How Economic Development affects Effective Planning

Mayor Dennis Doyle (Photo credit: Wikipedia)

In my last couple of posts, I talked about the efforts of many cities to create economic development by inciting corporations with subsidies to locate. Today, I am going to talk about how corporations influence public policy and can have a detrimental effect on effective public planning.

I also mentioned in the first posting of last week that often times companies will relocated such as Sears Holdings moving from downtown Chicago out to the suburbs through government subsidies creating a situation where the new location is poorly accessed by transit by its poor location. Further when one set of subsidies expire the corporations will often come back demand more and threaten to move if they do not get what they want. The problem is these major national/multi-national corporations do not care about the cities and will go where they get the biggest subsidies.

Now lets take a look at how these issues can affect effective planning by using the example of Nike.

Nike is located in Washington County, Oregon near the city of Beaverton. Like many corporate campuses it was designed around the automobile and transit access is near impossible as can be seen in this Google map image:


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There is bus service along Murray Blvd to the east, and as you can see in the map it is relatively close to a MAX light rail station. Looking at the map you can see a forested area that extends from the south of Jenkins Road to the MAX Blue Line. This property is owned by NIKE and it was proposed that they would extended their headquarters across Jenkins to that piece of land.

However according to the urban plan because it is located at a MAX station it needed to include housing and two new roads needed to be built to better access the site. In addition the city of Beaverton tried to annex the site which affects Beaverton because the traffic created by Nike has to be solved by the city of Beaverton.

Nike responded by filing a lawsuit against the city of Beaverton to prevent the annexation so that they would not face paying higher city taxes. This shows another problem with these relocations (while NIKE was not relocated it provides a good example), that a company will get subsidies to move outside city limits so they pay less in taxes but the nearby cities often end up subsidizing the roads in order to get the workers to the new building.

In addition NIKE started lobbying state senators and legislatures to help solve their problem for them and Charley Ringo a State Senator from Washington County was more than happy to obliged fearing that NIKE would pull up states and leave and despite being a member of the Sierra Club drafted legislation that forbid the city of Beaverton to annex the area for 50 years. That's right for two generations nothing can be done to enforce the plan that was previously created to make the area more transit friendly and ensure that Transit Oriented Development is put in by the MAX station.

In addition after the legislature of the state of Oregon dictated what the city could do for the next 50 years, NIKE tried to influence the next election for Beaverton mayor by donating and promoting heavily the person running against the current mayor who they declared was not "business friendly".

It is hard enough to get good development done, situations like this make it even harder and do nothing to build a better community. While giving subsidies to major/multi-national corporations may be a short term solution to economic development, in the long run working to build a local economy that has a stake in the community does more than throwing millions out the door.

I am not saying NIKE is a bad company, however they are looking at their own self interest. The people that should have been looking out for the best interest of the community such as State Senator Charley Ringo who interesting enough did not run for reelection the following year should have considered not only what NIKE wanted by what was in the long term best interest of the community as a whole.

Related articles

• Economic Development: Benefit or Black Hole?

Economic Development: Benefit or Black Hole?

The headquarters of Intel Corporation in Santa Clara, California. Note the small "No Photos" sign in the picture. Photographed by user Coolcaesar on July 16, 2006. (Photo credit: Wikipedia)

On August 15th, the Portland Tribune ran a article encouraging people to opt-in to a survey being conducted by the Metro planning agency. In the article they mentioned some of the comments left by people and one particular struck me and that was by a person who said that the government should work to bring more businesses to the area such as Intel which is making big investments in the Hillsboro area.

The comment makes since to those who only look at the surface and say it will create more jobs which almost every area could use. However, looking below the surface so called economic development has become a $50 Billion a year business. That's right cities, counties, states and the feds spend upwards of $50 Billion trying to get a business to move to a certain area. 

The problem is, in our new global society our cities have become disposable, as soon as the tax incentives have expired the corporation will start demanding more money or just pick up and leave the area. If there is a good balance of business in the area it is not so devastating but when they are the major employer, the effects of a pull out can be long lasting. The subsidies themselves can take multiple forms including tax breaks, infrastructure improvements, or outright cash. Either way this incentives cost the area money and often times fail in the long run to be worth what was paid. 

Let me give you some examples of economic incentives gone wrong:

-One city gives $300 million in subsidies to a major airline to create a maintenance base. Over the life of the base it employed half the number of employees promised and when the subsidy period ended the airline contracted out maintenance to another company who received other forms of incentives over the years. 

-Another city gives subsidies to a major computer manufacturer to locate a manufacturing facility and call center. In a interesting twist the company lays off the employees before a deadline which means they would have to pay back all the subsidies they received so they have to quickly hire back employees and pay them to do nothing for two months before laying them off again. 

-One city subsidizes a major corporation to leave the city center and move to the outer suburbs (these moves are usually designed to move the company closer to the current CEO and don't benefit the average employees or usually the companies for that matter). The area has only limited transit service because there is nothing else out there which causes more subsidies for highway and street expansions. The company has been in financial troubles for years but when the company starts "shopping" to move pressure is put on the governor of the state to give the company more subsidies. This also shows how desperate or corrupt some of these economic development teams are when they are willing to extended so much subsidies to a company that has been on the brink of failure for several years. 

-Some cities have spent more than one million dollars per potential job created. However, in the long run the amount of payroll dollars never makes up for the amount of subsidies give to the business. 

These are just four examples of what can go wrong when it comes to economic development. 

Sports teams are another subsidy black hole. How often do you see some sport team that is telling the city you give us something or we are moving. The are always quick to point out the "multiplier" affect but of course leave out the other side of the equation which I will talk about separately. 

Often times when discussing economic development you will hear the term "multiplier". This means that for every direct job created so many secondary jobs are created because that job was created. However, what often is not discussed whether it be a sports team or retailer is while they may create jobs there, it often comes at the expense of something. If you read the economic forecast for a sports team you will hear glowing things about the economic impact as if those attending the games just have this money sitting around to go to these high priced games or races. However, if a person decides to go to a major sporting event, it means that they have an opportunity cost for that event which says that they will not do something else. So the stadium may make the money but the movie theater looses, or they may reduce the number of times they go out to dinner. Often times since people come from the surrounding area, the city that has the stadium benefits and some other area looses so it is not quantified. 

The same thing goes when a government agency gives subsidies to retailers such as Wal-Mart, Ikea, Cabela's and many others who get subsidies to locate in a certain place. While the city itself gets new retail dollars (unless of course they city is big enough that they are just paying Peter to rob Paul), those dollars come from somewhere and it means they don't shop somewhere else. For example a new store goes in at city A but it robs sales dollars from city B and C. The same dollars get spent, it just moved from one city to another. 

The problem is, it is often small businesses that end up subsidizing major corporations that end up causing the small business to close. Of course this is no different than when the streetcar companies were heavily taxed and those tax dollars subsidized their competition back in the first half of the 20th century. 

The trouble is, has the state of economic development incentives become too big of a monster to slay? 

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