MEASURING LOCAL ECONOMIC DEVELOPMENT POLICY AND

THE INFLUENCE OF ECONOMIC CONDITIONS ^*

Max Neiman

and

Kenneth Fernandez

University of California, Riverside

Abstract

Based on a completed, large-scale study of suburban cities in Southern California (N=202) this paper reports on the existence and usefulness of measuring local economic development policy in various ways. The policy measures were derived from an extensive survey of local economic development officials. Comparisons between simple additive scales of total policy activity and additive scales derived from factor analysis are made. After comparing the results of regression analysis of local policies measured in several ways, it is concluded that in some instances explanations of local policies are best approached by measuring policy in fairly simple ways. In this case, our set of conventional independent variables explains the most amount of variation in the additive measure. Moreover, the patterns of findings do not alter in substantively important ways when the policy measure is altered. The most salient finding is that both poverty levels and average income were both negatively correlated with our policy measures. Further examination of income and poverty show empirical support for Goetz’s uneven development hypothesis.

Introduction

Competition among localities for economic growth is among the most pervasive facts of contemporary urban life. States and localities, in order to keep existing or attract new commerce, find themselves in bidding wars with neighboring jurisdictions and, sometimes, with distant counterparts. So we have the spectacle of communities in California and Virginia competing against each other for a Legoland theme park. A growing lore exists regarding these on-going economic battles over shopping centers, department stores, manufacturers, professional sports teams, auto centers, and government office buildings. Subsidies, incentives, and a host of efforts to shape the locational decisions of businesses have proliferated. Indeed, in any given period, when considering the nation as a whole, billions of dollars are allocated or committed by states and localities in order to woo commerce or to retain the affections of those commercial establishments that already reside there.

Whether or not these efforts amount to anything for a state or locality is another matter. Indeed, there is a lively debate over the efficacy of these various efforts to attract and retain economic activity (Bartick, 1992; Feiock, 1991). But apart from the impact of these policies, it is clear that many resources are tied up in this competition and most local officials seem to believe they are beneficial, if not necessary. Indeed, whether or not such policies actually affect local economic activity, there are powerful political incentives for localities participating in the competition. Without state government actions to reduce such competition, it is likely that local government will continue to try to influence the deployment of economic activity. Moreover, in states where state revenue is disproportionately returned to communities of origin and where revenue-raising constraints have become severe there are fiscal motivations to seek the sort of development that raises more revenue than it imposes in service costs.

There are at least two other reasons that communities might, apart from any evidence respecting the impact of such policies, continue to enact programs that purport to attract economic activity. First, as localities produce programs to attract economic development, their neighboring locales might react in what is perceived as a required response to “stay competitive.” Second, the logic of competition makes even skeptical local officials likely to enact policies, since not producing is politically risky, while enacting them is not. For example, in a context where localities see one another as competing for economic development, officials who eschew enacting such policies run the risk of being indifferent to the well-being of their constituents. If a business locates in a community that courted that business and another locality was perhaps “in the running,” then if officials seemed indifferent, then they will be blamed for the business locating elsewhere. If officials try by producing policies that seek to attract that business or others, then if the business does not came, they can at least claim to have tried. And if and when other business does locate in the locality, officials are positioned to take credit. Doing nothing leads to blame. Producing business attracting policies provides the chance to avoid blame and perhaps to take credit.

Despite the fact that communities engage in these activities and are likely to continue to do so, we are not fully aware of the range of things that communities do and how policies vary by types of communities or under what circumstances they are likely to employ them. There are a number of studies that have assessed the substance of local policy, but these most often do not probe deeply into the range of options that are available. In addition to a need for a better gauge of what communities are doing to stimulate economic growth, there are a number of reasons why there should be further examination of how explanatory variables and their influence on policy are operationalized. In this paper we:

1. Assess a broad range of localities within a single state and probe an array of economic development and redevelopment options in order to come up with measures that operationalize the concept of economic development policy in a rich and reliable manner.

2. Examine the complex way that the economic conditions of the city and its citizens influences local economic development policy output.

