CITY COUNCIL STAFF REPORT
DATE: July 8, 2021 NEW BUSINESS
SUBJECT: APPROPRIATE FUNDING IN THE AMOUNT OF $200,000 FROM THE FY 2021-22 ECONOMIC DEVELOPMENT PROGRAMS BUDGET FOR THE INNOVATION HUB MANAGEMENT AGREEMENT WITH COACHELLA VALLEY ECONOMIC PARTNERSHIP, AND APPROPRIATE FUNDING IN THE AMOUNT OF $125,000 FROM THE FY 2021-22 ECONOMIC DEVELOPMENT PROGRAMS BUDGET FOR THE COACHELLA VALLEY ECONOMIC PARTNERSHIP ANNUAL MEMBERSHIP FEE
FROM: Justin Clifton, City Manager
BY: Community & Economic Development Department
SUMMARY:
On June 10, 2021, City Council approved the Fiscal Year 2022 Budget which included funding for economic development programs and projects in the amount of $873,200. This allocation included funds initially proposed to fund a Management Agreement for the Palm Springs Innovation Hub Accelerator Campus (iHub) with the Coachella Valley Economic Partnership (CVEP) in the amount of $200,000, and Membership Fees for CVEP in the amount of $125,000, totaling $325,000. The City Council requested additional analysis before allocating funds for the Management Agreement and Membership Fees.
RECOMMENDATION:
1. Appropriate funding in the amount of $200,000 from the Fiscal Year 2022 Economic Development Programs Budget for the Innovation Hub Management Agreement with Coachella Valley Economic Partnership.
2. Appropriate funding in the amount of $125,000 from the Fiscal Year 2022 Economic Development Programs Budget for the Coachella Valley Economic Partnership Annual Membership Fee.
3. Authorize the City Manager to execute all necessary documents.
5B-1 City Council Staff Report July 8, 2021 -- Page 2 CVEP Funding Agreement
BACKGROUND:
CVEP, a membership-based organization, was first established is the early 1990’s to foster industrial development throughout the desert region. The City has historically provided financial assistance to CVEP with an annual membership fee; City records show annual dues to CVEP paid for FY 07-08 of $6,000 and which has increased up to the current fee of $125,000. The City first entered into a MOU in June 2011 with Palm Springs as the Managing Partner of the Coachella Valley Innovation Hub, with Cathedral City and Desert Hot Springs as partner cities. It was one of six original iHubs designated by the State of California in 2010. The purpose of the iHub is to spur development of startup companies and create jobs, and the City first budgeted $125,000 for the FY 2010-2011 operations. Cathedral City and Desert Hot Springs provided an initial funding of $25,000 annually each, with the City continuing its $125,000 annual funding consistently. With CVEP’s increasing administrative budget to operate the iHub, in 2015 the City increased its financial commitment to $196,500, and in 2020 to $200,000.
CVEP has assumed responsibility to manage the iHub to provide administrative and client services to meet the goal of the iHub / Accelerator Campus program, including providing education, support, training, business assistance, and networking programs for clients in the program. The iHub assists entrepreneurs by providing:
Business mentorship and guidance. Access to capital. Start-up risk mitigation. Business development and growth opportunities. Acceleration of early-stage technologies. Office space.
CVEP also manages the physical facilities reserved for iHub clients sub-leasing space at the two City facilities leased by CVEP (2901 E. Alejo – iHub main facility, and 3111 E. Tahquitz Canyon Way – CVEP Administrative Offices).
STAFF ANALYSIS:
Evaluating CVEP and the iHub is difficult, in part, because these programs have operated independent of a broader strategic approach to economic development. This means that the program lacks clear strategic goals and we lack adequate measures to evaluate the performance of the program against those goals.
While City Council appears clear that broader economic development is important, it is not clear specifically what Council hopes to accomplish with economic development, how it compares to other priorities, and what resources Council is willing to invest for what outcomes. Therefore, in order to best examine the value of the CVEP partnership and iHub program, it is best to address some fundamental questions about economic development first:
5B-2 City Council Staff Report July 8, 2021 -- Page 3 CVEP Funding Agreement
What is Economic Development?
Economic development is an initiative aimed at stimulating investment in business activities that growth wealth, create employment opportunities and increase the livability of a community.
