Thursday, November 17, 2016

City Council, November 21st - Work Session on SEDCOR and Downtown

Council meets next Monday for a work session on economic development and downtown revitalization. Much of it is out of our wheelhouse here, and you might have better things to say about it. The slides also don't have the narrative, and it's not always possible to fill in with the appropriate explanation or interpretation. Even so, in important ways they're a little baffling, especially the SEDCOR one. A good story and analysis ought to be easier to convey with clarity and force.

A subtext, also, for the two presentations is the implied contrast between edge and center. The SEDCOR presentation lauds the new Mill Creek Corporate Center on the southeast edge of the city on the other side of Cordon and Keubler. The downtown presentation focuses on the center. It is assumed that we want to invest in both, but nowhere is there any sense of any trade-offs that might be involved, and any question about which is more likely to return greater commercial and cultural value in the medium- and long-term.

Finally, our obligatory Keeling curve. We utterly ignore any assessment of greenhouse gases in our business development discussions. How much energy is used and pollution created by greenfield development, its transportation patterns, and its operations. (The "gadget green" of the Salem Renewable Energy and Technology Center by itself is not sufficient to compensate!)

Whether we look at sustainability in municipal finances or in environmental conditions, the dimension of time is largely missing.

The City brags about investing over $150,000 per job
One of the slides in the business development presentation brags about an investment of $60.5 million, resulting in 397 new and retained jobs.

We have questions!
  • Biz Dev analysts must have metrics: Is $150,000 per new and retained job a good ratio of capital investment to job?
  • Are there other, better metrics that should be used to measure success?
  • Over how many acres is that investment spread? What is the ratio of capital investment per acre?
  • What is the ratio of jobs per acre? Property tax per acre?
  • How many of the acres and how much of this capital investment is in Enterprise Zones or enjoys other tax abatement?
  • How much property tax is this investment creating? When will any abatements pay for themselves? At what point does any subsidy become an actual investment with a positive return?

You might remember "Statement No. 77 of the Governmental Accounting Standards Board: Tax Abatement Disclosures." Back in August of 2015 the GASB released it, and this work session might be a good time for our Council to consider it in more detail.

Lauding Mill Creek Corporate Center
Chuck Marohn is skeptical about new industrial parks
Another slide lauds the Mill Creek Corporate Center. Last month Chuck Marohn of Strong Towns was here, and while he talked mostly about "the suburban experiment" with reference to housing, he also touched on industrial parks:
Now, some of these people say, "OK, Chuck, we get it. We know we lose money on residential. We'll make it up on commercial." My gut reaction to that is always, "I don't know any corporation that loses money on 90 percent of what it does and tries to make it up on the last 10 percent." I don't know why an incorporated municipality would find that to be a good business strategy.

Nonetheless, we have somewhat convinced ourselves if we just have enough commercial, it doesn't matter what else happens.

This is a business park [inset image on Mill Creek slide]. This is one of those "build it and they will come" investments that cities like to do. This was built in the mid‑1990s. Every single lot is occupied now. The city felt this was such a successful project, that they wanted to build the exact same thing on property they owned right next door. They literally wanted to build exactly this, right over here....

For the sake of our analysis, we assumed that every single lot would be built upon within 12 months of this project being completed, by a full taxpaying, non‑subsidized entity, and that every single penny of new revenue went to retiring that bond.

If that were the case, it would still take the city almost three decades, 29 years just to break even. That's 29 years where everybody else's taxes would have to go up to pay to plow the snow, mow the ditches, provide police and fire protection, and every other service that was needed. That's in the most wildly optimistic scenario. [italics added]
Maybe the Mill Creek center is in fact structured in such a way that it will not be a net drain in City resources, but that's not an analysis that's ever been made public. The whole investment in the Mill Creek Corporate Center assumes that it will not be a drain, and that we can all cheer it as "job creation!"

But there is a very good possibility that the public investment and subsidy in the Mill Creek Corporate Center drains resources from downtown, drains them from our existing industrial areas like the airport/McGilchrist, the Portland Road areas, and the Fairview area - not to mention draining them from existing residential districts.

Jobs in Salem - with Manufacturing broke out
There's also a pie chart on jobs in Salem, and that's helpful context we don't often see. Food and Beverage is by far the largest set of manufacturing jobs (not food and beverage service jobs!) - though it's still just a tenth of the size of the government slice.

The work session offers the first chance for our Mayor-elect and new and old Councilors to think about the whole Strong Towns critique. Will they seize it? (Some previous conversation about the Henningsen Cold Storage abatements bogged down, and this may be a good time to re-approach the matter with that new analytical framework.)

The presentation on a set of focus groups talking about downtown seemed to raise fewer questions.

But it also might not generate much clarity. One of the goals seemed to be to find a priority for projects and investment from among housing, streetscape, building investment, or other - and as you can see from the pie chart, there was only an 8% variance, probably not statistically significant and well within the margin of error for a set of focus groups.

In any case, it's good to see housing and streetscape at the top, however narrow the margin.

From here it has always seemed like housing ought to be #1. When there are more people living downtown and able to walk and bike to nearby destinations, there will be a more natural inclination to fix the street problems. More customers walking, fewer driving! Business thrives and we can tame our autoism. Housing has seemed like the driver for so many other fixes.

From the presentations it is not possible to make too many firm conclusions, but it is possible to point out many questions that don't appear to be much answered, if at all, in the analyses.

1 comment:

Salem Breakfast on Bikes said...

The Secretary of State has a new audit on "the Evaluation and Transparency of Economic Development Incentives and Loan Programs."

In it they note that "A 2014 Business Expansion Program forgivable loan helped Garmin AT, Inc. expand in Salem. The company agreed to add 65 engineering jobs."

But the City of Salem also extended the Enterprise Zone property tax abatement - for the very same jobs, I think!

This sure looks like a kind of double-dipping. These subsidies just get stacked on top of each other, and it seems doubtful they really pay off in the end.