Industry in Transition: Implications for Local Economic Development


Industry in Transition: Implications for Local Economic Development	.
Zenia Kotval, Ph.D., AICP and John R. Mullin, Ph.D., AICP	Author Info

Abstract

The "New Economy" of the 1990s is different from the industrial economies of previous decades. Competition, consumer demand and resource restructuring, is transforming the way business operates in todays highly productivity and competitive market. Emerging technologies, global markets, the changing role of government and the redirection of public resources after the Cold War are just some of the forces that are affecting the way industry organizes the work place and transforms the nature of work. These multi faceted forces and emerging trends are increasingly affecting the way we think and engage in industrial development at the local level. It is thus essential that anyone involved in local economic development have a firm grasp of how and where we are moving. This paper attempts to highlight the major trends that can be expected to influence the way we do business during the coming years. The trends are grouped into six major categories: changing market forces, the labor force, education and research and development, transportation infrastructure and real estate, governmental action and regulations, and capital resources and financing alternatives.

Introduction

Current literature on industrial policy stresses that the "New Economy" of the 1990s is very different from the Fordist economy of the 1950s, and the flexible specialization of the 1980s. Industries, in response to competition, consumer demand and resource restructuring, is transforming the way it operates as it strives to achieve greater productivity, quality and competitiveness. Emerging technologies, global markets, the changing role of government and the redirection of public resources after the Cold War are just some of the forces that are affecting the way industry organizes the work place and transforms the nature of work. These multi faceted forces and emerging trends in a number of areas -- including market composition, human resource development, education, physical infrastructure, availability and mobility of capital, development regulations, business location and economic policy at all levels of government -- are increasingly affecting the way we think and engage in industrial development at the local level. It is thus essential that anyone involved in local economic development have a firm grasp of how and where we are moving.

This paper is the culmination of more than fifty discussions, presentations and planning assignments that we have had over the past five years. Wherever we have worked, whether in the Northeastern United States, Canada, Portugal, Germany or Northern Ireland, we have inevitably been asked to describe and explain current and future trends concerning industrial development. The concerns of local decision makers are myriad and range from the basic availability of land to the influence of international and national policies. In a final analysis, we believe, paraphrasing former Speaker of the House Tip O'Neill, that all industrial development is ultimately local.

This paper attempts to highlight the major trends that can be expected to influence the way we do business during the coming years. The trends are grouped into six major categories: changing market forces, the labor force, education and research and development, transportation infrastructure and real estate, governmental action and regulations, and capital resources and financing alternatives.

Changing Market Forces

Globalization of the Economy

The U.S. economy is increasingly operating in a highly competitive global marketplace. The performance and interactions of this global market will determine local and regional economic performance. The phrase "think globally - act locally" is especially apt in today's economy. Our firms will be increasingly expected to export goods and services and capture market share beyond that of the region or even the nation. Although there are still significant barriers to export, falling trade barriers and the leveling off of the value of the dollar will encourage overall growth in the export market. Because ensuring that both American and foreign conditions are met is often complex, demystifying the export process will be a key form of assistance for any economic development strategy. Such efforts will increase in importance as the federal government withdraws from trade assistance programs.

International trade agreements such as the North American Free Trade Agreement (NAFTA), the World Trade Organization (WTO) formally a part of the General Agreements on Tariffs and Trade (GATT), and the consolidation of markets such as the European Union (EU), the Eastern Europe free market, the Asian NICs (newly industrialized countries -- including Singapore, Hong Kong, Taiwan and South Korea), and the emerging "Asian Tigers" (Thailand, Indonesia, Malaysia and Southern China) are rarely considered at the local and regional level, yet, they have a direct impact on the performance and on the ability of local firms to penetrate the international market.

Emergence of Technology

Throughout America's history, economic development has been affected by changes in transportation and communication technology. The first wave of economic prosperity evolved around seaports; the second wave of development occurred in those river and canal based cities that formed the backbone of the industrial revolution; railroads opened up the hinterlands to manufacturing and trade. Then came the freeways, expressways and beltways. The interstate highway system once again changed industrial location patterns. Today, aviation, international markets and time based competitiveness dominates development patterns. Air cargo now accounts for more than one-third of the value of U.S. exports and is projected to increase by at least 7 percent annually through the 1990s.

