Paying Twice for Growth: The Real Cost of Economic Development Programs

The debate surrounding economic development incentives ultimately centers on two straightforward questions: where should these programs be administered, and do they actually produce the economic growth promised to taxpayers?

The underlying concept behind public incentives sounds simple on paper. When companies evaluate where to build, expand, or hire, smaller communities and rural areas can easily be overlooked in favor of larger metropolitan centers. To level the playing field, governments step in with tools like property tax abatements, targeted grants, and low-interest loans. The goal is to encourage a major employer to put down roots, stimulate secondary business activity, create jobs, and eventually expand the local tax base to benefit the entire community.

The first major policy question is structural: should these programs operate exclusively at the state level, strictly at the municipal and county level, or through a combined approach?

A state-centered model offers scope and strategic coordination. State officials can view regional economies as an interconnected whole, supporting core industries that strengthen the broader supply chain while preventing neighboring towns from bidding against one another. The limitation of a purely centralized system is distance. Officials working for the state rarely possess the immediate, day-to-day insight required to understand the distinct needs of an individual town.

The argument for keeping economic development strictly at the municipal and county level is built on proximity and direct accountability. Local leaders live in the communities they serve, giving them immediate insight into which commercial buildings are vacant, where roads and utility lines have excess capacity, and what types of jobs match the local workforce. Proponents of this decentralized approach argue that local officials are far better equipped than distant state agencies to tailor solutions to their town's specific needs, all while remaining directly answerable to the neighbors whose tax dollars fund those decisions.

A third approach combines state and local administration in an effort to blend the strengths of both models. Under this hybrid structure, the state provides substantial financial backing, research capabilities, and broad regional marketing, while municipal and county boards handle the on-the-ground matchmaking and community alignment. Proponents contend that a dual-track system prevents smaller towns from shouldering the entire financial risk alone, allowing local precision to be amplified by state-level resources.

Independent economic research consistently reveals that both state and local programs (whether administered independently or combined) encounter the same fundamental obstacle. For an incentive to be a genuine success, the business investment must occur solely because the public subsidy was offered. In practice, companies primarily select locations based on essential market realities: access to skilled labor, dependable transportation networks, proximity to customers and suppliers, and an overall stable business climate. When public funds are awarded to a project that would have moved forward regardless, those tax dollars do not generate new growth. They simply serve as a taxpayer-funded discount on a decision that was already made.  

State-level programs frequently pursue high-profile projects with substantial price tags. While these announcements generate significant attention, broad economic assessments often find that the long-term payoff across the wider economy falls short of expectations, leaving taxpayers with a high public cost for each net job created.

Local programs face a different structural challenge. Because city and county boundaries are narrow, local incentives frequently end up encouraging a business to move just a few miles down the road from one municipality to the next. That shift creates no new wealth or net employment for the broader region, yet local residents remain responsible for funding the incentive package.

This is where the true cost of the dual-layer approach becomes clear. Taxpayers fund state agencies through their income and sales taxes, and then fund local economic development authorities through their local sales and property taxes. When these programs fail to deliver true net growth, taxpayers are left paying twice: first to finance overlapping bureaucracies that often compete against each other, and second by shouldering the tax burden for subsidized newcomers who use public services without contributing their fair share.

In the end, neither level of government has found a way around these underlying economic realities. When public subsidies reward decisions driven by natural market forces, operating programs at both the state and local level merely creates two separate draws on the same taxpayer base. A growing body of research suggests that sustainable, lasting economic vitality is not built through selective government deals, but through solid public fundamentals: predictable and competitive taxes, dependable infrastructure, and a fair, transparent environment where every business has the room to grow.