Tuesday, January 24th, 2012

Ten 2012 Trends That Will Affect Planning and Economic Development by Chuck Eckenstahler

[ Chuck Eckenstahler, semi-retired in 2008 from a 35-year career as an active full-time municipal planner, economic developer and real estate consultant, sent me an email with some thoughts in response to my post about Detroit building its way back to prosperity. This led me to his blog and the post below with some thoughts about the trends that will drive planning and economic development in 2012. He graciously gave me permission to repost it here – Aaron. ]

Last December I posted 25 Future Trends That Will Impact Economic Development. This was my attempt to identify key trends that would shape the daily concerns of planners and economic developers in 2011.

With the help of my colleague Craig Hullinger, we circulated the “write-up” to a wide audience of active and retired planners, economic development practitioners, city managers and academics.

We got a lot of feedback that began conversations leading to the conclusion that job creation and household wealth would be the major “drivers” of government inspired planning and economic development in 2011.

I believe the wisdom of these folks were correct and as we close out 2011 the need for job growth and increasing household income remain a top priority for the successful future economic revitalization of the global, national and local economies.

Below are my thoughts on the leading trends that will impact planning and economic developers in 2012.

1. Land Use Plans to focus on abandoned land and buildings not “greenfields”.

With the change in consumer spending patterns – reduced disposable income and increased reliance on internet purchases – plus the backlog of vacant home and commercial properties in (or soon will be) subject to foreclosure, there will be a reduce demand for new construction directing planners and economic development attention on reuse of buildings. It’s the same for vacant building sites currently serviced by municipal infrastructure.

The notion of incentivizing new development will be discouraged in favor of planning and economic development strategies that focus on reuse and redeployment of vacant land and buildings.

2. Financial support for planning to be reduced.

Federal and State budget reductions are inevitable. With planning and economic development activities being discretionary “non-mandated” government activities, planning and economic development program support will be targeted for budget reduction, probably to a greater extend than mandated government programs.

Planners and economic developers will be asked to “do more with less” and to seek non-governmental funding support from private contributions, foundations and fees for services provided. The planner and economic developer job description will now include a new component titled “fund raising”.

3. Economic feasibility will be required of all new initiatives.

Since the early 1970’s with Florida’s comprehensive state/local growth management act, planners were expected to include a degree of economic feasibility into the planning process, especially when implementation of plans included reliance upon federal and state funding sources. However, rarely has economic feasibility or benefit/cost analysis been applied consistently and in non-technical easily understood meaningful ways.

With heightened demand for sparse governmental funds, plans and economic development strategies requiring funding commitments, especially those by local governments, will be subject to intense scrutiny and most likely only funded upon sound economic benefit/cost analysis.

The era of planning and economic development strategies that “sound good” but rely upon undocumented funding sources is unacceptable today to citizens and elected officials alike.

Planners and economic developers will be expected to fully justify funding requests by easily communicated economic analyses relying on projected benefits for use of government funds.

4. Job creation “tops” all other concerns.

Gallup pollster Jim Clifton (see The Coming Jobs War) calculates that global unemployment is over 50% and globally there is a 1.8 billion job shortfall. He opines that jobs……jobs……and jobs will be the most important government mission in the future.

He further opines the US must have a 7% GDP growth rate to retain its global presence and decrease US unemployment; almost doubling the most generous US GDP growth rate being discussed in the media today.

For planners and economic developers, this is unhappy news drawing attention to heightened future demand for state and local action to create jobs.

For planners and economic developers, the increased global competition for jobs, pulse a likely anemic US GDP growth rate in 2012 will create intense pressure for programs and action that create new jobs.

5. Service area geographic sizing to become the major planning criteria.

In the Midwest, our local government geographic sizing was created by the Northwest treaties in the late 1800’s when the principal means of communication was a horseback ride to personally speak with someone. With internet and wireless communications today, we almost instantaneously communicate “with anyone – anywhere”. We have the ability to instantaneously bundle-up work assignments and ship them anywhere around the world to be completed and returned.

However, many government services remain modeled on the notion they must be provided on the basis of “a one-day horse ride” from home.

While all states allow governments to share services and even consolidate for greater financial efficiencies, it’s a rare occurrence.

Historic political isolationism based on the loss of political control permeates the inability to explore changes to service area geography that may reduce financial operating costs for services provided.

