Regional Economic Development

(from Maine Townsman, June 2003)
By Mike Laberge, Freelance Writer

    It was known as the “tax base chase.”   For years, Maine communities single-mindedly strove to attract industry to expand their tax bases. Neighboring cities and towns built separate industrial parks, hired separate development staffs and launched separate marketing campaigns, competing with one another for jobs and development. One community’s gain often was another’s loss.

       Attitudes slowly have changed. Many of the shoe, textile and paper mills that provided good-paying and stable jobs have closed, displacing thousands of workers. In this climate, business leaders and municipal officials have begun realizing the importance of acting regionally to attract investment. More than three dozen economic development consortiums and regional agencies now dot the state, running from Aroostook County to York County and most regions in between. Out of economic necessity, communities are focusing less on tax base and more on job creation.

       “This attitude is out there now,” said Sanford Blitz, a former regional administrator of the U.S. Economic Development Administration who serves as executive manager of Bangor Area Target Development Corp., a consortium of Greater Bangor communities. “It’s come down to necessity. You’ve got to work this way now.”

       One of the state’s first regional economic development organizations was formed in Bangor in the 1970s. The so-called Committee of 50 drew business and municipal leaders from Greater Bangor for monthly breakfast discussions about the business climate, according to Dick Kelso, a longtime economic development professional who was involved in the effort. The group, which incorporated in 1975, worked to draw investment by championing projects that would benefit the region. “We found out that you have to work together,” said Kelso, who now runs a consulting company, Economic Management Services, in Augusta. “Boundaries don’t matter to businesses.”

       The creation of other regional groups followed. Kenneth Young, executive director of the Kennebec Valley Council of Governments (KVCOG), said smaller communities realized they could do more by pooling their resources. Central Maine alone now has a variety of organizations that include KVCOG, the Somerset Economic Development Corp., Central Maine Growth Council, and regional chambers of commerce. “While the number of distinct entities is a concern, at first blush, what has developed is a reasonably effective partnership process,” said Young, whose organization covers Kennebec, Somerset and Waldo counties. “You need to be connected into the system.”

       Regional economic development corporations and planning agencies sponsor programs and events that allow municipal officials and business leaders to network and share ideas. In central Maine, economic development professionals meet monthly to discuss business trends, marketing efforts, and business attraction and retention programs. Recently, KVCOG worked with the group to secure a $35,000 state marketing grant that covered, among other things, the publication of a brochure promoting central Maine.

       “What we’ve done is to produce a Central Maine brochure that we can all use to strengthen the region,” Young said. “Most of us work together pretty well and have had some success in marketing and coordinating. We can do a whole lot more together than we could alone.”

       Regional cooperation is especially important in rural regions. In Piscataquis County, with just 17,000 people, small towns look to county government for economic development services. The six year-old Piscataquis County Economic Development Corp. draws about $75,000 in annual funding from the county and $10,000 from businesses, along with tens of thousands more in state and federal grants. Under the arrangement, communities receive regional economic development services through their county taxes.

       “They couldn’t afford their own economic development people,” said Mark Scarano, executive director of Piscataquis County Economic Development, noting that the largest town in the county, Dover-Foxcroft, has just 4,000 people. “A job created in one town is going to have direct and indirect benefits in all the rest of the county.”

       Cooperation between the county and municipalities is essential. Piscataquis County Economic Development has a 50-person board and 11-member executive committee whose members include municipal officials and business people who strive to attract new investment in the region while working to retain existing businesses.  The group’s efforts are beginning to pay off in a region with an unemployment rate well above the state average. The organization secured a $225,000 grant to develop a business incubator in Greenville to assist the growth of companies in the emerging field of wood composites technology, taking advantage of the traditional natural resources-based economy. The agency also has in recent years obtained community development block grants and other funds that have enabled a pair of companies manufacturing protective clothing for the U.S. military and shelving fixtures for supermarkets to expand and remain in the county. The deals helped retain jobs in a region that needs them.

       Piscataquis County also is drawing attention from outside the state. Recently, Scarano received a lead that an entrepreneur from the mid-Atlantic region was looking to move her business here. He quickly assembled a package and sent it to the state Department of Economic and Community Development, which was working with the owner. When Scarano later learned that she was interested in the region, he arranged meetings with leaders of communities that might have suitable sites. The entrepreneur, according to Scarano, was impressed.

       “She saw that there was a state, a regional and a local effort to bring her business here,” he said. “There was a comfort level in that.”

       Despite some successes, efforts to draw out-of-state investment have drawn criticism from those who contend that Maine should do more to build “home grown” businesses. Charles Roundy, a former municipal economic development director who now runs an Augusta consulting firm, contends that policymakers spend too much time trying to recruit large, out-of-state companies. He first saw it when officials tried to attract companies processing sugar beets and later on with efforts to draw investments in oil refineries. It is happening now with attempts to court high technology companies.