Computers and advanced telecommunication technologies are fast changing the workplace and locational needs of business. The growing interdependence of world markets is reflected not only in terms of international trade and multinational corporate activities but also in international information flows and computerized financial transactions. The effects of technology can be felt closer to home as well. The use of increased technology will further accelerate the downsizing of industry. The increasing use of robotics and mechanical devices will reduce costs and improve competitiveness.

We can expect back office activities to increasingly move to rural areas. There is no need for a major insurance company, for example, to house its back office workers in high-priced buildings in the center city. With modern telecommunications networks, these functions can be just as efficiently carried out in rural areas, small towns or anywhere in the world: there is a national visa processing center in South Dakota, Connecticut General Insurance Company operates a back office facility in Ireland and Singapore Airlines processes tickets in Bombay, India. We have noted that businesses locating as few miles as 6 - 10 from center city achieve a cost savings of up to 15%. There is, indeed, a cost savings that occurs outside of the City.

Changing Relocation Patterns in the United States

Large international companies will continue to look for sites in the Sunbelt.

States in these regions are aggressively pursuing international firms: they have carefully refined their business attraction strategies to make the development process smooth and easy, and they are prepared to offer excellent incentives. In addition, the costs of operating in these regions (i.e., workers' compensation, unemployment insurance) are well below those in the rest of the nation, and union activities in these areas tend to be minimal. Finally, the smaller communities in these regions of the country offer incoming firms an opportunity to inculcate a culture that matches their needs. Examples include BMW in South Carolina, Nissan and Saturn in Tennessee, Toyota in Kentucky, and Mercedes in Alabama. Please note, however, that this has not been cost free to the communities or states where these firms have located. A recent article in the Boston Globe (April 29, 1995) suggests that governmental costs for bringing those firms has ranged from approximately $11,000 for Nissan (1980) to $68,400 for BMW (1992) and $153,000 for Mercedes (1993). The costs for matching location, culture and the firms are not inexpensive!

Within the U.S., the movement of major plants from one part of the country to another will slow down.

Although one can still point to a Timberland Shoe moving a manufacturing facility from New Hampshire to Tennessee, such wholesale relocations are becoming increasingly rare. Branch plants, however, will continue to be placed in strategic locations across the country. Particularly as companies that are labor intensive and produce high sales volume goods look to minimize there costs. A key point is simply that labor intensive companies will continue to seek out areas of the nation (and the globe) where they can lower costs. They have little choice.

Center cities will continue to see a decline in manufacturing activity.

Industrial executives want to site their facilities as close as possible to their workers, in pleasing, easily accessible areas where there is minimal fear of crime. Unfortunately, such sites are most apt to be found outside the cores of our large cities. IBM, for example, has long had a policy of placing its facilities in areas where its workers would most want to live. Only one major IBM facility is located in a center city, and that location was chosen because IBM wished to contribute to its economic recovery. Similarly, with the downsizing of the Digital Equipment Corporation, two of its first plants to close were its center city Boston plant (Roxbury, Massachusetts), and its center city Springfield, Massachusetts plant (Springfield Armory). The irony in the Digital decision is that both plants, up to the time of closure, had been highly productive. As Michael Porter has noted, urban areas, in order to be competitive, must insure that workers, customers, suppliers and sales people must feel comfortable when they come to the plant or factory. If security, for example, is not guaranteed then they will not feel optimally about the work environment. If a company exists in an environment of crime, it is understandable that it will be making plans to move. It is simply good business sense.

Many of the older industrialized cities are facing disinvestment and abandonment of mill buildings and industrial facilities. It is estimated that there are more than 860 million square feet of vacant factory space nationwide. These manufacturing structures tend to be too large and too expensive to operate, and because they are so old, they rarely meet building codes. Moreover, continued use of these structures often raises security issues and concerns about compatibility with the neighborhood. Regrettable, many center city industrial structures will be abandoned in the coming years.

Changing Nature of Industry

The coexistence of large and small companies will be crucial to economic health.

Economic development in the 1970's, 1980's and early 1990's was largely based on the notion that small firms drive the American economic engine. This is accurate, to a point: small firms are important -- as long as they are linked to large firms. In other words, it is the mix of small and large firms that contributes most to a region's economic well being. To paraphrase a point made by Bennett Harrison, small is beautiful so long as large is around.

