Downtown Spokane (5)

Spokane’s Economic Development Environment

Spokane Economic Development —

Spokane’s economic development environment is elusive to articulate. Who, in fact, is in charge of it? If a tech firm wants to build their headquarters downtown, who should they talk to first? How about primary jobs, who signs the check providing incentives for those projects? Quality of life, urban infill, beautification, the arts (yeah, that’s economic development, too), what mechanisms fund those initiatives? Saturated with many actors, from the State of Washington all the way down to local non-profits, ask the folks who play in this arena and even they will have a hard time providing clear answers. This essay intends to untangle the web that is Spokane’s economic development environment and provide recommendations to maximize its potential.

Greater Spokane, Inc. (GSI) would tell you that the buck stops with them when it comes to economic development. The authority to close a deal, however, sure doesn’t. What GSI won’t tell you, is they have no authority to close economic development transactions. To the contrary, the only authority GSI has is the choice about whether or not to advocate state or local governmental jurisdictions to provide funds for a given job provider.

What about Visit Spokane? Shaping the image of regional Spokane is certainly economic development. And, unlike GSI, they manage a direct flow of local tax revenues (lodging tax). Naturally, like most convention and visitors bureaus, its good business to drive room nights within the Spokane market in an effort to keep growing the lodging tax. Of course, the largest drivers of room nights are conventions and events. But the Public Facilities District owns the region’s largest convention and event venues, so any convention that Visit Spokane entices to the region is ultimately negotiated and executed by the Facilities District. Not to mention, it’s the Spokane County Commissioners who have ultimate authority over Visit Spokane’s lodging tax revenue.

How about the Downtown Spokane Partnership (DSP)? Surely all things economic development within the downtown core must flow through DSP? Unlike GSI and Visit Spokane, DSP has legal jurisdictional boundaries by which tax assessments are made that fund a variety of downtown services and amenities (otherwise known as a business improvement district). In fact, the bulk of DSP’s funding comes from such assessments. Although it’s possible to fund public improvements associated with downtown economic development projects, it’s Spokane City Council that must approve such transactions. Curiously, Washington law does not designate “Parking and Business Improvement Areas” as independent governmental entities whereby all assessments are under the legal authority of the business improvement district, as other state codes often do. No, at the end of the day, the Washington Code says “The legislative authority of each city or town or county shall have sole discretion as to how the revenue derived from the special assessments is to be used…”[i] Thus, what authority does DSP actually have?

GSI, Visit Spokane, and DSP are similar in many ways—consider them the Holy Trinity of Spokane’s economic development environment. The threesome are all private, legal, non-profit entities, they all (to one degree or another) manage tax and/or assessment revenue, they have dues-paying membership bases, they regularly fundraise for sponsorships or to support initiatives, and, aside from advocacy, they have no authority to administer and close economic development transactions whatsoever.

Of course, there are a number of local public sector organizations that also manage economic development, the Public Facilities District and the Airport District being fine examples thereof. Both are quite proficient and professional at what they do, and they quietly go about getting results flying just below the radar.

Even more localized within Spokane are public development authorities (PDAs). The University District is governed by a PDA, there’s also one up in Hillyard, and a couple more are just getting off the ground or are getting restarted, such as the United Native Americans of Spokane PDA. PDA’s, however, have no taxing or assessment authority. Thus, upon City Council establishing a new PDA, someone has to figure out how to create a revenue stream that supports organizational objectives.

If one were to stretch a little, an argument could be made that even the Spokane Transit Authority could leverage their services for economic development (light rail, anyone?).

There are a few big distinctions between public legal entities tasked with stimulating economic development and private, non-profit entities managing tax revenues attempting to accomplish similar objectives, such as the Holy Trinity. The first is likely the most obvious: transparency. The sun shines on public agencies much brighter than upon private. For instance, I can’t make a public records request to GSI asking for all of the CEO’s emails last month, but I sure can with the Public Facilities District.

What about budgets? The Holy Trinity manages tax and assessment revenues but if I were to request annual budgets from them, they are within their rights to say no. Of course, I could go to their source funding agency (City or County or both) and pull their multi-thousand page budgets and scour for the information I’m looking for. However, those budgets will only tell half the story because, don’t forget, membership dues, fundraising, and sponsorships are all on the private side of the ledger, which the public doesn’t get to see.

