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State economic development efforts shifting

April 13, 2017

Traditional economic development efforts at the state level are undergoing increasing scrutiny as budgets are being constrained. Two new studies show a shift in focus away from traditional approaches of tax incentives and reliance on major employers, to broader strategies relying more on the private sector and human capital. A report released by the Delaware Economic Development Working Group recommends shifting many of the core responsibilities of the Delaware Economic Development Office (DEDO) to a new nonprofit. And a report focused on Indiana details the decline in footloose jobs in the state despite local government investments in business attraction, indicating a reevaluation of public policy is needed, the authors contend.

Delaware Gov. John Carney created a 14-member working group as his first official act in office in January. The final report from the group, Rethinking Economic Development in Delaware, argues that the state can no longer count on past economic engines like heavy manufacturing to produce jobs. Instead, economic development efforts require a “reset” and should capitalize on new growth sectors like financial technology, health care and entrepreneurship.

Noting that current economic development efforts in Delaware are essentially a public sector activity, the working group recommended that the new partnership would have the responsibility of coordinating activities not just between the state and private sector, but with other organizations as well. Calling it the Delaware Prosperity Partnership (DPP), the state would contract with the new nonprofit to provide a range of services. An expanded marketing effort would place a new emphasis on attracting early stage, technology-focused enterprise and entrepreneurs as well as provide dedicated support to startups and early stage ventures.

Certain responsibilities would remain with DEDO, at least initially, including the capital resources unit which administers the Delaware Strategic Fund. However, the DPP would have an advisory and advocacy role to recommend approval of funding authority to promote business growth in the state. It would also provide application assistance and consultation for its investment and job creation prospects.

The state is expected to review the proposal, and if passed, the DPP would be created this year with programs transitioning over from state agencies in 2018. While no new funding is expected from the state, $1.5 million would be shifted from current DEDO program appropriations, with another $1 million anticipated from the private sector, for a total estimated budget of $2.5 million.

A different approach was also recommended in Indiana, which has been losing “footloose” jobs for 50 years. In a new study by Ball State University, Footloose Jobs & Urbanization: Recent History and Policy Considerations for Indiana, authors Michael J. Hicks and David Terrell describe the changes in the geography of employment that marked the rise of employment growth in urban places and declines in non-urban areas. Mirroring the shift in national employment structure, Indiana’s “footloose” jobs, those that produce goods for sale outside the local region, are being replaced by occupations that create goods and services for local consumption. The bulk of the loss (85 percent) was in the manufacturing industry.

Yet Indiana, and many other states, spends the bulk of its economic development resources on attracting or retaining such jobs, the authors contend, which compels “a major reevaluation of public policy.” Local communities should focus on methods of attracting households by focusing on strengths and weaknesses in local schools and quality of place; focus on existing businesses and their retention efforts; reduce administrative overhead in government; and recognize that “communities become places where households wish to live, not necessarily where businesses wish to locate.”

The study also calls on private sector leaders to play a more activist role in economic development and analyze the role of tax incentives. Additionally, the authors advocate for more regional cooperation while state government should consider incentivizing the creation of regional economic development organizations. The authors credit the state for addressing economic change effectively through state incentives targeting human capital and programs such as Stellar Communities and the Regional Cities Initiatives.

Delaware, Indianaeconomic development