Industrial Clusters will be increasingly important.

Over the past decade industry policy experts have come to realize that a positive local climate is essential in developing global competitiveness. The interaction of peers, competitors, local universities and the local government is crucial for the long term success of firms. This concept, first fully articulated by Michael Porter of the Harvard Business School, is called "Industrial Clustering". A community or a region that supports and nurtures a business climate -- where companies compete against each other, where suppliers co-exist, where competition is defined globally and where there is a desire to improve -- will have a decided advantage. As well, AnnaLee Saxenian's recent work on the comparison of Silicon Valley and Route 128 notes that a culture that encouraged a sharing of ideas has been critical to the success of the Silicon Valley. Similarly, areas that have associations or networks of industries can be likely candidates to become economically healthy. We have seen this in our own work to varying degrees. The plastics network of Northern Worcester County (Massachusetts) is well on its way to becoming a revitalized cluster while the granite industries around Barre (Vermont) are wallowing and the jewelry industries of Southeastern Massachusetts and Northern Rhode Island refuse to come together for the common good.

Our manufactured products will be increasingly "weight light and value heavy."

Where there is a domestic market orientation (e.g., the automobile industry) or where sunk capital costs are enormous (e.g., the paper industry), American industry will remain where it is. But where mobility is an option, manufacturing of labor-intensive goods will be more likely to occur elsewhere in the globe. Specialized products that rely on new technology, in contrast, can and will be competitively produced in the United States. These are the critical sophisticated parts of machines that make them work. They are virtually unknown to the public. Yet, one can find representatives of such companies in Durbin on Sunday and the Azores on Monday. They will install, repair or upgrade on demand anywhere on the globe.

The Labor Force

The composition of the labor force is changing.

An image from the 1950s and 1960s is still fixed in many of our minds - a factory whistle blowing as blue-shirted white males line up to punch in their arrival time. Today, there is no longer a whistle --we have flex time -- and white males no longer predominate in the workforce; women, immigrants, and members of minority groups make up an increasing share of the labor market. Most areas of the country, for example, are approaching an 80% adult female workforce participation rate. Further, many areas of the nation are experiencing a major influx of immigrants from Mexico, Asia and Europe's peripheral regions. In the Southeastern Massachusetts Regional Planning District for example, an area of about 400 square miles, there are 2,000 Portuguese workers arriving each year -- enough to create a new town of 20,000 people each decade. This indicates a changing work ethic. The needs of this new laborforce are vastly different. There will be a growing class of unemployed people who cannot compete in the mainstream economy unless issues such as day care options, flexible schedules, basic education and the culture of work are addressed.

Lifelong employment with a single firm -- or in a single industry -- is no longer the norm.

A generation ago, it was not uncommon for a high school graduate to enter a mill and stay with the same firm for all of his working life. According to David Birch, a professor at MIT, the typical entry level worker today can expect to have between seven and thirteen jobs in his or her lifetime. This change gives workers more freedom to move, but also gives them less security. As firms cease to provide permanent employment, they will cease to provide workers with a sense of identity: workers' loyalty will shift from the company to themselves. Medical insurance, retirement benefits, skill development -- traditionally covered by the firm -- are increasingly becoming the responsibility of the individual worker.

The labor force is more apt to need basic education and training rather than specialized job skills.

Given the nature of the shop floor and the speed with which American industry is accepting new technology and sophisticated machinery, it will be virtually impossible for our schools and vocational centers to train workers to precisely match corporate needs. Virtually all modern companies are prepared to train workers in house -- the key is to have a workforce that is prepared to learn. In other words, companies want workers who can read, write and perform mathematical calculations -- and who have a basic understanding of computers. A 1992 survey by Ernst and Young found that work ethic was one of the top criteria for good business climate. Employers want their workers to be dependable, responsible, come to work on time, be well mannered and flexible about the job requirements.

The influence of unions will continue to decline.

