The Center for Business and Economic Research recently released a study explaining the generally disappointing results of local economic development efforts in Indiana. It is worth reading in whole, but the gist of it ought to be part of the local discussion about efforts to attract jobs and households.
The eye catching part of the study is the collapse of “footloose” jobs that are the target of economic developers in counties and municipalities across the state. Since the late 1960s, the US has created more than 90 million new jobs, but has fewer of the “footloose” jobs than at any time since then. This comes from a combination of household consumption shifting away from manufactured goods and from vast increases in production per worker in manufacturing and logistics.
The unhappy result is local economic developers chasing a shrinking number of “footloose” or attractable jobs. At the same time, local governments in Indiana support this activity with tax abatements, TIF and myriad other efforts. This spending diverts resources away from schools, parks, roads and other infrastructure that attract people, who are the ultimate source of non-footloose jobs.
To be clear, at the state level, Indiana is doing most things right. Our state economic development organization is lean and nimble. State incentives, primarily the EDGE credits, target employee training, and aren’t paid until the jobs are actually created. Indiana’s state-level economic development incentives are modest and effective. A 2012 study published by my center found that costs of the EDGE credit was less than $2,500 per job created. This makes it one of the more efficient programs in the country.
Local efforts are a study in contrast. Our research found tax abatements are creating jobs at maybe $30,000 per job, while swallowing a huge share of new business tax base. And to be clear, there’s not much thoughtful disagreement on the ineffectiveness of local incentives. A recent study on TIF by USI reported job creation costs of about $33,000 per job, every year. Now, that is the pro-TIF study, sponsored by several redevelopment commissions and consultants. Other studies by my center and the Legislative Services Agency offer less sanguine conclusions, but no matter whom you believe, it is time for change in local economic development.
To be truthful, it is shocking that men and women on economic development boards have continued this for so long. They and the business community ought to look hard at what has happened for nearly a half century. A business that has taken a property tax abatement or asked for a TIF has forfeited its right to complain about a worker shortage or skills shortage. That is money that didn’t go to schools or amenities.
Fixing our local economic development efforts won’t be easy. The Regional Cities Initiative may be the single best way to focus dollars and strategies towards attracting people. The real fix is not at the state level, but rather at the local level. While there are a few good examples of abatements and many good examples of TIF around Indiana, $30,000 plus per job is disappointing. It is time for local governments and economic development boards to start figuring out how to attract people, and leave the business attraction to state and regional groups.
Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. Hicks earned doctoral and master’s degrees in economics from the University of Tennessee and a bachelor’s degree in economics from Virginia Military Institute. He has authored two books and more than 60 scholarly works focusing on state and local public policy, including tax and expenditure policy and the impact of Wal-Mart on local economies.