With changes coming locally in Pennsylvania, with the state’s Department of Health releasing permits for medical marijuana growers and processors as well as dispensaries late last month, it seemed high time to take a look at the economic impacts of marijuana legalization efforts in other states.
Colorado anticipated $70 million in marijuana tax collections per year, but it hit $121 million in 2015 and over $140 million in the calendar year 2016.1 One estimate put the economic impact for the state of Colorado at $2.4 billion.
In Washington, tax revenues are slowly ramping up, but still far short of the estimated $388 million annually estimated in the legalization effort. Excise tax revenues from marijuana were $62 million in FY 2015, $134 million in FY 2016 and expected to hit $270 million for FY 2017.
Whether all states will hit these targets is not yet clear, and there has not been any analysis of whether legalization has offset or increased other public sector costs. We don’t fully know if legalization has produced any savings from reduced drug enforcement costs, or if those savings are offset by increases elsewhere.
It may be some years before we can really examine the impact of legalization on public costs, but there are other impacts that are receiving less attention. The legalization of marijuana at the state level has created a fundamental conflict with federal law where it is still illegal and controlled as a Schedule 1 drug, the most serious category of illegal substances that have no currently-accepted medical use and a high potential for abuse. As a Schedule 1 drug, the funds for research on medical uses are restricted, so it is even harder to get marijuana reclassified (as could happen if research proved that its medical use was beneficial). As recently as August of 2016, the DEA rejected reclassification based on the recommendations of the FDA.
The US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) indicated in what is known as the Cole Memo that they would not charge a bank with federal crimes for accepting marijuana money if the financial institution ensures that all state laws and the directives of the Department of Justice have been followed. This situation puts a significant resource burden on institutions that effectively makes accepting these deposit not profitable. Some credit unions and “money service businesses” such as PayQwick are entering the marijuana market, but the uncertain legal patchwork they operate under provides a limited solution.
As a result, marijuana businesses that are legal in their home states cannot use banks or many traditional banking services.They have to pay all of their bills, taxes, and payroll in cash. They can’t get loans or mortgages, and they can’t build credit.
These problems can also extend to companies that supply marijuana businesses and all of their employees. If your income comes from an activity that is not allowed by federal law, then you as an employee may be barred from using a bank or getting credit. Furthermore, since these businesses are paying their workers in cash, any individual with a bank account would be subject to additional scrutiny for making large amounts of cash deposits. This is such a new industry that the potential problems facing employees in these businesses have not yet surfaced, but it is something that policymakers should be considering before significant problems emerge.
1. See Joseph Henchman, Marijuana Legalization and Taxes: Lessons for Other States from Colorado and Washington, Tax Foundation Special Report (Apr. 20, 2016).↩
Fourth Economy’s Social Innovation Strategist, Chris Ellis, recently had a contribution published in a Robert Wood Johnson Foundation (RWJF) book, Knowledge to Action: Accelerating Progress in Health, Well-Being, and Equity. This book is the inaugural volume of a publication series from the RWJF intended to catalyze discussion, engage new partners, and inspire action to build a Culture of Health in America. Chris’ contributions are included in a chapter that focuses on public, private, and nonprofit partnerships. The chapter examines the impact of these partnerships by highlighting Utah’s Pay for Success transaction that expanded access to high-quality preschool services for low-income children; a program that Chris managed before working at Fourth Economy. More information about the book, including ways to purchase it, can be found here.
In June 2017, I think we can all say that our world is at a minimum just different than it was in June 2016. There are issues and ideas that we are dealing with that we may not have expected, but “deal with” them we must. The challenge we live with is that civic leadership is messy at a time when people want it to be simple.
In recent months, we have been working with many communities who are watching the CNN (and FOX) stream just like us, trying to gauge the direction of this country. At the same time, we see a path forward as we support the actions our civic leader friends are trying to accomplish: creating a fresh food incubator in Buffalo; a renewed theatre in Fort Wayne, Indiana; a design and manufacturing space in Providence, Rhode Island. These are the investments with exciting short-term gains and significant long-term impact of community building.