There is clearly a decline in union "clout" across the nation. While there are still the rumblings of major labor unrest and the occasional worker walk out, the influence of the nation's most powerful unions is in decline. Recognizing that "lean and mean" systems are required if companies are to survive, more and more unions are working in partnership with management to improve both productivity and their members' pay and benefit packages. There are very few recent instances in which unions have flexed their muscles and added costs to products. Where union organization has been successful, and where management is likely to be pushed, is among the lower paid professions: Secretarial, janitorial, hospital service, hotel workers and the like can be expected to increasingly organize and push for increased wage and benefits.

Education and Research and Development

Universities and Community Colleges will be increasingly active on the shop floor.

There are three reasons for the development of closer links between industry and higher education. First, as public funds decline, research opportunities in the private sector will become increasingly important. Second, public universities are coming under legislative and constituent pressure to support the economic needs of the state. Third, institutions of higher learning realize that economically healthy communities attract faculty and students. Clearly, the cloistered university is a relic of the past.

While research universities are forging partnerships with industries for research and product development, community colleges are playing a critical role in educating and training the labor force. Dedicated to meeting local needs, community colleges are highly pragmatic in providing the training requirements for smaller companies that cannot provide their own.

As the federal government reduces funding for research and development (R&D), regional and community efforts to encourage R&D will become increasingly important.

There are signs that the federal government is reducing the number of programs and the amount of funds devoted to research and development. For example, the Advanced Research Procurement Agency (formally the Defense Advanced Research Procurement Agency), the National Institutes of Science and Technology, the National Science Foundation, and other federal organizations concerned with research and development are scheduled to have extensive reductions in their operating budgets. Given federal funding reductions, there will be a strong link between economic strategies and research and development at the local and regional levels. Areas that have government or private laboratories, hospitals, and research universities will have an advantage. We expect that those states that have such activities will endeavor to provide a package of assistance measures (e.g. relief from taxes, training assistance, public investment) to keep them in place.

Public private partnerships and their incentives for research will be a major stimulus in developing industry across the nation.

Economic development is increasing dependent on public private partnerships. Emerging from fiscal conservatism at the state and federal level, these partnerships will continue establish themselves and play a significant role in funding research laboratories and facilities nationwide. Once such centers are in place, they will attract companies that use their services or that wish to do business with them. To this end, we expect that the states will be increasingly supporting the creation of Community Development Corporations (CDCs) and Economic Development and Industrial Corporations (EDICs) with state funds.

Transportation Infrastructure and Real Estate

Changing demands on transportation networks

Proximity to an airport will be of increasing importance.

Several factors are influencing the role of airports in American business and industry. First, markets are increasingly national and international. Second, there a rise in service and knowledge based industries, where speed and air transport is a requirement. Third, as goods are more and more likely to be "value heavy, weight light", they can be quickly and easily shipped by air. Fourth -- and perhaps most importantly -- airports are important psychologically: they create a sense that the region is accessible from anywhere in the globe.

Railroads will continue to be important only to areas that already rely on them.

The rail system will continue to be used by businesses that move bulk goods; since these firms tend to stay and/or expand in place, there will be little demand for expansion of the rail system. It will be important for the rail system to pinpoint its prime service areas and to ensure that they receive top grade service. As exports increase, those areas that have intermodal connections will have a decided advantage. The state of Rhode Island, for example, has already noted this and is endeavoring to create a intermodal center at Quonset Point. Boats will off load automobiles from Japan and Europe for the northeastern markets. They will be then shipped by road to key points across the region. Recognizing the importance of Quonset as an intermodal center, the state has gone so far as the recommend that every rail bridge within its jurisdiction be rebuilt to accommodate "double stacking." Such a move will make the state and Quonset Point a highly competitive point of entry and, hopefully, a point of embarkation.

The completion of the federal highway system will have a profound impact on industrial locations for decades.

Firms want to be located as close as possible to major federal or state highways. Because Congress has no plans to expanding the interstate system, the framework for siting industry -- as long as we remain road dependent -- is largely set. Surprisingly, despite the fact that most of the system is more than forty years old, there are still many sites that are undeveloped or underdeveloped. For this reason, locations that are already close to an interstate will have a decided advantage.

It will be increasingly difficult to find prime industrial sites and where prime sites do exist, they will be located further and further from center cities.

