Glossary of Basic Economic Development Terms

Thank you to the International Economic Development Council (IEDC) for contributing the majority of these definitions. For more information about IEDC, visit their website: www.iedconline.org

Angel Investor... an investor who providers equity investment to start-up businesses.

Assessed Valuation... the monetary worth of a property for the purposes of taxation. Total assessed valuation denotes the sum of the monetary worth of all taxable properties within a jurisdiction.

Backward and forward linkages… economic connections among companies; backward linkages in-volve the purchase of inputs by a given firm from another, and forward linkages involve the sale of the given firm’s outputs to another company.

Base Industry… also known as “export” or “primary” industries, base industries sell or export their products and services outside the community and bring new dollars into the community, increasing the total dollars that circulate within the community and that are spent on non-base industries.

Benchmarking… quantifiable measures of economic competitiveness and quality of life that can be collected on a regular basis. They are used to measure a region’s economic status and progress against comparable regions.

Bond… a certificate of debt issued by a government or corporation guaranteeing payment of the origi-nal investment plus interest by a specified future date.

Brownfields… commercial or industrial sites that are abandoned or under-utilized and have real or per-ceived environmental contamination.

Business Assistance Center… a one-stop center for streamlining local permitting, licensing, and fee payment processes and facilitating the decision-making processes.

Business Attraction… efforts by local economic development organizations to encourage firms from outside their communities to locate headquarters or other operations within their jurisdictions.

Business Climate… environment of a given community that is relevant to the operation of a business; usually includes tax rates, attitudes of government toward business, and availability.

Business Creation… economic development strategy that focuses on encouraging the formation of new companies that are locally based and will remain in the community and grow.

Business Incubator… entity that nurtures and supports young companies until they become viable, providing them with affordable space, technical and management support, equity and long-term debt financing, and employment. The three basic objectives in creating an incubator are (1) to spur technology-based development; (2) to diversify the local economy; and (3) to assist in community revitalization.

Business Improvement Districts (BIDS)… legally defined entities formed by property and business owners, where an assessment or a tax is levied for capital or operating improvements, as a means of supplementing city funding. The district is created by the public law or ordinance but is administered by an entity responsible to the district’s members or to the local governing body. Some states author-ize non-governmental, non-profit corporations. Recent BID programs include economic and social development, transportation, parking management, and conversion of redeveloped commercial build-ings for residential use.

Business Recruitment and Attraction… traditional approach to economic development to entice companies to relocate or to set up a new branch plant or operation in a state or locality; often referred to as “smokestack chasing.”

Business Retention… systematic effort designed to keep local companies content at their present locations which includes helping companies cope with changing economic conditions and internal company problems.

CBD… the central business district of a locality. Usually this is an area with the highest concentration of businesses, including financial institutions, shops, offices, theaters, and restaurants.

CDBG (Community Development Block Grants)… a system of unified block grants under which communities with more than 50,00 people are entitled to receive funding while other communities may apply for discretionary funding. Its purpose is to encourage more broadly conceived community development projects and expand housing opportunities for low- and moderate-income persons. The three primary goals of CDBG are to serve low- and moderate-income people, to eliminate slums and blight, and to address other community development needs that pose a serious and immediate threat to the health and welfare of the community. This program has provided significant support for economic development projects.

CDC (Community Development Corporation)… organizations, typically non-profit 501 (c) (3)s, which can obtain federal and private support. They are governed by local residents, businesses, and community leaders through a board of directors that is in most cases elected from the CDC membership or the community. Some CDCs perform only economic development services, but most work only on housing issues. Those active in economic development provide technical assistance and financing and are committed to serving the impoverished people of America.

CDC (Bank CDC)… bank-sponsored community development corporations are a way for banks to contribute to economic revitalization by investing in local businesses and real estate investment pro-jects that benefit low- and moderate-income groups. A community can establish a bank CDC by working with one or more local banks, the Federal Reserve, the Comptroller, and its respective state financial institutions’ regulators. In the case of consortium bank CDCs, where several banks join to-gether, the investors do not have to be just local banks. Bank CDCs can purchase, construct, or reha-bilitate property.

