Economic Development Glossary
abatement – when a local government exempts a company from paying all or some of its property taxes. In dollar terms, tax abatements are often the largest subsidy a company receives, especially property-intensive companies such as manufacturers.
accelerated depreciation – depreciation is an accounting device that allows a company to write off decreases in the value of its physical assets (such as machinery, computers, or vehicles) as business expenses. The effect is to both reduce corporate income taxes by reducing taxable profits and to reduce the value of property that is assessed for determining property taxes. Businesses take depreciation charges according to prescribed schedules, depending on the kind of asset. Accelerated depreciation is a tax-law change that allows a company to write down the value of an asset in fewer years than before. By giving the company a larger write-off sooner, accelerated depreciation gives the company lower taxes in early years and therefore higher profits.
anti-piracy – the movement against the use of development subsidies to lure a company and its jobs from one labor market to another. All of the major federal subsidy programs — including Community Development Block Grants, Workforce Investment Act, and Economic Development Administration — have anti-piracy rules. Some states also have anti-piracy rules that apply to companies relocating within their own borders.
appropriation – a government expenditure involving a transfer of money from one public agency to another or from an agency to a private party. Distinct from a tax expenditure, which is tax revenue not collected in the name of economic development (due to subsidies such as a property tax abatement or a corporate income tax credit).
as of right – a phrase used to describe a subsidy, usually a tax break, to which a company is automatically entitled. For more detail, see Entitlement.
assessed rate – the officially-estimated value of a property for the purpose of assigning a property tax to it. The assessed value times the milage rate equals the tax. For example, if a factory is assessed at $10 million, and the milage rate is 20 mils (or 20/1,000ths of the assessment), the tax due would be $200,000. The assessed rate may or may not be the approximate market value of the property; jurisdictions have different formulas for assigning assessed rates.
assessment – see assessed rate.
audit – a review of a program, deal, or agency, usually by a state auditor or an outside accounting firm. Compliance audits are simply financial reviews to ensure that monies have been spent properly; they are annual or bi-annual and are of little interest except for budget data (unless, of course, they uncover embezzlement of other major problems). Performance evaluations try to make qualitative judgments about outcomes and are therefore of greater interest. Unfortunately, they are also infrequent.
bidding war – an episode in which two or more jurisdictions compete — much like an auction — for a deal, by offering ever-higher subsidies. Although high-profile bidding wars for auto assembly plants are the best known, bidding wars for smaller deals happen every day. Site location consultants are often involved as middle men in the process, and public officials often describe their situation as a “prisoner’s dilemma.” That is, government officials only communicate with the company during the bidding process, not with officials in the other jurisdiction(s), so they have no way of knowing if the company (or consultant) is telling the truth about the competing bids.
big-box stores – large retail stores which typically occupy more than 50,000 square feet of space, profit from large sales volume, rely on shoppers who arrive at the store by car, include acres of parking and occupy a large footprint, create site development that neglects any community or pedestrian amenities, and pervade almost every community but provide no unique culture, products, or identity.
blight – a term (sometimes paired with “distressed,” see that term also) used to describe an area that has a high percentage of buildings that are dilapidated, deteriorated or substandard. Therefore, it may qualify for a geographically targeted subsidy such as an enterprise zone or a tax increment financing (TIF) district to encourage redevelopment. The blight criteria, however, are a classic case of good intentions gone awry. While some states continue to define blight honestly so that subsidies really get targeted to needy areas, others have loosened the definition so that even healthy areas can qualify for the subsidy. Citizens of a rural town near St. Louis were horrified to learn that officials, in a quick drive-by, had estimated that most of their farm houses were more than 35 years old, so their neighborhood was “blighted.” Rules in the State of Maine now effectively make every Central Business District eligible for TIF, even those that are healthy and vibrant.
block grant – A block of federal dollars sent to the states for a general purpose, allowing the states a lot of flexibility on how to use it. This practice has become increasingly common as federal “devolution” has reduced the role of uniform national procedures for running many programs. The U.S. Department of Housing and Urban Development has given cities and states Community Development Block Grants for decades; CDBG is the most common block grant used for economic development purposes. More recent examples of other types of block grants include Temporary Assistance to Needy Families, the Child Care Development Block Grant and the Social Services Block Grant. Critics argue that without uniform federal safeguards, cities and states are prone to using the funds in ways that reward more affluent citizens or other favored constituencies, instead of helping the truly needy.
bond – a certificate of debt that bears interest, issued by a government body or a private corporation to finance infrastructure, construction, new equipment or other improvements. “General obligation bonds” are bonds issued by governments that are backed by the full faith, credit and future tax revenue of that government; examples include school bonds and sewer bonds.
“Private activity bonds” may include industrial revenue bonds. They are backed by revenues from the project and not by a government or its general tax base. Private activity bonds are typically private transactions (both the borrower and lender are private parties) laundered through an economic development authority so that the interest becomes tax-free. This funding vehicle is allowed because the loan’s use is deemed to meet the public purpose of economic development, such as job creation or retention.
brownfield – a property that has environmental pollution which resulted from a previous occupant. Brownfields are a major cause of urban abandonment and tax-base loss. They range from major sites which are designated EPA Superfund sites to lesser sites that fall under different federal or state laws. Until the pollution is cleaned up and the legal liability is thereby eliminated, it is usually impossible to redevelop a brownfield site because banks will not make a loan for fear of becoming entangled with clean-up liabilities. Because the pollution sometimes happened decades ago, it can be difficult to find the responsible party or to get money from that party for the clean-up. In recent years, many states and the federal government have debated or enacted changes in their brownfield-liability laws to encourage redevelopment; many have also created new subsidy programs to help finance clean-ups, especially when the polluting party cannot be compelled to pay. (Some cities use TIF or Section 108 monies.) Brownfields are sometimes a source of political tension between environmentalists and urban developers. Developers advocate for less stringent clean-up standards, especially if the land is going to be used for non-residential purposes while environmentalists advocate for strict clean-ups, arguing that city residents are already exposed to disproportionate levels of toxic hazards.
business inventory exemption – a corporate tax exemption that is commonly included in state enterprise zones. “Inventory” means goods and supplies held by a company before they get used or sold. Therefore, it is a corporate asset, and many states tax it as such. Manufacturers and warehousing companies have the most inventory and therefore benefit most from inventory exemptions. Indeed, some enterprise zones studies find that the zones simply cause existing warehouses to relocate into the zone to avoid the inventory tax, creating no new jobs. Honest observers admit that in some states, the proliferation of enterprise zones is a de facto rewriting of the corporate tax code to reduce or eliminate the inventory tax.
