What to Watch in the 2021 Stimulus Proposal (SEDE Staff). The American Rescue Plan proposed by President Biden and currently being considered in the U.S. House would provide $1.9 trillion in economic relief. While the proposed $1,400 stimulus checks and the national vaccination plan are getting most of the headlines, the plan has quite a few other items to help small businesses and support intermediaries in struggling communities. Nine House Committees are completing their mark-up of bills associated with the American Rescue Plan proposal. SEDE staff reviewed the plan and summarized provisions particularly relevant to business and workforce agencies. The plan is intended to give pandemic-impacted Americans and the overall U.S. economy a boost. Current Congressional Budget Office projections expect the economy to strengthen during the next five years. The annual growth of real GDP averages 2.6 percent during the five-year period, exceeding the 1.9 percent growth rate of real potential GDP.
* Recent Release *
Congress has authorized over 130 economic development programs administered by over 20 departments and agencies. These programs support efforts to improve job opportunities, tax bases, individual or community wealth, and quality of life measures; contribute to economic growth; create reinforcing industrial clusters; and reduce economic inequality. In contrast to centrally-planned approaches, most federal programs in the United States are designed to strengthen the national economy by supporting the plans and strategies established by state and local stakeholders. The range of economic development programs approved by Congress reflects shifting priorities, changing global market trends, and a variety of theories about what drives local and regional economies.
State Economic Performance
Metropolitan Area Employment Down in 232 Areas (Bureau of Labor Statistics). From December 2019 to December 2020, nonfarm payroll employment decreased in 232 metropolitan areas, increased in 2 areas, and was essentially unchanged in 155 areas. The largest over-the-year percentage losses in employment occurred in Kahului-Wailuku-Lahaina, Hawaii (−22.4 percent), Monroe, Michigan (−16.4 percent), and Flagstaff, Arizona (−15.1 percent). Over-the-year increases in employment occurred in Ogden-Clearfield, Utah (+8,100, or +3.0 percent), and Idaho Falls, Idaho (+3,100, or +4.9 percent). These data are from the Current Employment Statistics (CES) program which produces detailed industry estimates of employment, hours, and earnings of workers on nonfarm payrolls for all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and about 450 metropolitan areas and divisions.
* Economic Outlook *
State and local governments are a major piece of the U.S. economy, accounting for about 13 percent of all employment. They typically have balanced budget requirements, which mean that shortfalls in revenues triggered by the pandemic must be offset with spending cuts or tax increases—actions which hurt taxpayers and impede the economic recovery. The December 2020 COVID relief package approved by Congress provides roughly $125 billion to state and local governments for education, health, public transit, and highways, but does not include any general aid to states or localities to cover revenue losses. These governments continue to face higher demands on spending due to the pandemic, and revenue losses in some states are likely to exceed any federal aid received. This webinar held at the Municipal Finance Conference discusses the outlook for state and local revenues in the coming years.
* * *
Topics and Trends
Sporting Goods Industry Trends in 2021 (McKinsey & Company). In 2020, the sporting goods industry contracted for the first time since the financial crisis of 2007–08. Most brands, retailers, and manufacturers finished the year significantly in the red, except for the Chinese market which continued as the industry’s growth engine. Specific sports were impacted to varying degrees by the pandemic, depending on how accessible they were in a locked-down environment. Outdoor individual sports and home workouts both saw increased participation. Team sports and indoor sports struggled. Among emerging opportunities, women’s clothing with the increased focus on home workouts, running, yoga, and Pilates. However, the impact of the pandemic goes beyond temporary performance—it has ushered in the next normal for the industry, defined by factors including digital commerce, rising demand for sustainable products, and increasing participation in individual forms of sports and exercise. To win in the new environment, the industry needs to adapt both its customer proposition and its operational capabilities.
