Risks abound as city doles out money for jobs
Is it reasonable to spend $10,000 to create one new job in the city?
How about $1.5 million for 150 jobs?
That’s how much the city’s new investment fund will spend to create 150 new software engineering and technology positions in Calgary in the coming months.
It’s part of an aggressive civic strategy to use public funds to stimulate employment and build a broader economic base for Calgary.
But with reward comes risk, and no one should overlook that hard truth as more grants are given out in the next few years.
Armed with $100 million, the Opportunity Calgary Investment Fund unveiled its first nonrepayable grant on Thursday, putting $1.5 million into a new locally based company called MobSquad.
The technology firm has an innovative idea: recruit data scientists and software engineers, both at home and abroad, to work in Calgary, while offering their services to U.S. clients in places like Silicon Valley.
It will create a virtual Canadian satellite operation for American startups that don’t want to go through all of the cost and difficulty of setting up a foreign operation.
For Calgarians, trading money for jobs is probably a crass way to look at such investments.
Other objectives are at play, such as building the base for a burgeoning technology sector, diversifying the local economy and using the grant as a catalyst to attract talented people to Calgary.
But MobSquad CEO Irfhan Rawji and Mayor Naheed Nenshi aren’t about to apologize for the money-for-jobs component either.
“All of these government commitments are tied to job commitments; we don’t just get the money,” Rawji said in an interview.
“If you can create a job, a high-paying job ... for $10,000, that creates a huge GDP impact, incremental tax revenue that goes to all orders of government, and a bunch of spinoff effects.”
Yet, investing in a new company involves an element of risk; technology startups are no sure thing.
All proposals submitted to the city’s new fund are vetted by an independent board of directors, which includes business leaders like oilpatch icon Jim Gray.
Nenshi pointed out Calgary is trying to create employment while other cities, provinces and states are aggressively chasing new companies and head office jobs as well.
“We live, for better or for worse, in a world where different jurisdictions are competing on incentives, on tax breaks and so on and we don’t normally play in that world,” said the mayor.
“When you look at the return on this particular thing, about $10,000 per job, that’s actually pretty reasonable.”
Officials from all three levels of government attended Thursday’s event — and for good reason.
Rawji said MobSquad has raised about $11 million in funding from private investors — including Relay Ventures, Panache Ventures and Mindset Venture Group — and various levels of government.
Ottawa is expected to put $1 million into the firm, while Alberta will be on the hook for another $1 million.
The Canadian Federation of Independent Business believes the city’s investment fund is well-intentioned but fraught with risk, saying it’s “outrageous” council has found $100 million to “dole out to handpicked winners.”
“Some small firms in Calgary struggle to pay their property taxes … while it is being handed out to a select few in ‘transformative investments,’ ” CFIB’s Amber Ruddy said in an email.
“Think for a moment how transformative a property tax freeze for all small business owners would be.”
The group wants to see council take steps to improve the city’s overall business climate, something University of Calgary economist Trevor Tombe thinks would be a much better way of attracting long-term jobs.
If there’s a market failure in areas such as attracting software engineers to Calgary, it would be wiser for governments to put money directly into training initiatives that all businesses can access.
“It’s shifting public funds away from something else. It’s not dollars falling from the sky,” said Tombe.
“This is the government picking a business — and it’s quite clear they are picking the business because it’s something that seems new and innovative.”
Program supporters make the case that the municipal fund is a tool Calgary can deploy on its own as the city struggles with an unemployment rate stuck at 8.2 per cent.
“Our view was standing still felt like the wrong thing to do, given the circumstances. So this is an attempt to try and create jobs,” said Barry Munro, chair of the city’s investment fund.
The reality is other jurisdictions are also offering grants.
A look at the frenzy to dole out incentives to Amazon for its new corporate headquarters is a testament to the intense competition from communities to snag such jobs.
“If we want to diversify our economy and add technology companies, we are going to have to do what other jurisdictions do,” said Rawji, who lives in Calgary and is also a partner at Relay Ventures.
“So do we want to play in the technology industry, or do we want to just play in the oil and gas industry?”
Nenshi notes money from the investment fund isn’t a blank cheque. There are safeguards in place, such as not giving out the cash until the jobs are created.
“We can’t afford to be complacent. We’re not going to go back to the economy we had before,” the mayor added.
“You have to let us take risks, you have to let your government be more loving of risk because the potential for reward is great. It also means you have to be forgiving of mistakes.”
But forgiveness must be earned.
New jobs are needed in the city, but making prudent investments and managing public money carefully is non-negotiable.
Through the city’s new investment fund, all Calgarians are now heading into some risky waters.
Do we want to play in the technology industry, or do we want to just play in the oil and gas industry?