Economic Development City Council Presentation

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Economic Development City Council Presentation
Presentations by Dr. Roderic Hewlett Targeted
Industry Study Jerry Stai Bond Financing Terri
Aldrich Quality of Life
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Issues

• Why form a citizen-based committee? To research,
  inform, and engage the community in community
  development.
• Future role of the committee
• Link communities of the region in the development
  effort.
• Catalyst for development.
• Inform the community and policy makers.
• Non-partisan effort.
• Our findings.

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Why Target Industries?

• Identifies industrial opportunities that can be
  achieved as well as leveraged.
• Focuses scarce resources.
• Sends a strong signal to companies and
  organizations within the identified industries
  and site selection organizations of regional
  support.
• Not limiting.
• This portion, and only this portion, of the
  strategic plan is funded by Minot Area
  Development Corporation (MADC). However, the
  research was conducted by MSU College of Business
  without input or restrictions from MADC. All
  funds were used for economic development
  activities and no individuals received payment or
  expense reimbursements.

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Methods

• Many potential methods exist, however, we began
  with an applied bottoms-up or deductive
  approach and validated the results through a
  top-down or inductive approach.
• Analyzed industries currently in North Dakota
  that have above mean wages using data from the
  most recent (2002) County Business Patterns US
  Census Bureau, US Dept. of Commerce.
• Compared data against representative border and
  regional states.
• Due to limitations in current North Dakota law
  (restrictive corporate farming) analyzed the
  non-farm sector (excludes commodity-based
  farming).
• Researched what is happening in other areas, both
  domestically and internationally, within these
  industries that can be transplanted in this
  region method, industries, and knock-on
  opportunities.

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North Dakota Industries That Pay Higher Than
Median (2001)

• Mining 48, 531
• Utilities 56,645
• Construction 31,903
• Manufacturing 31,618
• Wholesale 33,237
• Transportation Warehousing 29,769
• Information 32,227

• Finance and Insurance 34,482
• Professional, Scientific, and Technical Services
  33,112
• Mgmt of Enterprises 40,177
• Government 27,283

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Methods

• Target industries that meet the base criteria
• Achievability and leveragability.
• Above average wage structure resident in North
  Dakota- increase mean and median wages.
• Enhances quality-of-life or as a minimum does not
  damage quality-of-life.
• Future oriented life expectancy of industry is
  growth oriented and expected to exceed a twenty
  five-year horizon. High potential for stability
  in the community.
• Taps current human capital and provides a high
  potential to attract human capital to the region
  encourage net in-migration.
• Creates the potential for industrial clustering
  in the region.

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Clusters

• Networks of interconnected businesses that
  collaborate, typically aligned within an industry
  and grow collaboratively rather than
  competitively.
• Large communities
• Biotechnology and telecommunications in San
  Diego.
• Polymers in Akron.
• Computer hardware and software in Austin.
• Automobiles in Detroit.
• Aerospace in Wichita.
• Small communities
• Software in Fargo.
• Wireless technology in Mankato, MN.
• Automated technologies in Alexandria, MN.
• Recreational transportation equipment
  manufacturing in NW Minnesota.
• Agricultural cluster in Connecticut.

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Change Our Business Model

• North Dakota clusters
• Customer resource management data mgmt,
  knowledge mgmt, technical services, research
  beyond call centers.
• Energy and energy management.
• Natural resources and mining.
• Value-added agriculture.
• Transportation, warehousing, and distribution.
• Federal services and goods procurement.
• Specialty manufacturing (differentiable).
• Recreation and tourism.

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What Do Businesses Want?

• Respect for private property and free market.
  Responsible regulatory environment.
• Available infrastructure developed sites and
  zoned areas.
• QOL.
• Factors of production in plentiful supply land,
  skilled workforce, management, capital, and low
  cost transportation (air, rail, overland).
• Plentiful housing and economical utilities for
  workers.

