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Economic Development in an Era of Political Uncertainty

The election results point to continued fiscal and tax uncertainty and no clear direction for economic development policy on federal, state, and local government levels.

November 2012
Anyone looking for a clear signal regarding the politics of economic development coming from this year’s elections will be sorely disappointed. Just as there remains a great deal of economic and fiscal uncertainty facing our country, those clouds remain over the future of economic development policy. As a result, both corporations looking to make location and expansion decisions, as well as policymakers, will need to continue to work together to create a framework that provides a strong foundation for the nation’s economy in these uncertain times.

Just listening to the campaign rhetoric of the past year would make the average citizen believe that job creation and economic development were the top priorities of every candidate — from the President down to local town council members. Nearly every candidate ran on a platform promising to do more to stoke job creation, with a particular emphasis on promoting the growth of small businesses. Unfortunately, most of these claims were lacking in detail as to what the candidate would do to help create a strong business environment and instead relied more upon fiscal prescriptions, mostly tax cuts and reduced regulation, to spur economic recovery. At a time when our country, as well as many states and local governments, faces dire fiscal pressures, few concrete ideas were advanced that could be interpreted as the basis for a strong economic development strategic plan.

Mixed Results
Further, where there were specific measures on the ballot related to economic development, the record of success is very mixed. Beginning in July with the votes in 9 of 12 Georgia regions against a sales tax increase to support transportation investments, many economic development referenda suffered strong defeats. Two notable examples were (1) the defeat of the Vision2 bond package in Tulsa, Oklahoma, which would have provided money for airport improvements to reposition the area in the wake of anticipated layoffs at American Airlines’ maintenance hub and to create a regional economic development deal closing fund, and (2) the decision by South Dakota voters to roll back the creation of the Large Project Development Fund despite it having been adopted by large margins by the legislature just a year earlier.

Both efforts were sold as necessary to “incentivize” corporations to make job creation and investment decisions in those communities; they were defeated by a combination of bond and tax skeptics, those who believe incentives are a form of corporate welfare, and those who were concerned that limited public resources would be diverted away from education and healthcare to benefit private business. While each of these states continues to maintain a robust economic development effort, it was these new efforts which brought about voter wrath. In fact, Virginia saw the overwhelming passage of a constitutional amendment to severely restrict the taking of private property for economic development projects, another reaction to the U.S. Supreme Court’s Kelo decision, which has reshaped economic redevelopment projects across the country.

On the other hand, many local referenda in Florida to enact or extend existing ad valorem tax exemption programs for economic development passed handily. Maine’s Question 4, allowing the state to borrow over $51 million for economic development and transportation efforts, also passed easily.

Next: Lessons to be Learned

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