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...disclosure, clawbacks quality standards to ensure that programs are effective.
Three trends dominate state spending for economic development today: more money, more tax spending and more accountability. The latter two trends are in many ways contradictory--tax spending is notoriously unaccountable--hence they represent an important but little-known debate going on within the development profession today.
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More Money
Since the 1982-1983 recession, the United States has witnessed what two Federal Reserve Board officers call an "economic war among the states." (1) With the federal government failing to adopt a national industrial policy and taking a laissez-faire attitude towards interstate competition for jobs, states have offered an ever-escalating array of economic development subsidies. For example, in 1977, only nine states gave tax credits for research and development; now at least 36 states do. Only 13 states made loans for machinery and equipment; now 43 do. Only 20 states provided tax-free revenue bond loans; now 44 do. Only 21 states granted corporate income tax exemptions; now 37 do. (2)
Put another way, Tennessee "won" the 30-state race for the Saturn auto plant in 1985 by giving General Motors subsidies worth $50,000 per job. By 1993, Alabama granted Daimler-Benz subsidies worth $168,000 per job to make luxury sports-utility vehicles. Today, several states are known to have dozens of deals on the books in excess of $100,000 per job.
This war for jobs has enabled some of the most problematic kinds of projects--including meat- and chicken-processing factories with very high worker-injury rates, confined animal feeding operations (CAFOs) which produce massive sewage "lagoons," and even private prisons--to receive massive subsidies. It has enabled highly profitable finance and media companies in New York City to demand and win eight and nine-figure subsidy packages by threatening to relocate. Some states have even rewritten their corporate tax codes under "job blackmail" duress, such as Massachusetts bowing to Raytheon and Nebraska ceding to ConAgra.
Other changes have been more subtle. Locally-awarded but state-regulated subsidies such as enterprise zones, tax increment financing (TIF), and property tax abatements are being "deregulated" by some states. That is, their eligibility rules are being loosened so that instead of being targeted to truly distressed areas, the subsidies may be merely chasing private capital instead of leveraging it. It is not unusual to find TIF subsidizing a sprawling big-box retail project in a prosperous suburb, or an enterprise zone gerrymandered far away from pockets of poverty.
Indeed, some economists have concluded that the war among the states is actually a "negative-sum game." For example, Boeing Corporation recently relocated its headquarters from Seattle to Chicago. Therefore jobs lost to Washington equal jobs...
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