Economic Development & Trade
State Economic Development
Posted March 19, 2008
 Economic Development & Trade
Selected NCSL Articles
- Measuring Economic Development: The Innovation Index, NCSL, 2008
- Revolving Loan Funds for Small Business Development, NCSL, LegisBrief, 2006
- Community Development Corporations, NCSL, 2006
- Zoning in on Distressed Communities, NCSL, State Legislatures, May 2005
- Enterprise Zones: Development for Distressed Communities, NCSL, LegisBrief, 2005
- Evaluating Enterprise Zones, 2005
- Rural Development Legislation, NCSL, LegisBrief, 2005
- Minority-Owned Business Development, NCSL, LegisBrief, 2004
- Microenterprise Development, NCSL, LegisBrief, 2004
- States Bring Rural Issues into Focus, NCSL, LegisBrief, 2003
- Promoting Economic Development in Vulnerable Communities, NCSL, May 2003, by Monica Kearns
- State Economic Development Funding Trends and Key Legislation, March - April 2003
- State Actions on Corporate Income and Other Business Taxes, 2002
- State Economic Development News - June 2002, February 2002
- Links to State Economic Development Agencies
Information below is divided into Economic Development Goals,
Economic Development Strategies, Trends/Issues,
State Policies and More Information. Most topic information is not posted on web pages but is available by fax or email.
The concept of economic development includes the idea of economic growth, where the size of the economy increases relative to the population. Measures used to gage economic growth include investment, output (such as gross state product), employment and income. However, economic development also includes the notion of changing the quality or nature of the economy, such as by changing investment choices or technology. In effect, a complete list of state activities that foster economic development would include almost everything states do. Policies on public education, transportation, public health, environmental conditions and others affect the nature of an economy. At the same time, states enact dozens of more narrowly targeted programs for economic development.
According to the U.S. Department of Commerce: "Economic development is fundamentally about enhancing the factors of productive capacity-land, labor, capital, and technology-of a national, state or local economy. By using its resources and powers to reduce the risks and costs which could prohibit investment, the public sector often has been responsible for setting the stage for employment-generating investment by the private sector" (U.S. Department of Commerce Economic Development Administration, Economic Development Information Clearinghouse, What Is Economic Development? 2001).
Economic development policies generally aim to encourage business investment and improve business productivity (efficiency). The desired cumulative effect of business investment is to increase employment and personal incomes. Although generating employment is a secondary effect of business investment, it often is a focal point of economic development discussions.
Considerable disagreement exists about the role of government in achieving economic development goals and which policies are most effective. Disagreement also exists about whether the above goals should be the full extent of economic development concerns. In any case, economic development represents a significant investment by states, totaling more than $6 billion in direct funding and more than $4 billion in foregone revenues from tax incentives in 1998, according to the National Association of State Development Agencies.
Economic development strategies have evolved over time. New strategies may not necessarily replace previous ones, but added to them.
- Until 1970s: Attract firms
- In the 1980s: Help create new businesses; work with businesses individually; lower costs for businesses
- New economy: Improve competitiveness of businesses (for example, focus on productivity and new product development); jobs in some industries may be lost as others are created in high-growth industries; states can offer assistance by industry sector and region rather than by type of program; emphasis on technology development
- Integrated budgets that include direct appropriations as well as tax expenditures.
- Structuring agencies to best leverage the strengths of the public and private sectors
- Performance measures for agencies
- Accountability measures for businesses receiving incentives (see enforcement mechanisms below)
- Reviewing policy goals - cutting costs of doing business versus improving business inputs, competitiveness and networking
- Reviewing structure and targets of policies
- Industrial cluster approach - offering assistance by industry sector, not type of program (see new economy strategies above)
- Regional development - a region includes at least a metropolitan area or several counties
- State tax policy
- Grants and direct payments for businesses
- Grants for specific business activities such as worker training, basic research and development
- Individual development accounts - matched savings accounts used for starting a small business, education or housing for low-income individuals
- Loans and loan guarantees for businesses
- Assistance to local governments
- Federal funds, such as Community Development Block Grants
- Industrial development grants, including water and sewer system development
- Industrial revenue bonds - tax exempt or taxable financing for new or expanding facilities, usually manufacturing related
- Road access funds
- Telecommunications funds
- Rail access funds
- Venture capital programs - equity or near-equity assistance to businesses
- Direct investment in businesses, usually high risk; states can invest in publicly funded, publicly managed funds, can coinvest with private investors in privately managed funds
- Tax incentives to businesses or individuals to encourage venture capital investment
- Geographically-targeted programs - may combine financial and regulatory incentives
- Small business and entrepreneurship programs - may combine financial and technical assistance
- Minority Business Development
- Small business assistance - emphasis on debt financing and technical assistance; may focus on improving competitiveness rather than job creation
- Capital access programs - state match of insurance premium on loans
- Micro-enterprise programs - help the unemployed to develop skills and obtain capital to become self-employed; focus on those with low incomes; loans are for very small amounts; relates to individual development accounts
- Minority business development
- Youth entrepreneurship
- Business incubators - generally emphasize creating new, high growth businesses (that need venture capital); usually affiliated with a university
- Training on the venture capital industry, how to pursue federal research and development funds
- Other technical assistance
- Preferential purchasing - small businesses, minority- and women-owned businesses, and other specified businesses may receive preferences in procurement policies
- Enforcement mechanisms - guarantees of performance/accountability for businesses receiving state financial incentives
- Clawbacks - rescissions, recalibrations
- Tax expenditure reports, tax abatement reports
- Corporate responsibility standards
- High tech development
- Marketing campaigns
- Tourism development
- Sports facilities
For more information, go to our Economic Development & Trade Menu Page. If you have any questions,
please call Ian Pulsipher at (303) 364-7700 ext. 1649, or email him at econ-info@ncsl.org.
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