United States: The Future Of Economic Development: Using Health Care As An Economic Driver, Public-Private Partnerships As A Platform To Further Development, And Minority Participation As A Path Forward In A More Diverse Mississippi

I. INTRODUCTION

The role of government as it pertains to economic development is not to create jobs. It is to create an environment where the private sector is encouraged to create jobs and investment. To that end, one of the most recognized adaptations of economic development is the use of incentives.1 Nevertheless, the direction of economic development has drastically changed in the last 50 years. Economic development is no longer the sole or centralized function of local government. Rather, it has morphed into a full-fledged industry, replete with several professional organizations, 2 public non-profit financing entities, 3 site location firms, 4 bevies of lawyers who practice within economic- *371 development practice groups at law firms dedicated to structuring incentives 5 and countless economic development practitioners. 6 The promotion of economic development, not only in Mississippi (the "State" or "Mississippi") but also throughout the United States, is a traditional and long-accepted government practice. 7 Definitions of the term "economic development" are exhaustive, but perhaps one of the most important legal definitions of economic development emanates from a landmark Supreme Court decision.

In Kelo v. City of New London, the United States Supreme Court noted that the city of New London had "carefully formulated a development plan that [] [would] provide appreciable benefits to the community, including–but by no means limited to–new jobs and increased tax revenue." 8 Even more telling is the posture of the Court with respect to the overall goal of the city's economic vision; here the Court noted, "[T]he city is trying to coordinate a variety of commercial, residential, and recreational land uses, with the hope that they will form a whole greater than the sum of its parts." 9

The International Economic Development Council, a non-profit membership organization dedicated to raising the profile of the profession and helping economic developers perform their jobs more effectively, pursues the aim that economic development "seeks to improve the economic well-being and quality of life for a community by creating and/or retaining jobs that facilitate growth and provide a stable tax base." 10 To achieve this goal, communities in today's economy must not only be able to compete but also tailor their missions towards aggressive, multi-pronged approaches that utilize incentives and other *372 traditional non-economic resources of the state. 11 With the well-documented uncertainty of the market from decade to decade, the reduction of corporate income tax rates by competitive Southern states, the regulation of essentially every business entity, and increased global competition, economic development–vis-á-vis the industry that it has developed into–has become the subject of regulation itself. 12

In the mid-90s, the South began to see a boom in automobile manufacturing. Alabama was one of the first states to lure a large multi-million dollar auto-manufacturing project to a megasite. 13 For Alabama, Mercedes-Benz represents, to date, approximately $2 billion in investment and 5,000 jobs. 14 After Mercedes-Benz came Honda, Hyundai and Toyota. 15

For other Southern states, the highly coveted economic development prize is more or less the same. Tennessee has attracted three auto manufacturing plants: Nissan, Volkswagen, and General Motors. 16 South Carolina lured auto manufacturing groups BMW and Honda. Georgia has Honda, Porsche, and Kia. Mississippi has a Nissan auto manufacturing plant in Canton as well as a Toyota auto manufacturing plant in Blue Springs. Between 2013 and 2016, Mississippi has also seen investments from tire manufacturers Yokohama and Continental Tire. 17 During this time of growth in the South, not only did states and communities engage in a hearty competition with each other to entice auto manufacturers and suppliers from afar, but keen economic development professionals made sure their communities were considered for the next big project by certifying and investing in large-scale megasites. For Mississippi, its targeted recruitment of the auto manufacturing industry, acquisition of human talent to aid in that recruitment, and investment in the philosophy have paid great dividends.

The principal questions here are: (1) What other sustainable target industries could provide a Return On Investment ("ROI") similar to that which the auto manufacturing industry has provided in Mississippi? (2) What types of incentives or investment-sharing mechanisms could provide significant ROI in an era where budget cuts loom at both the local and state levels? and (3) How *373 can thought and political leaders make the State more competitive by creating meaningful approaches to minority participation when announcing large economic development projects as a path forward to an increasingly more diverse 18 society?

