Loading...
HomeMy WebLinkAboutAgenda EDAB 120805Economic Development Advisory Board PALM BEACH GARDENS A Signatue crly Economic Development Advisory Board Agenda Thursday: December 8,2005 at 8:30 a.m. Council Chambers, City Hall 1. Call to Order Kenneth Kahn, Chair 2. Pledge of Allegiance 3. Roll Call Susan Bell, Public Information & Recording Coordinator 4. Approval of Minutes from November IO, 2005 5. Staff Report Dolores Key, Staff Liaison a. Targeted Expedited Permitting Program - Ordinance 1, 2006 Members i. PZAB: December 13,2005 - Tuesday @ 6:30 pm ii. City Council: I" Reading, January 5, 2006 - Thursday @ 7:OO pm iii. City Council: 2nd Reading, February 2, 2006 -Thursday @ 7:OO pm b. The Anspach Companies (TEPP Project) 6. Land Development Petitions a. Gardens Pointe 7. Old Business a. Evaluation and Appraisal Report (EAR) 8. Establishment of Next Meeting Topic a. Election of Officers 9. Next Meeting Date IO. Comments from the Public 1 1. Adjourn Charles Wu & Brad Wiseman January 12,2006 Dolores Key, Economic Development and Marketing Director OLICOM P CORPORATION Economic Analysis Everyone Understands Louis Gaeta Gaeta Development 3555 Northlake Blvd. Palm Beach Gardens, FL 33403 November 18,2005 Dear Lou: Thank you for your inquiry regarding the economic impact upon municipal economies of having a limited or insufficient supply of industrial real estate available in a community. I suspect the question arose as a result of the tendency of some city governments in your county to change the zoning of industrial property to either retail or residential. Overall, the absence of improved, approved industrial real estate will stall economic growth for an area and eventually cause its decline. This statement surprises a large number of local government officials and communities leaders. They have, over the years, been lead to believe a growing retail sector and new home construction creates a strong local economy. Actually, these are typically the result of a growing economy, not the cause of it. To better understand this concept, let me describe how a local economy works and the importance of industrial real estate.' A local economy, a geographic area in which people live and work, earn and spend, will grow and decline in direct proportion to the amount of money being imported to the area. After entering the economy, the money is mixed and churned, going firom business to business, person to person, until it is eventually consumed and leaves the area. Certain business activities or industries cause money to enter the economy. These are called "primary" or "contributory" industries. A primary business is one which sells its goods or services outside the geographic area of a local economy. Typically, by way of the wages paid to the workers, money then enters the area and is subsequently mixed and churned until it is consumed. ' I analyze local and state economies, determine if they are growing or declining, identify what is causing this to happen, and offer ideas and solutions to improve the situation. Over the last ten years, I have studied the data for more than 600 local economies, created more than 150 research studies, and have given economic presentations in 30 states. Page 1 of 10 POLICOM Corporation - 2740 SW Martin Downs Blvd. #279 -Palm City, FL 34990 PH: 772-781-5559 - FX 772-220-2642 - Email: fruth@policom.com - www.policom.com . Manufacturing is the most recognizable contributory industry. While overall employment in this industry has declined over the last twenty years, still, today, it is the most important primary industry in eight out of ten local economies in the United States. Manufacturing is one example of a primary industry. Corporate headquarters, research facilities, major distribution facilities, and software development all can be contributory. Virtually any business enterprise can contribute wealth to an area if it meets this simple test: “It sells its goods or services outside the economy, thus importing money to the area.” The amount of wealth created depends upon how profitable the company is. Profitability is determined by costs. Most of the costs to a company are influenced by its geographic location. Some of these are wage rates, insurance, utilities, transportation access for people and pwducts, taxes, along with a host of others. The following are some of the characteristics of primary employers: 0 0 0 0 0 Sell goods and services outside the economy, importing money to the area. Geographic location influences operating costs, thus profitability. Since their market is not local, they do not have to be in an area to sell their product. They will move when it is unprofitable to be located in an area. They will seek a community which is the most profitable location. Consumptive industries, such as retail trade, feed upon the wealth being imported. They grow or decline in size in direct proportion to the amount of money being imported to the area by the primary industries. They cannot grow any greater than the amount of disposable income present at a particular time within the economy. The consumptive industries do not add wealth to an area; they utilize and mnsume the wealth. Typically, 75% of all the jobs in an area are dependent upon the 25% of the workers employed by the primary businesses and 95% of the businesses in an area exist because of the wealth imported by the contributory businesses. For the consumptive industries to grow, the primary industries must grow. For a further discussion regarding how a local economy works, please refer to “The Flow of Money and Its Impact on Local Economies.” I wrote this paper for the National Association of Industrial and Office Properties (NAIOP). “Economic Development” is the process which improves the standard of living for the people who live and work in an area. This is accomplished by increasing the number of primary industry jobs in an area which pay a wage higher than the area average wage. As a result, more money is imported to the economy, increasing its size and causing the dependent industries to grow, and the overall quality of the economy improves. Page 2 of 10 POLICOM Corporation - 2740 SW Martin Downs Blvd. #279 - Palm City, FL 34990 PH: 772-781-5559 - FX 772-220-2642 - EmaU fruth@polieom.com - www.policom.com As previously mentioned, the geographic location of the contributory business influences its operating costs. When considering whether to expand in or to locate to an area, a “site seeker” will measure a plethora of issues to determine if a community is suitable for its purposes. I have been involved in site selection investigations for which more than 100 economic and community issues have been considered. However, of all the issues considered, there is one which is far more important than all the others combined. The most important issue relative to the site selection process is having an actual site. Absent the availability of improved, approved real estate in the community upon which the company can construct a facility, the area has no chance of improving its economy. - The issue relative to the availability of industrial real estate cannot be overstated. It is absolutely essential for economic growth. I have studied hundreds of economies throughout the United States. I have found one of the most important characteristics of the strongest economies in the nation is an abundance of improved, approved industrial real estate available for primary employers. To be considered by most site selectors, the property needs to be “approved” and “improved.” Approved means all zoning for the intended use is in place. Improved means all horizontal infrastructure is to the site. Companies have learned from experience they cannot depend upon promises fi-om communities the land will be rezoned and improved in a timely manner. The issue surrounding the current Scripps project is a textbook example of why only “building ready” sites are considered by most companies. The Raleigh - Durham, North Carolina economy is one of the strongest in the nation. It has grown in size and quality at a rapid, consistent rate for more than 30 years. Some site the presence of three research universities as the cause of the growth. However, across the United States there are many areas which have research universities but have not had economic growth. Gainesville, Florida (University of Florida) and College Station, Texas (Texas A & M) are two examples. What made Raleigh different? In the late 1960’s and early 197O’s, the leadership in the Raleigh - Durham area recognized in order to have economic growth; they had to have land available for “primary” businesses. What must have been an extremely controversial issue at the time, the community created the 7,000- acre Research Triangle Industrial Park. Upon this land today, there are hundreds of companies and thousands of people working. Absent this land, the area could not have grown economically. The Dane County - Madison, Wisconsin economy is also very strong today. However, throughout the 1970’s and 1980’s, the community was hstrated by the absence of economic growth, even though the University of Wisconsin was a quality research university. In 1984, the university and state converted 150 acres of farmland into a research industrial park. Page 3 of 10 POLICOM Corporation - 2740 SW Martin Downs Blvd. #279 -Palm City, FL 34990 PH: 772-781-5559 - FX 772-220-2642 - Email: fruth@policom.com - www.policom.com Assisted by the efforts of Madison Gas and Electric, which paid for the construction of a 50,000 square foot “incubator,” the 150 acres were soon consumed by enterprises being created through university research. A second 200-acre parcel was converted from “agricultural research” and that land has since been absorbed by quality, high wage companies. During my last visit to the area, I was told the community is presently searching for more industrial land in order to maintain its economic growth. The Madison economy did not grow until land was available for contributory businesses. In 2001, the Indian River County Chamber of Commerce, in cooperation with the County Commission, employed me to evaluate their economy and make recommendations. The study showed the economy had been growing rapidly as a result of population growth, principally retirement age individuals. It also showed the quality of the economy was on rapid decline with the average wage for the county being one of the lowest in the nation. To cure this problEm, the community agreed it needed to recruit new, high wage primary employers to the area. There had not been a new contributory business move to the county for many years. Through further research, the reason became obvious. Aside fiom some scattered one-acre industrial parcels in an old industrial area and one 25-acre parcel, the county had virtually no improved, approved industrial real estate. As a result, the Indian River County Commission partnered with a private landowner to create 150 acres suitable for industrial use. Within a couple months, CVS Pharmacy purchased 50 acres. It is presently constructing a 400,000 square foot distribution center, which will employ hundreds of workers at a wage of about 140% of the area average. The Chamber has informed me, after completion, it will become the fourth highest single tax payer in the county. Pinellas County, Florida, fiom 1985 to 2000, created more high wage, primary industry jobs than virtually any county in the state. They included manufacturing, research, financial and insurance services, and corporate headquarters. Manufacturing is the biggest economic contributor to the economy. The county has more people employed in medical equipment manufacturing than any other Florida county. However, the area has a problem. In 2001, Pinellas County employed me to study the following question: Khat is the Economic Impact of Reaching Physical Build-Out upon the Pinellas County economy? “Build-out” related to not having available “Greenfield” industrial property which could be used by primary industries. The study concluded the Pinellas County economy would begin to decline in quality and size beginning circa 2008 after the county runs out of Greenfield industrial land in 2006. The decline will be caused by a reduction in the number of people employed by the primary industries. Since little land will be available, existing primary employers will not be able to expand within the county and have to move outside the county to construct new facilities. New Page 4 of 10 POLICOM Corporation - 2740 SW Martin Downs Blvd #279 -Palm City, FL 34990 PH: 772-781-5559 - FX 772-220-2642 - Email: fruth@poUcom.com - www.policom.com companies will not be able to locate’to the area, as land will not be available to construct a facility. A copy of this study is attached. While my study predicted economic decline beginning in 2008, there is evidence it has started. Companies have already begun to move out of the county, as they cannot find locations to construct new facilities. I am personally aware of two high wage primary employers in the county, combined, employing more than 1,000 people, which have been considering a move to another area because they cannot find a suitable site for their expansions. As a result of this study, Pinellas County commissioned several consultants including myself to create an “Economic Development Re-Development Plan” which was recently completed. The purpose of the Economic Development Re-Development Plan is to establish a fiameiiirork which will cause the redevelopment of specific areas of the county resulting in economic growth. One of the most important features of the plan is to create, through redevelopment, several thousand additional acres of industrial land to provide employment centers for existing primary employers to expand upon and new employers to locate to. The utilization of real estate within an area will determine the condition of its economy and the standard of living for the people. Let me provide one more example by comparing two Florida Counties. In 1985 each county in the state was required to create a “comprehensive plan” to comply with the Florida’s Growth Management Act. The purpose of the plan was to manage hture population growth. The elements of each county’s plan were created locally and reflected the attitude of the area toward “growth.” The leaders of Seminole County looked upon the horizon and quickly determined the county would rapidly grow in population, as was the case for virtually every Florida County. They asked themselves the question: Do we want to become a retirement county like Lake or a tourism county like Osceola? They chose neither. Knowing they were going to grow in population, they established a policy to grow as much as possible “economically” though the growth of industry. This would provide a high standard of living for their existing and future residents and a sufficient volume of money for the economy to pay for the services desired by the people. Within the land use plan, they identified more than 4,000 acres for future industrial use. Over the last fifteen years, Seminole County has had the best growth in both size and quality of any county in the state. In developing its comprehensive plan, Martin County chose a different path. Looking upon the horizon and seeing the county would grow rapidly in population, it chose to create a plan which would hinder, stall, and as much as possible, prevent population growth. It created laborious and Page 5 of 10 POLICOM Corporation - 2740 SW Martin Downs Blvd. #279 -Palm City, FL 34990 PH: 772-781-5559 - FX 772-220-2642 - Email: fruth@polieom.com - www.policom.com expensive development regulations designed to preserve the county‘s character and the environment. Very little usable industrial property was included in the plan. The reason for this was explained to me by a former Chair of the Martin County Commission when she said: “If businesses move here, they will cause growth. We don’t want growth, so we don’t want businesses to move here.” Since the Martin plan has been enacted, I am not aware of any primary business which has located to Martin County. Additionally, virtually every high wage primary employer has either downsized or has left the county entirely. Virtually 20 years have passed and we are now able to see the results of these two confliEting plans. The following are a series of graphs which contained “factored” data. Factoring is simply multiplying growth percentages by the same common number. By doing this, I can compare visually, apples to apples, the relative growth of all economies. This first graph shows the relative growth in population for Seminole and Martin Counties fiom 1974 through 2003. The rate of growth for both areas is much faster than a vast majority of the economies in the nation. Note the lines are virtually the same. The Seminole comprehensive plan “embraced‘, growth while the Martin plan was designed to stop growth. This points out a very important issue. I have yet to find a comprehensive plan which is designed to stop population growth which has actually done so. Population Factored 2400 2200 2000 1800 1600 1400 3000 2800 2600 1200 1000 74 78 82 83 00 04 08 02 3-8mmlnd- 6Yalcm However, plans to prevent population growth are usually successful in only stopping economic growth. Growth in the size of an economy is measured in several ways. The following graph is one method. It shows the inflation adjusted worker earnings for each county. Total worker earnings, which includes all wages and salaries and the profits of proprietors, are adjusted to the value of the 2003 dollar, the percentage increase determined, and then factored. Page 6 of 10 POLICOM Corporation - 2740 SW Martin Downs Blvd. #279 - Palm City, FL 34990 PH. 772-781-5559 - FX. 772-220-2642 - EmaU: fruth@poIicom.com - www.po1icom.com Even though Martin County grew in population at the same rate as Seminole, the economy has not. In fact, on two occasions the Martin County economy flat lined and had little or no growth, after the comprehensive plan was enacted. CPI Earnings Factored 1974-2003 ,&* 'Ooo 6000 1 P From 1974 to 1985, Martin County grew in size at a brisk rate. However, beginning in 1985, the county has had very little growth. The volume of money in the economy did not increase after adjusting for inflation. The volume of money in the Seminole 4000 - 3000 - 2000 - economy has increased for virtually every year since 1974. This economy has grown in size at a rate comparative to the strongest economies in the nation. While the growth in size of each of these areas has been different, the growth in "quality" has been extreme. The quality of an economy is determined by what people earn. Wages paid determine the standard of living for the residents of an area. The graph to the right shows the relative growth in quality of the two counties based upon the inflation factored average wage for each area. Seminole County has improved in quality since 1993, at a rate comparative to the strongest areas in the nation. This is the result of the formation of thousands of high wage primary industry jobs. Martin County, however, has declined in quality for virtually every year since 1986. This is the result of the loss of high wage 1200 1150 1100 1050 1000 060 900 850 800 CPi Factored Wages 1973-2002 *4 I1 4 18 u M w 01 98 02 primary employers and the creation of a large number of low wage service and retail jobs. The overall quality of the economy has diluted to the point the average wage in Martin County is in the lower ten percent of the metropolitan areas in the nation. In 1986, the average wage in Martin was 94% of the national average. But by 2003, it had fallen to 75% of the national average wage. Seminole and Martin are two contrasting economies. The economic growth for each is directly related to the availability of industrial real estate and the desire for economic growth. This now brings us back to the issue of rezoning industrial property for other uses. Page 7 of 10 POLICOM Corporation - 2740 SW Martin Downs Blvd. #279 - Palm City, FL 34990 PH: 772-781-5559 - FX 772-220-2642 - Emak fruth@policom.com - www.policom.com Maintaining an inventory of industrial zoned property in a community is difficult in Florida. There is constant pressure on local government to have industrial zoned property changed to either retail or residential use. By doing this, government officials forget there is an inverse ratio between the economic value of real estate for the owner and the economic benefit to the community relative to zoning. The greatest economic benefit to the owner of property is to have it zoned either for retail use or high density residential. Under these categories, the owner gets the highest price and a fast build out or sale. However, these uses have little economic benefit to the community, as retail consumes wealth and residential consumes services. Sellout for industrial property can take many years and the price received per acre is usually much less after development expenses and interest cany during the long “hold.” But, as%e have learned, it is the greatest economic contributor to the economy and consumes little, if any, services provided by government. Owners of industrial property who desire to have it rezoned to retail typically present an argument before local government officials the new use will provide increased economic benefit to the area. This is rarely the case for retail trade, as new wealth is not created by this industry. The money for the payroll for the employees and the purchases made by residents is already in the economy and it is actually being directed out of the area by the consumptive activity of retail sales. Creating new retail jobs do not cause an economy to grow; new retail jobs are the result of economic growth. One motivation by municipal government to change zoning is the potential for increased tax revenue to fund the government. This unfortunately is short sighted. As a result of a change to residential use, there is a flurry of new property tax money entering the city’s coffers. However, as a result of the cap on increased valuation in Florida, after the build out of the residential units, revenue to the city does not grow much greater than inflation. (This cap does not apply to industrial property.) The cost of serving the new housing units however grows every year at a rate much greater than inflation as the desire by the residents for more and better services seems to be insatiable. Cities are also enticed by sales tax revenue