|
|
ADMINISTRATIVE REPORT
Date: October 30, 2001
Author/Local: B.Pearce/6276RTS No.02330
CC File No. 3143
CS&B: November 8, 2001
TO:
Standing Committee on City Services and Budgets
FROM:
General Manager of Corporate Services
SUBJECT:
Report of the Economic Development Business Model Task Force
RECOMMENDATION
A. THAT Council approve in principle a commitment to participate in a province-led public/private partnership to promote economic development and growth in BC by attracting and retaining corporate investment.
FOR CONSIDERATION
In addition to Recommendation A, to ensure the City of Vancouver's economic interest is protected, Council consider and approve one of the two options below. Each option is outlined fully in the body of the report.
B. Option 1: That Council approve to retain the Vancouver Economic Development Commission ("VEDC") as an arm's length economic development entity for the City of Vancouver.
If Council supports Option 1, then staff recommend B.1 and B.2 :
B.1 THAT Council instruct staff to report back on a 2002 Business Plan for the VEDC before 2001 year end.
B.2 THAT Council, subject to receipt and approval of a 2001 Annual Report and 2002 Business Plan, fund the VEDC through an annual operating contract, estimated at approximately $550,000 in 2002. This would represent a $300,000 increase toVEDC's current budget. Source of funds: 2002 Operating Budget.
.OR
C. Option 2: That Council approve the creation of a City of Vancouver Economic Development Office
If Council supports Option 2, then staff recommend C.1 and C.2:
C.1 THAT Council direct staff to report back with an implementation plan for creating an Economic Development Office and a process to dissolve the VEDC before 2001 year end.
C.2 THAT Council fund an internal economic development office through the City's annual operating budget with an estimated budget of $542,000 in 2002, which represents a $292,000 increase to the City's current allocation for economic development services. Source of funds: 2002 Operating Budget.CITY MANAGER'S COMMENTS
Council has identified economic development as a top priority for Vancouver. The economic development activities described in this report are intended to positively impact Vancouver's economy, to ensure that Vancouver remains competitive and to enhance our City's tax base. It is important to note that these activities are consistent with those carried out by other cities who generally invest substantially more per capita in this important activity than the City of Vancouver.
The ability of an Economic Development organization to carry out proactive economic development activities is directly related to the level of financial support provided and the level of economic development expertise. Council must consider the level of support and the corresponding level of competitiveness desired. The funding provided should be considered as an investment in bringing and keeping business in Vancouver.The current economic situation makes this a critical time to carry out proactive economic development activities. The current VEDC Commissioners and the VEDC staff are very well positioned and are already raising the profile of the City while carrying out the mandate given to them by Council. Further the Provincial Government has indicated support for economic development. The opportunity to enter into a partnership with a provincial coalition would lever Vancouver'sinvestment in economic development and provide further benefits to the City.
This report recommends that Council approve in principle a province-led partnership to help spur economic development on a provincial level which is an important component to successful economic development for the region.
There is a need to augment the province-led partnership with a local economic development office. Of the two options for Council's consideration, the first option is to retain the Vancouver Economic Development Commission as the City's face for economic development. Such an organization would focus solely on Vancouver's economic development initiatives with the objective of not only preserving but also increasing the city's tax base. Such an organization would be viewed by the business community as an independent body committed to representing both the interests of Council and the business community in an independent and unbiased way. It would be led by an economic development professional, with the appropriate economic development leadership and expertise, is accountable to Council via regular reporting and its success would be measured by a series of benchmarks outlined in this report. The second option of creating a City of Vancouver Economic Development Office would perhaps be viewed as less independent by the business community. A new senior staff member would be required to manage the economic development office and the same staff complement as in Option 1 would be required to carry out the activities necessary for effective economic development.
The City Manager recognizes that one of the most critical components in providing proactive and effective economic development is the availability of adequate financial resources and strong leadership and expertise. The City Manager recommends Council increase their investment in economic development if Council wants to meet its economic development priority.
COUNCIL POLICY
Since 1996 Council has contracted with the Vancouver Economic Development Commission for the provision of economic development services, contingent upon approval of its Annual Business Plan.PURPOSE
The purpose of this report is to present the report of the 2001 Economic Development Business Model Task Force, and to present options regarding economic development in Vancouver for Council's consideration.SUMMARY
The 2001 Task Force has completed a review of business models, and now Council is being asked to consider two options for economic development in Vancouver. The options identified in this report are: retention of VEDC as a local arm's length organization with financial support from the City of Vancouver and the creation of a city economic development office. In addition, Council is being asked to approve in principle a commitment to participate in a province-led partnership to promote economic development.BACKGROUND
Between 1978 and today, economic development in Vancouver has undergone a number of changes. Prior to 1996, this function was carried out by a City Economic Development Office. Since 1996, the Vancouver Economic Development Commission, an arm's length organization, has provided economic development services to the City of Vancouver through annual operating contracts.
