Economic Development

The Realities of Raising the Minimum Wage

Earlier in 2013, questions about raising the minimum wage began to sweep across the nation as fast food workers in New York were pushing for $15 per hour. Although New York is an expensive city to live in, it causes a ripple effect throughout the nation about raising the wage across the board.

While everyone would like more money, is it sustainable in today’s economy to¬†boost the minimum that employers have to give to staff?

Sounds Good, for a Single Employee

What would the impact be if minimum wage was to be bumped up by 10-percent for a single employee? This means that anyone getting such a low pay would receive $7.98 per hour instead of $7.25. If this employee is paid bi-weekly, he or she would get an extra $58.40 on the gross income.

After taxes and other government fees, this amount could be around $45.00. Over the course of a month, the employee would make around $90 extra to be put towards various bills.

Compensation of Wages Through Income

In order to pay that employee the extra $116.80 per month, that money has to come from somewhere. Although larger corporations are able to compensate given the sheer income versus employees that are actually getting minimum wage, smaller businesses may have a harder time.

If a small business has three full-time employees at minimum wage, that is an extra $350.40 that¬†needs to be budgeted. The daily income would have to increase by $17.52. That may not sound¬†like much to some organizations, but it could be quite monumental for small businesses that are¬†scraping by as it is. This isn’t putting into account the $9 per hour wage that is being currently¬†suggested.

Could Micro-businesses Fail?

According to the Bureau of Labor Statistics‚Äô Consumer Price Index for Urban Consumers, an¬†increase of 2.6-percent to the average employee would only cost an average of 0.03% to be¬†covered by average income of businesses. The keyword in this last sentence is “average.” What¬†about those businesses that fall below the average?

Between recent insurance adjustments and a proposed wage increase, some of the smaller operations may have a much harder time to recuperate from such expenses. Is this conducive to perpetuating the economy, or will these smaller businesses be provided with tax breaks in order to sustain themselves?

How Much is Too Much?

The proposed increase earlier in 2013 was a hike of more than 100-percent. Although this is not¬†feasible for much of the country, supporters in New York were pushing as hard as they could for¬†the $15 per hour amount. If the movement had been successful, small businesses that paid¬†minimum wage would not be able to sustain such an increase. The labor force that was pushing¬†for this hike in the wage obviously didn’t see the ramifications it would have to a vast collection¬†of services, educational facilities and the millions of other jobs that couldn’t afford to pay¬†experienced personnel $15 per hour.

Although most small business could sustain an increase such as $17 per day, it still puts¬†additional strain on a company that is also faced with insurance adjustments and a poor¬†economy. The proposal of “trickle-down economics” in the past did not work as evident in our¬†current situation. Greater effort is needed towards creating a sustainable future before there is no¬†future to sustain.

Author Bio: This is a guest post by Liz Nelson from WhiteFence.com. She is a freelance writer and blogger from Houston. Questions and comments can be sent to: liznelson17 @ gmail.com.

Minnesota Creates $6.7M Angel Loan Fund To Help Startups

The Minnesota Department of Employment and Economic Development (DEED) has established a $6.7 million Angel Loan Fund that will provide no-interest loans to startup businesses.

Minnesota business startup

Minnesota business startup (photo – mn.gov)

The Angel Loan Fund will be administered by DEED and is housed under the agency’s State Small Business Credit Initiative (SSBCI).

The Angel Loan Fund will use federal dollars already allocated to SSBCI. DEED repurposed underutilized funds and obtained a waiver from the federal government.

The SSBCI has four programs including the Capital Access Program, Emerging Entrepreneurs Fund, Small Business Loan Guarantees, and now the Angel Loan Fund.

Startups may seek loans of up to $250,000 from the Angel Loan Fund for everything from startup costs and working capital to equipment purchase, construction, franchise funding, inventory financing, etc.

However, the fund has been designed to serve as a funding option for businesses that are certified under the state’s Angel Tax Credit Program. Applicants seeking funds from the Angel Loan Fund will therefore be required to first seek certification under the Angel Tax Credit Program.

