Cut Short

Cities feel the pinch as relief funds go to states instead.
Magazine Contributor
2 min read

This story appears in the November 2003 issue of Entrepreneur. Subscribe »

This year's tax bill included many financial goodies for entrepreneurs, but fiscal relief to ailing cities where businesses operate wasn't one of them. An earlier version of the Jobs and Growth Tax Relief Reconciliation Act of 2003, passed last spring, included $4 billion in direct aid to cities. The provision was eliminated during negotiations, and $20 billion in aid went to states instead-with no requirement to share any of it with cities. The move has outraged city and county leaders struggling with the weak economy and homeland security costs. John DeStefano, mayor of New Haven, Connecticut, calls cities "engines of the national economy" in need of economic stimulus. Any decrease in service hurts business development, whether it's lack of consumer buying or weakening infrastructure that can't transport goods efficiently. Local efforts to close budget gaps with higher fees and other revenue generators also eat away at business profits.

Counties around Greensboro and Winston-Salem, North Carolina, have seen a modest jump in property taxes and fees, says Don Kirkman, president and CEO of Piedmont Triad Partnership, an economic development agency in Greensboro, "but not of a magnitude that will impact the attractiveness of this area." Kirkman says the region's low tax burden and financial reserves have mitigated the impact of the current downturn.

Boston should be so lucky. According to Howard Leibowitz, the mayor's director of intergovernmental relations, the state of Massachusetts has already used $55 million of $550 million in aid to balance its 2004 budget; the rest is held in reserve. "Virtually nothing is going toward the original intent-to help preserve services at the state and local level," he says.

To many observers, the tax cuts (which apply until 2010) and enhanced write-offs for software and business vehicles outweigh the losses to cities and counties. "The best thing the federal government can do is stimulate growth," says R. Glenn Hubbard, an economics professor at Columbia University. A city aid package would produce less impact, he says. "The notion that a one-time federal fix would help isn't accurate."

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