dougherty cds 2009 county support of development authorities paper

CDS 2009 ON‐GOING RESEARCH PAPER

County Support of Development Activities Over Time and During Troubled Times Michael John Dougherty, Extension Specialist/Associate Professor West Virginia University Extension Service Community, Economic and Workforce Development 2104 Agricultural Sciences Building, Campus PO Box 6108 Morgantown, WV 26506‐6108 USA Phone: (+1) 304‐293‐6131 Ext. 4215. Fax: (+1) 304‐293‐6954. Email: [email protected]

In troubled times, it is appropriate and essential for localities to invest in development‐related activities. However, previous research examining the required budgetary information submitted annually by West Virginia counties has found that the amount of funds reported to be allocated to these tasks seem not correlated to local economic conditions or other important indicators (Dougherty, 2005, 2007). Subsequent research has also found that there amounts listed in these budget documents do not truly reflect the full sum being expended on development‐related activities (Dougherty, 2008).

What appears to be happening is that county‐level development‐related activities are being financed with revenue from other sources, including self‐generated revenues and external contributions, as well as with direct funding from the County Commissions.

The original intent of this research effort was to focus on the larger counties in the West Virginia, building a database to answer the questions regarding the funding of development‐related activities. The study planned to examine all development related activities, including development authorities operations, regional planning and development council actions, and community development efforts. Information will be gathered from financial reports and legal advertisements and supplemented with structured interviews with public officials. And it was going to look at the current year and past years.

The hope was to be able to finally answer the question as to how much counties actually spend on development‐related activities and then, whether this amount changes (increases) as economic conditions change (worsen).

That research effort is still on‐going. Circumstances have made it much more difficult than anticipated to compile the necessary information to draw any conclusions regarding the relationship between economic development funding and outcomes. What is reported on herein is a pilot study that is part of that research based using eight counties for which audits were available for FY2008 for both their County Commissions and their development authorities. It was designed with the intent to confirm what is thought to actually be occurring and to help explain why that is the case.

This paper begins by briefly describing the West Virginia development authority context. Next, it discusses the previous research efforts on this topic mentioned above. Then it describes the on‐going research project and its findings to date. It closes with a brief discussion of future research directions.


West Virginia Context

West Virginia has 55 counties. They range from rural areas of mountains or river valleys with less than 10,000 people (10 counties) to a county with an urban core and nearly 200,000 residents (one county). There are counties that are less than 100 square miles (two counties) and counties greater than 1,000 square miles – or almost the size of Rhode Island (two counties).

Regardless of its population or size, the county government is the same – constitutional officers to oversee the collection of taxes, the valuation of property, security of the courts, the enforcement of laws, the prosecution of criminals, the records of the courts, and the records of the county as well as commissioners elected to staggered six‐year terms charged with overseeing everything else.

One of those tasks includes in the term “everything else” is economic development. In West Virginia, this task has become associated with the county development authority. The state authorized local development authorities in 1963. The law permits County Commissions (as well as municipalities) to undertake activities designed to directly promote economic development. It can be an effective tool to promote development activities as it permitted them.

The purposes of these entities are specifically spelled‐out in state code:

The purposes for which the authority is created are to promote, develop and advance the business prosperity and economic welfare of the municipality or county for which it is created, its citizens and its industrial complex; to encourage and assist through loans, investments or other business transactions in the locating of new business and industry within the municipality or county and to rehabilitate and assist existing businesses and industries therein; to stimulate and promote the expansion of all kinds of business and industrial activity which will tend to advance business and industrial development and maintain the economic stability of the municipality or county, provide maximum opportunities for employment, encourage thrift, and improve the standard of living of the citizens of the county; to cooperate and act in conjunction with other organizations, federal, state or local, in the promotion and advancement of industrial, commercial, agricultural, and recreational developments within the municipality or county; and to furnish money and credit, land and industrial sites, technical assistance and such other aid as may be deemed requisite to approved and deserving applicants for the promotion, development and conduct of all kinds of business activity within the municipality or county. (West Virginia Code, §7‐12‐2)

Meanwhile, state funding for local development operations comes through the Local Economic Development Grant Program (LED Grant) of the West Virginia Development Office. Up to $34,000 per county is made available to places participating in the Certified Development Community program (CDC program). The grant requires a match – 100 percent for single county applicants and 50 percent for multi‐county applicants.

The first requirement is for the entity receiving the funding to have a “[r]esolution from the county commission(s) designating the applicant as the lead economic development organization for the county.”


Eligible applicants include county development corporations and authorities; a multi‐county or regional development corporation or authority; and regional planning and development councils (WVDO website).

From this, it should be apparent that the lead development entity in the county may not actually be the county development authority, as established under state code. Overall, there are 45 officially‐recognized development organizations in West Virginia, including 39 single‐county entities and 6 multi‐county units which consist of between two and four counties (representing the other 16 counties).