This tax credit program was launched in July 2010, and has already delivered $137 million in assistance to help hundreds of startup businesses.

Minnesota Governor Mark Dayton, who did two stints as Minnesota’s commissioner of economic development, said in a statement that entrepreneurs who want to start new businesses and create jobs should have access to as much help as the state can reasonably provide.

The current DEED Commissioner Katie Clark Sieben said that businesses are the lifeblood of Minnesota’s economy, but many in their early stages struggle to access capital from conventional funding sources. Commissioner Sieben said this fund will help these businesses leverage new funding and support their success in a competitive business environment.

The SSBCI has a target of attracting $10 in private investment for every dollar provided to projects. At present, the SSBCI programs are expected to spur $150 million or more in lending to small businesses in Minnesota, and will help create 3,000 new jobs statewide.

DEED estimates that this new investment may leverage private investments to the tune of up to $261 million for small businesses in Minnesota over the next three years.

Illinois Manufacturing Lab Starts Off With 10 Pilot Projects

Officials from the University of Illinois and UI LABS joined Gov. Pat Quinn for the launch of the Illinois Manufacturing Lab (IML) at the Chicago headquarters of Gold Eagle Co.

Illinois Manufacturing Lab launch event

Illinois Manufacturing Lab launch event (photo – Gold Eagle Co)

IML is a public-private initiative supported by UI LABS and the University of Illinois, and will help small and medium sized manufacturers implement advanced manufacturing technology applications.

IML brings together research capabilities with technical resources and commercialization expertise. Governor Quinn said IML will help Illinois remain a national leader in making quality products and creating good jobs.

As a start, the Lab is working on ten pilot projects to solve manufacturing challenges at ten Illinois companies. These projects fall into three categories, including computational fluid dynamics (CFD), finite element analysis (FEA) and virtual machining.

One of the ten projects is for Gold Eagle Co., which produces and distributes aftermarket fluids and additives that help protect and enhance engine performance. Gold Eagle currently needs around a million bottles every week at its Chicago manufacturing facility.

IML will work with Gold Eagle on enhancing the productivity of the company’s bottle manufacturing using advanced manufacturing technologies.

Marc Blackman, president and CEO of Gold Eagle Co., said IML’s expertise and resources will help Gold Eagle increase productivity, which in turn will strengthen the company’s competitive advantage and spur new opportunities for growth in Illinois.

University of Illinois President Robert Easter said public-private partnerships such as the IML are the key to progress and economic growth, forging collaboration for harnessing the University’s research capabilities to help solve real-world challenges.

The Chicago-based UI LABS is also a research, training, and commercialization center that connects the University of Illinois with state and industry leaders.

UI LABS Board Chairman Warren Holtsberg said IML’s pilot projects are an important part of UI LABS’ broader efforts aimed at spurring job creation and economic development in Chicago, the State of Illinois and the entire Midwest region.

IML is funded through matching contributions from the State of Illinois and the University of Illinois. IML will be leveraging the UI LABS platform, and will work closely with other partners including the Illinois Department of Commerce and Economic Opportunity (DCEO) and the University of Illinois’ National Center for Supercomputing Applications (NCSA).

New Zealand Lands Avatar Sequels With Enhanced Film Incentives

The Government of New Zealand has signed a Memorandum of Understanding with Lightstorm Entertainment Inc and Twentieth Century Fox Film Corporation for the filming of three Avatar sequels.

Avatar sequels announcement in NZ

Avatar sequels announcement in NZ (photo – Wellington Mayor)

New Zealand Minister for Economic Development Steven Joyce and Minister for Arts, Culture and Heritage Christopher Finlayson signed the MOU on behalf of the government with Avatar Director James Cameron and Jon Landau.

The combined production spending on the three sequels is expected to reach at least NZ$500 million (US $413 million), including live action shooting and visual effects.

The NZ government recently hiked the screen production incentives it offers for international productions from 15 to 20 percent. For Avatar, the government is willing to add another five percent and make it 25 percent of the Qualifying New Zealand Production Expenditure (QNZPE).

