Lunch Downtown: Chewing on the Big Lie

November 28, 2011

by Ryan Cummins

I had lunch downtown recently. The experience always gets me to evaluating my local government’s efforts in “economic development.” Like nearly every Indiana city, we back up our nostalgia for the downtown area with millions of dollars taken from taxpayers all over the city, county, state and nation.

The truth is our downtown is a pleasant place. But given the staggering amounts of our money poured into it in the name of revitalization, it should be.

We started with a taxpayer-funded parking garage about 20 years ago. It recently sold for less than it cost to build and only after being subsidized every year of it’s existence.

That was followed by our mixed-use building with apartments and business space. This was to have been the catalyst to “bring downtown back.” Within 10 years, though, it sold for 15 cents on the dollar, or about what it was worth originally after being heavily subsidized from the beginning. We followed this by pouring millions more tax dollars into hotels, museums, more parking garages, festivals, benches, signage and so forth.

As we poured money into our downtown, we watched the decline — practically in tandem — of other commercial areas. So we now have six Tax Increment Financing districts (TIFs) covering several square miles of my city of less than 60,000 people. Given the expensive efforts of the government, It’s hard to imagine that so much property is actually “economically distressed,” part of the legal requirement to establish one of these tax scams.

Nonetheless, we subsidize practically anything that moves in those TIF districts — and quite a bit that doesn’t, and never will. We own empty buildings at our tax-supported airport, which was built for a company that stayed less than two years before skipping town for a better government subsidy elsewhere. The air freight company went bankrupt when that subsidy ran out.

Statewide, South Bend this month lost its heavily subsidized and unexpectedly costly College Football Hall of Fame. Indianapolis and Carmel taxpayers are just now learning how much sports stadiums, libraries and music halls can cost when they are built by “people spending other people’s money” to use Milton Friedman’s famous phrase. Fort Wayne, after tearing down a new baseball stadium to build a newer one downtown, is trying to put the best face on a related condominium project that is way late and underwhelming for the price.

Indeed, it is difficult to find an economic-development scheme anywhere in Indiana that came in under budget meeting expectations.

We have funded economic development as if it were a war — providing abatements, deferrals, special deals, infrastructure and direct taxpayer funding at a level on par with any state in the Midwest. Given all this, and the promises made for this public “investment,” we should be showered in prosperity and opportunity.

A 2002 study in the Journal of American Planning Association, “Underestimating Costs in Public Works Projects,” found that American cost overruns reached an average of $55 billion per year. And that was before Barack Obama. The study, looking over the previous 70 years at 258 government projects around the world with a combined value of $90 billion, found that totals spent routinely ranged from 50 to 100 percent more than the original estimate. In fact, nine out of 10 government projects missed their promised cost figure let alone their promised benefits.

So what do you call someone who is wrong 90 percent of the time? Veronique de Rugy, referring to that same study, suggests that would be a liar.

“It’s hardly surprising that politicians lie so routinely; voters let them get away with it,” she writes in the March issue of “When programs go over budget, fail to deliver on their creators’ promises, or simply do not work at all, taxpayers rarely punish those responsible. So lawmakers keep making unreliable promises of low costs, and we keep on accepting those promises at face value. Indeed, voters generally reward legislators who bring more federal funds to their states or districts.”

The solution is to take political ambition out of the equation and replace it with economic principle. John Mackey, founder of Whole Foods Inc., reduced it to a sentence in his recent article for the Wall Street Journal:

“America became the wealthiest country because for most of our history we have followed the basic principles of economic freedom: property rights, freedom to trade internationally, minimal governmental regulation of business, sound money, relatively low taxes, the rule of law, entrepreneurship, freedom to fail and voluntary exchange.”

Please note that Mr. Mackey’s sentence didn’t require that government provide any abatements, deferrals, special deals or, come to think of it, reelection of those claiming that such things constitute “development.”

Ryan Cummins, an adjunct scholar of the Indiana Policy Review Foundation and owner of a retail business, is former chairman of the finance committee of the Terre Haute Common Council.


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