In addition, counties must follow a rigid and uniform budget process. According to state law: “County Commissions, under regulations, prescribed by law, have the superintendence and administration of the fiscal affairs of their counties, with authority to lay and disburse the county levies. Such functions are performed through the clerk of the county commission” (West Virginia Code, §7‐1‐3). Formal preparation and consideration of the budget can begin on March 7 and by March 28 the document must be submitted to the state auditor for review. During the fiscal year, counties must seek state approval to amend their budgets. After the fiscal year, counties must submit to an audit of its financial statements of governmental activities to the state auditor’s office by an independent firm or submit to such an audit by the state auditor (WSASO, u.d. [2004]).

In this process, each county must follow a standard chart of accounts. In it, there are five objects of expenditure related to development. Four are in the general government category. The first object lists money allocated to the planning and development councils – “Regional Development Authorities” (429). The other three objects list operational funding for local development activities – “Community Development” (430), “Economic Development” (431), and “Industrial Development” (432) The final object is found in the capital projects category and lists investment in local projects: “Community Development” (985) (WVSAO, 2008). It is these reported budgeted expenditures that have been used to examine county‐level financial support for development activities. Previous Research

This vein of research has been conducted over the last several years. With each subsequent research finding, however, more questions are raised than are answered. It is deserving of being described as “a riddle wrapped in an enigma.”

The initial research was presented at the Community Development Society (CDS) conference in Baltimore, Md., in 2005. It sought to evaluate the funding for community and economic development to determine what difference that different levels of funding make. It used a three‐year average of funding for development activities as reported in County Commission budgets as the dependent variable. It used standard and straightforward indicators of local economic vitality and growth (such as jobs and income) as the dependent variables. Simple regression was preformed.

The analysis did not demonstrate the expected results. None of the simple regressions models based upon budgeted county spending explained one‐tenth of the variation in any of the selected indicators. The highest R2 values were 0.071 for “Employment Per Capita” and “Employment Per Capita Indexed (Against All Counties)” when regressed against “Spending Average.” Many results had coefficients with signs that


were that in the opposite direction than what was expected and most of the regression results for “Spending Average” had very small (infinitesimal) coefficients. Thus, based upon this simple study, funding levels appeared to have a limited affect, at best, on conditions related to community well‐being and economic development at the county level in West Virginia (Dougherty, 2005).

Follow‐up research was presented at the joint meeting of the Community Development Society and the National Rural Development Partnership in Appleton, Wis., in 2007. This research featured 17 independent variables based upon spending levels and per capita spending and six categories of combined spending variables for multiple regression use. There were 25 dependent variables that were indicators of community vitality and well‐being.

Overall, 520 unique regression analyses performed. A total of 91 produced statistically significant results at the 0.10 level. However, just because the results were statistically significant does not mean that they were meaningful. Most of the equations had limited explanatory power. No single variable regression had a R2 greater than 0.15. Meanwhile, 11 multiple regressions had an R2 greater than 0.5, but only four had an adjusted R2 greater than 0.5. The most powerful regressions appeared to be those associated with the population change variables, with an R2 of 0.788 and adjusted R2 of 0.690. However, there were issues in that regressions associated with near‐zero coefficients, coefficients with an unexpected sign, and potential multicollinearity, calling into question the true explanatory power of the multiple regressions.

The problems of coefficients being very small or had inverted signs that was mentioned above was quite common throughout all the regression equations. Related to this, there were cases where variables did not have any statistically significant result. This occurred with 6 of the 17 independent variables in single regression analyses as well as with 7 of the 25 dependent variables indicators in either single or multiple regressions.

From these findings, it seemed that spending more on community and economic development does not appear to necessarily translate to improved conditions at the local level, even though such would seem to be a prima facia assertion. This meant that the utility of local funding for community and economic development appeared to closely resemble what Peters and Fisher (2004) described with respect to economic development incentives (Dougherty, 2007).

A closer examination of the budgetary data collected for that 2007 caused concern, however. The amount of spending listed in the county budgets did not correspond to other information about development authority spending gathered for other purposes (strategic plans). In other words, there was money missing. This led to the research on funding reporting that was presented at the Association for Budgeting and Financial Management (ABFM) Conference in Chicago, Ill., in 2008. The crux of the research involved comparing the budgetary data to audit data. In other words, it was thought that the best way to find out how much of this money is being spent by development authorities was to review the records of their spending.

Audits were available for 23 entities – 22 single‐county development authorities and 1 four‐county agency. They told an interesting story, and sometimes a conflictual one compared to the budgetary information. For example, total operating revenues exceeded the county‐reported spending for 20 of 22


single‐county development authorities. Additionally, for the 11 authorities where data on local contributions was available in the audits, the reported local contribution was greater than the budget reported spending five times, the same as the budget once, and less than the budget five times.