business climate – a highly subjective and hotly-debated term referring to how favorably businesses view an area, especially as they consider a relocation or expansion. This is the heart of the whole “candy store” debate: public goods vs. private deals. On one side are those who argue that the most important factors in companies — location decisions are business basics, such as proximity to customers, proximity to suppliers, the availability of skilled labor, the quality of infrastructure, and the supply of other key inputs depending on the particular business (such as water, air transport, or a university research and development center). In other words, they argue that public goods that benefit all employers are the key to a good business climate, and therefore spending for economic development is best directed to education, skills and infrastructure. On the other side are state and local chambers of commerce and manufacturers’ associations, companies that are playing jurisdictions against each other and/or their site location consultants, and other people who have financial self-interests in winning new subsidies. They argue that more tax breaks and other subsidies determine a good business climate. The breaks and subsidies usually benefit only certain kinds of companies or newly arriving companies. In other words, they argue that private deals for specific companies or favored groups of companies creates a good business climate. A dramatic moment in the history of this debate involved the Chicago accounting firm of Grant Thornton. During the 1980s, this firm released an annual 50-state “business climate” rating. Typically, it gave top ratings to states such as North Dakota, that had lax regulatory standards, low wages and low taxes even though its top rated states often ranked very low in actual performance. Grant Thornton’s rating system was demolished by a 1986 publication from the Corporation for Enterprise Development titled Taken for Granted: How Grant Thornton Leads the States Astray, which exposed massive flaws in the accounting firm’s methodology. For example, it revealed the fact that each year, Grant Thornton allowed each state’s manufacturers’ association to subjectively weight its state’s rating factors. That allowed politics to taint the results, because the manufacturers would overweight the issue of the day, such as worker compensation tax rates, making the results invalid. The CFED study also provided a terrific summary of the academic literature on how companies actually decide where to locate or expand (i.e., business basics, as outlined above). Within several years, Grant Thornton abandoned the field and CFED’s annual Development Report Card of the States became the standard.
“but for” test – a requirement common to tax increment financing as well as “gap financing” programs that call for a discretionary determination by government officials. Typically, the company must certify — or the government agency must find — that the project would not occur in the foreseeable future “but for” the subsidy. This is a frequently-abused rule that is almost impossible to verify and has more to do with covering politicians’ backsides than preventing needless giveaways. One state audit found that local officials had six different definitions for the term.
cash register-chasing – (see also fiscalization of land use) a phrase we coined in 1994 to describe some cities’ granting of massive subsidies to shopping malls and “big box” retail stores such as Wal-Mart and Home Depot. This practice became rampant in states such as California and Utah, where laws such as Proposition 13 depressed property tax rates, making cities desperate to find other sources of revenue. Most states allow cities to add on a local sales tax if the sale occurs in that city. Cities may rebate some or all of their sales tax to the developer as a subsidy, or divert sales tax revenue into a tax increment financing (TIF) district that benefits the development. Because outlying suburbs have the most undeveloped land available for such projects, they often have an advantage competing under such rules. Hence, critics now argue that Proposition 13 and its ilk are a major cause of suburban sprawl. Critics also point out that retail has very low “ripple effects” and very low job quality, and is therefore a dumb activity to subsidize. But because they need the revenue, cities do it every day.
Chamber of Commerce – an association of businesses at the local or state level. Chambers lobby for subsidies and deals, and in many areas, they are the privatized industrial recruitment agency, paid for by taxpayers under a public contract. Chambers sometimes also have seats on the boards of state development authorities that grant subsidy deals.
CDFI – see community development financial institutions; see also micro-loan.
clawback (also known as recapture) – money-back guarantee language canceling, reducing and/or recovering a subsidy when a company fails to deliver. It is an enforceable penalty in a development subsidy contract saying that if a company fails to deliver a specified public benefit in a specified period of time, it must repay some or all of the subsidy already received and/or lose some or all future benefits of the subsidy. (This is identical to the “penalty provision,” which is standard in civil contract law.) A prorated clawback would say, for example, that if a company falls 10% short of its job-creation goal, it would have to refund 10% of the subsidy. Some clawbacks set a steeper penalty, even including interest penalties. Clawbacks may also apply to other goals, such as capital investment. Clawbacks are the ultimate taxpayer protection against a company failing to deliver. They also strike most people as common sense. What state would contract for 100 miles of highway and then allow a contractor to build only 50 miles and keep the money? Trouble is, cities and states fail to make job “projections” binding, so such shortfalls are routinely allowed in economic development. However, clawbacks are finally catching on: more and more states now apply a clawback of some sort against at least one development subsidy.
cluster strategy – an economic development strategy based on the fact that many industries tend to cluster together geographically. The high-tech cluster around San Jose, California called Silicon Valley is the best-known. Since the early 1980s, American scholars have studied a number of European clusters, such as those in the northern Italian province of Emilia-Romagna, where dozens of small companies have clustered to become highly successful in ceramics and textiles production. A cluster strategy seeks to stabilize and strengthen such companies, usually by helping them cooperate on “pre-competitive” issues such as export promotion, quality control, or recruitment and training. Cluster strategies can be very cost-effective. They also have the benefit of helping many companies and creating enduring skills and relationships for the community. That means less taxpayer risk if one subsidized company fails.
collateral – (also known as security) an asset used by a borrower as security for a loan; if the borrower defaults, the lender gets title to the collateral. In some cases, development subsidy programs have less stringent collateral requirements than a private bank would have, or are willing to take a subordinated position on collateral behind private lenders.
community benefit agreement (CBA) – a project-specific contract between a developer and one or more community groups and/or labor unions, in which the developer agrees to provide various benefits as part of a redevelopment project. Such agreements are usually tied to the developer’s receiving economic development subsidies; community-labor coalitions use the subsidies as leverage. Benefits may include first-source hiring, living wages, relocation assistance, access to affordable housing, parks or other public-space improvements, and traffic or parking improvements.
Community Development Block Grants (CDBGs) – large, multi-purpose annual grants to cities and states from the U.S. Department of Housing and Urban Development. “CDBGs” are the largest federal pot of money used in state and local economic development deals.
community development corporations (CDCs) – local non-profit organizations promoting neighborhood revitalization. Most CDCs focus on affordable housing rehabilitation and construction; some also work on the retail and industrial sectors. Many CDCs were created by grassroots community organizations seeking to save their neighborhoods against redlining and disinvestment. See also Local Initiatives Support Corporation, redlining, Community Reinvestment Act, disinvestment, and industrial retention.
community development financial institutions (CDFIs) – make loans to individuals, small businesses, affordable housing and vital neighborhood services such as day care, health and education, targeted to benefit disadvantaged people and communities. CDFIs seek to counteract redlining and other discriminatory practices that reduce the flow of credit to the neediest communities. See also micro-loan.
Community Reinvestment Act (CRA) – the main federal law to discourage redlining (when lending institutions discriminate geographically against certain neighborhoods based on race or the age of the housing stock, instead of the creditworthiness of borrowers). Since 1979 it has required banks and savings and loan associations to meet the credit needs of low- and moderate-income neighborhoods in their service areas. Combined with geographic lending data mandated under the 1975 Home Mortgage Disclosure Act, CRA enables community groups to get banks and S&Ls to the bargaining table and has been responsible for billions of dollars in neighborhood victories over the last two decades. See also redlining and predatory lending.
