Coordinating Economic Development and Capital Planning

Type: 
Best Practice
Approved by GFOA's Executive Board: 
February 2011
Background: 

Economic development strategies are used by many governments to accomplish long term objectives. They provide the context for polices and programs that governments undertake to attract and retain businesses, increase employment, or promote private investment in the community. Economic development strategies can be controversial because of potential development impacts, including increased population and traffic and increased demands on utility services, schools, parks, and public safety.  Based on the potential for these increased demands, economic development strategies should be closely linked to a jurisdiction’s capital improvement strategies, thereby providing a mechanism to help ensure that necessary infrastructure is developed to support economic development activity in a timely way.

Recommendation: 

GFOA urges state and local government officials to coordinate their economic development and capital improvement strategies and plans. In doing so, finance officers should consider:

  1. Alignment with the Organization’s Goals and Objectives: Both the Capital Improvement Plan (CIP) and economic development strategies should be consistent with the organization’s overall goals and objectives and the community’s priorities.  
  2. Timing of Economic Development and Capital Planning Projects: When doing economic development planning and capital improvement planning, governments should coordinate the timing of economic development projects with related capital infrastructure projects.  
  3. Value of Public Infrastructure as an Economic Development Strategy: Physical improvements like repaved streets, lighting enhancements, and landscape beautification, along with access to transportation or parking, and availability of cultural or recreational facilities, may promote economic development efforts.  
  4. Opportunities for Having Developer Fund Capital Assets: Governments are often able to have private developers fund public and/or private infrastructure improvements such as roadway, storm water drainage, water and sewer, or other improvements as part of economic development agreements.
  5. Impact of Development on Existing Assets and Ongoing Maintenance: New businesses, new residents, and/or new employees using transportation, water, and sewer infrastructure along with other assets will cause those assets to deteriorate faster than without the additional development. This is especially true with new manufacturing or industrial developments and related freight traffic and increased demand for utilities.
  6. Use of Economic Development Tools1 to Fund Capital Projects: Governments may be able to use economic development tools to pay for capital improvement projects that otherwise would not have funding as part of the organization’s CIP. This would accomplish both economic development and CIP goals.   
  7. Debt Resulting from Either Economic Development or the CIP: Both economic development activities and CIP projects may utilize debt financing. The finance officer should coordinate efforts to achieve the most favorable terms for such debt issuance while complying with debt policies and statutory requirements.
  8. Administrative Aspects: Economic development agreements with the private sector often involve complex arrangements to install and finance needed infrastructure. Such arrangements as performance clauses (clawbacks), repayment agreements, fee waivers, and other financing provisions can prove challenging to administer. Stipulations and obligations from these agreements often require diligent oversight, as well as continual monitoring and reporting. As a result, finance officials are often called on to develop efficient and accurate systems and processes which ensure that development obligations are addressed.
  9. Coordinating Economic Development Strategies with other initiatives: Economic development strategies and capital planning strategies should be integrated into a government’s existing master plan, comprehensive plan, or long-term financial plan to ensure consistency with other efforts.
Committee: 
Economic Development and Capital Planning
Notes: 

1 Tools could include improvement districts, statutory financing districts, and economic development incentives available to governments.

References: 

Elected Officials Guide: Economic Development, GFOA.

Joseph Casey and Michael Mucha (editors), Capital Project Planning and Evaluation, Government Finance Officers Association, 2008.

GFOA Best Practice, “Capital Asset Assessment, Maintenance, and Replacement Policy,” 2010.

GFOA Best Practice, “Monitoring Economic Development Performance,” 2009.

GFOA Best Practice, “Multi-Year Capital Planning,” 2006.

GFOA Best Practice, “Economic Development Incentives,” 1990.