The shortage of prime industrial sites can be traced to several factors: the size of parcel required, the need for appropriate zoning, the need to be environmentally clean, the need for in-place infrastructure, and resistance to industry on the part of neighboring residential areas.

In many cities, there is simply no land available to meet the fundamental needs of modern industry. For example, in the manufacturing city of Springfield, Massachusetts, home of the famed Springfield Armory and Smith and Wesson, there are no industrial parcels available greater than ten acres in size. Land locked cities are common -- particularly in the northeast; communities that open land or that can annex it will be at an advantage. A recent nation-wide survey undertaken by the International City Manager's Association found that more than 60% (?) of the respondents reported that there was a shortage of prime, available industrial land. We believe, based on our own work, that the land problem is likely to become more severe in the coming years.

More and more industrial sites will include accessory facilities as on-site amenities become increasingly desirable.

As industrial sites become more isolated, they will have to include accessory uses such as automatic teller machines, hotels, training and education centers, post offices, childcare facilities, canteens, and medical facilities. As the cost of training workers increases, it is in the firm's best interest to provide a setting in which workers can stay focused on the tasks at hand and be as free as possible of concerns about child care, medical care, or getting to the bank or post office before it closes. More and more firms will locate in large new industrial parks with a range of amenities. The most critical problem is responding to the desire for mixed uses is local zoning: Many communities still feel very uncomfortable in providing industrial developers the opportunity to create such mixed uses in industrial areas.

The buildout density (floor to area ratio -- FAR) of industrial sites will decrease.

Since the mid 1980s, the average percentage of "build out" densities has decreased from about 30% to 20%; it is likely to stabilize at its current level. "Build out," in this sense, means the percentage of a lot that can be rendered as impervious. Stated alternatively, it means the part of a parcel of land that will be used as the building footprint, parking lots and roads. Once again, communities with available open space will benefit. When citizens think about industry, the image that comes to mind is of smoke stacks spewing pollution into the air. Firms that can show that they are "factories in a garden", dramatically increase their chances of gaining local approval. In addition, employees want to have a pleasant and safe setting in which to work. If corporations provide this environment, then workers tend to be more contented, productive and loyal.

Individual parcels within industrial parks will be smaller in coming years.

There is a greater need for the four acre parcel than the ten acre parcel; in most cases, plans are now based on two acre parcels. There are three reasons for this shift: (1) new production processes require less space; (2) companies are smaller and increasingly likely to use "just in time" processes for sub-component production; (3) companies are more cost conscience -- and one means to control expenditures is to keep building costs to a minimum. This means that communities may have to re-examine their zoning such that their authorized lots are smaller and that there are opportunities to expand in place: No easy task!

The emphasis in architecture, design and construction is shifting from beauty and permanence to functionality.

When companies expected to stay in place and technology could easily be adapted to industrial structures, architectural masterpieces -- inextricably tied to the image of the company -- were the result. Today, the structure that houses a company's production operations is regarded as part of the production process itself: it must be flexible, efficient, and capable of adapting to changes in technology. Virtually all developers are constructing steel framed butler-type buildings and the tilt-up prefabrication units that can meet the needs of any company .

Furthermore, technological changes, downsizing of machinery, the increased use of computers, and a smaller labor force have decreased the need for vast commercial or industrial buildings. In office settings, for example, open floor plans and the removal of bulky record files allow employees to be placed more closely together without loss of productivity: each office worker now requires as little as eighty square feet of work space. The end result of this is that communities should not expect their industrial facilities to have the same iconic symbolism of one of Albert Khan's Ford Plants or the Slater or Lowell mills of New England. If aesthetic considerations are important, they are more likely to be found in the landscape than in structures.

Government Actions and Regulations

Defense procurement will decrease in the coming years.

The downsizing of defense facilities has been going on since the end of the Cold War, but the end is still not in sight. Base closings will continue and purchases of defense supplies will decline. Defense suppliers and their host communities nationwide will struggle with the effects of these changes. Great care, from a national perspective however, must be taken here for the nation still shows a remarkable proclivity to maintain a strong military defense complex. The shift to a civilian economy is occurring at a snail's pace. The need to research commercial applications for defense technology will become increasingly important.

Government regulations and incentives will continue to aid the shift from brownfields to greenfields.

