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State Policies and Municipal Economic Development in the Upper Midwest
Thu, August 29, 2:00 to 3:30pm, Marriott, Washington 2Abstract
How does a major change in statewide tax and economic development policy affect spending by municipalities on economic development and public infrastructure? Two neighboring, culturally similar midwestern states, Minnesota and Wisconsin, have taken diverging tracks during the 2010s, one under a Democratic led state government, and the other under Republican control of all branches of state government. Minnesota has addressed a long-term structural deficit by raising higher-band income taxes and using the proceeds for education spending and property tax cuts; Wisconsin has applied fiscal austerity with cuts in public spending and targeted business assistance.
The question this raises is how these state policies affect local spending and priorities. Minnesota and Wisconsin provide a particular point of interest because of their combination of similar cultural backgrounds and sharply diverging contemporary politics. Additionally they provide a useful point of comparison because of significant commonalities in the general structural and organization of state assistance to municipalities, with similar proportions of local government revenue provided for by the states.
Using data coverage from 2006 on, the analysis uses large-n methodology to study a wide array of municipalities in the two states, controlling for a variety of administrative, structural and economic factors. The outcomes in general indicate a significant impact on local policy from variations in state aid and alterations of other structural supports aimed at preventing "free rider" situations or "beggar-thy-neighbor" economic development. And there are some indications that reductions in such support can lead to a more aggressive and higher-spending approach by municipalities to targeted business assistance as opposed to more general-purpose community development.