Economic Development in an Era of Political Uncertainty

November 30, 2012

Pardon Our Dust

We recently launched this new site and are still in the process of updating some of our archived content. Some details of this article may be incomplete, links may be broken, and other elements may not display properly yet. We appreciate your patience and understanding.


Area Development Online

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.
Christopher D. Lloyd, Senior Vice President and Director, Infrastructure and Economic Development, McGuireWoods Consulting 
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

Lessons to be Learned
With such conflicting results, what lessons can be learned about the future of economic development policy? There are several. Economic development remains important in statewide campaigns. Starting with the “Bob’s For Jobs” campaign slogan of Virginia Governor Bob McDonnell in 2009, and running through state races each year since, a strong commitment to economic development remains the top theme in many statewide races. Few issues dominated public discussions about candidates more than what a potential governor would do to spur job creation. For example, the competing economic development plans of the McCrory-Dalton gubernatorial race in North Carolina were the campaign’s central issue, often becoming the principal topic of every debate.

As we look forward to 2013 and 2014 campaigns, a commitment to job creation and business growth will again drive the policy debate among gubernatorial candidates. Further, these discussions will also be seen as a referendum on the success, or failure, of policymakers in Washington to deal with the “fiscal cliff” and other economic issues.

Voters distrust big business. Whether it was just the effect of the anti-Romney Bain Capital ads, or the longstanding aversion of the American voter to be seen as supporting big business, most economic development issues that seemed to either be supported heavily by big business (or which were seen as being for the principal benefit of big business) failed. While there were certainly exceptions in some races, when major local corporations united to provide public and financial support of an issue (the Vision2 bond in Tulsa and the Georgia T-SPLOST), citizens, often poorly funded but very well organized, prevailed. Programs that were portrayed by opponents as taking money from the people and handing it to big business (the South Dakota Large Project Development Fund) also failed. Instead, those programs that either had a limited scope or were general in their applicability, such as the ad valorem tax exemptions, seemed to fare better.

Economic anxiety remains. Because of the continuing economic uncertainty, not only are voters anxious about their future job and financial security, but corporations are sitting on the sidelines, banking trillions in cash, waiting for some signal that the economic picture is becoming clearer so that important decisions can be made. Regardless of the left or right leaning biases in policy decisions, once decisions are made, and they appear to be permanent, informed people and companies can make long-term decisions. So long as we continue to only operate government under continuing budget resolutions and have major tax policies that are scheduled to terminate at the end of each year, anxiety will prevail in the marketplace.

Manufacturing still matters. Many pundits attribute the success of the Obama campaign to holding Ohio and other battleground states to the bailout of the automobile industry. Although the share of workers in the manufacturing sector continues to decline, voters still associate manufacturing with “good” economic development, i.e., high-wage, high visibility, and high impact on a community’s overall economy. Voters can understand businesses that make products. They cannot understand businesses that are seen as merely moving around money. Even though consumers still make purchasing decisions that result in a large trade deficit, when they vote, they vote for candidates who back manufacturing in the U.S. and those who have embraced policies that support the perceived health of manufacturers. The discussion of energy policy during the campaign failed to take hold in the popular imagination, even though energy policy is vitally important to the manufacturing sector. The voters made clear that they remain sympathetic to the plight of manufacturing.

A changing country creates economic opportunity. This year’s elections showed that the demographics of this country are changing more rapidly than ever. While many of our competitors overseas face aging and declining populations, our population continues to grow and become even more diverse. America remains the innovation and educational capital of the world. A growing and increasing diverse population means that once we can overcome some of the political and economic anxiety facing the country, the foundation exists for a strong recovery across nearly every sector. The future economy will be different, but there will remain unparalleled opportunity for those with the education and the skills necessary to compete. Few places offer so many opportunities for both entrepreneurs and large corporations to prosper.