At what point do artificial stimulus programs create diminishing returns for subsidized communities?

Kentucky Shows States Widening Deficits for Stimulus

 

When the U.S. government made stimulus funds available to develop batteries for hybrid and all-electric vehicles, eight states waged a bidding war to lure manufacturers …and get a piece of the $2 billion pot.

 

… Kentucky won in April with a $210 million package that included free land.

 

…critics of corporate subsidies said the competition demonstrates the dark side of the $787 billion stimulus program. Cash-strapped states may worsen their budget shortfalls by making pledges they can’t afford, while shifting money from public services and long-term investments.

             

…Kentucky faces a projected $1 billion deficit in the fiscal year that began July 1. In June, Governor Steve Beshear called for $200 million in spending cuts…

 

…Pike Powers, the lead negotiator for Texas in the bid for the battery project, said the stimulus made the competition worse, as NAATBatt “tried to jack us up for more money.” The competition level has gone “up several notches, no doubt about that.”

 

…The competition among states is hurting the U.S. economy by diverting revenue away from investments such as education, and undermining unfettered competition among businesses, said Art Rolnick, research director at the Federal Reserve Bank of Minneapolis.

 

By using public funds to favor specific businesses, states may raise taxes on other firms to offset lost revenue, which impairs the overall economy, said Rolnick…

 

Vivien Lou Chen

Bloomberg, July 31, 2009