Many people are familiar with the term “economic development,” but not everyone knows what it entails. Understanding the ins and outs of economic development can be confusing, especially if you’re new to the topic. The Greater Fergus Falls team wants to change that! A lot of what we do relates to economic development, so we thought we’d cover some of its basic elements. This article will give you a better understanding of what it is, why it matters, and how it works.
What is Economic Development?
Simply put, economic development is the process of boosting the wealth within a community by generating new “outside” dollars. This can be done in various ways; people often equate it with bringing in new businesses. While it’s certainly part of it, there are many more pieces to the puzzle.
Those that work in the economic development field are just as dedicated to retaining existing businesses and helping them expand. They’re also passionate about workforce training and giving employers and individuals the tools they need to succeed in the job market.
Other focuses of economic development include:
Accommodating workforce growth with new and affordable housing options
Attracting young professionals to the area
Improving utility and transportation infrastructures
Connecting businesses and employees with workforce training and education
Helping employers stay competitive in the job market
Each focus area works hand-in-hand to benefit the region as a whole.
Why Does Economic Development Matter?
Economic development drives economic growth in any given region, which is crucial to creating a prosperous economy and community. However, the full scope of economic development is often far broader than many people expect.
Economic development pertains to:
Business retention and expansion
Job creation
Industry diversification
Economy fortification
Increasing tax revenue
Creating a better quality of life
One of the most important components of economic development is job creation. A strong community depends on employment opportunities. Economic development creates those opportunities and facilitates retention and growth in the job market.
High-wage jobs and diverse offerings attract more people to the area, whether commuting for work, relocating, or enjoying a quick visit. In turn, more tax revenue is generated, which is invested back into local schools and programs, infrastructure, and government functions.
How is Economic Development Different Than Economic Activity?
While some people consider the terms “economic development” and “economic activity” interchangeable, there’s actually a difference between the two.
Economic activity refers to revenue that already exists. This pertains to any money spent on goods or services in the community, whether from locals or tourists. When a business closes, employees are laid off, or goods and services are purchased outside of the region, it’s considered “failing money.”
In contrast, economic development brings new money to the community, creating revenue through new jobs, businesses, and outside investments. Every time a new business opens or an existing business expands or relocates to the area, it falls under the economic development umbrella.
What Does the Economic Development Process Entail?
There are many factors to consider within the economic development process. Companies want to do their due diligence to ensure they’re making a sound decision. For that reason, the process can take months, and even years, to complete. Regardless, it often follows a particular formula.
The typical economic development process starts with a request for information (RFI) document sent to the community by a state, utility, or consultant. The completed RFI is used to rank the community and see how it compares to others. If it ranks well, the prospect will usually visit the location to get an in-person perspective of the area.
After the community visit, the prospect will perform a detailed labor analysis of the region to see how much labor costs and the area’s potential for growth. They’ll also create a financial statement outlining operating costs, incentives, property taxes, and market rents in the area. This document, along with a risk analysis, is then used to compare communities under consideration.
If the location remains in the running, the prospect will generally start the site selection process, which is a whole other ball game. Most companies have very specific site selection guidelines and will conduct an incredibly detailed data collection process to ensure a location meets their criteria. Only once a site has been thoroughly vetted will a decision be made.
How Do Incentives Create More Tax Dollars?
There is a wide range of incentives available to help offset the cost of economic development, tax payments, and fees associated with attracting and retaining a workforce. Whether building a new location or looking to level up your workforce, there’s likely an incentive to fit your needs.
Property tax abatements
Payroll tax rebates
Real estate incentives
State income tax credits.
In addition to reducing the cost of doing business, these incentives help spur economic development and bring more revenue to the region. Unfortunately, many of these incentives are underutilized, with more than 50% going unclaimed every year. An organization like Greater Fergus Falls can connect business owners with the right incentives to reach their goals.
Have questions about economic development, starting a new business, or expanding or relocating an existing business in Fergus Falls? Greater Fergus Falls would love to help! Reach out to our team to get started.