Wonks R Us

Where Public Policy and Small Business Meet

Category Archives: Concept vs. Reality

Hey software developers, tell us who you are

If you’re involved with Portland’s software community, you know that there’s an amazing variety and depth of work being created at companies large and small, in hobby side-projects, and open source efforts. The City of Portland has selected software as one of its economic development clusters for the economic plan currently being written. Agencies like the Portland Development Commission (PDC) are involved in documenting our software community and developing a plan for working with it, but they lack accurate data on the types of software development local organizations are undertaking, and have limited experience with the kinds of small companies, ad hoc organizations, and independent work that forms much of our technology efforts.

We’d like to assist the PDC and City of Portland efforts by initiating a software community census to:

* Gather some basic demographics about Portland’s tech community

* Flesh out what work people are doing and for whom

* Build a baseline so we can quantitatively track the community’s breadth and depth

How can you participate?

* Take the survey at http://www.surveymonkey.com/s/KTGSH9Q before May 17

* Spread the word to your colleages, coworkers and friends

* We will be posting the results online, so check back with Silicon Florist and your community tech organizations for details.

What do we get out of this? This census will:

* Ensure economic development efforts are targeted to what our industry actually needs

* Provide data that can be used to assess the success of economic development efforts

* Create an accurate picture of our amazing tech community (and give us bragging rights at OSCON).

* Market Portland to companies like Involver who are coming to check out Portland!

How our work fits into the City of Portland’s plans:

* Software is the of the 5 clusters identified in Portland Economic Development Plan. It is the cluster that is least well defined in the plan.

* PDC took the first step with their survey. Now we are helping them flesh out their results and better target their efforts.

* We will be sharing our survey’s results directly with the Mayor and PDC’s Urban Development Director, Erin Flynn.

The survey will be open through the end of May, but we strongly encourage you to complete the survey by May 17th so we can include your data in the results we share at the next Lunch 2.0.

A sisyphian effort

A representative from the National Federation of Independent Business (NFIB) has targeted our zip code and is meeting with every business-owner. She asked for our thoughts on taxing gross (rather than net) income for businesses, specifically in reference to HB 2070 and HB 2119. Having not read the legislation, we rescheduled our meeting for yesterday.

Turns out to have been a good move on my part. Both bills address the issue of a corporate minimum tax, not changing the tax basis from net to gross revenues. HB 2070 focuses exclusively on “C” Corporations (the entity structure used least often by small businesses), with an exemption for corporations earning <$100,000. HB 2119 addressed both “C” and “S” Corporations, but with a graduated minimum based on net revenue.

In preparation for our meeting, I printed the 2 bills in question and highlighted the relevant sections for her.  Her response was that she is interested in our thoughts on NFIB’s entire lobbying agenda, and she had named those two bills as examples. We then inquired as to what issues are part of NFIB’s legislative agenda. I had already looked on their web site, and found nothing. She explained that she did not know and was only a go-between and offered me NFIB’s lobbyist’s direct number.

Since we couldn’t have an intelligent conversation about NFIB, we asked her what she was hearing from other business owners. Unsurprisingly health care was top of the list. I asked her what options the state legislature was exploring around health insurance affordability. She didn’t know and once again offered NFIB’s lobbyist’s direct number.

As she has targeted our zip code, I asked how NFIB rated our state legislators in regards to small business. She replied that with such a large territory, there is no way she could know anything about our legislators. I explained that all of 97214 shares the same set of legislators.

I found my exchange with NFIB so aggravating because they are asking irrelevant inflammatory questions of small business owners who are already stressed beyond belief. The uncertainly of this economy has left even the most seasoned entrepreneurs unsure of the best survival tactics. Nobody has time to assess the veracity of every piece of information that crosses his/her path, so self-defined experts can easily push their own agendas.

What we all need (small business owners in particular) are short factual bits of information. Twitter would be an ideal platform. 140 characters of information with a link for more detail. There is no shortage of Twitter accounts offering this information on a national level, but none focused on local issues. If I had endless time, I would enjoy providing this service because I think informed decisions are the best type of decisions. But I do not. I am one of those aforementioned over-stressed small business owners who happens to care deeply about civic engagement.

Think Globally, Act Locally

While he was still President-Elect, Barak Obama made it abundantly clear that he wanted no earmarks to be part of the economic stimulus package.  While often perceived as a synonym to “Pork-Barrel spending,” earmarks can serve a useful role.  They are a way that congress can designate funding for specific work.  They are also a way for the congress to negotiate compromises, which, when done within reason, are actually a useful tool to move decisions forward.

But, there is also a reason that earmarks have earned a bad name.  As I mentioned in a previous blog post, TARP, the previous stimulus package, was earmarked for banks, despite the fact that banks were clear, in a very public way, that they had no intention of using it as directed.  Negotiating earmarks can also slow congressional decision-making to a halt.  The funding pie is never big enough, so not only are people scrambling for a slice, but arguing like little children over whose piece is bigger.

