- The Future Of Economic Development: Using Health Care As An Economic Driver, Public-Private Partnerships As A Platform To Further Development, And Minority Participation As A Path Forward In A More Diverse Mississippi
- August 18, 2017 | Author: Tray Hairston
- Law Firm: Butler Snow LLP - Ridgeland Office
The role of government as it pertains to economic development is not to create jobs. It is to create an environment where the private sector is encouraged to create jobs and investment. To that end, one of the most recognized adaptations of economic development is the use of incentives.1 Nevertheless, the direction of economic development has drastically changed in the last 50 years. Economic development is no longer the sole or centralized function of local government. Rather, it has morphed into a full-fledged industry, replete with several professional organizations,2 public non-profit financing entities,3 site location firms,4 bevies of lawyers who practice within economic- *371 development practice groups at law firms dedicated to structuring incentives5 and countless economic development practitioners.6 The promotion of economic development, not only in Mississippi (the “State” or “Mississippi”) but also throughout the United States, is a traditional and long-accepted government practice.7 Definitions of the term “economic development” are exhaustive, but perhaps one of the most important legal definitions of economic development emanates from a landmark Supreme Court decision.
In Kelo v. City of New London, the United States Supreme Court noted that the city of New London had “carefully formulated a development plan that  [would] provide appreciable benefits to the community, including–but by no means limited to–new jobs and increased tax revenue.”8 Even more telling is the posture of the Court with respect to the overall goal of the city’s economic vision; here the Court noted, “[T]he city is trying to coordinate a variety of commercial, residential, and recreational land uses, with the hope that they will form a whole greater than the sum of its parts.”9
The International Economic Development Council, a non-profit membership organization dedicated to raising the profile of the profession and helping economic developers perform their jobs more effectively, pursues the aim that economic development “seeks to improve the economic well-being and quality of life for a community by creating and/or retaining jobs that facilitate growth and provide a stable tax base.”10 To achieve this goal, communities in today’s economy must not only be able to compete but also tailor their missions towards aggressive, multi-pronged approaches that utilize incentives and other *372 traditional non-economic resources of the state.11 With the well-documented uncertainty of the market from decade to decade, the reduction of corporate income tax rates by competitive Southern states, the regulation of essentially every business entity, and increased global competition, economic development–vis-á-vis the industry that it has developed into–has become the subject of regulation itself.12
In the mid-90s, the South began to see a boom in automobile manufacturing. Alabama was one of the first states to lure a large multi-million dollar auto-manufacturing project to a megasite.13 For Alabama, Mercedes-Benz represents, to date, approximately $2 billion in investment and 5,000 jobs.14 After Mercedes-Benz came Honda, Hyundai and Toyota.15
For other Southern states, the highly coveted economic development prize is more or less the same. Tennessee has attracted three auto manufacturing plants: Nissan, Volkswagen, and General Motors.16 South Carolina lured auto manufacturing groups BMW and Honda. Georgia has Honda, Porsche, and Kia. Mississippi has a Nissan auto manufacturing plant in Canton as well as a Toyota auto manufacturing plant in Blue Springs. Between 2013 and 2016, Mississippi has also seen investments from tire manufacturers Yokohama and Continental Tire.17 During this time of growth in the South, not only did states and communities engage in a hearty competition with each other to entice auto manufacturers and suppliers from afar, but keen economic development professionals made sure their communities were considered for the next big project by certifying and investing in large-scale megasites. For Mississippi, its targeted recruitment of the auto manufacturing industry, acquisition of human talent to aid in that recruitment, and investment in the philosophy have paid great dividends.
The principal questions here are: (1) What other sustainable target industries could provide a Return On Investment (“ROI”) similar to that which the auto manufacturing industry has provided in Mississippi? (2) What types of incentives or investment-sharing mechanisms could provide significant ROI in an era where budget cuts loom at both the local and state levels? and (3) How *373 can thought and political leaders make the State more competitive by creating meaningful approaches to minority participation when announcing large economic development projects as a path forward to an increasingly more diverse18 society?
