April 19, 2020
No Better Time to Rethink Economic Development Spending
One silver lining to our COVID-19 response is a forced re-evaluation of the value of our economic development dollars and the organizations they support. This is especially relevant for groups who receive public dollars because of the deep budget squeeze we will face for the two coming years. One way to measure the benefit of these groups is to compare them to other organizations that make our communities more attractive places to live and do business.
Fortunately, Congress has helped frame the issue in a way that should help us all do some of the calculus of value. The CARES Act authorized small business loans to most not-for-profit groups. Food banks, youth sports, the Boys and Girls Club and the YMCA are all eligible for these loans. Congress also expanded the range of charitable gifts these groups can receive.
This part of the CARES Act was well designed. Congress made clear what most of us implicitly recognize, that many not-for-profits provide local benefits, which when added together make the nation’s economy stronger and more resilient. We need these groups to be active as our economy begins to recover.
However, Congress chose not to extend these loans to 501c(6) non-profits. Here in Indiana, these are most recognizably local economic development organizations and convention and visitor bureaus. This was no accident. Unlike a local little league team or YMCA, the primary mission of these 501c(6) groups provides zero value to the nation as a whole. Instead, they exist mostly to lure business from one town to another. Congress wisely figured that the last thing we need to recover from this pandemic were subsidies to groups who add nothing to the national economy.
This is an ideal time to scrutinize the value of these groups. Inevitably, many economic development and tourism organizations will close in the coming year or two. We should welcome the creative destruction of those organizations stuck firmly in the 1960s models of business attraction or destination marketing. The harsh economic conditions of 2020 and beyond offer an epiphany in our economic development efforts. We would be foolish to let it pass.
In the coming months, I urge cities and county leaders to pressure their economic development and visitor bureaus to change. Local economic and tourism marketing groups should be replaced by regional organizations. These new regional groups should organize to meet the requirements of Indiana’s Regional Development Authority model or the federal model of Economic Development Districts.
At the same time, these new groups should re-focus their missions. Business incentives and dollars spent on attracting new businesses should be spent elsewhere. Some of these resources could be allocated to supporting the retention and expansion of existing businesses, but the majority of revenues should go to improving quality of place. Regional marketing either for economic development or destination tourism should’ve been left in the 1970s along with disco shoes and pet rocks.
Likewise, the steep losses of Innkeeper’s Tax over the next year will threaten the financial viability of most local convention and visitor bureaus. While Indiana needs a formal presence in tourism, the large marketing budgets locally have done nothing for Indiana. Over the past 20 years, Indiana’s hotel and motel industry shrank relative to the nation as a whole and as a share of state employment. Over the same time, Hoosier spending on recreation dropped by a third relative to the nation as a whole. It is well past time to rethink our approach. Tax dollars spent on tourism should help Hoosier citizens enjoy better recreational opportunities, not support a sector that can afford its own marketing dollars.
Finally, in these grim fiscal times, it is important to acknowledge that many groups have already made these changes. Several economic development organizations focus their mission and resources on quality of place and some communities spend their Innkeeper’s Tax on developing recreational activities locally. Similarly, the most successful regions of Indiana have already organized functioning regional groups to work with state and federal government. This work will sustain Hoosier communities as they recover from this pandemic. The old-timey business attraction and destination marketing efforts will not. It is time to abandon them.
About the Author
Educational Attainment, the 21st Century Fund and the Future of SchoolingIndiana ranks 42nd in educational attainment.
Big Savings for Ending Prevailing WageMy statistical models show that repealing state prevailing wage laws save taxpayers money.
Re-Thinking Economic Development A large share of the most mobile families—perhaps half—no longer need to live near where they work.
Money Illusion and InflationPrice fluctuation could cause inflation to last longer, but it didn’t cause the inflation, it simply extends the pain.View archives