and many times favor retail use over all others, especially industrial, as a result. History has shown this is a failed policy. In the early 19807s, the state of California placed a cap on all property tax increases. As a result, municipalities vigorously attempted to find other sources of revenue. Hundreds of “economic development” offices were created at the city level. However, the directed activity of these offices was not to recruit new primary employers, but to recruit retailers for the sole purpose of increasing sales tax revenue to the city. Municipalities offered lucrative incentives to retailers to locate within the corporate boundary. It was not uncommon for one city to lure an automobile dealership “across the street’’ fiom one city into another. Page 8 of 10 POLICOM Corporation - 2740 SW Martin Downs Blvd. #279 - Palm City, FL 34990 PH: 772-781-5559 - FX 772-220-2642 - Email: fruth@olicom.com - www.policom.com However, California’s economy has seen very little economic growth over the last seven years and as a result, little growth in retailing. It has become excruciatingly difficult for cities to increase the retail sector of their economies. Beginning about five years ago, some California communities came to the startling realization that in order to increase retail, they had to increase the size of the economy, the volume of money. They have shifted the focus of the economic development program toward recruiting primary employers. But these cities have a real problem. They have little if any industrial property available upon which the primary employers can locate. The cause of the shortage many times is the result of rezoning in the past. -. On November 9~ of this year, the City of Redondo Beach (just south of the Los Angeles airport) asked me to give them a presentation on how the city can improve its economy. The city’s ability to create new retail is severely limited as the volume of money in the economy has not grown for several years. Most new primary employers have located in cities to the east which still have Greenfield industrial land. The task for this city is to redevelop existing land and designate it for employment centers for primary employers. It will be very difficult for them to do. Changing residential, retail, or commercial property to industrial usage is usually vigorously fought by residents in the community. This brings up the next problem regarding changing industrial zoning. Once industrial property is gone, it rarely comes back. A community begins with a land use plan which provides for industrial zoning. Over time, this acreage is chipped away. When a community discovers they have to have the wealth producers, they have no land for them to use. Any attempt to create new industrial zoning is fought by every residential and environment organization in the area. As a result, no changes are made. The task for community leaders is to resist as much as possible the change fiom wealth creating zoning to wealth consuming zoning. For, once a community does not have sufficient land for primary employers, its economy will decline. Finally, this brings us to the issue of a “municipal economy.” All of the previous discussion regarding a local economy refers to geographic area in which people live and work, earn and spend. Money flows into the area via the primary industries, is mixed and churned, and then is consumed. The economic activity is for the most part “contained” within the area. Typically, the geographic boundaries of a city are not large enough to have containment. Money and people crisscross the limits of a city. Typically, a city is part of a contained economy. Page 9 of 10 POLICOM Corporation - 2740 SW Martin Downs Blvd. #279 -Palm City, FL 34990 PH 772-781-5559 - FX. 772-220-2642 - Email: frutb@policom.com - www.policom.com ’ .. Some government leaders advocate their city should be the place in which people live and spend, having them work in another location. This policy goes to the concept people spend the money they earn mainly where they live. For the most part, this is correct. Unfortunately, this places the city dependent upon other areas for their economy and the economic benefit to the city is diminished. A contained economy is typically a geographic area within a sixty-minute commute or drive time fiom the location of a primary employer. The geographic location of the primary employer is the entry point of the wealth. The money is subsequently dispersed throughout the economy via commuting patterns. However, the distribution of the wealth is not spread evenly throughout the economy. Approximately 65% of all the wealth remains within a twenty-minute drive of the point of entry. A full 85% of the imported money remains within a thirty-minute drive of the point of entry. This is regardless of where the people live. The further people commute, the greater the tendency to spend where they work, not where they live. There is a “bread trail” of spending between the point of entry of wealth and the place of residence. The closer the residence is to the point of entry, the greater the economic benefit to a community. As a result, cities which have the primary employers located within their corporate boundaries have the best chance for quality economic growth. By being the point of entry, the community is not dependent upon another area for its wealth and can capture the greatest amount of spending. Cities which choose to be “bedroom” economies are typically left with the “crumbs” and have a difficult time supporting municipal services. I hope this extended narrative provides you with the information you need. If you have any questions, please call. Sincerely, William H. Fruth President Page 10 of 10 POLICOM Corporation - 2740 SW Martin Downs Blvd. #279 - Palm City, FL 34990 PH: 772-781-5559 - FX 772-220-2642 - Email: fruth@,policom.com - www.policom.com National Association of Industrial and Okce Properties -- -- ’ The Forum for Commercial Rea/ Estate In a continuing effort to develop new resources that office and industrial development professionals can use to shape the business landscape of the new millennium, NAIOP offers this publication on the primary influences to productive community growth. William H. Fruth impressed participants at the NAIOP Chapter Leadership & Legislative Retreat with his cogent analysis of local economies. In this publication, he shows that not all jobs stimulate the local economy and not all population growth leads to prosperity. Fruth defines the kind of industry a community must attract in order to increase both the quantity and quality of money that flows into the local economy. I One of the goals of Smart Growth should be to have a thriving community in which all citizens benefit. We hope that this fresh outlook on growth will be a valuable tool for not only NAIOP Chapters and members, but also for interested businesses, government bodies and citizens who want to live and work in vibrant and financially secure communities. For additional information on Smart Growth, check the NAIOP home page at www.naiop.org under Government Affairs: Smart Growth Resources. James M. “Marty” Irving Chairman of the Board Thomas J. Bisacquino President The Flow of Money and Its Impact on Local Economies c Prepared for the National Association of Industrial and Office Properties William H. Fruth President POLICOM Corporation 3 Summary ommunity and government leaders across C the nation have come to realize their actions can change, alter and direct the condition of their local economy. The economic quality of life of the residents and the success of businesses many times are directly affected by the policies and leadership of those who have the influence and power to create a climate conducive to economic growth. A local economy is a geographic area where people live and work, earn and spend. Local economies can be measured for their consistency, growth in size and growth in quality. All of these are influenced by the "quantity and quality" of the money flowing into the area by the activity of the "primary" or contributory industries in the area. The primary industries are those that import money into the local economy. Typically, they are the businesses that sell goods or services outside the local economy. This imports money to the local area. After the money is imported, it enters the area's "bucket of wealth" where it is churned and mixed, going from person to person, business to business, after which it is consumed and leaves the local economy. A vast majority of the businesses and a preponderance of all jobs in an area are dependent upon the success and growth of a small number of businesses that contribute or import the wealth to the local economy. Communities that desire to improve their local economies have created economic development organizations. The economic development organizations implement three basic programs: 1) existing industry program designed to retain and cause the expansion of existing primary employers in the area, 2) recruitment program to attract new companies to the area and 3) start-up program which encourages the formation of new contributory businesses from within the area. While there are certain minimum location requirements for each company, whether expanding or relocating, in today's competitive world market, the most important criteria for choosing a community is profitability. In choosing a location a company considers three important things which affect profitability: 1) costs (initial setup and long term operating), 2) the time necessary to establish the operation and 3) community attitude. I For a community to be competitive in economic development, either causing existing companies to expand or recruiting new companies to the area, the following are the most important elements: A Existing buildings. A Approved and improved industrial property A Tax structure that recognizes the importance for either office or manufacturing use. of contributory businesses and does not disproportionately place the burden of revenue generation on the productive sector. A A history of cooperative attitude within the community, which fosters cost maintenance or cost reduction for the company. It is a characteristic of strong economies to grow in population, but not all areas that grow in population have strong economies. The weakest economies usually decline in population. Typically efforts to force a reduction in population growth will cause a decline in the local economy. 4 *- Introduction ommunity and government leaders across C the nation have come to realize their actions can change, alter and direct the condition of their local economy. The economic quality of life of the residents and the success of businesses many times are directly affected by the policies and leadership of those who have the influence and power to create a climate conducive to economic growth. In areas with strong economies, local governments do not struggle to provide essential services and are usually able to provide expanded programs benefiting all that reside in the area. In such areas, schools are strong, streets safe and clean, park and recreation programs are abundant and the need to provide social-welfare programs for impoverished citizens is reduced. Citizens living in an area with a strong economy enjoy consistent employment, regular wage gains, opportunities for personal advancement and are able to reliably save and invest in their future. Businesses are able to plan for consistent expansion, hire full-time employees for the long term and are willing to risk significant capital, investing in their operations. Communities grow closer, tight-knit, as young men and women, after completing high school or college, remain in the area as growing employment opportunities in their “hometown” capture their interest. Unfortunately, in areas with weak or declining economies, the opposite occurs. Local governments struggle to fund essential programs with budgets under growing pressure to assist the impoverished. Residents have uncertain futures, personal anxieties, limited employment opportunities and subsistence level 5 jobs. Businesses employ part-time workers and are unwilling to risk significant capital because of an uncertain future. Young men and women must move from the area to seek employment, which is not available in their hometown. Even though local community leaders cannot control the actions or policies of the federal or state government, they can establish policies and create local programs that assist and foster economic growth. Nationally, there are more than 6,000 economic development organizations, chambers of commerce, and local, regional and state government offices working in some fashion to improve the economy of their respective areas. Never in history has there been such an effort. Some organizations have large budgets, better community cooperation and a stronger commitment from local government than others do. These areas have the best chance to either maintain or improve the economic quality of life for their citizens. Some areas, however, provide just “casual attention” to economic development programs. They do not fully understand the need to have a constant, aggressive economic development program just to maintain the existing condition. In these areas, typically, the local economy is in decline. To assist community leaders in the decision- making process regarding actions that affect their local economy, the following study discusses how a local economy works, what causes its growth or decline, and some of the characteristics of strong and weak economies. What is a local economy? or a discussion regarding the condition and F influences on a local economy, it is important to understand what, indeed, is a “local economy.” For the purposes of this paper, a local economy is the geographic area in which a preponderance of the people both lives and works. This area would also be the place in which the people both earn and spend, thus measuring the trail of the flow of money. This is the principal test of the Office of Management and Budget in defining “metropolitan areas” in the United States. There are 316 defined metropolitan areas in the United States. They include approximately 80 percent of the nation’s population. In order to become a metropolitan area, the area needs to have certain levels of population and economic activity to be considered. However, the actual geographic definition is based upon commuting patterns, which identify where people live and work, earn and spend. A metropolitan area cannot be less than one county. Oftentimes, a metropolitan area is composed of multiple counties, sometimes lying in more than one state. When a metropolitan area is composed of more than one county, the Office of Management and Budget has determined that the counties are linked economically as a result of commuting patterns. In multiple county metropolitan areas, one county might serve as the place of employment while others (suburbia) are the location of residence. Typically, people spend where they live. To measure the economy, the data of all counties must be considered. Additionally, it is important to understand from what perspective the condition of a local economy is viewed. For various business enterprises, the criteria vary for measuring the condition of a specific area of the nation. A major financial institution, when evaluating future markets, might only consider population growth (more people, more depositors). A major healthcare provider might look for areas with a high aging population. A company that sells its products to people in lower income levels would look to areas that create low-wage jobs. For each of these, the economic opportunity is determined by different criteria. POLICOM measures the “economic strength or condition of a local economy from the perspective of how the economy affects the people living and working in the arga. It measures the “economic quality of life” and how it has improved or declined. POLICOM Corporation annually measures and ranks the “Economic Strength” of the 3 16 metropolitan areas for the purpose of studying the characteristics of strong and weak economies. Economic strength is a combination of the rate of growth, the quality of growth and the consistency of the growth. To determine the economic strength for the metropolitan areas, 25 years of data are examined. The average annual growth rate and the average annual deviation are calculated for 18 different categories in the economy €or two different time periods. The categories and industrial sectors used in the analysis reflect how an economy is behaving, not what is causing it to behave. The 1999 economic strength ranking includes two time periods: the 15-year term from 1973 through 1987 and the 10-year term from 1988 through 1997 (the most current data available at this time). The data for the last 10 years are counted twice to give double emphasis to the most recent activity while still considering the historical trend in each of the economies. The following are the 10 strongest and 10 weakest metropolitan area economies: 6 POLICOM Corporation has created rankings for the metropolitan areas for each of the last five years based upon the previous 25 years of data. The rankings for all years for all 316 metropolitan areas, along with the geographic definitions for the metropolitan areas, state maps, and explanations of the methodology used are posted on its web site: www.policom.com. How a local economy works local economy is the geographic location A where people live and work, earn and spend. Money flows into the area, is circulated and leaves the area. To understand the dynamics which occur, imagine that all of the wealth of an area is contained in a bucket. It swirls around and around, like being churned with a mixer. It goes from person to person, business to business, person to business, and is constantly moving. One person purchases a house and the realtor makes a deposit at the bank. The banker makes a loan to another who buys an automobile. The car salesperson buys a new shirt. The storeowner pays a Life insurance premium. The insurance agent pays school taxes. The teacher pays the water bill. The money moves on and on and on. Money is like a hive of bees following the path of a three- dimensional spider web, moving around and around as it circulates throughout the economy. But, there is a hole in the bucket and all the wealth of the community is leaking out. Every time someone purchases an automobile, a good share of the purchase price is returned to Detroit, or Nashville, or Tokyo, wherever the car was made. Every time someone purchases a shirt, buys a pair of shoes, makes their life insurance payment, goes on vacation, pays their income taxes, money leaves the community and goes to the area in which the product was made or the service performed. Money is continuously leaving the community through the hole in the bucket. The outward flow is constant, pervasive, and ongoing. There is nothing that can be done to stop it, no matter how small the hole. Like a bucket with a hole in the bottom filled with water, all the water will eventually drain out, leaving the bucket empty, or the local economy drained of its wealth. So what can be done? A community needs to add money to the bucket, replenishing its supply. A faucet at the top of the bucket needs to be turned on, filling the bucket with fresh, rejuvenating wealth, which enables the churning process to continue. Since money is continuously being drained or exported from the local area, it also needs to be imported for the economy to continue. Money4s imported to an area principally by the business activity of the “primary” or contributory industries located within the 7 economy. A primary industry is one that sells its goods or services outside the geography of the local economy, importing money to the local area. When an automobile is purchased in one area, the community where the car was assembled imports money from the purchasing community. In turn, the communities that manufactured the tires, fenders, headlights, seat cushions and all of the other components of the automobile import a portion of the purchase price to their respective areas, replenishing their supply of money, filling their bucket. When a local manufacturer sells its product to a buyer in another community or state, money flows into the home community. When a farmer sells grain, money flows into the home community. When an engineer designs a bridge for another city, money flows into the home community. When the primary industry is paid for its goods or services, the workers it employs are paid, and the wealth enters the local economy, which is then mixed and churned, and eventually consumed. The imported money also enters the bucket of wealth when it is used to pay local suppliers, rent, utilities and other expenses of the primary business. The churning process of the wealth in the bucket generates most of the jobs for the residents within a community as goods and services are consumed. For the most part, a business enterprise either contributes or consumes. If the business is not dependent upon the local marketplace, it likely is “primary” in nature. If it is dependent upon the local market, it is consumptive and can only exist if money flows into the local area. Some businesses are a combination of both: some of their market is local, some outside. The amount of the sales outside the economy is the contributory portion of the business. To have a clearer understanding of what happens in the bucket, do what “Deep Throat” told reporter Bob Woodward during the Watergate era: “Follow the money.” Goods are sold or services performed outside the area, the employees received their paycheck, they pay their bills and purchase goods, the businesses which received the payments or sell the goods pay their workers, who then pay their bills and buy goods, so on and so.... until the money leaves the area. The economic quality of life for individuals living in an area is dependent upon the amount and rate of money flowing into the community’s bucket of wealth. Areas which are sble to replenish the wealth as fast as it is leaking out will have a stable economy. The people living there will have a consistent economic quality of life. Communities that replenish the money faster than it is leaking out the bottom of the bucket will enjoy economic growth. The residents will, in turn, enjoy an improved economic quality of life. Unfortunately, areas