Local businesses are waiting for their city to hook them and help them grow. And Albuquerque is realizing it is too often casting out of state.

Depending on your point of view, the Albuquerque City Council is making amends for being anti-business or it is listening to voters who want a new growth plan for the city.

Either way, the council’s new business agenda – which includes plans for industrial revenue bond reform, business incubators and an economic summit – has stimulated debate in the business community about city growth.

By Dan Mayfield
Tribune Reporter

http://www.abqtrib.com/archives/business04/020204_business_bizplan.shtml

"In one aspect, they (the council) are doing something to repair a very tattered image that the business community has of them, and they’re doing what they can for their constituencies on the left," said Mayor Martin Chavez. "It’s good when elected officials and business stimulate debate."

For years the City Council has been branded as anti-business by many business people, criticized for everything from industrial revenue bond difficulties to the smoking ban.

The animosity went public during last year’s council election, when a slate of pro-business candidates funded or supported by Citizens for Greater Albuquerque went up – unsuccessfully – against incumbents.

But councilors say they heard the message.

They’ve responded with their own business agenda designed by Downtown Councilor Eric Griego and West Side Councilor Michael Cadigan to address varying business concerns. It is viewed as the council’s long-term economic plan, and most councilors strongly support it.

"It came out of, primarily, the IRB debates we had last year," Cadigan said.

Mike Albers, director of the city’s Office of Economic Development, said there’s "a realization that we’ve got to work together.

"The city has to work to support business and change the perception that we’re not for economic development."

The first elements of the agenda were passed three weeks ago by the council. It approved, by an 8-0 vote, a resolution to encourage two new city incubators by the end of 2005.

"We came to the realization that our economic development strategy was aimed at large, out-of-state companies. No question that should be a part, but not much has been done for small businesses," Cadigan said.

Griego said the plan is a reaction against "the economic development aristocracy . . . who are resistant to change."

"The problem is, people in the business community, and the business press, don’t get it," he said. "Until economic power is wrested from Sherman McCorkle and the Terri Coles (president of the Greater Albuquerque Chamber of Commerce) of the world, we’re not going to change. We need some new ideas and new models, or we’ll be at the bottom of every measure," Griego said.

McCorkle – who runs the Technology Ventures Corp. incubator in Albuquerque for Lockheed Martin – said many in the private sector have been working to encourage local business startups for years.

"I don’t know what he’s talking about. I’ve worked for five years on IRBs to drive them down for small business," McCorkle said. "We have, every month, entrepreneurial training seminars with between 80 and 100 people."

IRBs

The first part of the councilors’ agenda involves industrial revenue bond reform.

"Right now, our IRB system is complicated and is very expensive, from an attorney’s point of view," Cadigan said.

It can easily cost a company $100,000 in fees to get a bond.

But the IRB program is one of the most effective – and misunderstood – business recruitment tools available to the city, many say.

IRBs are a way to defer property and gross-receipts taxes on expansions, new construction or business equipment purchases. At the end of the bond’s term, usually 10 to 30 years, the city is paid back.

During the term of the bond, the city owns the land the facility sits on.

An IRB doesn’t cost the city anything except legal fees, and the gross receipts and property taxes during the term of the bond. The taxes are deferred, not forgiven.

Proponents say IRBs encourage businesses to locate or expand in an area by significantly reducing their tax burden.

Opponents say the city gives away too much, and should ask for more in return for issuing the bond. "Clawback" provisions, or clauses in IRB contracts that would encourage companies to meet employment and longevity goals, are being encouraged.

"I know people are upset about Philips, and in the past, Siemens," said Councilor Tina Cummins. "What’s difficult for some people to understand is that . . . 1 or 2 percent of any deal makes it or breaks it. When you’re in competition with Oklahoma or Texas, you have to make sure you’re able to compete."

Because IRBs are expensive, only large firms tend to apply for them.

The cost of an IRB is really in the bond, said Albuquerque lawyer David Campbell.

"The transaction costs of a bond issuance, whether it’s IRBs or other bonds, are extraordinarily high because of the requirements of the bond markets," Campbell said. "It’s not like you can set up Elmer’s Bonds on the corner and sell them, and have Mr. Fudd, attorney at law, to write these opinions."

That’s something Cadigan and Griego want to change.

Call it IRB Light.

