Center for Business and Education funding: how much risk?
- Published: November 14, 2013
This is the first of a two-part series, which looks at issues surrounding the Center for Business and Education.
If you build it, they will come.
But what if they don’t come, or not for a while?
That queston lies at the heart of the current debate in Village Council, and in the community, regarding whether Village government should contribute about $700,000 to complete the infrastructure development of the Center for Business and Education, or CBE, the 35-acre commerce park on the western edge of Yellow Springs. Jerry Sutton of Community Resources, which owns the CBE land, made the funding request to Council in September.
The Village needs to move ahead quickly because the delays that caused the rescinding of one federal grant could result in losing the second grant of a little more than $400,000, Sutton said.
While Council tabled moving ahead at its last meeting, it will continue the CBE discussions at its Nov. 18 meeting. President Judith Hempfling, who moved to slow down the CBE funding, will have retired at Council’s next meeting, and two new Council members, Marianne MacQueen and Brian Housh, will join Lori Askeland, Karen Wintrow and Gerry Simms. Wintrow and Simms support moving ahead with the funding process.
Space for business development is necessary in order to broaden the local tax base, and thus make Yellow Springs more affordable, Sutton has stated.
“Unless we have a shovel-ready site, no business will come, and we don’t want our current businesses moving out,” Sutton said in a recent interview.
Ellen Hoover, co-owner of Millworks, agrees with Sutton that the village needs more space for business development. Developed 20 years ago, Millworks is currently full, and Hoover believes one or two businesses there will need to grow in the next few years.
“If they can’t rent from us there’s nowhere else for them to go,” Hoover said last week. “I support the CBE because we have businesses that can’t grow in town.”
Hempfling, who made the motion to table the CBE request, is also concerned with enhancing affordability in the village, she said in an interview last week. Her concern with the CBE is that, if the industrial park remains empty, the Village will continue paying a substantial amount of annual interest on its loan which, combined with the cost of CBE upkeep and the initial outlay of $700,000, will affect Village resources available for other projects.
“This is a big investment for a small town,” Hempfling said. “While we’re in good fiscal health, we have other big infrastructure projects to do. And as we develop more debt, it limits the new things we can do.”
Another who has questions about the CBE is local economics professor Frank Goetzke, who teaches economics at the University of Louisville. Generally, he said, as an economist he does not believe it’s wise for government to fund business development projects.
“If the business park is a good idea, some entreprenuer should be willing to take the risk,” he said. “If no one is willing to take the risk, I highly doubt that it’s a good idea.”
And as an economist, Goetzke said he needs more information about the potential risks and payoffs to evaluate the CBE project.
“Everyone wants to believe it’s a good idea, but we have no data that shows it,” he said.
Stating that he is neither for or against developing the CBE, Richard Lapedes, the former CEO of Lion Apparel in Dayton, agreed that so far there seems a lack of information necessary to move ahead.
“I wouldn’t be happy unless we consult with people who have taken this kind of risk,” he said in an interview this week. “I’m deeply interested in finding out the ultimate socio-economic benefits of the project, and how do we get those benefits with the least possible risk?”
How are other parks doing?
Started in the 1980s, Prime Ohio I, a 250-acre industrial park in Springfield, sold its last lot in 2004, about 20 years after it was initially developed.
Nextedge, a 205-acre industrial park just outside of Springfield, has sold only two lots almost a decade after it began, and is now about 10 percent developed.
“Quite honestly, in this region, these parks move extremely slowly,” Springfield Economic Development Director Tom Franzen said last week.
Like the CBE, Nextedge is aimed at research and development and high-tech businesses. However, those businesses “took a nose dive after the crash” of 2008, Franzen said, and this year, “sequestration has had a dampening effect.”
“No matter how great the park is, it’s still tied up in the economy,” he said.
The City of Xenia three years ago completed infrastructure for a small, high-tech oriented park on the site of land formerly owned by the Ohio Veterans Children’s Home. However, none of the lots have sold, according to Economic Director Steve Brodsky.
What has been moving more quickly are commercial spaces where a business owner can rent, rather than build, a new building.
“The vast majority of our inquiries are asking for existing buildings,” Brodsky said. “People are hedging their bets. They’d rather lease.”
John Kopilchack, senior project manager at Synergy, a commercial real estate company in Dayton, is not surprised by these reports.