Consumer Price Index (CPI) – the most widely-used measure of inflation, a monthly statistical series issued by the Bureau of Labor Statistics (BLS) that estimates the changes in the price of a fixed “basket” of goods and services typically purchased by consumers. The CPI is used by many government agencies (such as the Social Security Administration) as well as private entities (such as parties to collective bargaining agreements) to adjust benefit payments or wages so that people do not suffer a declining standard of living due to inflation. To see CPI data, go to www.bls.gov.
CPI – see Consumer Price Index.
cost-benefit analysis – a comparison between the costs of a deal or program and the benefits it creates. Cost-benefit analysis in economic development is a hotly-contested issue with a very problematic history. Project supporters such as companies, Chambers of Commerce and their consultants often exaggerate the benefits of a subsidized deal to help justify massive costs. Mayors and governors are also prone to repeating the exaggerations for their own political benefit. But very few states have invested in the technical capacity to really determine when or if taxpayers will break even.
creaming – a recurring problem in training programs, especially with private training contractors. Creaming occurs because a contractor wants to report great-looking results, such as rapid placements and/or high wages on the new job, so it “skims the cream” of the population that needs help. That usually means taking disproportionately high numbers of younger, more educated and/or more skilled workers and fewer older, less-skilled workers.
credit (noun) – a dollar amount applied against a liability, such as a tax credit applied against a tax liability. See tax credit.
credit (verb) – to apply a dollar amount for a specific purpose, such as crediting a share of company’s new capital investment against its state income tax liability.
credit rating – a judgment about the financial strength of a government body or a corporation that is used to determine the interest rate it must pay when borrowing money by issuing bonds. Governments or companies with strong ratings pay lower interest rates (because they are considered to be at lower risk of defaulting); those with weaker ratings must pay higher rates. Three private rating agencies dominate the credit rating business: Moody’s, Standard & Poor’s, and Fitch.
dba – “doing business as,” the least formal form of business registration, used to register the fact that one company or person is doing business in another name.
dead malls – a nickname for vacated retail malls. Greyfields and ghostboxes are similar terms.
depreciation – an accounting device in which a company charges, as a business expense, some percentage of an asset’s value each year until the end of the asset’s depreciable life (examples include machinery, computers or vehicles). The effect is to reduce the company’s officially reported profit and therefore its tax burden. Since depreciation is an accounting charge, not a cash expense, it is excluded when a company’s cash flow is computed.
development authority – a government body authorized to exercise development powers such as granting TIF districts, issuing revenue bonds or instituting eminent domain. Development authorities include cities, industrial development authorities (which are usually county or state bodies), port authorities, housing and redevelopment authorities, and rural development finance authorities.
discretionary subsidy – a subsidy granted to a specific company or project based on a decision made by a government body. The opposite of an entitlement.
disinvestment (also known as “bleeding” and “milking”) – letting something run down by failing to reinvest in it. Disinvestment may occur within a company when it lets an individual facility run down. Or it may occur to an entire neighborhood when banks and insurance companies “redline” it, or when the local government fails to provide a fair share of public services and physical maintenance. Corporate disinvestment of a facility takes many forms, including cutbacks in maintenance, lack of support for new products, demands for wage and benefit concessions, and transfer of top managers. Public disinvestment of a neighborhood also takes many forms, including failure to maintain infrastructure such as roads and schools, and unjust distribution of critical services such as health care and emergency response. See also redlining, Community Reinvestment Act and early warning systems.
distressed – A term (sometimes paired with “blight,” see that term also) used to describe an area that has a high rate of low-income households, or of households receiving public assistance, or of unemployment, and therefore may deserve a geographically-targeted subsidy such as an enterprise zone or a tax increment financing (TIF) district.
early warning system – a system used by some cities and states to try to identify workplaces that are at risk of closing, so that government officials can intervene to either save the jobs or better assist the dislocated workers. The first early warning systems were developed by plant closing activists in the mid-1980s and taught to public officials in the late 1980s. By the late 1980s, the Job Training Partnership Act (predecessor to the Workforce Investment Act) required Private Industry Councils (now Workforce Investment Boards) to look for workplaces showing early warning signals. See also disinvestment.
economic development – multiple choice:
a. a simple process in which businesses get a lot of money from government, politicians get to take credit for creating jobs, the details aren’t discussed, and folks hope everything works out all right.
b. a very complicated process involving lawyers, bankers, planners, studies, agreements, and reams of paper that no average citizen could ever hope to understand.
c. raising the living standards of average working people.
Economic Development Administration – an agency of the U.S. Department of Commerce that focuses mostly on building infrastructure, such as industrial parks, to encourage rural development.
enterprise zones – geographically designated areas (also known as “empowerment zones” and by state-specific names such as Michigan’s “Renaissance Zones” or New York’s “Empire Zones”) in which companies can get multiple subsidies (usually property tax abatements, inventory tax exemptions, and various corporate income tax breaks, including employment tax credits). EZs are located in economically-depressed areas, the theory being that poverty can be alleviated by encouraging companies to locate in them. However, there are many problems with this theory, especially the fact that it is very hard to ensure that poor zone residents will actually benefit from corporations moving into a zone. As well, EZs are premised on piracy. That is, they raise the classic “zero-sum” criticism of subsidies: that no net new economic activity is being created; jobs are merely being shuffled around.
Empowerment Zones – the first name for federal enterprise zones. See enterprise zones.
Employee Stock Ownership Plan (ESOP) – a form of employee ownership that is encouraged by the federal tax code and by federal pension rules. First enacted in the late 1970s and amended by Congress many times since, ESOPs create powerful financial incentives for companies to sell some or most of the company stock to employees. ESOPs are especially attractive for family-owned companies when the founder is approaching retirement. They are also used by larger corporations that are spinning off subsidiaries. Some unions, such as the United Steelworkers of America, have used ESOPs as a job-retention strategy for their members.
Entitlement – a subsidy to which a company is automatically entitled by virtue of meeting some criteria or performing some specific activity. The opposite of a discretionary subsidy.
ESOP – see Employee Stock Ownership Plan.
First-source hiring – a program that requires employers to use qualified workers referred from a certain source as their “first source” of applicants to fill available jobs. That source is usually a government-sponsored workforce development program that helps place needy workers, such as former welfare recipients or chronically underemployed. First source hiring rules are typically attached as a condition for private contractors doing public work, or for business receiving economic development subsidies. Similar programs — sometimes called “targeted hiring programs” — require that employers make efforts to hire certain workers (e.g., workers from certain neighborhoods, or low-income workers).
fiscalization of land use – what happens when cities or counties encourage development that will maximize tax revenues and minimize new demand for public services. For example, another strip mall might generate a lot of sales tax for a city. The retail project will get the subsidy, even though people may need affordable housing much more than they need another place to shop. But because more housing means more school children, and that means more classrooms and more teachers, a city may shun such a project. See also cash-register chasing.
franchise tax – taxes paid by companies for the privilege of doing business in a state. More than half of the states have such taxes, which are typically calculated as a percentage of a company’s capital or net worth. Some states, such as California and New Jersey, use the term franchise tax to refer to a tax on a company’s net income, making it very similar to a corporate income tax.