When a company applies for a bond, they get gross receipts and property-tax deferments, as well as the debt instrument, or bond.

But what if only one or two of the three parts were needed? For example, take out the bond, and just offer the tax breaks.

"We want to look at whether we can unbundle the tax abatement piece from the debt, or bond, piece," Cadigan said.

By cutting parts out, it could make the total package cheap enough for a small business.

"What you do (with IRB Light) is skip the process in creating the bond documents. That’s where all the expense is in all of this," Albers said

But the process would still be expensive.

"I’ve been an advocate of that (IRB Light) for several years with the Albuquerque Hispano Chamber of Commerce," McCorkle said. "Theoretically, you can do it. It sounds simple, but it’s not easy."

The problem, he said, is establishing a pool of money that can handle, up front, the extensive legal work involved in an IRB Light.

Instead, Albers is proposing a new package of pre-prepared documents. If the city can get part of the work done beforehand, "maybe that’s good enough that it will at least drive the cost down by that much," he said. "There are some options, but none of it’s easy or cheap to do."

Incubators

The second part of the council’s plan is to create city-sponsored small-business incubators.

An incubator brings small, startup businesses together to share services, such as support staff, copiers and phone lines.

"There’s support, but no one knows quite yet what they’ll look like, and how they’ll be funded," Albers said.

Griego’s idea is to have high-tech, arts-based, low-tech and film-based businesses in an "enterprise village."

He said he’d pay for it through the state’s Certified Incubators Initiative, which has worked in Farmington.

Another option would be to pass a Local Economic Development Act law. LEDA is a provision in the state’s anti-donation clause that allows public funds to be used for private development.

Rio Rancho used a LEDA provision to build its Blades Multiplex Arenas.

But that’s not the traditional model for an incubator. Usually services provided by an incubator are paid for through an equity stake in the company, like a stock trade. When the company is sold or goes public, the money is returned – hopefully at a profit – to the funders.

The arts-related businesses Griego hopes to encourage with the incubator don’t usually end up on the New York Stock Exchange, so pulling a profit could be difficult.

But the profit to the city would be in increased gross receipts revenue and new jobs, Griego said.

Cadigan’s idea is to use surplus city buildings and bring in technical help to get small businesses to the point that they could move out of the incubator.

Some business people say that the city helping some companies in the incubator and not others tilts the playing field in favor of those supported by the city, and leaves out hundreds more that could use help.

McCorkle’s TVC incubator has run in Albuquerque for five years and helped more than 40 companies get off the ground.

"It’s 100 percent charitable. We don’t make any money," McCorkle said. "You won’t find anybody more supportive of incubators than me."

TVC is privately funded through a charitable donation from Lockheed Martin.

The council passed a resolution earlier this month that called for two new incubators by 2005.

The summit

The March 27-28 city-sponsored New Economic Development Summit will be about shaking things up in the economic development world.

"Most of the existing organizations have a bias toward one approach or another, and that tends to be your life every day," said Mike Skaggs, chief realization officer of NextGen Economy Inc.

But business groups are already upset.

In a media release from the council describing the event, none of the large Albuquerque business groups were listed as attendees, including the Greater Albuquerque Chamber of Commerce, the National Association of Industrial and Office Properties, Albuquerque Economic Development Inc. and the Albuquerque Hispano Chamber of Commerce.

Instead, NextGen Economy, Synapse, CreateABQ and the Small Business Institute were listed as part of a "broad-based community dialogue" that would be present at the event, which puzzled many longtime business leaders.

NextGen Economy is a respected economic development group that recently set up a technology incubator of its own at the University of New Mexico’s Science and Technology Park called the Excelerator.

Skaggs said, "We really do need to talk about who’s not at this table. All the people who are interested in it will be invited to it. I actually think it’s a hell of a good thing.

Synapse is a Web-based community development group, and the Small Business Institute isn’t listed in the phone book.

CreateABQ is a year-old arts and economic focused community group.

Lynne Anderson, executive director of NAIOP, said her commercial real estate group hadn’t received an invitation to the event.

McCorkle said he hasn’t been invited either.

Terri Cole said her group – the largest in the city with 2,600 members – was invited to attend the summit.

"Economic development, when successful, is a partnership between public and private (entities)," she said. "It is most successful when public and private come together to form a sincere partnership to get the job done.

"This (effort) will depend on how good the partnership is," she said.