that are not able to import as much wealth as they are exporting will decline economically. Over a period of years, the community and its residents will gradually grow poorer and poorer. Which industries contribute, which consume? nce again, a primary industry or business 0 is one that sells its goods or services outside the local economy. Based upon the Bureau of Labor industrial classification system, many of these industries can be identified. Based upon traditional measurements, farming, mining, manufacturing, transportation and wholesaling are the main primary industries in a community. Unless the crops are sold locally, virtually all of the components of the farming industry are contributory. The extraction of materials (metals, coal, petroleum) from beneath the earth’s surface and selling the materials outside the economy imports wealth. In nine out of 10 8 local economies, manufacturing is still the most important contributory industry. The transportation, trucking and distribution industry adds value to these products and imports money to the local area. Wholesaling, when not serving the local market, additionally is part of the wealth generating process. The Finance, Insurance and Real Estate (FIRE) sector is one of the principal mixers in the economy as it moves money around. It is a dependent industry but does not consume as much wealth as other industries. For the most part, federal and state governments are consumptive industries as they extract more money by way of taxation than they return. However, in communities with a high number of federal or state workers, this industry becomes contributory. State capitals import state tax money which is paid to state workers locally, contributing to the local economy. Areas that have federal government facilities, such as an IRS processing center, a Department of Energy research laboratory or a military base, import much more money than they export. For the most part, retail, services and construction are consumptive industries and represent the biggest “hole in the bucket.” Each of these is almost solely dependent upon existing money and the flow of new money into the local economy. Retail is the most consumptive. That is why when we purchase something we are called “consumers.” There is nothing wrong with having retail in the economy. We work hard so we can purchase things. But the act of purchasing drains wealth from the area. Retail is absolutely dependent upon the condition of the local economy. It cannot grow any greater than the amount of disposable income within the economy. It will decline if the flow of money into an area is reduced. It does not create wealth but absorbs wealth. A vibrant, dynamic retail sector is not the cause of a strong local economy, but the result of it. The service industry also is dependent upon the condition of the local economy. The market for most service-related businesses, whether they do accounting, landscape maintenance, computer repair or shopkeeping, is inherently local. As each service is performed, some of the wealth leaves the economy. Services, however, are not as consumptive as retail since the principal cost of a service is labor and not a product . Construction is, on a local basis, a dependent, consumptive industry. There is residual value with construction, but since local economies are based upon cash flow, this industry causes money to flow from the area. Let us follow the money to see how this occurs. Suppose an individual wants to build a new house and has $100,000 in the bank pay for it. We start with local money. If this money is not present in the economy, the house is not built. Only between 25 percent and 35 percent of the cost of a new home is labor that is paid to local workers. The balance of the cost is for materials such as lumber, nails, carpet, tile, lighting fuctures, toilets, sinks, draperies and more. When these materials are purchased, the money flows from the local economy and is sent to the area in which the materials were manufactured. After the home is built, only about $35,000 (labor portion) remain in the local area and $65,000 are consumed. The above generalizes the industrial function of each industry as to whether it consumes or contributes. There are exceptions in each industry. A farmer who grows vegetables just for the farmer’s roadside stand is a dependent business. A manufacturer who makes a product that is sold only in the local market is a dependent business. The local rock quarry that sells its stone for local construction is a dependent business. The headquarters of a regional bank that processes loans and payments for a multi- county or statewide area is a contributory 9 business. An engineering firm that designs bridges across the nation, while classified as a service industry, is a primary business. When someone moves to the area and brings with them $100,000 for the construction of a house, the construction industry is the first recipient of the new money added to the economy. (Construction is still dependent and did not cause the wealth to be generated in this case. It is the beneficiary of the in-migration.) So once again, to determine if a certain business contributes or consumes, determine from where the money comes to pay the workers at the business. If it comes from the sale of goods or services outside the area, it contributes. A local economy can have sources of money other than the business activity of the primary industries. In some local economies, these sources exceed business activity in their contribution. The first is “government transfers.” Also known as government entitlement programs, government transfers include direct payments to individuals or vendors for the various government programs. These principally include Social Security and government retirement, medical transfers for the Medicare and Medicaid programs. income maintenance (welfare), veterans’ benefits and unemployment compensation. In a vast majority of the local economies in the United States, there is more money extracted by way of taxation than returned to the local area via transfers. However, in areas with a high percentage of the population in retirement (Social Security and Medicare) or in extremely distressed areas (Medicaid and welfare), government transfers can be the most important contributor in the economy. The second additional source is the passive income or private retirement programs for the people living in the area. In addition to Social Security, most retirees have some type of pension or savings on which they draw for their living expenses. Most private pension money is imported to the local area and enters the bucket of wealth. Local savings are “existing” wealth and are not additive to the local economy. These savings are likely loaned by the bank and already in circulation. When they are withdrawn by the retiree, the amount of available loaned capital is reduced. Additionally, individuals who have private investments, either in stocks, rentals or savings, earn income. If the invest- ments are located outside the local area, the money (rents, dividends, interest) are imported to the local economy. The impact of this passive income depends on the amount that is spent or circulated locally. If it is reinvested outside the local area, it has no impact. Aside from retirement-based economies and distressed areas, the activity of the primary businesses is the most important contributor for a vast majority of the local economies. The actual number of business enterprises that contribute is usually a small percentage of the total in an area. A community can have five large contributory businesses (factories, corporate headquarters or other businesses) which employ a total of 5,000 people. These jobs can easily be responsible for the formation of 12,500 other jobs in the economy. Most dependent industry businesses are small employers. Aside from government and the utility companies in the area, the typical business employs fewer than 10 people and many are sole proprietors. The 12.500 workers could easily be employed or self-employed by as many as 500 separate business enterprises. Just scan through the yellow pages of your telephone book and you can see just how many there are in your community. Looking at the yellow pages, a local marketing tool, will also give you an idea of the number and type of dependent industries in your area. 10 Consistency, quantity and quality. . .of the flow of money he economic strength and economic quality T of life for the residents of a local area depend on the consistency, quantity and quality of the money flowing into the local bucket of wealth. Consistency of growth “Consistency” is the dependability and regularity of the money entering the economy. If you ever irrigated crops in the field using a gasoline powered pump drawing water from a pond, you understand consistency of flow. Sometimes air will enter the pump causing it to lose its prime momentarily. The flow of water will become erratic. It will gush, stop, and gush again until the pump is properly primed. It might take some time before the pump is causing a smooth flow of water. Sometimes, it will never adjust properly, causing a repeated, ongoing gushing and stopping of water. Eventually, the volume of water reaches the desired level, but the means by which it was achieved is undesirable. The rate of the flow of money into a community is similar. If the money is flowing smoothly as a result of constant pressure, the churning activity is smooth and consistent. Businesses and residents can count on certain things happenlng and, therefore, can plan their kancial future in a better manner. When the flow is disrupted, slowed or stopped for a while, there is an immediate change in the churning process. With less money available for circulation, some businesses have to lay off workers and some families postpone purchases, until the next gush of money enters the economy. Areas with unstable, boom and bust economies are difficult places to conduct business. A merchant may lease extra floor space and increase inventory following three or four great years of activity only to bankrupt after a sudden collapse in the local economy. Residents are subject to economic uncertainty. A person might make significant long- term financial commitments based upon rapid increases in earnings or employment in the area, only to lose everything as a result of a downturn which causes massive layoffs. Communities that are dependent upon seasonal tourism suffer from the erratic flow of money into their area. During the tourist season, money gushes into the area in large amounts. Everyone is busy working as hard as they can. When the tourists leave, the moneyflow stops, people are laid off and they have to survive the balance of the year on what they collected during the boom. When reviewing economic growth percentages for local economies, the data can be misleading as to the consistency or stability of the economy. To better understand the nature of economic stability, we will examine the consistency of the annual growth of an industry for three area economies. The first graph shown depicts a Mythical Area, which had an Average Annual Increase in Construction Employment of 4.1 percent from 1987 through 1996. 11 This Area had a 4.1 percent increase from 1986 to 1987. From 1987 to 1988, it again had a 4.1 percent increase. Each and every year, the area had exactly a 4.1 percent increase. This means construction employers, each and every year, increased the number of people they employed by 4.1 percent. As a result, by averaging the 10-year history, the Mythical Area, obviously, had a 4.1 percent average annual increase. Most importantly, the area had perfect stability as depicted by the straight horizontal line on the graph. The flow of money into the area, which supports this industry, grew in an absolutely consistent manner. This is a perfect situation. However, this is myth, not reality. Reality is different. The rate of the money entering a community fluctuates. In some communities, the fluctuation is not severe. In others, it can be quite disruptive. Let us examine the economic stability of the Akron, Ohio, metropolitan area for the same economic element. Akron, during the same 10 years, had an average annual increase in construction employment of 4.1 percent. As represented in the graph, you can see the rate of growth is not absolutely stable. While over the 10 years it averages 4.1 percent, there are obvious fluctuations year by year. From 1986 to 1987, there was a 7.3 percent increase. The next year, a 6.4 percent increase. The next year showed a 2.7 percent increase, so on and so forth. For the 10 years, the average of the annual increases is 4.1 percent. However, the rate of growth is not nearly as stable as the Mythical Area. The growth line is not straight but goes up and down. While the rate of growth of construction employment for Akron is not absolutely stable, it is considerably more stable than the Bismarck, North Dakota, metropolitan area. As with Akron and the Mythical Area, Bismarck had an average annual increase of 4.1 percent over the 10 years. As you can see in the graph, the rate of growth is extremely volaille. From 1986 to 1987, Bismarck lost 2.4 percent of its construction workers, the next year it lost 8 percent, then it increased construction employment by 4.2 percent, then 17 percent. Once again, the average for the 10 years is 4.1 percent, but the type and quality of growth in this industry is considerably different than that of Akron. Obviously, simply relying upon economic growth percentages is not sufficient in order to determine the character of a local economy. Economic stability must be considered. --.' -1 n I It is a characteristic of a strong economy to have consistent growth as a result of having multiple primary industries in the economy. With several, unrelated industries importing money into the area, if one industry falters, the entire economy does not fail. 12 It is a characteristic of unstable, inconsistent economies to be dependent upon one or two industries, which, by their nature, are undependable and fluctuate year by year, sometimes with extreme shifts either in growth or decline, The first graph (below) shows the employment history for the eight largest sectors for the Raleigh-Durham-Chapel Hill, North Carolina, metropolitan area, which is one of the strongest economies in the nation. Note the smooth, consistent growth lines. This area has multiple industries within its economy. The manufact- uring sector is the most important contributory industry in the economy. However, within manufacturing, there are numerous sub-sectors from electronics to bio-medical to chemicals to industrial machinery. Within these sub-sectors, the activity varies from production to product research to administrative headquarters. State government is also a major contributor, not only because it is a state capital, but also because three large state-supported universities are located in the area along with state research laboratories. Over the last 25 years, all of these industries did not grow consistently and each had periods of decline. However, when one industry declined in the area, another grew to take its place, counterbalancing or compensating for the loss of the earnings and employment. As a result, the volume of money flowing into this economy over an extended period of years grew in a consistent manner. The second graph (above) is the employment history for the Yuma, Arizona, metmpolitan area. Yuma is dependent upon two industries, farming and military. Both of these industries and their related employment in a community have had a long history of inconsistency. Note the repeated ups and downs of employment on the Yuma graph, demonstrating an extremely inconsistent economy. Whether the lines are going up or down, they are repeatedly choppy and unpredictable. Quantity of growth The quantity or volume of the money flowing into an area determines the size of the economy or the bucket of wealth. Since POLICOM’s perspective in analyzing a local economy is how it affects the people living and working in an area, the growth in size of the economy is measured by the growth in the total earnings and the number of jobs. The dollar volume of sales by the businesses in the area is not a direct reflection of the impact upon the people. A yacht broker who sells expensive boats scattered around the country could have $100,000,000 in sales in one year. But the only impact upon the local economy is the amount of commissions earned by the broker. A corporate headquarters based in an area might have worldwide sales of $100 billion. but the impact of the headquarters upon the local economy is limited to the amount of the $100 billion, typically the wages paid to the administrative workers, which actually enters the local area. 13 Therefore, the growth in the size of the economy is measured by the direct result of the activity of the businesses, jobs and earnings that affect the people. The growth in the size of the economy is directly related to the growth in the amount of money flowing into the bucket of wealth. As the primary industries grow, the overall economy grows. When they decline, the size of the economy becomes smaller. The strongest economies in the nation have had a significant increase in the number of jobs, as well as the total earnings generated by these jobs, as a result of the growth of their primary industries. The weakest economies have had little growth in employment and some have fewer people working in the area than 10 years ago. For some, after adjusting for inflation, they actually have fewer dollars in the economy than they did 25 years ago. POLICOM has evaluated the growth rates for employment and earnings for the 10 strongest and 10 weakest local economies from 1969 to 1997. To determine the actual value of the growth in earnings over this period of time, the earnings totals for each area were adjusted for inflation, bringing each year to the value of 1997. Using the National Aeronautics and Space Administration’s (NASA) formulas for calculating the value of the dollar for previous years, annual adjustments are made to the total earnings for an area. As an example, if an area had a total of $1,000,000 of earnings in 1969, it would be equivalent to $4,373,000 in 1997. The annual increase is then calculated. To visually compare the growth of each economy the data is “factored.” This simply means the data for all the areas is statistically brought to a common denominator for direct comparison. The mathematics is rather simple. First, the annual percentage increase from the previous year is calculated for each year. Second, the annual percentage increase is multiplied by the same number or factor for each area. It does not matter what number it is, as long as it is the same number for all areas. POLICOM chooses 1000 as the factor beginning. The year 1969 serves as the basis year. All areas begin at 1000 at this point. Where they wind up is determined by their respective percentage increase. This process is similar to the start of a track race. Every runner begins at the same spot. By factoring the data, direct, visual comparisons can be made. - The flrst graph (below) shows the average factored growth in total inflation adjusted earnings of all workers for the ten strongest and ten weakest economies. The second graph (below) shows the comparative growth in the number of jobs in each. Note how the strongest areas have had rapid increases in both, while the weakest areas are at a level barely above their condition in 1969. 