Some of the content contained herein is taken from a piece written originally for Local Economy In Perspectives, the journal of the Local Economy Policy Unit, London South Bank University, back in May of 2009 in response to the global financial crisis. These are ideas that proved to have legs and have served many communities struggling with multiple losses.
As the United States and the world continues to reel from the global pandemic Coronavirus, local economic developers are in a position to provide early leadership. They have the opportunity and the responsibility to lead in economic support and recovery. Local economic developers have both the access to and the confidence of their business community and are thus in a position to provide a breadth of support few others can. But what, if anything, can they do to support their businesses and community to survive and even thrive in the coming months?
Strategy #1: Don’t Leave Money on the Table
In an effort to enforce social distancing, Governors across the nation are closing restaurants and bars, or limiting service to carryout and delivery. This may result in restaurants operating during limited hours with fewer workers. Moreover, restaurant workers depend on tips for the bulk of their wages. Aside from ordering their favorite carryout every day, what can an economic developer do to help?
One of the more underutilized and misunderstood opportunities to improve business cash flow is tax preference. When business is booming few businesses, or the economic developers who support them, take the time to keep up with obscure and seemingly complex tax incentives. The benefit seems limited and the paperwork tricky. Even more discouraging to some is the reputation of tax incentives as corporate welfare, tax loopholes, or the result of creative accounting. Hardly the dodgy corporate gift some think, a tax preference is an incentive to encourage a tax payer to engage in behavior that benefits the public at large----such as encouragements to invest in research and development, hire workers who are currently unemployed or hold limited skills, invest in alternative sources of energy or energy efficient equipment, rehabilitate historic structures or buildings in targeted areas, and clean-up contaminated property during the course of their business operations. The majority of tax mechanisms require no special applications or public approvals with remonstrating neighbors. Most tax credits, deductions, exemptions, and carrybacks can be included with an additional schedule filed at the same time as business taxes.
One preference that could be vital for some workers now is the Earned Income Tax Credit (EITC). Intended to provide a refundable tax credit to working Americans – it is rarely used. Economic developers working with businesses directly or working in concert with local accountants can introduce the EITC to employers. The benefit can provide a cash benefit to lower wage employees through their paychecks---effectively providing a raise to their lower wage employees---at no cost to the employer. This tax credit can provide modest, but immediate, relief to restaurant and other low wage workers offsetting the loss of tips many rely on.
Strategy #2: Create the Financing you Can’t Find
Local banks are part of the community and they more than many see clearly the financial struggles their businesses are experiencing. Projects that are underway have been delayed or cut. Many of these lost or delayed projects put local jobs in jeopardy and threaten related businesses. These businesses and their projects are vital to the local economy. How is it possible to get funding to companies whose lost business and cash flow may no longer support a traditional loan? Banks want to do something to help. Yet they know they must not put their institutions in economic danger. What can they do?
Business financing differs from real estate financing in that it isn’t as much about the individual deal as it is about creating a continuum of funding from a variety of sources that will take a business from research and development through maturity. One of the more challenging areas of financing is assisting businesses during a downturn that may affect everyone. Robust supply chains turn fragile, putting multiple businesses at risk. Businesses lack experience to prove additional debt capacity and smaller contracts tend to be insufficient to support working capital. These same characteristics extend to small businesses of all kinds. In today’s market even experienced borrowers find their credit in question. Yet, banks may be willing to return to the financing table if that risk is shared.
One idea is to have banks share the risk through a pooled risk financing vehicle, such as a revolving loan fund. Banks invest in a fund rather than a deal enabling the fund investors to introduce more patient or lenient terms. Working with a lead bank or investor, identify multiple investors to invest in and participate on a loan committee. If financial expertise is not extant within the EDO, the investors may provide ongoing technical support to ensure the success of individual loans. If additional risk relief is necessary, the fund may be blended with public or nonprofit resources. Keep the fund “evergreen” by retaining repayments. This ensures long term viability of the fund and greater impact.
Strategy #3: Coopetition
At the same time that toilet paper, surgical masks, ventilators, hand sanitizers and more become scarce commodities, business layoffs mount. Businesses may no longer have the capacity to bid on opportunities such as these that are created by the crisis.
Coopetition occurs when companies work together for parts of their businesses where they do not believe they have the capacity or competitive advantage, and where they believe they can share common costs. In Northeast Wisconsin, when more than a thousand high paying jobs were lost on the idling of a nuclear power plant, a cascade of additional business losses followed. To stem the loss of area talent, the remaining businesses began to collaborate to share employees. The companies saved talent for the region while they rebuilt and found more cost- effective ways of working and new opportunities. For coopetition to work, companies need to maintain strict confidentiality and very clearly define where they are working together and where they are competing.
Coopetition is not a new concept---it has been called variously business networks, business links, informal partnerships, and outsourcing. It is simply a way for a business with certain strengths and limitations to join with another business with differing strengths and limitations for a clearly defined joint venture. While this crisis may not result in the loss of many larger businesses, layoffs are occurring at an alarming rate. Moreover, idled independents or “Gig” workers may need to collaborate to bid collectively on alternative work. Economic development developers are well positioned to assist in brokering such relationships for the benefit of workers and companies
Strategy #4: Honor our Elders / Support our Children
As nearly everyone (with notable exceptions) is confined at home and children are left to their own devices in online classes, we face the real possibility of several months of education lost. Schools with no time to plan, provided teachers with little support and few resources to revise lesson plans for online learning. Children may be home alone or with harried parents working from home, some with limited or unreliable internet. College students, though more accustomed to online learning, are isolated on campus, in college apartments, or back at home outside of a college community. They too may have lost their on-campus or college area jobs putting rent payments and loans at risk of default.
Changing policies and planned retirements have idled scores of teachers over the past decade. Let’s combine this extraordinary resource with our children now at risk. Now is the time to mobilize our older teachers and younger teachers-in-training for online and telephone tutoring. For some older teachers this may be their only outside contact they have all day. For some children perhaps the only real encouragement to continue their lessons. Student teachers and education students can be the vital near peer mentor to support student scholars who lack family support for learning. Additionally, they could be a resource as tutors for home-based students benefitting both the future teachers and the students. While in ordinary times, retired and student teachers may face multiple restrictions in interacting with students, the rapid transition to online home-based learning requires extraordinary and immediate support. Economic developers can use their contacts and facilitation skills to mobilize schools, teachers’ unions, colleges and other leaders to collaborate and share resources in support of our students and long-range workforce pipeline.
There is no doubt that the Coronavirus has transformed the United States in a matter of weeks. Economic development too must change to provide the support that our businesses and communities need today. Still, we can rely on our core strengths to convene, facilitate, and lead the difficult changes ahead. A past chair of the National Council for Urban Economic Development and former head of Los Angeles County government once advised local economic developers, “take the direction of others with a grain of salt- stay true to yourself. Do what you know how to do; do what you do best, and do it better than anyone else.” There you will find the recipe for survival.
Diane Lupke, CECD, FM is the President of Diane Lupke & Associates Inc., Wisconsin, USA