In April 2001, Council directed city staff, in conjunction with VEDC, to commence a review of alternate business models for economic development in Vancouver and to report the findings to Council before the end of September 2001. The 2001 Economic Development Business Model Task Force was created to fulfill Council's direction. Since April, the Task Force has reviewed previous economic development research, conducted extensive surveys of economic development organizations, interviewed over 50 individuals and organizations with an interest in Vancouver's economy, and prepared a formal report summarizing their findings, conclusions, and alternatives for business models. A copy of the Task Force report was distributed to Council on September 12, 2001 and a council workshop was held September 17, 2001 to review the findings of the 2001 Task Force.DISCUSSION
The report of the 2001 Task Force is intended to provide Council perspective as to the options for economic development in Vancouver. In addition to identifying alternate business models, the report contains details regarding the activities common to economicdevelopment organizations, governance models found outside of Vancouver, feedback from interviewees, and a review of economic indicators which provide an indication of the economic climate in Vancouver.Findings of the 2001 Task Force
In brief, the critical findings of the 2001 Task Force are as follows:
There is a need for an economic development function:
· All cities studied maintain an economic development function;
· Effective economic development can enhance the City's tax base;
· Growth will occur with proactive economic development strategies and management.
Interviews revealed the necessity for a City-led economic development function, and the Task Force noted the following opinions: requires adequate resources; necessary to undertake long-term planning; needs independence and business representation; requires partnerships to harmonize efforts and create synergies.
A number of common economic development activities exist. Briefly, these activities include the provision of economic development leadership, the attraction, retention and expansion of business, serving as a conduit between business and City Council, the research and analysis of competitor strategies on economic development, the development of benchmarks and measuring economic performance, and receiving and administration of visiting delegations and trade missions.
A number of economic indicators illustrate the need for proactive economic development. Of the Top 50 companies in Canada, none are headquartered in Vancouver. Of the Top 100, 7 are in Vancouver, 34 are located in Toronto and 25 in Calgary. In addition, the City of Vancouver has experienced stagnant business license growth in past years, and there has been negative inter-provincial migration in the years 1998-2000.
Investment in economic development is larger in other cities. Most of the cities which would be considered as our direct competition invest on average $2.61 per capita while Vancouver currently invests $0.51 per capita in economic development (Table 1). Other B.C. municipalities: Richmond, Surrey and Victoria spend $2.80, $1.12 and $1.83 respectively per capita on economic development. Table 1 is based on economic development activities comparable to COV's.Table 1
Investment
Population
Per capita
City of Toronto*
$6.4M
2.5M
$2.56
Halifax
$2.3M
380K
$6.05
London(Ontario)
$1.6M
325K
$4.92
Edmonton
$1.6M
650K
$2.46
Calgary
$1.4M
861K
$1.67
Winnipeg
$1.4M
630K
$2.22
Seattle
$1.2M
531K
$2.26
Richmond
$450K
161K
$2.80
Surrey
$400K
354K
$1.12
Victoria
$145K
79K
$1.83
Average
$2.61
Vancouver
$290K
556K
$0.51
*Includes BIA's and film. In addition Greater Toronto marketing alliance spends $2.4M annually.
A variety of economic development models exist. In a number of jurisdictions, economic development is carried out on multiple levels.
Based upon these findings, the Task Force identified three alternatives for economic development: Local (City department or arm's length organization), Regional, and a province-led partnership with local entity.
After weighing the advantages and concerns of each of the options, the Task Force identified the retention of VEDC with participation in a Province-led partnership as the option which would provide the most benefit to the City of Vancouver.
Mandate and Activities
The Task Force carried out a gap analysis to identify what other organizations in Vancouver (such as the Board of Trade) contribute to economic development, and from this identified the mandate and desired activities which should be carried out by a local economicdevelopment entity (Table 2):
Table 2
Key Activity |
Components |
Economic Development Leadership |
Economic Vision· for the City
|
|
Attract, Retain, Expand Business |
Promotion/Marketing
|
|
Conduit between Government and Business/Expeditor |
Business Advocacy and Support
|
|
Trade Delegations/
|
Delegation Reception
|
|
Research/Economic Information |
Develop information
|
|
Performance Measurement |
Develop benchmarks
|
|
Projects |
· Dependent on funding |
In order to fulfill the mandate to address these activities effectively, the Task Force estimated resources required for local economic development services at $550,000. At the time of the completion of the Task Force report, estimates had not been generated for the cost of macro-economic development services to be provided through the Province-led partnership.