As governmental revenues become more strained and where taxpayers will not increase government revenue, planners and economic developers will be called upon to engage in municipal service consolidation conversations to exact efficiencies that stabilize or reduce government service costs.

6. Utility maintenance “trumps” new expansions.

While at the state and national level we call for more infrastructure funding for “big project” roads and bridges, back home at the local level most communities maintain underutilized water, sewer, storm drain and subdivision streets built with the notion that new development, most often new residential home owners, would pay user fees and local taxes to operate and maintain the local infrastructure.

In the absence of new construction requiring new utility connections plus the abundance of demolitions of no-longer needed homes and commercial buildings, in some communities the actual number of utility “paying” connections is being reduced or “at best” remaining stable. Most utilities were originally sized to service more users anticipated by 10-20 years of future growth but in actuality, now and maybe for considerable time into the future, will remain underutilized.

The cost of operations and long-term maintenance in almost all cases was based on revenues obtained from anticipated future new connections. With operation and maintenance cost increasing and revenue possibly decreasing, or at best stable, local government budgets in the future will focus on maintenance of the existing infrastructure rather than funding new expansion.

Planners and economic developers will be pressured by budget constraints to seek development projects that increase the number of utility connections allowing the amortization of operation and maintenance cost over a larger number of utility bill payers.

7. Tax payers demanded greater efficiencies to guide new growth.

I think everyone will agree that tax payers are overwhelmingly against tax increases and expect greater efficiencies from government to “hold the line” on cost increases resulting in the need for additional tax revenue.

With this in mind, it will be more difficult to undertake new programs requiring additional tax revenue from tax payers. Likewise, tax abatements or deferral of tax revenues as economic development incentives will also be subject to questioning and higher degree scrutiny.

Planners and economic developers will be discouraged from advocating projects that require forgiveness of tax revenues and encouraged to seek projects that have short-termed positive tax revenue income, especially for local governments that rely upon real estate taxes and/or local captured sales taxes to fund local government operations.

8. Federal and State paralysis over local funding freezes local government decision making.

The “we can’t do that now, because we don’t know what’s going to happen” governmental decision making paralysis will continue into 2012. Government funding uncertainty, due to uncertain federal, state budgets, coupled with uncertainty about local real estate and sales tax revenue has already become the mantra of government decision making today.

Many economists forecast several more years of this uncertainty, making the budget making job most difficult for elected officials. This uncertainty already results in postponement and cancellation of projects that in “better times” would contribute to an economic development stimulus to the local economy.

Recognizing that uncertainty will continue into 2012, planners and economic developers will find slim support for projects that require funding beyond approved budgets and greater pressure from elected and appointed officials to seek external project funding sources.

9. Local municipal insolvency and bankruptcy strikes fear deciding long-term funding.

Over the past 3-years there have been 49 municipal bankruptcies, according to the nationally leading municipal bankruptcy law firm of Chapman & Cutler. The most publicized being Jefferson County Alabama’s $3 billion revenue bond sewer fund driven bankruptcy – the largest in history. Media reports predict the potential for other bankruptcies is having a major impact on the $2.9 trillion municipal bond investment market, where 2/3 are revenue bonds – those viewed as “safe investments” by investors because they are “backed” by a utility revenue stream that is likely to continue even in the worst of economic times.

With questions about the future of federal, state and local revenues, today most government officials are a bit leery of committing to long-term projects, especially those that commingle sources of funds from multiple government programs and revenue sources based on new growth.

In 2012, planners and economic developers will be saddled with questions about municipal solvency both in efforts to package financing for necessary municipal infrastructure investments and to assure new businesses desiring to locate that the community is solvent and resistant to “surprise” tax increases that might occur due to unrecognized financial needs.

10. Municipal financing will become more expensive cancelling certain projects.

Because of government bankruptcy, unfunded state and local government obligations, reduced federal/state/local revenue, non-expendable operating budgets, and increased operating expenses, investors are looking at municipal financing risk a bit differently today and will continue to do so in the future. Where real or perceived investment risk increases so does the price, the amount of interest government must pay. Even purchasing insurance that guarantees payment in case of default gives little comfort to the investor, as leading insurers are being called into question about their ability to fund required payments in case of an economic crisis of substantial proportion.

All in all, this new uncertainty means that cost to borrow funds by states and local governments will be more closely evaluated and cost more.

For the planner and economic developer in 2012, the ability of governments, especially local governments to raise capital for projects will be more difficult and lessen the aggressiveness towards undertaking long-term financed projects.