Freedom of Information Act (FOIA, or “FOY-ya”) – a federal law enacted in 1974 that requires Federal agencies to provide public access to and copies of existing agency records. States have enacted similar laws, often called Open Records Acts. Both federal and state FOIAs allow government agencies to exclude some materials from public review.
FTE – see full-time equivalent.
full-time equivalent – the sum total of full and part-time employees, expressed as how many full-time employees they are equivalent to.
gap financing – a government-sponsored loan or other subsidy that fills the gap between what a developer needs to finance a project and what private lenders are willing to lend. Often, gap financing serves to give a private lender or a private investor more confidence in a deal, or to increase the rate of return for an investor to satisfy his or her perception of the deal’s risk.
general obligation (GO or “GEE-oh”) bonds – government-sponsored bonds, such as school bonds, the proceeds of which go to a public entity. The opposite of a private activity bond such as an industrial revenue bond (IRB), proceeds of which go to a private entity. GO bonds are backed by tax revenues and are rated by credit rating agencies depending on the financial health of the government body that is selling them. GO bonds are not usually considered economic development subsidies, because they do not go to specific deals. IRBs, which do go to individual companies, are called private activity bonds, because they are essentially private transactions between private lenders and private borrowers which are laundered through a public agency.
Geographic Information System (GIS) – a database system about the earth’s surface. Originally created as a military tool, GIS has in recent years been commercialized in software programs such as ArcView and is increasingly popular as a tool for mapping issues as varied as crime locations, dislocated workers or urban sprawl.
ghostboxes – a nickname for vacated retail space. Greyfields and dead malls are similar terms.
GIS – see Geographic Information System.
GO bonds – see general obligation bonds.
grant – a subsidy which simply consists of cash or another asset given from a government agency to a company for use in a development project. In some cases, the grant may have a narrow purpose such as training new workers. In other instances, it may simply be applied to the construction costs of a new facility or for land acquisition.
greenfield – a term intended as the opposite of “brownfield.” A greenfield is a site being considered for development that has not been built on before. In a positive sense, that implies it has no environmental contamination. In a negative sense, it implies that the development is contributing to urban sprawl, since such a site is likely on the fringe of an urban area. In manufacturing projects, the term also implies moving to a labor market where workers have not worked in a factory before; such a workforce suggests cost advantages in terms of non-unionization, lower wages, lower healthcare costs and lower pension obligations.
greyfields – a nickname for vacated retail space. Dead malls and ghostboxes are similar terms.
gross receipts tax – levies on the revenues taken in by a company, i.e., its overall level of business activity rather than its profit (which is what corporate income taxes are based on). Only a small number of states, such as Delaware and Washington (which calls it a Business & Occupations Tax), impose this tax on all companies, but a larger number of states apply it to certain sectors, most commonly public utilities.
hotel tax – see transient occupancy tax.
IDA – see either industrial development agency or individual development accounts.
incentive – something provided to encourage somebody to do something they would not do otherwise. Because there is so much recurring evidence that monies spent for economic development are given to companies that would have done what they did anyway, we seldom say “incentive,” preferring to use the more honest term “subsidy.” Subsidy is also the word used by the World Trade Organization and other international bodies to describe economic development programs. See also subsidy.
inclusionary zoning – a deliberate attempt to include people of different income levels in developments that otherwise would probably include only market-rate housing. A typical goal is to reserve 15 to 20 percent of the units in a project for low- and moderate-income households.
incubator – a subsidy program to support very small businesses as they get started. Typically, incubators provide start-up companies with affordable space, low overhead, and shared office services. They are usually accompanied by other small-business help, such as management advice and loans.
in-migration – the migration of business facilities into an area; the opposite of out-migration. Economic development officials monitor in-migration and out-migration as a measure of economic health, and to look for clusters, or industry groups.
individual development accounts – an increasingly popular anti-poverty strategy based on the theory that the best way to enable people to escape poverty is to help them save enough money for major investments such as homes, college or small businesses. IDA programs encourage poor people to save by matching personal savings with donations from foundations or governments; the matches range from 1 to 1 to 6 to 1.
industrial development authority (IDA) – a state, local or regional entity that has the powers to give development subsidies such as industrial revenue bonds.
industrial development bonds (IDBs) – see industrial revenue bonds
industrial revenue bond (IRBs) – also known as Industrial Development Bonds; the most common form of economic development loan given to companies. The interest rate on IRBs is low because the interest paid on them is tax-free. That means the wealthy individuals or corporations who buy the bonds will accept a lower rate of interest. IRBs are essentially a private transaction (a corporation borrows money from a private lender, the bond buyer) laundered through a public authority to become tax free. IRBs are enabled and allocated under the federal tax code and regulated by each state. States may attach accountability standards to IRBs, such as wage rules and clawbacks. IRBs are private activity bonds, not general obligation bonds (like school bonds or sewer bonds), so they don’t affect the credit rating of the state or local government. See general obligation bonds.
industrial retention – an economic development strategy that focuses on retaining and growing the businesses that are already in an area, instead of spending resources to recruit new businesses from outside. This strategy is based on two facts. One, job retention is usually much cheaper on a per-job basis than recruitment; and two, most new jobs are created by growth in existing businesses, so it is usually more cost-effective to focus on them instead of recruitment. See also clusters and early warning systems.
infill – the development of vacant or abandoned land in an area that is otherwise built out.
infrastructure – publicly-owned physical systems that benefit all businesses and workers, such as schools, roads, sewer systems, libraries and publicly-owned utilities. The term now also often applies to cell-phone towers and fiber-optic networks. Subsidy critics often argue in favor of public goods such as infrastructure and against company specific deals. See also business climate.
inventory tax – see business inventory exemption.
Italian model – see cluster strategy.
job creation tax credits – corporate income tax credits granted by state governments or the federal government for hiring workers. In some cases, the credits are granted only for hiring disadvantaged workers, such as the federal Work Opportunity Tax Credit or some state enterprise zone programs. However, some states give the credits for hiring any new workers. These credits typically range from $1,000 to $5,000 per worker — that is, a dollar for dollar reduction in the company’s income tax payment.
job piracy – the use of development subsidies to lure a company and its jobs from one labor market to another. All of the major federal subsidy programs — including Community Development Block Grants, Workforce Investment Act, and Economic Development Administration — have anti-piracy rules. Some states also have anti-piracy rules that apply to companies relocating within their own borders.
