The Avenue

The Shifting Geography of State Business Subsidies

Robert Puentes and Mark Muro

Every year states spend millions on subsidies to stimulate business activity. However, in far too many cases too little is known about either the geography of these investments or their effectiveness. This is a problem because these interventions have a profound impact on metropolitan growth and development as they support a wide range of uses, from site preparation, infrastructure, and land acquisition to job-retention and the financing of industrial parks.

In fact, research shows these programs often undermine older, existing communities. So we were pleased by some new analysis from the Keystone Research Center in Pennsylvania.

Working with Keystone back in 2004, we described the entropic nature that characterized Pennsylvania’s distribution of aid through three key economic development programs. In short we found that, overall, this haphazard approach meant that as much support flowed to projects in Pennsylvania’s outer townships as to those in older areas between 1998 and 2003. In one case, nearly two-thirds the Pennsylvania Industrial Development Authority’s industrial park loan money subsidized projects in these outlying areas.

That is why we Keystone’s latest report is so encouraging.

It shows a pretty significant shift in the geographical distribution of business subsidies. Comparing 2003 to 2008 to the five previous years, Older Pennsylvania now receives 25 percent more assistance, on a per capita basis, than outer areas.

The report notes that this significant change “occurred in a relatively short period of time” and credits the swing to explicit policies captured in the state’s Keystone Principles & Criteria for Growth, Investment, & Resource Conservation. That’s a mouthful, but what it means in this context is that state funds will explicitly target and support the revitalization of existing cities and towns, coupled with a fix-it-first approach to the state’s infrastructure.

All this is welcome news.

By giving priority in its many development-related spending decisions to the state’s older, more established cities, rural and urban boroughs, and older suburbs, the state will better leverage the many assets these places possess–assets increasingly critical to attracting the best new businesses and workers.

And, importantly, this new information shines a bright light on the business of economic development subsidies in one state. Let’s hope other states follow Pennsylvania’s lead.

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