Inside Story on an Economic Development Project and Incentive Negotiation

Numerous articles have been written about economic development projects, the process and incentive negotiations. Among the latest is the Elon Musk and Tesla $5 billion capital investment and 6,500 jobs announcement to be located in Nevada. Fortune magazine and Peter Elkind did an outstanding job describing the timeline and interviewing key players.  I realize that this is somewhat dated, but it still worth a few words. 

This article is fascinating for several reasons. The first one is the sophistication of the Tesla team. The second one is several states at various times told the Tesla team we cannot honor your request. The third is the level of detail in the article. Fourth is the intense competition from seven states. Finally, the article gives a very good understanding of what this type of economic development is.

And what is economic development in this article? It is a zero sum game, you either win or lose. You do not get a trophy for second place. Economic development in part is about improving citizens lives and providing opportunities to do so. One of the best ways? A good job with a cutting edge company and/or in a leading industry. Economic development in this area is about competition or how do I ensure my community continues to make the cut. After all, it is about elimination, not about inclusion. Economic development is about analysis. The Tesla team kept asking or increasing the incentive demands. As some point, each state or area said no, our best deal is on the table. Economic development is about justification. The Tesla team would not have considered any area that did not make business sense. Incentives are icing and cannot make a bad deal good. Finally, economic development is not always about the biggest incentive package winning. At least not this this case.

It is worth noting that Elon Musk, COB and CEO of Tesla, in 2007 negotiated a lucrative deal with New Mexico staff to build an auto assembly factory. Tesla then promptly abandoned New Mexico when California offered a richer incentive package. The Tesla team later said the New Mexico site would not work. Frankly, I find that hard to believe. Generally, by the time a sophisticated company team gets to serious incentive negotiating, the business case for the project in a specific location has been satisfied. In fact, I think the project was likely unworkable, not the New Mexico site. As you read the Fortune article, you will see the facility was built in California, experienced numerous production challenges and almost went into bankruptcy.

As you read the article, note the high level of sophistication of the Tesla team. They started out with an Excel spreadsheet covering 90 issues like labor availability, environmental issues, infrastructure needs, etc.

Additional Links:

Fortune Magazine article

http://fortune.com/inside-elon-musks-billion-dollar-gigafactory/

Tesla Project Description

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&sqi=2&ved=0CCQQFjAB&url=http%3A%2F%2Fwww.teslamotors.com%2Fsites%2Fdefault%2Ffiles%2Fblog_attachments%2Fgigafactory.pdf&ei=illxVM3gC83IsASdo4DADg&usg=AFQjCNHI8MIEVnbApnotW_YmhQ6f7RF9Ag

Nevada Project, Incentive and Proposed Legislation Summary.

http://diversifynevada.com/documents/Teslas_Gigafactory_Incentive_Summary_PDF.pdf

Economic Impact Analysis

http://diversifynevada.com/documents/Full_Tesla_Summary_Report_Analysis_Letters.pdf

Budgeting Takes Extensive Preparation

In a previous post I wrote about the County Revenue Committee, an ad hoc group that seeks counsel from numerous sources as the budget and revenue projections are drafted.

Several people I know think government spending is on automatic pilot.  Department heads ask and they receive.  Spending grows with no thought of the taxpayer.  Nothing could be further from the truth.

On November 21st the Prince William County Board of County Supervisors (BOCS) held the FY 2107 Fiscal Year Retreat. This is when the BOCS meets to review the previous FY budget and discuss the next FY budget and options. It was a detailed agenda.  Budget staff works tirelessly on preparing for the retreat.

Prior to the FY retreat, department heads were asked to prepare documentation on their requests and rank order these recommendations.  At a department head meeting all the requests were consolidated, discussed, reviewed, and prioritized. These are then given to the budget staff for incorporation into the materials for the FY retreat.

I know this sounds boring and tedious, but it is a worthwhile exercise.  The following link will take you to the Powerpoints prepared for the retreat.  Note the last one titled "Preparing for the FY2017 Budget:  Five-Year Plan, Must-Do Items, and Unmet Needs." Link to this presentation:  http://www.pwcgov.org/government/dept/budget/Documents/04--Must-Dos%20and%20Unmet%20Needs--FINAL_MAC.pdf

Link to the FY2017 Fiscal Year Retreat

http://www.pwcgov.org/government/dept/budget/Pages/FY2017-Budget-Library.aspx

Dedicated Employees

Last month I had the privilege of attending one of several briefings arranged by staff of the Prince William County Finance Department. These are commonly known as the Revenue Committee presentations.

The Revenue Committee is ad hoc.  It is an interdepartmental group of County employees. I have been fortunate to be a member once. At the end, the members meet and discuss what we have seen and how it could impact County finances.  I know several people will read this and question why.  From my perspective, I see County employees taking steps and efforts to increase their knowledge base to benefit the residents.

Every year finance staff invites regional and state economists, association experts, local developers, and others to share with us their take on the past year and how the next year is shaping up.  Invitees cover local, regional and national economy, taxation, commercial and residential development, automotive sales, home sales, etc.