Both the House and Senate are getting very close to agreeing on a stimulus package that President Obama can sign.  Everyone involved seems to recognize the urgency of the situation and the need to get money flowing back into the economy.  At this point in time, it is looking like both the House and Senate will sign on to the idea of having the jurisdictions that receive the money decide how they will spend it. But not without some parameters from congress.  In HB1, the House economic stimulus bill that is currently being debated, there are dates by which the money needs to be released by the federal government (30 days for formula funding, 90 days for competitive funding and 120 days for funding for new programs).  In addition, the funds are released conditionally on a “use it or lose it” basis.  So if 50-75% of funds are not used by the recipient jurisdictions within a pre-determined time-frame, the money goes back into the pool to be redistributed.

What happens next?  Well, according to Sarah Binder of the Brookings Institution:

When this bill passes, a Niagara Falls of money will flow out of Washington and into the accounts of state highway commissioners, governors and legislatures, local school boards, county executives — even mayors

Then local jurisdictions, rather than national legislators, can decide how to best allocate the money to revivify their local economies.

I find the resistance to shifting the decision making to the local level very interesting.  From my perspective, localizing the spending decisions promotes greater local accountability because the locus of control is so much more accessible.  When funding decisions are made in Washington DC and they are poorly suited for a state, a county,  a city or a school district, it is way too easy to blame “those folks in Washington.”  The machinations of elected officials in our national capital are mocked as often, if not more so, than they are taken seriously.

However, having lived in two large east coast cities (New York and Philadelphia), a small Californian city (Santa Cruz), as well as our lovely medium-sized city of Portland, I have observed that ordinary people (as opposed to policy wonks like me) actually track funding decisions being made on the local level.  When city or county governments are debating whether to pave roads or increase park maintenance or whether to close a community center–citizens pay attention.  They pay attention because the decisions being made will impact their day-to-day existence.  They pay attention because the money being debated is at a scale that is comprehensible (thousands and tens of millions, rather than billions and trillions).  And they pay attention because it is much easier to write letters, call or testify to a legislative body that is driving distance of one’s home.

The opposition I have heard thus far to localizing the decision-making is centered around local jurisdictions’ inability to make sound funding decisions.  That will certainly be true in some cases.  But, what will also be true is that decisions will be made that align much more effectively with the needs of the local economy than any decisions that could be made at the federal level. My question is whether the stimulus funding that is being allocated by local jurisdictions will be spent more effectively than the TARP funding allocated by congress.

The good news is that we are likely to be able to answer that question within the next couple of years.  U.S. Rep. David Obey (D-WI), the chairman of the House Appropriations Committee explains it this way:

We have more oversight built into this package than any package in the history of man. If money is spent badly, we want to know about it so we can hold accountable the people who made that choice.

I am looking forward to this grand experiment in local control.  I not only strongly believe that it is the right decision for this time and this place, but I am also optimistic that we, as nation, will learn a lot about how to most effectively spend our public dollars.

We have a TARP with a huge, gaping hole

Between running my business, tracking the Sam Adams story and everything else on my plate last week, I fell behind on my newsfeeds. My feeds have become more important to me because I have been listening to NPR less and less lately. I think the ongoing mantra of layoff numbers is counterproductive to economic recovery.  Since their reporting focuses on the problem, rather than the solution, the news only feeds the fear, which then leads to shareholders panicking with the end result of  more layoffs.  I am appalled at the recent rate of job loss, but until the media refocuses its energy to include more focus on recovery, I am taking a radio hiatus.

One of the very nice things about newsfeeds is the ability to filter out what I don’t care about.  This is a critical feature given that my feeds include international media, and I just couldn’t care less about local cricket scores (even though I understand the important role cricket matches play in many communities).  Since the $700 Billion Troubled Assets Relief Program (TARP) was intended as a solution to the current economic crisis, I have been tracking how the first appropriation of $350 Billion is being spent.

That is how I encountered this article.  Just to refresh people’s memories, TARP was intended to infuse cash into the banking system so that banks would have money to lend to consumers and businesses.  Financial institutions received hundreds of millions of TARP funds even when they publicly stated that they were not going to use the funds as intended:

At the Palm Beach Ritz-Carlton last November, John C. Hope III, the chairman of Whitney National Bank in New Orleans, stood before a ballroom full of Wall Street analysts and explained how his bank intended to use its $300 million in federal bailout money.

“Make more loans?” Mr. Hope said. “We’re not going to change our business model or our credit policies to accommodate the needs of the public sector as they see it to have us make more loans.”

Despite my foreknowledge of what I strongly believe should be a criminal misappropriation of tax dollars, I was still shocked when I read that Citigroup had ordered a brand new $50 million dollar corporate jet with their $45 Billion TARP funds.  At the same time, Citigroup executives were trying to quietly sell two of their existing corporate jets, worth $27 million each.  Fortunately for us lowly taxpayers who have to fly coach on commercial airlines, President Obama learned of the intended purchase and instructed Citigroup executives to “fix it.”