As per the MoU, this additional five percent will be provided to Lightstorm and 20th Century Fox only if they undertake activities that bring significant economic benefits for New Zealand.

Economic Development Minister Steven Joyce said the Avatar sequels will provide hundreds of jobs and thousands of hours of work for the screen sector and for jobs right across the economy. Around 90 per cent of live-action crew jobs are likely to be filled by New Zealanders.

The film production work will be based out of Wellington, where the announcement was made. Wellington Mayor Celia Wade-Brown said this was an early Christmas present for the creative communities in Wellington and New Zealand.

Apart from the direct economic impact of half a billion dollars, the Mayor said the wider effects would be substantial. She added that the films define New Zealand as a good place to visit and great people to do business with.

The first Avatar movie generated around NZ$100 million in spending for Wellington and more than NZ$307 for the New Zealand economy. Spillover effects such as the establishment of the Matakina 3D breast cancer detection imaging technology have been attributed to the development work at Weta Digital, the Wellington-based special effects company which handled the work for Avatar.

The three Avatar sequels are scheduled for back-to-back Christmas releases from Dec 2016-18.

Media reports in 2011 had indicated that the Avatar sequels may be produced in the United States instead of New Zealand, and anticipated the creation of more than 700 jobs. The Santa Monica, California-based Lightstorm Entertainment even established a new studio in Manhattan Beach, CA that would have been useful for producing the Avatar sequels.

Innovation Tohoku – Google Japan’s Internet-based Economic Development Initiative

Japan’s economic recovery efforts following the 2011 earthquake and tsunami involves all kinds of investment projects and infrastructure rebuilding programs. But there’s also one called “Innovation Tohoku” that focuses on people and the Internet to accelerate economic development.

Innovation Tohoku project - eCommerce for Konno Konpou's cardboard creative designs

Innovation Tohoku project – eCommerce for Konno Konpou’s cardboard creative designs (photo – innovationtohoku.com)

This program was initiated by Google Japan a year ago. The Innovation Tohoku project brought together volunteer Internet experts known as “Supporters” with entrepreneurs and businesses in the Tohoku region to figure out how the Internet could be used to fuel growth.

Ko Fujii, Head of Policy and Government Affairs, Google Japan, explained in a blog post how the program is driving sustainable development.

Some of the Supporters met with the First Lady of Japan, Akie Abe, and shared their experiences of how they used the Internet to help businesses grow even in a harsh business environment.

On the innovationtohoku.com website, there are more than 100 cases listed of businesses that have sought help from supporters for Internet-based growth. There are 35 businesses actively seeking supporters, another 26 that have already been matched with supporters and their projects are currently in progress, and 42 more that have already achieved their goals.

The projects listed include everything from rebuilding as a smart city with a better communication system to revitalizing communities by globally branding local crafts and tourism promotion, and even a crowdfunding platform to support small- and medium-sized businesses in the affected areas.

In the blog post, Ko Fujii highlights the example of Konno Konpou, a family-owned packaging-material company that makes wooden pallets in Miyagi Prefecture. The owner, Hideki Konno, branched out into creative design by making furniture and art installations using corrugated cardboard.

But the market for cardboard dinosaurs and robots in the fishing town where the company is based was limited, until Konno Konpou was matched up with a supporter under the Innovation Tohoku project.

They figured out how to market and sell the products on the Internet to urban audiences using eCommerce, and now Konno Konpou is not just a box-maker, but also an innovative creative design company that attracts customers from far beyond its own town.

Ko Fujii says the Innovation Tohoku approach is scalable, and the lessons learned can be applied to other rural areas in Japan and beyond.

New York Announces $715.9M in Regional Economic Development Awards

New York State announced the third round of the Regional Economic Development Awards in front of a packed audience at the Egg Center for Performing Arts in Albany, NY.

The 10 REDCs were awarded a total of $715.9 million for more than 824 projects.