A. Health Care as an Economic Driver: The Health Care and Life Science Approach
Viewing the health care and life science industry through the lens of the rise of the auto manufacturing industry in the South during the early 90s could be tantamount for Mississippi just as it has been in other Southern states. In 2002, for example, then-Governor Jeb Bush approached British billionaire trader Joe Lewis, owner of the Tavistock Group,19 seeking his assistance in hopes of improving the economy of Central Florida. Bush’s goal was to create better-paying jobs. Thanks to Tavistock and developing the Lake Nona Medical City, Governor Bush’s appeal has elicited approximately $3 billion in healthcare-based investment, 5,000 permanent higher-paying jobs (with 25,000 more expected by 2019), and an expected overall economic impact of $7.6 billion over the next 10 years.20
For years, municipalities and counties in Mississippi, through their elected leaders and stakeholders, have been arduously seeking creative ways to enhance local citizens’ quality of life and improve economic development opportunities for their communities. Simultaneously, the entire State, from its Balance Agriculture with Industry Plan in 1935 to its aggressive recruitment of the automotive and aerospace industry, has also sought to promote economic development; the State’s efforts, however, have been challenged by authorities like Moody’s Investor Services, Inc. (“Moody’s”) and Fitch Ratings Inc. (“Fitch”), two nationally recognized credit rating agencies. Fitch revised the State’s 2013 and 2016 outlook to negative and noted the following regarding the State’s manufacturing-based economy: “The economy continues to diversify and some successful economic development initiatives should bolster employment in the coming years; however, the manufacturing concentration well exceeds national levels.”21 In 2016, Fitch downgraded the State and opined as to Mississippi’s overall credit profile: “Mississippi’s employment base, when compared nationally, is overweight in the more volatile manufacturing sector.”22
*374 To thwart findings like Fitch’s, the State should diversify its economy and adopt health care or life science economic development initiatives like the Mississippi Health Care Industry Zone Master Plan Act (the “Health Care Zone Master Plan legislation”).23 In adopting such a measure, municipalities or counties could potentially issue health care zone municipal bonds. In addition, municipalities could lease the facilities of the project back to a private industry in a revenue-generating capacity or use a special allocation of new market tax credits specific to health care zones for gap financing. Such an endeavor will not only require additional economic development incentives such as the Health Care Zone Master Plan legislation but will also require a strong partnership with the Mississippi Development Authority (“MDA”) that genuinely looks at this target-rich industry the same way it would the automotive boom from circa 1993-2011.
B. Public-Private Partnership Approach
With limited government funding to build or maintain the critical infrastructure needed to support economic development, Mississippi might also adopt public-private partnership (“P3s”) legislation in 2017 to encourage private sector investment in infrastructure and development. P3s could serve as a catalyst for economic development by allowing the state and private sector to better allocate risks. Moreover, under P3 approaches to investment, economic development projects could be less bound by political and legal limitations. P3s could reduce government debt, provide for budget relief, increase cost savings, reduce the amount of time to bring projects to fruition, incentivize more prudent infrastructure due to private industry’s desire for ROI, allow government to allocate resources more efficiently, create more jobs, and allow for revenue sharing.24
C. Minority Participation ApproachIn an increasingly more diverse society, many states have urged contractors to implement minority participation strategies for state- or government-awarded contracts and large economic development projects like Nissan, Toyota, and Yokohama, where state investment is significant. Minority participation strategies that put goals in place are to be distinguished from minority set-asides. Minority set-asides require a certain percentage of public contracts to be awarded to minority or women-owned business enterprises (“MBEs” or “WBEs”). Many courts have considered the notion that, in some circumstances, requiring contractors to award a designated percentage of contracts to MBEs may not be feasible.25 This ultimately led to the emergence of minority *375 participation goals. Minority participation goals require contractors to make “good faith efforts” to award contracts to a certain percentage of MBEs and WBEs. Contractors must document their good faith efforts to the satisfaction of their respective government agencies to seek bids from MBEs/WBEs. Such efforts could also be incentivized through tax credits and facilitated by joint ventures. In Mississippi, there is a great demand to establish minority participation goals and in doing so, to clearly define what constitutes “good faith efforts.”