A. Health Care as an Economic Driver: The Health Care and Life Science Approach

Viewing the health care and life science industry through the lens of the rise of the auto manufacturing industry in the South during the early 90s could be tantamount for Mississippi just as it has been in other Southern states. In 2002, for example, then-Governor Jeb Bush approached British billionaire trader Joe Lewis, owner of the Tavistock Group, 19 seeking his assistance in hopes of improving the economy of Central Florida. Bush's goal was to create better-paying jobs. Thanks to Tavistock and developing the Lake Nona Medical City, Governor Bush's appeal has elicited approximately $3 billion in healthcare-based investment, 5,000 permanent higher-paying jobs (with 25,000 more expected by 2019), and an expected overall economic impact of $7.6 billion over the next 10 years. 20

For years, municipalities and counties in Mississippi, through their elected leaders and stakeholders, have been arduously seeking creative ways to enhance local citizens' quality of life and improve economic development opportunities for their communities. Simultaneously, the entire State, from its Balance Agriculture with Industry Plan in 1935 to its aggressive recruitment of the automotive and aerospace industry, has also sought to promote economic development; the State's efforts, however, have been challenged by authorities like Moody's Investor Services, Inc. ("Moody's") and Fitch Ratings Inc. ("Fitch"), two nationally recognized credit rating agencies. Fitch revised the State's 2013 and 2016 outlook to negative and noted the following regarding the State's manufacturing-based economy: "The economy continues to diversify and some successful economic development initiatives should bolster employment in the coming years; however, the manufacturing concentration well exceeds national levels." 21 In 2016, Fitch downgraded the State and opined as to Mississippi's overall credit profile: "Mississippi's employment base, when compared nationally, is overweight in the more volatile manufacturing sector." 22

*374 To thwart findings like Fitch's, the State should diversify its economy and adopt health care or life science economic development initiatives like the Mississippi Health Care Industry Zone Master Plan Act (the "Health Care Zone Master Plan legislation"). 23 In adopting such a measure, municipalities or counties could potentially issue health care zone municipal bonds. In addition, municipalities could lease the facilities of the project back to a private industry in a revenue-generating capacity or use a special allocation of new market tax credits specific to health care zones for gap financing. Such an endeavor will not only require additional economic development incentives such as the Health Care Zone Master Plan legislation but will also require a strong partnership with the Mississippi Development Authority ("MDA") that genuinely looks at this target-rich industry the same way it would the automotive boom from circa 1993-2011.

B. Public-Private Partnership Approach

With limited government funding to build or maintain the critical infrastructure needed to support economic development, Mississippi might also adopt public-private partnership ("P3s") legislation in 2017 to encourage private sector investment in infrastructure and development. P3s could serve as a catalyst for economic development by allowing the state and private sector to better allocate risks. Moreover, under P3 approaches to investment, economic development projects could be less bound by political and legal limitations. P3s could reduce government debt, provide for budget relief, increase cost savings, reduce the amount of time to bring projects to fruition, incentivize more prudent infrastructure due to private industry's desire for ROI, allow government to allocate resources more efficiently, create more jobs, and allow for revenue sharing. 24

C. Minority Participation Approach

In an increasingly more diverse society, many states have urged contractors to implement minority participation strategies for state- or government-awarded contracts and large economic development projects like Nissan, Toyota, and Yokohama, where state investment is significant. Minority participation strategies that put goals in place are to be distinguished from minority set-asides. Minority set-asides require a certain percentage of public contracts to be awarded to minority or women-owned business enterprises ("MBEs" or "WBEs"). Many courts have considered the notion that, in some circumstances, requiring contractors to award a designated percentage of contracts to MBEs may not be feasible. 25 This ultimately led to the emergence of minority *375 participation goals. Minority participation goals require contractors to make "good faith efforts" to award contracts to a certain percentage of MBEs and WBEs. Contractors must document their good faith efforts to the satisfaction of their respective government agencies to seek bids from MBEs/WBEs. Such efforts could also be incentivized through tax credits and facilitated by joint ventures. In Mississippi, there is a great demand to establish minority participation goals and in doing so, to clearly define what constitutes "good faith efforts."

