November 5, 2014
It is a basic, universally accepted fact that in order for an area to win new recruitment projects—and in some cases retain expansions of an existing company facility that will be on a site other than its current location—that area must have the necessary facilities to attract the investment. Economic development professionals routinely refer to this as having sufficient “product.”
The term generally refers to adequate buildings or shovel-ready sites in an established certified business park. The structures might be new shell buildings, existing buildings, or those that have been renovated.
In some cases, when a particular industry sector is targeted, a special-use building may be needed. For certain segments of the information technology industry, for example, this might be a fully wired information technology center; for the biopharma industry, it might be a wet lab.
As to buildings, the key word is “adequate.” Older, obsolete manufacturing buildings with low ceilings or former retail buildings are just not suitable for most modern manufacturing and distribution operations. A fully prepared special-use building is a great attraction for a company able to use that particular facility.
The hard reality is that if a local government or region does not have a reasonable inventory of adequate product, that area is out of the running for new recruitment projects and off-site expansions of existing facilities.
To Build or Not to Build?
So the question becomes whether the local or regional economic development organizations or units of government should undertake the development of one or more business parks or buildings.
If the private sector has developed a significant inventory of product, then it would generally be advisable for the local and regional economic development and government leadership to support these private efforts rather than compete with them.
But if, as is the case in areas that are more rural and less developed, the private sector is not filling this need, the local and regional leadership must step in if any reasonable economic development successes are to be realized.
How to Afford It
Recognizing a need for an adequate inventory of product is just the beginning. Reality hits home when a local government or economic development organization confronts the cost of developing a business park or building on its own.
There are ways to stretch available funds using public-private joint ventures, equity participation arrangements on acquiring land, installment financing, and long-term options of property. Another way to develop an attractive inventory of product involves two or more local units of government joining together to develop property as a multijurisdictional project. Multiple units of government share the costs—and share in the gains.
This article will focus on multijurisdictional business park projects. Certainly, multiple jurisdictions could share in the development of a new building or rehabilitation of an existing building; however, the great majority of multijurisdictional efforts have dealt with business parks. Also, this article will focus on local units of government cooperating in this type of effort.
Some states have statutory and/or constitutional authority that specifically allows for multiple local units of government to cooperate in the development of business parks. South Carolina is an example of this. If a state has such authority or can get such authority enacted, all the better.
One should not, however, disregard the possibility of undertaking this type of effort if such state statutory authority does not exist. It may be possible to combine several parts of existing statutory authority for local units of government even when those statutes do not specifically speak to multijurisdictional business parks.
North Carolina’s Experience
What was done in North Carolina is a good example of this combination approach. The need existed in rural, less-developed parts of North Carolina to develop quality, certified, and shovel-ready industrial sites to make these areas more attractive to site selection or expansion projects. But until the mid-1990s, for a variety of reasons, no two local governmental units had sought to do this together.
A review of existing state statutes, however, in context with each other, led to the conclusion that local multijurisdictional efforts were possible. Here are the statutes and a brief description of their relevant terms:
N.C.G.S. 158-7.1, Local Development Act, in general terms under subsection (a) and in specific terms under subsection (b), gives a local government the authority to “acquire and develop land for an industrial park . . . .”
This was bolstered by other statutory authority, which states that tax proceeds can be used by a county (or city) “(t)o provide for industrial development as authorized by G.S. 158-7.1.”
This made it clear that any single local unit of government could develop an industrial park property. N.C.G.S. 160A-461 to 464, the Local Cooperation Act, states that “one or more other units of government in this State or any other state . . . may enter into contracts with one another to execute any undertaking.” This gives authority to local units of government to partner with one or more other local units of government to undertake any governmental function.
For management and oversight purposes, it is often desirable that the cooperating units of government work through a central nonprofit entity that they jointly control. It would significantly complicate development efforts if every decision had to go back through two or more local government governing boards for consideration and approval. Of more concern, few industrial recruitment prospects would tolerate a decision as to selling or leasing property to that prospect having to go through multiple local government boards.