That still leaves me with several questions.  Will Citigroup actually use that $50 million that they had allocated to the corporate jet for consumer and/or business loans?  Will they still sell the two jets that they have been trying to quietly unload?  If so, what are the chances that the entire $104 million will actually go towards true economic recovery?

We interrupt this blog for an important announcement

Today the City of Portland’s Auditor released their report on the Portland Development Commission.  The folks sitting near me while I read the report will attest to the fact that it made me hopping mad.  For the sake of full disclosure I will mention that we (CubeSpace) applied for funding from the PDC and were turned down.  However, I am confident that the facts will stand on their own and it will be made clear that my concerns are not the result of sour grapes.

All of the quotes below come from the Auditor’s report which can be found here.

The Auditor found that the developers that received PDC funding complied with the stipulations of their funding.  However, this is despite the fact that PDC doesn’t seem to monitor their results.

Here is what the auditor’s report said regarding the PDC’s oversight of the developers they funded:

We found that developers met many of the requirements of the 11 Agreements we reviewed. For example, they renovated three properties and 99 affordable housing units. Developers also constructed three commercial properties, fifteen market value residences, and one affordable home.

However, PDC was unable to consistently confirm that developers met the Agreements’ basic requirements because PDC does not follow its own policy for certifying the completion of every Agreement. In addition, PDC cannot demonstrate that Agreements fully accomplished other goals and purposes, such as finding and retaining commercial tenants.

Further, PDC is not monitoring the Agreements’ goals sufficiently once projects are completed. Therefore, PDC cannot determine if Agreements have accomplished their intended purposes and justified the public investments.

I find this lack of oversight disturbing.  Especially since the criteria for many of their loans tie job creation to a dollar value: Enterprise Loan Fund and the Revolving Loan and Real Estate Fund.  In fact, we (CubeSpace) had several conversations with them about how we didn’t qualify because we don’t have many employees, even though we exist to support small businesses.  But, we couldn’t get credit for the jobs we indirectly create through our existence.  Now I learn that we could have just lied since nobody checks anyway.

Job creation numbers are unconfirmed – PDC is also unable to demonstrate whether the Agreements created the number of jobs expected. Under the Agreements, a total of 484 jobs were anticipated based on estimates related to the size of the buildings.

By the end of our audit fieldwork, PDC was unable to provide evidence of job creation. However, when we visited the Agreement sites, we saw people working. Therefore, we attempted to verify the anticipated jobs through sources outside PDC. We were able to confirm the existence of 166 jobs. PDC told us as many as 520 jobs may have been created, but only provided evidence of 212 jobs.

Another finding was that much of the commercial space that was developed using PDC money remains vacant.  This is, in part, because the PDC did set realistic expectation for filling the commercial space.  This is interesting in light of the fact that the PDC recognizes that it can be difficult to lure businesses to a neighborhood that is perceived negatively.

PDC cannot demonstrate whether developers met some Agreement goals for commercial development At the end of our audit fieldwork, we found that some commercial development goals were not fully met.

Commercial space remains unfilled – Of the seven Agreements that include commercial space, we found that four commercial buildings are partially empty and three are full. According to PDC estimates for building size and occupancy, the developments created approximately 304,000 square feet of commercial space, but about 42,000 square feet of commercial space were empty.

One PDC manager told us that it is sometimes difficult to fill commercial space in URAs [Urban Renewal Area] because negative public perception of the neighborhood and lack of other businesses in the area make commercial tenants hesitant to lease the space. We recognize the difficulties that PDC faces in developing URAs and acknowledge that project teams assist developers in their efforts to fill the properties.

Disposition and Development Agreements
However, at the time these Agreements were signed, PDC did not clearly define realistic expectations for the time frame in which commercial space will be filled.

One of the developments featured in the report itself is located just a couple of blocks away from us.  We are both located in the the same Urban Renewal Area.  They have 15,000 square feet of flexible office space that has been vacant for over a year.  In fact, they have contacted us to inquire as to whether we would like to rent their space.  We have 13,000 square feet ourselves.  While we are not full to capacity by any stretch of the imagination, our space is heavily utilized.  We have 30-50 people here on an average day and on a crazy conference weekend, we have had over 300.

When we applied to PDC for funding to help build out our space, we were told that since we were not estmating capacity in the typical way that a landlord measures tenant capacity (because we license, rather than rent our space) they could not make the numbers pencil out.  However, our is exactly the type of business that encourages people to work in a URA because they are not required to make a commitment beyond a single hour.

In retrospect, we are just fine not having received money from PDC.  It would have left us with more operating capital, but it allowed us to develop our own metrics for success and create our own accountability.  But, if Portland is going to continue to be the hub that it has become for creative small business, PDC will need to both re-evaluate its criteria for funding and actually hold themselves accountable for those criteria.

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