Economic Development Incentives

[Cardinal]

This article is yet another that raises a question about the use of incentives in economic development. What is an appropriate level of assisstance for a business investment that will create jobs and tax income? When does an incentive package go too far?

While I do believe that incentives are appropriate in some cases, I look hard at the merit of the project, and do not believe in the "über-incentives" like those offered to Diamler-Chrysler. I also know, as an economic developer, of businesses that have chosen another state due to packages such as these. Is it time to resurrect the idea of federal action to limit the competition between states?

http://www.ajc.com/business/content/business/0104/08daimler.html

Thanks to IEDC for sending me the link to this article, in just one of the weekly reources I receive from that organization.

 

[Lee Nellis]

Every systematic analysis of the topic I have seen suggests that incentives make little or no long run difference in community economic performance, on average. In fact, I recall one paper that showed that the more a community spent on ED the less likely it was to succeed. As much as some people complain about them, taxes are not a big deal when compared with all of the other factors in locational decisions. Infrastructure is more important. I watched a case where one community was offering a free site, while another was offering only that it had the water and sewerage capacity to handle the plant (which was highly consumptive). Infrastructure won out, and the only incentive was that the plant could pay off the costs of the line extensions over 10 years, instead of all at once, BUT I think this is unusual, at least to the extent that most industries that haven't moved to China or India, etc, can be accommodated by the infrastructure in most communities of any size at all.

I think the only place where modest incentives may make a consistent difference is at the neighborhood level: I think a well-designed TIF, targeted investment in a particular facility (water, sewer, road), or a brownfields program can help redevelop a neigborhood.

My philosophy on all this spelled out in our recent book, but in a nutshell, I think any future worth having is based on amenities and entrepreneurship. I acknowledge that it is easier for some places than others to play that game, and that the thought of stimulating a spirit of entrepeneurship among folks who used to just go punch the clock is an unsettling one. I spent some time working in a town where a significant part of the population was waiting for a smelter that had been demolished for 10 yrs to come back. But are those folks going to accept the same wages and conditions as smelter workers in Mexico? I don't think so. The rest of us (who are paying taxes to help clean up the mess the smelter left behind) are just going to have move on without them.

 

[Cardinal]

Maybe it is part because I work in the field of economic development that I will come to its defense. I believe economic development does have an impact, and might expect that the study you mentioned failed to note that it is often the most depressed communities that have economic development programs, therefore, the association between the two.

While I would not say that amenities and entrepreneurship a the core answer, they are important. My own philosophy is that the most effective economic development programs are not based on marketing or on incentives to businesses, but are built upon investment in the community to build its capacity for sound growth. Ensure that there are quality locations for business, that there is a good work force, and that the community presents a positive image. Make it a good place to live, with the amenities that the targeted population expect. Invest in excellent schools. Foster innovation, research and entrepreneurship. Foster a collaborative relationship between government, education and business. Don't settle for a lessened quality, and compete on the community's quality, not on price.

 

[japrovo]

My philosophy on all this spelled out in our recent book....

While I appreciate your sense of decorum can you throw in a shameless plug for those of us who might want to track this book down?

 

[ludes98]

While I appreciate your sense of decorum can you throw in a shameless plug for those of us who might want to track this book down?

Try this thread.

 

[EconomicPlanning]

Don't settle for a lessened quality, and compete on the community's quality, not on price.

I could not agree with you more, Cardinal. I often quote an old friend of mine who use to profess about real estate development: "Never compete with another on price. In the end, you'll both go broke." Unfortunately, I have seen too many instance in which municipalities institute a TIF (despite the fact that the development could happen without it) and its neighboring community has to also implement a TIF just to remain competitive. In fact, I have worked with developers who, despite how financially lucrative a project might be, insist on requesting the creation of a TIF. It is this kind of cycle that worries me some nights. Are some communities simply playing "lowest bidder" with the market?

 

[Lee Nellis]

The link ludes98 provided will get you to a mail-in order form. You can also go <www.naco.org> (National Association of Counties) and find it. NACo is the actual distributor.

 

[Lee Nellis]

PS: Cardinal no need to defend economic development. It is a necessary and important function. But your philosophy of making the community a better place to live and letting that drive ED was, at least until recently in some places, not the majority approach. The age of smokestack chasers is not quite over.

 

[Cardinal]

...your philosophy of making the community a better place to live and letting that drive ED was, at least until recently in some places, not the majority approach. The age of smokestack chasers is not quite over.

Grrr... not even close to being over. I can't even get some of the ________'s in my state to realize that the CED is no longer in existence, having been replaced by the CEcD when CUED and AEDC combined to form IEDC. They still think and act as people did back in the days of the Industrial Development Society. I struggle to modernize our profession and end up having them fight even the slightest ideas of change.