migration data allows us to ask the right questions, and the answers can then be used in crafting the economic development plan.

Net migration data for Somerset County, Maine, can be downloaded here.

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Historic Mill Building Reuse Project – Success through Persistence and Multifold Incentives

by Michael N'dolo 4. April 2014 13:28

An example of a transformative renovation project that took everything and the kitchen sink.

In a previous blog post, we covered a presentation I recently gave at the NYSEDC conference on using Salesforce.com for economic development purposes. At the same conference, a different panel presented on the immensely interesting renovation saga of the Harmony Mills campus in the City of Cohoes, New York. Since Cohoes is a long-standing client of ours, we were already familiar with the basics of the redevelopment. However, the story is such a good one that we wanted to share it and hopefully inspire others like it elsewhere.

 

The story of Harmony Mills is a familiar one all across the country—a beautiful mill complex built in the 1800s falls into disrepair and triggers the physical deterioration of the surrounding community as the mill is hit with reductions and, ultimately, closure. By 1995, after a significant fire, the complex was taken for back taxes. But, as a phoenix rising from the ashes, the mill was rescued by a “foreigner,” which in this case was a developer from downstate.

Much to the shock of the community and its neighbors, the developer proposes nothing less than top-of-the-line luxury apartments. Here, you need to understand a few elements of the City of Cohoes. Cohoes is home to not only Harmony Mills, but also to Cohoes Falls, the second largest set of waterfalls in the state (second only to its much better known cousin, Niagara Falls). It is also one terminus of the 787 freeway, the other being the large complex of state government buildings in Albany. So, there is a high-speed and direct connection between Harmony Mills and the immense campus of state administrative office buildings. By choosing to live in Cohoes, those workers not only enjoy a swift and sure commute, but, at Harmony Mills, they could relish the scenic and majestic view of the falls from their bedroom window coupled with the fairly undeveloped opposing side of the Mohawk River. It is a beautiful marriage between city and country, the only adversary to which was the terrible condition and needs of the mill buildings themselves.

The details and iterations of the project are too numerous to explain here, but suffice it to say that planning and implementation took almost 10 years. Here are all the pieces that needed to come together:
 

·         Cohoes was designated as a New York State Empire Zone, affording Harmony Mills a deep set of income tax rebates, including a critical refundable tax credit that would offset the complex’s property tax burden.

·         The community had to approve zoning changes and be comfortable with a project that would, in effect, operate like a gated community (necessary, unfortunately, due to the perceptions of crime being an issue in the City).

·         The Industrial Development Agency had to develop a new 20-year PILOT program that would work in conjunction with the Empire Zone benefits to fill in the gaps.

·         Because of the historic nature of the property, the developer needed to secure approvals from both the NPS and the state’s equivalent SHPO.

·         Numerous building code variances had to be approved to allow for both SHPO approval and realistic and feasible redevelopment.

·         HUD had to provide a loan guarantee for the bulk of the financing (yes, HUD does loan guarantees for luxury apartments).

·         And, do not forget that the project also required a non-local developer who had both significant capital and the ability to see past the history of the site and City to understand its potential. Cohoes also needed a developer who was both patient (i.e. would hold tight through years of approvals and conditions) and impatient (i.e. who would scold, cajole, and harry whoever needed it!)

·         Historic preservation tax credits valued at 20% of the eligible improvements (too complicated to explain) at the federal level.

·         For later phases, a further 20% matching state historic preservation tax credit (yes, cumulative to the federal incentive).

·         And, syndication of those tax credits to suitable tax credit investors to allow for short-term monetization (critical for the pro forma statements to work).

Whew! And none of the above describes the multi-year political and staff investment that the City made in the project to see it through to fruition. What did the City get out of its efforts?

·         Phase One was immediately successful (all units pre-leased) and led to Phase Two and Phase Three (i.e. successive buildings in the complex).

·         Additional phases are already under development for additional amenities and enhancements to both the site and the surroundings.

·         The City and School District have received LOTS OF TAX REVENUE, despite the PILOT agreement.