What’s Ahead for US Trade Policy in 2021 (Industry Week). President Biden has been clear that it will take a multilateral approach to addressing trade issues associated with China. It is anticipated that any de-escalation or removal of Section 301 or Section 232 tariffs will be implemented in phases and in cooperation with allies. There is still widespread support in the U.S. business community for maintaining an aggressive stance against China on intellectual property, technology, and investment issues. On the other hand, there have been numerous complaints that the tariffs on covered products from China are injuring them and that the exclusion process has been less than opaque. Thus, there seems to be a real possibility of reopening the product exclusion process in a more transparent manner, which could result in granting additional exclusions. This year will likely bring a continued uptick in enforcement actions for evading or circumventing antidumping and countervailing duties. The Biden Administration will also enjoy latitude in determining, through Commerce Department regulations, if or how to regulate exports of “emerging and foundational technologies” as required under the Export Control Reform Act of 2018.
New IRS Deadlines for Opportunity Zones (USA Today). Citing the impact of COVID-19 on individuals and businesses, the IRS issued Notice 2021-10 on Jan. 19, 2021, pushing out OZ investor deadlines that already had been extended to the end of 2020. This includes the 180-day deadline for new investments into QOFs until March 31, 2021, and relief from the 90% investment test to June 30, 2021. Among other Notice 2021-10 extensions—a QOF must generally hold 90% qualified OZ property at each six-month testing date, but for calendar 2021, the test will be turned off for most QOFs, provided the fund can show “reasonable cause” for the failure to meet the test. The new notice also allows another three months through March 31, 2021, for taxpayers who generated “direct” or indirect (e.g., K-1) gains with an original 180-day reinvestment deadline on or after April 1, 2020. The notice also delays the effective dates of the 30-month substantial improvement period for the period beginning on April 1, 2020 and ending on March 31, 2021. Like many of the extensions in the latest notice, this provision extends relief from IRS Notice 2020-39 issued last June. To read IRS Notice 2021-10, click here.
Opportunity Funds Top $15 Billion in 2020 (Novogradac). Three years after the passage of legislation creating the OZ incentive, investment surpassed $15 billion as of the end of 2020. The latest data from the Novogradac Opportunity Zones Investment Report–reported equity raised of $15.16 billion by Qualified Opportunity Funds (QOFs). The raised equity continues to focus largely on residential and commercial investment. QOFs that report at least some focus on residential properties account for $11.91 billion in equity investment (78.5% of the total) while commercial-focused QOFs account for $9.37 billion (61.8% of the total). Since many QOFs report a focus on multiple areas the total is more than 100%. Hospitality, renewable energy, and operating businesses make up the other areas of investment, in order of investment. For more information on Opportunity Zones, CDFA has extensive resources available, click here.
The Opportunity Zones program provides a tax incentive for investors to re-invest their unrealized capital gains into Opportunity Funds that are dedicated to investing into Opportunity Zones designated by the chief executives of every U.S. state and territory. Treasury has certified more than 8,700 census tracts as Qualified Opportunity Zones (QOZs) across all states, territories, and the District of Columbia. For a map of all designated QOZs, click here.
Uplifting America’s Left Behind Places (Economic Innovation Group). The longest economic expansion in U.S. history, from June 2009 to February 2020, failed to reach many communities across the country. By placing geographic inequality at the heart of the domestic policy agenda, a new administration and Congress have a chance to recalibrate the federal approach to economic development and directly empower more Americans to participate in the country’s growth and thrive. EIG’s framework for place-conscious policymaking includes the establishment of a centralized entity to bring strategic direction to federal economic development policy, such as an empowered Economic Development Administration or a new cabinet-level entity. It also recommends to routinely assess the likely geographic impact of policies; commit to a U.S. Domestic Development Corporation that expands the finance toolkit; improve access to capital in distressed, disinvested communities; bolster capacity and connectivity; invest in people and families to boost local human capital; and reinvigorate competition to support startup formation and worker mobility.
