The Rabbit Is Eating the Eco-Devo Hat
by CRAIG LADWIG
Many years ago a big-name manufacturer in my town shocked a heavily unionized labor force by announcing it was pulling up stakes for more productive pastures. Our mayor, a master politician, announced what was then an innovative policy — subsidies and tax abatements.
In private, the mayor conceded to the editors of a local newspaper that the program might be ineffectual, that municipal government could not counteract global trends let alone suspend the principles of economics. It was important, though, that the electorate saw his office doing something. His worried community needed encouragement, reason to hope.
Somewhere between then and now, a generation took office unaware that eco-devo, as it is reverently known in planning departments through Indiana, was mere posture if not slight of hand. These officials think that municipal government can actually pull the rabbit out of the hat, can create jobs by picking winners and losers in businesses about which they are functionally ignorant and using other people’s money.
And oh the tangled web they have woven trying to square that with reality.
Just how tangled is clear in reading an annexation request now before my city council. A voluntary annexation would qualify the applicant for an abatement and other special considerations for his business. He hopes to manipulate a process that has become so complicated, so laced with poorly understood incentives, disincentives and unintended consequences that it is outside the proper role of government and unconnected to any real economy.
Thus the line between fantasy and reality on such a critical issue as economic growth becomes blurred. Here is what happens when lawyers rather than market forces drive business decisions:
- First and most ironic, the proposal is likely to be revenue neutral for the city over the 10-year abatement term (the city will incur $5,000 annual costs maintaining an annexed intersection).
- At the same time, it acts as an effective dodge of taxes that would otherwise be levied on the property by the local school district and county government.
- The parcel to be annexed is only a small part of a larger development plan that would remain in the county, where, one assumes, the owner prefers to be, all things being equal, sans abatement.
- Consequently, it is not surprising that the business cannot be accessed from the city itself; visitors must drive into the county to find its entrance.
- Property values (and subsequently tax revenue) of nearby residencies and businesses are likely to suffer because of the arbitrary nature of the annexation and the fear that jagged city boundary lines eventually will be smoothed out to bring them into the city.
- It is assumed that some of the “new” employees used to justify the abatement will actually be splitting time between the current office in an adjacent county where their income taxes are in fact collected. Perhaps only one actual employment will result, a receptionist position.
The most discouraging aspect is that unprincipled city officials have been given reason and opportunity to trap tax dollars needed by a surrounding county. Critics are right to wonder how impoverishing one governmental jurisdiction in favor of another creates jobs or investment for a community.
Again, all of this is done in the name of economic development. The policy’s failure, though, is either invisible to the typical voter or projected beyond the political horizon. Meanwhile, the will to pursue true economic development, i.e., even-handed but minimal government intervention, atrophies.