To read this article in full, please click here.

Originally published by Mississippi College Law Review.

Footnotes

1. See e.g., Dan Gorin, Economic Development Incentives: Research Approaches and Current Views, FEDERAL RESERVE BULLETIN, Vol. 93, 2007 (Feb. 5, 2009), http://www.federalreserve.gov/Pubs/Bulletin/2008/articles/econdevelopment/default.htm (providing that "[e]conomic development incentives–state and local government efforts to encourage economic development–are one of a limited number of tools local policymakers have for stimulating local economies. Some broad measures–investments in infrastructure (such as transportation), human capital (education, for example), and social infrastructure (such as recreational facilities)–may produce significant results over the long term. Targeted measures crafted to attract or retain businesses–usually a tax preference or financial assistance–offer the possibility of a quick payoff").

2. See, e.g., INTERNATIONAL ECONOMIC DEVELOPMENT COUNCIL, http://www.iedconline.org/, THE SITE SELECTORS GUILD, http://www.siteselectorsguild.com/, SOUTHERN ECONOMIC DEVELOPMENT COUNCIL, http://www.sedc.org/, and MISSISSIPPI ECONOMIC DEVELOPMENT COUNCIL, http://medc.ms/.

3. See, e.g., Kimberly E. Smith, The Go Zone Act: An Innovative Mechanism for Promoting Economic Recovery for the Gulf Coast, 77 MISS. L.J. 807, 835 (2008) (noting that "[the Mississippi Business Finance Corporation's] MBFC's Industrial Development Bond (IDB) Program is designed to create jobs and promote economic development in Mississippi").

4. Site Selection firms like McCallum Sweeney, Deloitte, and The Austin Group offer their corporate clients the complete one-stop shop. Firms like those serve as consultants to corporations in the site selection process, incentive negotiation and economic analysis. For large multi-million dollar projects, confidentiality is of paramount interest to corporations to prevent incidents of industrial or corporate espionage. Site selection firms are often times chosen for their ability to protect the confidentiality of a corporation's plans for expansion or relocation. For instance, those within the economic development industry commonly refer to economic development projects by code name.

5. Each year, Southern Business & Development Magazine publishes an article entitled the "Top Ten Law Firms that Understand Economic Development." The magazine takes the perspective that, over the past decade, law firms have become increasingly aware of the reality that companies need assistance finding the best locations, identifying the best tax structures, maximizing their incentives, and constructing the most cost-effective buildings.

6. An entire industry has been created around economic development. In fact, college- and graduate-level degree programs have been created to teach students and professionals the skills necessary to help their respective communities compete in a global economy. See, e.g., UNIVERSITY OF OKLAHOMA'S ECONOMIC DEVELOPMENT INSTITUTE, http://edi.ou.edu/ (providing more detail on the number of courses and programs offered). Law firms too have become a driving force for economic development. In the Southeast, firms have begun to provide counsel to municipalities and states for negotiations that bring large economic development projects to various regions throughout the country. The state of Mississippi spends millions of dollars to keep the Mississippi Development Authority (MDA) running. The MDA is Mississippi's lead economic and community development agency. More than 250 employees are engaged in providing services to businesses, communities and workers in the state. See MISSISSIPPI WORKS, http://mississippi.org/locate-here/the-mississippi-advantage/.

7. Berman v. Parker, 348 U.S. 26, 33 (1954).

8. 545 U.S. 469, 483 (2005).

9. Id. at 470.

See, e.g., INTERNATIONAL ECONOMIC DEVELOPMENT COUNCIL (Nov. 19, 2013), http://www.iedconline.org/web-pages/inside-iedc/iedc-at-a-glance/ (A study of nearly 5,000 economic development professionals was conducted by IEDC, the International Economic Development Council, the world's largest organization for economic developers. IEDC worked closely with Development Counselors International (DCI), a leader in the field of marketing cities, regions, states and countries, to conduct the survey. The survey attempts to tie the issues of Main Street to Wall Street.).

