Eric Rothman: Organizing for Local Economic Growth

Eric Rothman, President, HR&A Advisors

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In 2011, California’s deepening fiscal crisis and the lingering effects of the Great Recession led the Governor and Legislature to approve legislation to eliminate the state’s approximately 400 local Community Redevelopment Agencies.  This action, which was upheld by the California Supreme Court, resulted in the dissolution of the Community Redevelopment Agency of the City of Los Angeles (CRA/LA), which had served as the City’s public development partner in affordable housing and economic development since the 1950s. Furthermore, the City historically had depended on CRA/LA, the Mayor’s office and miscellaneous efforts in other City departments to provide economic development services, but in an uncoordinated way.

In late 2012, an HR&A led-team was hired by the City of Los Angeles’ City Administrative Officer  and Chief Legislative Analyst to analyze and recommend a new approach to delivering citywide economic development services. In February 2013, the LA City Council voted unanimously in support of a new framework for the City’s economic development structure based on these recommendations

In the course of HR&A’s work we performed an intensive benchmarking analysis of how best-in-class cities across the U.S. structure and organize their delivery of economic development services. Our findings revealed lessons that apply both to Los Angeles and potentially other cities across the country. It is our experience that the specific delivery structure that a city chooses will only be successful insofar as it reflects five critical factors for efficient and robust, long-term economic development:

  • Economic Fundamentals

  • Public and Private Sector Leadership

  • Financial and Regulatory Resources

  • Organizational Flexibility

  • Organizational Talent.

Fundamentals of the local economy and comparative advantages for specific industry sectors are key drivers of economic development, and more important than the organizational structure for delivering economic development services. These include highly developed industry sectors, transportation and utility infrastructure capacity sufficient to support business expansion, available land supply, high quality educational institutions, and a skilled workforce, among others. Identifying and fully understanding these fundamentals are the essential first steps in maximizing a city’s economic potential.

Leadership with a clear vision and priority for citywide economic development also trumps organizational design. Cities that have strong leadership from their Chief Executives (governmental and in some cases major businesses) and that place a consistently high priority on citywide economic development are more successful in attracting new businesses, creating jobs and diversifying the tax base.

With Fundamentals understood and Leadership in place, the specific design of the economic development services delivery structure can be designed for success with:

Resources  include financial and regulatory tools commensurate to the organization’s mission, providing for authority to manage and develop revenue generating assets, funding sources, and public financing tools. Land use and business permitting regulatory systems that are difficult to navigate can severely impair economic development. The most successful cities of any size demonstrate the consistent use of substantial regulatory tools  which support economic development functions, as well as the development of stable and sustainable sources of revenue to fund economic development activities.

Flexibility within the economic development services organization is essential to its effectiveness, including flexibility to incubate new ideas and projects, and respond to changing priorities and economic needs based on shifting market factors and conditions. Economic development entities must be accountable to elected officials, but benefit from either self-financing or a dedicated revenue stream that places them outside the departmental competition for resources that is part of an annual appropriations process.

Talent, including executives, board members and staff, is a critical success factor for best-in-class economic development organizations. Leading economic development organizations foster an organizational culture that attracts and incentivizes talent, and promotes meritocracy and entrepreneurship.

The fundamental conclusion from HR&A’s work in this area is that while the optimal design for economic development service delivery differs from city to city, the organizational design has different impacts on these five critical success factors. For example, in the short-run, most government policies have a very limited impact on economic fundamentals and competitive position. On the other hand, cities with good economic fundamentals, strong leadership and an effective economic development organization are better positioned to partner with the private sector to facilitate business expansion and attraction, achieve positive job creation and grow their tax base to create new resources that can fund essential city services.