City Spending on Economic Development versus Affordable Housing: Does Inter-City Competition or Local Politics Drive Decisions?

Abstract

Public choice theory predicts that interjurisdictional competition and the need for a strong tax base severely limit local policy making. City decision makers must pursue developmental or economically advantageous policies such as economic development initiatives and avoid redistributive or fiscally harmful policies such as affordable housing programs. Many social scientists object to the deterministic argument of public choice theory and emphasize the importance of politics in the policy making process. Using regression analysis, I investigate the factors that influence cities to pursue a limited strategy as predicted by public choice theory versus a balanced or more progressive approach favoring affordable housing programs over economic development programs. The results show that inter-city competition increases the likelihood cities will pursue a limited strategy versus a balanced or more progressive approach. However, political variables also influence local policy decisions. In fact, this analysis indicates that political factors are more important than inter-city competition in explaining city policy choices.City officials wrestle with a multitude of urban problems. Moreover, these decision makers typically operate with scarce resources as well as other limitations. Federal policy devolution and funding cutbacks for certain local policy activities add to the difficult policy making environment in cities. Two of the policy areas affected by federal cutbacks are economic development and affordable housing (Goetz, 1995;Nenno, 1997;Stegman, Quercia, McCarthy, Foster, & Rohe, 1991;Van Vliet, 1997). Economic development activities focus on local employment opportunities, city fiscal concerns, and the job readiness of the local labor pool, while housing policy addresses housing conditions and costs. Problems in either policy area can seriously impact the quality of life for urban residents.

The Effects of Community Quality of Life on Local Policy Decisions

“…In addition, previous studies (e.g., Basolo, 2000;Choi et al, 2010;Hajnal & Trounstine, 2010;Schneider, 1989) This refers to millage limitations on ad valorem property taxes. To determine the reliability and validity of these data, they were compared to recent research (Anderson, 2006;Hoyt, Coomes, & Biehl, 2011;Mullins & Wallin, 2004) on property tax limitations.…”

“…However, because liberals emphasize a more active role of government in dealing with public issues, the citizen ideology also will make a significant difference in allocational spending. Taking into account that the policy preference for local economic growth is widespread in local governments (e.g., Basolo, 2000;Liu & Vanderleeuw, 2004;Longoria, 1994;Peterson, 1981;Saiz, 1999;Schneider, 1989), I expects ideology to have little or no effect in developmental policy areas. …”

“…To tap local economic conditions, extant research uses various proxies such as median household income (Basolo, 2000;Basolo & Huang, 2001), per capita income (Choi et al, 2010), government revenues (Hajnal & Trounstine, 2010), and intergovernmental aid (Park, 1996;Percival et al, 2009). Of these, this study relied on the per capita income (PCI) of each city to measure the economic resources available to the city governments.…”

“…As city governments have a high degree of autonomy in implementing public policies compared to county governments (Basolo, 2000), city-level analysis may be better able to capture the dynamics of QoL and local policy decisions. 4 Sustainability, economic development, environmental concerns, financial stability, public safety, and quality of life are the major concerns for the City Council (City of Palm Coast, FL, 2009 Approved Budget).…”

A game of two cities: A toll setting game with experimental results

“…However, from the literature we know that cities compete with each other. Public choice theory has explored the notion that cities compete to attract and retain residents and businesses (Tiebout, 1956;Basolo, 2000). Likewise, the public finance & tax competition literature identifies competition between cities on tax-and-spend policies (Wilson, 1999;Brueckner, 2001).…”