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October 3, 2007
Dear Friends,
Today I unveiled our “Development Parameters and Measures of Effectiveness” —tools to be utilized by the Kelty Administration in assessing the value basis of government support for and participation in market driven economic development. The parameters are part of the recommendations developed by the Genesis Project, formed by me and headed by Dr. Maneesh Sharma. The Project includes members from the local business, education, and government communities.
My approach to economic development represents a clear change from recent City practices. The current administration chooses economic projects that it will champion, coerces the support of the population through taxation and entices the support of the private sector through inordinate levels of subsidy, even to the point of guaranteeing profits. For example, the City website claims that the Mayor’s North River Task Force will determine the ‘highest and best use’ of the Omni Source property north of the St. Mary’s River. I reject completely the idea that government should or can determine the ‘highest and best use’ of property, even with blue ribbon panels, visioning sessions, ‘charettes’ and high-priced consultants. The historical evidence is completely to the contrary, including failed local efforts such as Burlington Air Freight, Midtowne Crossing, the Hilton Hotel, and MicroStandard.
The City’s resources for economic development are limited and compete directly with other obligations of government like maintaining schools, roads and public safety. The dollars are precious and the people rightly expect that these funds will be spent according to clearly defined criteria, to achieve clearly defined, measurable results.
Our approach will allow the public to judge objectively the progress and success of any economic development project undertaken by the city and to understand why one project is supported rather than another.
PRIORITIES FOR INVESTMENT
The City has a number of tools to encourage private sector investment, from infrastructure development to TIF and Economic Development area designations to tax abatement to direct subsidy and provision of tax credits.
Ultimately, however, every dollar we spend to support a development, regardless of the type of support, is a taxpayer dollar. There is no free lunch.
The Kelty administration will allocate limited economic development dollars among unlimited potential projects according to the following priorities:
- Does the project create new jobs? How many, of what quality, at what cost and with what level of certainty or speculation?
- Does the project expand our property tax base? To what extent, at what cost, and with what level of certainty or speculation?
- Does the project build on an existing economic or geographic strength or create a new strength?
- Does the project serve an underserved area of the City or region?
- Will the project likely be done even without government assistance?
Let me reiterate that as Mayor I will have to see the now decided Harrison Square project through to the best possible conclusion. That being said let me emphasize that the project would not meet our criteria, either as initially proposed or in its final form.
Harrison Square creates a small number of entry level jobs, and moves some other, seasonal entry level jobs from Coliseum Boulevard to Harrison Street. The increase in the property tax base from the hotel and the housing/retail project doesn’t begin to offset the property taxes (segregated by the Jefferson Pointe TIF) that will be used to construct the stadium, which will never produce any property tax revenue and has been financially structured to guarantee negative cash flow for the next 20 to 30 years.
THE ANALYSIS: OBJECTIVE, MEASUREABLE VALUE
In assessing a proposed economic development project, the Kelty administration will use a net present value (NPV) approach to determine the relative value of the project on a cash flow basis. The approach uses a well-accepted business model that considers investments, revenues, cost of money and risk, all over time. As a cash-based approach, NPV can be used fairly to compare competing projects and to establish measurable expected outcomes.
Net present value is a solid evaluative tool that will help us make good business decisions as we invest our resources in future economic development projects. While not routinely discussed around the dinner table, this approach is something we can easily post on a website and clearly show taxpayers how we are performing financially—how effective we are—on any project.
ENSURING RESULTS: INVESTOR; NOT BANKER
City contributions of property, infrastructure, services or incentives should be viewed as CURRENCY available to be INVESTED in a project with a private partner, but only with the expectation of a reasonable return. That return must be in the form of a larger income and property tax base, increased jobs and a strengthened or diversified economy. As part of the risk assessment for any given project, the City should seek performance assurances and appropriate guarantees from the private party.
If we have to give away the assets and value of the City for private partners to consider investment in Fort Wayne, and have no expectations of an appropriate, tangible return—only the promise of potential collateral economic activity—then we are giving away the future of the City. These are our assets and our tax dollars; we should be good stewards of them by expecting results and managing them to ensure we get a return on our investment.
To illustrate this point, let me share with you how the City of Chicago competed against Dallas and Denver to attract Boeing to move the headquarters of the Fortune 15 Company from Seattle to the Midwest. It did so with a $51M package of incentives provided by the City and the State of Illinois. For that, Boeing relocated its corporate HQ, moved 150 executives to the City, hired another 250 people locally, and immediately filled 160,000sf of office space in Chicago. By any measure, the anticipated $4.5B in economic impact over the next 20 years is an excellent return on Chicago’s investment.
Contrast this to the estimated $60M the City of Fort Wayne is investing in Harrison Square and compare the anticipated return on that investment to that received by the City of Chicago. I think we’d all agree that by any comparison, we are spending a lot of the taxpayers’ money for a Courtyard Marriott and the opportunity to move hotdog vendor jobs from Coliseum Blvd. to downtown. I think we can make better deals in the future, and I intend to.
MARKET DRIVEN ECONOMIC DEVELOPMENT WORKS
Tom Spiece and the Spiece Fieldhouse provide an excellent example of how market driven economic development works. Without government subsidy Tom Spiece redeveloped an existing 150,000-square-foot warehouse, in an industrial park off of Interstate 69, into the very successful Spiece Fieldhouse. Today, Spiece’s facility draws over 800,000 visitors annually, putting Fort Wayne on the map as the most visited industrial park in the nation! The Spiece Fieldhouse brings in AAU tournament players from all across the country for basketball and volleyball. They and their families stay in hotels, rent cars, eat at restaurants and shop. Spiece’s Fieldhouse triples even the most optimistic attendance projections of the proposed downtown baseball stadium—and the Spiece Fieldhouse operates year-round.
As a member of the Genesis Project Team, Tom Spiece has provided valuable experience and insight into the business approach to leveraging the assets and resources of the city in such a way as to attract entrepreneurs to establish or expand businesses in Fort Wayne.
In the coming weeks, I will continue to release additional information on my market driven approach for economic development for the City, County and Northeast Indiana. Fort Wayne will be the engine that will drive the area into a new era of entrepreneurship and prosperity.
Sincerely,
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