Study blasts federal economic development initiatives

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A new study blasts the federal Economic Development Administration (EDA) and calls for its abolishment, charging that the agency encourages economic waste, over-taxation and the misallocation of valuable resources.

In “The Case for Abolishing the Economic Development Administration: A Great Society Relic That Robs Peter to Pay Paul,” Competitive Enterprise Institute Policy Analyst David Bier argues the EDA is essentially a “prop” for politicians, who tout EDA grants as major accomplishments when running for re-election. CEI is a nonprofit, nonpartisan public interest group that studies the intersection of regulation, risk and markets.

“It doesn't really create economic development,” said Bier. “It's always at the expense of someone else.” EDA investments do little more than shift resources from one area of the country or the economy to another, said Bier. Because government has no resources of its own and relies on taxation for revenue, it can only rearrange resources rather than create them, he added.

An example of state and local economic development funds at work can be seen in the Lehigh Valley, where Ocean Spray is relocating its New Jersey beverage manufacturing facility to Upper Macungie Township.

The $110 million investment is expected to bring 165 jobs and training opportunities to the community.

But what isn't clear is just how many of the New Jersey site workers would be transferred to the new location – or how many local people would land jobs at the facility.

The Governor's Action Team, a group of economic development professionals who work directly with businesses that are considering locating or expanding in Pennsylvania, worked with Team Pennsylvania Foundation and the Lehigh Valley Economic Development Corp. in Bethlehem to lure Ocean Spray to Pennsylvania.

In a previous interview, Steven Kratz, a spokesman for the Pa. Department of Community and Economic Development, said the company is going to invest over $105 million in private dollars. He told Lehigh Valley Business that the state agency – working in conjunction with the LVEDC – made an offer of $4,525,000; of which $2 million is a low-interest loan from the Commonwealth's Industrial Development Authority Program to attract Ocean Spray to the Lehigh Valley.

While many local communities, including those in the Lehigh Valley, are waiting to develop projects until state or local grants can be obtained, Bier said a lot of these projects could move forward in a more limited fashion.

“It creates competition between cities and businesses know this,” said Bier. “They base their location decisions based on where they will get the biggest handout.”

He noted that in 2011 the EDA awarded $2 million to Visalia, Calif., to improve the Visalia Industrial District and attract new businesses. Shortly after, manufacturer VWR relocated a warehouse from Brisbane, Calif., to the newly subsidized zone in Visalia. Jobs were created in Visalia, but even more jobs were lost in Brisbane.

Bier also noted how the EDA awarded $35 million for construction of a convention center in Cedar Rapids, Iowa. After the city received the money, it used eminent domain authority to seize a private hotel for the construction. The city admitted that the convention center — unlike the private hotel — would not make money. In fact, the city's own projections showed that it would lose more than $1 million by its fifth year.

“I see it as corporate welfare or a handout,” said Bier. “There are so many groups entirely dependent on government handouts.”

He also took county economic development agencies to task and said these groups waste resources spending tax dollars lobbying the federal government full-time for funding.

“In my view, it's really wasted resources… it really slows things down and makes things inefficient,” said Bier.

These projects that would probably move forward are being delayed by government, he added. Bier said EDA's funding should be immediately revoked, allowing private entrepreneurs to direct capital to the best projects.

Does competition provide all the incentive U.S. businesses need to innovate, compete, and succeed in the global economy?

Bier says “yes,” but many professionals in the economic development field say EDA funding is critical to making these projects happen.

COUNTERPOINT

“For the Lehigh Valley we have found the EDA grants to be a great stimulator of jobs and community revitalization,” said Cindy Feinberg, director of community and economic development for Lehigh County. “We have a very defined and competitive process for applying for the funds.”

The review committee, known as the CEDS (Community Economic Development Strategy) committee, is made up of members of the counties, economic development, local businesses, education and community groups, said Feinberg.

Funding they received has helped with the development of Northampton Community College's Fowler Family South Side Campus and the expansion of Ben Franklin at Lehigh and South 10th streets. in Allentown. Six years ago, the Coca-Cola Park baseball stadium for the IronPigs was considered to be the highest-ranked project for the region but it was not seen as an EDA-based project because they would not fund sporting venues so it was not funded, said Feinberg.

“Regionally, we have always had a positive working relationship with the Philadelphia EDA office,” said Feinberg. “A loss of this funding would have an impact on this very effective regional program.” vPete Reinke, vice president of regional development for Lehigh Valley Economic Development Corp., said the NCC's Fowler Center in South Side Bethlehem is just one example of EDA funding that helped revitalize a community.

“That funding allowed the entire building to be re-used,” said Reinke. “We've had a number of projects that have gotten funding through EDA. These projects were going to economically distressed communities.”

The Fowler Center now has hundreds and hundreds of people using it, while before that, the building was largely abandoned – and this was several years before the redevelopment of the nearby ArtsQuest at SteelStacks site, said Reinke.

Funds also came through EDA to install a road at Commerce Center Boulevard to access the industrial parks off Route 412.

EDA funding also allows a developer to get engaged in the project, added Reinke.

“It's absolutely the catalyst for what is happening now,” said Reinke.

Alicia Karner, economic development analyst for Northampton County, and Matthew Tuerk, assistant director for the Allentown Economic Development Corporation, declined to comment for this feature.

Brian Pedersen

Brian Pedersen

Reporter Brian Pedersen covers construction, development, warehousing and real estate and keeps you up to date on the changing landscape of our community. He can be reached at brianp@lvb.com or 610-807-9619, ext. 108. Follow him on Twitter @BrianLehigh and read his blog, “Can You Dig It,” at http://www.lvb.com/section/can-you-dig-it.

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