One in ten Americans are actively involved in entrepreneurship (either owning their own business or actively pursuing starting one) and between 600,000 and 800,000 new businesses are started each year. 

There is no question that these small businesses are an important part of the national economy and they deserve the attention of economic development professionals.  Last week, economic development professionals in the Northeast were fortunate to have the International Economic Development Council (IEDC) professional development training program return to New York State with a curriculum dedicated to this topic. In partnership with the Northeastern Economic Developers Association (NEDA) and Camoin Associates, IEDC hosted their Entrepreneurial and Small Business Development Strategies course in Albany, NY. The training program focused on issues related to how economic development professionals can support small businesses and entrepreneurs.

The training program included a session on a technique called economic gardening, which is defined as supporting and cultivating economic growth among existing companies to encourage local job and wealth creation.  Rather than economic development professionals investing their time and resources into that one “big get” of a new 500 person manufacturer, economic gardening focuses on assisting entrepreneurs and small businesses to succeed and expand within the community.  Economic development organizations can provide information, market analysis, infrastructure, connections and much more to help the businesses in areas where they do not have internal capacity, time or skill. Examples of successful economic gardening can be seen in Littleton, Colorado and Beaverton, Oregon. These communities provide services such as financing, assistance with city procedures, GIS database research, connections to other resources and access to demographic databases. Most of the economic gardening work is occurring in the western United States at this time, but it is becoming a more relevant economic development tool throughout the country.   

Last week’s training program attracted people from all over the United States, including individuals from California, Montana, North Carolina, Washington, Georgia and Iowa. It was great to have the opportunity to talk to others and see the similarities and differences in the issues that many of us are facing throughout the country.  The program was well received by all I spoke with and I know I left feeling inspired and ready to take the new skills back to the municipalities I work with. 

Camoin Associates, NEDA and IEDC will be hosting a second training on May 17^th and 18^th that will focus on Economic Development Strategic Planning.  If you are interested in learning more or registering, click here:   http://www.iedconline.org/?p=Training_Planning_NY

Local governments everywhere in the U.S. have been asked to “Do more with less” for many years now.  In particular, across the Northeast, a movement has been afoot to trim costs through the consolidation, elimination or reorganization of various levels of local government.  And yet, after many analyses, reports, public meetings and referenda, precious few communities have, in fact, undertaken a substantial municipal reorganization.

There are many reasons for this outcome, all of which have bearing on the future of the municipal consolidation movement.  For some stakeholders, there is an issue with community identity and historic preservation.  Others see it as a loss of adequate representation, control over local decisions and the comfort and protection of a tight-knit community bound together by an elected body.  Some question the cost savings that might occur: how a presumably larger municipal entity could possibly deliver the same services at a lower cost and whether the costs and disruption of the transition will ever be recovered in presumed long-term savings.  And then there is the all-important question of “fairness”, as it is widely accepted that reorganizations typically shift tax burdens from one group to another, sometimes without the consent of those adversely affected.

Despite these objections, the financial case for reorganization seems to be clear.  Of the host of reports completed to date on reorganization propositions, the vast majority show a savings of some degree to the constituency in question, whether it be Village residents in a dissolution process or school district voters in a district consolidation referendum.  In fact, the savings projected in a few of these instances seem immensely compelling.  And yet, residents have not embraced such measures.  For example, since New York State substantially altered the process of village dissolution in 2010 through its GML Article 17-A law, 15 referenda have been held in various villages across the state. All but 2 of those referenda have returned a “no dissolution” outcome.  A similar pattern can be seen in school district consolidation votes and other municipal reorganization initiatives.

This seeming incongruity may have an explanation that has been given short-shrift in the public discourse to date on municipal consolidation: the element of uncertainty.  Human beings are, by their nature, pre-disposed to prefer the known over the unknown.  In countless clinical studies by psychologists, human subjects have shown an unconscious bias towards things that are close to them, known and understood.  In one extreme example, when presented with several objects to choose from, simply having touched one of the objects is enough for the typical subject to prefer it, statistically speaking, over an equal substitute.  Why exactly this occurs is not completely understood, but a case can be made that evolution has equipped us with survival skills that include the inherently conservative preference for the comfort of the known (our family, our tribe, our land, our customs) to the unknown.  This translates across many of the domains of modern life: for example, when choosing among particular investment opportunities at a given rate of return, a person will naturally prefer an investment that offers less risk because the likely result obtained is better understood (i.e. is less uncertain).  Consider the voter to be a savvy “investor” determining how to allocate resources in public vote on reorganization, and it is not surprising that the voter/investor favors the lower risk alternative.