And that’s that catch: long-term impact that learns and delivers beyond the political cycle and can sustain a community is not always easy. This is where civic leadership is more asset than virtue, and where it matters the most. The challenge we live with is that civic leadership is messy at a time when people want it to be simple. Civic leadership is not born in 140 characters or through anonymous posts. Civic leadership is created in meeting rooms, in coffee shops and craft breweries, and these days on the lines of protests. My hope is that 2017 becomes the year we realized that we all need to communicate a lot more so we can understand where we want to be as neighbors.
Here are the four key skills that we see exhibited by the best community leaders with whom we work:
Listen: In every community, there are conversations occurring that can tear apart or strengthen the community fabric. Leaders must listen to all of those thoughts to understand their context and to allow for the development of empathy for one another.
Research: There is no such thing as the status quo, or a community that is exactly as it was in the old days; instead, communities are constantly heading in new directions. Leadership is about doing the research needed to understand what that direction is. Often times, data and fact-finding will provide a view that is not expected and at times painful to deal with, but it is critical to be able to communicate what is not working in order to build a case for improvement.
Create: Leaders need to create an inclusive vision. Where do we want to be in five or ten years? What do we want the rest of the world to know us for? What do we want to leave for the next generation? The vision should be bold and inspirational, and maybe even something that some people doubt achievable.
Act: Between the vision and action, there must be great planning that goes on to detail who or what is responsible for making the vision a reality, setting clear goals, and making sure the capacity to act is in place. While great planning bolsters success, it does not guarantee action. Only by recognizing the people in your community—the civic leaders who are brave enough to act—will the vision be achieved.
Let me know what you think are skills needed by civic leaders by sending a note to firstname.lastname@example.org.
The Fourth Economy team has had the pleasure of supporting the University of Pittsburgh as they look to advance the life sciences cluster in Pittsburgh to the next level. Our work included researching the predicted next generation industry advances, analyzing the region’s research capacity and influence, location benchmarking, profiling the current cohort of life sciences companies, and discussing what is needed to build on the growing success of the sector.
We were able to provide the life sciences community with specific recommendations and a website to tell their story. The take-aways from our findings for this project are not necessarily unique to this sector in Pittsburgh and should be considered across any industries that a local community is looking to support.
#1: Sustained Leadership is Vital
Cluster development takes a vision and a level of sustained leadership that is able to evolve over a significant time horizon. Even when a region has a strong research base, it takes concentrated efforts by a community-minded intermediary to build a robust industry cluster. This cluster must provide collision points for local and out-of-region industry sector players to build relationships and find opportunities for collaboration. The output of this type of leadership activity cannot be measured in deals or investment, but creates the environment for those things to happen. We see many clusters fail because success is expected overnight, and leadership is not sustained long enough to build the necessary community infrastructure.
#2: Public, Private, and Philanthropic Investments Work
The important work of cluster development requires collaboration between the public, private, and philanthropic sectors to achieve the greatest leveraged impacts. At a time when questions swirl around the sustained commitment of federal research and development funding, it is critical to look at the models that many communities, including Pittsburgh, have demonstrated. Over 15 years ago, the state government, in collaboration with local philanthropy and the region’s research institutions, made a significant commitment to the emerging life sciences industry. The impact of those investments can be seen in the growing portfolio of companies and the position that the sector is in now.
#3: Regional impacts are Spurred by Neighborhood-Level Concentration
Industry clusters are often spread throughout a region both in terms of the location of firms and their employees. As firms mature and grow, they look for their own space, often in locations outside an urban core. But that urban core is vital to creating the density and culture of collaboration needed, especially in research and development-intensive industries. As the current generation workforce has made it known, they are looking for dense urban environments with ample amenities. In turn, the firms that are emerging will look for these locations as hosts for their employees. The Brookings Institute has advanced the notion of Innovation Districts to describe this phenomenon.