ANALYSIS AND OPTIONS
The Economic Development Task Force has considered a number of options for economic development in Vancouver:
Option 1: Retain Vancouver Economic Development Commission as an arm's length economic development entity
In this option, the City of Vancouver would continue to contract with the VEDC the provision of economic development services. In order to function effectively the organization will require the services of five full time resources with relevant economic development experience. This includes the services of two economic development officers who will be deployed to make contacts with existing and prospective businesses with the objective of retaining and expanding businesses and encouraging new businesses to relocate to Vancouver. This compares to the current organization which has funding for two full time resources. The annual financial resources required have been estimated at $550,000. A three year mandate would provide stability to the organization and allow longer term strategic planning.
Research indicates that the private sector would be unlikely to participate financially in a local model due to the fact that larger businesses tend to operate within the broader geographical area and, therefore have needs that go beyond local boundaries. It is anticipated that the City would need to fund the majority of a local-based economic function as the City is the primary beneficiary. The VEDC will continue to pursue corporate sponsorships and other revenue generating opportunities, but as these are not secure sources of funding, should not be used to offset the core costs of the organization. However, special projects may generate federal, provincial or private funding. In addition, there are substantial contributions made in-kind to VEDC from private sector board member involvement. This contribution is conservatively estimated to be in excess of $150,000 annually.
Advantages |
Concerns |
· Full-time focus on Vancouver economic development activities;
|
· Benefits region at expense of City (those from outside Greater Vancouver view region as "Vancouver");
|
Option 2: City of Vancouver Economic Development Office
In this option, the provision of economic development services would be the responsibility of a City of Vancouver office and there would be no external organization. In order to deliver all activities as identified in this report, this option would necessitate the creation of five new staff positions, acquisition of space and infrastructure, and provision of funding through the City's internal budget process. New staff positions would be required because current City staff are already at full capacity and the skills and expertise necessary to lead and carry out an effective economic development function is not readily available among existing City staff.
Funding to the VEDC through the annual operating contract would discontinue. Budget estimates, based upon the level identified by the 2001 Task Force, are $542,000 annually.
Advantages |
Concerns |
· Focus on Vancouver;
|
· Benefits region;
|
Option 3: Regional Economic Development
The 2001 Task Force identified a regional entity as an alternative model for economic development in general. The Task Force recognized however that this was not a viable alternative for the City of Vancouver. While a regional model makes sense from an economic development perspective for Vancouver and the surrounding region and has proven successful in other metropolitan areas in North America, the political climate makes this approach virtually unworkable at this time. With the Greater Vancouver Economic Partnership wrapping up and limited support from the surrounding municipalities to contribute financially to a regional entity, a regional economic development model is difficult to establish. Even with a regional model, there would still be a need for a localeconomic development function.
Option 4: Retain the VEDC as the supplier of services with financial and in-kind support from the City of Vancouver.
Staff also considered an option in which the identified economic development activities would continue to be provided by the VEDC with support provided by the City. Such support would be provided through a combination of direct financial support in the form of an annual operating contract and, in addition, in-kind resources would be supplied to the VEDC on an on-going basis from the City. However, in-kind resources would need to be readily available from within the City, which has been found not to be the case. In any event, in-kind resources have real costs and if a combination of direct financial and in-kind resources were to be provided to the VEDC, the financial bottom line to provide such resources would be the same. There is also the concern with the lack of full accountability, efficiency and effectiveness on the part of VEDC.
Option 5: Future Opportunities: Province-led Economic Development Partnership
A province-led partnership for macro-economic development services is currently under development. In August of this year, representatives from the Ministry of Competition, Science and Enterprise, BC Hydro, the City of Vancouver, VEDC, GVRD, and the Chair of the GVEP met to discuss how economic development activities might be better coordinated in the province, region and city. As a result of that meeting, a province-led partnership that would bring together parties with mutual interest in the growth and economic prosperity of B.C is being developed, subject to the approval of each of the parties to the initial discussion. The partnership would allow resources to be used more effectively with a coordinated and collaborative approach to attracting investment. Pooling resources would have a broader impact, as well as provide a more attractive opportunity for involvement by the private sector, related associations and the federal government. The City of Vancouver will have an opportunity to join this initiative.
The financial resources for a province-led partnership would derive from signatories to the agreement. Vancouver, as one of those signatories, would contract for economic development services through a fee for service contract. Appendix 1 is a Draft Memorandum of Understanding and proposed services with province-led partnership. The financial commitment would depend on the level of service identified.
While the province-led partnership would address some of the economic developmentrequirements for Vancouver, there are a number of activities that would need to be maintained by a local economic development entity. This multi-level economic development approach is used in many areas of North America. Even in areas where a strong provincial/state or regional economic development body is present there is generally a local body as well.
The City would establish a service contract with the provincial entity to provide:
· over-arching marketing and promotion to attract investment to the province
· economic research and information to assist site selectors and businesses with targeting a specific area within the province.