The breakup of the amounts awarded to each region under the 2013 REDC awards is as follows:-

NY Gov. Cuomo at REDC Awards

NY Gov. Cuomo at REDC Awards

Western NY: $60.8 million

Finger Lakes: $59.8 million

Southern Tier: $81.9 million (Top Performer)

Central NY: $66.9 million

Mohawk Valley: $82.4 million (Top Performer)

North Country: $81.3 million (Top Performer)

Capital Region: $82.8 million (Top Performer)

Mid-Hudson Region: $59.6 million

New York City: $57.4 million

Long Island: $83 million (Top Performer)

New York created the 10 Regional Economic Development Councils (REDCs) in 2011 to help their regions develop long-term strategic plans for economic growth.

The first two rounds of REDC awards through the Consolidated Funding Application (CFA) process in 2011 and 2012 totaled $1.5 billion for more than 1,400 projects, and is helping create and retain an estimated 75,000 jobs.

In Round III this year, all 10 regions were competing against each other for a $220 million part of the total $760 million that was on the table this year. This included $150 million in capital and another $70 million in tax credits.

Out of the $150 million in capital, the five top performers (Southern Tier, Mohawk Valley, North Country, Capital Region and Long Island) won $25 million each, with the remaining five competing for the balance of $25 million.

The ten regions were also competing for a total of $70 million in tax credits, with each region eligible for up to $10 million in tax credits.

The remaining amount was awarded through the CFA process to projects put forward in proposals submitted by each of the ten regional councils.

Find out more about New York State’s Regional Economic Development Councils at regionalcouncils.ny.gov.

CAR Report – Economic Benefits of the Auto Bailout

The Ann Arbor, Michigan-based non-profit Center for Automotive Research (CAR) has released a report which aims to pinpoint the value to the U.S. economy, in terms of jobs and tax revenue, of the federal bailout of GM and Chrysler.

General Motors

General Motors (Photo – america.gov)

They considered two scenarios – one in which the collapse of GM in Jan 2009 would lead to a wider collapse of the U.S. automotive supplier and auto parts manufacturing sector, and another scenario which considers only the loss of GM employment.

Highlights from the report:-

- An industry-wide shutdown trigged by GM and Chrysler’s shutdown would have reduced U.S. employment by 2.631 million jobs in 2009 and 1.519 million jobs in 2010. This includes 238,000 automaker jobs in 2009 (90 percent of industry automaker employment) and 142,000 in 2010.

- A GM-only shutdown scenario would have reduced U.S. jobs by 1.196 million jobs in 2009 and 674,359 jobs in 2010.

Assuming the net cost of the bailout in U.S. Treasury funds is $13.7 billion ($11.8 billion in unrecovered funds from GM and another $1.9 billion loss at Chrysler), the U.S. government saved $105.3 billion under the industry-wide shutdown scenario. These savings are in the form of transfer payments that would otherwise have been required, and from the reduced personal and social insurance tax collections.

Under the GM-only shutdown scenario, the U.S. saves $39.4 billion (334 percent of the projected $11.8 billion in unrecovered funds from GM).

Coinciding with the CAR report’s release, the U.S. Treasury sold its last remaining General Motors Co. (NYSE: GM) shares, and ended up recovering a total of $39 billion out of the $49.5 billion it paid out, resulting in a net loss of $10.5 billion.

General Motors Chairman and CEO Dan Akerson said in a statement that continued investments, innovation, and job creation are just some of the returns of a healthy GM and domestic auto industry.

The report notes that CAR projections show the lost employment would have recovered by 2011 or thereafter even without government intervention. However, the report also says much of this employment would have shifted to the southern United States where the international auto makers are based.

The effect of this job relocation on Michigan and other Midwest states would have been severe.

The report also notes the adverse impact of around 600,000 lost or reduced retiree pensions and health benefits. A majority of GM and Chrysler retirees live in the Midwest states and in retiree states such as Florida and Arizona.

The shutdowns would also have resulted in the permanent loss of automotive research, product development and tooling which would not have been relocated from Michigan to the south, since the international auto makers largely handle pre-production activities in their home countries.

