Business incentives are inducements that state and local governments can offer to attract or retain businesses and jobs. Incentives offered by state and local governments may be in the form of a direct payment to a business to locate or remain in a certain area. Or incentives may be less direct; for example, they can be in the form of exemptions from state and local taxes; loans on favorable terms, through industrial revenue bonds, or direct loans from state and local agencies; or state-subsidized job training. Over the past two decades, the variety of incentives offered by states and local governments has grown. One estimate by the state of Ohio shows that state and local governments annually spend billions of dollars to motivate businesses to relocate within their jurisdiction or to keep businesses from moving out. The use of incentives and their effectiveness and impact in luring businesses and jobs from one location to another have become the issue of much debate in recent years. Proponents of incentives maintain that they are a cost-effective way to promote economic development and that incentives have become a necessity because of the economic competitiveness that exists between regions and states. Proponents believe that business incentives have a positive effect on business-location decisions. On the other hand, opponents contend that relocating businesses from one area or state to another is a zero-sum game that, in the aggregate, creates little, if any, economic benefit. Opponents also contend that the dollars spent to provide incentives would be better used if applied to other services believed to be more important in economic development, such as improvements to the infrastructure and investments in human resources and education. Concern also exists that federal programs are being used and, in some cases, misused to provide incentives for luring businesses into relocating from one area to another. Federal programs provide state and local governments with loans and grants that can be used for transportation projects, waste treatment facilities, worker training, and other types of services that can be used as incentives. Newspaper articles have chronicled stories of how one community allegedly used federal funds to lure jobs from another community or how a community allegedly used federal funds to provide low-interest loans for retaining a business within its jurisdiction only to see the business move out of the community at a later date. The eight federal programs provide loans and grants that states, communities, and others can use for funding a variety of activities for which the economic development of an area or of individuals is the intended or possible offshoot benefit. An overview of each program that describes the program’s objectives and eligible activities, the types of funding provided, the entities eligible to receive program funding, the funding provided in fiscal year 1996, and a description of projects funded follows. Appendix I describes the programs in greater detail. Objectives, eligible activities, and types of funding provided: EDA’s Public Works and Development Facilities Program provides grants for helping finance projects in distressed communities to attract new industry, encourage business expansion, and generate long-term, private-sector jobs. Grants can be used for a variety of projects, including water and sewer systems serving primarily industrial and commercial users; access roads and other industrial park infrastructure improvements; port facilities; railroad sidings; tourism facilities; and vocational schools used primarily to train unemployed and underemployed adults. Funds can be used to acquire and develop land for these facilities and to construct, rehabilitate, alter, or expand them. Projects must be located within an EDA-designated redevelopment area. Entities eligible to receive funding: States, cities, counties and other political subdivisions, Indian tribes, commonwealths and territories, and private and public nonprofit organizations representing redevelopment areas are eligible to receive grants. Funding provided in fiscal year 1996: Public Works and Development Facilities grants normally cover up to 50 percent of a project’s cost; the remainder of a project’s funding is provided by the grantee. In fiscal year 1996, EDA awarded 158 Public Works and Development Facilities grants totaling $164.9 million. Description of projects funded: The largest share of Public Works and Development Facilities grant dollars awarded in fiscal year 1996—about $77 million, or 47 percent—went for projects involving water and sewer facilities. Other types of projects funded in fiscal year 1996 included industrial parks, industrial buildings, streets and roads, harbor development, and airports. Objectives, eligible activities, and types of funding provided: HUD’s CDBG Program provides communities with grants for activities that will benefit low- and moderate-income people, prevent or eliminate slums or blight, or meet urgent community development needs. CDBG funds can be used for a variety of activities, including to acquire, construct, or reconstruct public