By unanimous vote among board members on Tuesday, the Archuleta Economic Development Association (AEDA) decided to restructure the organization as a Community Development Corporation (CDC).
The decision to restructure follows months of uncertainty regarding the AEDA’s future and function. While the Pagosa Springs Town Council and the Archuleta Board of County Commissioners provided line items for AEDA funding in their 2010 budgets, members of both boards expressed doubts regarding the AEDA’s effectiveness.
Those doubts were articulated in early November when the BoCC, town council, the AEDA board and representatives from Region 9 Economic Development District convened for a joint meeting to discuss the future of the AEDA. The result of that meeting was the formation of a committee, populated by members of the boards attending the November meeting, to pursue a strategic plan for the AEDA. That strategic plan was released last month and was instrumental in the AEDA’s decision on Tuesday.
Although the strategic plan enumerated four priorities for the AEDA in 2010 (business attraction, business retention, infrastructure and sustainable funding), it concluded with a lengthy discussion on how a CDC would function, as well as a rough structure for the organization. While the strategic plan did not explicitly endorse the formation of a CDC, no other economic development alternatives were presented in the report.
According to AEDA board Vice President Marion Francis, “A CDC has been mentioned in discussions over the past two years as a possible, better format to be in,” adding, “more discussion has taken place, recently.”
While Francis said that the AEDA has some idea how the CDC will be structured, he acknowledged, “It’s still a work in progress.”
The AEDA’s change in structure is not minor. Existing as an Economic Development Association (EDA) over the past 20 years, the AEDA was limited in its focus — almost exclusively business development and support — as well as limited in its ability to pursue grant funding. As such, the AEDA relied on membership dues (from various local businesses) and local government funding and, because of its nonprofit 501 (c)(6) federal tax status, was unable to secure state or federal grants in order to invest in economic development projects.
A CDC, on the other hand, has a much wider scope and can address a variety of issues associated with economic development: affordable housing, childcare availability, education (early childhood education and workforce training), small business assistance (providing loans, grants, technical assistance and other incentives), infrastructure and amenity development (to encourage businesses to move here) and “nonprofit incubation” (i.e. helping to establish local nonprofit organizations).
Funding for a CDC also comes from banks as a function of both corporate policy and federal regulations. Under the Community Reinvestment Act, large banks are obligated to specify funds for a CDC and, in return for that funding, receive tax credits.
Because a CDC retains a 501(c)(3) federal tax status, it is eligible for a range of funding, from state and federal grants to federal entitlements, to a variety of funds available through the American Recovery and Reinvestment Act (ARRA). In addition, the tax status provides a CDC with numerous tax credits and exemptions — membership dues are tax deductible, as are donations from private or corporate donors.
That change in federal tax status, as well as federal mandates for banks to support CDCs, has several implications locally. Whereas an EDA lacks resources to provide substantial capital for business development, a CDC would be able to draw upon numerous funding options to encourage new business.
Bank-owned properties could be leveraged through the CDC’s relationships with banks holding those properties, while grants could be attained to further assist and encourage businesses. With low cost (or no cost) leases provided to businesses to locate in a CDC-leveraged property, along with other economic incentives (technical assistance, tax breaks, low-interest loans or grants), currently vacant commercial space could be filled with new businesses, bringing jobs and tax revenues to the area.
Furthermore, in support of those jobs, a CDC could use that same leverage for residential properties as further incentive, providing affordable housing for a new business’s workforce. In fact, CDCs throughout the country have utilized that kind of leveraging to encourage new business and workforce relocation, while eliminating commercial and residential inventories — properties that would otherwise remain vacant, driving down property values.
Another advantage is that a CDC board of directors tends to represent a more diverse reflection of the community — as opposed to a board composed almost entirely of business owners — potentially giving more community members a voice in economic development decisions. Furthermore, since a CDC is engaged in a wider spectrum of community projects, there is an assumption of broader community support due to numerous interests supported by a CDC, as opposed to an EDA (which represents business interests and little else).
While some CDCs operate independently from local governments, the AEDA (as stated in its strategic plan) is hoping for a partnership with the town and county (as well as local businesses and nonprofit organizations). Recognition by local government of the CDC as a public economic development authority would provide the CDC the ability to issue bonds or issue special fees or taxes.
That authority would allow the CDC to pursue special districts — economic development districts, parks and recreation districts, etc. — removing funding obligations from local government, as those districts would be self-sufficient. For instance, the establishment of an entertainment district could be funded not only through bonds, but also fees imposed on merchants within that special district. In turn, those funds would pay for infrastructure and improvements within that district. Currently, preliminary discussions are underway for the establishment of an entertainment district on the west side of Pagosa Springs.
Likewise, as the town and county grappled with funding responsibilities for area parks and recreation, one option proposed last year was a special district for parks and recreation, with funding coming from a (voter-approved) half-penny hike in the local sales tax.
While the town or county has the authority to propose such districts, it lacks the statutory ability to promote or advocate for the establishment of such districts when those matters would go before the voters.
Given the advantages, recognition by local government of a CDC as a public economic development authority has been proposed by both the town and the county.
“I think we’re excited and encouraged that the AEDA has made a decision to accept the strategic plan,” said County Administrator Greg Schulte, adding that the BoCC will put forth a resolution at it’s Feb. 2 meeting to support the AEDA’s decision and appoint a county representative to the AEDA board.
Likewise, Pagosa Springs Town Manager David Mitchem said that town council will hear about the AEDA’s decision at its Feb. 2 meeting and said, “The town is looking, at this point, at a dialogue and a possible endorsement ... and selecting a council member to serve on the (AEDA) board.”
“I think that it’s important to have solidarity between the AEDA, the county commissioners and the town council,” he added.
There could be compelling reasons for the town and county to support and partner with a CDC. Should a CDC pursue special districts, those districts would eliminate funding obligations currently held by local government (e.g. infrastructure, services, etc.). Furthermore, while the town and county has provided financial support for the AEDA over the past decade, the AEDA would be self-sufficient as a CDC.
By definition, a CDC acquires capital through grants, loans and from stakeholder investment in the corporation. Using that capital to invest in local economic development, there is an expectation that a CDC will, after two to three years, return a profit and a return on investment to its shareholders. As such, not only would the town and county be free of their obligations to further fund local economic development, but in the near future they could see an income from their initial investment.
If the town and county vote to endorse the AEDA as a CDC and participate by appointing representatives to the AEDA’s board, the AEDA will consider those appointments at its next board meeting. That meeting will be held next Thursday, Feb. 4, at 4 p.m. at the Pagosa Springs Chamber of Commerce meeting room in the Visitor Center.