Economic Development Strategies
With support from the Laura and John Arnold Foundation, the State and Local Finance Initiative is creating a framework for more transparent and accountable economic development strategies by giving policymakers a broader lens to examine and evaluate how economic policies interact with other state interventions.
More than mere boosters, state economic development agencies are tasked with supporting existing businesses, encouraging entrepreneurship, recruiting new businesses, and coordinating the economic development activities of their local governments.
Every state uses a different combination of taxes to fund government services. Some reports suggest there is a single best tax structure to attract businesses and strengthen economies, but the specific features of taxes are as important for understanding tax burdens and economic development.
Access to financing is critical to businesses small and large looking to start new ventures, expand existing ones, or relocate facilities. When cost-effective financing is unavailable for worthy projects, state governments can and do step in to help. Governments use their power and their pocketbook to reduce risk for banks and investors, helping businesses by increasing access to capital through loans or investment.
State governments often use the tax system to partner with the private sector on economic development initiatives. In particular, tax incentives are a key part of many states’ economic development strategies. They are used to achieve goals beyond economic growth or job creation, such as spreading economic activity throughout the state (through geographic targeting) and focusing on perceived high-value industries.
Coordination among the numerous economic and workforce development policies and programs within state government is essential for economic growth. One opportunity for governors and economic development agencies is using the new Workforce Innovation and Opportunity Act of 2014.
The Government Accounting Standards Board (GASB) in 2015 issued new rules requiring state and local governments to disclose tax abatements that affect revenue-raising abilities in their annual financial reports. Disclosing tax abatements greatly improves transparency and compels state and local governments to develop new reports and procedures that open a window for a top-to-bottom review of economic development programs.