By working through a nonprofit entity, all of these decisions are centralized and simplified. Each local government involved in the multi-jurisdictional project exercises its oversight and control by an apportionment of seats on the nonprofit’s board of directors.
Therefore, N.C.G.S. 1601A-20.1 as to municipalities and N.C.G.S. 153A-449 as to counties were relied upon, allowing local governments “to contract with and appropriate money to any . . . corporation, in order to carry out any public purpose that the . . .” local unit of government “is authorized by law to engage in.”
Through these previously existing statutory authorities, in addition to some new statutory provisions that specifically allow local governments to enter into multijurisdictional business park arrangements, which are explained here, local units of government that have undertaken these projects have realized a number of benefits:
Areas that did not previously have the opportunity to be considered for new recruitment projects or off-site expansion projects are now “in the game” and receiving visits by prospects.
Even if a facility locates in one local government’s area, but not in that of the other(s) areas, all local units of government realize the benefit of more jobs for their residents. City and county boundaries mean nothing to an increasingly mobile populace in search of better employment.
For years, the barrier to multijurisdictional cooperation was the fact that only one local government received new tax revenue when a company moved in.
But, key provisions of multijurisdictional agreements provide for sharing of tax revenue among local governments. The nonprofit that was set up to administer the park transfers a portion of the property tax increases from companies locating in a business park.
Typically, the division of this money is proportional with the funding from individual local governments during the acquisition, development, and marketing of a site. By statute, this sharing of proceeds can extend for up to 99 years.
An added benefit in some circumstances in which two or more counties are involved is that if one county—because it is ranked as more economically distressed—has more generous state incentive support available for companies locating within it.
That incentive support can be extended to land within the multijurisdictional business park(s) in other, even more prosperous counties. These higher levels of incentives significantly improve the prospects of recruiting companies.
Since the use of the above general statutory authority on a number of projects, several new statutory provisions have been enacted in North Carolina that specifically allow for multijurisdictional industrial parks projects. They also allow for funds to be appropriated for this purpose; set the duration of such deals as not to exceed 99 years; and, in some circumstances, allow the most favorable state incentive treatment for either of the counties involved to be extended to the multijurisdictional site(s) in any of the counties.
To date, this statutory interpretation has been used for this wide range of projects in North Carolina:
Four counties cooperating to own and develop large acreage sites in each of the counties. The counties are Vance, Granville, Franklin, and Warren. They are located just northeast of Raleigh, the state capital, and in proximity to the Research Triangle Park.
There is a large-acreage business park in each county, owned by a nonprofit corporation that the counties jointly control. Branded Triangle North to play off of the Research Triangle Park connection, this network of business parks includes four of the best incentive tier-one sites (most generous state incentive support) in North Carolina.
A senior U.S. Commerce Department official has stated that this is the best example of regional economic development cooperation in the country.
A number of projects in which two counties have sites that straddled the boundary between them and, in one case, where one of the counties was actually in another state. One of the best examples of this approach is a joint undertaking between Brunswick and Columbus counties.
Located near the Wilmington State Ports Facility, this business park—branded as the International Logistics Park—has had a steady stream of prospects needing port connectivity coming through since its inception. It has been on the short list for many of these projects.
Several local governments in a sub-regional group collaborating together. For years, the towns of Huntersville, Davidson, and Cornelius, north of Charlotte, have cooperated on joint economic development efforts through a nonprofit, the Lake Norman Regional Economic Development Corporation.
Recognizing the need to capture and develop property for industrial growth in an area in which residential and commercial development was rapidly using up all of the space, the towns joined together to develop business park sites in their respective communities. The first business park in Huntersville landed a major project almost before the ink was dry on the interlocal agreement.
A county and communities in the county cooperating together. Burke County realized it had a significant shortage of quality business park sites. The county and most of the local governments joined together to develop a series of industrial sites.
The benefits of this shared approach to developing product for recruitment are stated above. If your state has explicit or implied authority to do this, then good. If not, consider seeking this type of statutory authority.
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This article first appeared in the November 2014 issue of PM Magazine.