The second critical distinction between metro Spokane’s public and private economic development agencies is fundraising. On multiple levels, economic development and fundraising are at opposite ends of the values spectrum. This paradox often confuses what is best for the public and what is best for the non-profit. If your largest donor is against a public initiative that clearly advances Spokane’s economic environment, what’s a non-profit to do? More importantly, what’s a CEO of a non-profit to do? The wrong answer will put your job at stake.

For Spokane’s Holy Trinity to succeed, success is defined as how much they panhandle from Spokane’s business and governmental community, and not necessarily defined by truly cause and effect economic development.

Of course, as alluded to earlier, business and governments get a return on their contributions to the Holy Trinity. On the business side, influence is the return. How priceless is GSI’s opposition to the Spokane Tribe’s Airway Heights casino project? I suspect we could apply a market driven number to that question—it’s the same number that the Kalispel Tribe contributes in membership dues and sponsorships on an annual basis. Does the public get to know the cost to buy GSI’s support? No, I’m afraid not. Those numbers are on the private side of the ledger.

Similarly, the governmental return on investment is reduced risk for policy makers. Just like the business community buys influence via sponsorships and membership dues, politicians buy insurance (at taxpayer’s expense). Voting to contribute to the Holy Trinity buys local policy makers a badge of honor and thereby greatly increases the likelihood that the Holy Trinity will agree with their political initiatives. On the flip side, should circumstance warrant disagreement, a gentle reminder from the politician regarding his/her voting record is threat enough that governmental funding is tenuous. Add to this dynamic an ever present tension between benefactor and beneficiary that (rightfully) questions who actually has the authority to do what, and one quickly recognizes that delegating public economic development activities to private, non-profit organizations is dysfunctional (at best).

Finally, when you mix fundraising, sponsorships, and membership dues with “economic development,” the poor card always comes out. The Holy Trinity hardly pays for anything, and what they do pay for is from someone else’s wallet. Fundraising, grant writing, and generally asking other people for money is not an economic development strategy; to the contrary, it’s what you do when you don’t have an economic development strategy.

However you might define economic development, the most efficient is market driven (as it should be), relying on tools of trade, and direct negotiations between agency and developer. (Often times, the agency is the developer.) Spokane’s economic development environment is beholden to middle-men whose best interests are dictated by the generosity of the local business community—hardly a market driven approach, nor very efficient.

The tools that drive economic development are simple yet tried and true. Tax increment financing, special districts, public improvements fees, land, and new taxes represent every phylum in the economic development kingdom. More cutting edge (and healthier) communities have taken established revenue streams typically perceived as penalties and turned them into economic development mechanisms—public parking systems being chief among them.

Kendall Yards is a tax increment project and Spokane’s finest example of infill economic development at its best. City Council executed the transaction. The Holy Trinity was nowhere to be seen. The best part is the taxpayers took no risk because payment only materializes upon performance by the developer—a market driven factor—and the developer pays for his own incentives up front (i.e., takes all the risk), effectively acting as a bank lending money to the City. The City’s revenue stream to pay back the debt only materializes upon taxable improvements within the project area (i.e., the developer building stuff). Taxes weren’t raised, project risk is placed firmly on the developer (where it should be), high density infill development takes place, and a crime-ridden inner-city neighborhood turns the corner. It’s safe to say Kendall Yards has quietly become Spokane’s most successful public/private partnership. We should do a few more just like it.

If Kendall Yards is an example of tax increment financing at its best, the Public Facilities District (PFD) is an example of special districts at their best. With humble beginnings stemming all the way back to the old Spokane Coliseum days, aside from the City and County, the PFD has evolved into the region’s most prolific governmental economic development agency (at least on this side of the state line). What does it take to entice development? Site control and money, and both were at play to help construct 716 new hotel rooms downtown. Want to see the contract? All you have to do is ask. That’s the best part.

The PFD partnering with Walt Worthy to build a 716-room hotel is good for the PFD, good for downtown, good for the City, and good for the region. There’s but a few chinks in the armor: when governmental entities contribute to economic development transactions, such contracts also provide for an appropriate venue to stipulate extraordinary architectural and urban design conditions. If the public is putting assets into a private sector project, the public may place additional expectations on the project above and beyond local zoning controls. Thus, the next time the PFD enters into a public/private partnership, they will do well to stipulate additional architectural standards. Blame, however, does not fall squarely on the PFD. Don’t forget Mayor Condon negotiated about $3 million in incentives but somehow neglected to consider that City Council must ratify the agreement. When Worthy came to collect on a reduced amount of $318,000, City Council refused to pay, and Mayor Condon learned the hard way the first rule of public/private partnerships: don’t make promises you can’t keep. (For more on this subject, see: How to Negotiate a Downtown Hotel Deal.)