Fourth Economy recently completed a feasibility study for an aquaponics facility designed to provide fresh produce and fish in a food desert. Through our work with programs like Invest Health, we know that there are many communities out there interested in similar projects. If that sounds like you, here are three things to know.
Because the world of community and economic development is so broad, our team supports organizations that are addressing a myriad of challenges and opportunities: reforming vacant land policies; growing emerging industries like ed tech; coordinating workforce development systemsthe list goes on! This year, we had the opportunity to support a community trying to develop an aquaponics facility to provide fresh produce and protein in a food desert. Through our work with programs like Invest Health, we know that there are many communities out there interested in similar projects. Based on our feasibility study, here are three things you should know:
Know Your Fish
There are real limitations in a commercial aquaponics facility’s ability to operate without incurring a net loss on the fish-rearing portion of the facility. Despite the cost savings represented by the considerable water conservation benefit, at the core of this issue is a low share of fixed costs relative to variable costs, which limits opportunities for economies of scale. In other words, producers in many industries can save money at higher volumes because the fixed costs (e.g. facilities, utilities, and equipment) are high but the actual cost of producing one additional units (i.e., more fish) are low. Unfortunately, in a commercial aquaponics facility, the cost of producing one more pound of food is high. The fish, feed, growing medium, staff time, and supplies needed for growing and transporting the food all influence the cost of production. Fish need to be checked on often, pH levels need to be balanced, fish needs to stay cold on its way to market, and water needs to be drained often enough to ensure the roots can get oxygen during growth. Managing these systems requires serious expertise.
Among fish raised in commercial aquaponics facilities, tilapia are by far the most common and highest revenue-producing choice because they can be harvested more frequently and are not as sensitive to their conditions as many other fish, including catfish and bass.
Know Your Community
Of course you know this already! But it’s tough to make these projects work, and the more you can do to engage your community and partner with other organizations and initiatives, the easier it will be. Are there other underutilized commercial kitchens you can use for processing? What products are doing well at farmer’s markets, and what is in short supply? Are there community or education organizations that could provide volunteers? Who else is using an aquaponics system, and how can you complement and learn from them? These questions should be asked early in the feasibility process, and potential partners should be engaged to help ensure the success of your project.
Know Your Buyers
If you want to sell to grocery stores, schools, or other commercial or institutional buyers, there are a number of considerations. The following is true of most, but not all, buyers:
- You must be GAP (Good Agricultural Practices) certified.
- The fish must be butchered; this requires special facilities and perhaps adherence to additional codes and regulations.
- You must adhere to specific packaging and delivery requirements (for example, will you need access to refrigerated trucks?).
- You must have liability insurance.
The good thing is that there are often resources to support new producers. Food hubs, Agricultural Extension offices, and increasingly-specialized incubators (like this one!) often provide training and technical assistance.
Despite the financial and operational challenges associated with aquaponics, these systems continue to gain popularity due to their ability to transform underutilized spaces into production sites for fresh food, spurring community and economic development. Hopefully considering these variables will ensure that your aquaponics project is a success!
The three-legged stool of economic development is made up of business retention and expansion, business attraction, and entrepreneurship and small business development. In recent years, it has become apparent that the strength of a community’s workforce undergirds this framework. Thus, in the diagram below, workforce development has been added as a foundation for each of these activities.
Placemaking, according to Wikipedia, is a multi-faceted approach to the planning, design and management of public spaces. Placemaking capitalizes on a local community’s assets, inspiration, and potential, with the intention of creating public spaces that promote people’s health, happiness, and well-being. While the process is heavily based in design, placemaking results in more choice of housing, transportation options, and retail options, which improves people’s lives across the economic spectrum.
Placemaking enhances economic development efforts in each of the three legs of the stool, as well as through impacting workforce development. Beginning with this installment, a new series of articles in the Fourth Economy newsletter will delve into the role that placemaking has in economic development as the economy continue to transition towards the knowledge and service economies. Competition is increasing because talent and companies are tied more and more to places that support knowledge economies rather than natural resources or commodities. As the playing field levels, the competition for jobs and talent is tied to quality of place.