·         And, guess what? Exactly zero new public school students were added to the system. This was much in the design of the program, as young professionals were the target audience (along with empty nesters) and, after a couple of years with an infant, they either moved out to a house in the suburbs or sent their child to a private school.

The net effect was a windfall for the City and School District from a fiscal point of view; however, perhaps the most important impact of the project was that it radically changed the entire region’s perception of the City of Cohoes. Cohoes became recognized as a great bedroom community and the city has since enjoyed no fewer than 2,000 new housing units completed or in-progress to be completed by 2016. This is a massive transformation for this small community that had seen very little real property investment in decades.

Lessons

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Land Assembly: A Brief Overview

by Christa Franzi 4. April 2014 10:02

What is land assembly?

Land assembly is a process of forming a single site from a number of properties, typically for economic development purposes. In some communities - especially in dense urban areas - an individual site may not be conducive to the type of development or redevelopment desired by the community. Working with property owners and other stakeholders to combine contiguous properties can create larger parcels of land more favorable for development projects.

Why should communities assemble land?

From a developer’s perspective, development projects are all about time to market. Assembling properties one piece at a time is typically a very lengthy process; especially when the subject properties have environmental or legal challenges associated with prior use. This is a very costly process for a developer to undertake on their own and, as a result, they are typically attracted to larger tracts of undeveloped land on the fringes of developed areas. Through strategic land assembly, communities can position properties in their urban core to appeal to the development community and be able to attract a wide range of development. 

What is the process?

Typical steps involved in the land assemble process include:

·         Build a team: Land assembly requires a strong team that can work together throughout the process. Teammates should include developers, real estate professionals, economic development professionals, lenders, and public partners.

·         Inventory the property: Most areas identified for possible land assembly include both publically and privately held properties. Because publically held land is easier to work with, map publically held properties first and then identify adjacent and nearby privately held properties that are necessary to complete the site. Once the sites that make up the redevelopment area are identified, document who the property owners are and any known barriers to redevelopment for each site – this is the first test of feasibility.

·         Develop a plan: A sound redevelopment plan outlining clear direction for redevelopment of the properties is essential. To raise support and buy-in for the project, involve the development team and property owners in the development of the plan. Conduct market research to guide the strategy set forth in the plan.

·         Form a land bank: The purpose of a land bank is to purchase properties for future development. Land is “banked” until there is an increase in value or a feasible development plan is identified. This is a great tool in areas with many vacant and abandoned properties. Each state has different rules for land banking, a summary of Pennsylvania’s legislation enabling municipalities to create land banks can be found here: http://www.philadelphiafed.org/community-development/publica
tions/cascade/82/03_pa-legislature-enables-municipalities-to-cr
eate-land-banks.cfm

·         Acquire the land: Private land assembly agreements can take many shapes, including land trusts, limited partnerships, joint ventures, and community cooperatives. With a redevelopment plan and legal structure for purchasing the property in place, bring landowners together to sign a contract to pool their land. In some cases, eminent domain may be necessary but may be avoided by engaging property owners early, including them in the planning process, and finding ways to fairly compensate them.

·         Market to developers: Issue a request for proposals (RFP) and market the land bank and the redevelopment plan to the development community. Rely on property owners and other members of the team to help with the marketing effort by demonstrating support for the project and providing access to their networks.

Innovative Approaches

Land assembly is a challenging process that requires creativity, negotiation and a good deal of problem solving. A unique tactic for areas with a lot of privately held land is an equity investment approach. This approach involves the creation of a development entity, such as a limited liability corporation, to acquire control of the assembled properties. Landowners receive shares in the future development in return for selling their property to the development entity. Additional details on the benefits and challenges of this approach can be found here: http://drcog.org/indexpf.cfm?page=WebBasedWorkshops

Additional Resources

·         U.S. Department of Housing and Urban Development: http://www.hud.gov/offices/cpd/about/conplan/foreclosure/landbanks.cfm

·         Center for Community Progress: http://www.communityprogress.net/about-pages-4.php

·         Smart Growth America: http://www.smartgrowthamerica.org/issues/revitalization/land-banking/

