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Barry Bluestone and Chase Billingham

The state's global-local paradox

ONE OF the many challenges facing Governor Deval Patrick is how to bring economic development to the state. Massachusetts has nearly 100,000 fewer jobs than it did in February 2001 and at the current job creation rate, total employment will not reach the 2001 level until after 2010. High housing and healthcare costs continue to discourage workers from remaining or settling in the state, so much so that over the past three years Massachusetts has suffered a net domestic outmigration of over 170,000 residents.

Recent research at Northeastern University's Center for Urban and Regional Policy has begun to shed light on the local amenities that firms seek when making location decisions. Without the amenities of easy-to-navigate zoning regulations, fair tax policy, and effective and efficient local government administration, it is difficult to attract business investment and almost impossible to overcome the disincentive of skyrocketing living costs.

As such, the state faces a "global-local paradox." The more the world becomes globalized, allowing firms and workers to move easily between municipalities, states, and countries, the more critical the role of local government in providing an economic and social environment conducive to business growth and the retention of workers and their families. Essentially, the state has to make the high cost of living here worth it.

The Commonwealth's economic development problems are most acute in its older industrial cities. With higher crime, poverty, and high school dropout rates, such cities as Lawrence, Holyoke, Fitchburg, and New Bedford face severe financial strains. These strains, however, are exacerbated by the state's overreliance on the property tax as the chief source of local revenue. Massachusetts relies on the property tax for 75 percent of locally generated revenue, compared with a national average of 46 percent.

With such property tax dependence, the fiscal fate of cities and towns depends on the value of assessed property and the rate at which property values are increasing. The problem is that property values in the state's least prosperous communities, already below those in other communities in 1987, have grown at substantially lower rates. By 2004, Lawrence had just $28,000 in assessed property per capita, one-seventh the nearly $188,000 of assessed property per capita of its neighbor, Andover.

Fighting to maintain critical municipal services, older cities such as Holyoke, Springfield, and Pittsfield have had to raise their property tax rates much faster than more affluent communities. This growing burden on communities that can least afford it tends to repel residents and businesses, and lays the groundwork for what could become an interminable cycle of growing uneven economic development between rich and poor municipalities. The lower living costs in many older cities could attract young workers, but only if these communities can provide good municipal services and attract business investment. High living costs discourage young workers and their families from coming to the boomtowns. High tax rates and inadequate public services keep them away from the rest.

The situation would be worse if the state had not stepped in to dampen the destructive effect of local property tax dependence. State aid to local communities fills a large part of the older industrial city revenue gap by providing substantially more funds to revenue-poor communities.

Moreover, during periods of recession, the state has been careful to protect its neediest communities by cutting aid to these municipalities at a lower rate. Of course, merely equalizing the revenues of all communities may not be enough to offset the challenges that poorer communities must deal with. Facing more poverty, a higher crime rate, lower educational achievement, and other obstacles, these cities need to spend more per capita than their wealthier peers to achieve the same outcomes.

But even with generous state support, the growing gap in local property tax rates between cities poses a serious barrier to attracting business investment and jobs to those areas that have suffered so much. In the short run, the Legislature and governor will need to assure these older industrial cities their privileged position in the distribution of state aid if they are to play any role in boosting the state's economic development. In the long run, the state's cities and towns must be allowed to reduce their overreliance on the property tax and diversify their sources of revenue.

Barry Bluestone is dean of the School of Social Science, Urban Affairs and Public Policy and director of the Center for Urban and Regional Policy at Northeastern University. Chase Billingham is a graduate student at Northeastern and a research associate at the center.

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