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The Higher ED Blog: Real Economic Development Horror Stories 2016

Michelle Madden / October 31, 2016

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The Higher ED Blog: Real Economic Development Horror Stories 2016

Happy Halloween! How appropriate is it that the scariest day of the year should land on the most dreaded day of the week? And how great is it that Higher ED, which publishes on Mondays, gets to bring back Real Economic Development Horror Stories on the actual All Hallows’ Eve?

This blog is a follow up to the original Real EcDev Horror Stories published in 2015. As we noted in the introduction to that article:

We all make mistakes at work. Often, those mistakes are small and relatively inconsequential; other times, they cost millions of dollars or result in an embarrassment of epic proportions (or both). […] these gaffes can simultaneously elicit sympathy or horror as we imagine what it would be like to be part of the team that overlooked a crucial detail, soldiered on despite the trail of red flags, or was subjected to unforeseen complications with dire consequences.

Once again, we mean no offence by telling these stories. If anything, we offer them as cautionary tales that impart a valuable lesson, while raising the hair on the back of your neck.

Nova Scotia’s Grim Ferry Tale

At the south west tip of Nova Scotia is a community called Yarmouth. Due to its location, Yarmouth has had on-and-off ferry service to New England since the 1880s, sometimes operated publicly and other times privately. The connection has facilitated cargo and passenger travel, and helped make tourism a key sector for the town. Unfortunately, the ferries have been exposed to a lot of rough waters (both literally and figuratively).

This story starts in 1997 when the federal government privatized the service by selling it to Bay Ferries. Bay Ferries began service from Yarmouth and Maine and managed to keep it financially viable without government subsidies for the next decade, despite highway expansions that made the overland route more appealing. An increase in gas prices and a drop in tourism between the US and Nova Scotia finally pushed the company to ask for subsidies, and it received $18.9 million from the provincial government between 2007 and 2009. When the province refused to invest more for the 2010 season, the service ended, taking 80 jobs and causing a sharp decline in tourism for the Yarmouth area.

The impact was swift and clear and by 2014, the province recruited a new company, operating under the name Nova Star Cruises, to bring the service back from the dead. The deal included $21 million in forgivable loans over seven years. Despite the financial incentives, Nova Star wasn’t able to make the ferry profitable.  When Nova Star continually failed to meet targets, the province kept bailing them out; by fall 2015, the province had invested $41.5 million. But, these large government subsidies didn’t prevent an astounding turn of events: a US federal court ordered the US Marshals Service to “arrest” the ship because Nova Star wasn’t paying its debts.

Coincidentally, the Nova Scotia government announced the week before that it had cut ties to Nova Star and that the service was going to be taken over by Bay Ferries again. Since the service still wasn’t financially viable, the government offered Bay Ferries another round of subsidies totalling $32.7 over two years plus more over the next eight years. This month, Bay Ferries reported that it carried 35,000 passengers in the inaugural 2016 season, well below the provincial government’s target of 60,000. However, the company is optimistic that it will meet its financial targets for this fiscal year.

One of the biggest challenges in economic development is deciding where to draw the line on incentives. Many studies have failed to find a link between incentives and economic performance. Yet, when we see our communities figuratively bleeding on the sidewalk, the knee-jerk response is often to throw money at the source of wound. Canadian governments have frequently subsidized valuable but financially unviable services, but we also need to consider these subsidies very carefully and ensure that the outcome is worth the sizable cost.

A Nightmare in Kingston

Municipal economic development is tough. EDOs need to balance the priorities of council, citizens, and the business community, while courting investors, new residents, and visitors and producing measurable results for the local economy. Oh, and this has to be done with limited resources. In Kingston, all of these pressures came to a frightening climax two years ago when the Kingston Economic Development Corporation (KEDCO) asked city council to increase its contribution to their budget by 2%. This request opened a can of worms that would leave KEDCO in tatters.

KEDCO didn’t realize that their relatively modest request would strike a vein of discord flowing just beneath the surface. The year before, in 2014, economic development became a municipal election issue and people started to question KEDCO’s effectiveness and transparency. An overly ambitious plan released late in the year, and an overly optimistic follow up report in 2015 exacerbated the situation. Two ‘concerned citizens’ groups (of business owners and residents) emerged, both convinced that KEDCO was overspending and underperforming.

What followed was a horror story that could strike fear in any municipal staffer: several high-profile KEDCO staff (including the CEO) resigned, a review committee was formed, and a town hall meeting was filled with “passionate criticism and cajoling” and calls for the organization’s dissolution. In the end, council decided to split KEDCO’s tourism and economic development functions and increase oversight of each with separate boards of directors led by city representatives. Council also voted to create a working group to conduct a performance review of the new economic development agency after its first year.

The situation is still unfolding. One of the citizen groups feels that the review did not answer their core question of whether KEDCO provides value for their $3 million budget. The group is requesting all of KEDCO’s financial statements from the last five years to see for themselves. KEDCO estimates that fulfilling the request would take 1,000 working hours and cost $42,000 in labour and photocopying. The two parties are now at a standstill: the citizen group wants KEDCO to waive the fee, but KEDCO insists that the full amount is necessary for them to produce the data, and that they are entitled to charge processing fees under the Municipal Freedom of Information and Protection of Privacy Act.

KEDCO’s situation is extreme, but the conditions that led to it are not so uncommon. The lesson here is that economic development departments and corporations need the trust of their councils, citizens and the business community. Trust can be fostered through public engagement, transparency, and regular and accurate performance measurement.

 

About the author

Michelle Madden, Ec.D., is the editor of Higher ED. She is also the Outreach Manager for the Economic Development Program and a graduate of the University of Waterloo’s Local Economic Development program (now the Master of Economic Development & Innovation).  She has authored many Higher ED articles sharing information relevant to economic development practitioners. She has published several of her own blogs on economicdevelopment.org as well. Follow her on Twitter at @michelle_mad.

About the series

Higher ED: Insights for the Next Economy is a platform for students, guest speakers, staff and faculty of the University of Waterloo’s professional and graduate economic development programs to share knowledge with the field at large. The series takes works destined for an academic audience and reworks them into a fresh, easy-to-digest blog article.

Established in 1987, the Master of Economic Development and Innovation (MEDI) is one of the only graduate programs in Canada focused exclusively on economic development. Students learn economic development theory and practice, and are exposed to leading edge knowledge, tools, and approaches to address contemporary challenges in cities and communities across Canada and internationally.

The Economic Development Program is a nationally-accredited provider of professional training. It delivers certification programs and seminars that offer a deep understanding of the Canadian context in a convenient block format. Peer learning is combined with informative lectures and practical case studies to provide dynamic instruction that is beneficial for junior and senior-level practitioners.

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