What is true for individuals is doubly true of municipalities, which are essentially a grouping of those same risk-adverse people.  Governments are not set up to be entrepreneurial in nature (nor should they be) and regularly have to make decisions whose results will echo through the years if not decades to come.  Municipal officials are seldom rewarded for taking risks but are often punished, electorally speaking, when risky decisions take an unfavorable turn.  In asking governments to make major changes to their organization and even jeopardize their very existence, it seems only natural that the burden of proof should rest squarely on the shoulders of those advancing the agenda of change.  It is not sufficient to say that savings are “likely”, even if statistically speaking that may, in fact, be the outcome.  And therein lies the problem.

This burden of proof has not been met in many instances and may be a very difficult target to achieve under current conditions.  In the example cited above regarding village dissolution votes under New York State GML Article 17-A, an intriguing lesson can be learned.  The Article 17-A process was put into place with the express intent of facilitating municipal consolidation, one feature of which was an accelerated and fixed time table for putting the matter to referendum.  Unfortunately, in many instances, that has meant that local governments, both the village and town or towns in question, have not been able to study the matter in sufficient detail and disseminate the information to the public. The voters have therefore had to vote with a high degree of uncertainty: “Will this really save me money?”, “Will all the services I currently receive continue or be terminated?”, “What will happen to the employees, assets and debts of the Village?”, etc.  As shown, voters have clearly preferred the status quo.  Rather than expedite the process, Article 17-A has brought municipal reorganization to a screeching halt.

In contrast, under the previous New York State statute governing village dissolution (Article 19 of Village Law), the process was quite different.  There was no fixed timeline and local governments had ample time to evaluate alternatives, ponder outcomes and prepare the public with sufficient detail.  In each instance under Article 19, a complete Village Dissolution Plan was published and reviewed prior to the vote and the public had the opportunity to air grievances and be heard.  The outcomes were markedly different: of the 13 most recent referenda on village dissolution under the Article 19 law, fully 7 returned a vote in favor of the proposition.  We compare this 54% passage rate to the 13% rate under Article 17-A, and a case can be made that uncertainty played a significant role.

Thorough examination and dissemination of information are, however, not the only barriers to removing uncertainty from the process.  Wholesale municipal reorganization has many inherent uncertainties that may never be fully extinguished.  For example, village dissolution can be proposed by a village board, studied by a village-appointed committee, and voted on by village residents.  But the actual village dissolution is largely accomplished by the town board, which is charged with providing for the continuity of services in the now defunct village.  That town board answers to a larger set of constituents which may not align completely with the intent of the village’s plan.  This is especially true when a large tax burden shift may occur.  While too complex to describe herein, the execution of a dissolution process is a somewhat subjective affair with respect to the town’s obligations to respect the plan.  Further, some matters cannot be dictated via the village dissolution plan: does the town board hire former village employees or not?  Does it respect their previously accrued seniority, benefits and wage scale?  What happens if, after two years and a new election at the town level, the board wishes to discontinue a service being provided in the former village?  Will the town board charge costs to the former village residents for services only provided to them or will those costs be spread across the entire town tax base?  Which services might be discontinued by a future town board?  Will the town substantially alter the zoning laws of the former village sometime in the future? 

In light of the above, there are a number of ways states that wish to promote local government reorganization can help to remove uncertainties in the reorganization process.  First, states should provide maximum flexibility to local governments in terms of providing ample time and resources for data collection, deliberation, examination, planning and public hearings.  This will give voters some level of confidence that the matters have been addressed thoroughly.  Secondly, states should mandate that any effected level of government be involved in the formulation of a reorganization plan.  In the case of village dissolution, for example, the town should have an equal seat at the table during the planning process and a strong if not dominant influence on the outcome of the final plan.  Third, states should clarify the obligations of the surviving entity to abide by the plan to all reasonable extent.  Fourth, states should set up a clear means of arbitrating disputes over the execution of the plan.  Currently, the defunct entity is, by definition, no longer in existence and cannot itself defend the plan’s intentions.  Fifth, states should provide some protection to zoning ordinances and other laws of the non-surviving entity for a fixed period, so that such laws remain in effect for a meaningful period of time.  Sixth, states have significant legislative and, in same instances, constitutional work to clarify and ameliorate the processes by which reorganization can occur.  For example, in New York State, towns are prohibited from absorbing village fire departments due to a conflict in law (they must instead contract with third parties) and cannot form special policing districts without a specific act of the legislature.  Since public safety is one of the most fundamental aspects of local government, this presents a tremendous level of uncertainty as to the outcome of reorganization.