14 The difference in the growth in volume between the strongest and weakest economies is significant. The total size of the strongest economies has grown more than 2OOpercent since 1969 while in the weakest areas there has been little actual growth since 1985. Quality of growth The quality of the economy reflects the level of the economic quality of life for the people living and working in an area. It is the amount of money earned annually by the people living and working in the area. Earl Nightingale, the famous writer and philosopher, was fond of saying, “there is nothing more important than money ... for those things money is intended.” For a vast majority of people, the amount of money earned each year determines their lifestyle. The size of their home, type of automobile, the food they eat, the type of recreation they can enjoy and their savings are all determined by annual earnings. Therefore, the annual earnings per worker in a local economy are a reflection of the quality of the economy. The type of primary industry jobs located in an area determines the level or quality of the economy. The average area wage will seek the level (and cannot exceed) of the wages paid in the primary industries. If a local economy is dependent upon industries that traditionally employ high-wage workers, the overall level of the economy (dependent industries) will rise toward those wages. If the area is dependent upon consumer industries that pay low-wages, the overall level will also be low. As a community improves the quality of the primary industry jobs, the bottom rung of the economic ladder rises. As the economy grows stronger, part-time low paying retail and service jobs fold into full time jobs at higher wage levels and with fringe benefits. As a result of the strength of the economy, employers in these sectors want a more reliable worker and are willing to pay more to have them. The quality of the economy will continue to rise if the new primary jobs created in the area pay a wage higher than the local average. However, the quality could regress or dilute if these jobs pay less. The axiom that “Any new job will help the economy” is not always true. The number or growth of low paying jobs in an economy can significantly affect the economic quality of life for the area residents. The composition of the workforce needkto lean as much as possible toward the higher paying positions, as the growth of low paying jobs disproportionate to the higher paying jobs can actually cause the economy to decline. As an example, suppose an economy is composed of 1,000 workers and has average earnings per worker of $30,000. In this economy, 300 workers earn $40,000 per year and 700 workers earn $25,714, causing the average to be $30,000. The workforce composition is 30 percent high-wage earners and 70 percent low-wage earners. If 100 new low-wage jobs are created during the course of a year, kd no new high-wage jobs are generated, the average earnings per worker for the area will fall to $29,610. The percentage of high-wage jobs in the workforce drops to 27 percent and the percentage of low-wage jobs grows to 73 percent. If this economy does not increase the percentage of high-wage jobs, then the overall economic quality of life for the residents in the area will continue to decline in the area if this job generation ratio becomes a long-term pattern. The process of adding a greater percentage of low-wage jobs than high-wage jobs to an economy causes “dilution” in the economy. Over the last 25 years, virtually every economy in the country suffered dilution as a result of the rapid creation of low paying service and retail jobs. The economies that were best at 15 creating new high paying jobs relative to the increase in low paying jobs over this period of time have the strongest economies today. For the 25 strongest economies in POLICOM's study, over the last 10 years, between 30 percent and 40 percent of the new jobs created in these economies pay a wage higher than the local average wage. In the weakest 25 areas that have, nevertheless, increased their workforce over the past 10 years, only about 8 percent of the new jobs created pay a wage higher than their local average. To compare the growth of the quality of the local economies, the annual earnings per worker in an area is determined for a series of years. These earnings are adjusted for inflation and brought to the value of the 1997 dollar. As an example, earning $5,000 in 1969 would have been equivalent to earning $21,865 in 1997. By adjusting for inflation, the true increase in the value of the earnings can be compared to previous years. The growth rates, after adjusting for inflation, were calculated, factored, and averaged for the 10 strongest and weakest economies. The graph shows the relative growth in the quality of these economies since 1969. All areas of the nation suffered a loss in the quality of their economies during the high inflationary period from 1978 to 1982. However, note how in the strongest areas the quality of the economies has increased significantly. All of these areas have an inflation-adjusted level much higher than it had in 1969. But look at the weakest economies. For almost 20 years, they have had a decline in the overall level of the quality of their economies. It is a characteristic of strong economies to create or maintain primary industry jobs that pay a wage higher than their local average wage and improve the quality of the economy. It is a characteristic of weak economies to either lose high-wage jobs or create a plethora of low-wage jobs, which dilutes the quality of the economy. POLICOM has evaluated the various industries for their impact of consistency, quantity and quality upon a local economy. The following is a list, in the order of the greatest to the least impact, of the contributory businesses that will help communities the most in improving their local economies. A Manufacturing of high value, high bulk products: High wages, large capital investment and a large number of support industries. Examples include automobile assembly, commercial aircraft and rockets. High wages, large capital investment, and some support industries. Examples include satellites, sophisticated electronic devices and power generation facilities. A Transportation of products: High wages, large capital investment. Examples include major trucking, rail, air and port facilities dedicated to the transport of products. A Research and Development: High wages and oftentimes high capital investment. Examples include the development and design of expensive products (small and large), software development and sophisticated research (nuclear, bio-medical, and electronic). A Manufacturing of high value products: 16 A Federal Government: Highest average wages of any major industrial division in the United States. Typically a consistent employer with annual wage increases greater than the rate of inflation. Examples include a regional headquarters for the IRS, major postal distribution facility and research facilities. A Corporate headquarters: High to low wages, depending on the activity at the headquarters. Some headquarters house all the top, highly paid executives, with a minimal number of low paid support positions. Others, however, have few high paid positions (these are scattered through the region or country at the facilities they manage) and a large number of low-wage support workers. The number of high wage jobs determines the impact. Middle-wage jobs, sometimes a large capital investment and sometimes support industries are needed. Examples include computer assembly, semi-conductors, household appliances and building materials. A State Government: Middle-wage jobs but typically higher than the local average. Most state government employment centers are typically located in the state capital. However, some states have distributed the employment centers throughout the state to provide benefit to more than one area. munication centers: Middle- to low-wage jobs, average to low capital investment, and few support industries. Examples include subscription fulfillment, telemarketing centers, and the processing and collating of information for a host of industries such as banking and insurance. A Manufacturing of low value products: Low wages and average capital investment. Examples include food processing, plastics and apparel. A Military: Typically low wages (unless an aircraft or officer base) and inconsistent employment (number of soldiers can vary year to year). Large capital investment but not taxable by the local authority. A Manufacturing of mid-value products: A Information processing and telecom- A A Retirement industry: Low wages, little capital investment except by the healthcare industry. This industry typically promulgates the formation of low wage, low skill service and retail jobs. It is very consistent, but growth of the economy is dependent upon the in-migration of more retirees. Typically economies based upon retirement are lethargic and the quality of the economy is low. Tourism industry: Low wages and little capital investment except by hotels. This industry typically promulgates the formation of low skill service and retail jobs and is very inconsistent as a result of seasonal employment. Economies solely dependent upon tourism lack dependability and are generally low in quality. Within each of the above categories are exceptions as to their impact upon a local economy based upon the wage level paid and the consistency of the employment of each business enterprise. However, overall, the list is in the order of priority according to which will improve the strength of a local economy. Local economies are dependent upon the importing of money to the area, which is principally caused by the business activity of the primary industries. The consistency of the economy is dependent upon the consistency of these businesses. The growth or decline in the size of the economy is in direct proportion to the amount of money flowing into the local economy. The quality of the economy seeks the level of the wages paid by the employers of the contributory businesses. 17 Economic development conomic development is the activity that is E directed toward improving the overall economic strength of a community and the economic quality of life for all the residents in the area. Economic development lifts the entire ship, bringing with it all its passengers and crew. Economic development differs from community development. Community development, while also an important activity for an area, is designed to relieve or cure a specific socioeconomic problem within the community. It is targeted to assist a specific geographic section or economically distressed class of residents. Programs to eliminate urban blight, revitalize crime-ridden neighborhood and housing assistance to the poor are community development activities. However, they are not economic development activities. There are three basic economic development programs that are focused directly at creating primary industry jobs: 1) existing industry program, 2) attraction/recruitment program and 3) start-up program. The Existing Industry Program is designed to foster the retention and cause the expansion of the existing primary-contributory businesses in the community. It is the most important yet least expensive of the three programs. Many communities have fallen into economic distress simply because their existing primary industries have reduced employment or left the area entirely. The focus of an existing industry program is to reduce the local costs to business as much as possible related to being located in the community, solve local problems and attempt to expand the markets for the contributory businesses located in the area. Some areas have been so successful in causing their local companies to expand that they do not focus a great deal on a Recruitment Program. 18 The Recruitment Program encourages new contributory companies to locate in the area. The program is designed to increase the quantity and quality of money flowing into the area and to make the economy more consistent through diversifying the types of contributory businesses. A recruitment program is time consuming and expensive, yet absolutely necessary for a community to survive, especially if the community’s existing industries are on decline. The Start-up Program involves establishing programs, venture funds, and buildings (incubators) that assist in the creation of new contributory companies, which have a chance to grow and develop s years pass. The visible and financial rewards to the community of such a program are in the future, and patience is required. Some areas of the nation have very dynamic economies as a result of nurturing start-up companies, which have grown to become major employers. Typically areas with major research universities have active start-up programs, but the presence of a university is not absolutely necessary. The most important needs are 1) a building (incubator), 2) venture capital, and 3) community encouragement. The criteria used by businesses to determine in which community they will establish a facility varies from company to company. The geographic / economic needs are different for each industrial sector. One group might have to be located close to a major seaport, another in close proximately to its raw material supply: still another might have to be associated with the computer science research department of a major university. Some business organizations whose principle product is processing information can be located literally anywhere in the world as long as sufficient telecommunications equipment is available. While there are certain minimum location requirements for each company, in today’s competitive world market, the most important criteria for choosing a community is profitability. A professional site seeking consultant can easily create a “checklist” of information with more than 100 items measuring the competitiveness of a community regarding profitability for a company. However, this checklist is directly related to the following three criteria. Costs.. . Time.. . Community Attitude Costs are considered in two ways: 1) initial start-up costs and 2) long-term operating costs. Initial start-up costs include, but are not limited to, the land, construction of a building and employee training. These costs can vary greatly state to state and even between adjoining counties. Local regulations in one county can add 10 to 20 percent to the cost of a facility over a neighboring county. Long-term costs consider local wage rates, state and local taxes and fees, proximity to the market and ancillary transportation costs, and the costs related to complying with annual regulations promulgated by both the state and local government. Time relates directly to the number of weeks, months or years necessary to bring the facility to operational level. Time has become one of the most important criterion in the site selection process. Due to global competition, rapidly changing technology and the fervent pace of new invention, the companies which can produce products or provide services “faster, cheaper, better” will be the most successful. After a company’s research department designs a new process or invents a marketable product, the company wants to begin production in months, not years. As a result, the need for companies to become operational as fast as possible has never been more important. If the company is purchasing an existing facility, it can shorten the time to production significantly and the company knows exactly what the land/building costs will be. This is 19 why communities that have existing structures available hold a competitive advantage over other areas. If the company must construct a building, the time necessary to design, attain government approvals and permits, and build the structure becomes one of the most important elements in the community selection process. Each step - zoning approval, site plan approval, building design, building permit and the time to build relative to inspections - is affected by local and state government. The amount of time necessary to complete the steps varies significantly among communities. Some areas have expedited the process to such a degree that it might take only a couple of months to receive a building permit. However, some areas have a labyrinth of rules and steps that delay the necessary permits for more than a year. The first community has a significant competitive advantage over the second community in attracting the company to its area. Sometimes a company will pay a higher start-up cost if the “time” necessary to become operational is significantly reduced. I The third most important element considered by a company is the attitude of the community toward the company. The question before the company is whether it is truly wanted by the community. Since the most important criterion for community selection is profitability, the attitude of a community is measured by its tendency to add operational costs to similar business enterprises and the willingness to work to solve the company’s local problems. An active existing industry program will provide evidence that the community wants to solve problems for the employers. Some areas have community teams established for this purpose. However, some areas do not and the relationship between the local government and the productive sector can be adversarial. The company most likely will meet with local employers to discuss the community attitude. Of principal concern to the company is the history of the community or state regarding adding operational costs to the business community. Some communities have a history of placing a disproportionate share of the revenue burden on the business community. If a local government needs more money to support its water system, some have levied water surcharges upon manufacturers or commercial establishments instead of raising rates upon the residents. Similar charges are sometimes levied for solid waste and sanitary sewage disposal. Other areas have levied special taxes specific to the corporate community (the City of Detroit has a municipal corporate income tax). These activities project an “attitude” by the community toward contributory businesses. Companies will seek those areas that truly want the company to locate in the area as shown by its historical treatment of the existing companies in the area. For a community to be competitive in economic development, either causing existing companies to expand or recruiting new companies to the area, the following are the most important elements: A Existing buildings. A Approved (zoning) and improved (horizontal infrastructure) industrial property for either office or manufacturing use. A Tax structure that recognizes the importance of contributory businesses and does not disproportionately place the burden of revenue generation on the productive sector. A A history of cooperative attitude within the community, which fosters cost maintenance or cost reduction for the company. Communities that are the most profitable locations for companies will be the most successful. Population paradox * ne of the reasons communities have 0 promulgated regulations which increase costs to contributory employers is to control or manage population growth. The nation and most local economies have grown in population over the last 10 years. Population growth causes “change” in communities and people inherently resist change. Change represents the unknown and causes uncertainly among some people. Population growth causes new home development, converting former open space to tract housing. It increases traffic on the highways, the number of students in the schools and it increases the service area for local government. Because of change due to population growth and at the spurring of some residents, some communities have enacted complicated “growth management” regulations. As a result of land set-asides, significant fees and lengthening the approval process, significant costs are added to new development. Unfortunately, this activity can cause degeneration in the strength of a local economy. It is a characteristic of the strongest local economies to grow ik population, but not all economies that grow in population are strong. Communities grow in population for three basic 20 reasons: 1) in-migration to the area for employment, 2) in-migration to the area by the retirement community, 3) immigration from a foreign country. POLICOM has examined the population growth rates for all the 3 16 metropolitan areas from 1988 through 1997. During this period of time, the United States grew at the average annual rate of 1.0 percent per year. Among the 25 strongest metropolitan areas, all grew in population at a rate faster than the national average. The following chart lists the 25 strongest areas ranked in order of their economic strength. The average annual increase in population growth from 1988 through 1997 is shown along with the rank among the 316 metropolitan areas. While all of the strongest economies have grown in population, only seven of the top 25 were also ranked in the highest 25 areas for population growth rate. There is an assumption by some that an area that is growing rapidly in population must have a strong economy. This is simply not the case. The chart on the following page shows the fastest 25 metropolitan areas ranked for population growth rate. While some of the areas have grown as a result of a strong economy, most have grown for the other two reasons, immigration and in- migration of retirees. 21 For the Florida areas, the population growth is directly attributed to retiree relocation. In fact, the Punta Gorda MSA (Charlotte County) has more than 30 percent of the population over the age of 65 (national average is 13 percent). The economy is based upon the retirement industry, which is growing in quantity as a result of the in-migration of more retirees. The areas located next to the border with Mexico have grown rapidly due to immigration. Note the economic strength rank for the economies that have grown due to retirement or immigration. Most are not strong economies. Of the 50 fastest growing metropolitan areas in the United States from 1988 to 1997, only 16 rank in the top 50 in economic strength. In fact, 16 of the fastest growing areas are ranked in the lower half of the 3 16 metropolitan areas in economic strength. While it is a characteristic of strong economies to grow in population, it is a characteristic of the weakest local economies not to grow and even decline in population. The chart on the following page shows the 25 weakest local economies in the United States, their population growth rate, and their population rank among the 316 areas. The Yuma, Arizona, area is the only one that has had brisk population growth. This is due to rapid immigration from Mexico to supply labor for the farm industry. 22 Of the 50 weakest economies, only eight had a population growth rate greater than the national average and 20 areas lost population. To control or stop population growth, some communities have adopted the philosophy that if you make new development more expensive, fewer people will move to the area. Unfortunately, extremes in this practice can lead directly to the decline of the economy. By increasing rules, requiring land set-asides, and extending the time period for approvals, the first two site selection criteria are immediately affected - costs and time - which makes the area less appealing for existing companies, causing them to leave, and eliminates consideration by new companies. For communities that are growing as a result of foreign immigration, the United States government must change immigration policy to stop the growth. For areas that are growing as result of the in-migration of retirees, the area must make it less desirable for people to move there. For areas that are growing as result of a strong economy, they must work to cause economic decline Aside from immigration policy, the steps necessary to stop or contain population growth are undesirable. Therefore communities should embrace an increase in their population and enjoy the benefits of having a desirable place to live and a strong economy. 23 About the author William H. Fruth is the president of POLICOM Corporation, an independent economics research firm located in Jupiter, Florida, which specializes in studying the dynamics of local economies. He has personally evaluated more than 400 local economies in the United States and provides presentations and workshops for state associations and local communities on the condition of their respective economies. During the last two years, he has given more than 70 presentations to communities and state associations in 21 states on the condition of their respective economies. Through his analysis, he determines if the economy is growing or declining, what is causing this to happen, and what can be done to improve the situation. He is the author of the book, WHERE THE MONEY IS.. . . America ’s Strongest Local Economies, which provides insight as to why local economies grow or decline, and has written numerous articles for newspapers and trade magazines regarding the economy. He is a nationally recognized leader in the field of geographic economics and has extensive experience in economic development. From 1988 to 1995, Fruth served as vice president of a major industrial land development company, directing the development and marketing of a 500-acre corporate park in the West Palm Beach, Florida, area. Prior to that, he was president of the Business Development Board of Palm Beach County and during that tenure was named Florida’s Economic Development Professional of the Year in 1987. From 1980 to 1984, Fruth served in a full time capacity of mayor of Tiffin, Ohio, located in northwest portion of the state. During this time, he was named one of the “Five Outstanding Young Men in Ohio” and was heavily involved in economic and community development, both locally and statewide. 