“The government uncertainty has caused a lot of contractors to put their plans on hold,” he said in an interview last week. “We’re seeing everything moving more slowly than in the past three or four years.”
Kopilchack’s company, Synergy, is working with the CBE to market the local commerce park, and he has seen some interest, he said.
However, like Franzen and Brosky, he sees more interest in commercial spaces already built.
“People are looking for a space that’s already available so they can move quickly,” he said.
Synergy would be interested in working with potential CBE buyers to build their facilities, he said, but the companies would need to have the ability to finance the construction.
Still, Kopilchack sees signs of hope in the economy, and believes that within the next year conditions will change, and more companies will have the wherewithal to construct their own facilities.
And Franzen, regardless of his experience with the glacial pace of Springfield industrial park development, encourages the Village to move ahead with funding the CBE. About 80 percent of economic growth in a community comes from companies already located there that want to expand, he said.
“The easiest businesses to satisfy are your current customers,” he said. “If you as a community don’t have the opportunities there” for growth, the local businesses could be lost to other communities.
The Community Resource request for CBE funding was presented with a report on potential fiscal impacts of the CBE, prepared by Sutton. The report estimates that local entities will receive tax revenues in excess of $800,000 annually once the park is fully inhabited. Of that amount, the Village would receive $273,137 in direct tax revenue from both income tax and enhanced property values, the local school district would receive $499,509 and Miami township would receive $36,575.
The tax revenue estimate is based on the assumption that the CBE will create 225 new jobs when fully operational. According to Sutton, that number assumes that nine companies will reside in five or six new buildings, which cover about 150,000 square feet.
Asked this week on what his estimate of potential jobs is based, Sutton said in a email, “I don’t feel it’s unreasonable as a first order assumption.” The numbers were partly based on the occupancy of the Miami Valley Research Park, Sutton said, which, begun in 1984, currently holds 40 resident organizations with sizes ranging from two to 1,200 employees.
However, any analysis of CBE fiscal benefits should come from an objective source, not a member of Community Resources which has worked for years to develop the project, according to Hempfling.
And the assumptions in Sutton’s analysis are “overly rosy,” according to economist Taki Manolakos of Yellow Springs, an adjunct economics professor at Wright State University.
“These presumed benefits crucially depend on conditions in the market for commercial and industrial real estate, in addition to national considerations such as fiscal and monetary policy,” he said, asking “Do we have any firm statistical evidence on market conditions?”
Looking around at Miami Valley industrial parks, Manolakos said he is not convinced.
“I’m seeing market conditions that don’t look favorably on this idea. I see vacancies. I see excess supply,” he said.
The Village is also being asked to take on considerable risk, he said. “The people of the village are being asked to assume the burden of almost all of the risks associated with the proposed development, but only a fraction of the presumed benefits would accrue to us, even under the most optimistic assumptions.”
Regarding the risk involved in the project, Sutton acknowledged in his report that “the actual market is unknown at this point.” However, in an interview last week, he also stated that, “I understand people think there’s a risk. But life is a risk. Unless you grow you die.”
And if Yellow Springs doesn’t increase its capacity to house growing businesses, he said. “Our tax base will die. I’m worried about it.”
Council member Wintrow is also concerned about the village’s inability to attract new businesses to town that can broaden the tax base and thus lower the tax burden for individuals. In the past decade, the Village has lost such large employers as The Antioch Company and Vernay Laboratories, along with smaller ones such as LaserLink, she said.
But economist Goetzke questions the assumption that the village needs new businesses to begin with. Antioch College will triple in size in the next few years if it grows as expected, he said, which will lead to more retail development as well as local jobs.
“That’s enough growth,” he said.
If Village government chooses to move ahead with the CBE, it should fund it through a bond issue in which local investors purchase shares, so that they have “skin in the game,” according to Manolakos, who believes the attractions of the village don’t trump what he views as the realities of the economy.
“I believe Yellow Springs attracts a unique set of people,” he said, “But we should not hold onto fantasies about market conditions.”
But comparing a potential Yellow Springs commerce park with ones in Xenia or Springfield doesn’t make sense, according to Wintrow.
“Yellow Springs is such as specific entity,” she said. “I don’t see us competing with everyone else.”
New business will come to the village because their owners think, “I like Yellow Springs. I like the values,” she said.
The second part of this series, which focuses on alternative space for business development in the village and the needs of local businesses, will appear in next week’s issue.