CDC (Certified Development Company)… the originating and administrating body for the SBA 504 loans. The program provides long-term, fixed-rate financing to small businesses to acquire real estate, machinery, and equipment for the expansion of business or modernization of facilities.

CDFI (Community Development Financial Institution)… a specialized financial institution which works in market niches that have not been adequately served by traditional financial institutions. CDFIs provide a wide range of financial products and services, including mortgage financing, commercial loans, financing for community facilities, and financial services needed by low-income households. Some CDFIs also provide technical assistance. To be certified as a CDFI by the CDFI Fund of the Department of the Treasury, an institution must engage in community development, serve a targeted population, provide financing, have community representatives on its board, and be a non-governmental organization.

Capacity Building... developing the ability of a community-based neighborhood organization to effec-tively design economic development strategies through technical assistance, networks, conferences, and workshops.

Certified and Preferred Lenders Program…U.S. Small Business Administration program that en-courages highly active and expert lenders to provide funds to borrowers.

Certified Development Company…(see CDC)

Clawbacks…many localities enter into contracts requiring local commitments with firms to which they offer incentives. Clawbacks describe the punitive steps taken against firms that break these contracts. For example, a firm may be required to pay fines or assist in finding anew tenant for its property if it chooses to leave a community.

Clusters…collocation of firms in the same or similar industries to foster interaction as a means of strengthening each other and enhancing the community’s competitive advantage.

Community Development Venture Capital… capital made available through funds created by local communities for the purpose of making venture capital accessible to entrepreneurs in low-income ar-eas.

Comparative Advantage…term used when comparing economies of regions. It is the economic advantage gained by one area over another due to the fact that it can produce a particular product more efficiently. More efficient production of one good means there is a higher opportunity cost to produce another. This is the concept that drives trade between economies. Inter-regional and international trade exploits the comparative advantages of economies. (See Absolute Advantage)

Consolidated Plan…the Consolidated Plan, or ConPlan, combines all of the planning, application, and performance requirements previously required separately for Community Development Block Grants (CDBG), HOME, Emergency Shelter Grants (ESG), Housing Opportunities for People with AIDS (HOPWA), and programs, such as HOME, that require a Comprehensive Housing Affordability Strat-egy (CHAS).

Corporate Welfare…government subsidies targeted to large corporations.

Cost-Benefit Analysis…a method for evaluating the profitability of alternative uses of resources.

Cost Effective Analysis…compares alternative projects or plans to determine the least costly way to achieve desired goals. Usually, some index or point system is developed to measure the effectiveness of the proposal in meeting the goals and objectives.

Customized Training…learning designed to meet the needs of a given employer; used by local gov-ernments to attract or retain major employers.

Demand-side Theory of Development…explanation of economic development that focuses on discovering, expanding, and creating new markets; forming new businesses; nurturing indigenous re-sources; and involving government in the economy.

Eco-Industrial Park…industrial park designed to encourage business interaction in ways that foster the reuse of waste streams, the recycling of inputs, and other mechanisms.

Economic Base…a method of classifying all productive activity into two categories: basic industries which produce and sell goods that bring in new income from outside the area and service industries which produce and sell goods that simply circulate exiting income in the area.

Economic Base Analysis…a comprehensive study of a locality’s economy, focusing on the importance of exports. It should include an economic history, data on existing industries, trends, and forecasts of growth in wages and employment.

Economic Development Administration (EDA)… created by the Public Works and Economic Act of 1965 as a part of the Commerce Department. The EDA’s main goals are to alleviate unemployment and diversify the economy as well as assist urban areas with planning and emergency public works programs.

Econometric Modeling…a qualitative method for analyzing the impact of a proposed action on the economy. A model permits testing the effects of an anticipated or hypothetical change.

Economies of Scale…the phenomenon of production where the average cost of production declines as more of the product is produced.

Edge City…a newly emerged city that serves as a work and shopping center, with a large amount of office and retail space.