4 1114 1-11 September - 2001 Economic Impact Upon Pinellas County, Florida Of Reaching Physical Build-Out Prepared for the Office of Economic Development Pinellas County September - 2001 POLICOM Corporation Jupiter, FL 33477 Phone (561) 744-8187 Fax (561) 743-4048 www.policom.com 4300 S US HWY 1 STE 203-301 Summary: Economic Impact Upon Pinellas County of Reaching Physical Build- Ou t Pinellas County Economy - Pinellas County, Florida is one of four component counties of the Tampa- St. Petersburg-Clearwater, FL metropolitan area. The metropolitan area is ranked 70th among the 3 18 metropolitan areas for “economic strength” by POLICOM in its 2001 study. The county’s economy is extremely well diversified and has been growing in size and quality for many years. Size of the Economy - Employment and earnings growth for the county, since 1980, has been faster than a vast majority of the metropolitan areas. Growth in the size of the economy has been comparable to the ten strongest metropolitan areas in the United States since 1970. Quality of the Economy - The quality of the county’s economy has improved significantly over the years. Growth of the average annual earnings per worker (AEPW) has exceeded inflation each year since 1991. The percentage the county’s AEPW is of the state of Florida’s AEPW has increased each of the last eleven years. Growth in the inflation factored AEPW follows a path similar to the ten strongest local economies. From 1997 to 1999, however, the percentage Pinellas County’s AEPW is of the national AEPW declined. Components of the Economy - The “retirement” industry is the largest economic contributor (primary industry) of any single industry in the county as Government Transfers for retirement age individuals account for approximately 30% of the “imported” money to the area. However, the county has numerous economic contributors, most of which include high- wage employers. Manufacturing is the second biggest contributory and includes instruments, electronic equipment, publishing, and industrial machinery. The finance and insurance sector, wholesale trade, and computer software development and programming are all important to the economy. Unique Economy - Approximately 23% of the population of Pinellas County is over the age of 65. The national average is approximately 12%. Economies, which are heavily dominated by the “retirement” industry, typically grow only if there is in-migration of more people and typically have a gradual decline in the quality of the economy. Charlotte County, Florida is a prototype retirement based economy. Having no other significant contributory industry aside from retirement, it has grown rapidly in size as a result of an increase in population. The quality of the economy has been on decline for many years and the AEPW for the county is the 2nd lowest among the 3 18 metropolitan areas in the nation. Pinellas County has a very large industrial sector coexisting with a large retirement age population. This is a unique situation. One of the benefits is the residential sector in Pinellas County pays a significantly lower share of locally levied property taxes than the residents of Charlotte County, which does not have an industrial sector. Future Economy - Economic projections, based upon the history of the county’s economic growth and the nature of the area’s industry, have been created. They show the county should, under normal circumstances, have continued, rapid growth in both the size and the quality of the economy. However, the projections cannot come to reality as the Pinellas County is approaching and will soon reach physical Build-Out. This is the condition when, for practical purposes, there is no more Greenfield land upon which new companies can locate or existing companies expand. Affect of Build-Out on Local Economies - When a city or a county reaches Build-Out, new companies cannot locate in the area. As a result, economic growth begins to slow. Existing companies, which need to expand, have no place to build in the area and are forced to leave. As a result, the economy begins to decline. As time goes by, existing industrial facilities begin to deteriorate, finally reaching a point when they are abandoned, causing more companies to leave the area, accelerating economic decline. Economies In Which Build-Out Has Occurred- Most cities and many counties in the oldest parts of our country have reached a Build-Out situation. Build-Out occurs first in areas, which are small geographically, have had rapid growth, and are the oldest. Pinellas County will likely become the first county in Florida to reach Build-Out. Typically, areas, which reach Build-Out, suffer gradual economic decline. Lucas County, Ohio - The major component county of the Toledo, OH metropolitan area (ranked 16gfh for economic strength), Lucas County reached Build-Out at least 25 years ago. During the las? 20 years, the county lost approximately 22,500 manufacturing jobs and had no net gain in wholesale-distribution, as a result of not having Greenfield parcels available. Additionally, the county lost population during this period. However, the counties, which surround Lucas County, increased in population and gained 11,000 manufacturing jobs and 29,000 wholesale-distribution jobs. Greenfield parcels were available in these counties. Today, there are hundreds of thousands of square feet of abandoned manufacturing space in Lucas County. Denver County, Colorado - The central component county for the Denver metropolitan area (ranked 2”d in economic strength), Denver County reached Build-Out at least 20 years ago. During the last 20 years, the county lost population and had a mild increase in the number of new jobs. The quality of the economy improved significantly, as most of the new jobs created were high-wage positions. There has been significant economic growth in the “Greenfield” counties, which surround Denver County. Problems relating to the deterioration or abandonment of aged structures are pervasive in Denver County. To help cure this problem, the county has identified almost 25,000 acres as an enterprise zone. Impact Upon Pinellas County of Reaching Build-Out - Pinellas County will likely reach practical Build-Out within six years. The impact of presently aging facilities in the oldest parts of the county combined with the affects of Build-Out will cause growth in the size of the economy to stall by 2015 and the quality of the economy to begin to decline the same year. What Can Pinellas County Do to Prevent a Reduction in the Quality of the Economy? - Leaders in Pinellas County have the advantage they can see the historical impact upon an economy when Build-Out occurs. As a result, they can begin programs now, which can forestall or even prevent some of the negative aspects of Build-Out. Economic Development Program - The area should implement an aggressive, well financed Existing Industry Program which will help retain and cause the expansion of existing, high-wage contributory employers. Prevent Facility Deterioration and Abandonment - The County should create financial incentive packages for contributory employers which will encourage them to rehabilitate existing facilities or construct new facilities in Brownfield locations. About POLICOM - POLICOM Corporation is an independent economic research company, which specializes in analyzing local and state economies. Table of Contents Page Introduction .............................................................................................................. 2 Pinellas County Economy ........................................................................................ 3 Size of the Economy ............................................................................................. 3 Quality of the Economy ...................................................................................... 10 Components of the Economy .............................................................................. 14 Unique Economy .................................................................................................... 16 Charlotte County. Florida ................................................................................... 17 Future Economy ..................................................................................................... 22 Affect of Build-Out on Local Economies .............................................................. 27 Economies In Which Build-Out Has Occurred ..................................................... 32 Lucas County. Ohio ............................................................................................ 33 Denver County. Colorado ................................................................................... 36 Impact Upon Pinellas County of Reaching Build-Out ......................................... 42 What Can Pinellas County Do to Prevent a Reduction in the Quality of the Economy .............................................................................. 49 Economic Development Pro gram ....................................................................... 50 Prevent Facility Deterioration and Abandonment .............................................. 51 .. About POLICO M.. ................................................................................................. 55 Page 1 Introduction An individual or business is most affected by the economic condition in closest proximity to where the individual lives or the business is located. The economic growth of the local economy typically determines the quality of life for the individual or the success of the business. A local economy will grow and expand, shrink and decline, in direct proportion to the amount of money which is flowing into the area as a result of the “primary or contributory industries.” Primary industries are those which cause money to enter a local economy. Consumptive industries are those which utilize this money and cause the wealth to leave the local economy. L There are many things, which affect the success of the primary industries on a statewide or county level. Some of these are taxation, regulatory climate, demographic composition of the populace, the skill level of the labor market, and many more. One of the most important issues, which influence the primary industries, is the availability of land and/or buildings, which are utilized to perform their function. Pinellas County, Florida is a relatively small county geographically. For the last 40 years it has enjoyed rapid growth not only in population but also in the size and quality of its economy. However, the county is approaching a condition when there will be, for practical purposes, little land available for new development, The county will be, for practical purposes, “built out.” The purpose of this study is to examine the economic impact of such a condition upon the Pinellas County economy. The study will include reviewing the historic and present day condition of the economy, determining how it compares to the rest of the nation, what is driving it, and where it is heading. Communities, which have reached a built out condition, will be examined to determine the economic affect of such a state. The economic implications for Pinellas County will be discussed and projections will be made as to the future condition of the economy. In order to complete this study, POLICOM prepared a Historical, Comparative Economic Analysis for Pinellas Cow@. Reference is made throughout this study to data, which is contained in that analysis, Page 2 Pinellas County Economy Pinellas County, Florida is one of four component counties of the Tampa-St. PetersburgCleanvater, FL metropolitan area. The metropolitan area is ranked 70fh among the 3 18 metropolitan areas for “economic strength” by POLICOM in its 2001 study. Annually POLICOM evaluates all 3 18 metropolitan areas2, measuring the growth and stability of eighteen economic factors over the most recent 25- year period. The rankings are a measure of how consistent the economy grew in size and quality over an extended period of time. I Hillsborough, Pasco, and Hernando Counties comprise the balance of the metropolitan area. Employment and earnings data is based upon the geographic location of the job. Individuals might live in one county in the metropolitan area but work in another. The Pinellas County economy is extremely well diversified and has been growing in both size ad quality for many years, especially the five-year period from 1995 to 1999. Many people who work in Pinellas County however live in other counties. Size of the Economy Two measures of how a local economy grows in size are total Earnings and total Employment. Earnings are all the wages and salaries paid and the profits of proprietors located within the county. Employment is the number of wage and salaried workers and the number of proprietors in the county. The growth of each is an indication of the increase in the overall volume of the economy. To measure the growth in size, the average annual percentage increase (AAI) for both Earnings and Employment was calculated for Pinellas County over three time periods: 1) the last five years (1995- 1999), 2) the last ten years (1990-1999) and the previous ten years (1980-1989). The AAI for each time period was ranked against the 3 18 metropolitan areas for comparison purposes. ’ Annually POLICOM ranks all metropolitan areas for “economic strength.” A complete list of all the areas can be found in Section 4 of the Historical, Comparative Economic Analysis for Pinellas County or by going to www.policom.com. ’ As of June 2001, there are 3 18 metropolitan areas in the United States. The Office of Management and Budget defines metropolitan areas, which are basically determined by commuting patterns. For comparative growth rates, POLICOM will compare Pinellas County’s data to the 3 18 metropolitan areas as if it were, itself, a defined area. Page 3 ~~ The following chart shows the result^.^ Earnings-All Workers 1999-1995 USA Pinellas County 1999-1990 USA Pinellas County 1989-1980 USA Pinellas County Employment-All Workers 1999-1995 USA Pinellas County 1999-1990 USA Pinellas County 1989-1980 USA Pinellas County 5.98% 7.24% 35 5.49% 6.30% 74 7.58% 9.30% 54 2.38% 3.58% 35 891 Rank 1.79% 2.30% 119 1.95% 3.86% 37 .I Note the county had growth rates easily exceeding the nation for each of the time periods. Also note the variance in both the growth rate and the overall ranking between the last five years and the last ten years. From 1990 to 1994 the area suffered as a result of the national recession. However, it quickly responded when the recession ended.4 Unless otherwise noted, the economic data used in this study is published by the Bureau of Economic Analysis, U.S. Department of Commerce. Known as Region Economic Information Systems (REIS) data, it is the most comprehensive and authoritative database in the United States. Historical, Comparative Economic Analysis for Pinellas County. Growth data for 11 8 economic elements for three time periods and their comparative ranking appear in Section 3 of the Page 4 The growth in the size of the economy is visually shown by the following graphs. To visually compare areas graphically, the annual percentage increase was calculated and then multiplied by a common factor (in this case 1000). The “factoring” enables direct visual comparisons among areas.5 The first graph shows the annual factored growth of Employment, from 1970 to 1999, for Pinellas County, the State of Florida, and the nation. Employment Factored :+..IIII -m111 lSUU won 15uu irnn Note the growth rate of total employment for Pinellas virtually mirrors that of Florida and has been considerably more brisk than the nation as a whole. Note also the significant dips in employment growth for both Pinellas and Florida during the recessions of 1973-75 and 1989-92. The area withstood the national recession between 1 98 1 - 83. Since Pinellas is a “local” economy, not a state or nation, it is appropriate to compare its growth to other local economies. The following graph compares the factored growth in Employment to the ten strongest and ten weakest metropolitan area economies in the nation. These economies were identified by POLICOM in its national ranking for economy strength. The data for each was calculated, factored, and then averaged to create the following graph. For a more detailed discussion regarding Factoring data, please see Section 2 - Page 1 of the Historical, Comparative Economic Analysis for Pinellas County. Page 5 The ten strongest areas have had rapid, consistent growth in the size and quality of their economies for an extended period of time. The weakest economies have been extremely inconsistent and or have been on volatile decline for an extended period of time. The ten strongest and weakest areas include the following metropolitan areas: Ten Strongest Ten Weake st 1 2 3 4 5 6 7 8 9 10 Austin, TX Denver, CO Atlanta, GA Seattle, WA Salt Lake City, UT Raleigh-Durham, NC Dallas, TX Fort Collins, CO San Antonio, TX Madison, WI 3 18 Odessa-Midland, TX 3 17 Casper, WY 316 Yuma,AZ 315 Pine Bluff, AR 3 14 Steubenville OH 313 Houma, LA 312 Enid,OK 3 1 1 Cumberland, MD-W V 3 10 Wichita Falls, TX 309 Beaumont, TX The following graph compares the factored growth in employment. Employment Factored 71 73 75 77 79 81 K\ 8s 81 89 91 93 99 97 99 Note how Pinellas County grew in size relative to employment at a rate faster than the ten strongest areas until 1990 when the area lost employment due to the recession. After the recession, job growth Page 6 resumed at a rate almost as fast as the ten strongest areas. Notice the lack of relative job growth in the ten weakest economies. In some of them, there are fewer people working today than in 1980. The following graphs compare the growth in the size of the economy based upon total earnings. Prior to factoring, the total earnings for each area were adjusted for inflation. The value of the earnings for each year was "brought to" the value of the 1999-dollar to provide a more relevant comparison. After adjusting for inflation, the percentage increases were factored for direct comparison. CPI Earnings Factored 4~llll I 0 Pincliis 4.. Florida USA I While employment growth for Pinellas County was mildly slower than Florida for the last ten years, its growth in inflation adjusted earnings exceeded the state. Page 7 The county's growth was very comparable to the ten strongest areas. Note the size of the economy for the ten weakest areas, after adjusting for inflation, is smaller than in 1980. CPI Earnings Factored J 1p' P b 71 73 75 77 79 81 83 8.5 07 R9 91 93 95 97 99 Pinclias 4.. Strongest Wcekcst Page 8 While the size of the economy has grown extremely fast, the overall population growth, when compared to the rest of the nation, has been relatively slow. From 1990 to 1999, the population in Pinellas County grew at an average annual rate of .44% which ranked 228’h among the 3 18 metropolitan areas and less than half the rate for the nation of 1 .OO%. The graph below shows the factored relationship between population growth and the growth of earnings and employment. The economy has grown as a result of the creation of new jobs and not the result of the in-migration of people. .- Pi nellas Nlllll u)lllI wuu ulnn I*UU nl I 71 73 75 71 79 81 83 85 81 M 91 93 95 97 99 e Population Ma*, Earnings Employmcnt Overall, when measured by the growth in total employment and earnings, the Pinellas County economy has grown at a rate comparable to the strongest economies in the United States, even though it has had very slow growth in it population. I Page 9 Quality of the Economy One of the best means to measure the ‘Quality” of a local economy is to examine the growth in the Annual Earnings Per Worker (AEPW). The annual earnings by people in an area, and respective growth, establishes the level of their economic “quality of life.” How much money they earn each year determines the quality of their of housing, the food they eat, the amount of taxes they can pay, and the size of their savings or retirement account. Earl Nightingale, the famous writer and philosopher, was fond of saying, “there is nothing mole important than money.. . for those things for which money is intended.” Since the amount of money people are paid each year, for the vast majority of the people, determines their lifestyle, the annual earnings per worker will be examined thoroughly for the area to measure the quality of the economy. The growth in AEPW will be examined three ways: 1) the actual growth pattern which is adjusted for inflation fiom 1970 to 1999,2) the percentage the actual AEPW is of the state and nation, and 3) how the growth pattern compares to the strongest and weakest economies in the nation. The first graph shows the actual AEPW for Pinellas County along with an inflation adjusted AEPW. The AEPW for each year was adjusted to the value of the 1999-dollar. The actual AEPW grew steadily since 1970. Most importantly, after adjusting for inflation, the inflation adjusted AEPW has grown at a rate fastest than inflation for most years since 1980. This is not the case in a vast majority of the local economies in the United States. In most local economies and the nation as a whole, wage increases did not keep pace with inflation for a most of the last twenty years. Relative to inflation, the quality of the Pinellas County economy has improved. Page 10 Pi ne1 las 11111111 I .