The shift to greenfields (suburban, rural locations) from brownfields (inner city, urban locations) is often aided by government regulations and incentives. The influence of tax policy can be significant, as events over the past decade illustrate. A flood of commercial real estate investment was fostered by the capital gains and depreciation provisions of the Economic Recovery Tax Act (ERTA) of 1981. But many of these provisions were changed or eliminated by the Tax Reform Act of 1986. Today, state and local government tend to give increased tax abatements and other fiscal incentives to business owners who build new, rather than rehabilitate old structures. Even when there is an advantage, such as the investment tax credit for historically recognized structures, the emphasis is on insuring aesthetic revitalization rather than production. Environmental laws have become more stringent. The Army Corps of Engineers (responsible for the free flow of navigable waters), the Environmental Protection Agency (chemically contaminated lands) and the United States Department of Housing, and Urban Development (Flood Plain Insurance) have placed restrictions on the uses and locations of activities in areas located along rivers. These are typically supplemented by even more stringent wetland laws passed at the state level. The regulations inevitably add an extensive cost burden on revitalization and have significantly affected the reuse potential for the old mills located in states from Virginia north and Ohio east.

The Federal Review Process will not go away.

Despite the rhetoric in Congress, federal involvement in environmental, waterway, and safety reviews is likely to continue. There may be streamlining, but the key elements under review will remain intact. For example, the work of the Environmental Protection Agency, Federal Highway Administration, Army Corps of Engineers, and Housing and Urban Development is likely to be better coordinated, and the corresponding state agencies will probably adjust their review processes to minimize duplication. In short, the American people want their air and water supplies healthy, their waterways protected, and their workplaces to be as safe as possible.

Environmental regulations at the state and local level will increase, and industry will be increasingly willing to comply with them.

Developers are less likely to fight environmental regulations per se. Although they are concerned with the cost of compliance and with what appear to be ever changing standards, developers have come to realize that a clean environment protects their workers, their investments, and the community. In fact, the value of sustainable development has been at least partially internalized by American industry. Ultimately, communities that plan well and that have carefully crafted environmental regulations will be at an advantage. In our experience, industrialists simply want accurate, fairly determined, quickly analyzed and consistent findings. When these occur, there is a great degree of cooperation.

The "takings" issue will cause local planners to better articulate their goals and objectives with respect to amenities and economic development.

Since the mid-1980s, state and federal courts have taken a hard look at local governments ability to claim public rights on private lands. For example, does the community have the right to insist that a bike path be placed on someone's property without paying for it, thereby restricting the owners' economic opportunity?

As the courts have ruled that the purpose of the takings has to be clear and direct, planners have been forced to move toward approved master plans that have clearly articulated goals and objectives, and well-explained statements of purpose; they have also been forced to ensure that, zoning ordinances, the master plan, and the capital improvements program are consistent and coherent.

There will be an increasing emphasis on performance standards with respect to "uses" rather than "users".

The idea that a firm will come to a community and stay forever is still fixed in many local economic developers' minds. For example, if IBM or Microsoft comes to the community looking for a site, the typical community would take all actions possible to attract such a firm. Yet major industries are subject to rapid changes, which can only be expected to increase as they adapt to world markets. Thus, the likelihood that an IBM or a Microsoft will remain at a given site for more than a generation is fairly small. Moreover, the downsizing of the labor force and the increasing use of machinery (which typically requires less space than legions of workers) has created an oversupply of older industrial space. Given these trends, it is imperative that local governments focus on performance standards related to the use -- not the user. For example, in Maynard, Massachusetts, the same mill complex over a thirty year period consecutively housed a plastics manufacturer, a publishing house, a stereo manufacturer, and a computer company; is now scheduled to serve as a geriatrics research facility.

Industrial developers will be increasingly likely to place certain restrictions through covenants on their own properties.

Covenants, when enacted with care, can add value to a property and increase the return on investment. Two key factors are encouraging industrial developers to place restrictive covenants on their own properties: First, developers know how difficult it is to obtain approval for a zoning revision; by voluntarily placing increased restrictions on their sites, they increase the chances of approval. Secondly, the tenants, particularly if they hold long term leases, want assurance that their investments will not be threatened.

Zoning will become more commonplace, but it will continue to be the focus of conflict.

