Economic Development: An Analysis of Two Competing Regions - Essay Example

Section/# Economic Development: An Analysis of Two Competing Regions Issues surrounding economic development can rarely be understood or appreciated in terms of merely examining the immediate economic impacts of a proposed project. Rather, in order to understand the incentives package that different groups put together which may appear on the surface to far outweigh the economic benefits, one must realize that the total economic benefits that such a project as the Fruitwood Mall entails will only be realized via an understanding of synergy and the compound economic factors that such a building and sales operation will transmit to the local/regional economy. As such, this brief essay will attempt to answer a series of questions regarding the overall level of benefits and associated risks that that city is faced with in respect to providing such a high level of incentives to gain such a project. In this way, key questions and concepts surrounding what the local municipality stands to gain as well as what stands to be lost will be considered. Firstly, the essay will consider 4 reasons why Appleville has put together such an extreme package to entice High Growth Property Executives to build their mall within its corporate limits. The first of these reasons is of course the most obvious. Due to the fact that the mall will have a pull from surrounding communities, individuals will be encouraged to drive from surrounding areas in order to shop and to spend their money with Appleville’s new mall. This will have a compound effect. The first of these effects is the fact that money is being introduced into the economy of Appleville via the fact that shoppers are coming to spend their money there as opposed to other places. Additionally, the influx of “foreign” (meaning money that did not necessarily originate in the community economy) serves to provide an influx of fresh currency into the otherwise stagnant economic system. Secondly, one can only begin to understand the large amount of incentives within the light and framework of understanding that the economic development board members have with respect to the belief that acquiring a shopping mall such as Fruitwood Mall will have a synergistic effect on the number and diversity of retail firms that will be attracted to the area/region based on the presence of the mall. This is perhaps the weakest of the justifications that economic developers can put forward as a definitive reason to invest heavily in the proposal. This is due to the fact that economic factors and many externalities help to dictate in which way the economy will behave regardless of the presence of Fruitwood Mall within the local community. However, if these economic factors are working together, the likelihood of the Fruitwood Mall being able to attract additional investment and spur the economy to an even further degree such likelihood is quite high. Thirdly, such a large investment is also rationalized by the fact that it will necessarily employ a large workforce to fill the vacancies/positions that the construction process and retail outlets entail. In this way, the overall local workforce (and corresponding tax revenues) will increase. The economic advisors to the community advocate such an approach due to the fact that they believe that the long-term benefits will far outweigh the risks. What happens when these risks to not outweigh the benefits will be discussed in a further section of this brief analysis. Fourthly, the sales tax revenue that will be received as a result of the increased volume of sales within the community will help to raise the reserves that the community has to draw upon in order to improve infrastructure, build better and larger schools, improve the police force, up fit water/sewer systems etc. In this way, the local government economic development office is hoping to encourage a rapid shift in economic development within the community as a means of providing a larger tax base to their local government. With respect to the hoped aims and goals that City of Appleville municipal officers hope to gain from such a project, this author will lay out three distinct scenarios that are likely foremost in the minds of the economic development officials. The first of these is concentric up on the fact that the city is interested in the level of infrastructure upgrades which will result from such a process. Although many of these changes will need to be funded by the city, the fact of the matter is that better and wider roads, and a more robust infrastructure (both in regards to water/sewer and electric capabilities) will allow the city to further grow, support a larger population, and build infrastructure not only capable of meeting the needs of the specific project in question but capable and with forethought that is mindful of future projects which can capitalize on this as well. Likewise, the increase and workforce and training that will be effected helps to decrease unemployment while at the same time offering valuable positions to entry level workers and providing these workers with experience that will no doubt be a valuable commodity within the workforce as more and more employers desire prior skill in various customer relations fields that the Fruitwood Mall will necessarily give to the employers it hires. Similarly, one of the strongest advantages of the project is the fact that the municipality will be able to steer the project towards a given geographic location by means of incentivizing it. This helps to allow the city to strategically manage the way in which a given geographic area progresses and what communities/neighborhoods stand to gain the most from the increase in property value and associated infrastructure upgrades that the project will entail. In this way, the city can both seek to maximize its own utility as well as the utility of key shareholders within the community that might stand to gain the most from the infrastructure improvements combined with an increased property value that such a project might necessarily entail. The most preeminent risk that a jurisdiction faces in so heavily subsidizing and incentivizing such a project is the fear that the overall level of benefit/revenues which will be generated will not equate to what has been anticipated in determining the level of incentivization that was originally determined. This is a primary risk due to the fact that key considerations with respect to total revenue projected as compared to total revenue expended on incentivizing the project will not match over time if the economic benefits of such a project do not live up to their expectations. One of the ways that the local government can seek to protect its investment in the Fruitwood Mall is making codicils and requirements with respect to the incentive money that will be offered. This is a way that the Fruitwood Mall will be required to live up to certain key elements of the agreement as a means of receiving the tax benefits for the entire number of years specified. In this way, if the total sales and /or total number of people are not met for any particular phase of the project, the community can write their incentives package in a way that specifies that the incentive will no longer be offered if the Fruitwood Mall cannot ascribe to the metrics set forth in the initial agreement.1 As such, this brief essay has sought to lay out some of the benefits and risks that are involved with economic development from the standpoint of the local community. It should be emphasized the unknown factor of how the economy will perform during the different phases of construction and ultimate implementation of the plan cannot be overemphasized. Due to the fact that many projects are designed by their financiers to be fluid to accept and respond to changes in the economic environment, it is incumbent upon any municipality and/or local government to be mindful of the fact that key conditions may rapidly change and redefine the project in a way that does not make it as favorable as it may have first appeared. In this way, it is necessary at each and every juncture for the economic development professionals to seek to encourage the key financiers and shareholders to commit to key quotas and time periods of implementation in order to receive the most benefit of the incentives that have been offered. Although incentives are often viewed as merely a one way street by which the developer and sponsoring entity is able to take advantage of the local community and gain concessions, the fact of the matter is that incentives can be used by the local/municipal government to coerce and encourage the participating entity to ascribe to the promises that they have made in the very early stages of project development. In this way, the municipality is able to ensure that the development entity ascribes to its previously stated intentions as a means to ensure that each and every stage of development and corresponding incentives are on track to match what was originally stated. Reference Obloj, Tomasz, and Metin Sengul. 2012. "Incentive Life-cycles: Learning and the Division of Value in Firms." Administrative Science Quarterly 57, no. 2: 305-347. Business Source Premier, EBSCOhost (accessed November 11, 2012). Read More