It was apparent when looking at the available data that the budgetary data in no way, shape, or form accurately reflected development‐related spending at the county level. The audits helped to show that other monies were available to development organizations than just county funds; that money from the budgetary categories related to development sometimes were appropriated to other development‐related projects or programs; and that not all money allocated to development authorities was listed under the expected chart of accounts categories in the county budgets. As a result, it was concluded that meaningful research or analysis could not be done with the budgetary information available – and that the data from the development authorities was also confounding and confusing (Dougherty, 2008).

Current Pilot Research

The conclusions from the past research are that the data do not correlate to what was expected and data itself is at least partly the reason. Thus, before any other research question can be answered, the problem of data quality must be solved.

This pilot study goes about trying to resolve the conflicts described in the 2008 ABFM paper. It takes it one step further by comparing County Commission budgets and audits with development authority audits. While it resembles the previous research by using those documents, the unit of analysis has shifted to the county level rather than the document level. In other words, the data for each county is examined separately rather than analyzing aggregated data from budgets or audits.

Eight counties were selected for this study: Hampshire, McDowell, Monongalia, Ohio, Pleasants, Preston, Randolph, and Roane. Details on the counties are listed in the table below.

County Population County Spending

Operating Revenues

Total All Revenues

Ratio Co.: Total

Net Change in Assets

Hampshire 22,574 $ 113,420 $ 375,880 $ 694,544 6.12 $ 358,238

McDowell 22,707 $ ‐ $ 124,801 $ 2,108,498 ∞ $ 600,525

Monongalia 88,221 $ 138,500 $ 470,093 $ 573,778 4.14 $ 176,279

Ohio 44,106 $ 46,333 $ 2,707,074 $ 2,809,394 60.63 $ (3,702,853)

Pleasants 7,150 $ 15,000 $ 76,116 $ 84,296 5.62 $ (17,902)

Preston 30,285 $ 34,000 $ 89,018 $ 196,314 5.77 $ (265,782)

Randolph 28,264 $ 15,000 $ 296,158 $ 383,035 25.54 $ (42,132)

Roane 15,169 $ 25,000 $ 113,777 $ 167,985 6.72 $ (375,536)

Sources: Economic Development Authority Audits from the West Virginia State Auditor’s Office website, Chief Inspector Division: http://www.wvsao.gov/cid/pdfAuditWebApp/, accessed July 2009. Notes: “County Spending” does not include any contributions to regional planning and development councils.

Monongalia and Ohio data are for the development authorities, not the lead development organization. “Net Change in Assets” for Hampshire and Ohio does not include capital grants/contributions.


The rationale was simple – these were the eight counties for which both the County Commission audit and the development authority audit for FY2008 was available (as was the budgetary data). They form an acceptable cross‐section of the counties in the state, both in terms of size and geographic location (though the north central part of the state is slightly over represented). This data was then augmented with structured interviews with development officials in five counties (Hampshire, McDowell, Monongalia, Ohio, Roane), with requests interviews still outstanding in the remaining three counties. Before making any comments, however, it is necessary to note several things. All eight counties received LED Grants during the time period studied. Seven of the eight development authorities were included as “Discretely Presented Component Units” in the County Commission audits (the Monongalia County Development Authority was not included).

Finally, while all appear to have been created using the authority given counties in the West Virginia Code (§7‐12), only six of the entities examined were the designated development organizations. In Monongalia County, the development authority is the project partner the Morgantown Area Economic Partnership. The partnership is the administrative unit (it receives money from the development authority to perform that function) and the designated development organization for the county (receiving the LED Grant). Meanwhile, in Ohio County, the development authority was formed to oversee The Highlands, a shopping, dining, and entertainment complex just east of Wheeling. The designated development organization for the county is the Regional Economic Development Partnership (which itself is a division of the Ohio Valley Industrial and Business Development Corporation). The partnership (which also serves Marshall and Wetzel counties) works closely with the development authority on this project. Nevertheless, for these two counties, useful information was more limited than would otherwise appear to be.

The first point to be made is the most obvious – the total amount spent on by development authorities is much much greater than the amount reported being spent on local development‐related activities by the County Commissions (not including any designated funding for the regional planning and development councils). While one county official noted that success in projects had impressed the County Commission and led to more funding, this appears to be the exception rather than the rule. The lowest ratio of county spending to total spending was in Monongalia County, where the development authority spent $4.16 for every county dollar budgeted (and from the interview it was learned that only $40,000 of the $138,500 went to support the development authority and economic partnership). The highest ratio was incalculable as McDowell County received no direct funding from the county under those budgetary items. For most entities, each dollar from the county led to between $5 and $7 of total spending.

