Business Influence on Public Policy in U.S. Local Governments

• In Event: How the Rich Control Government

Abstract

Classics in the urban politics literature argue that business interests are highly influential in U.S. city politics (e.g., Stone 1989). Because local governments compete with one another for taxpaying businesses and residents, economic success and a strong tax base are virtually synonymous with “city interests” (Peterson 1981)—putting business interests in alignment with those of local elected officials and residents.

Recently, however, scholars have argued that city politics is not uniformly about the pursuit of growth and development, and that interests and groups other than business often play a role (e.g., Feiock et al. 2014).

This raises a number of important questions about 1) how local governments vary in their approaches to economic development and growth and 2) the role that interest groups—especially business groups—play in shaping local policy.

In this paper, I argue that for an interest group’s activity to have a meaningful impact on policy, the group must have relatively homogenous preferences that are distinct from those of nongroup members. This may or may not hold for all of the issues and groups involved in local economic development.

For starters, local economic development is a valence issue. Local officials just about everywhere state that their economic development goals are to attract jobs, build the tax base, and preserve quality of life. There is little reason to expect these broad goals to vary with the political activity of business groups given the centrality of economic strength to nearly every municipality.

Instead, the conflict arises over the consequences and tradeoffs of economic growth. I argue that the interest group politics of economic development varies with the particulars of that conflict.

One important source of conflict lies in the fact that economic development policy often overlaps with land use policy, which means it stands to be in direct conflict with the goals of environmental groups and nearby homeowners. Importantly, though, on these land use issues, business interests tend to be aligned with those of local policymakers; it is the opposition that is swimming upstream. When the development policy involves land use, therefore, we should expect the political activity of environmental groups and opposed residents to shape local policy—and not necessarily the political activity of business groups.

Tax incentives for businesses are another matter. Local chambers of commerce tend to favor tax abatements, but tax abatements also have downsides for the local community: there is little evidence they succeed in attracting business, and they reduce local tax revenue. On tax abatements, then, it is the business interests that are swimming upstream, and so we should expect cities with more active business groups to be heavier users of tax incentives.

I test these expectations using two original surveys of municipal officials and candidates, the 2014 ICMA Economic Development Survey, and data on city tax abatements that I collected from local comprehensive annual financial reports.

I find that nearly all local candidates express pro-economic development positions, and nearly all city officials state an economic development goal of building the tax base. Those positions, moreover, do not vary with the political activity of local businesses. However, municipalities with more active environmental groups and higher shares of Democratic voters are more likely to feature local candidates who lean toward environmental sustainability and local officials who state that environmental sustainability is another goal of local economic development policy.

In contrast, I find that the political activity of local chambers of commerce is positively associated with cities’ use of tax abatements and the per capita amount of local tax revenue abated. Neither residents’ partisan leanings nor the activity of environmental groups is a significant predictor of the use and amount of these local tax incentives.

In sum, to explain the politics of local economic development, and to understand the conditions under which businesses and other local groups have influence on policy, it is important to consider the specifics of the policy in question: who the winners and losers are, and which side is asking city officials to do something that they otherwise would not want do.

References:

Feiock, Richard C., Kent E. Portney, Jungah Bae, and Jeffrey M. Berry. 2014. “Governing Local Sustainability: Agency Venues and Business Group Access.” Urban Affairs Review 50(2): 157-79.

Peterson, Paul E. 1981. City Limits. Chicago: University of Chicago Press.

Stone, Clarence N. 1989. Regime Politics: Governing Atlanta, 1946-1988. Lawrence, KS: University Press of Kansas.

Author

• Sarah F. Anzia, University of California-Berkeley