Economic War Among the States: An Exchange

Letter to the editor received in response to the Minneapolis Fed's special issue of The Region magazine, "The Economic War Among the States" (June 1996), and in response to columns that have appeared in the fedgazette on the same topic.

Published October 1, 1996  | October 1996 issue

A reply follows from Mel Burstein and Art Rolnick, authors of the bank's 1994 Annual Report essay, "Congress Should End the Economic War Among the States."

Incentives harm communities

I received your special issue of The Region titled "The Economic War Among the States," and want to commend everyone who participated in bringing this issue to the fore. As one who has been involved in local government for 20 years, I have seen the progressive growth in economic competition, not only between states, but between localities as well.

We in Albert Lea are particularly sensitive to this issue since we are only 10 miles from Iowa, which has a policy of tax abatement, among other incentives. We, of course, rise to the challenge with tax increment financing, loans, etc., to be competitive.

It has been my observation through the years that few of these incentives were the key to a business location decision. More important was proximity to markets or raw materials, transportation, labor supply, workers' comp rates and other considerations. The special incentive packages which the competing locations offered became the "frosting on the cake" after the weightier factors had decided the ultimate location.

The city manager and I have often discussed solutions to this situation, and we are suggesting that the Congress could address this through a revision of the tax laws. If incentive packages were given a dollar value and the recipients had to accrue that value as income in the year in which it was received, there would be a drastic reduction in the requests for such largess.

As cities we are not particularly well suited to select the most economically viable industries on which to confer our limited resources. We would prefer to devote our time and treasure to that which we were originally constituted to do—provide the public services and infrastructure that make a community a desirable place to work, live and do business.

Marvin E. Wangen
City of Albert Lea, Minn.