Archive for Wednesday, October 4, 2000

A business decision

October 4, 2000

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Closing an economic development deal is a balance between the interests of a company and the interest of a community.

As members of the local economic development team look back on American Eagle Outfitters and forward to future efforts to attract other new employers, they should keep several factors in mind.

First, there are at least two sides to every economic development decision. When seeking a location, a business bases its decisions on what is best for the business. When trying to attract a business, a community should base its decisions on what is best for the community. Sometimes, those two interests come together, as they apparently have in Ottawa.

American Eagle is getting an existing warehouse space for a fraction of what it would have cost to build a new warehouse in Lawrence. It also expects approval of significant tax abatements from members of the Ottawa City Council and Franklin County Commission who seem elated over American Eagle's investment in the community and the jobs it would offer. It appears to be a good business decision for American Eagle and a good community decision for Ottawa.

That's not to say American Eagle and Lawrence would not have been a good match. Lawrence had worked hard and made an attractive offer some thought it was too attractive to American Eagle. But the package that Lawrence put together, for whatever reason, didn't suit American Eagle as well as what Ottawa offered. It's a business decision.

Economic development efforts are a package deal involving many factors. The availability and cost of labor, land, utilities and other essential elements are key considerations. Property tax abatements and other tax incentives also are an important part of the mix, but attracting businesses should not be reduced to a bidding war of financial incentives.

Ottawa offered American Eagle a 50 percent property tax abatement on the existing warehouse and a 100 percent abatement on a proposed addition. But those tax abatements may not have been as pivotal to the deal as the availability of an existing warehouse at a favorable price.

Lawrence and Douglas County need to be aggressive in their efforts to attract desirable new businesses. But the way they recruit businesses and what they offer to those they recruit should be focused on the best interests of the community. City commissioners already have announced plans to examine various elements of local economic development efforts. That includes reviewing the tax abatement policy and the permit process for businesses hoping to locate in Lawrence.

The local economic development team city, county and chamber of commerce officials needs to examine its priorities for attracting new businesses to the area and supporting existing businesses that want to expand. To be competitive, officials will need to include tax abatements and other financial incentives in their economic development tool box, but they also need to consider exactly what kind of businesses they want to attract and what sort of incentives are appropriate for different situations.

Offering a company an 80 percent property tax abatement obviously won't guarantee that it will come to Lawrence. Raising that figure to 100 percent won't guarantee it either. It's a package deal that includes everything from the quality of life in a community to research facilities at a university and from the availability of well-trained workers to access to an appropriate transportation system.

When economic development officials put together a package, they must consider many factors. They need to look at what the jobs a business will provide will contribute to the community. They need to consider the community loyalty of a long-term Lawrence company that wants help to expand. And they need to remember that tax incentives aren't the only factor that will determine whether a business will locate here.

Time will tell whether American Eagle's decision to go to Ottawa will be a significant loss for Lawrence. One certain way Lawrence can gain from this situation, however, is to take this opportunity to revisit and refine its economic development process and priorities to make sure the city remains competitive in its search to recruit and retain top businesses.

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