Eminent Domain…the authority to “take” private property upon paying a fair price for the property and relocating the tenants. The most frequent use of this authority is the act of “condemnation.”

Empowerment Zones/Enterprise Communities (EZ/EC) Initiative… established in 1994 and administered by the Department of Housing and Urban Development and Department of Agriculture, the federal EZ/EC tools include not only business tax incentives but also transportation to work or school, drug and alcohol rehabilitation, and other local priorities. The program creates incentives for localities to develop their own approaches to alleviate poverty. All federally designated zones are areas of pervasive poverty, unemployment, and general distress. Each designated city receives a mix of grants and tax-exempt bonding, while employers in the EZ/EC receive tax credits for new hires and accelerated depreciation credits.

Enterprise Development…assistance to entrepreneurs in support of the creation, growth, and survival of their businesses.

Enterprise Zones…state enterprise zones are designated geographic areas that are eligible for special treatment and incentives to attract private investment. State guidelines define the size of a zone and the minimum level of economic distress to qualify as an enterprise zone. States can also limit the number and type of enterprise zones. These restrictions are generally set out in the state enterprise zone program.

Entitlement Community…an entitlement community is eligible to receive annual CDBG funds that it can use to revitalize neighborhoods, expand affordable housing and economic opportunities, and/or improve community facilities and services, principally to benefit low- and moderate-income persons. Eligible grantees include local governments with 50,000 or more residents, other local governments designated as central cities of metropolitan areas, and urban counties with populations of at least 200,000 (excluding the population of entitled cities). The State CDBG Program offers funds to the state, which they then allocate among localities that do not qualify as entitlement communities.

Entrepreneurial Training…programs that provide guidance and instruction on business basics such as accounting and financing to ensure that new businesses improve their chance of success. The most common training methods include classroom training, workshops, speakers, peer groups and one-on-one counseling, lectures, internships, as well as self-study and home-study.

Equity Financing…investments are typically secured in this type of financial support in return for partial ownership of an enterprise; three mechanisms can be used for receiving an equity position in a firm: common stock, preferred stock, and convertible debt.

First Wave…Strategic paradigm of economic development that focuses on business attractin tactics.

Fiscal Impacts…the direct and indirect costs incurred and revenues received by local governments re-sulting from land use and other types of decision.

501(c)(3)…approval given by the Internal Revenue Service granting exemption from federal income tax to a nonprofit organization, under Section 501(c)(3) of the Internal Revenue Code. Donations to such organizations are tax deductible. The organizations described in 501(c)(3) are commonly re-ferred to under the general heading “charitable organizations.”

501(c)(6)…approval given by the Internal Revenue Service granting exemption from federal income tax to a business league, under Section 501(c)(6) of the Internal Revenue Code. Trade Associations and professional associations are considered to be business leagues. The business league must be devoted to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons. No part of its net earnings may inure to the benefit of any private shareholder or individual and it may not be organized for profit or organized to engage in an activity ordinarily carried on for profit.

Gap Financing…a loan required by a developer to bridge the gap, i.e. to make up a deficiency be-tween the amount of mortgage loan due upon project completion and the expenses incurred during construction (financing that covers the difference between what a project can support and the cost of development or purchase).

General Obligation (G.O.) Bonds…traditional form of borrowing for state and local government; se-cured by full faith and credit of jurisdiction.

Limited Tax G.O. Bonds…tax-exempt bonds secured by the revenue from the appli-cation of a fixed rate against taxable property. Not all states permit limited tax G.O.s, but in those that do, such bond issuance does not require voter approval.

Unlimited Tax G.O. Bonds…tax-exempt bonds secured through taxes that are levied without rate or amount limitations in order to repay the principal and interest of the bond. They are typically used to finance public works infrastructure and land acquisition for blight elimination.

Impact Fees…fees are required to cover costs of improving and/or building infrastructure needed as a result of the expected impact of development project on those facilities. Often required by localities for the approval of development projects.