Iowa Plans for Manufacturing 4.0 (Iowa Economic Development Authority). Manufacturing faces a technology revolution that emphasizes automation and smart technology. This fourth Industrial Revolution, known as Industry 4.0, will usher in advances and disruptions to manufacturing on a similar scale as those brought over time by water and steam power, mass assembly and computing and robotics. Industry 4.0 includes the Internet of Things, additive manufacturing, advanced robotics, augmented reality and cybersecurity. Digital technologies may not replace jobs, but they will transform how work is performed – how products are designed, fabricated, used, and serviced. The ability for states like Iowa to compete globally will hinge on successful transitions to new operating models, especially for small-to-medium sized manufacturers. Iowa Economic Development Authority’s (IEDA) Iowa Innovation Council led the Manufacturing 4.0 plan with a focus on advancing technology adoption and utilization among Iowa’s manufacturers; it further addresses enhancements in the broader manufacturing ecosystem.
The Road Ahead for Commercial Office Space (Cushman & Wakefield). In 2020, there was 104 million square feet of negative commercial office space absorption, which is more severe than during the Great Recession. Sublease space soared—about 50% of the negative absorption came from newly added sublet space. Office vacancies rose from 12.9% pre-pandemic to 15.5% by year-end. When lining up the office-using job losses that occurred last year (1.15 million) with the amount of negative absorption, it suggests that vacancy will continue to rise—at least for the next couple of quarters—as businesses continue to right-size office footprints and Work from Home trends filter through. However, there is no evidence thus far that businesses are leaving large cities. In a typical year, about one-third of all office leasing in the U.S. occurs in gateway cities (Boston, Chicago, Washington, DC, Los Angeles, New York, San Francisco), and in 2020, it was about the same, 32%. Likewise, office sales activity was down sharply virtually everywhere in 2020 but down equally in major markets and non-major markets.
Incentives in Action
How States Can Direct Economic Development to Places and People in Need (Pew Charitable Trusts). States play a central role in place-based development efforts, helping to administer major federal economic and community development programs, designing their own initiatives, and writing laws that dictate how local government programs may operate. In this report, Pew recommends that states should: target programs using quantitative measures; systematically assess geographic targeting; regularly update the set of eligible locations; tailor economic development strategies to local needs; and create job opportunities for low-income residents. By following these recommendations, states can help to ensure that place-based economic development programs help combat poverty, joblessness, and disinvestment in some of America’s poorest communities.
State Small Business Credit Initiative (SSBCI) 2.0 Introduced (Council of Development Finance Agencies). Michigan Senators Peters and Stabenow have introduced a bill in the U.S. Senate to reauthorize the State Small Business Credit Initiative (SSBCI). CDFA has worked closely with these offices to stress the importance of recapitalizing state programs that had expired in 2017 to bring immediate support to small businesses hurt by the COVID-19 coronavirus pandemic. The State Small Business Credit Initiative (SSBCI) was a federal financing program that delivered flexible, affordable capital to small businesses around the country. The expiration of the SSBCI Program in 2017 left a void in the marketplace for affordable small business loans. Senate Bill 258 would provide $10 billion in funds to a reauthorized SSBCI Program. The programs created by states under the original SSBCI are still in operation and would be ready to immediately deploy capital to businesses in need. To track S. 258, click here.
Maryland Helps Medical Testing Company Expand (Maryland Department of Commerce). Dutch medical testing company Qiagen, which has seen huge demand for its COVID-19 test kits, is expanding its manufacturing operations in Montgomery County, Maryland. Qiagen’s U.S. headquarters and research and development manufacturing facility is in Germantown (MD). It plans to renovate its 146,000-square-foot manufacturing facility there to accommodate expanding production of its testing products for COVID-19 and other diseases. It has already added around 80 contract workers and invested $7 million in building renovations and equipment. The company will further increase investments and add jobs to its more than 300 employees in Montgomery County, and lease additional space in the area. Qiagen has received state and county incentives for its expansion, including a $1 million loan contingent on job creation and investment from the Maryland Department of Commerce and a $100,000 workforce training grant from the state. Montgomery County has also approved a $100,000 grant, contingent on job creation and investment.