A province-led entity, together with a local economic development entity, would enable Vancouver to leverage the activities of a larger organization while maintaining a focus on the specific needs of the city. A comparison of the activities conducted by both the provincial and local entities is shown in Appendix 2.
OTHER CONSIDERATIONS
Accountability
It is crucial to establish an accountability framework in order to ensure any investment made in economic development adds value to the City and that there is an organizational unit accountable and responsible for delivering on that value. The following accountability framework can be applied to each option.
Financial Accountability
The establishment of financial accountability measures would provide assurance to financial supporters that the economic development organization is operating in a fiscally sound manner. Actions to ensure financial accountability include:
· Establishment of a Contingency Reserve to address fluctuations in revenues and expenses;
· Addition of a bylaw which would explicitly disallow a deficit (for an arm's length organization);
· Usage of a project-based accounting system .
· Regular financial status reports to Council and other supporters.
Special Project Reporting
Separate accounting will be required for any special projects funded outside of the regular funding provisions so that funds will not be co-mingled.
Administrative Reporting
Administrative reporting mechanisms would provide assurance to Council and other supporters that the economic development organization is carrying out those activities mandated to it.
Proposed mechanisms to be implemented include:
· Annual Reports detailing the year's activities and accomplishments;
· Regular meetings with Council on economic issues,
· Quarterly activity/achievement reports to Council highlighting accomplishments and current financial status, as well as informing Council of any issues and proposed actions to deal with the issues,
· Quarterly updates and meetings with City Senior Staff;and
· If arm's length organization - Regular meetings between city liaison, Board Commissioners and senior staff of the economic development entity.
Performance Measurement/Benchmarks
Activity-based Benchmarks
The value of investment in economic development organizations can be demonstrated through benchmarks and performance measures. Activity-based measures provide an indication to Council of the progress the economic development organization has made in delivering its overall mandate. These are generally tied to the annual business plan. Some measures are:
· number of business retentions and expansion
· number of requests received in the year
· number of hits to the web site
· number of businesses attracted to the City
· number of media articles on the organization
· number of media articles on economic development opportunities in Vancouver
· annual survey (or exit survey) of clients regarding:
· economic development objectives and activities
· quality of economic development information provided
· quality of staff
· influence in the community
· external understanding of role of organization
Macro Economic Indicators
There are a number of generally accepted economic indicators used to measure overall economic progress for a city, region, province or country dependent upon how the information is collected. These are not indicators that should be attributable only to an economic development activity but do serve as a barometer of the type of business climate in the area. These include:
· CPI - both regional and local
· Labour force (sectoral growth)
· Employment
· Unemployment rate
· Average weekly earnings
· Housing starts
· Residential sales
· Building permits (commercial, industrial, institutional, residential)
· Number of business licences
· Bankruptcies
Competitiveness Indicators
An economic development entity should identify and report on indicators that help Vancouver understand and address its position with respect to economic competitiveness relative to some of its key competitor cities including but not limited to:
· Other competitor strategies
· Investment in economic development spending
· Infrastructure (e.g. Transportation)
· Business support
· Taxation
· Affordable housing
· Quality of life
It is important to track benchmarks and performance measures as well as monitor competitiveness to ensure that our economic development activities promote and add value to Vancouver.
FINANCIAL CONSIDERATIONS
The 2001 funding of $250,000 provided to economic development in Vancouver has been identified as low in comparison to competitor cities. This funding does not provide sufficient resources for the current economic development organization to carry out the numerous activities within its mandate. In order for the City of Vancouver to receive the full scope of economic development activities as proposed in the 2001 Task Force report, a more significant investment is required. The core budget identified in options 1 and 2 will provide sufficient financial resources to allow each economic development entity to carry out the identified activities.
The costs for the two options is as follows:
Arms-length entity |
City Department | |
Total Core |
550,000 |
542,000 |
2001 Budget* |
250,000 |
250,000 |
Net Increase |
300,000 |
292,000 |
*Prorated due to decreased costs early in the year related to the absence of an Executive Director.
As part of the 2002 budget process, a variety of added revenue sources and cost reduction initiatives are being considered. If Council approves one of the options in this report funding for the added cost of that option will be included as part of the budget discussions.
CONCLUSIONS
Council has identified economic development as a priority. This report recommends to Council to participate in a Province-led economic development entity as well as funding a local economic development entity. There are two viable options in how to carry out proactive local economic development for Council's consideration. The optionscontemplate funding higher than the current budget provided for economic development, but would provide the necessary resources to undertake a more proactive approach to economic development than currently possible. The level of funding would still be below the average funding provided by similar economic development entity's. The level of activity proposed in these options is intended to ensure Vancouver remains competitive with other cities in developing its economy and growing its tax base.
* * * * *
![[City Homepage]](/graphics/footnava.gif)
|
![[Get In Touch]](/graphics/footnavb.gif)
|
|
|
|
(c) 1998 City of Vancouver