Unlocking the Development Finance Toolbox
By: Toby Rittner
A few years ago, I wrote an article (Building the Ideal Financing Toolbox) for Economic Development America, the quarterly publication of the Economic Development Administration. At the time, my concepts and viewpoints were generalizations about the importance of employing a comprehensive economic development finance strategy at the state and local levels. Since then, I have built on the concepts in that article to develop a system that is relevant to today’s economic challenges.
Over the past several months, access to capital and the traditional bond finance markets have slowed considerably causing hundreds of development finance agencies to review their efforts and financing approaches. While the boom of the late 1990s and early 2000s fueled the use of specific financing tools, such as tax abatements and incentives, the slow down in the economy is now proving that a comprehensive economic development finance strategy is even more essential.
This coming May, CDFA will debut the Practitioner’s Guide to Economic Development Finance: Building and Utilizing the Development Finance Toolbox. With input from colleagues in the industry, I have developed and written this book to be used as a daily resource with information about more than 60 development finance tools and programs.
The Practitioner’s Guide touches on five areas of the development finance toolbox:
1. Bedrock Tools
Covering: Bonds and the Basics of Public Finance
2. Targeted Tools
Covering: Tax Increment Finance, Special Assessment Districts, Government Districts & Project Specific District Financing
3. Investment Tools
Covering: Tax Credits, Seed & Venture Capital and Angel Funds
4. Access to Capital Lending Tools
Covering: Revolving Loan Funds, Mezzanine Funds, Loan Guarantees and Microenterprise Finance
5. Support Tools
Covering: Federal Economic Development Programs & Tax Abatements
The Financing Spectrum
An important concept in the Practitioner’s Guide is the development finance spectrum. Having an understanding of this spectrum allows development finance agencies to address the needs of established industries, large real estate development projects, small businesses, and individual entrepreneurs. Recognizing that development finance occurs along a continuum is critical to maximizing the resources available in a community.
For example, large-scale industrial development requires a different financing approach compared to small business development. In addition, real estate development does not require the use of innovation capital such as seed or venture capital funding, but an early stage entrepreneur is not likely to benefit from bond financing either. Some financing options, such as a revolving loan fund, may address a variety of needs and clients. To be effective, however, most development finance efforts must be tailored to a specific need or project.
By utilizing the toolbox approach, economic development practitioners, public officials and private sector leaders can harness the full spectrum of the development finance industry to support business growth, build public financing capacity, increase investment and secure redevelopment and development projects.
Beyond the Book
The Practitioner’s Guide will be complimented with a new CDFA training course: the Fundamentals of Economic Development Finance Course. Held in Washington, DC this July 16-17, the Fundamentals Course is the foundation for all of CDFA’s educational offerings. You’ll learn about the development finance spectrum, everything from bonds, tax credits and TIF, to federal financing programs, RLFs, and access to capital lending resources. Developing a working knowledge of these tools is essential to applying the development finance toolbox approach in your community.
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