Incentives…benefits offered to firms as part of an industrial attraction strategy. A few incentives are tax abatements and credits, low interest loans, infrastructure improvements, job training, and land grants.

Incubator-Without-Walls…form of business incubation that does not take place in a single building, but instead comprises a network of entrepreneurs and entrepreneurship service providers throughout a community or region.

Industrial Development Bonds…these bonds are used to finance acquisition, construction, expansion, or renovation of manufacturing facilities and the purchase of machinery and equipment depending upon state law. IDB financing is subject to state and local laws and federal income tax laws and regu-lations if the interest on the bonds is expected to be exempt from federal income taxation.

Industrial Revenue Bonds…bonds that provide lower-cost financing for real property improvements or the purchase or construction of buildings, facilities, or equipment.

Industry Clusters…geographic concentrations of related businesses B complementary or competing. Regions identify clusters as targeted businesses for future planning and marketing efforts. There are two types: (1) buyer-supplier clusters and (2) shared resources clusters.

Infrastructure Banks…public-targeted lending facilities, financed through a combination of bond issues, government funds and external donor support. They mobilize domestic funds, and create an at-tractive vehicle for donor funding.

Investor Networks…investor networks match up potential investors (either anonymous “angle” inves-tors or know investors) with start-up firms needing capital.

Land Banking…a program that preserves industrial space for a city. A city or local development authority acquires and holds land until a developer steps forward with a proposal for its use as an industrial site.

Jobs-Housing Imbalance…spatial mismatch between where people live and where they work.

Just-in-Time Inventorying…cost-saving approach by a manufacturer that involves maintaining no inventory of product inputs on-site; instead the inputs are delivered from the supplier(s) at the time they are needed in the production process.

Labor-Force Theory of Development…explanation of development that stresses the importance of an educated, skilled, and dependable workforce for attracting and growing businesses; accepts the concept that the public sector has a responsibility to fit human resources to the needs of the business community.

Land Write-Down…providing land to developers a price that is below public sector expenses for im-provements.

Loan Pooling…two or more lenders contribute to a fund from which loans are made to applicants; publicly chartered, privately funded corporations can be established to pool resources.

Location Theory of Development…explanation of economic development that emphasizes factors such as transportation, access to raw materials and labor, taxes, business climate, and quality of life as they relate to industrial location.

Long-Wave Theory of Development…explanation of economic development that contends that bursts of innovation lead to economic growth

Mezzanine Capital…funds or goods used to bridge the gap in resources from one stage of business to another. (see also Gap Financing)

Microenterprise…a business that is “smaller-than-small.” Operated by a person on a full- or part-time basis, usually out of a home, e.g., carpenters, day-care providers, and caterers.

Microloans…very small, short-term unsecured loans given to people without credit history and/or the collateral necessary to obtain a conventional loan. These are available from either local lenders or the SBA’s 7(m) Microloan Program.

Minority Businesses Development Agency (MBDA)…as agency with the U.S. Department of Com-merce, MBDA was established in 1969. The MBDA Provides assistance to socially- or economically-disadvantaged individuals who own or want to start a business. MBDA provides funding for Minority Business Development Centers, Native American Business Development Centers, Business Resource Centers, and Minority Business Opportunity Committees.

Moderate Income…a definition based on family income as a percentage of an area’s median income. Different programs may set different percentages. According to HUD’s guidelines, households whose incomes are between 81 percent and 95 percent of an area’s median income with adjustments for smaller or larger families are considered to be moderate income.

Multiplier…a quantitative estimate of a project’s impact (in dollars, jobs created, demand).

Multiplier Effect… the process of dollar and job generation as a result of a new or migrating business or project, or of a local business expanding production (to exports). The multiplier effect accounts for new local income generated by local spending that came from outside a community.

NIMBY (“Not in My Backyard”)…term used to describe local opposition to development projects.

North American Development Bank…founded under the auspices of the North American Free Trade Agreement (NAFTA), NADB is a “bilaterally-funded, international organization, in which Mexico and the United States participate as equal partners.” Its purpose is to finance environmental infrastructure projects. All financed environmental projects must be certified by the Border Environment Cooperation Commission, be related to potable water supply, wastewater treatment or municipal solid waste management and be located in the border region.

