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New PPIC Report Focusing on Enterprise Zones and Redevelopment

The Public Policy Institute of California is out with a new report focusing on the roles of state and local governments in economic development. As the report’s introduction explains:

Governor Brown’s January 2011 budget proposes eliminating the state’s two primary local economic development programs: redevelopment and enterprise zones. These programs, if eliminated, would reduce California’s fiscal-year 2011–12 general fund gap of $17.2 billion by $1.7 billion (redevelopment) and $581 million (enterprise zones). His May 2011 revised budget proposal significantly scales back and refocuses the enterprise zone program instead of eliminating it, for modest initial savings of $70 million in fiscal year 2011–12. In the current budget debate, the value and effectiveness of these programs have been weighed against those in a wide range of other programs and services, including education, public safety, and everything else supported by the state’s general fund.

However, making decisions about these programs at the height of a fiscal crisis obscures some of the fundamental questions about local economic development and precludes a more considered debate about various possibilities. For example, why is the state involved in local economic development, and what stands in the way of localities funding these activities and deciding for themselves how to weigh local economic development against other local needs? These questions matter, whatever the fate of redevelopment and enterprise zones. If the programs are preserved, these questions might help guide future reforms. If the programs are eliminated, these questions might help shape new local economic development policies.

The report discusses how California’s economic development endeavors might benefit from realignment, but why realistic discussion of proposals is difficult because of structural constraints. The conclusion states:

The current debate over redevelopment and enterprise zones—the state’s primary local economic development programs—hinges on their cost and effectiveness relative to other programs in the state budget. Certainly the state should support only those programs that justify their costs, and the current budget situation may even require scaling back programs with proven benefits and modest costs. The debate over redevelopment and enterprise zones, however, is circumscribed by the constraints on realigning local economic development. Because localities have few options for funding local economic development without at least partial help from the state, the only way the state can reduce its own spending on local economic development is to scale back these programs. If localities could more easily fund local economic development, the debate could shift from status quo vs. elimination to state vs. local responsibility. Local economic development could remain a local priority even if the state decided it is not a state priority, and the overall effectiveness of the state’s main local economic development programs could improve because local governments would face better incentives to support the most economically feasible investments.

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