It is becoming clear that untrammeled development is wasteful -- and, over time, results in the juxtaposition of incompatible land uses. In areas where zoning was once regarded as unnecessary, local officials are now changing their minds. Although zoning is increasingly viewed as a means of ensuring wise land use decisions, minimizing incompatibility, and protecting investments, it will continue to be a battleground. Many American citizens have an intense dislike of governmental regulation -- particularly restrictions on the uses of private property. It is important to point out that most of America still relies on simple, unsophisticated zoning. Given our present political climate, there is little likelihood that this will change.

Fewer industrial sites will be allowed "by right" within zoning ordinances.

Increasing fears of pollution and the growing desire to protect wetlands and other ecologically fragile sites are leading local governments to closely scrutinize proposed industrial uses. A review will typically include an analysis of infrastructure, utilities and traffic capacity, as well as an evaluation of fiscal, environmental and social impacts. As a condition of receiving a building permit, the developer will also be required to submit site plans and architectural plans for approval.

At the same time that communities are paying close attention to the impacts of industrial development, forward-looking local governments are "pre-clearing" sites so that companies that meet certain use, density, and performance standards and have an adequate site plan can be quickly accommodated. In a final analysis, communities want to closely scrutinize any industrial use that is looking to settle within their boundaries.

Capital Resources and Financing Alternatives

Innovative financing alternatives will be increasingly necessary.

The public sector will become increasingly involved in partnering with the private sector in financing economic development activities. Most states, indulge in some form of financial incentives for the private sector -- if nothing else, managing and distributing the scarce federal grant monies and loan programs.

Traditionally, local and state officials were less involved with innovative or new financing programs due to administrative constraints and lack of knowledge on programs and eligibility requirements. With increased competition and the crisis in traditional financing sources (such as banks and other credit institutions), that occurred in the early 1990's states and localities were forced to research new alternatives and to become more and more savvy in their initiatives. These initiatives include, but are not limited to, tax increment financing, tax abatements and incentives, enterprise zone designations, community based revolving loan funds and product development funds. We expect that the needs for alternative financing mechanisms will only continue.

The increasingly restrictive lending environment will continue to make it difficult to obtain capital.

During the 1970's and 1980's, venture capitalists were still willing to invest in small start-up companies with sales under $5,000,000. This is no longer the case. Venturists are now waiting until a company is firmly established and has sales substantially above $10,000,000 before investing. This change has decreased the amount of capital availability for innovative and risky small firms and the situation is not expected to improve.

Although bank consolidations and mergers may be healthy for the nation as a whole, the more removed banks are from the local community, the more difficult it is to obtain start-up funds. Despite the claims of large banking institutions to the contrary and assistance from some government agencies, small firms continue to have difficulty obtaining capital.

The use of impact fees and development exactions will rise.

More and more states are placing impact fees on new growth to fund a proportionate share of the infrastructure costs generated by development. Impact fees, sometimes called development exactions, were first used to finance the purchase of water rights and have been extended gradually to finance the full gamut of infrastructure required by new development. Today, impact fees are the fastest growing source of municipal revenues, clearly at par with user charges and real estate transfer taxes.

Clearly, high impact fees affect the cost and affordability of development. However, local governments are financially hard pressed, and it is politically easier to charge new development than to fund infrastructure by raising taxes. Given this climate, high charges will continue to be the norm.

Conclusion

Poised on the edge of the 21st century, communities across the country are struggling to recast their roles and functions in the "New Economy". Local economic development practitioners can no longer look to the federal government for resources. Communities need to forge new partnerships with the private sectors and pay close attention to the needs of the business community. In order for many of these communities to gain a competitive advantage, they need to be fully aware of the changing markets and international influences that will affect their business climate. There is an increasing need to focus on "quality" -- quality jobs, quality infrastructure, quality labor force, and quality living environment -- rather than traditional bricks and mortar development. The first step toward coping with the new economy is becoming knowledgeable and aware of the emerging trends that are sure to impact the way we think and do business in the coming years.

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Zenia Kotval, Ph.D., AICP
Assistant Professor of Urban and Regional Planning
Michigan State University

John R. Mullin, Ph.D., AICP
Professor of Urban Planning
University of Massachusetts