Last Thoughts

As we closeout 2011, we give thanks – thanks that we made it through. It was a difficult year where many economic changes reshaped the role planners and economic developers play at the federal, state and local government levels.

The “crystal ball” today is no different….cloudy at best!

Again in 2012, the economy and jobs will be subject of every conversation.

Being an election year it will be on every newscast.

Our challenges as planners and economic developers focus on shaping the future.

Our charge today is – What can we do in 2012, with the resources at hand to invest in the future?

This post originally appeared in Chuck Eckenstahler’s Blog on December 4, 2011.

Topics: Public Policy

5 Responses to “Ten 2012 Trends That Will Affect Planning and Economic Development by Chuck Eckenstahler”

  1. stlplanr says:

    Adaptive re-use will certainly trump “grayfield” redevelopment, which will trump “greenfield” development. However, multi-family construction is one area of development that is not dead.

    Cities that target this current demand into areas that support more compact living, greater municipal service efficiencies, and redevelopment of underutilized properties, will ultimately see a much more resilient tax base longer-term.

    The withering of stripped-out arterial corridors is only growing. Those cities with power centers off regional interchanges have a temporary cushion. But those cities investing “rooftops” where walking infrastructure exists will be more prepared for the next generation of retail and services.

  2. Rod Stevens says:

    An interesting list, but more interesting from the planning perspective than from that of economic development, and that is the core issue. As practiced today in most places, planning is regulatory, it is not really true economic development.

    As Chris Gibbons and others in the economic gardening movement will point out, economic development is about enabling business growth. It is not about physical building so much as providing systematic “soft” support services for business. A case in point: do you create a street project because it is pretty and may lure real estate investment, or do you create gathering places for the creative class to hold meetings? The first is a bit of “cheese” intended to catch physical The second is social infrastructure intended to support the day-to-day workings of businesses in which most of the assets are intellectual and not tangible.

    Many of the comments on this list deal with how the conventional approach to planning and urban development will withstand budget cuts and calls for more efficient government services. The real issue here is not how old systems and approaches may continue and morph, but how ought communities to go forward in re-establishing their vitality? The latter is a far more interesting question, calling for insight and imagination on how to get the public and private sectors to best work together and support one another. In fact, this really calls for a new relationship, one in which government and business jointly identify the distinctive traits and skills of the community and then agree on ways to support their expression and growth. That, in fact, is a new way of working, one that requires leadership. The important question is not “what old line items will remain in place, and by how much”, but “how will we work differently in moving ahead, in getting people to agree”. To me, these management and leadership questions are far more interesting than how the regulatory structure will or will not withstand the budgetary onslaught.

  3. Chris Barnett says:

    Agree with Rod.

    Too often, property development/redevelopment is confused with economic development: build an incubator or commercial space in a “cool” setting, and somehow entrepreneurs will materialize.

    Planners (both public and for-hire) don’t generally deal with small start-up businesses…they work for large public, semi-public or non-profit entities that plan campuses and streetscapes. Some tout mixed-use without a understanding of the underying economics necessary to support viable/sustainable commercial space.

    Local economic development works best when it involves people with economics and business training and small-business operating experience, IMO. Such folks speak the same language as aspiring business-owners, which is not “real estate”, “plannerese” or some related dialect of government/bureaucratic language.

  4. Chris Barnett says:

    whoops, above should read *without an understanding of the underlying economics*

    Phone keyboards are much smaller than real ones. :)

  5. Alon Levy says:

    The bit about 50% global unemployment isn’t really true. In developed countries, the rate is closer to 8% today, and that’s just because of the recession. In developing countries, it’s harder to measure, because of large rural populations, informal sectors in urban areas, and low workforce participation rates. However, judging by travelers’ descriptions, it’s very hard to believe that third-world cities have half the labor force out of work in the same manner that 25% of Americans were out of work in 1933.

    As a corollary, there’s no competition for jobs. The countries that want America’s jobs want America’s consumption and not just its production; the effect on US employment is small. As a country steals away jobs from the US, its residents get richer, and start consuming more goods, and moreover the country’s currency appreciates relative to the dollar, inducing consumers both locally and in the US to buy American goods more. China’s mostly avoided that because of currency manipulation, but this can’t go on forever; a policy that works in a country with a GDP per capita of $5,000 could lead to mass unrest in a country with a GDP per capita of $15,000.

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