(Hint: It’s All of Them) —
Throughout the early 2000s up until 2008, a Danish corporation called Vestas was shopping for cities to build a $250 million wind turbine manufacturing facility. With employment of roughly 500 great paying primary jobs and, not to mention, the potential of one lucky community to establish a strong base in the alternative energy sector, practically the entire nation was vying for the investment.
As coincidence would have it, Greater Spokane, Inc., was in the mix. With their American headquarters firmly established in Portland, Oregon, the brass at Vestas were but a hop, skip, and a jump from metro Spokane. And why not build a facility here? A big city labor force, cheap (hydro) power, and the effervescent charmers of Greater Spokane, Inc., wining and dining their way to local glory.
But GSI couldn’t close the deal. In the end, there just wasn’t enough incentives GSI could provide to Vestas that would entice them to locate in Spokane. Nah, the Danish corporate elite – those who manage international corporations looking for places to park about $250 million – are a wise bunch. While the prim and proper Spokane boosters were falling all over themselves trying to get their attention, the Vestas brass, in their broken English and European sensibilities, were sitting outside a Marriott Hotel in downtown Pueblo, Colorado, smoking cigarettes and attempting to deconstruct the psyche of American women, with me.
When our smokes were done, we went back inside and proceeded to negotiate a roughly $250 million transaction. I was 31 at the time, managing a sleepy office of myself and a secretary. Because of the tools I had at my disposal, the deal closed, Pueblo has another 500 or so primary jobs and Spokane, sadly, doesn’t.
I didn’t know Spokane was chasing Vestas until 2011 when interviewing for the position of President and CEO of the Downtown Spokane Partnership. I was bragging about my direct involvement in the transaction (and naturally took 100% credit for it) when one of the interviewers responded to my bravado by elaborating about how hard GSI tried to attract Vestas to Spokane. Naturally, that led to a little more gloating from my end.
Greater Spokane, Inc., and the rest of Spokane lost out on Vestas not for lack of trying. No, Greater Spokane, Inc., lost out on Vestas for lack of tools; which is to say, GSI doesn’t have any. Site selectors know prime rib when they see it but I’m afraid the only item on GSI’s menu is the vegan special. Where’s the beef?
Thus, for the elite of the next big corporation looking to drop some primary jobs on one lucky community or another, or for that local developer seeking a transformative project, and you’re considering Spokane, don’t bother with GSI, bother doing this:
Figure Out What Jurisdiction(s) You’re Considering
Of course, there’s the county and its various municipalities, Spokane being largest amongst them, but it can go deeper than that. The Airport, for instance, is its own district corporate and politic, but also happens to be within the City of Spokane. Therefore, if you’re considering a parcel within the Airport District, start the discussion with the Airport’s Executive Director to gain an understanding of what incentives the Airport District, unto itself, can provide. If they’re not competitive enough, take a step up to Spokane City Council (start with the President), they’ll have the authority to sweeten the pot.
Make a Distinction between Middlemen and Decision Makers
This is related to my first point. If you’re new to town, spend some time putting together the puzzle that is the local Spokane economic development environment. You’ll come to understand that only a handful of actors within this arena have the authority to negotiate, commit incentives, and close transactions. The process becomes far more complicated, convoluted, and politicized if you choose to run with one of the many middlemen organizations, GSI being chief among them. There are others, too. For instance, if you choose downtown, it will create tension between the Downtown Spokane Partnership and GSI over, ultimately, who’s going to take credit for the deal. (For a more detailed discussion on this point, see Spokane’s Economic Development Environment.) Metro Spokane doesn’t have a regional economic development agency that transcends municipal boundaries. An opportunity exists, however, to create a port district that has the authority to maneuver between jurisdictions. But until one is created, for better or worse, you’ll have to go straight to city council.
Negotiate Directly with the Decision Makers
The last developer to establish a public/private partnership with the City of Spokane made the mistake of only negotiating with the Mayor. When his bills came due, City Council refused to pay — a significant blunder on both the Mayor and the developer’s part. Although it’s a good idea to make sure the Mayor supports your project, it’s City Council that executes contracts and, therefore, negotiates them. Thus, work directly with the decision makers. Depending upon where you’d like to locate, it may be a city council, or one of the handful of sub-municipal governmental entities in the metro, or both.