From the public’s perspective, the larger issue isn’t whether or not the wealthiest developer in town receives a $318,000 check from the City as payment for constructing a $135 million dollar hotel, it’s that downtown’s newest landmark is hardly a landmark at all. Between the Mayor’s Office and the Public Facilities District, someone should have stipulated architectural standards, even if the public’s end of the bargain were to increase. The fact that they both dropped the ball only speaks to inexperience within the realm.

Nonetheless, what makes the PFD so successful is its arm’s length relationship with the local business community. Being a public entity whose board is jointly appointed by City Council and County Commissioners, the CEO is not forced into the awkward position of snuggling up to local business leaders offering a board seat in exchange for a financial contribution. Being bound to the public at-large and not your donor base means one can efficiently operate outside of the personal best interests of any given donor. Simply put, the PFD isn’t beholden to local good ‘ol boy shenanigans.

Regionally, other mechanisms are successfully utilized to encourage growth, the most significant being port districts. Don’t be fooled by the name, in the State of Washington port districts are prime drivers of economic development projects. Established by a public vote, a new property tax is instituted to finance district activities. The port district itself is an independent governmental entity with a publically elected board. The Washington Code enables vast economic development powers to port districts that are, by and large, only limited by each district’s own creativity.

Spokane doesn’t have a port district, although efforts are being made to change that. Because it requires a public vote and a tax increase, advocates (including myself) understand that timing is everything. In the present environment whereby it seems every local taxing authority is about to go to the well and ask the public for more money, establishing a new economic development agency is going to be a tough pitch, particularly given the public’s (including myself) mistrust of the present economic development environment. Why would the public vote to raise their own taxes to establish another dysfunctional good ‘ol boy club?

The answer is it won’t be another good ‘ol boy club. Open public records and elected leadership will establish the all-important arm’s length relationship with the business community and thereby optimize chances for success. Moreover, with the creation of a local port district, a truly cause and effect economic development mechanism will quickly usurp the influence of perceived economic development mechanisms, such as Greater Spokane, Inc.

On a neighborhood by neighborhood basis, or even a project by project basis, public development authorities (PDAs) are the ticket. PDA boards are appointed by City Council, and the mission of the organization is stipulated within the ordinance that creates it. Therefore, City Council can draw as broad or narrow boundaries as it sees fit for any given PDA. Also like the Public Facilities District, PDAs are public organizations that need not worry about pleasing a donor base.

With dedicated tax and assessment revenues already in place, the Downtown Spokane Partnership (DSP) and Visit Spokane are ripe for conversation into PDAs. As mentioned earlier, the only challenge that comes with developing a PDA is a developing a revenue stream to support it; thus, the hardest part has already been accomplished. The only wrinkle would accompany Visit Spokane since its lodging tax stream transcends local municipal boundaries, but that doesn’t mean the County can’t create a PDA in lieu of City Council.

Alas, converting Visit Spokane and DSP to public develop authorities, as well as establishing a port district to manage job creation and quality of life initiatives, would cure what ails Spokane’s dysfunctional economic development environment. No longer will the business community confuse fundraising, membership dues, sponsorships, and simple advocacy as economic development; nor will individual members of the business community have the capacity to torpedo what’s in the public interest for their own best interest. Economic development that includes open public meetings, open public records, and leadership that answers to the public—including the business community—is practiced throughout the country and is surprisingly more effective than Spokane’s present status quo. For Spokane to take a meaningful step into the future, untangling the ties that bind the local business community to “economic development” is as simple as separating private money from public processes, just like everyone else already does. The upside for the business community? They’re gonna’ save a bundle.

 

This blog is written by Mike Tedesco, officially a candidate for Mayor of Spokane, 2019. Check out his other totally awesome website at votetedesco.com.

 

[i] Revised Code of Washington, Chapter 35.87A. “Parking and Business Improvement Areas.” Access Washington, 04/08/2015. http://app.leg.wa.gov/rcw/default.aspx?cite=35.87A&full=true#35.87A.110