Monday, February 02, 2009

Expecting stimulus, some states plan to cut taxes to attract jobs; some plan rural spending cuts

"Rising unemployment has touched off a race among state governors to woo companies with tax breaks and financial incentives, even as budget shortfalls force cuts in education, health care and other services," Reports Stephanie Simon of The Wall Street Journal. This news has important implications for rural areas, which are often more dependent on state programs.

While states will get money from the economic stimulus plan being debated in the Senate, some governors think it won't be enough and are asking legislatures for new financial incentives to attract and retain jobs. "Minnesota Gov. Tim Pawlenty, a Republican, calls for an expansive package of business tax cuts, including tax-free zones for companies that create 'green jobs,' Simon writes. "Other states are considering establishing multimillion-dollar loan funds for entrepreneurs, phasing out the corporate income tax, and pledging financial backing to banks willing to extend lines of credit to small businesses."

The stratgey has critics on the right and left, Simon notes. "For many years, wooing jobs with cash was viewed as a 'poor-state strategy,' deployed mostly by states in the deep South that couldn't offer corporations well-developed infrastructure or a well-educated work force. In the 1980s, more states began to test the waters. The 1990s saw a pell-mell rush by states to one-up one another. ... Analysts have tried to measure benefits of incentive programs -- with contradictory results. Nearly every state can point to impressive corporate investments brought in with the help of incentives. But it's tough to determine how much a given company's business strategy is shaped by the goody bags states dangle."

But most of the current debate is about spending cuts. Missouri Gov. Jay Nixon, a Democrat, plans to cut 1,300 state jobs "and eliminate or trim dozens of programs," Simon writes, including "A $14.6 million cut for university extension courses, a $3.4 million cut for rural health care, and a $250,000 cut for early-childhood literacy programs." (Read more) In Michigan, Democratic Gov. Jennifer Granholm wants to cut funding for the state fair and turn over wetland regulation to the federal government, The Detroit News reports. (To read more, click here and here)

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