The State Business Incentives Database is a national database maintained by the Council for Community and Economic Research (C2ER) with almost 2,000 programs listed and described from all U.S. states and territories. The Database gives economic developers, business development finance professionals, and economic researchers a one-stop resource for searching and comparing state incentive programs. To view the information available in the database, click here.
New Growth Opportunities
U.S. Heartland States Poised for Industrial Resurgence with Reshoring (Heartland Forward). The U.S. is poised for an industrial comeback led by the Heartland and fueled by reshoring, the return of manufacturing centers to the U.S. from abroad. A recent Heartland Forward report notes growing bipartisan support for policies that bring foreign businesses home, as the Biden administration works to promote domestic manufacturing and Congress grapples with the country’s dependence upon Chinese-made personal protective equipment (PPE) during the pandemic. In a 2020 survey, 70 percent of firms say they will likely reshore in the coming years. Heartland states stand to benefit the most from reshoring activity, given the concentration and diversity of its existing manufacturing base, skilled labor pool and training programs, proximity to domestic suppliers, as well as infrastructure to support production facilities. The growth of financial and professional services in the Heartland also makes it a desirable place for manufacturers, given the shift within the industry toward outsourcing these aspects of the business.
Union Membership Rates in 2020 (Bureau of Labor Statistics). In 2020, 30 states and the District of Columbia had union membership rates below the U.S. average, 10.8 percent, while 20 states had rates above it. Nine states had union membership rates below 5.0 percent. South Carolina had the lowest rate (2.9 percent). The next lowest rates were in North Carolina and Utah (3.1 percent and 3.7 percent, respectively). Two states had union membership rates over 20.0 percent: Hawaii (23.7 percent) and New York (22.0 percent). Over half of the 14.3 million union members in the United States lived in just seven states (California, 2.4 million; New York, 1.7 million; Illinois and Pennsylvania, 0.7 million each; and Michigan, New Jersey, and Ohio, 0.6 million each). These data are from the Current Population Survey.
Online Job Search and Recruiting Tools and Job Match Quality (IZA Institute of Labor Economics). The advent of the internet has fundamentally changed the way workers and employers search for each other and eventually form a match. This trend is mirrored by the increased use of online search and recruiting tools by individual job seekers and employers. Given these developments, a question of particular interest is whether search via the internet along with the improved market information help to establish better matches in the labor market. This study results show that internet availability has no major impact on the stability of new matches and their wages. The study uses vacancy data, by explicitly comparing match outcomes of online and non-online recruits. Further results show that online recruiting not only raises the number of applicants and the share of unsuitable candidates per vacancy, but also induces employers to post more vacancies.
* * *
SEDE Network Updates
* Upcoming SEDE Roundtable *
Incentives Roundtable: Remote Workers Impact on Compliance
Tuesday, March 16, 2021
2:00 PM – 3:00 PM ET
Remote work became a more important part of the economic landscape in 2020. In response, many state economic development organizations are considering the impact of remote work on existing incentive performance agreements as companies endeavor to remain compliant with the terms of their contracts. Now that compliance reporting deadlines are approaching, how should economic development organizations adjust incentive program compliance procedures in response to last year’s upheavals?
Join CREC and Roundtable leaders Ellen Harpel, Founder, Smart Incentives and Jane Vancil, CEO, IncentiLock on March 16 for a 60-minute presentation and discussion. This event will be held on Zoom.
* * *
The SEDE Network Steering Committee includes: Stefan Pryor (RI), Chair; Sandra Watson (AZ), Vice Chair; Julie Anderson (AK); Mike Preston (AR); Kurt Foreman (DE); Don Pierson (LA); Kelly Schulz (MD); Kevin McKinnon (MN); Chris Chung (NC); Alicia Keyes (NM); Michael Brown (NV); Andrew Deye (OH); Dennis Davin (PA); Jennifer Fletcher (SC); Adriana Cruz (TX); Joan Goldstein (VT); Mike Graney (WV).
For further questions on the content in this Bulletin or for information on the SEDE Network contact Marty Romitti, CREC Senior Vice President, at email@example.com