How do economic developers know that they’re doing a good job? More importantly, how do they prove it to their bosses, especially if those bosses – like most business people – are looking for quantifiable goals?
Traditionally, the number of jobs produced has usually been the No. 1 indicator of a successful economic development program. Whenever you, as an economic developer, went before your board of directors asking for more money, or when you went around to your local business community soliciting funds for the EDC, the first statistic out of your mouth invariably had something to do with the number of jobs your program had brought to the community or state.
Jobs are an important number, of course, because not only do they reduce the local unemployment rate, they also bring with them follow-on spending into the local economy, as well as additional tax revenue to help improve local infrastructure and service.
With unemployment at 6 percent nationally, we are still a percentage point above what used to be referred to as “statistical full employment,” the theory being that 5 percent of the work force at any given time consisted of transient workers between jobs, and the hard-core unemployed or unemployable.
However, most of us still remember the economy during the last half of the 1990s, when most major metro area unemployment rates were in the 3 to 4 percent zone.
And, when just about everybody already has a job, what’s your reason for existence? This is a particularly critical question, given the budget crisis most cities and states -- as well as your local business donors -- currently face. Are economic development organizations still important?
Measuring success
No question about it. Your job has become more difficult. What else is new?
Clearly, in a period of tight budgets, politicians are looking for ways to cut spending and, if unemployment is not a problem in your community, taxpayers and your local business community will begin to question your relevance.
Should we look at economic development organizations the same way we look at the Army? Should communities cut way back on economic development expenses now that the war [unemployment] has, at least for the time being, been won?
Or should we redefine our reason for existence? Is job production still the best way to measure the success — or failure — of an economic development program? Or do we need a whole new way of looking at what we do?
In years past, the quantity of jobs was the key factor. When unemployment rates sank below 3-4 percent, it became the quality of those jobs.
In that vein, perhaps a better measurement might be the amount of money your efforts add to the local tax base. You could measure the increased revenue from property taxes, inventory taxes, sales taxes, corporate taxes, even personal income taxes [although if you have all of these different taxes, you probably won’t have to worry about too many businesses beating a path to your door]. That would allow your community to improve services or, better yet, to reduce taxes on existing businesses.
Or perhaps you should measure wage rates of the new jobs you attract in relation to the existing wage rates. You know ... bringing in higher paying jobs. That’s always a crowd pleaser.
Of course, there are also problems associated with each of the above evaluations.
If we measure success by how much we’ve added to the tax base, how do we handle incentives that involve tax abatement, especially tax increment financing? If, in order to attract a new business to our community, we forswear some or most or all of the anticipated future tax revenue for the next 10 to 15 years, it’s pretty hard to make the “tax base” argument with a straight face. [Of course, if you can, then perhaps you might want to consider politics as your chosen profession.]
The “increased wage rate” argument also has a down side, especially if your EDC is privately-funded. After all, at some point your campaign to bring in higher paying jobs is going to have an impact on the wage costs of the member businesses of your economic development organization, especially in a period of low unemployment and tight labor markets.
If that ever happens you might find yourself in the awkward position of asking local businesses to give you money to support a program that, if successful, will raise their own operating costs. At that point it’s probably a pretty good time to establish a meaningful relationship with a couple of good head-hunters.
Stepping out of the box
Or perhaps we should take a larger view, one that focuses on retention as well as recruitment.
After all, our job is to take care of existing businesses, as well as to recruit new business. If our job is to work with business and government to create a climate and infrastructure that fosters local economic growth, why not take credit for it?
We could measure the increased population of our community in relation to the unemployment rate. If our community continues to grow at an impressive [above the national average] rate while unemployment stays at or below the national average, surely we can argue that we have created a climate conducive to economic growth. Along those same lines, we could also look at improvements in per capita income.
One thing’s for sure ... the present climate provides us with an opportunity to expand our profession and the way other people think of us ... as sort of the local ombudsman for a healthy and prosperous economy.
Or we can continue doing what we’re doing — and hope we don’t get downsized — until the next downturn in the business cycle solves our tight labor market problems.
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