- I u11m n 71 73 75 77 79 81 83 85 87 I19 91 93 95 97 99 e AEPW 4.. CPI-AEPW Another means to measure relative improvement in the AEPW is to determine if the actual AEPW has gained or lost relative to the nation or state. This is done by calculating the percentage the Pinellas County actual AEPW is of the state and the USA. For each year, the AEPW was divided by the AEPW for the state and the nation. As an example, if the area’s AEPW for 1999 was $25,000 and the state’s AEPW was $26,000, the percentage the area’s AEPW of the state’s AEPW would be 96%. By doing this calculation for all of the years, a pattern or trend can be determined. The question is: “Has the quality of the economy gained or lost versus the state or nation. If, in one year, the area’s AEPW was 90% of the state’s AEPW, and the next year it was 92%, the area gained relative to the state. However, if the following year the area’s AEPW was 88% of the state, then it did not improve as much as the state. The following graph shows the percentage the Pinellas County AEPW was of Florida and the USA since 1970. Page 11 Pi ne I las .I. As you can see, the Pinellas AEPW gained against the state of Florida for twelve of the last thirteen years. In 1988, the Pinellas AEPW was 92% of the state average and by 1999 climbed to 99%. The county also gained against the national average until 1998 when it declined for two straight years. Overall, the quality of the economy improved better than the state or the nation over the last ten years. The next visual measure of the growth of the quality of the economy is the CPI-Factored-AEPW. The AEPW has been adjusted to the value ofthe 1999 and the percentage increase for each year is then multiplied by a common factor. This exercise measures how the quality of the economy has improved relative to the economy itself If the line goes up, the quality of the economy improved fiom the previous year. The following graph compares the CPI-Factored-AEPW for Pinellas County to the Ten Strongest and Ten Weakest local economies. Page 12 CPI Factored AEPW 121111 111111 JOUU 9uu snn *** ** ** ** ~~ 71 73 75 71 I9 PI 83 8.5 87 89 91 93 95 97 99 I Pincllas Strongcst Wcakcst I .L From the above graph you can see the quality of the Pinellas County economy has improve significantly over its level in 1970. The rate of improvement from 1987 to 1997 was as good as the Ten Strongest local economies. Note how the level of the quality of the economies of the Ten Weakest areas is far below that in 1970. Overall, the growth in the quality of the Pinellas County economy has been extremely good and has been comparable to some of the strongest local economies in the United States.6 For a more complete review to the comparative growth in the size and the quality of the economy, please refer to Section 2 of the Historical, Comparative Economic Analysis for Pinellas County. Page 13 Components of the Economy A local economy will grow or decline in size and quality in direct proportion to the success of it “Primary Industries.” Primary or contributory industries are those which import money to a local economy. This imported money circulates and flows fkom person to person, business to business, until it is filly consumed and leaves the local ecommy. The success of most service and retail business and a vast majority of the jobs in a local area are dependent upon this flow. Nationally, the most important primary industry majority of the local economies is manufacturing. a The size of a local economy will grow in direct proportion to the amount of money entering the area year after year. The reactive-consumptive businesses will grow, or decline, based upon this flow. The quality of a local economy is dependent upon the wage level paid within or as a result of the primary industries. The “level” of a local economy (average area wage) will approach but cannot exceed the wages paid within the primary industries. POLICOM has developed formulas, which estimate the source and the amount of primary or contributory earnings by workers in each industry and other major sources of money flowing into an economy. The formulas consider certain norms in each industry and are designed to provide a reasonable estimate as to the contributory impact each has on the local economy. These estimates do not consider ancillary spending by a company, such as office supplies, printing, and taxes, but only its payroll. For a more detailed discussion on Primary Industries, please see Section 1 of the Historical, Comparative Economic Analysis for Pinellas County. I Page 14 The following graph shows the sources of the initial flow of money into Pinellas County from 1970 to 1999 by industry. Pin ellas Primary Earnings (000) From the graph above you can see Pinellas County has multiple contributory industries. This is a characteristic of a strong economy. Weak economies are typically dependent upon one or two primary industries. Net imported wages in “manufacturing” is the single largest source of imported money. However, the “retirement industry” is the most dominant economic contributor to economy (approximate 30% of the imported money). The retirement industry adds money to the economy by way of private pension programs (not able to provide estimate due to lack of data) and government transfers or entitlement programs. Government transfers for retirement “Ret Tran” (social security) and healthcare “Med Tran” (Medicare) accounted for more than $2 billion of contributory money in 1999. However, the total net gain of government transfers has been declining. (The contributory amount of government transfers is based upon the net gain of money sent to the area for the programs and the money extracted by way of payroll taxes.) Page 15 _____~_____ ~ Manufacturing is growing as an industry and is well diversified. It includes instruments, electronic equipment, publishing, and industrial machinery. Additionally, the finance and insurance sector is a strong contributor along with wholesale trade. These industrial sectors account for thousands of high- wage jobs and hundreds of millions of imported dollars. One of the most important and fastest growing contributors is “Business Services.” Typically this sector is a reactive, dependent industry including office maintenance, advertising agencies, and temporary worker services. However, “buried” in the data for this sector is “computer programming and software development (SIC 737). This sector has been growing rapidly in the county and is contributory - in nature. In 1999 there were more than 4,000 people employed in SIC 737 earning on average $52,500 per year. The health care industry has a large presence in the county, principally as a result of the high presence of retirement age individuals. Medicare is one of the main sources of funding for this service. However, in addition to general health care, which is a dependent industry, there is a large presence of medical research and laboratory testing, which is contributory. Overall, as a result of having multiple primary industries, the Pinellas County economy is less susceptive to periodic national recessions. Unique Economy As previously mentioned, the “retirement industry” is the single largest contributory industry in Pinellas County. According to the 2000 census, approximately 23% of the county’s population are over the age of 65. This is greater than the Florida average of 18% and almost twice the national average of 12%. The fact the county has such a strong, growing economy with such a high percentage of retirement age individuals living in the area is extremely unusual and unique. To demonstrate the importance of this unique situation, it is important to first examine the nature of the “retirement” indmtry. The concept of economies being based upon the “retirement” industry is relatively new when looking at the economic history of our nation. It was only after the interstate highway system was constructed, airports expanded, and southern states with warm climates were able to generate sufficient electric Page 16 l?asw power to support “air conditioning systems” that the older population began to leave their northern homes to spend their golden years in states like Florida and Arizona. Over the last ten to fifteen years, as a result of large retirement hnds and expanded social security and Medicare programs, virtually all individuals who desire to locate in another state for their retirement years can afford to do so. As a result, entire local economies have been created as a result of this in- migration. POLICOM has examined the economic impact upon a local economy of “retirement” as an industry .L and, for the purposes of this paper, will address two general characteristics. Local economies, which are dependent upon the “retirement” industry, 1) grow as a result of the in-migration of more people and 2) have a “quality” which is lackluster or even poor. The discussion which follows regarding the retirement industry in no manner suggests anything derogatory toward the senior citizens who live in our country, as they are today and have been in the past a valuable contributor and resource for our socieq. The examination, which follows, is directed toward the measurable economic impact of the retirement sector as an economic industry. Typically the retirement industry promulgates the creation of low- wage retail and services jobs and there is rarely a major industrial component within the economy. Charlotte County, Florida One of the economic laboratories used by POLICOM to study the retirement industry is Charlotte County, Florida. Also known as the Punta Gorda metropolitan area., Charlotte County has the highest percentage of its population (35%) over the age of 65 of any metropolitan area, and possibly any county, in the United States. Additionally, there is a si&icant absence of any other primary industry as 85% of the contributory money is attributed to retirement transfers. The Charlotte County economy has grown very rapidly in size over the last twenty years. Its rate of job growth has been one of the fastest in the nation. From 1980 to 1989, employment grew at the annual Page 17 rate of 7.3%, the 2"d fastest rate among the metropolitan areas. From 1990 to 1999, jobs grew 3.8% per year, the 15th fastest rate. Growth rates in total earnings were comparable. 8 7~~1111 #Ill1 However, the size of the economy grew as a result of the in-migration of people and not an internal expansion. From 1980 to 1989, the population of the county grew 6.5% per year, the fastest rate in the country and from 1990 to 1999, it grew 2.8% per year, the 14th fastest rate. 4 4 4- The following graph shows the factored comparisons among population, employment, and inflation adjusted earnings growth. Note how the growth in the size of the economy parallels the growth .I in population. .si1111 40*1 wuu annn 71 73 75 71 79 01 83 8S 81 I19 91 9.3 95 97 99 [ 0 Population a= Earnings + Employment While the size of the economy has grown, the quality of the economy has not. From 1980 to 1989, annual earnings per worker (AEPW) grew at the annual rate of 5.1 %, below the national average and ranking 152nd. However, between 1990 and 1999, AEPW grew at the dismal rate of 2.3%, ranking 29gth among the 3 18 metropolitan areas. In 1999, the annual earnings per worker for Charlotte County was $22,592, the second lowest among the metropolitan areas. * Charlotte County comparative growth data for 1 18 items is included in Section 3 of the Historical, Comparative Economic Analysis of Pinellas County. Page 18 The low AEPW for the can be attributed to the absence of high- wage industries in the economy. In 1999, the high-wage manufacturing sector (3rd highest wages workforce, the third lowest percentage among the metropolitan areas. Additionally, the transportation and public utilities sector (2nd highest wages in the nation) made up 2.7% of the workforce (ranked 287*) and wholesale trade (4th highest in wages) composed 1.8% of the Charlotte County workforce, the eight lowest percentage. the nation) comprised only 2.6% of the The workforce is overwhelmingly dominated by the service and retail trade industries as a result of the spending of the retirement community. In 1999, retail trade composed 23% of the workforce, the 6th highest percentage among the 3 18 metropolitan areas. Nationally, wages paid in the retail sector are 54% of the national average wage. .- Services comprised 3 8% of the workforce in 1999, the 20th highest percentage. Nationally, wages paid in this industry are 91% of the national average. The services industry is dominated by the health services sector, which comprise 5 1 % of all services earnings, the 2 1 st highest percentage. Over the last twenty years, a preponderance of the jobs created in the Charlotte County economy have been in the low-wage service and retail sectors. The affect upon the “quality” of the economy can be visually seen by the graphs for percentage of state and national AEPW and the CPI-Factored- AEPW. Charlotte I 71 73 75 77 79 81 83 85 87 fN 91 33 3s 97 93 Page 19 Note how for almost twenty years the percentage the Charlotte County AEPW is of Florida and the nation has been on steady decline. In 1970, the Charlotte County AEPW was 95% of the state and 85% of the nation. By 1999, it had fallen to 75% and 66% respectively. Remember the lines for Pinellas County went “up” instead of down. The following graph compares the CPI-Factored-AEPW for Charlotte County to the ten strongest and .- ten weakest local economies. ltSll I zuu 1150 I1 1111 1Mfl 1411111 93U 9lW SSII snn CPI Factored AEPW 71 73 75 77 79 $1 %:I 8s 87 89 91 9-3 95 97 99 10. Charlotte Strongest + Wcakcst Note how the decline in quality and the overall level of the economy is comparable to the ten weakest economies, even though the county’s growth in size has been faster than the ten strongest areas. The discussion regarding “retirement” as an industry is provided since the issue is paramount to understanding the dynamics of the Pinellas County economy. POLICOM has examined hundreds of local economies in the United States and has not found another local economy, which has such a high percentage of retirement age individuals and such a large industrial component as Pinellas County. Page 20 The coexistence of such a dynamic industrial sector and the retirement community is unique. Typically areas with a high retirement age population were settled for that purpose and an industrial component has yet to be created. The benefits to the Pinellas County community of having a growing industrial sector, which employs high-wage earners, is significant for the following reasons: . The economy will be more stable, not as susceptible to periodic national recessions. With a large number of corporations in the area, contributions to civic and social programs are greater. The best and the brightest young people, who grow up in the county, will have quality career opportunities to return to after college. The quality of the housing stock will be high. The tax burden upon the residential sector needed to support local government is less. . The last benefit listed should not be underestimated. POLICOM reviewed the taxable valuation of real property for Pinellas County and Charlotte County. For 2001, in Charlotte County, improved residential real estate accounted for 72% of all real property taxes collected. This includes all single family homes, apartments, condominiums, mobile homes, and nursing homes. The balance of the property taxes was generated fi-om the industrial-commercia1 property, agricultural lands, and undeve loped residential and commercial land. In Pinellas County, however, improved residential real estate accounted for only 54% of all real property taxes paid. lo With the large industridcommercial component in the county, the residents living in Pinellas County pay a significantly smaller portion of the costs of local government and schools than those in Charlotte County, which has virtually no industrial sector. Data supplied by the Charlotte County Property Appraiser. lo Data supplied by the Pinellas County Property Appraiser. Page 2 1 Future Ecorzonzy POLICOM has created economic projections for Pinellas County beginning with the year 2001 to 2021. These projections are based upon national and state trends and the historical growth pattern for the county. When projecting an economy, the researcher typically takes into consideration the industrial composition of the local economy. As an example, if the economy is based solely upon an industry, which has been declining, such as textiles, then the economy is projected to decline. If the ecmomy is diversified and composed of industries, which are growing, the research will project the economy based upon the expected growth of these industries. As previously mentioned, the Pinellas County economy is multl. faceted and in composed of several industries which appear to have long- term growth potential. The following charts show tk results of the projections for each industry for employment, earnings, and annual earnings per worker. The average annual increase for two projected times periods is provided along with the average annual increase fiom 199 1 through 2000. l1 Employment Growth Project Project Annual Increase 1991-2000 2001-201 1 2012-2021 All Workers 2.5% 2.8% 1.4% Farm Ag Services Mining Construction Manufacturing Trans, Comm Wholesale Retail FIRE Services Federal Civilian Military State Local 0.0% 0.0% 0.0% 2.4% 1.3% 0.5% 0.0% 0.0% 0.0% 0.9% 1 .O% 0.5% 0.4% 0.8% 0.3% 4.2% 3.3% 1.3% 4.0% 2.9% 1.3% 0.0% 0.5% 0.3% 3.1% 3.3% 1.5% 4.7% 4.4% 2.0% -0.4% 0.2% 0.0% -1.9% -0.1% 0.0% 1.3% 0.9% 0.5% 1.1% 1.0% 0.5% '' Data for Farm and Mining is not included in the projections as these industries have an insignificant portion of the economy and data for each is unreliable as a result. Page 22 Earnings Growth Project Project Annual Increase 1991-2000 2001-201 1 2012-2021 All Workers 6.3% 6.9% 5.0% FXIll Ag Services Mining Construction Manufacturing Trans, Corn Wholesale Retail FIRE Services Federal Civilian Military State Local 0.0% 4.5% 0.0% 3.1% 3.0% 7.7% 9.3% 4.0% 8.9% 8.3% 4.5% 2.9% 5.8% 5.2% 0.0% 3.9% 0.0% 3.8% 4.7% 7.2% 6.8% 4.1% 8.3% 8.8% 3.7% 2.1% 3.2% 4.0% 0.0% 3.0% 0.0% 2.6% 3.0% 5.3% 4.5% 3.0% 6.8% 5.6% 3.0% 1.5% 2.3% 3.0% Earnings Per Worker Annual Increase 199 1 -2000 200 1-20 1 1 20 1 2-202 1 All Workers 3.8% 4.0% 3.5% Farm Ag Services Mining Construction Manufacturing Trans, Comm Wholesale Retail FIRE Services Federal Civilian Military State Local 0.0% 0.0% 1.4% 2.6% 0.0% 0.0% 3.1% 2.8% 2.9% 3.9% 3.9% 3.8% 5.2% 3.8% 4.2% 3.6% 6.6% 4.9% 3.4% 4.2% 3.7% 3.5% 4.7% 2.2% 3.9% 2.3% 3.5% 3.0% 0.0% 2.5% 0.0% 2.1% 2.7% 4.0% 3.2% 2.7% 5.2% 3.6% 3.0% 1.5% 1.7% 2.5% Page 23 ~ ~~ ~ Based upon these projections, the following graphs show the future factored employment growth, inflationadjusted earnings, and CPI- Adjusted- AEPW. Data, which appeared in the previous graphs (1 970- 1999), is included to show the historical trend. The previous graphs which used inflation adjusted data were based upon the actual inflation for each year. Beginning with 2000 and through 2021, inflation is estimated to be an average annual rate of 2.5%. The “future” value of earnings and AEPW is based upon this rate. The projected lines do not include interruptions for periodic recessions. However, typically after -. a recession there is a rapid recovery period. Employment Factored 70 74 78 82 86 90 94 98 2 6 1) 14 18 21 e 1870-2000 am Projcctions 1 Page 24 Earnings CPI Factored c #1ll11 .wuu wuu 1~1nll n 70 74 7% 82 $6 90 94 98 2 6 10 14 18 21 .I I 1970-2000 +*&? Projcctions I CPI Factored AEPW l~d111 I llUU 1VUU I ‘l111l ,..... 