In some nations or states and provinces within nations, the laws may limit the
use of tax and other public revenues to spending for public services and projects.
However, in other nations, many state and local governments have broad
legal authority to finance incentives for businesses and for private nonprofit
organizations in order to foster economic development. In return, the businesses
and private nonprofit organizations are expected to make investments
that create jobs, raise incomes, and produce additional taxes and revenues for
the governmental entities that provide the incentives. The incentives can
include the construction of public infrastructure (streets, water and sewerage
lines, and the like) that serves just the business or private organization; provision
of low- or no-interest loans to finance business or private organization
investments; grants of cash to help a business or private organization buy and
improve land, build facilities, or acquire equipment; and forgiveness of future
tax obligations for a period of years. If a local jurisdiction has the legal
authority to provide these or other incentives to finance private economic
development, it should have a policy to guide its financing decisions in this
area. Such a policy must be based on the laws authorizing the incentives. It
should identify the kinds of financing to be provided; eligible businesses and
organizations; and the additional jobs, income, or taxes that the businesses or
private organizations would produce in the community