·         Land Banks and Land Banking: http://www.smartgrowthamerica.org/documents/ccp_land_banks.pdf

·         Land Assemble Districts: Harvard Law Review: http://www.harvardlawreview.org/issues/121/april08/Article_1487.php

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Data Love: U.S. Cluster Mapping Project

by Christa Franzi 3. March 2014 20:44

U.S. Cluster Mapping Project Overview

Based at the Harvard Business School and supported by the U.S. Department of Commerce’s Economic Development Administration, the U.S. Cluster Mapping Project provides data and tools used to benchmark the economic performance of industry clusters across the United States. By arming regional leaders with powerful data and tools to understand their competitive strengths, the ultimate goal of this project is to strengthen U.S. competitiveness in the global economy.

A new version of the site is expected to go live later this month, but we just could not wait to tell you about this great data source.

 

Website: http://clustermapping.us/home/

Geographies: states, economic areas (EAs), metropolitan/micropolitan statistical areas (MSAs), and counties

Years Available: 1998 through 2010 (Data update expected soon.)

Purpose: Measure the performance and competitive strength of regional economies. Map community strengths and assets to support regional-focused economic development strategies.

Application: Aside from providing valuable insight into the economic strengths of your own region, this tool can be used to search for communities throughout the U.S. that have similar strengths, identify partners, and share best practices.

Quick Tips:

There are three groups of data:  

Clusters: This is the mapping tool, it allows you to explore the spatial extent of different industry clusters across the U.S. Use this to figure out where specific industry clusters are strong. Tom used the clusters tool for our indicator this month.

 

Regions: Through various charts and graphs, this set of data allows a deep dive into the makeup of clusters and subclusters within a specific region. Data on employment, job creation, and wages is provided as well as cluster specialization.

 

Performance: The performance data set offers a comparison of business environments across regions and includes data on patent performance and average wages.

The website offers a nice primer on cluster mapping here: http://clustermapping.us/methodology/cluster-mapping-a-primer/.

Don’t forget to tweet, post, and share your results using the new social share buttons. #datalove

Questions this Data Can Answer:

Our "Medical Devices" cluster has been growing rapidly in the past 5-years, where else in the northeast did this cluster add jobs?  

 

  (green = growth, red = decline)

 

“Processed Food” is one of the Binghamton, NY MSA’s top clusters. What are the top subclusters and how do they rank nationally?

  

 

  Which states are leaders in patents for fishing and fishing products? 

 

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The Role of Economic Development Organizations in Real Estate Development

by Rachel Selsky 3. March 2014 17:08

Last week, Christa and I attended an IEDC training course in Baltimore, MD that focused on real estate development and re-use. We are both working toward getting our Certified Economic Developer (CEcD) certification and this is one of the required courses.  While there was a lot of good information presented, the big take away was to know the essential “Eight Steps of Real Estate Development”. The eight steps are listed below, along with examples of how economic development organizations (EDO’s) can play a role in each step.

1: Predevelopment This is the “gut check” stage for the developer who is asking “Should I invest money here?” By providing information on zoning, workforce, market trends, etc. an EDO can help interested developers gain access to the information they need to make a preliminary go/no-go decision. Simply having access to this information without spending a bunch of time tracking it down can make a site more attractive to developers. 

2: Market, Financial & Political Feasibility – An EDO can make sure that the right partners are in place to make the project feasible for the developer. For example, an EDO should have done enough homework to make it easy for the developer to conduct a market analysis, have connections with funding institutions, and understand the current political landscape. Early legwork by the EDO will make your community and the site more attractive to a developer.

3: Site & Engineering Analysis – The site and engineering analysis is typically the developer’s responsibility, but the EDO can offer guidance as to the existing infrastructure, historical perspective, zoning and site plan requirements, and other aspects of the site to make the process move smoothly and efficiently.

4: Financing – The main role EDOs play in the financing step is finding ways to “close the gap”. A financing gap occurs when the cost of doing the project (land acquisition, construction, operation and maintenance) is higher than the projected income (rent or sale price). The EDO should be very familiar with all local, regional, state, and federal financing options including PILOTs, TIFs, grants, bonds, tax credits and other mechanisms that can make it possible to close the gap and make the project financially feasible and attractive for the developer.