70 74 1% 82 $6 90 94 98 2 6 10 14 18 21 I 101 1910-2000 Projcctions I Page 25 ~ ~~ The projections provide for a continuation of the rapid economic growth, which has been prevalent in the county for almost twenty years. There are several economies in the United States, which have had long term economic growth similar to these projections. However, Pinellas County cannot sustain these projections since it does not have sufficient vacant, undeveloped land within the boundaries of the county to accommodate the physical structures necessary to house the projected workforce. Pinellas County is rapidly approaching “physical Build-Out” and the result could cause a decline in the economy. The following chart shows the actual number of workers in the economy for the projections and the gain fiom each time period. year: Johs 2021 885,276 113,829 201 1 771,447 203,843 2000 567,604 123,661 1990 443,943 126,114 1980 317,829 From 1980 to 2000, the area gained 249,775 new jobs. The projections provide for the creation of 3 17,672 more jobs fiom 2000 to 2021, a 56% increase over the 2000 level. This job increase will cause a significant demand for more facility space. Based upon 325 square feet of space per worker (low space requirement), it appears there will be a need for approximately 103,000,000 square feet of additional industrial, commercial, government, institutional, and retail space to accommodate the workforce. With a ratio of floor area to land of 30% (high for some uses, low for others), the new buildings will require at least 7,800 acres of usable land (excluding roadways, retention lakes, wetlands or green space set-asides). A simpler way to look at the space needs, for every two square feet of existing nonresidential floor space in the county, there will be a need for an additional one square foot by 202 1. The land necessary for the construction of the additional facilities to meet the projections does not exist in Pinellas County. Presently it is estimated there is only 1,500 acres of undeveloped industrial, commercial property, some of which will be lost to roadways and set-asides during development. Page 26 Iw&w Based upon current absorption rates, there appears to be a four to six year supply of improved industrial property remaining. Forecasting the Pinellas County economy must take into consideration the fact the area will not have sufficient land available for the projected economic growth Therefore, the preceding projections will not occur. Affect of “Build-Out ” on Local Economies. .I Build-Out for a community is the state where there is, for practical purposes, no undeveloped land available for construction. For the purpose of this paper, the undeveloped land shall be called a “Greenfield.” While there may be scattered in-fill parcels located in the area, practical Build-Out will be when there is not at least 100 contiguous acres of improved Greenfield land properly zoned for industrial use. Also, for the purpose of this paper, a “Brownfield” shall be considered improved land, which formerly was utilized for an industrial purpose and might be subject to pollution or contamination. The economy is affected when there is no longer nonresidential Greenfields available. At Build-Out, there is no longer a location for a new company to locate or an existing company to expand, stopping the growth of the area’s primary industries. Build-Out of a political subdivision occurs in direct proportion to the age of the political subdivision and the geographic size of the area. Municipalities Build-Out first as they are geographically restricted the most. The Build-Out of a municipality should concern the city leaders, but rarely is a concern of county government and community leaders as the economic growth flows over the city boundary into the unincorporated portion of the counfy. The Build-Out of a county does not concern state government leaders, as the economic growth spreads to other counties and the state still benefits. Page 27 ~- Build-Out occurs first in areas, which have the longest history, least land, and fastest growth. The northeastern portion of the United States was settled in the late 1600’s and has had 300 years to grow and expand. Virtually all municipalities is this part of the country have built-out as have many of the small counties. The mid-west portion of the nation (Northwest Territory) was settled in the late 1700’s and has had 200 years of population and economic growth. Many municipalities and some counties in this part of the country have reached Build-Out. California began rapid population ad economic growth in the mid- - 1800’s and many cities and some counties are built-out today. The condition of Build-Out, even in the northeast, is a relatively new condition when looking at the 300- year history of North America. The nation’s industrial expansion did not begin until the early 1900’s. During World War I1 and immediately thereafter in the 1950’s, the United States had its most rapid expansion in manufacturing, transportation, and population in its history. It was during the late 1940’s and through the early 1960’s that thousands of manufacturing plants were constructed in the industrial Northeast and Midwest. Florida, as with many southern states, is relatively young regarding population and economic growth. Most southern states were agrarian in nature until the late 1950’s and early 1960’s when the nation’s transportation network (interstate highway system and airports) and electric generating capacity (air conditioning) and were expanded, opening the southern part of the country to economic and population growth. Rapid economic growth did not begin until the late 1960’s in most southern states. Pinellas County will be the first Florida county to reach Build-Out. Due to its rapid population and economic growth for the last 40 years and its relatively small size, Greenfield availability will be severely limited within the next five years. This will have a significant negative impact upon the county’s economy for the following reasons. The quality of a local economy and its growth is dependent upon the flow of money into the area, which is generated by the business activity of its primary industries. The size of the economy is based principally upon the total volume of wages paid and the wage level determines the quality of the Page 28 economy. The consistency of a local economy is dependent upon having a variety of primary industries in the area. The Pinellas County economy has grown in both size and quality as a result of having a large number of high wage contributory businesses expand in and/or locate to the area. Economic development is the activity of encouraging contributory, primary businesses to expand in or locate in a community. During the community selection process by a company, which is considering a location for a new facility or the expansion of an existing facility, many factors relating to the costs of operation in an area are considered. These include local taxes, wage rates, utility costs, and many more. However, the ultimate act of the economic development, site selection process is a real estate transaction. .- A local economy will begin to decline when it reaches Build-Out 1) as a result of not having land upon which to construct new facilities and 2) as a result of the physical or technological economic deterioration of existing facilities utilized by the contributory businesses. The result of the first affect of Build-Out is obvious. If there is no land upon which to build a new facility and a suitable, vacant existing facility is not available, a company looking to locate to the area or an existing company looking to expand has no option other than seeking an existing building or a Greenfield site outside the county. Without new companies moving to the area, the economy will not grow. Existing companies leaving the area will cause a decline. The second affect is subtler than the first but over the long term will cause an almost unavoidable, gradual decline in the economy. For the purpose of this discussion, a “facility” is considered a building of some nature. It can be a warehouse, office structure, or factory. A “business” is one, which is “primary” in nature, that it imports money to the area by selling its products or services outside the economy. Each business, in order to produce its product or provide its service, must operate from a facility. The facility is the location in which the workers perform their tasks. Page 29 ~ ~~ A facility has a fite number of years of functional use. The ability of the business to conduct its affairs is dependent upon the hction and the condition of the facility. When the condition of the facility no longer meets the needs of the business, the business must 1) raze the exiting structure and build a new facility, 2) occupy another facility or 3) build a new facility in a Greenfield. There are two scenarios when a facility no long functions to meet the needs of a business. The first relates to the physical deterioration of the building. The hctional life of a building travels in stages, all related to the costhenefit of repairing and maintaining a building. Typically, but not always, the stages follow this pattern: - 9 1 - 10 years of life - A building is constructed for a business (for the sake of this discussion, a high- wage employer) and for the first ten years requires little maintenance and repair. . 1 1-20 years of life - During the ensuing ten years, repair costs increase and become a greater portion of the company’s budget. At the end of the 20th year, the business begins to question if it should continue operation in the present facility, anticipating growing maintenance and repair over the next ten years. At this point, some businesses elect to move to another location. The facility is sold or leased to another business, which can operate in a facility in need of repair. This business typically has a less sophisticated operation and will pay its workers less money. . 21-30 years of life - Significant repairs are needed at the end of the 30th year. Major roof problems now exist, electrical wiring is fiayed, floors are cracked, the exterior is weathered, and the structure has difficulty meeting existing fire codes. The business occupying the structure, in order to continue operation, must 1) expend massive amounts of money to rebuild the structure, 2) raze the structure and build a new facility, or 3) locate to another facility or build in a Greenfield. If the high wage employ still occupies the facility, it might invest in the structure due to it unique location. However, razing and constructing a new facility is rarely an option as it is typically more cost affective to construct in a Greenfield. If the low wage employer occupies the building, it will rarely invest in the building, as by the nature of the business it needs a low cost location. It will likely move to another location. Typically, one of two things will happen to the building. One, it will be sold or leased to an employer who can operate in a facility in disrepair. This employer, who is extremely cost conscience, will likely pay a wage at the lowest end of the scale. The second future for the building is to become abandoned. 30-40 years of life - At the end of the 4Ofh year, typically the structure is in such structural disrepair it is abandoned. Page 30 ~ ~-- There are certainly exceptions to this scenario as an owner might continuously reinvest in the facility, not allowing it to reach to point of abandonment. However, all buildings have a limited life and some day will have no usefulness. Through the stages of the life of the facility, as the structure got older, the business, which occupied it, pays lower wages. This causes a reduction in the size of the economy and a reduction in the quality of the economy. Upon abandonment, there is no money following into the economy as a result of activity in the structure. + The second scenario relates to the technological obsolescence of the facility. For some businesses, the facility itself is the major tool for the production of its product or service. As an example, for a chemical manufacturer, the facility is constructed in such a manner that it produces a product and the facility cannot be used for another purpose. The manufacturing process is integrated into the building. Specialty buildings are not uncommon. Today’s modem semi-conductor plant and even a facility where “software” is created have structural components included in the building design. Specialty buildings many times, however, have a shorter economic life span than a normal facility. Due to rapidly changing technology, the methodology used to create a product or service by a business is continuously being altered. In order to be competitive in the world marketplace, businesses have had to learn to do things “faster, cheaper, and better.” Businesses have therefore embraced technology and have incorporated it into their manufacturing processes and the production of their services. A modern manufacturing plant producing microprocessors built today has little resemblance to a facility constructed 20 years ago. A recently constructed automobile manufacturing plant employs more robots than it does people. New steal plants have 10 percent of the workers producing twice as much steal. Even a new multi-use office building includes telecommunication systems, climate controls, and elevator systems which, technologically, did not exist ten years ago. Page 3 1 A business, which is dependent upon a specialty building, will continue operation until the point the building reaches a state of technological obsolescence, at which time, the cost of producing their product or service is no longer competitive in the marketplace. The life span of some specialty buildings, as a result of today’s accelerated pace of technological change, can be as short as ten years. When the facility reaches technological obsolescence, the business will either raze and reconstruct the facility at the same location or construct a new facility in a Greenfield. It is rare an existing, vacant, modern specialty building exists for purchase by the company. Tearing down the existing facility is also usually not a suitable option. The business will loose production for likely at least a year during the tearing down, construction process. c The fbture of a specialty building, which has reached economic obsolescence, is usually bleak. Unless it can be cost effectively gutted and adapted for another use, many of these structures become abandoned and eventually torn down. If the building is torn down, a potential building site is created but these are usually considered “Brownfield” sites, possibly subject to pollution, and typically avoided. Therefore, as a result of reaching Build-Out, the economy of the area will likely begin to decline due to the gradual exodus of high- wage, contributory businesses. Economies in Which Build-Out Has Occurred To study the economic impact of reaching Build-Out and implications for Pinellas County, POLICOM has examined two county economies in which Build-Out has occurred. To provide a valid comparison to Pinellas County, the counties examined need to meet the following criteria: fl Be geographically in similar size to Pinellas County. Be the central or most populated county of a multi-county metropolitan area. fl Have reached a point of practical Build-Out. Page 32 POLICOM chose to examine Lucas County, Ohio and Denver County, Colorado as each meets the criteria. They also have contrasting economies. Pinellas Lucas Denver Population 921,482 455,054 554,636 Land Area - Sq. Miles 280 340 153 PersonsISq. Mile 3,291 1,338 3,625 Lucas County, Ohio c Lucas County is located in northwest Ohio along the Michigan border. It is one of three component counties of the Toledo, OH metropolitan area. Wood and Fulton Counties comprise the balance of the MSA. There is economic linkage with Monroe County, Michigan to the north. The metropolitan area is ranked 1 69‘h by POLICOM for economic strength. The City of Toledo includes approximately 70% of the county’s population and serves as the seat of government. Lucas County has had a long history of serving as the headquarters location of several Fortune 500 companies and has been supported by the manufacturing of automobiles, metal fabrication, and the glass industry. Lucas County reached practical Build-Out approximately 25 years ago. Economic growth in the county has been extremely slow for the last twenty years. The rate of growth in jobs, earnings, and annual earnings per worker was less than half the national average. l2 From 1979 to 1999, the county lost more than 22,500 manufacturing jobs. The size of the county’ s economy, based upon CPI Factored Earnings, is approximately what it was in 1979. Additionally, there are fewer people living in the county than in 1979. While many communities in Midwestern states (rust-belt area) suffered economic decline during the last twenty years, the overall Toledo metropolitan area had economic growth. l2 Growth rate comparisons for Lucas County for 118 items are included in Section 3 of the Historical, Comparative Economic Analysis for Pinellas County. Page 33 Wood County, to the south of Lucas County, for the last ten years had an annual job growth rate of 2.5%, the 94‘h fastest rate among the metropolitan areas. Manufacturing employment in Wood County additionally grew during the same period at the 28‘h fastest rate with an average annual increase of 2.7%. From 1979 to 1999, the county had a net gain of approximately 4,000 manufacturing jobs. Fulton County, to the west of Lucas County, increased in population, had job growth rates better than the national average, and increased manufacturing employment at the annual rate of 3.3%, the 17th fastest rate in the nation. The county, fiom 1979 to 1999 had a net gain of approximately 3,000 manufacturing jobs. .- Monroe County, Michigan, to the north of Lucas County, also had job growth rates much better than the national average for the last ten years and increased manufacturing employment 2.6% per year. From 1979 to 1999 the county gained approximately 4,000 new manufacturing jobs. During the time Lucas County lost 22,500 manufacturing jobs, the counties, which surround Lucas, gained 1 1,000 manufacturing jobs. Additionally, in 1999, Lucas County had the same number of jobs in the wholesale trade - distribution sector as it did in 1979. However, &om 1979 to 1999, the surrounding counties grew 29,000 jobs in this industry. While the general area was subject to national economic forces relating to being in a “rust-belt” area, one of the principle reasons for the decline of the Lucas County economy was Build-Out. As previously mentioned, the county had a long history of manufacturing. This industry began in the 1800’s, grew in the early 19OO’s, and rapidly grew during World War I1 and in tk 1950’s and 1960’s. The county reached practical Build-Out in approximately 1970. The stages of facility deterioration began in the 1960’s and accelerated in the 1970’s. Wood, Fulton, and Monroe Counties, during this time and still presently, offered Greenfields for industrial expansion. Page 34 ~ ~~ Economic development officials representing Lucas County and the City of Toledo advised POLICOM that: . . There is presently no Greenfield industrial land available in the county. There are hundreds of thousands of square feet of abandoned manufacturing space in the county. The affect of reaching Build-Out upon Lucas County has been significant. While economic growth has been slower than most areas in the nation for the metropolitan area as a whole, virtually all of the economic growth and population growth has occurred in the Greenfield counties, which border Lucas. C. Reacting to the growing number of abandoned buildings, both industrial and residential, the City of Toledo, approximately four years ago, embarked on a program to cause their demolition. Approximately 300 structures per year, 20-30 of them commercial and industrial, have been razed since, creating scattered Brownfield sites in the community. Even so, there presently are no large locations for industrial users to locate which are not Brownfield in nature. However, large Brownfield locations can be utilized. Lucas County has been the home of the Willys-Jeep Corporation since prior to World War I1 and various models of the Jeep vehicle have been manufactured in the county ever since. In 1997, Chrysler- Jeep announced it was looking for a site for a new manufacturing facility. To prevent the loss of another manufacturer, Lucas County and the City of Toledo created an incentive program for Chrysler-Jeep of approximately $80 million in value. Included in the package was a 100-acre Brownfield site, which was a former landfill. The available acreage at the landfill was insufficient and the City and County acquired aged, yet occupied, commercial buildings, which were tom down to, provide sufficient land for the facility. The facility is now constructed and the new Jeep Liberty is now being manufactured at this facility. The process of reclaiming industrial locations through demolition came very late after the county reached Build-Out. As a result, the county did not have lands available for industrial expansion. Should the area maintain its pace of creating Brownfield locations and if the “stigma” relating to building at a Brownfield location can be overcome, the county will have opportunity in the future to begin to grow economically. Page 35 Denver County, Colorado Denver County is located in northcentral portion of Colorado. It is one of five component counties of the Denver, CO metropolitan area. Adams, Arapahoe, Douglas, and Jefferson Counties comprise the balance of the MSA. The metropolitan area is one of the strongest economies in the nation and is ranked 2nd by POLICOM among the 3 18 metropolitan areas for economic strength. The City of Denver includes 100% of the area and population of Denver County. Denver Coujty was settled in the mid- 1800's and reached practical Build-Out at least 25 years ago. The Denver metropolitan area is one of the most dynamic, fastest growing economies in the nation. Over the last ten years, the population of the metropolitan area grew at twice the national rate (ranked 44*). Annual job growth increased 3.2% per year, the 35fh fastest rate in the country. I3 Annual earnings per worker (AEPW) increased at the annual rate of 4.8%, the lofh best among the metropolitan areas. The economy has been driven by the growth of the communications, insurance and finance, manufacturing, and transportation industries. However, while the Denver metropolitan area has grown rapidly, Denver County has not relative to population and total employment. As a result of Build-Out, the population of Denver County has actually declined since 1970. Job growth increased between 1990 and 1999 at the annual rate of 1.6%, slower than the national average and ranking 191~ among the metropolitan areas. While the size of the Denver County economy has grown little over the last 20 years as measured by job growth, it has grown in volume as measured by total earnings. As a result, the quality of the economy has improved significantly over the last ten years. l3 Growth rate comparisons for Denver County for 118 items are included in Section 3 of the Historical, Comparative Economic Analysis for Pinellas County. Page 36 EHsw The total amount of earnings by those who work in the county increased at the annual rate of 6.7% from 1990 to 1999, much faster than the national average and the 44th fastest rate in the nation. From 1990 to 1999, annual earnings per worker increased 5% per year, the 7‘h best rate in the country. Since there was slow growth in the number ofjobs but rapid growth in earnings, a “shift” in the type of employment occurred during this period of time. Lower paying jobs were replaced by higher paying jobs. Job growth did not stall in Denver County as it did in Lucas County. Many of the facilities, which presently house the new workers, are “vertical” in nature, as several large employers presently operate in high-rise office structures which have been constructed over the last ten years. Growth in vertical industries such as software development, telecommunications, finance, and insurance has improved the quality of the economy. A However, the problem of facility obsolescence, both industrial and residential, is very present in Denver County. To cope with the problems of aging industrial and residential areas, Denver County, created a large “enterprise zone” in 1986. The enterprise zone encompasses approximately 25,000 acres, which is about ?4 of the entire county. Aged industrial areas, which are near interstate exits, are being targeted for industrial reuse. Aged industrial, commercial and/or residential areas not located near interstate exits and do not have the necessary services for industrial reuse are being targeted for residential and mixed resident-commercial reuse. Two large tracts of land are presently being redeveloped which will provide the county a future opportunity for industrial expansion. These include the 3,000-acre former Lowery Air Force Base and the former Stapleton Airport (4,700 acres). Each of these areas need significant “cleanup” and are considered Brownfields at this time. The county now offers loans, grants, and nine different tax credits to companies, which locate in the enterprise zone. One of the tax credits highlights the problem of facility obsolescence, as a company can receive a tax credit for “25% of the cost of rehabilitating a facility which is at least 20 years old and has been abandoned for at least two years.” Page 3 7 Economic development representatives told POLICOM that