In some instances, of course, local government reorganization simply does not make sense financially or organizationally and should not be pursued.  But there is a mounting body of evidence that consolidation and reorganization have the potential, in fact, to save money in some cases.  To make the best possible “investment decision” for or against municipal consolidation, citizens need to be given surer footing and clearer assurances of the likely outcomes.  By removing these elements of uncertainty, states can advance their municipal reorganization agendas. 

Acknowledgement: Data on municipal consolidation votes in New York State provided courtesy of Wade Beltramo of the New York Conference of Mayors. 

The Twin Cities of St. Paul and Minneapolis have a deep-rooted rivalry that still exists today. Yet, through the development of the Met Council, an agency serving the 7-county Twin Cities region, these very different areas joined together to address transportation, water, wastewater, conservation, and planning issues with great efficiency and achievement. The following is the second piece of a two-part essay on the history and function of the Met Council. 

Part II: An Innovative Arrangement

The Metropolitan Council is designed to plan for orderly development of the seven-county metro area as well as coordinate delivery of certain services that cannot be effectively provided by a single city or town.  Over 300 separate units of local government, including 7 counties, 188 cities and townships, and 22 special purpose districts are located within this region, which is about 1.9 million acres in size - twice the size of Long Island. ^[i] About 2.8 million people reside in the Twin Cities region.

At the creation of this Council, the region was divided into 16 districts with roughly equal population. Careful consideration of social and natural boundaries allowed delineation of districts with similar land use patterns, cultural heritage, natural habitats, development pressures, social identities, and biological cycles. Municipalities within each district are generally alike, they tend to face similar issues and have corresponding needs. Urban districts located toward the center of the region are smaller geographically compared to rural districts located near the region’s edge. In total, 17 members serve on the Metropolitan Council, one from each district and a chair who serves ‘at large’. Members are appointed by the Governor and confirmed by the State Senate. A new Council is appointed with each new term. Because they are appointed and not elected, Council members typically maintain a ‘low key’ presence.^[ii]

The Metropolitan Council’s mission is to guide the efficient growth and development of the metropolitan area by working with local communities to develop a framework to plan for regional systems.⁵  Council programs and services include regional transportation, water and environmental services, housing, regional parks, and planning assistance. Three primary organizational divisions carry out the council’s organizational divisions: The Community Development Division, The Environmental Services Division; and the Transportation Division.

At its core, the Metropolitan Council is a regional planning authority. The Community Development Division is responsible for shaping and coordinating the regional growth plan - known as the ‘Regional Development Framework’ while working with individual communities to develop and advance their own plans. As part of this effort, communities are obligated to communicate their planning goals and objectives with neighboring areas. The Community development division also oversees housing and redevelopment programs and implements strategies for regional parks and open space. One other important responsibility of the Community Development Division is the collection of regional data and analysis of regional growth trends and projections.^[iii]

One of the drivers that led to the creation of the Council was the problems individual communities were having providing adequate sewage treatment for rapidly expanding areas. Today, the Environmental Services Division operates and maintains one of the best intercommunity wastewater distribution and treatment systems in the U.S. This system consists of approximately 600 miles of sewers that collect flow from 5,000 miles of sewers owned by 105 communities. Eight regional treatment plans treat about 250 million gallons of wastewater each day.^[iv] The ability of this system to handle extremely large quantities of wastewater efficiently and cheaply gives the Twin Cities region a competitive advantage for business attraction. This Division is also responsible for environmental compliance, monitoring, and assessment, research and development, water resources assessment, and water supply planning for the region.

During its early years, the Council took over the Twin Cities’ privately owned regional bus system and saved it from collapse. Today, the Council’s Transportation Division is responsible for ensuring regional mobility, which is fundamental to the Twin Cities’ economic vitality and quality of life. With an underlying goal of reducing traffic congestion, the Council oversees transit planning activities, highway planning, air quality planning, travel forecasting, and aviation planning. Guided by the Council’s 2030 Regional Development Framework and the 2030 Transportation Policy Plan, the Council takes a long-range planning approach to transportation planning for the Twin Cities.

I always find it refreshing to get out of the office every once and a while to attend a training class, meet up with other economic development professionals and take a break from the routine of everyday. Last month I was fortunate enough to attend a training hosted by the Northeastern Economic Development Association (NEDA) on the topic of business credit analysis and real estate financing. While the topic may sound rather dull, the presenter from the National Development Council (NDC) did an excellent job and made it quite interesting.