5: Contractor Negotiations & Public Approvals – Sometimes the EDO needs to act as the “point guard” and offer the developer guidance through the public approval process.  EDO staff should be familiar with the process, all the key players, timing, and requirements so that they can swiftly and smoothly lead the way in getting the deal accomplished. Being up front about how long it will take to get various approvals is key – remove as much uncertainty about the process as possible.

6: Construction – During the construction phase there may be opportunities for the EDO to assist with infrastructure improvements, site preparation, and beginning the process of marketing the building. Additionally, during this time it can be useful for the EDO to assist with “earned marketing” and finding ways to make the project more visible, especially if the EDO had a role to play. This will lead to positive press for the developer, the project, and the EDO.

7: Marketing – The EDO can assist with marketing throughout the project by making sure the project and available space is listed on the website, connecting the developer with local real estate agents, and finding other ways to help make sure the project is leased quickly.

8: Building Occupancy & Management – Once the project is complete and the building is fully leased, the EDO should stay in touch with the property manager since they may have the most direct relationship to the businesses and may be more familiar with any issues they may be facing.  Working closely with the property manager can ensure that the EDO is made aware of early warning signs of businesses downsizing, moving, or closing.

Look for more information on development in the coming months. This is an important topic for communities and economic development organizations who are looking to develop specific sites as part of their economic development strategy.

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Featured Indicator: Industry Cluster Specialization

by Tom Dworetsky 3. March 2014 14:48

Industry Cluster Specialization

Camoin Associates has recently been involved in developing a Comprehensive Economic Development Strategy for the State of Vermont. In order to better understand Vermont’s economic environment, we have employed cluster analysis to identify industries that present competitive opportunities. For this month’s indicator, we examine statistics from the U.S. Cluster Mapping Project, a useful resource that offers data revealing the evolving pattern of regional economic specialization by industry cluster for U.S. metros, states, and economic areas.

In the chart below, we look at the top ten states by location quotient for an industry that plays a significant role in Vermont’s economy: aerospace engines. A location quotient (LQ) is essentially a ratio of ratios that measures an industry’s level of concentration within a particular location. In this example, it is the share of statewide aerospace engine industry employment relative to total statewide employment, divided by the share of national aerospace industry employment relative to total national employment. An LQ greater than 1 indicates a higher than average level of industry concentration relative to the nation as a whole. We see that Vermont is the state with the highest level of industry concentration for aerospace engines, with an LQ over 9. In fact, four of the top five states are New England states, revealing an interesting spatial pattern with respect to where the industry decides to locate.

 

Why is this important?

In deciding how to go about advancing economic development at any geographic scale, it is essential to identify the competitive advantages and attracting factors of the location. Firms that benefit from agglomeration economies often consider the location of other firms in the same industry when making locational decisions. A state or region that is developing an economic development strategy can use cluster analysis to determine which industries it best attracts and craft a plan that is tailored toward pursuing firms within these industries.

Location quotient and employment data for the aerospace industry for all states can be downloaded  here.

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Will changing demographics affect what economic developers do?

by Rob Camoin 3. March 2014 14:21

One economic scenario and what it may mean for our profession.

Shifting national global demographics have economic implications.  The question for us is “How might this shift alter what economic development professionals do?”  The data is clear: demographics directly influence purchasing behavior, construction decisions, retail spending, and they indirectly affect manufacturing and many more industries. Household income and spending patterns in our 20's, 30’s and 40’s are very different then what we purchase in our 50’s, 60’s and 70’s. An increasing number of individuals that make up the largest demographic cohort, commonly referred to as the baby boomers, are now well into their retirement years. While some have had to postpone retirement and remain in the labor force in order to continue saving, the oldest segment of the baby boomers has retired, with a commensurate reduction in household income and thus spending and investment.  These older consumers are curtailing real estate purchases, reducing spending on durable goods and have begun drawing on, not saving for, retirement.

