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Municipal Rivalries

Aug 14, 2011 • Government, Thinking Economically • 106 Views    No Comments

Called the Tappan Zee, there is a bridge that extends across the Hudson River just north of New York City. It could have been a mile long or 2 but instead, politicians selected a spot where the river was 3 miles wide. The result was a more complex and pricey structure.

NPR’s Planet Money reporters were curious about why New York’s Governor Thomas Dewey supported an apparently illogical decision. The reason was money. If the bridge had been positioned any closer to NYC where the Hudson was narrower, then New York State would have been prohibited from keeping the toll revenue. And New York State, in 1955, needed the money to complete the NY Thruway.

Frequently, municipalities compete. For the Tappan Zee, it was New York State versus the Port Authority of NY and NJ. Had the bridge been closer to NYC, the Port Authority would have had the right to the toll money. When Honda and Mercedes contemplated locating in Alabama, they were offered generous tax breaks that enabled Talladega County to compete against other municipal bidders. Similarly, Los Angeles is trying to lure the Chargers away from San Diego through a deal for a new sports arena.

The Economic Lesson

This is all about revenue. Bridges, businesses and sports teams generate revenue for states, cities, counties. The revenue could be used for rebuilding roads or school budgets or pension obligations to municipal workers.

An Economic Question: In this sluggish economy with many states and cities facing budget difficulties, would you support tax breaks for foreign investment.

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