Dr. Sean McAlinden, CAR’s chief economist, who led the analysis, said that CAR is confident that in the years ahead, this peacetime intervention in the private sector by the U.S. government will be viewed as one of the most successful interventions in U.S. economic history.

Read the full CAR report on the “Effect on the U.S. Economy of the Successful Restructuring of General Motors” – Download (pdf)

Congress Considering Bill to Expand CDFI Lending

Rep. Keith Ellison from Minnesota introduced The Small Business and Community Investments Expansion Act in the U.S. House of Representatives.

CDFI Fund

CDFI Fund (photo – nrel.gov)

The proposed legislation (H.R. 3656) seeks to amend the Federal Home Loan Bank Act by allowing community development financial institutions (CDFIs) to use loans they have made to small businesses and community economic development projects as collateral.

CDFIs are certified by the Treasury Department’s CDFI Fund. There are more than 800 CDFIs nationwide.

Back in 2008, as part of the Housing and Economic Recovery Act, CDFIs certified by the Treasury were permitted to become members of the Federal Home Loan Bank (FHLB). This allowed them to raise capital by pledging their existing loan portfolio as collateral.

However, unlike community financial institutions (CFIs), the CDFIs were only allowed to pledge long-term housing loans they had made as collateral. This meant they could not use loans made to small businesses and community economic development projects for raising more funds.

H.R. 3656 proposes that CDFIs that qualify for FHLB membership must be able to use their entire loan portfolio as collateral. This includes loans made to community facilities and charter schools, in addition to loans made to small business and commercial facilities.

This amendment to the Federal Home Loan Bank Act would give CDFIs the same flexibility in collateral as CFIs, leading to greater economic activity in communities and creation of more jobs.

Rep. Ellison said that CDFIs finance affordable housing and community development projects, creating jobs and strengthening local communities. He said this bill would provide them with greater resources for maintaining their work during a painful time of austerity, and would potentially allow them to expand investments.

H.R. 3656 was introduced on Dec 5, 2013 and has been referred to the House Committee on Financial Services. It is supported by the Minneapolis-based non-profit Community Reinvestment Fund (CRF USA) and others such as TRF, Opportunity Finance Network, LISC and the Ohio Finance Fund.

Frank Altman, president and CEO of the Community Reinvestment Fund, said the bill would help CDFIs access a new source of liquidity by allowing them to pledge community economic development and small business loans as collateral for FHLB advances.

Altman said that in this time of uncertainty and budget cuts, innovative financing options like the one championed in this bill were needed for expanding resources for communities that are underserved.

U.S. Launches IMCP Phase II Competition

On Dec 10, 2013, the U.S. Economic Development Administration (EDA) will publish a notice in the Federal Register calling for applications from regions that wish to compete for a designation as one of the 12 “manufacturing communities” under the Investing in Manufacturing Communities Partnership (IMCP) initiative.

IMCP Playbook Flow Chart

IMCP Playbook Flow Chart

The announcement was made by Commerce Secretary Penny Pritzker during her opening remarks at the White House Mayor’s Manufacturing Community Summit.

This is Phase II of the IMCP, and to 12 communities that come up with winning strategies will be designated as “manufacturing communities.”

This designation gives them elevated consideration for $1.3 billion in federal funding and assistance provided through 10 different cabinet departments and agencies.

The communities vying for the designation are expected to present strategies identifying industries and technologies in which they would be competitive in the future and would make investments in areas such as workforce and training; infrastructure and site development; capital access; export promotion; supply chain support; and advanced research.

Apart from the elevated consideration for federal funding, the designated communities will also get a dedicated federal liaison at the agencies who will serve as their concierge, arranging for specific services which they need.

These communities will also be recognized on government websites which provide information about communities’ competitive attributes to prospective domestic and foreign investors.

Lastly, some of the 12 designated communities will be awarded with challenge grants.