Often, when discussing economic development, business attraction comes to mind first. Business attraction is the process of marketing your community to firms that fit well with its already-existing advantages. Marketing can happen through an internet presence, as well as through traditional means, such as brochures or advertisements in magazines. Another tool that is used to entice business are incentives in the form of lowered taxes, financial grants, or providing infrastructure.
There are a few disadvantages to these methods. Advertisements are designed to catch the eye of site selection consultants and corporate location specialists; however, these populations likely already have access to scores of data about your community through public data bases such as the Census Bureau and private databases available via subscription services. If the story that this data tells about your community does not correspond to their needs, then no matter how much is invested in advertising, there won’t be much interest.
Incentives in the form of lowered taxes, grants, or infrastructure improvements can be an effective way to bring new businesses into a community. However, offering tax incentives can lead to a “race to the bottom” with communities attempting to outbid each other. Furthermore, offering these types of incentives can cut into school budgets, and divert funds from other priorities.
Placemaking can therefore play an important part in business attraction because it improves the quality of life of a community. Quality of life is the top reason why company executives chose to locate in a place where they themselves have to live. Improving this factor can improve the impact of advertising and decrease the need for tax incentives by providing intrinsic value for employees living in the town. While all aspects of business attraction are important, placemaking improves the product being sold, which, in turn creates a better lifestyle for both employees of new firms and existing residents.
At Fourth Economy we have been tracking the news about retail store closures. These store closures often can leave significant redevelopment challenges for local community and economic development officials. In future posts we will highlights some of the ways that communities are dealing with these buildings. According to Business Insider more than 5,000 store closures have been announced so far, with the potential for nearly 9,000 store closures by the end of 2017. These store closings are the most physical manifestation of the challenges facing the retail sector.
As a resource to the community, Fourth Economy has started to identify and compile a list of retail store closings. Tracking down the locations has proven to be a challenge, but we have identified 1,768 of these closings so far. You can see the results in the above Working Map of Retail Closings, created in Tableau Public. We are providing this as a resource to the community and will continue to update it as closings are announced and locations identified. If you know of any closings in your area, please send them to email@example.com and we will update the map.
Stay tuned for more.
We’re looking for an innovative and creative professional with experience and expertise in graphic design, brand management, business development, and web design. Fourth Economy is hiring a Graphic Design and Communications Manager to help us communicate our plans and recommendations to our clients and the stakeholders they serve.
Send cover letter and resume and work samples that demonstrate your design approach and capabilities to firstname.lastname@example.org.
Pittsburgh Region Life Sciences Benchmarking & Opportunities Analysis
The Pittsburgh Region Life Sciences Benchmarking & Opportunities Analysis report was prepared for the University of Pittsburgh with financial support from the Richard King Mellon Foundation and Hillman Family Foundation.
Fourth Economy Consulting conducted the analysis and report development in partnership with Warner Advisors during the summer of 2016. This report is meant to inform key Pittsburgh regional stakeholders about the assets and opportunities that exist in the life sciences industry sector and highlight areas of future focus. Read more from the Pittsburgh Post-Gazette here. The complete report is available here.
A core principle at Fourth Economy is that economic development works best when it works at the intersection of environmental, social, and economic issues—a concept referred to as sustainable or triple bottom line economic development. A recent article published in Economic Development Quarterly by one of our Fourth Economy Pioneers gives some background into this concept.
Janet Hammer of The Collaboratory, the lead author of this research, notes that while traditional economic development delivers programs, policies, or activities designed to create or retain jobs and wealth, sustainable economic development does so in ways that also contribute to environmental, social, and economic well-being over time. This triple bottom line approach recognizes that economic development both influences and is influenced by a spectrum of factors like quality of life, fiscal health, resource stewardship, and resilience. Continue reading “Pioneering a New Approach to Economic Development”