In addition to the slide show presentation and information from the instructor, the open-discussion style format of the training allowed the participants to offer stories about what it has been like for them to manage loan programs in their communities and what challenges they have come up against when reviewing business credit.  It was interesting to hear the economic developers in the room talk about the struggles they face when trying to loan out public money in a conservative way (to ensure payback), while also using the money to act as the “gap-filler” for businesses who otherwise would not be able to get traditional financing. I can relate to their stories. In some of the loan programs I have administered it has been hard to find a balance between trying to support local economic development through loans to riskier businesses while at the same time protecting the public’s trust in the organization’s money management decisions.  We discussed at the training how one of the most important things that need to be done when establishing a loan program is to determine what the role is and how willing to take risks the stakeholders are. For example, is the loan program’s role to take risks on businesses that otherwise would never get a traditional loan, or is it to partner with traditional banks to expand access to capital?  One type of program is not better or more important than the other, but expectations of risk should be clearly established before any loans are made. 

The real estate development financing aspect of the training was also very interesting and NDC offered us the chance to take a case study and figure out how to make the financing work. We were able to make changes to the required interest rate and terms and required cash on cash returns of the investors to make the deal go through. It was helpful to see all the different players in the game and all the different ways people need to compromise in order to make the project work.  When all was said and done, the three groups at the training had all solved the problem in a completely different way while still making the project successful.

Finally, as someone who knows her way around Microsoft Excel’s formulas pretty well I had never taken the time to actually learn the background calculations and this class offered that information (all good information, but it is unlikely you will catch me doing the long hand work anytime soon).

On October 29^th, 2011, a new store opened in a small town in upstate New York but it was unlike anything the State had seen before; with over 600 investors The Saranac Community Store is a community owned department store serving residents and visitors.  The New York Times published an article about the Community Store on November 12^th, 2011, that reports on the opening of the store in Saranac Lake (a town in the Adirondacks with a population of approximately 5,000) and also provides a bit of background on this retail model and examples of residents taking charge of economic development in their own backyard.

The idea for the Saranac Community Store was borne out of necessity.  In 2002 the local department store closed and the residents no longer had easy access to consumer goods for daily life such as clothes, home goods and bed linens.  Year round residents living in Saranac Lake were then forced to travel 50 miles to Plattsburgh for these items.  This was deemed unsustainable and unacceptable so a group of residents started looking into retail alternatives, primarily alternatives to big-box stores.  When the group learned about the community store model, they knew they were on to something.   It took over five years to secure enough funding to start the Community Store, but last month the 4,000 square foot space located across from the Hotel Saranac was completed and stocked with inventory from clothing to baby strollers and hardware to comforters. The NYT article reports that the first day of sales totaled $7,000.

Community stores are popular in Britain and there are examples in rural parts of the western United States, but there are no others like it in the northeast.  In 2006, after residents of Saranac Lake identified the community store as a retail model with potential, they invited a representative from Powell, Wyoming, to come and talk about their community store, which opened in 2002 and is known as the Merc.  The Merc was started after the main department store in town shut down and residents were worried about the impact on other stores in the area so they sold shares and opened a community department store, which now brings in $600,000 in sales each year. Shareholders of the Merc even receive annual dividends from the store’s profits.  The 2006 presentation by the representative from Merc was attended by 200 people.  Afterwards residents of Saranac Lake were even more focused on pursuing the community store plan by developing a business plan, initiating funding, navigating the legal process and establishing a board of directors. 

While the Saranac Community Store is still getting its footing, it is an important and interesting example of communities indentifying a need and figuring out a way to respond to it without accepting their fate or waiting for someone to save them.  Thinking outside of the box has helped Powell, Wyoming, change their fate, and residents and visitors of Saranac Lake, New York, are optimistic as well.

Sources:

Cortese, A.  (2011, November 13). A Town Creates Its Own Department Store. The New York Times.

The Community Store in Saranac Lake. http://www.community-store.org/. Accessed November 13,

                2011.

The Greater Providence Chamber of Commerce in partnership with the Rhode Island Science and Technology Advisory Council (STAC) has released a new tool for measuring the development of the state’s Knowledge Economy, entitled “Benchmarking the Rhode Island Knowledge Economy”.  Conducted by Camoin Associates and Innovation Policyworks over a period of six months, the report is the first step in measuring the state’s progress in growing the Knowledge Economy.  “What we have created is designed to establish a baseline from which Rhode Island businesses, policy makers and institutions can measure progress and track future development,” said Laurie White, president of the Greater Providence Chamber of Commerce. “This is important information that will allow us to understand what drives a strong Knowledge Economy and then organize our public policies and strategic investments around that information.”