while they are encouraged by the participation in the enterprise zone programs, it is very difficult to compete with the Greenfield opportunities offered in neighboring counties. The cost of rehabilitating existing industrial areas is very high, and while they have been successful, admit it would have been very difficult if the overall size of the area’s economy had not been growing at such a rapid rate and the demand for industrial space was not so high. To visually see the impact of reaching Build-Out by Lucas and Denver Counties, the factored growth in population, employment, total earnings, and AEPW was calculated in the same manner as it was for Pinellas County. The first graph shows the population factors for the three counties along with the ten strongest local economies. Population Facto red UllW L mn - 20811 - V ltllll J6UU 14uu 1 xuu The population growth line for Lucas and Denver Counties are virtually atop each other as neither has grown in population since 1970. The population growth rate for the ten strongest areas has increased steadily since 1970. Note the growth in population in Pinellas County stalled around 1990, which is the first indication the county is reaching Build-Out. Page 38 The following chart shows the factored growth in total jobs. Em playmen t Factored :~551111 1 SlUU I llllll 111111 As previously mentioned, due to limitations in available land and facilities, neither Lucas nor Denver County grew in total employment when compared to the ten strongest economies. Pinellas County grew rapidly in total employment as, during this period of time, it still had Greenfields available for industrial growth. Page 39 ~~ ~~ The following chart shows the inflation factored total earnings for each area. u11111 .u;on JZLll Bllll L X X 4 -- *, x* A - K+ 24uu UlUU 16UU 111111 1 I 71 73 75 71 79 81 83 #S 87 89 91 93 95 97 93 Lucas County has shown little if any growth in earnings. During the last ten years, as a result of shifting to higher wage jobs, the volume of earnings increased significantly in Denver County. However, the growth in earnings occurs in just the last ten of the preceding 30 years shown on the chart. Once again, Pinellas County is growing at the same rate as the ten strongest economies. Page 40 ~ ~~ The following graph shows the growth in quality as measured by the inflation adjusted - factored annual earnings per worker. CPI Factored AEPW 1.41111 llbll llUU WUU 9nn The quality of the Lucas County economy has declined over the last 30 years and is at a level below that of 1970. Note how, even though overall growth has been slow, Denver County improved significantly in quality. Also note how the growth in quality in Pinellas County is beginning to slow. Page 4 1 ~~~ Impact Upon Pinellas County of Reaching Build-Out As previously mentioned, there are approximately 1,500 acres of useable industriahommercial Greenfield land available in Pinellas County. Among these acres, only about 900 could be used by a large company (100-acre parcel). At the present rate of absorption, the county should reach practical Build-Out by the year 2006. By 2006, there will still be land available, as several scattered green parcels will still exist. The impact of Build-Out will begin. (The exact year in which Build-Out will occur is very difficult to predict. However, it will occur. Therefore, the following economic projections will essentially begin when Build-Out actually occurs.) Additionally, there are industrial and commercial areas in the county which have reached an “age” where the stages of physical obsolescence are present. The transition from high- wage employer to low wage employer to lowest-wage employer to abandonment is occurring. These areas are those which were developed earliest in the history of the county. The economy will not come to a grinding halt as a result of reaching Build-Out. The affect of Build-Out will be gradual. POLICOM anticipates the economic growth scenario for the county to follow this path, subject to national recessions. 2001-2006 - Existing Greenfields will continue to be developed by quality companies. A transition to lower wage workers and abandonment will continue in the oldest areas in the county, causing a mild dilution in the quality of the economy. The overall taxable value of industriakommercial property will increase. 2007-201 1 - Reaching practical Build-Out, few new companies will be moving to the area. Employment growth rates will be significantly reduced. The oldest areas will be in significant disrepair. Facilities constructed in 1990 are beginning the stage when the quality of their economic impact is declining (lower wage users). Some specialty buildings are no longer being used for their original purpose. The rate of growth of total earnings is slowing rapidly as high- wage employers are being gradually replaced by lower wage employers, causing a gradual decline in the quality of the economy. The overall taxable value of industriahmme rcial property will not increase. Page 42 l!aaw L 2012-2016 - The oldest areas have significant abandonment or are occupied by the lowest wage workers. Most scattered green parcels have been utilized. Employment and earnings growth is very slow. The quality of the economy is not improving. Facilities built in 1990 are entering the last stages of economic life. Several specialty buildings are no longer utilized. The overall taxable value of industriakcommercial property has reached a summit or is begining to decline. The burden of taxation to support local government is shifting to the residential sector. 2017-2021 - The oldest areas lay in disrepair or have been converted to Brownfield sites. Facilities constructed in 1990 are approaching their final stages of useful life. Facilities constructed in 2000 are beginning the transition fiom high- wage to lower wage users. Some specialty buildings, constructed as early as 2005, are no longer used. Employment growth has stalled. Inflation adjusted earnings are on decline. The quality of the economy is on decline. The overall taxable value of industriakcommercial property is on decline. There is a significant shift of the burden of taxation to support local government to the residential sector. I To visually see the impact upon the Pinellas County economy of the preceding scenario, POLICOM has calculated the growth rates, by industry, for the 20-year period fiom 2002 to 2021. The following graphs compare the original Projections, provided previously, to projections based upon a gradual Build-Out scenario. Page 43 The first graph compares the employment growth. Em p lay me n t Factored .Ylllll I ulni IOUU The rate of the growth in total employment will be significantly reduced beginning 2017. Page 44 ~ -~ The following graph shows the growth of total earnings. Remember total earnings have been adjusted for anticipated inflation and brought to the value of the 1999-dollar to demonstrate “absolute” growth in the size of the economy. Earnings CPI Factored M1llIl I mnn 6Ocu n 70 74 78 92 $6 90 94 96 2 6 10 14 16 21 101 1970-2000 Projections + Buildout 1 The size of the economy stops growing beginning in 2017. Page 45 The following graph shows the impact of Build-Out on the “quality” of the economy. CPI Factored AEPW ....... ison llUU IUUU 1, ...... 71) 14 721 82 86 40 44 98 2 6 1Q 14 18 21 I e 1970-2000 k-3~ Projcctions Buildout I From 1982 to 2000, the quality of the economy has improved significantly. However, as a result of the aging of some industrial areas, dilution in the quality of the economy has already begun. The quality will stop improving around 2012 and will begin to decline. The growth rates for earnings and employed were derived from a review of the growth rates for Denver and Lucas Counties. POLICOM took into consideration the transition period prior to Build-Out. While overall economic growth will slow, there will still be a large number of new jobs created between 2001 and 2021. The original projections provided for the creation of 3 17,672 new jobs between 2001 and 2021. The Build-Out scenario will create 201,732 new jobs. Page 46 The following chart shows the difference between the Projections and the Build-Out. Project Build-Out Year Jobs an Jobs Gain 2021 885,276 113,829 769,336 58,358 201 1 771,447 203,843 710,978 143,374 2000 567,604 123,661 567,604 123,661 1990 443,943 126,114 443,943 126,114 1980 317,829 317,829 The following charts compare the growth rates for the Projections and Build-Out for emplop-ent, total earnings, and annual earnings per worker. Employment Growth Annual Increase All Workers FXIll Ag Services Mining Construction Manufacturing Trans, Comm Wholesale Retail FIRE Services Federal Civilian Military State Local Project Project Build-Out Build-Out 1991-2000 2001-201 1 2012-2021 2001-201 1 2012-2021 2.5% 2.8% 1.4% 2.1% 0.7% 0.0% 0.0% 0.0% 0.0% 0.0% 2.4% 1.3% 0.5% 1.3% 0.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.9% 1 .O% 0.5% 1 .O% 0.5% 0.4% 0.8% 0.3% 0.7% -1.4% 4.2% 3.3% 1.3% 2.3% 0.9% 4.0% 2.9% 1.3% 2.0% 0.8% 0.0% 0.5% 0.3% 0.5% 0.4% 3.1% 3.3% 1.5% 2.5% 0.5% 4.7% 4.4% 2.0% 3.1% 1.2% -0.4% 0.2% 0.0% 0.2% 0.0% -1.9% -0.1% 0.0% -Q.1?40 0.0% 1.3% 0.9% 0.5% 0.7% 0.5% 1.1% 1 .O% 0.5% 1 .O% 0.5% Page 47 Earnings Growth Annual Increase All Workers Farm Ag Services Mining Construction Manufacturing Trans, Comm Wholesale Retail FIRE Services Federal Civilian Military State Local Project Project Build-Out Build-Out 1991-2000 2001-201 1 2012-2021 2001-201 1 2012-2021 6.3% 6.9% 5.0% 5.3% 3.1% 0.0% 0.0% 4.5% 3.9% 0.0% 0.0% 3.1% 3.8% 3.0% 4.7% 7.7% 7.2% 9.3% 6.8% 4.0% 4.1% 8.9% 8.3% 8.3% 8.8% 4.5% 3.7% 2.9% 2.1% 5.8% 3.2% 5.2% 4.0% 0.0% 3.0% 0.0% 2.6% 3.0% 5.3% 4.5% 3.0% 6.8% 5.6% 3.0% 1.5% 2.3% 3.0% 0.0% 3.4% 0.0% 3.8% 3.8% 5.4% 5.0% 3.9% 6.5% 6.5% 3.3% 2.1% 3.2% 3.6% 0.0% 2.0% 0.0% 3.0% -1.4% 4.0% 2.3% 2.9% 2.3% 4.2% 3.0% 1.5% 2.3% 3.0% Earnings Per Project Project Build-Out Build-Out Annual Increase 1991-2000 2001-201 1 2012-2021 2001-201 1 2012-2021 Worker All Workers 3.8% 4.0% 3.5% 3.2% 2.4% FXUl Ag Services Mining Construction Manufacturing Trans, Comm Wholesale Retail FIRE Services Federal Civilian Military State Local 0.0% 0.0% 1.4% 2.6% 0.0% 0.0% 3.1% 2.8% 2.9% 3.9% 3.9% 3.8% 5.2% 3.8% 4.2% 3.6% 6.6% 4.9% 3.4% 4.2% 3.7% 3.5% 4.7% 2.2% 3.9% 2.3% 3.5% 3.0% 0.0% 2.5% 0.0% 2.1% 2.7% 4.0% 3.2% 2.7% 5.2% 3.6% 3.0% 1.5% 1.7% 2.5% 0.0% 2.1% 0.0% 2.8% 3.0% 2.9% 2.9% 3.4% 3.9% 3.3% 3.0% 2.2% 2.5% 2.6% 0.0% 1.5% 0.0% 2.5% 0.0% 3.1% 1.5% 2.5% 1.7% 3.0% 3.0% 1.5% 1.7% 2.5% Page 48 What can Pinellas County do toprevent a reduction in the quality of the economy? The negative affect upon local economies of reaching Build-Out is present throughout the United States in cities and many small counties. The phenomenon of reaching Build-Out is relatively new, compared to the age of our nation. It is understandable community leaders in areas, which are suffering from Build-Out, did not anticipate the problem, as they had no historical reference, which would have forewarned them of the pading problem. Community and government leaders in Pinellas County have the advantage of learning fiom the history of other areas. They are in the enviable position of being able anticipate the negative affect of Build-Out and to take measures to prevent a decline in the economy as a result of Build-Out. Growth for growth sake should not necessarily be a goal for a community. Creating thousands of low- wage jobs in many cases can hurt the overall “quality of life” and dilute the standard of living for the existing community. But since Pinellas County is approaching Build-Out, rapid job growth for the long-term fbture is a moot issue anyway, as it cannot occur. The wage level of the jobs created by the contributory industries determines the quality of the economy, The overall level of the economy and the standard of living of the people living and working in an area approach this level. The higher the wages, the higher the standard of living is for most residents. Pinellas County grew in quality fiom 1985 to 2000 as a result of the creation of thousands of high-wage, contributory jobs. Therefore, the community should concentrate its long-term efforts on maintaining and improving the quality of the economy through retaining and adding as many high-wage Contributory jobs as possible. Page 49 Pinellas County will have significant competition in the immediate area for these high-wage jobs. Hillsborough County has a large supply of Greenfield sites and as does Pasco County. Pasco County additionally is embarking on an aggressive economic development, recruitment program. There are two programs, which should be undertaken to help prevent the negative affects of Build-Out in the future: 1) have an active Economic Development Program and 2) create innovative measures to prevent facility deterioration and abandonment and encourage redevelopment. Economic Development Program - The economic development program for the area should place significant emphasis on the “existing industry” program. There are three basic elements to an economic development program: . . . Existing Industry - Encourages the retention and expansion of existing contributory businesses. Marketing and Recruitment - Attracts new contributory employers to the area. Start-up - Assists in the formation of locally grown contributory businesses. Pinellas County has for many years had a very successful economic development program, having recruited many quality companies to the area. However, the ability to attract will be significantly diminished after the Greenfields have been consumed. A “Start-up” program is rapidly being accepted as a standard “third” economic development program as many local economies are flourishing today as a result of the expansion of locally grown industries. Many of the companies grew from community “incubators.” A “Start-up” program should be initiated if the community does not already have one. However, the biggest problem relative to Build-Out is the loss of existing companies. Therefore, the economic development activity should be structured, as much as possible, toward preserving and expanding existing industry. Page 50 - POLICOM recommends the following: 1) Recruitment efforts continue, for existing Greenfield locations, but are directed toward contributory businesses, which will pay a wage at least 125% of the area average. 2) Recruitment efforts continue to fill aged facilities (Stage 2) which will pay a wage as high as possible given the condition of the structure. 3) Implement an aggressive, well financed, existing industry program, which is designed to reduce the costs of operating in Pinellas County as much as possible for existing contributory businesses. The program should include the follow steps: - A. Identify the existing contributory businesses in the area (large and small). B. Develop quality, confidential communication with the companies to discover their needs and problems relative to being located in Pinellas County. C. Solve their problems. As previously mentioned, when a facility reaches the beginning of Stage 2, many companies begin the decision making process as to whether to stay in the facility or to move to another location. Many times the decision to move is based upon geographic-economic factors, which are influenced locally. Some of these include taxation, regulatory climate, access to labor (commuting time), local cost of living, and “community attitude” toward the company. Others may be more facility related such as an antiquated sanitary sewage collection system, absence of modem telecommunications lines, or an undependable electric power supply, which is disrupted during fiequent thunderstorms. The more a community can reduce the costs of a company, the more likely the company will stay in the area. The existing industry program is created to detect and solve small problems, which add costs to a business, before they become big problems, which cause the company to leave the area. Page 5 1 Prevent Facility Deterioration and Abandonment The most pervasive, long-term problem relative to Build-Out is the physical deterioration of the facilities occupied by the primary industries. Facility deterioration occurs not only in the industrial sector, but also general services, retail, and older residential areas. Cities and counties throughout the United States are spending billions of dollars each year for community redevelopment, attempting to revitalize the aged areas of their community as they have fallen into physical and economic disrepair. I As previously mentioned, communities which presently suffer economic decline as a result of blighted, abandoned industrial areas had little historic reference to rely upon to take action to prevent it fi-om occurring. Even if there was notice of the situation developing, it is likely the attitude was the “situation will cure itself.” Pinellas County should take affirmative steps to retard or prevent the physical deterioration of its industrial areas to hinder future economic decline. The following are some suggestions on how this can be accomplished. 1) Identi@ the locations in which facility deterioration and abandonment is presently occurring. In these areas, significant measures need to be taken to retard a continuation of deterioration and to restore the area. Areas, which are located at interstate exits or are easily accessible by commuting workers, should be targeted for redevelopment for contributory businesses. Those, which do not presently and will not in the fbture be accessible, should be targeted for a mixed-use development, possibly residential. = Pass enabling legislation, which makes the areas eligible for incentive programs. These might include creating an enterprise zone or a tax increment-financing district (TIF). = Create a program, which modernized the horizontal infi-astructure for the areas. This includes storm drainage, sanitary sewers, roadways, electric power, and telecommunications. Included in this program should be an effort to improve the esthetic appearance of the areas via landscaping and Page 52 berming if possible. . Create a series of financial incentives, which will encourage private landowners to rehabilitate the facilities or cause them to be torn down. Some of these incentives might include . . corporate income tax credit . . . out-right grants property tax abatement or credit sales tax credits on new equipment subsidized training programs for workers low interest loans for both the facility and new equipment . Pass enabling legislation which will cause abandoned, dilapidated structures to be razed, creating Brownfield locations. If vacant facilities present a clear and present danger to the health and safety, some communities have the authority to cause the removal these buildings. If the property owner fails to abide by a local ordinance to remove a building, then the government authority, at its expense, causes the building to be tom down. The cost of removal, if not immediately reimbursed by the property owner to the government, is placed upon the property as a lien, to be paid concurrent with the property taxes. If the property taxes are not paid, the property is sold for taxes and the lien. Concurrent with this program, legislation should be passed which requires structures to be maintained to “certain minimum conditions.” . Create a Brownfield restoration program in which the government authority actually acquires, via eminent domain, a series of buildings, which are dilapidated and contiguous, creating a large Brownfield parcel. These areas can be marketed as new building sites. Additionally, increased facility density should be considered in Brownfield locations to allow for vertical development. 2) Identify the locations where facility deterioration will occur within the next ten years. These will include structures, which were constructed fiom 1980 to the present. In these locations, abandonment has likely not yet occurred but the structures are beginning to cycle through the stages of deterioration. Since these areas are not in such a deteriorated condition as to justify “enterprise zone” designation, action should be taken to maintain the quality of the structures. . The community should create TIF’s for these areas if possible. Money from the TIF should be reinvested into the area in the following manner: Page 53 Consistent upgrading and maintenance of the horizontal infi-astructure. Beautification programs for the general area. Low interest loan pool or grant program for the rehabilitation of facilities located in the area. ' Minimum maintenance requirements should be adopted. Immediate demolition of a structure which should be razed. Blight is like cancer, if it is not quickly removed, it will spread. Communities around the country are practicing the suggestions above to prevent hture facility deterioration and to deal with existing conditions. The overall issue is the facility cost to a company. Communities, which can redme the costs of reconstruction or are successhl in having construction occur in its Brownfield locations will be most likely able to maintain quality economic growth. In summary, the Pinellas County economy has for many years enjoyed rapid growth in the size and quality of its economy. However, since it will soon reach Build-Out, it must take affirmative action to prevent a gradual decline in the economy. Page 54 .. . About POLICOM Corporation POLICOM Corporation is an independent economic research firm, which specializes in analyzing local and state economies. Its products and services evaluate the economic condition of counties, metropolitan areas, and states, determine what is the cause of the condition, and offers suggestions and ideas on how to improve or mamtain the economic “quality of life” for the residents. Its President, William H. Fruth, the author of this study, has personally studied the data for more than 600 local economies in the United States and has given presentations to state, national, and community organizations in 27 states over the last four years. 1 Some of the company’s services include: 9 9 9 . Presentations and workshops for communities and state and national associations. Community Economic Analysis, Goal Setting, and Target Industry Studies. Strategic Plan of Action to improve the economy of a local area. Customized Economic Reports for communities. For more information, please contact: POLICOM Corporation JUPITER, FL 33477 4300 S US HWY 1 STE 203-301 Web Site: policom.com E-Mail: info@policom.com Phone: 56 1-744-8 1 87 Fax: 561-743-4048 Page 55