What are the key goals of an economic development program? • Creating “primary” jobs that produce a good or service that is exported out of the area • Creating jobs that pay above-average wages • Expanding the diversity of the economy to insulate against declines in certain sectors and to improve resiliency • Building on existing assets that leverages strengths of the community and local economy • Focus on economic gardening services that assist new business creation and expansion over business recruitment efforts • Consider the value of indirect benefits of high wage employment opportunities equally or greater than the direct benefits of tax remittance
How does an economic development program accomplish these goals? • Successfully marketing and communicating to existing and prospective businesses • Providing access to capital, especially for business endeavors that are too risky for traditional financing • Providing business support services including training, development and specialized expertise • Providing demographic, economic, financial, real estate and other information to help assess market viability and opportunity • Creating policies and incentives meant to enhance business climate and viability, especially for targeted business sectors • Providing physical space, equipment and other products meant to help subsidize new or expanding businesses so private capital can be invested elsewhere into the business
What does a robust and mature economic development program look like? • Myriad public, non-profit and private partners with distinct roles and good integration • At least a few paid, full-time positions dedicated to administering programs • Clear understanding of existing economic conditions, threats and opportunities • Clear, ambitious and actionable goals guiding strategic development of programs • Leveraging funds and partnerships to “stack” resources and programs • Good communication and integration between service providers, the business community, lenders and investors, schools and other partners
5B-3 City Council Staff Report July 8, 2021 -- Page 4 CVEP Funding Agreement
• Good infrastructure, developable land and facilities that promote business creation and expansion • Time sufficient to establish these programs
How is a successful economic development program measured? The ultimate goal is a larger, stronger and more resilient economy that provides more opportunities to current and future residents. Some of the key measures along the way to that end include: • Jobs created and wage of the jobs created • Capital investment into new and expanding businesses • Expansion of targeted economic sectors
How does CVEP and iHub fit into this picture?
CVEP and the iHub provide some of the important economic development programs needed. But in many ways, CVEP and iHub are economic development resources that one would expect during the middle or even later stages of an economic development program. Yet, many of the resources one would expect to see in earlier stages of economic development program do not appear to exist. In other words, CVEP and iHub are important resources operating without the synergy of other critical components of the “economic development landscape.”
Development of any strong economic sector takes many years, if not decades, to establish. Palm Springs’ own tourism industry got its start in the early 1900s when health tourists in search of dry heat began frequenting Palm Springs. In the 1930s, Palm Springs became popular with movie stars; and in the 1950’s became popular as a spring break destination. By the 1970’s, Palm Springs was establishing more year-round residents and visitors. By the 1990’s, major events like Coachella added to a growing tourist economy by bringing a new demographic of visitor. And today the renaissance of Palm Springs comes after substantial investment in tourism products and things like the preservation of buildings from midcentury. If you examined these broad milestones carefully you would see the expansion and evolution of every aspect of the “tourist economy landscape” – from organizations like the Tourism Bureau and PS Resorts to assets like the convention center, to policies like hotel tax incentives. Major growth of the tourist economy was born from the tourist economy landscape and the ever-expanding tourism landscape was born from growth in the tourist economy.
Contrasting our non-tourist related economic development landscape with that of the tourism landscape provides significant contrast. Whereas individual agencies like the Tourism Bureau or PS Resorts operate within a very rich tourist economy landscape, CVEP is one of the only entities working on other kinds of economic development. For instance, CVEP is spearheading efforts to bring a true four-year university to the Coachella Valley – an important component for leveraging research, talent, statewide resources, and investment. CVEP has also had the most success in advocating for high-
5B-4 City Council Staff Report July 8, 2021 -- Page 5 CVEP Funding Agreement
speed communication into the Coachella Valley, without which the Coachella Valley is at a competitive disadvantage when trying to attract businesses to the region.
