Economic Development – A Cautionary Tale

Follow me if you will on a journey. We are going to explore together the effects of economic development on an average individual. This will be a cautionary tale for economic developers, job creators and community leaders. I do not base this example on a real person but seek simply to exemplify real-world unintended consequences that can be addressed.

Part One of our Tale

We start our tale following Arlease. She is a single mother of two living in a rent-controlled duplex in a distressed part of a small city. She has a high school diploma and works part time at a fast food place. She wants to get ahead, for herself and her family. She heard that a new boat builder in the area is hiring. She applies and gets the full-time job. It starts at $15/hour with insurance benefits. Let’s do the math – she will gross $2,400 per month at her new job. After taxes it will be about $2,000. Adding her kids to her insurance plan will take away another $300 a month or so. We are down to $1,700/month. By the way, Arlease now makes too much to qualify for the rent assistance she’s had. She’ll have to pay $900/month instead of the $450 subsidized payment. Her SNAP benefits and WIC will be reduced so she’ll have to make up the difference on the grocery needs. She makes too much to qualify for most assistance now – she is above 125% of poverty. What does that look like for her?

Arlease’s expenses now include rent $900, utilities $150, auto insurance $100, internet/mobile $100, and groceries at $100/week equals $400. Arlease is up to $1,650 already and we should notice what’s missing. There’s no car payment so she might have an older car that is going to need some maintenance. Even if its newer, where does she get the money for new tires, oil changes, or windshield wipers? Speaking of maintenance, do you see any money for medical co-pays or medicines? Maintaining our bodies is important too. There is no money for child care. If she relied on an after care program based on her income, she no longer qualifies for that assistance. What about money for clothes, shoes, school supplies or hair cuts? She wants to pay tithing at her church, but does she have it? Can the family afford a pet? Can they even go out to dinner?

Arlease can’t even consider saving for retirement. How is she surviving month after month? Perhaps she is using a credit card to fill the gaps. If she carries a balance, she might be paying high interest payments too. She might have a system that includes paying off credit balances with her annual income tax refund. If so, she will need to adjust that plan if she doesn’t opt out of the new child tax credit payments. Perhaps she allows a housemate to help with expenses and child care. We might wonder how safe that is for her children. We might wonder about the living conditions in a small duplex. We might wonder if that will bring a criminal element that could undermine her desire to get ahead. This may not be the case here, but it happens.

What our tale just described is known as the ‘benefits cliff.’ That is the danger zone people have to navigate to move from poverty to middle class. When I hear people say things like, “there are jobs – people just don’t want to work,” I am disheartened. I feel like people who say those things have the benefit of never having had to face this cliff.

Part Two of Our Tale

We now join Arlease a year later. She’s struggled through but has earned a raise. She is now officially ALICE according to the United Way. Arlease is Asset Limited, Income Constrained but Employed. She is soaring over the benefits cliff without a parachute.

Her finances are more stable and she’s ready to get a new car. According to economic developers, this is exactly what we want Arlease to do. She is becoming a contributing member of the local economy. Arlease goes to the local auto dealership and picks a new but not fancy model car. In the finance office, they run her credit. Well, Arlease learned the hard way years ago about negative impacts to her credit score. She defaulted on a store card and a cell phone account during a tough spot a few years ago. To get into that reliable transportation, she agrees to a $600 payment for eight years. The interest rate she qualifies for put her there. Her insurance payment will go up because she now has to carry full coverage. Her low credit score impacts her insurance rate as well. To make it more affordable, she opts for the highest deductible she can get. Heaven forbid she have a collision and need to use her insurance.

In order for Arlease to secure reliable transportation, she’s conceded to living on a very tight budget for another handful of years. She knows she might have to choose between making that payment or paying the light bill. She knows what will happen to her credit if she defaults on the car payment. Arlease is thankful her employer is fair because she knows she’d put up with a lot to keep this job. To balance the bills, she might have to make a late payment and deal with the fee but at least it gets paid. Arlease has a dream of home ownership but is glad she is renting now. Her budget has no extra for home repairs or replacing appliances.

Economic Development

Let’s look at the impact to the local economy from this economic development. The boat builder received incentives to move their plant to the area. The loss to the local tax base is worth it because the factory is providing local jobs. The workers in those local jobs, like Arlease, are contributing to the local economy now. All is well. But the high interest from Arlease’s auto loan – where is that going? Most likely a national financing company is collecting it, not a local bank; same with that insurance payment. The increased rent didn’t help the local landlord, it just reduced the federal subsidy base. Arlease isn’t spending money at local restaurants or shops. Her expendable income is for groceries and kid’s clothes – never ending expenses. With malls across the country shutting down, where do those clothes come from? Most likely from a big box store or a mail order website that is most likely not locally based.

Let’s explore now why it isn’t likely that Arlease is supporting local. A recent article in summarizes it sufficiently. Even before the pandemic, America was seeing a decline in small businesses. According to a report by the Small Business Administration, this has been exacerbated by the pandemic. Economic growth has been more in the corporate sector. Big companies that can bring lots of jobs are the ones that are enticed to cities with big tax breaks and incentives. The businesses that will create only a handful of jobs must struggle and fight for capital. This leads to consolidation of services and local providers. Small businesses can’t compete as the low price leader against big box stores. Often, they’re forced to attract niche markets instead of the masses. We can be certain Arlease is looking for the low prices, not expensive specialty items. That chain store probably isn’t sponsoring the local little league team.

Our Tale Concludes

The cautionary tale is told. This is reality for many communities. The desire to improve our communities is there and real. People’s hearts are in the right place. Plus, a lot of our local dollars support economic development efforts; we want to know they work. The next step is to address the gaps in the execution of those efforts for the boots on the ground. Perhaps we can encourage people to support local. We might work on crowd funding for local entrepreneurs. I am sure we can do better for our communities. So, anyone who would like to explore economic development efforts, reach out! Let’s start a conversation!


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Posted: August 13, 2021

Category: Money Matters, Work & Life
Tags: ALICE, Community, Economic Development, Extension, Local, Poverty, UF/IFAS Extension St. Lucie County, Workforce

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