Take my parents for example: By most definitions, they represent the first year of the baby boomer generation. Since retiring from a long career with IBM in 1997, and after the 2008-9 recession, they were forced to be far more frugal. In fact, they just relocated their retirement residence in Florida for cost reasons. The ability to reduce their living expenses an additional $9,000 a year in mortgage, taxes and insurance played a big role in that decision. Since retiring 16 years ago, they now spend or invest on average $30,000 less a year. Those spending reductions have been accelerating in households around the U.S. for the last 5 years; much longer in countries like Japan, which began experiencing a similar demographic shift over 20 years ago.

It appears now that Japan’s demographics may have had a significant role in that country’s struggling economy.  When I worked in the financial markets in the late 1980’s, Japan’s economy was robust and admired.  The Nikkei average (Japan’s stock index equivalent to the Dow) was at 38,000. The Nikkei now sits around 14,500! At less than half that high-point value, it has been declining for more than twenty years because of negative economic growth.

In his book “The Demographic Cliff”, Harry S. Dent, Jr. argues that the long-term trend in the aging Japanese population is the root cause for its two decades of negative economic growth and that similar demographic trend in the U.S. and globally are now affecting all economies.  Not for a lack of effort, the Bank of Japan has been unable to use quantitative easing to pull itself out of its economic dilemma. This begs the question, “Will the Federal Reserve, European Union and others have the same result?”

So, if there is in fact a correlation between demographics and economic growth, and if the central banks are unable to influence the inevitable for at least another 10 years, how will this affect the economic development profession and what should economic developers be planning to do in a stagnant or even negative growth environment?  Here are my thoughts on where we should focus.  What are yours?

 

Performance Measurement - If you are not already, start measuring everything your organization does.  Funders are going to start asking more questions about your EDO’s performance in an increasingly underperforming economic environment.

 

BR&E - Business attraction and expansion efforts will be increasingly more difficult to accomplish.  You may have to focus your organization on retention and, more specifically, on ways in which your businesses can reduce operational costs such as energy, lease rates, taxes, etc.

 

Workforce - Through our cluster analysis and strategic planning work, we have spoken to thousands of CEOs and business leaders over the last 15 years. The overwhelming majority now tell us their number one barrier to greater efficiencies is finding and keeping good middle-skill labor.  While this issue may also be the result of demographic trends, it has been a decades long problem with no revolutionary solution in sight.

As the demographic implications become even more apparent, political leaders may finally be prepared to move this up on the national agenda. Until then, look to create privately sponsored partnerships that will help improve business efficiencies.  Also, be a voice to federal and state leaders that it is time to resolve this growing national labor crisis.

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THE SARATOGA SPRINGS CASINO DILEMMA – WHAT’S AN ECONOMIC DEVELOPMENT PROFESSIONAL TO DO?

by Michael N'dolo 3. March 2014 10:39

The economic development pros and cons of siting a resort casino in Saratoga Springs, NY

Casinos are all the rage in the Northeast these days.  New York State is siting four new full-scale resort casinos, and Massachusetts is siting a further three.  This is in addition to those in Connecticut and New Jersey, as well as the existing casinos sited on tribal lands and various other forms of gambling (slot machines and off-track betting parlors).  Camoin Associates has been busy in this domain, serving in support of one casino in the Catskills and in opposition to one in western Massachusetts (our report on the latter can be found here).  What we have found, in general, is that the arguments for and against casinos can be heavily influenced by the perspective of the speaker—particularly with respect to being the host community versus a surrounding community.  In general, the host community seems to get a windfall both economically and in terms of tax revenue.  Surrounding communities may get some benefits, but may be adversely affected by loss of business, congestion, and other effects.

One of the new casinos in New York is slated to locate in Saratoga Springs, headquarters for Camoin Associates.  As a resident of Saratoga Springs, this is an especially important topic to me, and various proponents and opponents of the casino have asked on a number of occasions what my perspective is.  Unfortunately, there is no clear-cut answer to provide them, but there are a number of strong arguments that may be getting short shrift in the public discourse.  So, below are some of the possible pros and cons from an economic development point of view as well as some brief conclusions.  Many of the arguments cut both ways, there being both potential benefits and costs associated with the proposal as shown below.  Feel free to review the topics below or just cut down to “Conclusions” for some blatant editorializing from yours truly.