II. HEALTH CARE AS AN ECONOMIC DRIVER
In 2012, the Mississippi Legislature passed the Mississippi Health Care Industry Zone Act (the “Act”), codified at Miss. Code Ann. § 57-117-1 et seq. The Act incentivizes the following types of companies to create 25 jobs or make a $10,000,000 investment in health care industry zones (“Health Care Zones”) within the State: medical supply companies, biologic companies, laboratory testing companies, medical-product distribution companies, diagnostic imaging companies, biotechnology companies, medical service providers, nursing and assisted living facilities, medical equipment companies, medicine production companies, and related manufacturing or processing companies. Health Care Zones are characterized by a five-mile radius surrounding a hospital or hospitals in a county with either at least 375 acute care hospital beds or a county that is contiguous26 to three counties, which in the aggregate account for up to 375 acute care hospital beds. If a certified health care facility or company locates in one of these Health Care Zones and creates the requisite amount of jobs or makes the requisite investment, then it can be eligible for certain tax incentives.27
*376 A. Targeting Health Care and Life Sciences
With the creation of the Act, Mississippi began to recognize that companies can connect to industry leaders, venture capitalists, ground-breaking technologies, nationally-ranked universities, diverse populations for clinical research, and experienced pools of scientists. The same can measurably be said for Massachusetts as a result of a report entitled Life Sciences Innovation as a Catalyst for Economic Development: The Role of the Massachusetts Life Sciences Center, wherein Massachusetts sought to create a “collaborative ‘ecosystem’ encompassing all aspects of the state’s life sciences.”28 One of the most significant projects in Mississippi, wherein the State is seeking to incentivize the creation of a collaborative cluster for health care and life science innovation, is the Medical City Project (“Tradition”) located in Tradition, Mississippi. Tradition is the largest master-planned community under development in Mississippi and is located in central Harrison County on the Mississippi Gulf Coast at the intersection of State Highways 67 and 605/Tradition Parkway. Once completed, the 4,800-acre development (650 acre medical city town center) will have more than 15,000 residential units, 2,000,000 square feet of commercial development, and 35,000 residents. Unlike traditional economic development projects, Tradition is a health care cluster with multiple economic engines and is distinguishable from Mississippi’s typical approach to economic development where all employees might be singularly located within one manufacturing or industrial facility.
The projects proposed or begun at Tradition have an educational and research component. As a result, the development has continuously sought to leverage these anchor components to recruit or create spin-off medical device and drug manufacturing companies and life science or biotechnology companies. In 2009, William Carey University (“WCU”) opened a Tradition campus where 1,000 students attend classes. Recently, WCU announced its plan to build a pharmacy school at Tradition. In 2015, Mississippi Gulf Coast Community College broke ground on a Nursing and Simulation Center located at Tradition.
Because Mississippi has statistically been at the center of the diabetes and obesity epidemic in the United States, the first major development component Tradition pursued was the creation of a world-class research center to find a diabetes cure. Hence, Tradition created The National Diabetes & Obesity Research Institute (“NDORI”) and recruited the Cleveland Clinic Endocrinology & Metabolism Institute, a nationally ranked research juggernaut in academic and clinical research, to partner with NDORI in Mississippi.29 During this time, two major local healthcare partners were also identified as sources of diabetes-related patient data, education, and care. Memorial Hospital at Gulfport (“Memorial Hospital”), the largest hospital system on the Mississippi Gulf Coast, was *377 selected for its size (a hospital and 80+ clinics) and top healthcare rankings. In addition, Coastal Family Health Center (“CFHC”), with 12 locations throughout the region, was selected since 52% of its patients are uninsured and represent a large part of the “health disparity,” or underserved, population on the Gulf Coast. Both Memorial Hospital and CFHC announced plans to build facilities at Tradition, and NDORI currently performs outreach and educational classes at CFHC’s D’Iberville clinic while its first building is under construction.
B. The Creation of Health Care Zone Master Plans in Mississippi
In 2013, Mississippi facilitated more affordable housing in Mississippi for workers associated with the health care industry by tying the five-mile Health Care Zone concept to a document called the Qualified Allocation Plan (the “QAP”).30 The QAP is a federally mandated planning requirement that states use annually to explain the basis upon which they distribute their Low-Income Housing Tax Credit Program (“LIHTC” or “LIHTCs”) allocations.31 The Mississippi Home Corporation (the “MHC”) is the Housing Finance Agency (“HFA” or “HFAs”) created by the Mississippi Legislature pursuant to Miss. Code Ann. § 43-33-701 to administer the State’s QAP and raise funds from private investors to finance the acquisition, construction, and rehabilitation of residential housing for persons of low to moderate income in the State.32