Solving Economic Development Barriers with Web Technology

By Ayat Amin and Peter Truog

Aug. 19, 2020, 2:31 p.m.

Many barriers in economic development prevent viable projects from becoming a reality. Economic development organizations (EDOs), for example, often struggle to take advantage of valuable programs such as Opportunity Zones (OZs), a federal tax incentive designed to encourage private investment in historically underinvested communities, despite clear benefits. Three systemic barriers EDOs face are understaffed teams, limited expertise and a network that lacks connections to key stakeholders. These constraints extend to other participants in the development process as well, including project sponsors, funders and residents. The use of online platforms, though, can go a long way toward bridging these gaps and help lead to a more inclusive and equitable process. EDOs without team members dedicated to working on OZ projects, such as a chief opportunity zone officer, could find themselves short of capacity to pursue such projects and lacking in expertise in the topic. And EDOs in historically underinvested communities such as OZs may lack connections to prospective investors or developers because of the community’s past record of paltry investment. An EDO facing any of these hurdles risks stalled progress on a project and their development goals for the community. But this doesn’t have to be the case. Staffing limitations The Opportunity Exchange is a web platform to support the execution of economic development projects. The firm works closely with EDOs across the country to help them use technology to achieve their economic development goals. EDOs need a manageable way to identify and market community assets via an easily shareable document. Many communities have created “investment prospectuses,” a process outlined by the Accelerator for America’s Prospectus Guide. The effort required to gather, analyze, synthesize and present all the information needed for a prospectus, however, prevents many EDOs from tackling this task due to staffing constraints. Opportunity Alabama, after witnessing the rural communities they work with encountering this hurdle, secured a grant to build a web tool for marketing communities in their state. The tool, which is still in development, will highlight a community’s assets by combining information such as census data, anchor institutions, resident engagement surveys and key industries into a shareable profile. In addition to guiding the data collection process, the tool formats the information into a compelling profile. As a result, communities save time because they no longer need to spend hours organizing the information into visually compelling PDFs or PowerPoints, obviating the need to take on additional staff. Knowledge barriers One crucial component of the economic development process that requires expertise is project financials. In order to secure funding for a project, a developer must be able to explain key project financials, such as IRR or debt service coverage ratios. Proformas are one method for calculating these key project financials, but creating a proforma model is complicated and often requires familiarity with financial modeling. EDOs and developers without such expertise often struggle to accurately calculate and communicate the key metrics funders require. The Governance Project (TGP) works closely with EDOs across the nation to help them attract OZ projects to revitalize distressed areas. The organization found that many EDOs were struggling to assist developers with calculating project financials, resulting in stalled projects. Hiring staff or engaging outside consultants to build these financial models is not an effective solution as many EDOs face staffing or financial constraints. To overcome the challenge, TGP looked to an online platform. TGP partnered with the Opportunity Exchange to build GroundUp, an easy-to-use, free web proforma tool. It provides coaching on what a proforma is and explains the inputs required at each step so staff who are not well-versed in financial modeling can still complete the process. GroundUp will be available for free to any developer or community with an OZ project starting in July. Network constraints In historically underinvested communities, such as OZs, it is common for EDOs or local developers to lack connections to key stakeholders such as investors, attorneys, accountants or other developers. While the OZ program made it more appealing to invest in communities that had historically been left behind, it did not address this network gap. Over the past year, many online OZ marketplaces and landing pages have been created to address this need. The marketplaces allow developers and EDOs to market OZ projects to investors and other stakeholders. Some EDOs, including Louisiana Economic Development, have created their own OZ landing pages to attract the attention of investors, developers and other stakeholders. Posting OZ projects online fills the network gap by allowing investors and other stakeholders to discover projects in communities they have no connection to simply by searching the web. An investor in California who may not know anyone in Louisiana can search, “Opportunity Zone projects in Louisiana,” find project information from one of these marketplaces, and easily connect with the project sponsor. For EDOs, online platforms can be a valuable resource for solving challenges. After all, we should be using all resources available for building projects that benefit communities.