Job Training Partnership Act (JTPA) – the predecessor law to the Workforce Investment Act.
land acquisition and assembly – see land write-down.
land write-down – a subsidy in which a development authority acquires property and transfers it to a private developer for a price below the authority’s acquisition cost. Sometimes the deal involves assembling contiguous parcels together. Besides the cost of the land purchases, the authority’s expenses may include administrative costs for the exercise of eminent domain, demolition and clearance, and/or environmental clean up. Land write-downs may be subsidized from numerous sources, including a city’s general fund, TIF, a brownfields program, and/or CDBG.
land use policy – the way state and local governments regulate our built environment. It includes zoning laws, transportation planning, environmental reviews, and other ways civil society seeks to physically integrate and harmonize workplaces, housing, commercial activity and public spaces.
LBO – see leveraged buyout.
leveraged buyout (LBO) – a purchase of a company often made possible by taking on huge amounts of debt (leverage). LBOs are often led by management. Usually, the company does not keep the debt for a long time; instead, the managers sell off parts of the company and use the proceeds to retire the debt. LBOs can be very profitable because some companies are more valuable broken up than left together. LBOs were especially popular in the 1980s when companies used high-interest/high-risk “junk bonds” to finance the break-up of corporate conglomerates that were so popular in the 1970s.
leverage (noun) – debt. A company that has a lot of leverage or is highly-leveraged is a company that has a lot of debt.
leverage (verb) – in economic development, using public money to secure private investment. Like the “but for” rule, this is a frequently-abused term that is notoriously hard to verify. That is, if a public official claims that a $1 million subsidy has “leveraged” a $7 million private investment, how do taxpayers really know that the private investment would not have happened anyway? In far too many cases, auditors and journalists have found evidence that leverage claims were dubious or false. See also “but for.”
line of credit – an agreement between a borrower and a bank that allows the borrower access to money, at a prescribed interest rate, up to a maximum dollar amount for a set period of time.
linkage requirement – a rule attached to a development subsidy requiring the company to provide a public benefit — usually hiring local workers first — in return for the subsidy. Linkage requirements are especially common in training programs and enterprise zones.
LISC – see Local Initiatives Support Corporation.
loan – when one party lends money to another. In economic development, the issue is the terms of the loan. Government-sponsored loans often have easier terms for borrowers than private loans; that is, they often have lower interest rates, they may have longer terms and therefore require smaller monthly payments, and they may have less strict collateral requirements. Especially for capital-intensive manufacturing facilities, economic development loans can be an enormous subsidy. Since government-sponsored loans benefit only certain selected firms, they have the effect of discriminating against companies that use conventional (private) financing. See also industrial revenue bonds, loan guarantee, gap financing, leverage and collateral.
loan fund – government monies dedicated to making loans, usually targeted to a specific size of company, such as small businesses, or a specific industry, such as high tech.
loan guarantee – a government insurance policy given to a bank to secure a loan, usually to a small business. The U.S. Small Business Administration (SBA) is the largest source of loan guarantees.
Local Initiatives Support Corporation (LISC) – a national non-profit corporation that provides support to Community Development Corporations (CDCs).
location-efficient incentives – economic development subsidies that are awarded preferentially to companies locating near public transportation, or creating equivalent access to jobs or affordable housing.
loophole – see tax loophole.
mean – the mathematical average; see per capita income and median income. For reasons explained in median income below, mean income is a poor measure in economic development and is therefore seldom used. If mean income were used to refer to the average income of all workers earning a paycheck, it would be different than per capita income, which would include all residents of an area, including children, retirees, the disabled and other people without payroll incomes.
median income – the income level in the middle of a ranked list of incomes. That is, if 99 people were listed in order of their incomes, the median income of the group would be that of person #50. Median income is used as a measure of an area’s income instead of the mathematical average (the mean) because it is more reliable at describing the typical income. That’s because a few high-income people can skew an average. If you averaged the income levels of 98 Nike shoe-makers in Indonesia with the income of Bill Gates, the average (or mean) would be far higher than the median and would hardly describe the typical living standard of members of the group.
metropolitan planning organization (MPO) – A metro-regional governmental unit that has legal jurisdiction over a geographic area for government service planning such as transportation or land use zoning. MPOs oversee implementation of the Transportation Equity Act of the 21st Century (TEA-21) and are therefore the organizing targets of transit activists.
metropolitan statistical area (MSA) – a discrete population center, as designated by the federal Office of Management and Budget. While OMB designates MSAs for statistical use by federal agencies, the designations can be very useful for advocates researching income and other demographic trends. An MSA is an urban area that has at least 50,000 people and is predominantly surrounded by non-urbanized areas. MSAs are defined by county, except in New England, where the definition varies in some cases. The 2000 census uses new regional designations that broaden MSAs to include outlying counties from which a substantial number of workers commute into an urban area. A Consolidated Metropolitan Statistical Area (CMSA) is an MSA that has more than a million people. CMSAs are broken down into smaller units called Primary Metropolitan Statistical Areas; a PMSA is a large urban county, or set of socially and economically linked counties, located within a CMSA. Thus New York City is one of many PMSAs within the New York – Northern New Jersey – Long Island CMSA.
micro-credit – see micro-loan.
microenterprise – a very small business of five or fewer employees. Microenterprises often lack access to conventional loans and may benefit from community development financial institutions or other non-traditional lenders. See also micro-loan and community development financial institutions.
micro-loan – a very small loan (usually between $500 and $3,000) to an individual starting a small business but who lacks access to credit. The loan may be unsecured (that is, the borrower puts up no collateral). Micro-loans have proven to be very effective ways to help low-income people, especially women in developing nations, get basic tools they need to improve their incomes. The Grameen Bank in Bangladesh is the most famous example of this. In the U.S., there are many local microloan programs, usually sponsored by non-profit groups known collectively as community development financial institutions (CDFIs). See also community development financial institutions.
mil – one thousandth, as in a property tax milage rate of 10 mils, or 10/1,000 or effectively one percent of the assessed rate.
milage – see mil.
minority-owned/women-owned business enterprises (MWBE) – Some states and cities have subsidy programs targeted to MWBEs; they are usually similar to small-business programs (loan guarantees and management advice). To redress historical discrimination and promote diversity in business development, many cities and states also seek to procure a percentage of their goods and services from MWBEs.
MPO – see metropolitan planning organization.
MSA – see metropolitan statistical area.
multiplier or multiplier effect – a way to express the economic benefits of a deal; the number of jobs and/or amount of tax revenues that will result indirectly from a subsidized project (above and beyond the direct new jobs and tax revenues). The multiplier effect is a number that is frequently misunderstood, often overstated, and seldom analyzed by the news media. Yet it is a critical device used by companies and their consultants to justify massive subsidies. The most common problem with the number is this: when a company claims a multiplier of, say, 2.5 jobs, that number almost always includes the original 1.0 subsidized job, so in fact the indirect jobs are only 1.5. A figure of 1.5 indirect jobs is a high number that would be generated by a high-input manufacturing facility such as an auto assembly plant. Yet companies often claim multipliers higher than 2.5. The methodologies used to derive multiplier numbers are irregular and often indefensible, but journalists seldom question the numbers, so that misunderstood and overstated numbers dominate public debate and help companies win more subsidies. Multiplier jobs are divided into “upstream” jobs (such as those at supplier firms) and “downstream” jobs (such as those at local retailers where workers shop). So, for example, because manufacturing plants usually require many suppliers (some of which will be local), and because they have mostly full-time jobs with better than average wages, they generate much bigger multipliers (but seldom higher than 2.5) than low-wage retail projects (with typical multipliers of 1.6).