The exact sources for this additional funding vary with each development authority. But there are some constant themes. As stated above, all eight counties received the $34,000 from the LED Grant (though in the cases of Monongalia and Ohio, the funding went to other entities, not the development authorities examined herein). Also, all but one development authorities reported receiving additional funds from other organizations or governments (including capital grants for Hampshire County and Ohio County). However, in that case, the Morgantown Area Economic Partnership reported receiving contributions from governments and businesses in and around Monongalia County on its website.


But a lot of the revenue used by development authorities is self‐generated. Every organization reported having interest income under non‐operational revenue. All but one had rental or leasing income (Preston County did not). All but two had generated money through services provided or from administrative fees (Monongalia and Roane counties did not report any such funds – Monongalia actually reported paying such fees to the Morgantown Area Economic Partnership).

Another tangible result of being self‐sustaining is the creation of assets. All but one development authority examined had net assets of at least $1 million (only Pleasants County did not) and half of the development authorities had net assets of at least $5 million (Hampshire, Monongalia, McDowell, and Ohio counties). And most authorities had an increase in net assets during the fiscal year studied.

By not having to rely solely – or even somewhat – on the County Commission for funding, development authorities are able to have more latitude in their actions. One director commented that by being a good steward of public funds, the authority was able to offer incentives to bring a new large employer to the county.

Of course, this makes it harder to draw the connection between county‐level funding for development activities and successful development efforts at the county level. More than one development director thought this research may be difficult to the point of being futile. One observed that there were so many factors that go into the success of a development project in a county that the external factors may have as much impact as the direct inputs. Another added that in troubled times, a “success” may be a “hold” rather than a “gain” which would further complicate matters.

Next Steps

All of this leads to the question of next steps for this research effort. It would be wise to expand the pilot project over the next few months as more data (and development authority directors to be interviewed) becomes available. This will prevent false conclusions from being drawn from limited data.

If there are no substantial changes in the findings, it then might be time to change the approach in the research away from annual county‐level spending reported in the budgets. Possible shifts in focus could be total annual expenditures of the development authority or net changes in assets of the development authority on a yearly basis. Either approach would eliminate the data quality problem that has plagued this vein of research. It would also allow for a wider consideration of development funding, since all monies, including those on hand in reserve, would be part of the analysis.

References

Dougherty, Michael John. 2005. “Community and Economic Development Spending: Value for the Money?” Presented at the 2005 Community Development Society Annual International Conference, Baltimore, Md.

_____. 2007. “Determining the Impact of Local Government Spending on Community and Economic Development.” Presented at the 2007 Community Development Society Annual International Conference, Appleton, Wis.


_____. 2008. “Lies, Damned Lies, and Budgetary Information: Trying to the Facts in the Figures in West Virginia.” Presented at the 2008 Association for Budgeting and Financial Management Conference, Chicago, Ill.

Peters, Alan and Fisher, Peter . 2004. “The Failure of Economic Development Incentives.” Journal of the American Planning Association. 70(1): 27‐37.

West Virginia Development Office. “Local Economic Development Grant Program” website: http://www.wvdo.org/community/ledgp.html, accessed July 2009.

West Virginia State Auditor’s Office, Local Government Services Division. (u.d. [2004]). County Government Guideline to the Budget Process. (Clarksburg, W.Va.).

West Virginia State Auditor’s Office, Local Government Services Division . (2008). County Uniform Chart of Accounts. (Clarksburg, W.Va.).

West Virginia State Code, as amended through 2009.

Data Sources

County Budgets for 2008‐2009 Fiscal Year from the West Virginia State Auditor’s Office: http://www.wvsao.gov/localgovernment/LE_08‐09.aspx, accessed July 2009.

County Commission Audits from the West Virginia State Auditor’s Office website: http://www.wvsao.gov/cid/pdfAuditWebApp/, accessed July 2009.

Economic Development Authority Audits from the West Virginia State Auditor’s Office website: http://www.wvsao.gov/cid/pdfAuditWebApp/, accessed July 2009.

Interview with Don Reinke (Morgantown Area Economic Partnership and Monongalia County Development Authority), July 2009.

Interview with Don Rigby (Regional Economic Development Partnership), July 2009.

Interview with Eva Ansel (Hampshire County Economic Development Authority), July 2009.

Interview with Jean Hall (McDowell County Economic Development Authority), July 2009.

Interview with Mark Whitley (Roane County Economic Development Authority), July 2009.

Interview with Rachel Lester (McDowell County Economic Development Authority), July 2009.

Morgantown Area Economic Partnership website: http://www.morgantown.org/ accessed July 2009.

Regional Economic Development Partnership website: http://www.redp.org/, accessed July 2009.

U.S. Census Bureau, County Population Estimates, Vintage 2008. Census Bureau website, http://www.census.gov/popest/counties/CO‐EST2008‐01.html, accessed July 2009.