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Economic Development - Illegal in Washington State?

Caterpillar, Inc. chose Spokane for the location of its new distribution center.
Recently, I was meeting with a new city official who had just moved to Washington from Florida. He’d had a successful track record in attracting major businesses to relocate to Florida’s Space Coast and expressed frustration by the lack of comparable tools available in our state. “I can’t do economic development in Washington. It’s illegal,” he said.

I was a bit taken aback by this blunt assessment, but I’d heard similar comments over the years. By illegal, he was referring to article 8, section 7 of the Washington State Constitution which prohibits local governments from giving money, property, or loans of credit to a private entity, with limited exceptions. This prohibition means that common economic development tools, such as property tax forgiveness and direct payment of job training funds to private companies, are off the table in Washington. Also, the state’s property tax laws limit the usefulness of Tax Increment Financing (TIF) as a way to fund infrastructure investments to spur redevelopment. TIF is a powerful economic development tool frequently used in almost every other state in the country.

So, my colleague from Florida wasn’t totally off-base – there are plenty of economic development incentives that simply aren’t legal in Washington State.

How do these limitations impact our ability to attract and retain jobs? I talked to two experts in the field whose communities have had recent successes in landing new businesses. The bottom line: communities that are strategic and have the flexibility to remove regulatory barriers to growth can compete well in attracting jobs to Washington State.

Spokane Region
“The key is in getting everyone to coalesce around doing what it takes to bring the jobs to town.” Rich Hadley, GSI

Last year, Caterpillar Inc., a leading manufacturer of construction equipment, was seeking a site for a new distribution center that would create 150 local jobs. The company looked at 23 sites and narrowed it down to two – one in Idaho and one in Spokane County. That’s when Rich Hadley, President and CEO of Greater Spokane Incorporated (GSI), started working in earnest to land Caterpillar for Spokane, knowing he’d have to work hard to outcompete the competition. “We are a border community, and when we compete with Idaho, they can offer a company $3,000 per employee for necessary job training,” said Hadley.

GSI, the Economic Development Organization (EDO) for the Spokane region, quickly pulled together all the key stakeholders – Spokane County, the city of Spokane, the city of Airway Heights, the Spokane Airport, and the Washington State Department of Commerce – and explained to them the magnitude of the opportunity and the need to collaborate. The county moved fast to eliminate a regulatory hurdle. Within 60 days, the county had raised the height limit in the airport overlay zone to allow for the 60-foot Caterpillar building. The Department of Commerce worked with the Governor to tap a strategic fund to help write down the land costs for the site. The team effort and emphasis on customer service impressed Caterpillar, which, last summer, selected Spokane as the site for their new distribution center.

“You have to be really well-organized. You have to be strategic. You have to have the support of the local elected officials so you can put on a full-court press when the opportunity comes,” said Hadley. “The key is in getting everyone to coalesce around doing what it takes to bring the jobs to town,” he added.

Certified Site Program

The Caterpillar experience was a fire drill that ended in success. To prepare for the next opportunity, GSI is working with local governments on a certified site program. The program identifies sites that are suitable for economic development and completes as much of the predevelopment work as possible, “so that we have development sites that are shovel-ready, and we can get a building permit issued in 30 days,” said Hadley. They are currently working to certify a 300-acre site in West Plains that would be suitable for a new or expanded aerospace company.

City of Kirkland

Kirkland's strong local economy is characterized by a healthy mix of small businesses, corporate headquarters, light industrial and manufacturing businesses, and a growing base of high-tech and home-based businesses. Of Washington’s economic development limitations, Ellen Miller-Wolfe, the city’s economic development manager, says, “It’s true. We don’t have a huge pot of money to offer companies to come here.”

But Miller-Wolfe notes that what sets Washington apart from other states is a well-trained work force and a stunningly beautiful physical setting. “Boeing, Microsoft, and Google are all magnets for other businesses. They’ve developed a talent pool that is very attractive to employers,” Miller-Wolfe said. Environmental stewardship also plays a role. “We are sensitive to our heritage and the environmental qualities of the area – that’s an economic development strategy in itself,” she added.

Reducing Start-Up Costs for Small Businesses

Small business growth is the cornerstone for economic development, accounting for 64 percent of net new jobs nationally. To temper the impacts of the economic downturn on small businesses, the Kirkland City Council sought ways to reduce the start-up costs in the city. Businesses identified the city’s impact fee ordinance as a barrier to locating in the downtown. The ordinance charged impact fees to new businesses that took over an existing business space based on the number of additional vehicle trips generated. “So, the wine bar that wanted to move into the old, 500-square-foot dress shop space in downtown was getting hit with a $30,000 impact fee bill on top of the necessary tenant improvements,” noted Miller-Wolfe. The city changed the regulations so no impact fee is charged with a change of use unless the size of the building footprint is enlarged. This regulatory relief has made Kirkland’s downtown a more welcoming place for small businesses.

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About Tracy Burrows

As MRSC’s Executive Director, Tracy seeks out innovations in local government, tracking trends in management and technology that impact your work. She has over 20 years of local government and non-profit experience, specializing in growth management, transportation, and general city management issues.