To reiterate, these topics are all selected and discussed from the point of view of economic development.  There are plenty of other perspectives to bring to bear on the topic, but we will save those for other experts.

Tourism Destination – Pro: Protecting Critical Mass and Existing Assets.  Currently, Saratoga Springs is a small town that punches way above its weight with respect to arts, entertainment, culture, and amenities.  Why? Because each year, thousands of wealthy thoroughbred racing fans come into town with bags of money.  But, wait, there is also a “racino” – New York’s special hybrid combination of harness-track racing (not thoroughbreds) and slot machine operations.  Make no mistake, the slots are the economic driver of the two, by a vast margin.  In fact, having worked on a few studies related to racinos, I can say definitively that, without slots, the harness track would immediately go out of business.  The math is dead simple – slots generate the lion’s share of the purse money for the harness track races.  (Yes, you read that right, the betting on the horse races itself is basically a money loser for the on-site operations of the race track, absent the slot revenue.)  Loss of the harness racing would have multifold implications for not only the immediate business of horseracing itself, but all the farms and agriculture-related production and business that occurs around the racing.  It is not a small number!  If the new casino is located else somewhere in the Capital District, outside of Saratoga, it is unlikely that the existing Saratoga racino could survive the experience.  So, there is a strong argument to make that getting a full-scale casino is essential to maintaining a whole industry for Saratoga.

However, there is a second aspect of this—remember the thoroughbreds?  Thoroughbred racing is the better known and more “respected” of the two, and it undoubtedly brings in people from a much larger radius and of a certain caliber.  (Did you know the Prince of Dubai makes an annual visit?)  Together with the existing casino and a host of other draws, Saratoga is known as a tourist destination.  That reputation is essential to keep the good times rolling—and not downhill!  Each element is a brick of the tourism destination edifice that is Saratoga.  Losing one brick while also being faced with an extremely well-heeled and visible competitor (i.e. the new casino, should it locate elsewhere in the area) could bring a set of self-reinforcing and negative forces to bear on the city.

Tourism Destination – Con: Protection of Image & Cache.  Saratoga’s tourism destination image is decidedly high-end as described more fully above.  The current racino, while important economically, is very much hidden from view and operating in the background.  Saratoga is known for its restaurants and nightlife, being the summer residence of the New York City Ballet and other such niceties.  The new casino could overshadow (both literally and figuratively) that image, as it is slated to be a “full-scale resort casino” with a very large hotel tower visible from all angles, with signage and constant marketing, etc.  Would the general public cease to associate the genteel image of thoroughbreds with Saratoga and instead think about a mini-Atlantic City?

A second element of this image discussion has to do with residents as much as tourists.  The city is home to many of the highly paid tech workers at the nearby GlobalFoundries “chip-fab” (think computers, not Doritos), people who could locate virtually anywhere in the region.  Why do they choose Saratoga?  In part because it has the cachet of a family-friendly town with all the amenities that tourists enjoy available to the locals year-round.  As I have often said, Saratoga is a city of 30,000 that has the culture of a city four times that size.  People want to be here, and that propels a kind of virtuous, self-reinforcing cycle.  Property values are high, incomes are ample, businesses are healthy, schools are good (in part because of ample tax revenue), and so on. Would this virtuous cycle survive if the city were rebranded into a casino town?

Social Justice – Pro: Jobs for the Masses.  The above is a great lead-in to this section: the flip side of Saratoga being a sought-after location is that Saratoga is a tough place to live on a modest income.  Like it or not, the racino provides hundreds of relatively high-paying jobs to residents who may have obtained only a high-school education.  (See my series of articles on the workforce paradox of GlobalFoundries, which covers this topic of low-skilled jobs versus middle-skilled jobs).  Saratoga has some public transportation, but it is limited.  So, adding the costs of high rent and the cost of private transportation for all but the most local jobs is a recipe for not making ends meet at a $10-per-hour job.  Again, while one might not be comfortable with the racino for other reasons, it is a significant source of above-average wages for non-skilled workers.  If the racino falls, where are those people going to find jobs without a 30% pay cut?

