Tuesday, January 24, 2012

Some recommendations for the Southwestern Ontario Development Fund

Consultations start this week on the Ontario government's proposed Southwestern Ontario Development Fund, with public meetings in Owen Sound on Thursday and Windsor and St. Thomas on Friday (with St. Catharines on the schedule next week and Guelph the week after that).

Rather than continue my previous post, I thought I'd rearrange my followup as answers to some of the questions asked in the government's consultation paper. In comparison with the Eastern Ontario Development Fund, I'm hoping we see lower caps, wider distribution of funds, fewer pre-set barriers for applicants (especially since they are primarily used to exclude smaller, younger companies), and an evaluation that goes beyond counting the number of jobs that applicants claim will be created.

Should the fund focus exclusively on providing direct support to businesses? Should some funding be provided to community organizations?
There should be funding for both businesses and community/regional organizations. The fund should be a catalyst for economic prosperity, which will be driven by businesses achieving success in the marketplace. That's how they will attract money to their communities and create sustainable jobs. Therefore businesses should the beneficiaries of the funding, but that will not always be best achieved through direct support. Resources can be leveraged to benefit a range of companies through programs and services run by community/regional not-for-profits.

Should two funding streams be available? That is, one for community, regional economic development and industry associations, and the other for businesses.
Whether the funding for those organizations is formalized as a separate stream or not, both types of applicants will have to make the case for the economic value of their proposed projects and justify the level of funding sought.

Should the Fund provide only grants, or should there be a mix of grants and loans?
Funding to regional not-for-profits should be grants. With businesses, the optimal mix will depend on the structure of the fund. If there is a large cap on project funding and the recipients are a relatively small set of established companies receiving sizable investments (not the recommended approach), then a lending program would make sense. On the other hand, if the cap was set low, with funding spread over a larger number of recipients, including high-potential early-stage businesses, that would be a better fit for a straight grant program. Loans, in many cases, will require lengthy pay-back periods and leave the fund open to being evaluated on how much has been repaid instead of what has been achieved.

What is an appropriate amount of project funding support by the province?
$20 million is a reasonable starting point. At that level, demand will greatly exceed supply, which should lead to some strong projects being funded. That will demonstrate the value of the fund, which could then be used to justify larger amounts of funding down the road. With anything much less than $20 million, a development fund would no longer be the most effective use of the money.

Should funding from other [government] sources be allowed?
Yes, subject to a ceiling for the percentage of total project costs paid from all sources of government funding. That ceiling could be 100% for projects headed by not-for-profit organizations.

Should there be funding caps?
Yes. The strategy should focus less on trying to pick a small number of winners and more on having several irons in the fire—still looking to back winners to some extent, but with a lot more picks. A cap of $125,000 for grants is high enough to make a difference and low enough that the funding can be used to help a wider range of potential job and regional wealth creators, greatly improving the odds of sustainable success.

How many jobs must be created (direct or indirect) by the project to be eligible for funding?
There's no need to set a hard-coded floor for the number of jobs to be created. It's not an entitlement program and there will be far more applicants than recipients. If the case for the proposed project isn't strong, it won't be funded. If the case is strong, then it shouldn't be rejected solely because it failed to meet some arbitrarily-selected target.

In addition to job and investment targets, what other metrics should be considered when evaluating proposals?
Regional economic prosperity will be driven by the market success of companies in the area. Job creation is an outcome of that success. (Jobs may exist temporarily in anticipation of future market success, but they can't be sustained and will vanish without it.) The economic value to a region of that success goes beyond a simple job count and includes many other factors—all of which could be legitimate points of assessment in evaluating proposals.

For example:
  • Business prospects of the company/opportunity for continued growth
  • Likelihood that future company growth would be in the region
  • Value of the jobs created—salaries, prospects for career development
  • Fit with regional economic development priority areas
  • Fit within regional value chains
  • Extent to which the profits of the business and the value of the enterprise remain within the region
  • Ability to capture locally the value of revenue generated outside the region
Along with economic value, other factors that should be considered include:
  • Capability of the recipient to execute the proposed project
  • Impact of the project on the company/region
  • Project is adequately described/scoped, priced
What should be the geographical limits for the fund?
The eastern border for the fund should be Haldimand, Brant, Waterloo, Wellington, and Grey. This is an area comprised of five single-tier municipalities, six separated cities, two regional municipalities (which include four cities) and nine counties (15 county-sized municipalities in total). In its own materials, Dufferin County identifies its location as South-Central Ontario and Simcoe County is even deeper into the South-Central region. Hamilton, Burlington and Niagara Region are part of the Golden Horseshoe region. These are both distinct from Southwestern Ontario. Every region could undoubtedly make use of a development fund, but this one is for Southwestern Ontario, a large area that's home to some of the highest unemployment rates in Canada. Boundary creep will only dilute the fund's effectiveness and make it less likely it will achieve its objectives.

How many employees should a company have in order to be eligible for funding?
An eligibility floor on the number of current employees isn't necessary since the proposals will all be evaluated in a competitive process for their economic impact. If a small company makes a more compelling case than a larger company for the value of its proposal, then there shouldn't be any arbitrary barrier to funding that project. For the same reason, there shouldn't be a floor on the number of years in operation. Some of the most exciting opportunities for economic value come from smaller, younger companies.

What priority sectors should the fund concentrate on for the region?
The priority sectors should be in-line with local economic development priorities. The fund should promote economic development across the entire region, which includes cities, small urban, and rural regions, each with distinct priorities. The fund should not favour one above the others.

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