The first one featured presentations from the chief economist for the VA Department of Taxation and the regional research vice president for the Federal Reserve Board based in Richmond.  Between 35-40 County staff attended this one. They are engaged and ask intelligent questions.  

As a taxpayer I appreciate County staff taking such measures to get the best picture of revenues and possible challenges.  As any manager will tell you, a budget is an excellent indicator of the priorities of an organization.  The County staff takes budgeting very seriously and the Revenue Committee is just on example. 

Serious People Grappling with a Serious Issue

On Saturday morning I attended a planning retreat sponsored by the Potomac and Rappahannock Transportation Commission (PRTC).  The goals of the retreat were to review service and funding challenges. 

First, some background. PRTC provides commuter bus service.  PRTC is a multi-jurisdictional agency representing Prince William, Stafford and Spotsylvania Counties and the Cities of Manassas, Manassas Park and Fredericksburg. 

I will not bore you with details of the objectives, but rather discuss the process and the participants.  

Approximately 45 people attended the retreat.  Attendees included local elected officials, state elected officials, PRTC board members and alternates, PRTC staff, and several other people from various stakeholder organizations.  In addition, five speakers from the pubic and private sectors were invited to offer local and regional observations.  

One key component is the PRTC staff retained a team of professional facilitators.  As one of the five speakers, I appreciated that the facilitators drafted my PowerPoint and requested a pre-discussion to gain my perspective.  Based on our discussion, the PowerPoint in another section was revised.  In fact, I believe I saw the 4th draft of the PowerPoint used during the retreat.  The background materials sent out a week before were very helpful. The agenda was clear, complete with time allocations per session.  The list of attendees was broken down so you could tell who was who and with which organization. You could tell considerable time and resources were expended for this retreat.  

It is what happen after the five speakers presented that truly impressed me.  The elected officials were engaged. Other participants offered suggestions and questions.  The facilitator and the PRTC chair kept the group on track and equally important, on time.  My sense was these people were serious about the problems and serious about the potential solutions.  

Often times I hear constant and uniformed complaints from people who do not vote or rarely participate in the government process. They complain about the service, the cost, the delivery, the resource allocation, etc.  You probably experienced it too.  

On this day, 45 people gave up their Saturday morning to learn, exchange ideas, discuss, and hopefully resolve several complex challenges.  As a group, they listened, they took notes, they asked, they commented, they offered ideas.  And at the end, agreed to do this again. 

This is how government improves.  Good people (elected officials, private sector and stakeholders) seeking viable solutions.  Consider it the "blocking and tackling" of good government. It is often unseen and seldom noted. But it makes a difference on so many levels. 

Dependence on Electronics

Unlike most people, I do not take my cell phone with me everywhere I go. I do not access it except for news and a couple of social media sites.  In fact, I turn off the 4G when I am at work.

My Kindle is a different story.  A Kindle is an electronic reading device. 

On the other hand, I usually take my Kindle with me when I think I might have time to read.  So I take it to work almost every day, and when I go places and think I might have some free time. For example, when I take the Metro into DC, I usually take my Kindle and read.  Or when I take the VRE train I take my Kindle.  It allows me to take a break.  

However, on Friday I opened my Kindle and got a disturbing message.  It was something like "battery is critically low".  So I plugged it in for over 18 hours and no change. I could not get access to my books or business magazines.  It really concerned me.  

In addition, I went on line and found several excellent suggestions.  One was doing a hard reset.  I found out I had not held the switch long enough. I also called the Kindle help number. She was very helpful and offered the same advice. 

In the end, the hard reset worked.  However, it was a trying time.  My Kindle is my lifeline to business publications and my books.  I realized how dependent I am on that device.  

Cell phones (if you pay for it) and most other devices have alternatives or backups. For example, if you are trying to access other websites and your laptop is not working, you can try another one.  Redundancy is a very positive aspect of technology today.  Of course you must do backups of your hard drive (frankly I am surprised how few people actually do this).

My Kindle does not offer an easy way to access content from another device.  Yes, I can buy one, but I will have a wait of several days for it to arrive.  Unlike a new phone, which you can generally buy a new one on the same day the old one is lost or stops working.  

Reading is a passion for me personally and professionally. Not having it readily available was a shock and made me feel uncomfortable.  It would be like the only library in a city where I lived burned down.  No access to books, magazines and journals for me or anyone else.  

Unfortunately, I do not know the answer. My Kindle is at least 8 years old. I love it. Unlike most tablets, it is not back-lit so the battery lasts for days or even weeks if you do not turn on the 3G service. I like the brand and the selection of books, magazines and journals. In addition, I can underline key points or quotes, and clip articles.

Of course I will persevere when or if it happens again. Now I realize this is a minor concern to most people. In many respects, they are right.  However, I ask you to go without something you have that gives you pleasure.  It can be a real challenge. 

The Importance of Mentorship

Forbes magazine did an excellent series of stories on mentor ship.  It is one of the most comprehensive sets I have encountered.  It is titled "Secrets of the Trade: Mentors, Protégés and Guides for Growth." And a very valuable secret it is too.

You will find pieces on the types of mentors, examples from several disciplines (boxing, college coaching, business and NASA), career advice and even how to find a mentor. 

