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A Thought Paper byFourth Economy Consulting

February 2011

Attracting High-Growth / High-Wage Investment

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DFourth Economy experts, collaborators and pioneers represent diverse backgrounds and skill sets. Together, we endeavor to share with clients and colleagues our

thinking on a variety of topics.

Fourth Economy “Perspectives” is designed to advance dialogue and thought leadership on economic

development, urban design, innovation strategies and new market development.

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There has been a lot of talk recently about the role of “innovation” and “technology” in strengthening our national economic competitiveness. While some firmly believe that innovation is the key to recovery and future growth, others say we should focus first on traditional manufacturing jobs. Many who advocate for the latter submit that manufacturing jobs make more of an economic impact in more regions of the country.

While most of us can be sympathetic to both views, we also can’t forget that manufacturing jobs and products were made possible first through innovation, research, discovery and capital. All parts of the country, small towns and big cities alike, must determine how their location and assets can serve the modern economic development continuum, from the budding entrepreneur with a new idea, through to product development, reinvention and production.

A client recently asked us a basic question – “If we want to attract and increase high-pay, high-growth investment, what do we need to know?” In response, our team gathered a sample of incentive programs and strategies that some states have employed to attract higher value, technology based research and development sectors while also hoping to accelerate new company formation. While not a comprehensive search to say the least, this scan does provide some program themes of what has been put in place over the past few years to grow higher growth higher wage sectors.

First, some general observations:

BACKGROUND

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Unlike highly cost sensitive sectors, R&D operations, corporate headquarters and technology-driven firms

will likely place more emphasis on place-based assets and resources. These include community factors such

as high-quality and diverse housing options, recreational venues, transit linkages, good airport access and

cultural venues. Operational resources such as wet-lab space, university access, flexible capital, venture funds,

and ready-to-go class A/B flex office space are also critical. Increasingly we are also finding an attraction

to urban infill redevelopment opportunities, Live-work-play centers and adaptive reuse of older or historic buildings to accommodate these sectors. Many of

these factors came together to help Google expand in Pittsburgh and in their choice of the expensive high

profile Chelsea neighborhood in New York City.

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While capital is important to all sectors, high growth high wage sectors will likely require more access to risk capital, venture funding resources and networks. We have also found that smaller firms to include start-ups and spin-outs also value micro-grant programs that offer $5,000 to $25,000 to support patent filings/research, IP protection lab rental or graduate student research support. Mid-sized and larger firms take advantage of Research and Development Tax Credit programs. Several examples of these programs are included in the links below.

VC, TAX CREDITS & M

ICRO GRANTS

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Another growing industry demand represents an opportunity for economic development intermediaries

to position as a core service or incentive program. That is the facilitation and management of collaborative

partnerships among high value sector firms, universities, researchers or other resource providers. Through our

work with the Pennsylvania Keystone Innovation Zone Program, many smaller technology-based companies

and legacy firms in search of new product development or spin-out services, found value in a “single point

of contact;” one able to facilitate those efforts and bring the right resources effectively to the table.

States such as Michigan and Minnesota have taken on “networking” among high-growth high-wage sectors as a

core economic development delivery service.

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When planning new incentives or revamping older programs, it is important to keep in mind that the general profile and characteristic of the modern business and how it operates is rapidly evolving. Modern firms are often smaller than what we may expect, usually less than 25 employees, and will likely stay that way for a longer period of time. They are more comfortable than legacy industry to rely on contract labor and sub-relationships rather than hiring permanent in house staff. For efficiency and security reasons, even larger firms are also becoming more decentralized, with smaller offices and manufacturing facilities spread across more locations. These conditions pose challenges for traditional incentive programs that have established eligibility thresholds based on larger manufacturing or corporate headquarters profiles. As a result, many legacy workforce, loan and grant programs then are less applicable and attractive to the smaller, more nimble high growth high wage firms.

ALIGNING NEW PROGRAM

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The following articles talks generally about state programs and rankings as they relate to higher

value industry sectors such as Biotechnology, Life Sciences, Medical Devices and Energy. [items below are

hyperlinked]

Best Bio-Tech Places – June 2008

Best States for Tech Jobs – April 2007

Tech America Foundation – Cyberstates 2010 Executive Summary

FierceBiTech – Top 5 Regions Targeting BioTech - 2009

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We have highlighted a few states that have established incentive programs and approaches targeting research and development activities as well as high value sector firms generally. These states have consistently been placed in the top 10 or 15 states in various technology economic development (TBED) rankings. We have included a public policy narrative under the North Carolina section that provides third-party policy recommendations that other regions may find of interest. [items below are hyperlinked]

New York

New York Bioscience Incentives Guide 2010

Michigan

Michigan High Tech High Growth Tax Credit Program

Michigan Smart Zones

Michigan Life Sciences Pipeline Program North Carolina

Incentives Evaluation and Policy Recommendations – Duke University

North Carolina Research and Development Tax Credit Program

Pennsylvania

Pennsylvania Tech Formation Report – Strategy Document

Pennsylvania Research and Development Tax Credit Program

Wisconsin

Wisconsin Tax Incentive Programs

The Value of Academic R&D - 2009

Florida

Enterprise Florida Incentives

STATE REFERENCES

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Any industry sector including manufacturers who cite favorable location factors other than “cost” alone are

more likely to remain and grow in that community. Employees that enjoy living in certain communities are often happier and more productive, wanting to ensure

the operational success for their employer. So it is no longer as simple as water supply and interstate access. Technology and Place-based economic development

strategies will continue to challenge many communities to reposition their program tools and incentives. But

the sustainable economic outcomes are worth the effort.

CONC

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Stephen McKnight

Stephen McKnight serves as Vice President of Community and Market Assessment at Fourth Economy.

He specializes in organization and community evaluations, market assessments and capacity building for Fourth Economy clients. Stephen works to identify key organizational and place-based assets, matching those assets with new market opportunities.

Stephen brings more than 17 years of management and economic development experience in both the public and private sector. He has managed more than 175 business expansion projects resulting in $600 million in total investment and $205 million in loan amounts. Stephen has served in senior management roles for non-profit trade associations, economic development organizations and private industry.

He is an avid cyclist, skier and new urbanist.

Email: steve.mcknight@fourtheconomy.com

Fourth Economy

Fourth Economy Consulting is a national economic development solutions provider specializing in market analytics, strategic planning, community assessments and organization building. Our team of experienced practitioners helps businesses, communities and non-profit organizations achieve their market potential. The Fourth Economy Consulting team is committed to investing in the communities where we live, work and play.

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