The Bay Area has a remarkable example of how a new economic development strategy could work.
People’s Community Market, the first full service grocery store in West Oakland in almost a decade, will be built in 2014 after the completion of the capital raising campaign currently under way. PCM is raising $1.2 million of equity capital through a “direct public offering, or DPO, in which any California resident can invest with as little as $1,000. When that target is reached, an additional $2.4 million in low interest loans could be made available by California Fresh Works Fund, a private-public group dedicated to bringing healthful foods to underserved communities to complete construction and fund the operations until break-even.
The direct public offering has raised $1.06 million in equity capital so far from more than 250 individual investors, most of them located in the Bay Area. Not only will the grocery create 50 full-time jobs for West Oakland residents, but all employees will be eligible for stock ownership in People’s Community Market. This means that, not only the community will benefit from the economic success of the market through their investment but so will its 50 employees.
This is a very different model than local government’s usual approach to job creation. States, counties and municipalities, while dealing with budget deficits, have been competing with each other to attract jobs in their region with tax abatements and other financial incentives mostly targeted at large corporations.
Attracting jobs through tax incentives has been at times extravagantly costly, like the recent $55M tax abatement Apple received from the state of Nevada to create 35 jobs in a new data storage center in Reno, or the jobs created in the State of New Jersey in the last decade – as the New York Times reported last year, “… the Christie administration has granted more than $900 million in state tax credits over 10 years to 15 companies, including Panasonic, Goya, Prudential and Campbell’s Soup. The companies have promised to add 2,364 jobs, or $387,537 in tax credits per job, over the next decade”.
Besides the extravagant cost, the usefulness of those incentives is often ephemeral. As soon as the incentives run out or another jurisdiction offers a better deal, those same companies hailed as “job creators” don’t hesitate to pick up and move their operations to the new sweet spot reversing the economic benefits purchased at such high cost to tax payers.
Is there a better way to create and retain jobs in a community? Can we permanently anchor wealth formation in our communities? The answer is yes! Local communities and their local governments, whether at the municipal, county or state level, can use local investing as a powerful new economic development tool that retains jobs and economic benefits in the community for the long haul.
Imagine the city of Oakland, the county of Alameda or the state of California participating in the direct public offering of People’s Community Market with some of the money they earmark for economic development. Those funds currently buy expensive and ephemeral job creation from large corporations that have no loyalty to any specific community.
Instead, they could provide the investment capital as a community matching challenge, turning a $600,000 investment into $1.2 million with the investment participation of the local community. In the traditional economic development model, $12,000 per job would be a very competitive cost of attracting jobs to an area with very high unemployment. Even better, since the money would be provided as an investment, if People’s Community Market is successful, the money would be returned along with a 3 percent interest to the coffers of the those governments or their economic development entities to be deployed again in similar local investing projects.
Unlike the current beneficiaries of most economic development tax incentives, People’s Community Market will be owned by the community and its workers. It will therefore certainly not be leaving West Oakland and relocate its operations to pursue the next attractive tax incentive scheme.
The key to sustainable economic development is anchoring ownership and capital formation in the very community in which that economic activity takes place. People’s Community Market shows the way for communities to achieve durable employment generation and shared economic well being.