For the economic development profession, this is a very important point. I was very fortunate to have a mentor who was patient, understanding, and enjoyed teaching. Equally important, he is a leader is the profession.  He was also my first boss, Wayne Sterling.

Wayne used to say economic development is the second highest calling, right behind helping one find God.  I think he is right. Helping someone find job is so important in ways I cannot describe, but definitely know. 

From a practical stand point, my mentor helped me understand the politics of projects, the way key stakeholders look at a project or initiative, how to frame discussion and decision memos, a succinct document is far more preferable, and read about business and industry (they are your customers). In addition, he taught me that empirical data is superior to almost anything else and that the client's perception really does matter.  Finally, and most important, economic developers must justify decisions by others (after all, it is their money).  

Economic development is not a typical profession. If you look at an overwhelming number of college and university catalogs, you will not see courses taught in economic development.  We do have week long courses and even EDI.  When you take your first job and it is in economic development, you will find literature, but the practical nuts and bolts are missing. Mentor ship can bridge this gap. 

Mentor ship is designed to help new employees navigate uncharted waters.  A mentor will help you with short cuts, time savers and be a sounding board for your challenges.  Experience counts.  Good mentors share it. Mine certainly did. 

We talk a lot about mentors and continued education, but as a nation and as a profession, I see it lacking.  Mentoring takes time and energy, but well worth it.  It needs to be structured.  Perhaps a challenge is people do not know how to be a mentor.  On the other side of the coin, perhaps the mentoree needs to understand the value of his/her mentors' time.  I think of unsuccessful intern programs as I write this sentence. 

However, I suspect an additional challenge in the economic development profession is the lack of a critical mass.  Usually, the number of economic development professionals in a city or county is limited. An exception is the location of the state economic development program.  

So, is it necessary for a mentor to be in the same profession? No, but a complimentary one is certainly desired.  As a profession, we need to develop mentors and mentoring.  

In conclusion, I am a better economic developer and a better person because of my mentor. My hope is all economic developers have the same experience. 

Link to the series:

http://www.forbes.com/secrets-of-the-trade/

Great Resource for Entrepreneurs in Certain Industries

The business and economic development oriented literature is ripe with articles about entrepreneurship.  So many pieces look at the entrepreneur and his success.  Lots of pictures and little discussion on the help received.  Very few focus on the assistance available, utilized, needed or how to access critical resources.

In economic development, I generally see organizations publish books with the title of  "Guide to Establishing a Business in..." or "Resources Available to an Entrepreneur in...".  These publications focus on legal, tax, registration and requirements to start a business in a specific city or county. All resources have a local or regional focus.  They do not look at help beyond a predetermined territory.  For most businesses that would likely suffice. However, for certain entrepreneurs, this type of publication may not go far enough. 

Last week Bloomberg BusinessWeek published an article about Maker's Row.  Maker's Row was founded by Matthew Burnett and Tanya Menendez.  It is an article worth reading. The link is at the end of the post. Their objective:

"Maker’s Row is the home of Made in America for the 21st century. We enable brands to find manufacturers to create products here in the United States. Our mission started off with manufacturing in America. We wanted to: make the manufacturing process simple to understand and easy to access."

So what did they do? They created a full service platform to help entrepreneurs in certain industries.  They started with a database that contains over 7,000 factories.  Most of the listings are either apparel/accessories or furniture/home decor firms.  In depth factory profiles are comprehensive. The database allows a person to either search for a company to help create a product or for a factory owner seeking new customers.  For certain services, the website requires a fee or subscription.

The site offers podcasts for start-ups. An entrepreneur can also find assistance in design, prototyping, and mass production.  For any new business venture in these industries, this is a real resource.  Rural firms can seek potential partners not located in the immediate area.  

Basically, they created a virtual manufacturing platform and entrepreneurial assistance program utilizing U.S. factories.  It is the kind of service I trust many professional economic developers would like to have developed. It is the next step to the guide or resource noted in the second paragraph of this post.

If this could be duplicated for other industries, it could be an additional resource for entrepreneurs and economic development professionals.  Examples would be metalworking, finance, etc. 

To me, this is an exciting concept.  I always wanted to create something like this, but I did not have the expertise.  It is the type of service that clearly demonstrates an understanding of the challenges facing an entrepreneur and a business model that helps solve critical barriers to success.  It also offers the benefit of matching a new venture with the best partner no matter where either is located. 

Sometimes I think economic developers face a difficult choice. We want and encourage our local firms to partner with local start-up ventures.  However, for any one firm and especially for an entrepreneur, we also want to help them find the best fit in terms of services offered and cost, even if it is located outside our service territory.  After all, what drives their success is slightly different than one of an established business.  

On the Maker's Row website, be sure to read the "Why We Are Creating Maker's Row" page. It is one the reasons I think people start businesses.  They could not identify or easily find a service or product that they needed to make the venture a success.  Maker's Row is an entrepreneurial business helping other new ventures succeed.  

Link to the article:  http://www.bloomberg.com/news/articles/2015-10-29/maker-s-row-a-guide-to-made-in-america

Link to Maker's Row:  http://makersrow.com/