State-of-the-Art Measures in Economic Development

Jan 12, 2012 | ARTICLE

For years local governments have invested resources into efforts to spur economic growth and competitiveness. And for years the officials heading most of these economic development initiatives tracked their efforts with little more than output measures—for instance, the number of industrial contacts made or assisted, the number of meetings held or presentations made, the number of information packets or brochures distributed, the number of trade shows attended, and similar measures of activity. They focused on showing that they were trying hard.

More recently, as municipalities have gained greater experience with economic development, and as more attention has been directed to outcomes and accountability across the range of local government programs and services, the state of the art has begun to change. Now, economic development officials—and those who monitor economic development performance—are increasingly tuned in to a broader and more meaningful array of measures to document the results of economic development activities.

Limited Control of Outcomes

Simple outputs, such as raw counts of meetings and contacts, are appealingly easy to compile and report, and they focus on things economic development officials can control rather than on outcomes that depend on more—sometimes much more—than their own efforts.

But other local government programs tackle problems that lie beyond their full control, often by leveraging the assistance of others. For example, many factors beyond police performance influence crime rates, yet the police are expected to hold the rate down; many outside factors influence the incidence of teen pregnancy in a community, but a local program established to reduce these pregnancies is expected to make a dent in the numbers.

Similarly, economic development officials are moving beyond raw counts of outputs and reporting on outcomes—at least intermediate outcomes—including those over which they have limited control. For example, some local governments track new capital invested, jobs created, and businesses attracted or retained. Here are examples of outcome-based measures of local economic development used in some U.S. communities:

  • Dollar amount of investment created through economic development efforts (Austin, Texas)
  • Number of new jobs created through economic development efforts (Austin, Texas)
  • Value of new construction [in targeted area] (Olathe, Kansas)
  • Number of business licenses issued (Scottsdale, Arizona).

Economic development officials in these cities are not claiming sole responsibility for results or for advances from one year’s number to the next, but they are suggesting that they have had a role in influencing the results.

Results That Can Serve as Benchmarks for Others

Among the new generation of economic development measures are some that report performance in a manner that can provide useful benchmarks for others. These are outcome measures that convert raw improvement into percentage improvement or, better yet, into measures that reflect conditions of economic development vitality that can serve as inspiration to other communities.

Communities often establish economic development programs with a principal hope of boosting the local tax base. Here are some indicators relating to that goal:

  • Growth in assessed/appraised value of properties in a target area
  • Percentage increase in the business tax base.

A sure sign of economic vitality is a high occupancy or low vacancy rate for existing office, retail, and industrial buildings. Of course, occupancy can be a moving target. Achieving a low vacancy rate is likely to spur new construction, which in turn creates new vacancies, perhaps causing the vacancy rate to edge upward—but the tax base will get a boost. Here are some sample measures:

  • Downtown office vacancy rate (Bellevue, Washington)
  • Retail occupancy rate (Chandler, Virginia)
  • Existing and available industrial space (St. Petersburg, Florida)
  • Existing and available retail space (St. Petersburg, Florida).

Other measures focusing on different aspects of economic development success provide an indicator of quality or results:

  • Hotel occupancy rate
  • Percentage of potential jobs at risk that are retained (Oakland, California)
  • Mean hourly wage of jobs created through ED department incentive programs (San Antonio, Texas)
  • Ratio of outside funds to municipal funds for development initiatives
  • New business start-ups as percentage of all businesses in the city (Williamsburg, Virginia)
  • Percentage of active business leads that choose to locate in the city (Oakland, California)
  • Percentage of participants in mentoring programs for microenterprise business owners who reach their business goals within 12 months (Grand Rapids, Michigan).

Economic development success can also be measured by more general indicators of wealth creation, such as unemployment rate, percentage of residents below the poverty line, and median household income.

Looking Ahead: New Strategies, New Measures

A changing economy, major shifts in industrial structure, and increased global competition for jobs and private investment have challenged traditional approaches to economic development and led local governments to pursue new job creation strategies. What was once an almost exclusive focus on marketing and industrial recruitment is being augmented by approaches that emphasize homegrown sources of economic activity—efforts that develop entrepreneurial skills, creativity, and talent and promote innovation.

The cutting edge of economic development performance measurement reflects the reality that economic development has expanded to become much more than activities aimed at recruiting large manufacturing facilities or filling commercial office buildings. Some analysts call for new metrics that are better aligned with the dynamics of a knowledge-based, global economy and that use regional economies, not political jurisdictions, as the units of analysis.(1)

This approach to measuring performance in economic development emphasizes outcome metrics focusing on the number of high-tech jobs, levels of personal income, and number of new businesses as well as indicators that gauge the local assets that can be thought of as the “inputs” to regional competitiveness. These assets include a skilled workforce, ample financial capital, and a community’s innovative capacity.

The new set of performance measures reflects the fact that much of what communities do now to promote economic development involves enhancing local and regional competitiveness and boosting local capacity to support private investment and economic growth from both within and without. This new approach to measuring success assumes that economic growth, as measured by a quantitative increase in certain indicators—jobs, capital investment, and tax base, for example—is an intermediate outcome that should lead to qualitative improvements in a local and regional economy over the longer term.

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1 Eva Klein, “Your Regional Knowledge Economy Strategy: Is It Succeeding?” Economic Development America (Spring 2007), pp. 26–29.

Excerpted and adapted from David Ammons and Jonathan Morgan, “State-of-the-Art Measures in Economic Development, PM Magazine, June 2011, published by ICMA. David Ammons is Albert Coates Professor of Public Administration and Government, University of North Carolina, Chapel Hill (ammons@sog.unc.edu), and Jonathan Morgan is Associate Professor of Public Administration and Government, University of North Carolina, Chapel Hill (morgan@sog.unc.edu). Ammons is editor of the ICMA book Leading Performance Management in Local Government.

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