Wednesday, November 15, 2006


With many civic and business leaders, there is a big disconnect when it comes to perceptions of economic development.

Oh, for a good run now, anything "economic development" has been embraced. But the term still labors under the narrow constraints of the old “industrial development” model, popular in the middle of the last century. This type of economic development focused on what is often called buffalo or big game hunting to recruit companies willing to relocate from other communities. The measurements were jobs (often jobs relocated not created) and expanded property taxes from capital investment.

Visitor-related economic development is still an enigma for many, because it is “demand based,” but can be equally potent. Instead of going after the business to relocate, it focuses on recruiting the consumer. Those consumer visitors then generate new hotels, new restaurants, new retail opportunities and new entertainment venues, while at the same time making existing ones sustainable.

These facilities also generate property taxes through capital construction. In 2001, for example, surveys showed the costs of developing and constructing a typical hotel room ranged from $49,000 for economy all the way up to $376,000 for luxury. That means that currently in Durham, from hotels alone, there is $102 million in capital construction occurring over just the next few years.

But at a cost of far less infrastructure, visitor-generated economic development also yields significant amounts of sales tax revenue.

My guess is that people will finally let go of the narrow “industrial” definition of economic development when taxation practices are truly reformed. That may take a bit. Local governments in particular are still wedded to property taxes, even though that model dates back to when economies were mostly agrarian and businesses were manufacturing-based.

The new service and creative economies mean that tax policy needs to be reformed, and when that happens, voila—it will likely be that getting people to see the equal value of visitor-related economic development will be much, much easier.

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