Understand the Difference between Public Improvements and Private Improvements
The purpose of incentives is to offset the cost of public improvements associated with your project, by which all private developers have to underwrite. Although every project is different, most of the time public improvements are already mandated by local land use control ordinances and you’ll be paying for them independent of incentives. However, for the larger scale businesses and developers amongst you, perhaps you need something more significant, like a freeway interchange or a rail spur? Perhaps its trunk lines – sewer, water, fiber – that others may connect to because of your project? New rights-of-way (streets, trails, sidewalks), ornamental landscaping, pedestrian improvements, public parking, historic preservation (and restoration), there’s plenty to choose from and it’s not hard building a nexus between what you already anticipate paying for and public improvements. Itemize those aspects of your project within the public realm and use that list as the basis for negotiating with the public.
Leverage Your Future Money
If you develop in Spokane, you’ll end up paying property taxes. If you’re project is more inner-city revitalization oriented, you’ll certainly be paying sales taxes, too. Whatever the new public revenue streams you’ll be creating, present value it, apply an assumed discount rate and term, and then you’ll understand today’s value of your investment from the public’s perspective. This will establish a ball park, top-end number for your total incentive package. Need some help? Here’s a good template: Vestas PV.
Be Your Own Lender
This is related to Leverage Your Future Money. Once you know the present value of the tax stream(s) you’ll be creating, offer to “lend” the city the incentives necessary to close the deal. The size of the “loan” is based both on the economic development impact of your investment and the present value of your future tax streams. The former being primarily a political decision and the latter being one easily analyzed. The public, therefore, takes no up-front monetary risks, taxes are not raised, and the city’s general fund keeps humming along like nothing happened. In short, if you choose to lend your own incentives into the project, you’ll get a deal done with little public drama. Need some help? Adapt this contract to Washington State law.
Count to 75 (Three Times)
To leverage your future taxes, you’ll need a tax increment ordinance. Washington State law allows for up to 75% of your new property taxes to underwrite the incentives into your project. The challenge is jurisdictions with taxing authority can opt-out, such as the county and the school district, which leaves you only with the city’s proportion. If you’re a job provider looking to bring a significant number of new (good) jobs to the metro, or a developer looking to develop a transformative project that improves quality of life, consider requesting that the county and school district opt-into a TIF agreement. If your project is sexy enough, trust that the county and school district will want to share the credit and, if they balk, remind them that their future tax revenue doesn’t exist but for their involvement in the transaction. Therefore, it’s a choice between no revenue and no credit or 25% revenue and sharing the credit. Of course, a pledge of up to 75% tax increment is negotiable. If you need them to opt-in, only ask for what’s necessary, and then show them why.
Don’t Raise Taxes
Save the ballot measures for schools, streets, parks, and transit. There’s no need to ask the public for more money (or a general obligation bond). Not to mention, a public vote adds an awful lot of risk.
Avoid Obligating the General Fund
Only the sexiest projects deserve a direct contribution from the city’s general fund. Mechanisms exist, however, that can help monetize your future tax streams. Should you be reluctant to act as lender for your own incentives, consider a public development authority as a mechanism to issue municipal revenue bonds or even a direct placement with a local lender. The debt is in the name of the public development authority, the city’s tax payers are not on the hook should payments fall short, and you’ll get a tax exempt interest rate. The city will be a signatory and pledge to the PDA your future tax revenues as repayment on the debt. Capacity is sized by the present value of your future tax streams. Depending upon how secure the capital markets view the revenue bond, they may seek additional security – a back-stop – to help lower risk. To help mitigate risk and, therefore, avoid generally obligating the city’s tax payers, see below.
Consider Creating a “Voluntary” Project-Driven Revenue Stream
This isn’t a tax but it looks, smells, and feels like one, and it doesn’t work with every project. In Washington, these are called assessments. Industry wide, they’re often called public improvement fees. Similar to how a home owners’ association levies “voluntary” assessments enforced via property title, you may consider something similar. The best are market driven, such as adding a penny “sales assessment” to all sales generated from the project, or perhaps fees strangely equal to adding a few mills on the property tax side. Public improvement fees work best in projects that anticipate incorporating multiple tenants and/or property owners that all share the burden proportionately.
It’s amazing how much economic development can get done without raising taxes, placing the public’s money at risk, relying on direct cash contributions, or asking the state for an appropriation. By ensuring decisions are made locally, leveraging your future tax streams, and minimizing political drama by skipping the middlemen, your deal will get done and Spokane will be better for it. Happy hunting.
Cover Photo: Vestas Pueblo while under construction.