MWBE – see Minority-owned/Women-owned Business Enterprises.
Neighborhood Housing Services (NHS) – a national network of non-profits which provides loan products like construction loans and first time mortgages to the community-based NeighborWorks nonprofit network in efforts to help revitalize low-income communities.
North American Industry Classification System (NAICS or “nakes”) – the official federal classification system for business establishments that replaced the Standard Industrial Classification (SIC) for statistical purposes. States use NAICS classifications when reporting wage data, so understanding this system is critical if you are studying wages. The numbers range from two digits to six, with more digits needed to indicate more-specific activity. For example, NAICS starting with 22 indicate construction companies. Those starting with 31, 32 or 33 indicate manufacturing establishments. So, NAICS 311 is food manufacturing, 3118 is bakeries and tortilla manufacturing, and 311813 is frozen cakes and pies. If you were seeking to create a market-based wage standard by industry, two or three digits will be all the detail you will need.
NHS – see Neighborhood Housing Services.
no wrong door – a term used by those who advocate for “one stop” training centers that house all major programs, a major thrust of the Workforce Investment Act. The idea is that no matter what a worker needs, or what program she qualifies for, once she arrives at the one-stop, she will receive the correct information and be encouraged to enroll there.
one-stop center (training) – employment and training facilities that house numerous programs for workers with different needs, such as welfare to work, dislocated worker assistance, and customized training for incumbent workers. A major thrust of the Workforce Investment Act, one-stops have been pushed since Labor Secretary Robert Reich publicized the fact that the federal government sponsors more than 50 different training programs, making it hard for workers to navigate the system to get the help they need. See also no wrong door and Workforce Investment Act.
one-stop center (business assistance) – a state or local government office that coordinates many forms of assistance to business seeking subsidies, such as loan applications, training programs, zoning applications, and site preparation. Since subsidies come from several sources, companies often find it confusing and time-consuming to assemble all of the data they need; states and cities have responded by creating one-stop centers to expedite the process.
open records act – state laws that provide for the public release of most government documents, including those in economic development. See Freedom of Information Act.
payment in lieu of taxes (PILOT) – payments negotiated between companies and local governments to cushion the blow to public services caused by property tax abatements. Sometimes PILOTs are pegged to cover a specific portion of a company’s normal property tax liability, such as the school increment. See also tax abatements.
PCI – see per capita income.
per capita income (PCI) – the mathematical average income of all people in an area, computed by dividing total income by total population. Per capita income is an inferior wage standard for development subsidies because it does not reflect typical wages, since it includes non-workers as well as workers. Therefore, if it is used as a wage standard, it will set artificially low standards, and be especially unfair to workers in areas with lots of kids or retirees. For that reason, we recommend against it.
performance-based incentives – a phrase used to describe subsidies that can only be collected if a company meets specified targets or requirements. An example would be a job-creation tax credit that a company could only collect by proving (through payroll records) that it has hired new workers.
performance measurement – the criteria used by auditors or evaluators to determine if a subsidy program is working. Examples include job creation or capital investment. The problem with measuring economic development programs is that it is often impossible to definitely determine cause and effect, that the subsidy actually caused the benefits.
PIC council – the predecessor regional training agency to the current Workforce Investment Boards. See Workforce Investment Act.
piracy – see job piracy.
predatory lending – when lending institutions offer inferior home loans, with higher interest rates, needless insurance policies and/or other high-risk provisions that increase the likelihood that the homeowner will default and lose the home. Also known as “asset stripping,” predatory lending largely replaced redlining, in which lenders used to deny credit outright to lower-income and/or minority neighborhoods. Now, seeking to “comply” with the Community Reinvestment Act, many lenders have subsidiaries that lend in previously-redlined neighborhoods, but on very inferior terms. See also redlining and Community Reinvestment Act.
private activity bonds – government-sponsored bonds, such as industrial revenue bonds, the proceeds of which go to a private entity (for a public purpose). The opposite of a general obligation bond, the proceeds of which go to a public entity. Private activity bonds are essentially private transactions laundered through a public authority, such as an industrial development authority, to become tax-free and therefore low-interest. Private activity bonds do not affect a government’s credit rating, since all of the risk is borne by the private lender who buys the bonds. See industrial revenue bonds and general obligation bonds.
private industry council (PIC council) – see PIC council and Workforce Investment Act.
property tax abatement – when a local government exempts a company from paying all or some of its property taxes. In dollar terms, tax abatements are often the largest subsidy a company receives, especially property-intensive companies such as manufacturers.
public-private partnership – a vague, slippery term. In its best sense, it refers to projects in which government and business play their respective roles properly, such as a regional training program in which both parties add to a region’s skills base and thereby raise incomes. In its worst sense, it is used by business interests as a euphemism and a public stroke when in fact business has taken taxpayers to the cleaners.
quasi-public – a phrase sometimes used to describe privatized economic development agencies. Such organizations rely heavily on public funds and may or may not be subject to open records acts. The term “quasi-public” does not appear in state constitutions and may be of dubious legal standing.
recapture – another word for clawback; a clause in an economic development contract in which a company agrees that if it fails to deliver on the terms of the agreement (such as job creation or dollars invested), it will pay some or all of the money back.
redlining – a discriminatory practice in which banks (or other lending institutions) deny credit or insurance companies deny insurance in certain neighborhoods based on the race of the residents, or the age of the housing stock, instead of the creditworthiness of borrowers. Redlining can be very subtle, involving appraisal and underwriting standards that have a discriminatory effect without appearing bad on their face. See also Community Reinvestment Act and predatory lending.
research and development (R&D) tax credits – dollar-for-dollar reductions in a company’s corporate income tax bill in return for spending on research and development. States allow R & D credits usually between 1% and 13%. This subsidy is especially lucrative for industries such as pharmaceuticals and microchips that have to spend large sums on research. A major concern is that the definition of what exactly “R & D” constitutes is often quite vague and may be stretched to include many activities that appear to be routine functions and not a search for new knowledge, products or processes. Even with true R & D, there is no assurance that the credited activity would not have been made in the absence of the credit.
ripple effect – see multiplier.
sales tax – a state tax, which often has a local increment added to it, imposed on retail sales or on sales to a corporate end user (such as when a company buys building materials for a new facility). Many states now exempt new-facility construction or expansion from sales taxes. Others divert sales tax revenues into TIF, or rebate a portion of sales tax revenues to developers as a subsidy.
SBA – see Small Business Administration.
SEC – see Securities and Exchange Commission.
