Course Correction

By Hannah Wallace July 31, 2008

The Sarasota and Manatee economies face two major problems today. The short-term problem is that real estate, the underpinning of our market, has tanked. And then there’s the long-term problem: Florida is turning into a higher-cost state, with a skyrocketing cost of living and of land, rising insurance costs and an uncertain tax environment.

“We depend too much on construction and real estate,” acknowledges Kathy Baylis, president and CEO of the Economic Development Corporation of SarasotaCounty.

Economic development officials have been trying for decades to broaden our economy beyond real estate and tourism, often by luring companies to our shores.

But that’s becoming difficult. Other states are beginning to poach for manufacturers in our back yard. After decades of being a hunter in the corporate relocation game, Florida is turning into prey for states that offer financial incentives and lots of skilled workers, such as the Carolinas. The region’s first nasty wounds were the decisions of leisure boat builder Chris-Craft, bike maker Indian Motorcycles and window manufacturer PGT to assemble part of their products in North Carolina instead of ManateeCounty and Sarasota.

Corporations that have a presence here but are headquartered elsewhere are also closing local plants. Earlier this year, boat builders Wellcraft and Hydro Sports and auto supplier Hi-Stat Manufacturing announced they would shutter their Manatee operations, costing more than 500 jobs.

Local business boosters, usually determined to appear positive, are publicly expressing a sense of urgency.

“For all these years, we have said we need to diversify. But we have failed,” says Kerry Kirschner, executive director of the Argus Foundation, a local government watchdog organization funded by business. “We have to go back and think how we build this community.”

Question is, are the times special enough for businesspeople to seek special measures?

Steve Quello, the founder of CEO Nexus in Orlando, who spoke on an economic diversity panel sponsored by Sarasota’s Coalition of Business Associations (COBA) and hosted by Biz941 and USF Sarasota-Manatee’s Institute for Public Policy and Leadership, hopes so. But he isn’t talking about the financial incentives, like tax breaks or free land to companies that agree to relocate here, that many worried Florida business leaders are proposing. Instead, the soft-spoken consultant is trying to convince area officials and businesses to consider an altogether new approach to economic development dubbed “economic gardening” (see sidebar, page xx, and our story, “What If,” on page 30). The basic philosophy, says Quello, who works closely with the Michigan-based Edward Lowe Foundation, a think tank on entrepreneurism, is that entrepreneurs drive economies, and if you give them the resources they need and then step out of the way, they’ll do what they do best—make money and produce jobs.

Developed by Christian Gibbons and implemented for more than 20 years in the Denver suburb of Littleton, Colo., economic gardening puts the focus exclusively on “growing your own”; in other words, assisting small companies—in a very systematic fashion—that are already in your backyard and are eager to grow.

Littleton, which had been hit by thousands of job losses after a series of corporate Houdini acts, was tired of being buffeted about by out-of-town corporations that had little loyalty to the community. The city took drastic measures, cutting off all incentives and outside recruitment efforts, focusing instead on cultivating small, growing entrepreneurial companies. And it worked—slowly, but surely. Employment doubled, even though Littleton’s population grew only 30 percent, and Littleton’s economy has become much more diverse.

While local economic development officials have paid attention to expanding existing companies, Sarasota officials, at least, have tended to focus on companies that export goods and services—a strategy many communities take since it brings in new dollars instead of circulating the money that’s already here. The results look less than impressive. A 2004 study pointed out that in 1999 SarasotaCounty sold a total of $202 million in goods and services outside its geographic area, up only 8 percent from 1993. In comparison, the TampaBay area’s exports rose 85 percent during that period, and the Melbourne-Titusville area had a 102 percent boost. Another benchmark measuring the degree of outward-orientation is the share of “value-added jobs” (jobs created by companies that bring in new dollars) as a portion of all jobs. A value-added job share below one-third reflects a consumption-oriented economy. According to the EDC, the value-added share in the county rose from 23.8 percent in 2004 to only 26 percent in 2007 (see chart 1).

To be sure, local EDC leaders like Baylis and her counterpart in Manatee, Nancy Engel, are adapting their strategies to changing times.

The main road towards diversification goes through local companies, Baylis agrees. “In the continuum of development, our economy is a late teen to early adult,” she says. “A lot of our companies are still in that second stage of their growth. And the types of companies that will help us diversify are in that second stage.”

Still, neither EDC has stopped trying to recruit. Last December, Kathy Baylis, accompanied by past chairman John Swart, traveled to Minnesota to try to lure a financial services company and 400 jobs to Sarasota. And then there was “Project Future,” about bringing another financial services firm to Sarasota. (Neither company has relocated so far.) Both got only a small mention in the EDC newsletter, with the introduction “although the EDC focuses on helping local businesses expand…” This is certainly a different tone compared to a decade ago, when aggressive efforts yielded relocation trophies such as the technology division of Arthur Andersen. But Arthur Andersen, crushed to death by the fall of Enron, is history, and only the name of

Arthur Andersen Boulevard
reminds locals of the peak of the relocation era.

“If you’re running a good ED organization you have to have a good balance,” says Baylis, defending the relocation efforts. “You want the world to know that your community is open for business. But concentrating on recruitment wouldn’t be very wise to do right now. In economic downturns, they stay put. You have to do retention now.”

But even if they are doing more to grow existing companies, few economic development officials—or even tax watchdogs—are ready to follow Littleton’s example in cutting off incentives.

“You cannot play the game of economic development without them, that’s the unfortunate reality. These incentives do make a difference,” says Dominic Calabro, president and CEO of Florida TaxWatch. “That horse has left the barn. If we were to lift incentives it would be akin to declaring unilateral disarmament.” (Calabro is a nonvoting board member of EnterpriseFlorida, the state’s public-private economic development institution that doles out hundreds of millions of dollars worth of incentives every year.)

As of May, local economic development officials in Sarasota-Manatee were pursuing four projects involving state incentives, according to Brenda Workman, director of business retention for EnterpriseFlorida.

In an effort to fight off the poachers, the Sarasota and Manatee EDCs combined forces in tying up a $2.5 million incentives package for cartridge valve manufacturer Sun Hydraulics, which reportedly plans a $24.6 million expansion with 170 new jobs. As part of the package, Sun could receive $204,000 of QTI tax refunds from the counties.

“If we wanted to keep Sun Hydraulics here, we had to do it,” says the EDC’s Baylis. “They indicated that they were looking at other locations. We need to show them the appreciation; we need to show them we want them to stay here.”

Adds the EDC’s Baylis: “I wouldn’t take anything off the table. We’ve been in touch with Steve Quello. Maybe we’ll do a visit to Littleton. We need to figure out what’s going to work in our community.”

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