Social Justice – Con: Encouraging Destructive SpendingThis argument needs almost no introduction or explanation.  But, for those who are not familiar with slot machine operations or casinos in general, they are not bastions of economic purity.  Some have rightly called them a “self-imposed tax on the innumerate”, or perhaps even predatory.  The target demographic is not the Las Vegas high roller, but rather the middle- or low-income set.  So, in this economic-development-focused analysis, we will just leave it at this: the money pouring into the casino(s) could serve higher economic purposes if redirected to something with better economic outcomes. 

Main Street – Pro: Visitor Economic Spillovers. Keeping it simple here again—more people coming into Saratoga is a good thing.  Maybe only a fraction will visit Broadway (a.k.a. the “Main Street” of Saratoga).   But, they will spend, and that spending will support the city’s businesses.  More importantly, however, and overlooked by the vast majority of commentators are the indirect benefits of the casino.  This means to say that the jobs supported by the casino (and harness track, by extension, as explained above) produce significant wage income.  That wage income is spent to a large extent locally.  This disposable income knows no casino walls and flows steadily into the local economy.  Inevitably, a portion of this spillover gets to Broadway.

Main Street – Con: The Maelstrom Effect.  A full-scale casino will offer hotel rooms and meeting space that may compete with the highly successful downtown convention center.  The casino would have a hugely unfair advantage of cross-subsidization, providing below-cost entertainment, venues, and/or lodging that the city-center facility could never compete against.  I have no special insight into whether this would occur (i.e. closure of the city-center facility if the casino is built), but it would have a significant and negative impact.

Municipal Fiscal Impact – Pro.  Sales tax, anyone?  The city collects its own and would likely enjoy a substantial windfall.  The casino would also throw off a significant amount of property tax or equivalent.  I suspect, but do not know, that there would also be a “local benefit” agreement, which is nice-speak for the host community shaking down the casino.

Municipal Fiscal Impact – Con.  Would there be additional costs for police protection, fire protection, ambulance, EMT or other services?

Conclusions

While I personally abhor casinos (and that is not too strong a word), the region is almost certainly going to host one.  There are some very good economic arguments that, if a casino is coming, you want it in your community!  You can read our Northampton impact report (our opposition piece to the Springfield, MA, casino) to understand the magnitude of this effect. On the other hand, I would not want the casino to detract from the family-friendly atmosphere or negatively affect the perception that Saratoga Springs is a “high-end” destination—and I certainly do not want the Atlantic City feel!

Be careful what you wish for!  And that cuts both ways for both the casino proponents and detractors.  The question is not: “Will a casino be sited in the Capital District?”  That appears to be a foregone conclusion.  The question is: “Do we want the Capital District casino to be located in Saratoga?” 

The best answer I can come up with is this: “Yes, provided that the City can influence the development proposal to mitigate the negatives.”  (I cringe in writing this.)  How could they do so? 

1.     Perhaps a reasonable limit on the height of the tower.

2.     Some signage restrictions to make them blend a bit better with the Saratoga feel.

3.     A host community benefits agreement that uses proceeds for marketing of the city to the non-casino crowd.

4.     Measures to mitigate the potential adverse impact of the casino on the downtown city-center conference facility—perhaps limiting non-gaming gathering spaces at the casino to auditoriums (as opposed to meeting halls and banquet facilities).

What else can be done? 

Please send me your thoughts at michael@camoinassociates.com.  However, kindly direct any hate mail to my colleagues, who will be happy to respond.

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About Camoin Associates

Camoin Associates is a professional service firm that utilizes its understanding of the public and private sector investment process to assist businesses and developers in capitalizing on funding, financing and tax programs established to encourage private investment. We also specialize in advising economic development organizations and municipalities in creating strategies, policies and programs that support investment and job creation.   [Click Here for More]

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