Secretary Pritzker said the goal with IMCP is to incentivize smart, comprehensive and integrated economic development planning, and added that they are looking at nothing less than reinventing how economic development is done in manufacturing and other areas.

In the first phase of the IMCP competition, 44 communities were awarded a total of $7 million in planning grants to help them develop plans and strategies that will help them compete in the Phase 2 round.

For instance, the Greater Phoenix Economic Council (GPEC) and Arizona State University (ASU) were awarded a $170,000 grant which they are using for developing a plan to implement an Innovation and Commercialization Center for Advanced Manufacturing (ICCAM) in Greater Phoenix.

ICCAM will help advance the region’s manufacturing sector and make it more competitive for domestic and foreign investments, advance research commercialization, and prepare the workforce for advanced manufacturing jobs.

Participation in Phase 2 of the IMCP competition is not limited to the Phase 1 winners. Applications from participating communities are due March 14th, 2014. Find out more about IMCP at eda.gov.

Houston’s Economic Development Plan: Build a Strong Infrastructure

The Greater Houston Partnership (GHP), a group of more than 2,000 local and regional business leaders in the ten country area surrounding Houston, proclaims the city has everything that businesses need to thrive in the global market place. These needs include a skilled, available work force, superior location, expansive and sophisticated resources, and the infrastructure and transportation channels to support growth and prosperity across virtually all industries.

Texas flag close up

Basic Benefits for Business

Among the myriad of advantages the city offers, GHP lists five primary geographical benefits for new businesses considering Houston as the place to be:

  • Central time zone accommodates communication during traditional business hours from New York to Los Angeles
  • Four seaports available for transport and delivery
  • Two major airports service the region with domestic and international freight and passenger service
  • Mild climate year round
  • Positioned mid-way between east coast and west coast

Attracting and Retaining Major Businesses

While building new partnerships is an important focus for GHP, maintaining strong alliances with current businesses contributes to the city’s strong economic outlook. Part of the expansive breadth of resources for economic development includes state initiatives designed to cement long-term projects.

Shaina Zucker of the Houston Business Journal, reported that Chevron USA, which employs thousands of Houston area residents, plans to build a new tower in Houston to create more space for their growing business. The company plans to hire almost 1800 new employees as part of the expansion.

Funds from a $12 million dollar Texas Enterprise Fund (TEF) award will most likely cover project costs for the new tower, and could be used to defray the cost of recruiting new talent, as the TEF report from Office of the Governor Rick Perry’s site highlights. Funding covers recruitment expenses such as temporary housing, transportation, and relocation compensation packages.

Housing and Employee Benefits

While Texas, and Houston in particular offer a low tax base, economic incentives and a culturally diverse employee pool, there are some that think the city could do more to improve the economic outlook for citizens living in blighted neighborhoods.

Ben Hall, who ran an unsuccessful bid against Houston’s incumbent Mayor Annise Parker, says more could be done to revitalize housing and bring greater employment opportunities to veterans. One of his major campaign talking points was to highlight the need to replace the Tax Increment Reinvestment Zone (TIRZ) policies with new programs to benefit areas that are often labeled as “unsustainable”, according to BenHallforMayor.com. Mr. Hall expressed interest in building new units and repairing existing structures to provide more apartments for rent in Houston. More units would serve current and future residents as new businesses move into the region.

Home values continue to rise, and there are some indications that the number of apartment homes is already growing in bedroom communities. Both positive economic indicators. The 2012 ACCRA cost of living report shows that Houston’s after-tax cost of living in 2009 was lower (roughly 11 percent below the national average) than many metropolitan areas, beating out cities like New York, Dallas and Chicago.

Projections for the Future

If history is any indication, the city will continue to enjoy robust economic growth in the future. With Chevron’s commitment to inject half a million dollars into Opportunity Houston 2.0 to spark innovative business solutions and support economic development, Houston seems to have found a sophisticated approach to sustainable business growth. It’s about mutual fulfillment. When the community supports business growth, growing businesses support the community.

Guest Post: Trevor Wilkins
Trevor is a cultural sponge who writes about his worldly travels.

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