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Bond Financing as a Vehicle for
Economic Development

• Bonds provide long-term capital for financing
  buildings, fixtures, equipment, renovations and
  improvements necessary for economic growth
• A governmental entity acts as a conduit providing
  no specific backing (this would not affect the
  borrowing capacity of the governmental entity)
  however, they can pledge support

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Economic Development Loans

• Funds from the bonds finance loans to established
  businesses
• Due diligence process to assess the viability of
  the business
• Secured by projects revenues, first mortgage on
  real property and a first security interest in
  personal property
• Further secured by an irrevocable letter of
  credit from a bank furnished by the business
• Financial covenants include debt/net worth ratio,
  debt coverage ratio, and current ratio
• Loan repayment of principal and interest

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Bond Terms

• Fixed-rate bond issues are often sold with a
  combination of serial bonds, which come due in
  consecutive years
• Or, term bonds are usually retired over the
  course of several years via a process known as
  mandatory sinking fund redemption

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Credit Enhancement of Bonds

• Credit enhancement refers to a financial
  institutions ability to make principal and
  interest payments on a scheduled basis
• Reserve appropriations-a percentage of the bond
  proceeds usually equal to one years principal
  and interest requirements
• Letter of credit from a bank
• Insurance policy which allows the bonds to carry
  the credit rating of the insurance company in
  return for a premium paid up front

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Bond Repayment

• Loan repayment of principal and interest from the
  operations of the business
• Reserve funds
• Letter of credit
• Insurance policy
• Political subdivision at their option and subject
  to approval of elected officials

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Bond Financing as a Vehicle for Economic
Development
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10 Million Bond Issue Example

• Assumptions
• 70 repaid by business.
• 20 repaid by governmental entity as incentive.
• 10 industrial development that reverts to
  governmental agency if default.
• 20-year repayment for business and 30-year
  repayment for governmental entity

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Bond Repayment

• Business repays 7 million over 20 years _at_4.75
  with annual payments of 542,827.66.
• Governmental entity repays 2 million over 30
  years _at_ 4.75 with annual payments of
  125,195.36.
• Governmental entity repays 1 million over 30
  years _at_ 4.75 with annual payments of 62,597.68.
• Total payments by governmental entity is
  5,633,791.24 over the 30 years.

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Effects of New Business on Community

• Assumptions
• 500 new jobs at 27,000 average salary
• Spending multiplier of 2
• Employment multiplier of 1.5 at 70 wages
• Payroll will increase by a factor of 5 per year
  (salary increase and new employees)
• Employees spend 25 of their income locally on
  sales taxed products

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Effects of New Business on Community

• New business payroll over 30 years 896,924,441
• With employment multiplier total payroll over 30
  years 1,210,847,996
• Incremental taxable sales over 30 years
  605,423,998
• Incremental sales tax over 30 years 6,054,240 (
  as compared to total repayments of
  5,633,791.24)

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Quality of Life

• A multi-faceted component of
• economic growth development

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What is it that makes Quality of Life issues
important to the economic development of NW ND?

• Research illustrates that quality of life issues
  help recruit and retain human capital.
• Quality education provides a skilled future work
  force
• The safe environment is an important asset as
  businesses consider possibilities for location /
  relocation.
• Available, affordable healthcare is essential to
  the regions workforce and to their families

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More reasons Quality of Life is important

• Arts, cultural and recreational events and
  attractions enhance the quality of life through
  entertainment and add dollars to the
  economy.
• Tourism (NDs 2 industry) and agri-tourism bring
  people and to our region.
• Preservation of our natural resources helps
  retain the beauty of our northern prairie for
  residents and delights tourists.

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How can we effect change to enhance the quality
of life?

• Identify Key Areas
• Education
• Community Character and Growth Management
• Community Culture and Character
• Safety
• Healthcare / Wellness
• Rural Areas
• Recognize successes
• Carefully craft goals, objectives and strategies

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Quality of Life

• Building a Quality of Life that locals, visitors
  and potential residents speak of with pride
  creates a transformation that occurs when Quality
  of Life issues become
• Quality of Place
• A stepping stone of economic growth and
  development.

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Thank You