       “Maine is always going after the ‘big bang’ solution. This is not how economic development happens in an area that is out of the mainstream,” Roundy said. “To me, economic development in the state of Maine works with realistic, incremental success steps.”

       While Roundy concedes that there have been success stories, such as the growth of Delaware-based credit card lender MBNA in the midcoast region, he contends that too little attention is paid to preserving existing businesses. “The importance of saving an industry ought to be on the front burner,” he said.

       Others share that view. Keith Luke, executive director of Topsham Development Inc., said Maine has worked hard to recruit call centers. Although such companies often employ dozens of people, he views call centers as an unreliable source of stable, long-term employment. He cited the recent failure of Envisionet, the Brunswick-based company that provided technical support to Microsoft customers, as an example of the industry’s volatility. Envisionet, once touted as a new economy success story, was forced to declare bankruptcy after Microsoft canceled its contract. Another call center, in the nearby Topsham Fair Mall, also has closed. “In the future, every Maine community will have an opportunity to host a call center that will provide 15 months of prosperity,” Luke quipped.

       Instead, he says communities and regional development agencies must encourage investment from within the state. In the late 1990s, Topsham leaders faced the difficult task of finding a new use for the Bowdoin Mill complex on the banks of the Androscoggin River. The town funded a $50,000 feasibility study that concluded redevelopment of the aging mill was possible. Ultimately, Topsham Development worked with Fore River Management Co. in Portland to renovate the mill, which now is home to Sea Dog Brewing Co., Maine Coast Heritage Trust, a branch of the Red Cross, and two groups of doctors.

       The investment carried a price: Topsham created a tax increment financing district allowing the developers to keep 50 percent of the taxes from the increase in valuation on the $3.5 million project. Still, Luke holds the project out as an example of Maine-based investment in a community landmark that created and retained jobs for the region.

       “The reality is there aren’t many companies that are eager to come to Maine,” Luke said, citing high taxes, energy prices and insurance costs. “What we need to be focused on is grooming small businesses and microenterprises.”

       The supporters of FirstPark, a regional business and technology park being developed in Oakland, believe that they can find companies willing to move to Maine. Four years ago, 24 communities agreed to pool their resources and back the $3.2 million in bonds needed to develop the first phase of the 285-acre campus, complete with utilities, computer connections and pre-permitted building lots. The project also received $1 million from the Maine Department of Economic and Community Development and another $1 million from the U.S. Economic Development Administration. Member communities shared the risk in the hope of generating new tax revenue and attracting as many as 2,500 good-paying jobs in the next two decades.

       “When we came back with 24 towns, that blew everyone’s mind,” recalled Michael Byron of Manchester, treasurer of the Kennebec Regional Development Authority, which oversees FirstPark.

       “There was no other way to put this kind of high-end business park together,” he said. “Private investment will not touch it, because the payoff is too far away.”

       The agency has hired a chief executive who is paid $95,000 per year and an executive director at an annual salary of $65,000. They are working to target companies in financial services, information technology and health-care that now are based in eastern Canada, greater Boston and as far south as Washington, D.C. So far, the park has attracted two tenants, both from Maine. The first, an accounting firm, relocated from downtown Waterville after outgrowing its former space. The firm since has leased part of its building on the FirstPark campus to a financial services company from nearby Belgrade. In mid-May, FirstPark announced that it had sold a 2-acre parcel to Castine Commercial Properties, which is planning to build a medical office complex.

       Although critics contend that the super business park was based on wishful thinking and faulty “Field of Dreams” assumptions – build it, and they will come – supporters assert that that project will work, given time. The recession and September 11th  terrorist attacks forced companies to shelve expansion plans. The fact that the park has drawn two tenants, in this climate, shows that the project holds promise, according to the park’s proponents.

       “We knew this was for the long haul. That’s why we gave ourselves a 20-year build-out,” Byron said. “I’ve never lost faith that this project will work; it is going to work.”

       Other communities have taken a different approach. In the twin cities of Lewiston and Auburn, municipal economic development offices focus on business retention, while a public-private partnership known as Lewiston-Auburn Economic Growth Council handles business attraction. The municipal offices work to meet the needs of existing businesses, and the growth council follows national trade shows and keeps attuned to development trends. Cooperation benefits the region. “It’s really trying to build that collaboration – respect for one-another’s businesses – rather than trying to cherry-pick one-another’s businesses,” said Lincoln Jeffers, Lewiston’s business development manager.

