Economic Development Projects: A Perspective
The Urban Lawyer, Vol. 19, No. 2, Spring 1987
41 Pages Posted: 15 Apr 2015
Date Written: Spring 1987
There are many reasons for undertaking economic development projects. Among the most important and most common are the following: a desire to physically improve a neighborhood or site, maintain and create jobs, increase government taxes and revenues, control construction on and use of a site, leverage private dollars that would otherwise go elsewhere, and compete effectively with other communities who are undertaking such projects.
To effectuate these projects, state and local governments provide various forms of subsidy and assistance to induce companies to undertaking the projects. This assistance may include any of the following: (1) real property tax exemptions, or abatements, (2) low interest loans or loan guarantees, (3) grants, (4) sales tax and franchise tax exemptions, (5) mortgage recording tax exemptions, (6) reduced energy costs, (7) tax-exempt bond financing, (8) tenancies at below market rates, (9) public improvements that benefit the project, (10) use or threatened use of eminent domain to assist assemblage, and (11) special zoning variances that allow larger projects or use variations. These public resources are combined with private resources when it is believed such efforts will produce long-term benefits for the municipality and a private sector that would not undertake such development without (i.e., "but for") the public assistance.
This article is an introduction to economic development projects. It provides several perspectives. It provides an historical perspective, tracing the evolution of such projects from the 1800's. It analyzes the problems they incurred and traces the legal constraints put in place to address the worries. It also gives the personal perspective of the author, who has been Director of Corporate Law for New York City, then a partner in an international law firm doing them from the private sector side, and also an adjunct professor of development and of law at Columbia Law School.
Some of the evolution is analyzed by applying six categories of criticism or concern that grew in the nineteenth century.
The first criticism concerned the loss of the government's funds invested in stocks or loans of a defaulting company.
The second criticism claimed that the private sector is able to do without subsidies and does not need public assistance.
Third was the claim that the "political" decision making process is biased, or even corrupt, as a result of influence, contacts, campaign contributions, and the power of special interests.
Fourth, many felt and still feel, that the government is interfering in the natural operations of the marketplace. Interference is perceived as a distortion that will have negative consequences in the future.
Fifth, many have seen assistance for a project or location as discrimination, charge often levied by those in direct competition with the beneficiaries.
And sixth, has been the assertion that government does not know how to get in fair return for its assistance, especially when a project is very very successful.
All of these are addressed in this article.
Keywords: economic development, public-private, government subsidy, property tax abatements, tax exemptions, but-for assistance, public purpose doctrine, gifts and loans provisions, public enterprise, lending of credit, PILOT, capital transaction payments, enterprize zones, use resrtictions
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