7. Geographically targeted policies on the supply side.
Eisinger continues his description of supply-side policies with a discussion of geographically targeted policies.
Four major program types: site-development programs, financial assistance to firms in distressed areas, tax-increment financing, and state enterprise zones.
He notes controversies over balanced-growth (aid everywhere) and targeted policies. Balanced-growth policies have political appeal; they're "fair," they don't get hung up by intrastate rivalries, and some argue that distressed areas are less able to take advantage of subsidies. Also, state officials are reluctant to call certain local areas "distressed" or "declining."
He says the most important obstacle to targeted policies is the view by businesses that some areas are so screwed up that no incentive can make them attractive for investment. Despite that, Eisinger notes growth in targeted policies, especially as the decline in federal aid forced states to use resources most effectively.
Industrial and commercial site development
These programs provide reduced-cost sites at which firms can locate. There are two major types of programs: industrial parks (much more common) and land banks.
Industrial parks are suitable sites with transportation access, utilities, and other infrastructure already in place. Publicly owned industrial parks appeared in the 1940s. The land and infrastructure is commonly paid for with the proceeds of municipal bonds which lowers the cost of the property. Also, until the lots are possessed by a commercial firm, they are publicly owned and exempt from property taxes, further lowering the costs.
He says the while industrial parks are geographically targeted, they seldom are a part of a program to draw business to distressed areas.
Land bank programs are programs in which the local govt buys and holds land suitable for industrial or commercial development.
Targeted financial assistance
These programs can include subsidized land or loans, tax abatements, or any other incentive. However, receiving the incentives is contingent on locating in an indentified distressed area.
Another type of program makes grants to local governments in distressed areas to use for infrastructure development. Either way, the point is to focus resources on areas that need it most.
Tax increment financing
He says that state and local officials are holding TIF in ever-higher regard. But that TIF is encumbered by its perceived complexity and controversial reliance on interlocal subsidies. [Yep.]
TIF controversy goes beyond the normal "corporate welfare" controversy. It involves diverting school district and county property tax revenues to municipalities. The interlocal subsidies are justified [by the munis] on the basis that the muni has to provide the services, but all districts reap the benefits in tax revenue.
TIF began in California in 1952, but didn't really spread to other states until the early 70s when it was seen as a way to replace federal urban renewal funds that were then going away.
TIF is used in areas of economic distress, using "blight" as the definition of distress. Eisinger notes that blight is the broadest definition of distress. [Boy howdy!]
He notes that TIF is used to finance land acqusition and infrastructure, not private buildings or equipment.
State enterprise zones
First proposed as a federal program, but actually taken up by the states.
The original formulation was to free the zones from regulations as well as taxes. In that respect they would have been more about stimulating new investment as opposed to attracting industry. But as they were implemented, they focused on tax abatements and new-job credits and thus became a location-specific supply-side policy.
Eisinger, P.K. (1988). The Rise of the Entrepreneurial State: State and Local Economic Development Policy in the United States. Madison, WI: University of Wisconsin Press.
Posted by Chip on July 20, 2004 at 12:22 PM | TrackBack