A case study of the impact of public investment expenditures in Hancock County, Tennessee

In the first half of the 1960s, several pieces of legislation were enacted to provide aid to economically depressed regions. Under these acts and through existing federal agencies, a system of grants and loans was established with the goal of stimulating local economies in declining areas. This stimulation was based not only on social and political considerations but economic ones as well. It was hypothesized that increasing output in lagging regions, through decreased unemployment and more productive use of labor, would increase total national output.

Although there are those who disagree with this rationale, government policy has continued under the same assumptions. As funds are far too limited to meet all needs of all areas, decision makers have evolved a system of multiple objectives whereby one project is expected to solve more than one problem. Public investment expenditure in lagging regions are often justified not only on the basis of need for public facilities but also on the positive impact such funds would have on the area's economy through increased employment opportunities and interindustry trade.

The success of this approach depends upon the actual expenditure of these funds in the county toward which the aid is directed. This research traced several grants and loans given to Hancock County, Tennessee, between 1975 and 1977 through the contractors and subcontractors to determine actual outlays in the county for labor and materials, It was found that a small percentage of the money stayed in the county so that expectations of significantly increased local employment and interindustry trade may have been exaggerated. It was hypothesized that a system of multiple objectives may lead to a suboptimal allocation of funds. Furthermore,an inaccurate estimation of the impact of public programs may distort the trade-offs of the individual goals, thereby aggravating the situation.