11. See, e.g., Jere Nash & Andy Taggart, MISSISSIPPI POLITICS: THE STRUGGLE FOR POWER, 1976-2006 69 (University Press of Mississippi 2006) (providing that the non-economic resources of the state are vast. Although one of the smallest economies when compared to other states in the union, Mississippi wields a great deal of political clout.).

12. See, e.g., Brian Gongol, The Self-Delusion of Contemporary Economic Development, GONGOL.COM (Feb. 18, 2005), http://www.gongol.com/research/economics/economicdevelopment/.

13. See Daimler executive: Alabama plant is 'proud story of success for Mercedes-Benz', MADE IN ALABAMA, (Oct. 4, 2013) http://www.madeinalabama.com/2013/10/proud-story-of-success-for-mercedes-benz/.

14. Dawn Kent Azok, Alabama's Mercedes-Benz plant announces $1.3 billion, 300-job expansion, AL.COM (Sept.17, 2015), http://www.al.com/business/index.ssf/2015/09/alabamas_mercedes-benz_plant_a.html.

15. Automotive, MADE IN AMERICA, http://www.madeinalabama.com/industries/industry/automotive/

16. Masters of Automotive Manufacturing. The Southeast Has Emerged As The Driving Force In Automotive Manufacturing In The United States, And Tennessee Is Its Engine, TENNESSEE DEPARTMENT OF ECONOMIC AND COMMUNITY DEVELOPMENT, http://www.tnecd.com/industries/automotive/.

17. See, e.g., Jeff Bennett, Continental AG To Open New Tire Plant in Mississippi, WALL ST. J., (Feb. 4, 2016), http://www.wsj.com/articles/continental-ag-to-open-new-tire-plant-in-mississippi-1454620330.

18. See, e.g., Larry D. Harris & Carol J. Patterson, The Diversity Survey, 31-SUM Construction Law 5, 45 (2011) (noting "[a]s the new national census data confirms, America is becoming more diverse.").

19. Tavistock Group is an international private investment organization that provides capital structured for investment opportunities in a variety of sectors throughout the world. The company was founded by Joe Lewis more than 35 years ago. Tavistock has investments in more than 200 companies across 15 countries. The company's investment sectors include sports, restaurants, real estate including resort properties and private clubs, master planned communities, life sciences, finance, energy, consumer products and retail.

20. See, e.g., Jennifer Reingold, How To Build a Great American City, FORTUNE Vol. 169, No. 9 (June 30, 2014), http://fortune.com/2014/06/12/lake-nona-florida/.

21. See, e.g., Press Release, Fitch Ratings Inc., Fitch Rates $338MM Mississippi GO Bonds "AA+"; Outlook Revised to Negative, (November 5, 2013).

22. Fitch Ratings, Fitch Rates Mississippi Dev Bank's $118MM Special Obs Bonds 'AA-'; Downgrades Outstanding Debt (July 15, 2015), http://www.fitchratings.com/site/pr/1009029.

23. H.B. 1582 (2014) passed the Mississippi House of Representatives on February 25, 2014 with a vote of 117 to 0. The bill died in the Mississippi Senate, specifically in the Senate Finance Committee, on March 18, 2014.

24. Robert A. Thompson, PUBLIC PRIVATE PARTNERSHIPS IN THE AGE OF ECONOMIC DISTRESS: LESSONS FOR THOSE DEALING WITH PUBLIC AGENCY AND INSTITUTIONAL PROJECTS PRESENTED WITH THE AMERICAN COLLEGE OF REAL ESTATE LAWYERS 1-3 (AM. LAW INST. 2012).

25. See, e.g., City of Richmond v. J.A. Croson Co., 488 U.S. 469 (1989).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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