Developed around 23 key indicators, the study compares Rhode Island to other New England states, 27 EPSCoR states, which are those that have been designated by the National Science Foundation as part of the Experimental Program to Stimulate Competitive Research and the United States as a whole. The indicators are organized into four categories representing key components of a knowledge-based economy: RI’s Knowledge Economy; The Knowledge Business Pipeline; Research and Development and The Workforce for the Knowledge Economy.

According to the study there are many areas where Rhode Island is doing well including high speed Internet access, venture capital investments, research and development, educational attainment and patents issued. It also noted where the state could focus additional effort including stemming the net migration of persons 22-39 years of age, getting more scientists and engineers in the workforce and developing the entrepreneurial climate.

“The RI Science and Technology Advisory Council is pleased to partner with the Greater Providence Chamber of Commerce to produce this important new evaluation tool,” said Clyde Briant, co-chair of STAC.  “We look forward to continuing to work with the Chamber to collect new data as they become available so that we can measure how the State is trending in these important areas and insure that the initiatives we have in place best leverage scarce financial resources to improve our state’s science and technology driven economy.”

To download the full report, please click here. 

Last month we won the lottery – not the mega millions, but for a seat at President Clinton’s keynote address to the “Open for Business” conference in Albany. President Clinton provided the economic developers in the room a number of tips and ideas, particularly focusing on clean energy industries and how to support existing businesses and entrepreneurs. He cited several examples of innovative ideas and successful projects that he has personally encountered during his travels. Among President Clinton’s ‘tips’ was a suggestion to check out Massachusetts Institute of Technology’s (MIT’s) policy regarding the licensing of intellectual property.  So what is so special about MIT’s licensing system?

First, a very brief primer: Licensing of university property is an important form of technology transfer, i.e.  the movement of knowledge and discoveries from academia to the general public.  Universities that accept federal research dollars can patent intellectual property from that research and then license it to third parties for a fee and/or royalties.

Many universities see this as a welcome source of funding to support research or general operations.  For over a decade, however, MIT’s primary objective has been to view technology transfer as a public service and not a business.  Its mission is to (a) foster commercial investment in the development of inventions and discoveries, and (b) through these investments, and the economic development and products that follow, provide direct benefit to public.  We note the clear absence of the ideas of “maximization of profit”.

We see the following as key elements of MIT’s track record of leveraging its intellectual property to maximize public benefits:

• Very low initial licensing fees ($25,000-$100,000) reduce the barrier to entry.
• Low royalties (3-5%) allow the commercial entity a higher probability of reaching profitability.
• The Institute will accept a limited equity position in partial lieu of royalty payments, allowing the commercial enterprise to attain positive cash flow more quickly.  This also allows MIT to enjoy potential upside without a significant investment or risk of loss (other than the opportunity cost of the lost royalties).
• While allowing for exclusive license arrangements, MIT imposes several important limitations that assure that the indirect public benefits are maximized.

On this last point, MIT will issue an exclusive arrangement only for a limited term.  It also imposes other performance milestones on the licensees that require them to hit benchmarks in terms of employment, sales and sub-licensing.  That way, if a licensee fails to leverage the intellectual property in an economically friendly manner, MIT can reclaim and relicense the property to others.  This assures the Institute that the property not be tied up and under-utilized (intentionally or unintentionally).

MIT credits these particular policies with its track record of exceptionally high levels of commercialization attainment.  However, you might wonder how large of a subsidy is required for the Technology Licensing Office to operate.  After all, the TLO also operates all the normal incubator-type services: counseling and coaching, some formal education, patent fees, negotiations with interested partners, not to mention a staff of 33 professionals!  TLO does attempt to recapture some of its costs from licensing through fees and royalties.  In fact, after recovering basic legal costs of patenting and licensing IP, the TLO then takes a cut of 15% of any royalty payments.  The balance of royalties is distributed in thirds between the IP inventor, the inventor’s department at MIT and the MIT general administrative office.  This cut allows the TLO to cover its basic operating costs and more.  In fiscal year 2010, the TLO grossed revenues of $76 million, of which $60 million came from royalties, $9 million for patent reimbursements and $1 on equity cash-in.

Can any research center accomplish this track record?  The TLO’s website responds with a resounding “Yes” and explains, “Start with outstanding people; clear, articulated policies; and a streamlined process.  To get started, however, you will also need a sum of money to invest in filing patents and building a portfolio. Do not expect to break even for five years or more.”  In other materials, the TLO provides the following insights on “lessons learned” on how to position stakeholders, IP policies and the technology transfer organization for maximum effect:

• With the exception of the occasional "blockbuster", licensing revenue is small. 
• Don't expect product royalties for 8 -10 years
• Most companies want quick time-to-market
• Publishing lists of available technology is not effective
• The inventor is the best source for leads