Corporate-Government Interplay: The Era of Industrial Aid Finance

This study has 3 objectives: to analyze & appraise the controversial aspects of industr aid bonds, perhaps the most important state financial aid to industry; to provide a current frame of reference on the nature & application of this incentive; & to determine whether financial aid has advanced in importance as a location factor for industry. An examination of the arguments against industr aid bonds leads to identification of 2 key variables: the degree of need of the Corp for such aid, & the rationale of the municipal issuer in granting this aid. 2 hyp's are derived: (1) Projects financed with industr aid bonds would not have been undertaken without such financial help. (2) The agreement by a municipality to float an industr aid bond issue results from a judicious matching of the community's econ preferences for new or expanding industry with the investment project's econ benefits. The hyp's are tested by relating them to Mich's experience with the incentive. During the period 1963-68, Mich municipaliti es had marketed 14 issues totalling $193.2 million; these involved 12 municipalities & 13 Corp's. The major source of primary data was the personal interview of officials of the issuing municipality, executives of the corporate lessee, the municipal bond counsels for these issues, underwriters of industrial aid bonds, representatives from the 2 principal agencies rating municipal securities, & certain instit'al investors. Both hyp's were found to be invalid. Most of the Mich projects would have been implemented without the financial help stemming from industr aid bonds. It appeared that over 70% of the aggregate value of the projects would have been carried out in the absence of industr aid financing. Re hyp (2) it was found that the municipal issuers in general neither possessed formalized preferences for industry nor did they attempt to determine in detail the degree & authenticity of possible benefits. These conclusions were found to qualifiedly lead to 3 other conclusions: (a) financial aid has not increased in importance as a location factor for industry; (b) Corp's (through their bargaining procedure) appear to promote the pirating-of-industry controversy; (c) the incentive's admin at the local level is inappropriate. Modified AA.