Section 108 – a loan-guarantee program used by cities, backed by future Community Development Block Grant revenues.
Securities and Exchange Commission (SEC) – the federal regulatory agency intended to protect shareholders by enforcing laws and rules governing publicly-traded corporations (that is, those whose stocks trade in public exchanges). Companies must file various disclosure reports with the SEC, including the annual report, the 10-K and the proxy statement. These reports are vital tools for researchers and are distributed online via the SEC’s website (www.sec.gov)
Service Delivery Area (SDA) – the geographic area served by a Workforce Investment Board under the Workforce Investment Act. See Workforce Investment Act.
SIC code – see Standard Industrial Classification.
single-sales factor (SSF) – a formula used by a small number states to determine a corporation’s state income tax liability. SSF is a costly and controversial tax formula being pushed aggressively by manufacturing companies because it drastically reduces their state income tax bills. Traditionally, states use three factors to determine how much of a company’s profits are taxable in a given state: 1) the share of its employees that work in the state; 2) the share of its physical assets that are in the state; and 3) the share of its sales that occur in the state. Most manufacturers have their assets and employees in a small number of states, but sell regionally or nationally, so if the states in which they manufacture switch to SSF, their tax bills go way down. Corporate lobbyists have been pushing SSF as an economic development boon, but the emerging evidence shows no such benefits, just declining state revenues, and a burden shift onto other businesses and families.
site location consultants – consultants who often represent companies during subsidy negotiations. Controversial and little-known “middle men” who play both sides of the street- working for companies looking for places and for places looking for companies- who wield enormous influence in the subsidy debate. The oldest and best-known is Fantus, which is now a division of Deloitte Touche; there are many others.
small business – the incredibly convoluted definition of this term, under the Small Business Act, varies according to what a business does, as well as by number of employees and by annual sales.
Small Business Administration (SBA) – a federal agency that assists small businesses. The SBA provides many kinds of help (such as counseling and mentoring, and help with contracting and procurement awards). Its subsidy program consists of loan guarantees for businesses that are unable to get loans through normal lending channels.
smart growth – a term coined in 1997 by then-Gov. Parris Glendening of Maryland. This is a broad term encompassing many kinds of policies. For example, the law Glendening won says, in essence, that people can build anywhere they like, but if they build outside designated “Priority Funding Areas,” (areas that already have infrastructure or are planned to get it) the project will not be eligible for subsidies. Other examples include: 1) State land-use laws that encourage development (and redevelopment) in areas that already have infrastructure, encourage adherence to long-term planning goals, and/or encourage cities to cooperate through regional strategies. About a dozen states have adopted some version. 2) Regional tax-base sharing among cities to deter job piracy and other tax-base competition and encourage regional cooperation. 3) Metropolitan or “Unigov” systems to merge counties with cities and thereby deter regional in-fighting. 4) New criteria for state investment funds to give preference to projects that revitalize blighted areas, promote public transit, or involve mixed-use structures. 5) Open-space preservation, including bond referenda to pay for the public purchase of open space, incentives to encourage private donations of land and state land preservation programs. 6) “Urban growth boundaries” or “greenbelts” around metro areas to set geographic limits on new development and encourage more intensive use of core areas and suburbs inside. 7) “Infill” development projects on vacant or underutilized parcels of land in areas that already have infrastructure. 8) Reclamation and re-use of “brownfields,” or contaminated land sites left behind by previous industrial users. 9) Affordable housing programs in the suburbs so that lower-income workers can have greater access to jobs. 10) “Transit-oriented development,” (TOD) in which cities use subway and commuter rail stations as hubs for mixed-use developments within a half-mile radius, including retail, housing and day care, etc.
smokestack-chasing – an informal and usually negative phrase referring to states and cities that seek factory investment by offering ever-higher subsidies. The phrase came into common use by the mid-1980s because factory deals such as General Motors’ first Saturn plant, which prompted 30 states to compete in 1985, got so much attention. Today, the general practice has spread to many other sectors, such as corporate headquarters, financial services, warehousing and distribution, call centers and back offices. See also cash register-chasing.
spatial mismatch– the theory that unemployed workers in urban areas are disenfranchised from job opportunities in growing suburbs because they lack cars and also mass transportation choices that would help them access these jobs.
sprawl – development patterns that have: low density and a lack of mixed-use projects (for example, no apartments above stores); a lack of transportation options (forcing everyone to drive to work); strict separation of residential from non-residential property; and job growth in newer suburbs with job decline in core areas (including both the core city and older suburbs). These trends result in increased dependence on automobiles and longer average commuting times, deteriorating air quality, and rapid consumption of open space in outlying areas. They also cause disinvestment of central city infrastructure and services, and they strain city budgets at the core (caused by a declining tax base) and in the suburbs (caused by overly-rapid growth at the edge). The decentralization of entry level jobs makes work less accessible to low-skilled, unemployed workers. Since the suburbs lack affordable housing and public transit fails to reach many suburban jobs, sprawl effectively cuts central city residents off from regional labor markets. That means greater concentrations of poverty in core areas. See smart growth for a definition of the opposite of sprawl.
SSF – see single-sales factor.
Standard Industrial Classification (SIC or “S-I-C code”) – the U.S. Department of Commerce system of classifying business establishment for statistical reporting purposes. In January 1997, the SIC was replaced by the North American Industry Classification System (NAICS). See North American Industry Classification System.
startup – a newly-formed business. Startups are fragile and usually need equity (cash) and loan guarantees; they also need management advice.
subsidy – any form of government support that lowers a company’s cost of doing business.
sunset or sunset review – a tool used in state budgeting. When a government program is “sunsetted,” that means it expires after a set number of years, unless it is reviewed and found to be effective enough to justify re-authorization. Most economic development subsidy programs are not sunsetted, especially tax credits, and that is another reason so many have become ineffective.
sunshine or sunshine law – a disclosure or a law requiring disclosure. As the saying goes: “sunshine is the best antiseptic.”
10-K – a detailed annual disclosure form every publicly-traded company must file annually with the Securities and Exchange Commission. The 10-K is the most detailed report a company must file explaining its financial results and disclosing major events that have affected or may affect those results. See Securities and Exchange Commission.