       Two years ago, that collaboration paid off. The growth council learned that Wal-Mart was seeking sites in northern New England for a regional distribution center. Representatives from the twin cities submitted a proposal that outlined six prospective sites in Lewiston and Auburn. Wal-Mart executives flew in to tour the area and, after negotiations, chose to locate the $45 million project off Alfred Plourde Parkway in Lewiston, near the Maine Turnpike. Incentives, according to Jeffers, included infrastructure improvements and creation of a TIF district. The city agreed to return to Wal-Mart half of the new real-estate taxes generated from the project, for a 20-year period. Wal-Mart, in return, has told local officials the food distribution center could create as many as 300 new jobs paying average hourly wages of $12 to $13. The center is expected to open in two years.

        Jeffers said the use of TIF and other incentives helped secure the project. “It really helps keep you competitive,” he said.

       The twin cities have used similar incentives to assist existing businesses. In recent years, LePage Bakeries and the Sun-Journal newspaper received TIF assistance for expansion projects. The incentives, according to Jeffers, kept the businesses in the community and drew $2.5 million in additional investment in the city’s downtown. “It’s really getting that word out that we’re here to help,” Jeffers said.

       Leaders in Gardiner, about a half-hour’s drive away, have taken a similar approach. Efforts to market the Libby Hill Business Park, which lies at the crossroads of the Maine Turnpike and Interstate 95, have focused on existing companies looking to expand. The 140-acre project was developed three years ago with $3 million in federal, state and local funds. Twelve of the original 16 lots have been sold to companies that include Scientific Games, which produces tickets for Maine State Lottery; E.J. Prescott, a pipeline supply company looking to grow within Gardiner; and Pine State Trading Co., a regional food and beverage distributor that had outgrown its current space in Augusta/Hallowell but was unable to find suitable new space there.

       The approach of courting existing regional businesses “makes the most sense,” said Christopher Paszyc, Gardiner’s director of economic and community development. “We’ve been very successful in helping our local businesses expand and attract jobs. It was a natural.”

       Mayor Brian Rines said Gardiner has been careful to avoid stepping on its neighbors’ toes. When receiving inquiries from prospective tenants based in other local communities, such as Pine State Trading, Paszyc and other city officials first will check in with their counterparts in the region. They want to ensure that other communities have exhausted available avenues to retain those businesses, before proceeding.

        “No community can poach from another community and maintain its reputation,” Rines said. “If you steal from your neighbor, pretty soon word will get around, and one day you will pay for it.”

       In the years ahead, according to many people interviewed by the TOWNSMAN, successful economic development will require much more of a statewide effort. Blitz, the former regional EDA administrator, said Maine must continue to invest in research and development to encourage local entrepreneurship.

       The Legislature took an important step three years ago by approving several million dollars to create a series of regional incubators for companies in emerging fields such as composites technology, biotechnology and computer technology.

       Although the state needs to assist traditional manufacturing and forest-products companies, according to Blitz, it also must look to the future. “The future of Maine is not in the mature industries,” Blitz said.

       Others say that the state must continue working to improve the business climate. A relatively high tax burden, high energy prices, and high costs of workers compensation and health insurance are impediments to attracting business investment. “In many cases, we’re losing companies to places where energy and labor costs are lower,” said Luke, of Topsham Development, citing the recent loss of Burt’s Bees, a natural cosmetics company that moved to North Carolina.

       Gov. John Baldacci has outlined priorities that include the creation of what he calls Pine Tree Zones to encourage investment in regions with high unemployment rates. The legislation supporting the creation of regional enterprise zones seeks to give deep tax breaks to manufacturing or financial-services companies that create new jobs within the zones.

       The proposal has drawn mixed reactions. Initially, the proposal drew fire from officials in Greater Augusta when it called for enterprise zones serving Lewiston-Auburn and Greater Waterville but not the capital area. Local officials since have ironed out their differences with the administration.

       In a recent opinion piece in the Bangor Daily News, two state lawmakers took their criticism another step by questioning the wisdom of granting deep, across-the-board tax breaks. The problem, they wrote, goes beyond Maine’s tax structure. “Call it locational advantage,” wrote Rep. Chris Hall, D-Bristol, and Rep. Peter Mills, R-Cornville. “Portland can compete for new investment with low-tax New Hampshire, while Millinocket cannot. Even it we could give Millinocket the tax-free structure of the Cayman Islands, it would still have locational disadvantages.” Hall and Mills also warned that the zones might prevent established companies such as L.L. Bean and MBNA from expanding without similar tax breaks.

       In a response published in the same newspaper, leaders of the Piscataquis County Economic Development Council called the zones the best way to “level the playing field” between Maine’s prosperous southern and poor inland regions. They further argued that the zones would increase investment, creating jobs and preventing young people from leaving the state in search of economic opportunity.

       The bottom line, according to those interviewed by the TOWNSMAN, is that any successful economic development program must receive long-term backing from the Legislature. In the past, inconsistent support for ventures such as Maine and Co. has hurt overall efforts to attract and retain businesses. “You lose your momentum,” said Kelso, the longtime consultant and economic development professional. “It takes years to build your momentum, but you can lose it overnight.”