* SEDE Network Meets in Providence RI *
Top economic development officials from nearly two dozen states met for SEDE’s bi-annual convening held September 8-9, 2019 in Providence, Rhode Island. The group was in Rhode Island for Sunday and Monday to discuss opportunity zones, trade and tariffs, urban and rural economic development, innovation, and other challenges and successes for state economic development organizations. The group also visited the Block Island windfarm and discussed “energy as economic development.”
State Economic Performance
The Future of Workforce Development (Governing). Data was collected from 750 business leaders on how technology is transforming the future of work. The workforce as we know it is in the throes of a revolution. In this Fourth Industrial Revolution, technology is blurring the lines between the physical and digital worlds. As new technologies emerge, innovative companies have already begun to adapt, prompting re-evaluations of workforce development strategies. Among the many survey results, as the workforce of the future starts to evolve, hiring managers for businesses appreciate the importance of offering their employees opportunities to skill-up and retrain. However, despite a lack of major obstacles, few companies have taken steps to implement new workforce development programs. For instance, 68% of hiring managers see high value in formalized training programs for their employees, but only 46% prioritize them. This mismatch poses threats to workers’ livelihoods and companies’ talent pipelines alike.
Topics and Trends
Offshore Wind: America’s New Ocean Energy Resource (American Wind Energy Association). The U.S. has a vast offshore wind energy resource. American shores possess a power potential of more than 2,000 gigawatts (GW), nearly double the nation’s current electricity use. This potential presents an enormous opportunity to deliver large amounts of clean and reliable electricity to the country’s largest population centers, where it’s needed most. State policies in Maryland, Massachusetts, New Jersey, New York, Rhode Island, and others are vital drivers for the offshore wind industry. These policies will help achieve scale and develop an American supply chain. With stable policy in place, the Department of Energy found that the U.S. could install a total of 22,000 megawatts (MW) of offshore wind projects by 2030 and 86,000 MW by 2050, creating thousands of well-paying jobs in coastal communities. There are 74 different occupations needed during the various stages of planning, development and operation of offshore wind farms. Offshore wind development will also tap into the skills of workers in existing U.S. oil and gas companies, which have decades of experience developing ocean energy infrastructure.
China to Exempt U.S. Pork and Soybeans from Additional Trade War Duties (Politico). China has announced that it will exclude imports of U.S. soybeans, pork and other farm goods from additional trade war tariffs, opening the door for significant purchases of agricultural products. China’s National Development and Reform Commission and the Ministry of Commerce made the exemption in response to the U.S.’ decision to postpone an increase in the tariff rate on $250 billion of Chinese goods from October 1 to October 15. Previously, both pork and soybeans have been subject to heavy duties, imposed during successive rounds of Chinese tariffs on U.S. goods. China has levied three rounds of tariffs on U.S. frozen pork, including 25 percent in April 2018, 25 percent in June 2019 and another 10 percent in September 2019, bringing the final tariff to 72 percent. If all the trade war tariffs were removed, the rate would return to 12 percent, the “most favored nations” duty paid by China’s other trading partners. China has also imposed 30 percent tariffs on yellow soybeans — the sort the U.S. grows in abundance — including 25 percent in June and 5 percent on September 1, bringing the current tariff level to 33 percent. If the additional tariffs are removed, tariffs on U.S. soybeans would return to 3 percent — the same rate paid by importers of Brazilian soybeans, which have largely filled the gap left by the U.S.
How a Tax Break to Help Poor Communities Became a Windfall for the Rich (New York Times). The stated goal of the Opportunity Zone tax benefit was to coax investors to pump cash into poor neighborhoods, leading to new housing, businesses and jobs. Instead, this NYT article presents evidence that billions of untaxed investment profits are beginning to pour into high-end apartment buildings and hotels, storage facilities that employ only a handful of workers, and student housing in bustling college towns, among other projects. Many of the projects that will enjoy special tax status were underway long before the opportunity-zone provision was enacted. Financial institutions are boasting about the tax savings that await those who invest in real estate in affluent neighborhoods. For example, SkyBridge Capital is using the opportunity zone initiative to help build a hotel in the city’s trendy Warehouse District, while the tax benefit also is helping finance the construction of a 46-story, glass-wrapped apartment tower in a Houston neighborhood already brimming with new projects aimed at the wealthy. Backers of the opportunity-zone program say luxury projects are the easiest to finance, which is why those have been happening first. Over the long run, they say, those deals will be eclipsed by ones that produce social benefits in low-income areas.
