Abatement deals must work for all Hoosiers

Two economic development projects offer blunt confirmation about the poor state of our local economic development policies in Indiana. The announcements themselves took place in two very different places; Marion (Grant County) and Boone County.

On the face of it, both of these press releases offer the familiar elements of a happy economic development story. In Marion, GM announced a $91 million investment that would preserve 120 jobs in the county. In Boone County, it was Ken’s Foods bringing 150 jobs with $80 million invested. Both firms apparently are eligible for the very successful state EDGE training tax credits that run about $900 in training tax credits per job.

These are probably good jobs. GM didn’t report a wage, but it is likely better than the county average. Ken’s Foods was reported to pay more than $20 an hour, though given the industry and previous announcements, that figure almost certainly includes benefits. According to the Department of Labor, the average wage in Boone County in 2014 was more than $21.30.

It is almost assured that the income from these new jobs are actually below the county average. So much for the goal of increasing incomes.

As is often the case, both local governments offered property tax abatements. Fortunately, both deals were for less than the maximum allowable time, and neither project appears to have in place the 25-year ‘super abatements’ that have become a common use of TIF. Still, the numbers should prove a disheartening surprise to taxpayers.

Boone County offered a four-year tax abatement, which they claimed was worth about $4.2 million, to Ken’s Foods. I think that tax calculation a bit optimistic, but even at that estimate, the cost to local taxpayers is $28,000 per job.

Marion offered a worse deal, with a five-year tax abatement. At the countywide effective property tax rate, that means the taxpayers of Marion are paying GM between $60,000 and $70,000 per job with this deal.

To be fair, Boone County and Marion are vastly different in their economic prospects. For the foreseeable future, Boone County will continue to grow, while Marion will continue to shrink. Boone County has been successful in attracting families, with good schools and other amenities. Marion has more jobs than workers willing to live in Grant County. That includes most of the jobs saved in this deal.

I am modestly conservative on fiscal matters, and am mightily pleased as both an economist and citizen that Indiana has made itself such an attractive place for business. Unfortunately, deals like these treat communities like cheap commodities. Indiana has arguably the strongest business climate ranking in the nation, yet places think it wise to subsidize new jobs at the expense of existing taxpayers. So much for business acumen on local economic development boards.

These deals are stark evidence of an economic development approach that enriches investors and consulting firms, but does nothing to improve Indiana’s overall economy. It is well past time for Indiana to have a full and honest discussion about making Indiana’s local economic development policies work for all Hoosiers.

Michael Hicks is the director of the Center for Business and Economic Research and an associate professor of economics in the Miller College of Business at Ball State University. Send comments to awoods@tribtown.com.