Targeted Jobs Tax Credit – see Work Opportunity Tax Credit.
tax abatement – see property tax abatement.
tax base – the amount of assets or economic activity from which a government generates some of its tax revenue. To a city government, the most important tax base is usually the amount of taxable local property. For state and local governments, retail sales form the base for sales tax revenues. For the federal government, personal income is one large tax base.
tax-base sharing – a practice in some metropolitan areas in which cities share some of their tax revenues, such as commercial property tax or sales tax. This is meant to reflect the fact that, for example, most of the people who work in a factory in an industrial suburb probably don’t live in the same city as the factory, and most of the people who shop in a suburban mall probably don’t live in the same city as the mall. Advocates of tax-base sharing believe that it reduces the incentive for cities to use subsidies to simply pirate companies or sales from each other, thus stabilizing their tax base and reducing sprawl.
tax breaks – a broad term that includes many different kinds of subsidies, including property tax abatements, many kinds of corporate income tax credits and reductions, sales tax cuts, and utility tax cuts.
tax credit – one of the most aggressive subsidies a state can grant. Tax credits reduce state corporate income taxes. They are usually granted for specified kinds of corporate activities (such as spending for new plant and equipment or for research and development). Normally, a company would account for such expenses like any other business expense; higher expenses mean lower profits and therefore less taxable income (profits). But if the investment is eligible for a tax credit, a company is allowed to take a percentage of the expense- dollar for dollar- from its corporate income tax bill. If a company incurs a large expense eligible for a tax credit, some states’ credits are so generous that the credit can actually wipe out the company’s entire state income tax bill. And if a company’s credit exceeds its tax bill for the year, states usually allow the company to carry the unused credit forward against its next year’s tax bill. This is called a “tax-loss carryforward.” Some states also grant tax credits for hiring disadvantaged workers or for hiring any new workers; see job creation tax credits.
tax expenditure – tax revenue not collected in the name of economic development (due to subsidies such as a property tax abatement or a corporate income tax credit). Distinct from an appropriated expenditure for development, which is a transfer of money from one public agency to another or from an agency to a private party. See also entitlement.
tax-exempt bonds or tax-exempt financing – low-interest loans made to companies in the name of economic development. See industrial development bonds and industrial revenue bonds.
tax exemption – a broad, general term that may refer to many kinds of tax cuts, including property tax abatements or enterprise zone tax credits.
tax increment – see tax increment financing.
tax increment district (TIF District) – see tax increment financing .
tax increment financing (TIF) – an economic development subsidy program usually paid for by the diversion of property taxes, and sometimes by the diversion of sales taxes. TIF is regulated by the states and is locally-controlled. A city designates a TIF district for redevelopment. Based on the expectation that property values in the district will rise as a result of that redevelopment, the city splits the property tax revenues from the district into two streams: the first consisting of revenues based on the current assessed value; the second based on the increase in property values- the “tax increment.” The tax increment is diverted away from normal property tax uses, such as schools, police and fire, and into the TIF district. There, the money can be used to back bonds or otherwise finance many different activities that subsidize the redevelopment. TIF is very popular with local officials because of its flexibility but controversial with many other parties.
tax-loss carryforward – see tax credit.
tax loophole – a popular (negative) term for special language in a tax code that favors a particular industry or small group of companies. For example, the oil depletion allowance in the federal tax code gives oil companies a special tax favor.
tax rate – the percentage of the value of a private economic asset or activity used by government to fund public services. For example, a city may tax property at 10 mils, or 10/1000ths (or 1%) of its value. A state government may tax personal income at a rate of 3%.
Temporary Assistance to Needy Families (TANF or “TAN-if”) – the new name given to federal welfare for families in the 1996 welfare reform act. Formerly Aid to Families with Dependent Children (AFDC), TANF represented a major shift in welfare policy. Among its most important provisions is a five-year lifetime limit on assistance, a great deal of state control on program design and delivery and a heavy emphasis on steering welfare recipients into job-search activities (“work first”). TANF’s emphasis on work first has caused some state welfare agencies to get much more involved with local economic development efforts, sometimes reducing the long-standing problem of poor coordination between welfare and development programs. But it has also led to numerous abuses, in which welfare agencies aggressively shuffle people into a job- any job, even with a temp agency- to declare that work first has been successful in breaking the welfare “dependency” cycle. TANF’s changes have also increased the amount of privatization in welfare to work, with all the usual problems- such as creaming- seen when human services are contracted out. See also creaming.
TIF – see tax increment financing.
TIF district – see tax increment financing.
transient occupancy tax (TOT), also known as the hotel tax – a tax imposed on hotel and motel customers. Because travelers- not local residents- bear the brunt of a hotel tax, some cities have enacted TOTs in excess of 10%. Traditionally, TOTs were justified with the understanding that some of the revenue would be used to promote tourism (thus helping to fill up the hotels and restaurants), with the rest going to the general fund to support local public services. But increasingly, TOTs are getting diverted into special projects such as sports stadium deals. For example, a stadium deal may call for the incremental growth in TOT revenues to be dedicated to paying off stadium bonds. That means that even if tourism grows, and more people patronize hotels, taxpayers won’t get any new TOT revenue for public services.
transit-oriented development – development projects in which new housing, retail, and/or office space is deliberately located near transit stops.
trophy project – a high-profile deal that will get a lot of media coverage. When public officials feel they might land a trophy project, they are very prone to spending too much for it, because they are prey to the argument that such a deal will have enormous “intangible” benefits and send positive “business climate” signals. Examples include auto assembly plants, micro-chip fabrication plants, and large-company headquarters facilities (such as the competition between Dallas, Denver and Chicago for Boeing’s headquarters).
Urban Development Action Grants (UDAG) – a now-discontinued federal loan program that was run by the U.S. Department of Housing and Urban Development. Although the program is discontinued, many cities have revolving loans funds created by the re-use of UDAG loan proceeds as they get paid off.
urban sprawl – see sprawl.
venture capital (or “VC”) – a high-risk investment, usually in a young company, in which the investor may seek very high rates of return (30% to 40% or more) through interest and/or equity in the company to offset the risk that the company will fail and the investment will be lost. Some states have created publicly-sponsored VC funds, sometimes using tax credits to attract capital. Not surprisingly, since they involve small numbers of people seeking to get rich quick, some have dubious histories.
welfare to work – a phrase referring to the increased emphasis, under the 1996 welfare reform act, in steering welfare recipients into work. The phrase also refers to a federal subsidy program created to encourage companies to hire former welfare recipients. See also Temporary Assistance to Needy Families.
workforce development – a broad term used to describe education and training programs that raise the skill levels of a workforce. At its best, workforce development can be integral to a sectoral program that raises people’s lifelong skills and living standards. At its worst, it may refer to a program that forces people into meaningless training for dead-end jobs.
work first – see Temporary Assistance to Needy Families.
Work Opportunity Tax Credit (WOTC, or “WATT-see”) – a federal corporate income tax credit program to encourage companies to hire “hard to employ” workers such as ex-offenders, workers leaving welfare, recent food stamp recipients, low-income veterans or the disabled.
Workforce Investment Act (WIA or “WE-uh”) – the largest federal training program. A multi-purpose program administered by the U.S. Department of Labor that sends money to regional Workforce Investment Boards and to the states. WIA is usually the largest source of training money involved in major subsidy deals. The predecessor law was the Job Training Partnership Act (JTPA) and the predecessor regional bodies were Private Industry Councils, or “PIC Councils.”
Workforce Investment Board (WIB or “wib”) – see Workforce Investment Act.
zoning – when local governments designate land for various kinds of uses, including commercial and industrial. Control over zoning can be highly politicized, because changes in land use can greatly affect land prices.