The City has invested $3.95 million (including $1 million from the Measure J Capital Funds) for improvements to the iHub Accelerator Campus facility. In a recent report submitted by CVEP, it was reported:
• 37 companies “graduated” • 203 jobs were created • Revenue/sales greater than $1 million • $3,000,000 in investments raised by iHub clients • 22 Patents and trademarks secured
In addition, business education, events, and services provided by CVEP include:
• Mentoring Local Businesses o Business Planning o Expansion guidance o Assist with seeking pandemic-related relief programs o Seeking PPP Loan Forgiveness • Conducting Business Related Seminars o Financial literacy, intellectual property, marketing, social media, etc. • Coachella Valley Economic Recovery Team (CVERT): Chair and Founders • SCAG Inclusive Economic Recovery Strategy on Incubators and Accelerators • CVAG Signal Synchronization Phase 2 o Include Fiber Conduit in Digs o Seeking Fiber Installation Partners Valley Wide • Secured $3M of PPE for Distribution to Local Businesses • Palm Springs Economic Development and Business Retention Task Force • College of the Desert o Palm Springs Campus Architectural Committee o Broadband Implementation Committee • Riverside County Economic Recovery Task Force (appointed by Supervisor Perez) • Riverside County Innovation Month Fast Pitch Contest o 2021 Champion o 2018 Second Runner-up o 2017 First Runner-up • CSUSB Advancement Board of Directors and Executive Committee o Helped Establish Entrepreneurship and Cybersecurity Programs on CSU- PDC o Established CENIC (high speed internet) Connection for Entrepreneurs
5B-5 City Council Staff Report July 8, 2021 -- Page 6 CVEP Funding Agreement
• Priority One Coachella Valley (CEO and Chair) o Formed 501c4 to Influence State to Expand CSU Campus in Coachella Valley • Coachella Valley Journalism Foundation (Founder) o Non-Profit that funded the Opinion Page Editor at the Desert Sun when Gannett eliminated the position. Raised $60,000 in 3 months to support the position It’s reasonable to view these accomplishments as too insignificant to really move the needle on economic development, because they are. But from the perspective of attempting to replicate, even on a much smaller scale, the success Palm Springs has had with tourism, one could argue CVEP and iHub are valuable programs in the very early stages of building out an economic development landscape. From that perspective, the answer to advancing the goals of economic development contemplate the need of myriad other support programs and resources to truly succeed.
The iHub Agreement was most recently amended in 2018 extending the term for 5 years, such that it would end June 30, 2023, and increasing the compensation from $196,500 annually to $200,000 annually. The CVEP membership fee was also recently increased in 2018 from $100,000 to $125,000 annually. Payments to CVEP for the iHub Agreement and CVEP Membership total $325,000.
BUSINESS PRINCIPAL DISCLOSURE:
According to the California Secretary of State website, Coachella Valley Economic Partnership is an active Domestic Non-profit California Corporation.
The current serving Chief Executive Officer is Joe Wallace and the Board of Directors includes: Jeff Baker, College of the Desert; Russell Betts, City of Desert Hot Springs; Mark Carnevale, City of Cathedral City; Sandra Cuellar, Charter Communications; Jennifer Cusack, Southern California Edison; Grace Garner, City of Palm Springs; Rosa Maria, Gonzales Imperial Irrigation District; Kristi Hanson, KHA Architects; Tamara Hedges, UCR Palm Desert Center; Gary Honts, Desert Care Network; Christine Hunter, Hunter | Johnsen; Erin Klink, Pacific Western Bank; Amanda Kramer, Wells Fargo Bank; Paulina Larson, Palm Springs Life; Holly Lassak, Massage Envy; Deborah McGarrey, Southern California Gas Company; Tom Niva, The Desert Sun; Richard Oliphant, Oliphant Enterprises; Oscar Ortiz, City of Indio; Lee Osborne, Osborne Rincon; Greg Sanders, City of Indian Wells; Patrick Sinclair, California Alliance for Renewable Energy Solutions; Phil Smith, Sunrise Company; Diana Soto, Greater Coachella Valley Chamber of Commerce; Joaquin Tijerina, Riverside County EDA; Joseph Tormey, CSUSB Palm Desert Campus; Jerry Upham, Gulf California Broadcasting; Ken Wheat, Eisenhower Medical Center; Scott White, Greater Palm Springs CVB.
5B-6 City Council Staff Report July 8, 2021 -- Page 7 CVEP Funding Agreement
FISCAL IMPACT:
If approved, a total of $325,000 in funding from the Fiscal Year 2021-2022 Economic Development Programs Budget will be appropriated; $200,000 for the Management Agreement with CVEP, and $125,000 for the CVEP Annual Membership Fee.
CVEP has indicated these funds would be used as follows:
Rent to City on Accelerator: $62,400 Rent to City for Headquarters: $73,200 (estimated on index specified in option to renew) Utilities at Accelerator: $62,000 (historical basis) Building Maintenance: $43,200 (historical basis) Business Mentor: $54,000 (Ted Daniels) Total Base Spending: $294,800 Operating Margin: $30,200 (subject to performance of properties) Total: $325,000
REVIEWED BY:
Department Director: Jay Virata City Manager: Justin Clifton
5B-7