February 2, 2012

The Simple Truths ofEconomic Development

CB RICHARD ELLIS

Presented to:2012 ACMA Winter Conference

Presented by:John Lenio, Economist & Managing DirectorEconomic Incentives Group (EIG)

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Creating Public/Private Partnerships

Global Research and Consulting

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The goal of Economic Development

Finding the pot of gold

Global Research and Consulting

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Jobs

Capital Investment

Tourism / Retirement

What Drives Tax Revenue Growth?

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Company ABC

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The Ripple Effect

100 new jobs in Chemical Manufacturing

• 456 spinoff jobs created• 4.56 employment multiplier

• 41 jobs => Healthcare• 32 jobs => Wholesale trade • 31 jobs => Admin support services• 28 jobs => Restaurant & bars• 26 jobs => Government

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Corporate Site Selection

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Business Climate Rankings

Business Climate Rankings

Best & Worst States for Business

America's Top States for Business

The Best States for Business

Top 10 States for Business Climate

Site Selection Magazine

Chief Executive Magazine CNBC Forbes Business Facilities

1 North Carolina Texas Texas Utah Texas

2 Tennessee North Carolina Virginia Virginia Virginia

3 Texas Tennessee Colorado North Carolina Utah

4 Virginia Virginia North Carolina Colorado South Carolina

5 South Carolina Nevada Massachusetts Washington Tennessee

6 Georgia Florida Iowa Oregon North Carolina

7 Ohio Georgia South Dakota Texas Florida

8 Indiana Colorado Minnesota Georgia Louisiana

9 Louisiana Utah Utah Nebraska South Dakota

10 Alabama South Carolina Georgia Kansas Wyoming

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1 Workforce skills

2 State and local tax scheme

3 Transportation infrastructure

4 Flexibility of incentives programs

5 Availability of incentives

6 Utility infrastructure

7 Land/building costs and supply

8 State economic development strategy

9 Permitting and regulatory structure

10 Higher education resources

Source: Site Selection Magazine

2010 Corporate Real Estate Executive Survey

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Sold by the Sizzle

Follow the Herd

Sophisticated

Three Approaches to Site Selection

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INCENTIVES = TIE BREAKER

REAL ESTATE = ENABLER

LABOR / TRANSPORTATION = DRIVER

The Site Selection Equation

= Best Economic Opportunity

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Actual Business Case

Community A Community B

Marginal Savings (Costs)

from Community A

Labor Costs $63,700,000 $58,900,000 ($4,800,000)

Construction Costs $27,100,000 $26,225,000 ($875,000)

Real Estate Taxes $4,400,000 $5,600,000 $1,200,000

Personal Property Taxes $0 $0 $0

Incentives Savings TBD TBD TBD

TOTALS (rounded) $95,200,000 $90,725,000 ($4,475,000)

Net Present Value @ 8%

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Global Research and Consulting

It’s all about Getting in the Game and Closing the Deal.

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Tax & Incentives Policies

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What Can’t You Control?

1 Workforce skills

2 State and local tax scheme

3 Transportation infrastructure

4 Flexibility of incentives programs

5 Availability of incentives

6 Utility infrastructure

7 Land/building costs and supply

8 State economic development strategy

9 Permitting and regulatory structure

10 Higher education resources

Source: Site Selection Magazine

2010 Corporate Real Estate Executive Survey

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Purpose of Economic Incentives

Address Cost Disadvantages

Revitalize Distressed Regional Economies

Induce Favorable Economic Activity

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Net Effects of Incentives

Reduce Operating Costs

Lower Start-up Investment

Global Research and Consulting

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2011 Economic Incentives Environment

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Arizona

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Observations of ArizonaTax Policies

•Middle of the pack in corporate income taxes (6.97%)• Reduction to 4.9% by 2017 (one of the 10 lowest)

•Top 5 highest states = PA, Washington DC, Minnesota, Illinois, New Jersey

•States with no corporate income tax = Nevada, Texas, Washington, Wyoming

•Being the lowest doesn’t make you more competitive.

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Observations of ArizonaBusiness Taxes

•Personal property taxes can be a deterrent to attract and retain capital intensive opportunities.

•Accelerated depreciation can be helpful. Maybe…

•Assessment ratio reduction.

•Sales taxes are high (9.0% average – 3rd highest).

•No gross receipts or inventory taxes are a significant benefit.

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Observations of ArizonaIncentives Policies

•Quality Jobs Tax Credit Program (new in 2011);

•Arizona Job Training program;

•Renewable Energy Tax Credit Program;

•Arizona Competes Fund;

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Observations of ArizonaOverall Competitiveness

•Arizona is getting into the middle of the road;

•Other states are more aggressive with designed payroll rebate programs and relatively plentiful discretionary cash grant programs;

•Business development efforts outside the Commonwealth could use improvement;

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Final Thoughts

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•Focus business development efforts on the industries that you can be good at;

•Tailor advantages of locating in the region based on the hot buttons for each target industry;

•Consider a regional approach to economic development. What is good for your County / City is also good for nearby communities;

•Partner with the Arizona Commerce Authority to show a united effort with prospective Companies;

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•Optimize local incentives policies based on what matters most to target industries;

•Incentives might be needed to get in the game and especially to close the deal with a competitive opportunity;

•Remember the difference between local serving industries and basic sector companies;

•Don’t give away more money than you need to;

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You can’t just sit back & wait for things to happen.

Keep diversifying your economy.