Rockefeller Foundation Pours Millions of Dollars to Keep Opportunity Zones on Track (Barron’s). The Rockefeller Foundation is injecting $3.7 million into programs to steer the Qualified Opportunity Zone program closer to its mission of boosting economically distressed areas. To help guide investors, the foundation will distribute the money to Washington, Oakland, Dallas, and St. Louis, giving each $920,000 in grants and services, including $400,000 to create a Chief Opportunity Zone Officer in their economic development authorities. The foundation’s funding is geared toward helping cities build out pipelines of potential projects and investments that will help guide investors looking for somewhere to put their money. That will ostensibly help funnel private capital toward projects that benefit existing communities. The Rockefeller Foundation seeks to promote the well-being of humanity throughout the world, advancing new frontiers of science, data, policy, and innovation to solve global challenges related to health, food, power, and economic mobility. For more information on Opportunity Zones, CDFA has extensive resources available, click here.
Time is Running Out on Opportunity Zones (Investment News). Time is running out to get the biggest tax break from opportunity zones, but there’s one snag for financial advisers: they don’t see a lot of compelling investment options for clients. To get the full tax benefit, wealthy clients (those with a net worth of at least $5 million, which can’t include a personal residence) must invest by the end of 2019. The sticking point is that the deferred tax comes due by Dec. 31, 2026 — which is seven years from the end of 2019. So, clients that invest in an opportunity fund in 2020 and beyond will not be able to get the maximum 15% tax reduction. That deadline could lead advisers and clients to rush into a poor investment deal. There are a lot more buyers than sellers, although some investors have passed on deals like building early childhood development centers. The deals would have had an estimated internal rate of return of roughly 4.8% to 5.2% at best and are risky because they were predicated on having a single tenant and payor. For the deal to make sense given the risk profile of the funds, projected returns would have to be around 8% to 10% for real estate and 12% to 16% for a private placement.
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.
The Real (surprisingly comforting) Reason Rural America is Doomed to Decline (Washington Post). According to the United States’ original 1950 urban classifications, rural America is crushing it. It’s home to about as many people as urban America, and it’s growing faster. So why do headlines and statistics paint rural areas as perpetually in decline? Because the contest between rural and urban America is rigged. Official definitions are regularly updated in such a way that rural counties are continually losing their most successful places to urbanization. When a rural county grows, it transmutes into an urban one. In a way, rural areas serve as urban America’s farm team: All their most promising prospects get called up to the big leagues, leaving the low-density margins populated by an ever-shrinking pool of those who couldn’t qualify. When we break the United States down by older county classifications, we see the entire population shift from rural to urban comes from fast-growing counties being redefined as metropolitan statistical areas.
Reasons Why Innovation Needs Marketing (Forbes). Innovations only fail for a handful of reasons: lack of development, lack of support and lack of finding an audience. Failing because you neglected to understand your audience is a huge issue that needs to be resolved. Before an innovation is even created, marketing teams need to identify what needs are going unmet in the consumer population—what consumers don’t even realize they can’t live without. Think of Keurig machines. Voice-to-text apps. Subscription television. Marketing needs to think beyond what’s already here and imagine what’s missing. These are the places where innovation can make an impact. The currently saturated market? That’s where innovation goes to die. The following are a few ways innovation needs marketing to find a space for itself in the marketplace. Innovation needs marketing to: Create a Clear Market; Identify Opportunities; Identify Proper Channels; Create Ecosystems of Opportunity; Understand the Audience; and Find Useful Use Cases.
Digital States Survey: Best Practices and Lessons Learned (Center for Digital Government). In recent years, states have made significant gains in addressing some of their most stubborn technological challenges. Experts from the Center for Digital Government analyzed 2018 Digital States Survey responses from all 50 states to uncover best practices and lessons learned. This guide unpacks five important technology trends across state governments and identifies five future challenges facing state IT leaders. States are maturing their cyber security strategies, improving user experience, reinventing their workforces, taking a smarter approach to cloud and transforming procurement. Future challenges for states include securing emerging technologies, coping with evolving privacy expectations, using tech to solve new public challenges, addressing broadband’s ‘last mile’, and managing long-term workforce disruption.
Incentives in Action
Maine Awards $1.5M in Challenge Grants to Two Emerging Forest Tech Companies (Mainebiz). One company makes insulation out of wood fiber. The other is developing a renewable heating oil substitute. Both companies will receive $750,000 grants from the Maine Technology Institute under the Emerging Technology Challenge for Maine’s Forest Resources competitive grant program launched in December to boost Maine’s rural forest-based economy. The two winning proposals were submitted by GO Lab Inc., a Belfast-based building products manufacturer, and Biofine Developments Northeast, which is pursuing commercial development of the first large scale bio-refinery deploying Biofine’s technology in Bucksport. The challenge grants are an offshoot of MTI’s collaboration on the Forest Opportunities Roadmap (FOR/Maine) Initiative, which is backed with funding from the federal Economic Development Administration and Department of Agriculture and is actively seeking out and supporting emerging technology companies in the forest resource sector.