One of the objectives in this paper is to examine the differences in results that occur when using various policy measures. Wolman and Spitzley's (1996) analysis of 16 articles that examine local economic development shows the variety of methods employed by social scientists to measure the dependent variable (policy) and the independent variables (usually a number of city characteristics). What ties most of these studies together is the similar type of data used to measure these variables. Survey responses of city officials are used to measure policy and census data or some other government source is used to provide the city characteristics that make up the independent or explanatory variables. Although the studies use similar data the methods of operationalization and model specification are numerous. Policy is measured either in a dichotomous (Clingermayer and Feiock, 1990) or ordinal fashion (Bowman, 1988) and independent variables are taken straight from census data or often combined into factor scores (Goetz, 1991). Clearly, if we are to explore the relationship between policy and the socioeconomic characteristics of cities, we need to have as broad an empirical basis for defining local policy and social indicators as is possible. We also need to consider more systematically how differences in findings due to differing measures might illuminate differences in explaining policy variation.

Data and Method

The report here is based on aggregate data gathered on the municipalities located in a seven-county region of Southern California. This effort is part of the Community Affairs Project at the University of California, Riverside. Two major streams of data and analysis are involved here. First, there are the data describing each of the 202 municipalities, including standard socioeconomic and census data and political data, describing features of local elections and voting as well as government structure. The second set of data involves a survey that was implemented in 1994 and consisted of 156 responses from local officials. The survey was mailed in the winter of 1994 and a response rate of 77 percent was obtained.

The questionnaire results, which are based on a series of very specific queries about what each locality is doing to promote economic development, permit us to develop a more refined measure of local economic development/redevelopment policy then in previously studies. Additionally, the survey permits us to explore issues respecting local views regarding certain features of the local political process. In this report, then, the analysis is conducted at the municipal level. Each community's local economic development and redevelopment policies are then measured as responses to survey items completed by the respondents described above.

Community Overview

According to the California Department of Finance, the 202 communities that comprise the study sites here represent a population of over 11 million and involve the full range of community types, lower income communities and the very affluent, newer and older locales, and places that are fully developed and those currently undergoing rapid increases in population growth and new building projects. The distribution of municipalities across the seven counties in the study is as follows:

TABLE 1

Distribution by County of Project Cities-Excluding Los Angeles and San Diego

COUNTY	NUMBER OF CITIES	PERCENT OF ALL CITIES

LOS ANGELES	88	43.6
ORANGE	31	15.3
RIVERSIDE	24	11.9
SAN BERNARDINO	24	11.9
SAN DIEGO	18	8.9
SANTA BARBARA	7	3.5
VENTURA	10	4.9
TOTAL	202	100

Table 2 reports a number of summary indicators of community characteristics that provide a sense of the range of community types in the study. Table 2A reports these same characteristics for the 150 cities that have a population of 20,000 residents or greater.

TABLE 2

Selected City Characteristics

Community Characteristic

Mean

Maximum

Minimum

Standard

Deviation

1. % Below Poverty

10.8

30.8

1.6

6.3

2. % Afro- American

4.6

55.1

0.0

7.2

3. % Hispanic

29.2

95.6

1.5

23.0

4. % 12 or More

Years School

72.4

97.0

30.2

15.9

5. Population, 1992^*

55692.4

442106

152

55460.2

6. % Owner- Occupied

Housing

59. 7

87.2

10.6

16.7

7. % Housing Growth

1981-1989

23.1

278.0

-5.0

32.7

8. Median Family

Income, 1990

46369

133751

16250

20792.6

9. % Pop. Growth,

1990-1995

13.6

159.00

-46.0

20.7

10. % Working in

City of Residence

25.3

77.0

3.5

14.9

11. People: Square

Mile, 1990

5371.1

23208.3

4130.1

12. City Age

57.0

147

35.9

^*Excludes cities of Los Angeles and San Diego.

TABLE 2A

Selected City Characteristics [Cities Over 20,000 residents, N = 150]

Community Characteristic

Mean

Maximum

Minimum

Standard

Deviation

1. % Below Poverty

10.7

27.5

1.9

5.8

2. % Afro- American

5.4

55.1

.003

8.0

3. % Hispanic

30.1

92.7

4.0

21.6

4. % 12 or More

Years School

73.9

95.6

29.8

14.8

5. Population, 1992^*

55695.4

442106.0

152