Best & Worst States For Business 2022: Being Smart About Spending Manna From D.C.

Hundreds of billions of dollars have been floating down to the state level from federal largesse unleashed by the government’s reaction to Covid and, more recently, disbursements from the infrastructure bill. But while grateful for the funds, some states are doing a better job than others of figuring out how to harness the windfalls for initiatives that further their economic development for the long haul.

There have been lots of strings attached by the feds to disbursements to state governments, such as a prohibition on spending any of the $350 billion states received from last year’s $1.9-trillion American Rescue Plan (ARP) on tax cuts. There are deadlines for spending the money within several years. Plus, “There’s not as much flexibility to invest that money in economic development as some people thought there would be,” said Chris Lloyd, president of the Site Selectors Guild.

Meanwhile, levels of government are still sorting out details for spending the $1 trillion in the infrastructure legislation passed last fall, nearly $600 billion of which is dedicated to transportation and $138 billion for broadband and other non-transportation projects.

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But the spending spree is well underway, and the site-development community is lauding some of what states already have committed to do as potentially significant enhancements of their suitability for corporate investments in plants, warehouses and offices. “Some states are using the ARP money in ways that have an economic-development nexus, where others used it more for health care or other bailouts which were very important for their people,” Lloyd observed.

North Carolina, for instance, is directing $1.6 billion of its $5.7 billion in ARP funding to water and sewer projects that many in the state say are overdue and whose completion will greatly help economic positioning of a state that placed No. 5 in this year’s ranking of “Best States/Worst States for Business” by Chief Executive.

Meanwhile, Virginia plans to use $700 million of its $4.3-billion allocation from ARP to improve its standing in the economic-development derby by expending the deployment of last-mile broadband infrastructure to unserved areas. Of course, Virginia won what arguably was the biggest jobs plum of the last decade when Amazon decided to build its “HQ2” in Arlington, Virginia, but the state still ranked only No. 14 in the new “Best States/Worst States.”

Iowa, No. 17 this year in Chief Executive’s ranking, allocated significant ARP funds to talent-development initiatives meant to improve the state’s workforce for existing and future employers, said Larry Gigerich, head of Ginovus, an economic-development firm. No. 5 Indiana is funneling a big portion of ARP funds to a “place-making” initiative statewide that already was underway, to improve and highlight quality-of-life projects across the state.

Tennessee, ranked No. 3 in “Best States/Worst States,” is harnessing part of its ARP take to buttress its Tennessee Promise program, which for several years has provided high-school graduates the opportunity to attend a community or technical college free of tuition and mandatory fees. “This has paid huge dividends for the state over the last decade, and they’re trying to move it up to the next level,” Gigerich said.

The feds and states are still working out how much of the infrastructure funding can be spent, with the Biden administration favoring objectives such as benefiting people in disadvantaged areas and slowing climate change. But more than half of the $600 billion in transportation funding is being transferred to state discretion through federal highway funding, and many governors and their economic-development staffs are eager to apply the financing to highway funds, for instance, rather than mass transit.

In fast-growing Austin, Texas, for instance, capital of the No. 1 state in the Chief Executive rankings once again, city planners want to build new light-rail lines for downtown but also welcome the fact that the infrastructure bill will hasten a four-lane expansion of Interstate 35 through the city. Austin is on track to about double its population to two million in the next few decades.