facilities, such as hospitals, nursing homes, and water and sewer facilities; provide new or expand existing crime prevention, child care, and other public services; rehabilitate housing; carry out special economic development projects, including the construction or reconstruction of commercial or industrial facilities; and provide community organizations with assistance for economic development and neighborhood revitalization projects. Entities eligible to receive funding: The Entitlement Communities Program, which provides grants to large cities—those that are a central city of a metropolitan area or any other city within a metropolitan area that has a population of 50,000 or more—and to urban counties—counties within a metropolitan area with populations of 200,000 or more (excluding the population of metropolitan cities included therein)—and the State and Small Cities Programs, which provide states with grants for distribution to the smaller, nonentitled communities, are the major components of the CDBG Program. Grants are based on formulas that consider population, the extent of poverty, the extent of overcrowding, and the age of housing of the entitled community or state. Because low- and moderate-income persons are the principal beneficiaries of CDBG funds, at least 70 percent of CDBG expenditures must be for activities primarily benefiting such persons. Funding provided in fiscal year 1996: Of the $4.6 billion in funds appropriated for the CDBG Program for fiscal year 1996, the Entitlement Communities and the State and Small Cities Programs together received about $4.4 billion. Description of projects funded: HUD’s data for 1993—the most recent year for which complete data are available—show that housing rehabilitation was the most prominent activity funded by entitled communities, accounting for about 31 percent of the funds spent during the year. Water and sewer activities were the most prominent activity funded by nonentitled communities, accounting for about 29 percent of the funds spent during the year. CDBG funds were used for, among other things, 3,000 projects to improve water, sewer, flood control, and drainage systems; 3,700 projects to repair or maintain roads, bridges, and sidewalks; and over 8,200 projects to construct or rehabilitate public facilities, such as facilities for abused and neglected children and child care and senior-citizen centers. HUD estimates that about 115,000 jobs were created in 1993 through the CDBG Program. Objectives, eligible activities, and types of funding provided: The EZ/EC program is a 10-year program administered by HUD and Agriculture that targets federal grants and provides tax and regulatory relief for helping distressed urban and rural communities overcome their economic and social problems. Funding for the EZ/EC Program is provided primarily by HHS’ SSBG Program. EZs and ECs can use EZ/EC SSBG grants to fund a range of economic and social development activities that are identified in their strategic plans. The strategic plan, developed in conjunction with residents and other stakeholders in the community, outlines the community’s vision for revitalizing its distressed areas and the activities and projects planned to accomplish this task. In addition to the EZ/EC SSBG funds, EZs can receive special tax incentives and other assistance, while ECs qualify only for the special tax incentives. Entities eligible to receive funding: In December 1994, HUD and Agriculture designated 104 communities as either EZs or ECs. Funding provided before and during fiscal year 1996: In 1994 and 1995, HHS allocated $100 million in EZ/EC SSBG grants for each of the 6 urban EZs, $40 million for each of the 3 rural EZs, and just under $3 million for each of the 95 urban and rural ECs for use over the 10-year life of the program. EZs and ECs draw down EZ/EC SSBG funds through the state or their cognizant state agency as needed for specific projects. As of June 30, 1997, EZs and ECs had requested $119.9 million of the $1 billion in total SSBG funds allocated by HHS. Description of projects funded: Projects funded by urban EZs and ECs include (1) a partnership in the Chicago EZ with a local college to prepare students for the General Educational Development tests, (2) a school-based program to reduce alcohol- and drug-related violence in the Detroit EZ, and (3) buying sites for a supermarket and retail stores in the Philadelphia EZ to create jobs for residents. Projects that rural EZs and ECs plan to fund include (1) establishing family service centers in the Central Savannah River Area EC in Georgia to provide recreation and leadership classes for youth and adult literacy classes, (2) refurbishing retail business facades in the City of Watsonville EC in California to improve the downtown area, and (3) building and equipping four rural fire stations in the Kentucky Highlands EZ. Objectives, eligible activities, and types of funding provided: Labor’s Employment and Training Assistance for Dislocated Workers Program, authorized under title III of JTPA, as amended, provides states and substate organizations with grants to help dislocated workers qualify for and find new jobs.