North American Industry Classification System (NAICS)… the industrial classification code system used for categorizing industrial establishments. Beginning in 1997, NAICS replaced the Standard In-dustrial Classification (SIC) as the system for classifying firms in the United States, Canada, and Mex-ico.

One-Stop Business Service Centers…One-stop business service centers are facilities where business persons can go to obtain the licenses and permits needed to start-up, operate, and expand their facilities. These centers improve the local business environment while reducing the number of separate agencies and offices a business must apply to for various licenses and permits, saving public and private time and financial resources.

Opportunity Cost…the revenue forgone by choosing one use of money and resources over another. The opportunity cost of investing in the stock market is the interest that the money could have earned while sitting in the bank.

Overall Economic Development Plan (OEDP)… a plan developed at the city, county or EDD level, as required by EDA, to identify the area’s problems & opportunities for economic development, to de-fine goals & objectives, and listing infrastructure & other projects needed to achieve those goals.

Revenue Bond…bond backed by anticipated revenue stream from specific project.

Revolving Loan Fund (RLF)…a pool of public and private sector funds in which the money is recycled to make successive loans to businesses. Loans made by an RLF are repaid with interest and the payment are returned to replenish the lending pool so new loans can be made. The funds are thus recycled and the RLF grows as each generation of borrowers adds to the pool.

Seed Capital…equity money supplied to help a company get off the ground. The money is almost always supplied by an entrepreneur and his/her family, friends, and relatives. Used to help attract (leverage) other investment.

Second Wave…strategic paradigm of economic development that focuses on retaining firms already in the community and on creating new businesses.

Secondary Financing…a loan secured by a second mortgage on a property, sometimes used to refer to any financing techniques other than equity and first-mortgage debt.

Shift-Share Analysis…a method used to examine a local area’s basic industries in terms of their growth and decline relative to national or regional trends.

Site Location Assistance…local governments provide new, expanding, and relocating businesses with assistance for locating the sites which fit their facility’s needs. These services include provide infor-mation on sites and organizing visitation programs.

Small Business Administration (SBA)…founded in 1953, SBA’s mission is to “aid, counsel, assist and protect, insofar as is possible, the interests of small business concerns.” Its charter also mandates that the SBA ensure small businesses a “fair proportion” of government contracts and sales of surplus property. Since its inception, the SBA has delivered more than 13 million loans, loan guarantees, con-tracts, and other form of assistance to small businesses.

Small Business Development Center (SBDC)…facility that provides business development, infor-mation, and assistance in one location; administered by the U.S. Small Business Administration.

Small Business Investment Company (SBIC)…privately owned and managed for-profit investment firms that use their own capital, plus funds borrowed at favorable rates with an SBA guarantee, to make venture capital investments in small businesses.

Smart Growth…the efficient use of all available assets. According to the American Planning Association, smart growth involves efficient land use; full use of urban services; mixed use; mass transportation options; and detailed, human-scaled design.

Smokestack Chasing…pursuit of traditional manufacturing businesses by local economic develop-ment organizations.

Social Capital…in economic development, linkages between and among business development ser-vice providers and the companies they assist; these linkages are both internal, within a given-service provider organization, and external, between an organization (and its clients) and external service pro-viders and businesses.

Special Assessment Districts…areas designated by a taxing authority to be assessed for tax purposes on a scale that differs from the rest of the taxed jurisdiction. Property in these districts may be taxed differently all together. They may be required to pay special taxes more reflective of the greater bene-fit earned by some public expenditure in the district.

Special Assessment Funds…costs of a project that benefit a specific group of properties may be as-sessed to those individuals and accounted for in the special assessment fund.

Special Improvement Districts…mechanisms where local businesses and/or residents agree to voluntarily pay an additional tax to support improvements or services so local governments can finance and implement improvements within a specific and limited area. (Similar to Business Improvement Districts)

Start-Up…company in the first stage of the evolution of a business.

