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Study of the National Scope and Potential for Improvement of State Economic Development Highway Programs

Part 7. Analysis Finding

7.1 Program Design

The four case studies - Massachusetts, Oklahoma, Tennessee and Wisconsin -- were selected to represent a wide range of geographic, economic and political settings. The findings are notable for both the similarities and differences in programs among the states:

Funding >- All four state programs were initiated by the state legislature, which provides special set-aside funding for the program.

Motivation (Goal) - In all cases, the economic development road program was set-up with the explicit objective of facilitating economic growth in areas that have deficient connectivity or access to the broader network of local and state highways. These are most often rural and small town areas, though occasionally they are depressed parts of urban areas. By investing in road (and sometimes rail) infrastructure that provides such access, these programs are designed to enable businesses to locate new or expanded industrial plants in areas where they would otherwise be unlikely to occur. To ensure a focus on these objectives, all of the case study programs require: (1) a local government resolution confirming need for the transportation access improvement to facilitate desired economic development, and (2) a confirmation of the anticipated additional growth of jobs, wages, and private investment (or local tax base).

Types of Infrastructure Funded - Some of the programs allow for more than road funding. The Oklahoma and Wisconsin programs fund both roads and rail projects. Some of the programs are also restrictive in the portion of the project that they will cover. The Massachusetts and Wisconsin programs can fund all aspects of project engineering/design, land preparation and construction. However, Tennessee and Oklahoma will fund road paving but not right-of-way preparation or utilities; Tennessee also disallows funding for rail crossings while Oklahoma disallows drainage work.

Types of Industries Supported - The Tennessee, Oklahoma and Wisconsin programs focus on funding growth of manufacturing industry. In these states, retail and office projects are not normally funded, though there is some discretion. Wisconsin in particular has explicitly opened the program for biotechnology and information technology firms, which may reside in laboratory or flex/office space. The Massachusetts program is broader in that it focuses on both industrial development and local commercial district revitalization.

7.2 Eligibility and Application Review

Benefit Objectives - While all of the state programs expect a commitment to expand jobs, wages and private investment, there are variations among the states in terms of the basis for judging project benefits. Tennessee measures project benefit primarily in terms of the additional growth of wages and local tax revenue (per dollar of public investment); Wisconsin in terms of additional jobs (per dollar of public investment); Massachusetts in terms of the growth in local tax base, private investment and jobs; and Oklahoma in terms of tax revenues, jobs and wages.

All of the programs have further eligibility and prioritization factors that reflect additional objectives or considerations (listed below).

Minimum Eligibility- Tennessee restricts funding to those projects that have a benefit/cost ratio greater than 1.0, where the ratio is defined as [(wages + property tax revenues) / (amortized public cost)]. Wisconsin restricts funding to those projects that have a ratio public cost per new job that is below $5000.

Project Ranking or Judging- Economic development factors that are considered in ranking or judging the adequacy of applications include expansion of: wages for Tennessee and Oklahoma, jobs for Massachusetts and Oklahoma, property taxes for Tennessee and Massachusetts, and private investment leverage (ratio of private/public investment) for Massachusetts and Oklahoma. Other related factors include financial stability of the new or expanding business for Wisconsin, and reduction in unemployment rate for Massachusetts.

Flexibility and discretion - All of the states allow some discretion in judging project eligibility and priority, which is important because they need to be responsive to time-sensitive business growth and attraction opportunities.

7.3 Program Operation

Involvement of Multiple agencies - All of the programs involve a process of coordination between the state transportation department and the state economic development department to develop package offers of investment assistance to firms considering locations in their state.

State and Local Sharing of Responsibility - Funding is usually in the form of grants to local governments in Wisconsin and Massachusetts, though Wisconsin requires a local 50% match for all projects. In contrast, project construction is usually done through the state department of transportation in Tennessee and Oklahoma, though both states require that the new road be off of the state highway system, and that its maintenance therefore be a local responsibility.

Evolution of Project Operation - All of the states have seen some evolution over time in the nature of the applications and projects, and the way in which coordination occurs to support state economic objectives. Programs with the most flexible arrangements, such as Oklahoma, have accommodated many of these by formal rules changes. Changes occurring over time in other states include the following:

Monitoring of Program Funding Results -- All of the states have some type of formal or informal monitoring of the results of their economic development road investments. However, they differ in their focus on either verification of job creation impacts or on local maintenance of the state-funded project. Specifically, Wisconsin has an audit of the program's impact on job creation and expansion done every few years. In Massachusetts, any community applying for a second or subsequent round of program funding will trigger an informal quantification of the jobs created or sustained from the earlier program funding there. Tennessee and Oklahoma focus on monitoring local maintenance of previously-funded industrial access roads, and cut off future approval of future industrial projects for any community or county that is found to have failed to adequately maintain the road.

7.4 Recommendations by State Officials Regarding Federal Role

There is a wide range of economic development objectives embodied in the goals, eligibility criteria and selection processes of the various programs. They include simple direct objectives of job growth, development of higher wage jobs, and enhancement of local tax base. However, they often also include further underlying state priorities for assisting economically depressed areas, promoting environmentally or economically sustainable development, supporting community revitalization, and enhancement of the industrial technology base. Given this range of objectives and differing state priorities, it is not realistic to promote any universal set of project eligibility or selection criteria.

Most of the above-referenced objectives seem desirable from a federal viewpoint in that they promote greater efficiency in transportation movement (improving connectivity and accessibility) and/or greater efficiency in use of existing resources (under-utilized worker skills, community infrastructure and industrial land). To the extent that these projects tend to benefit rural areas, small town areas and depressed urban areas, they can also contribute to greater equity in income and economic well-being. Of course, an infrastructure improvement project can also shift the competitive balance between prospective business location sites in different states, so not all of the new job and income creation is necessarily a full benefit from a national viewpoint. Nevertheless, the above-cited efficiency and equity benefits of these programs indicate that these programs do address goals of national value.

Interviews with DOT staff in the states that administer highway-related economic development programs discussed in parts 2-5 yielded a consistent message, indicating that:

  1. State officials felt that federal-level recognition and endorsement of the concept of these programs is generally seen as helpful for ensuring continued state funding for these types of beneficial programs.
  2. State officials felt that raising awareness of best practices is generally welcomed as a way for continuing improvement to these types of programs.
  3. State officials felt that imposition of new rules or guidelines without additional funding are generally seen as counter-productive, insofar as they could stifle the ability of these programs to be flexible and sensitive to unique local needs and statewide strategic planning priorities.
Updated: 4/18/2012
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