The Case for Confidentiality in Economic Development
Written by: John Crutchfield III, President & CEO, Greater Killeen Chamber of Commerce
Published in the Greater Killeen Business Quarterly 2017 Annual Report & Economic Outlook Guide
A recurring question asked of those of us who work in economic development (ed) is why we do not talk about the projects on which we are working. The question typically arises a lot from those not involved in the process, especially from the media. They label this behavior as secret. We label it as working in confidentiality, a necessary part of the economic development process. There are a number of reasons for this behavior that I will explain in this article.
ED projects involve capital investment. That investment is important.
From the company perspective, it provides additional capacity in the form of new products and services that can be offered to existing and new customers. From the community perspective, the investment means new economic growth in the form of new jobs and payrolls, increased demand for services in the community, and additional tax revenues.
These projects come to an economic development organization as leads, or prospects. They are hard to come by and very competitive, as many communities pursue them.
Projects that wind up locating in a community consist of two phases. Phase One begins with identification of the lead and concludes with execution of an agreement by both parties.
This phase must be conducted in a confidential environment, as much information is exchanged between the parties. It consists of a good deal of benefit/cost analysis, and negotiations on company/community obligations based on this analysis. It is not out of the ordinary for Phase One to take months and, in some cases, depending on the project, years.
Phase Two begins after the agreement has been executed by both parties. This phase has no confidentiality requirement.
There are three reasons for confidentially in Phase One. The first reason is driven by the company. These companies operate in the private sector and in a competitive market. It is often the case that they do not want their competition to know their expansion plans. In some cases, we are required to sign a Non-Disclosure or Confidentially Agreement.
The second reason is driven by the community. I mentioned that leads on these projects are hard to come by and many communities pursue them. It is normal that companies with projects will have several states and, in some cases, literally hundreds of communities under evaluation. Every community is trying to put their best foot forward. It is very much a process of elimination. The odds are against the community, so the community’s goal is to stay on the list for consideration until there is no one else on the list. There is no advantage to a community letting other communities know it is under consideration. There is no reason to give the company a reason to eliminate a community from consideration due to something a community member says in public.
The third reason is driven by both the company and the community. When word seeps out early, before all the details have been agreed to, what I call the “Deep Pocket Syndrome” kicks in. When it is discovered that a new company might be coming to town, real or imagined, things start to get more expensive and take longer. Anyone engaged in economic development has either experienced or witnessed this. There is no more effective way to lose a project.
Here is a recent example. For a number of years, the Killeen Economic Development Corporation worked with a developer on a retail project at the intersection of 38th Street and Rancier. The developer was one with whom we had worked before on successful projects in this community. The location is in a part of our community characterized by declined property value, no recent significant investment and a demand for more retail service. This developer believed, because of past success, that he could attract a critical anchor tenant to the project.
It was our job to help the developer acquire property for the project. We were able to do so successfully. Those who sold their property did well. After the property was acquired, the developer spent hundreds of thousands of dollars planning the project. All of this was done at the complete risk of the developer. The last planning phase of the project was to complete a traffic flow plan. The traffic plan called for the installation of a new signal light and turn lanes. While nothing required the developer to do so, he decide to offer to improve the entrance to the neighbor’s property in the vicinity of the development as a goodwill gesture. The work would require a construction easement from the neighbor to relieve the developer from liability since a portion of the neighbor’s entrance was on private property.
While discussions of the easement were underway, the name of a possible anchor tenant leaked out. In addition to an improved entrance, neighbors began to demand new entrances, longer turning lanes and improvements to public streets. Potential anchor tenants had no obligation to the project at this point. Faced with demanding neighbors, rising costs and slowed negotiations, potential anchor tenants pulled out. It is now likely that the property will never be developed. The developer is out millions of dollars, much of which he is unlikely to recover. Sadly, the community is out hundreds of jobs, lost tax revenues and badly needed retail services.
This is the predictable result if confidentiality is not maintained. Every economic development organization of which I am aware in the U.S. observes the practice of keeping their projects confidential. The failure to do so means everybody loses.