Start-Up Capital…funds that help nascent enterprises acquire space, equipment, supplies, and other inputs needed to launch a business.

Supply-Side Theory of Development…explanation of economic development that focuses on reducing costs of production to lure capital to a new location; typical strategies include tax abatements, reductions, and exemptions; guaranteed and direct loans; and reduced regulation.

Sustainable Development…development that does not destroy or eventually deplete a location’s natural resources. Sustainable development helps ensure a better, healthier living environment and contributes to an area’s quality of life, one of the main goals of economic development.

SWOT Analysis…a tool used in the economic development planning process to assess a community’s Strengths and Weaknesses, factors from within a community that can be changed, as well as its Opportunities and Threats, factors from outside that cannot be changed.

Tax Abatement…exemption or reduction of local taxes of a project for a specific period of time. Contracts between a government entity and a holder of real estate that stipulate that some share of assessed value will not be taxed for an agreed time period; a typical goal of tax abatement is to encour-age economic development.

Tax Credit…money directly subtracted from a tax bill after a tax liability has been incurred.

Tax Deferral…policy that permits individuals whose property values have risen dramatically through no fault of their own to pay taxes on the basis of old values.

Tax –Exempt Bond…obligation that does not require recipients of interest payments to pay taxes on the interest revenue; although revenue bonds may be a form of tax-exempt bonds, not all revenue bonds qualify for a tax exemption (e.g., stadium projects, parking facilities, and non-government of-fice buildings lost their tax-exempt status in 1986).

Tax Exemption…policy that reduces the base form which property is assessed; accomplished by sub-tracting a given amount of money from the assessed market rate. Tax exemptions are often granted to individuals, institutions, or types of property.

Tax Incentives…the use of various tax relief measures such as tax exemptions, tax credits or tax abatements to recruit and attract businesses to a community or help local businesses expand.

Tax Increment Financing (TIF)…tool of economic development in which taxes that can be traced to a specific development are used to repay bonds that were issued to finance that development. When bonds are fully paid, the jurisdiction can begin to receive the additional tax revenue produced by the development.

Tax Stabilization Agreement…agreement to not raise taxes significantly; used to assure potential in-vestors of a stable tax environment.

Technical Assistance…includes aid with preparing grant applications, training staff, applying for loans and marketing the product. It may also include assisting a small business to improve its product or manufacturing process. Technical assistance is generally aimed at providing specific services that a small business typically cannot afford, or general business planning.

Third Wave…strategic paradigm of economic development that aims to create a local or regional en-vironment that is supportive of growth and development.

Under-employed…includes all persons whose skills, education or training qualified them for a higher skilled or better paying job than they presently hold. It also includes persons only able to find part-time rather than full-time work in their fields.

Umbrella Bonds…low-cost financing with lower interest rates for projects too small to qualify for normal revenue bond programs. Bond proceeds are used as loans for acquisition of land, building, machinery, and equipment. The umbrella is a pool of small bonds of $1 million or less packaged into a larger bond and issued by the state or local economic development agency.

Unemployed…as defined by the U.S. Department of Labor, the term includes all civilians who were not employed, but were available and actively seeking work within the past four weeks, were waiting to be called back to a job from which they had been laid off, or were waiting to report to a new job scheduled to begin within 30 days.

Value-Added…Revenue created by the processing of resources; the amount of revenue is greater be-cause those resources have been processed.

Venture Capital…an investment made where there is a possibility of very substantial returns on the investment, as much as 40 percent, within a short period. It is usually invested in dynamic, growing, and developing enterprises, not in start-ups.

Workforce Investment Act…Workforce Investment Act of 1998 is the federal government’s effort to adapt workforce training system to current economic conditions. The economic development impact of WIA includes: (1) decentralizing decision-making to the local level; (2) allows local businesses to determine skill needs; (3) adapt training to local growth patterns; (4) promotes inclusion of economic development principles in plans; and (5) state required to submit economic development plans with WIA implementation plan.