States Should Look Beyond Economic Incentives When Attracting Businesses (Route Fifty). While economic incentives are a vital tool to attract businesses, governors and mayors should look at improving existing community resources first. Executive Director of the Utah Governor’s office of Economic Development and SEDE Network Vice Chair Val Hale suggests a few ways local governments can attract new business and create opportunities for residents. These include: Help Companies Reach Foreign Markets; Invest in Education, especially Computer Science; Provide Pathways for Workers; Promote Quality of Life; Focus on Sustainable Development; and Find the Secret Ingredient for Your Community.
Louisiana Launches Opportunity Zones Web Portal (Biz New Orleans). Louisiana Economic Development has launched an online service to connect investors with Louisiana properties eligible for the federal Opportunity Zone program. Through the new Louisiana Opportunity Zones web portal, investors can explore potential projects in Opportunity Zones throughout the state. The portal helps to identify and organize a pipeline of Louisiana projects in which local as well as national investors can invest and allows investor sponsors to download exclusive information about the projects. This statewide collaboration seeks to generate social and economic impact through long-term, private investment in Opportunity Zones. It creates a shared space to connect efforts across Louisiana for projects and deals to come to fruition. LED’s collaborative partner on the web portal is The Opportunity Exchange, a leading consultant on Opportunity Zone-related technology. A total of 150 census tracts in Louisiana are certified as Opportunity Zones.
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
Foreign-Owned Multinationals in U.S. Pay More than U.S.-Owned Counterparts (National Bureau of Economic Research). The total stock of Foreign Direct Investment (FDI) in the United States reached $4.34 trillion in value in 2018, a $319.1 billion increase from 2017 according to recent numbers from the Bureau of Economic Analysis (BEA). Communities often go to great lengths to lure foreign firms and a new NBER working paper suggests the effort is generally worthwhile. The study finds that foreign-owned multinational corporations operating in the U.S. pay 25% higher wages than comparable U.S.-owned firms in the same industry and location, much of that because they tend to hire more high-skilled workers. Adjusting for that, the study authors find that the same worker moving from a domestic to a foreign-owned firm earns 7% more. They also find substantial indirect efforts — knowledge spillovers, competitive pressure, and increased the efficiency of local suppliers – and find that increases in employment at foreign-owned firms significantly raises value added, employment, and wage bill at domestic firms in the same community. Considering these direct and indirect effects, every additional job created by a foreign-owned company in a community is worth $16,000 per incumbent worker.
|* American Factory Documentary *American Factory Trailer (Netflix). The impact of FDI is highlighted in the Netflix documentary, ‘American Factory’, featuring the foreign direct investment by Fuyao in Dayton Ohio. Cultures collide. Hope survives. When a Chinese billionaire re-opens a factory and hires two thousand blue-collar Americans, early days of hope and optimism give way to setbacks as high-tech China clashes with working-class America.|
Rise of Automation: How Robots May Impact the U.S. Labor Market (Federal Reserve Bank of St. Louis). The use of robots has expanded globally. In the U.S., there were 1.79 robots per thousand workers in 2017, up from 0.49 robots per thousand workers in 1995. An analysis of data by the Federal Reserve Bank of St. Louis suggests employment in routine occupations has been constant or declining over the past few decades, and automation is believed to be one of the key reasons for this structural shift in the labor market. The analysis revealed a negative relationship between automation and routine manual employment in local labor markets, with the addition of one robot per 1,000 workers leading to a 0.12 percentage point decline in the ratio of routine manual jobs to population. While this study focused on routine manual occupations, automation could have an impact on a broader set of jobs. For example, with advances in artificial intelligence and computerization, several cognitive skills, such as handwriting recognition and pretrial research, are now automated to a certain extent. Thus, automation can have far-reaching consequences that may lead to structural shifts in the labor market.
State of the Workforce Report 2019 (National Association of State Workforce Agencies). Every state is set up differently in how they manage workforce programs. Yet each state works to accomplish the same thing in supporting their citizens with every opportunity to become self-sustaining. The National Association of State Workforce Agencies (NASWA), a national organization that supports the workforce agencies in every state, recently released its first-ever State of the Workforce Report. Profiles are provided for each state highlighting key labor market information and workforce agency programs. In addition, each state had the opportunity to feature “State Innovations” to demonstrate unique programs they are implementing to further support the state’s labor force.
* SEDE Members See Ocean of Opportunity *
SEDE Network members had the opportunity to tour the Block Island Wind Farm, the nation’s first offshore wind project, while gathering in Providence Rhode Island for the bi-annual convening. The Block Island Wind Farm (BIWF), developed by Deepwater Wind, is a 30 MW project with five 6-MW turbines off the coast of Block Island. Since the wind farm came online in 2016, electricity prices are down, tourism is up, and the island has high-speed internet for the first time. SEDE members talked with company officials and saw up close how America’s first offshore wind farm is an economic development success story.