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December 13, 2002

Energy for the Indiana Economy

The Indiana economy propelled into the future by tobacco money?  Even though tobacco settlement checks have been arriving at the state treasury for a few years now, the idea of hitching our economic aspirations to the hope that smokers nationwide will continue to indulge in their deadly habit in the coming decades still seems strange to us.  That's probably why we originally were one of the few states to set aside most of those revenues to new programs on tobacco cessation, rather than mix them into general funds.

The O'Bannon administration's recently unveiled "Energize Indiana " initiative would change that.  The proposal abolishes the tobacco settlement trust fund, and securitizes the 40 percent share of settlement payments that were once directed there, producing a $887 million war chest.  That, in turn, helps fund an ambitious program of spending on a range of economic development initiatives aimed at education, new business startups, and capital projects.  And it does this, its publicity reminds us, at no additional cost to taxpayers.

The last statement, of course, requires a leap of faith that is larger than we might want to make.  Not only are the tobacco settlement monies themselves derived from a form of tax on smokers -- in the form of dramatically higher prices for cigarettes charged by the companies making the payments -- but the looming presence of a large state budget shortfall in the next biennium makes some kind of tax The Indiana economy propelled into the future by tobacco money?  Even though tobacco settlement checks have been arriving at the state treasury for a few years now, the idea of hitching our economic aspirations to the hope that smokers nationwide will continue to indulge in their deadly habit in the coming decades still seems strange to us.  That's probably why we originally were one of the few states to set aside most of those revenues to new programs on tobacco cessation, rather than mix them into general funds.

The O'Bannon administration's recently unveiled "Energize Indiana " initiative would change that.  The proposal abolishes the tobacco settlement trust fund, and securitizes the 40 percent share of settlement payments that were once directed there, producing a $887 million war chest.  That, in turn, helps fund an ambitious program of spending on a range of economic development initiatives aimed at education, new business startups, and capital projects.  And it does this, its publicity reminds us, at no additional cost to taxpayers.

The last statement, of course, requires a leap of faith that is larger than we might want to make.  Not only are the tobacco settlement monies themselves derived from a form of tax on smokers -- in the form of dramatically higher prices for cigarettes charged by the companies making the payments -- but the looming presence of a large state budget shortfall in the next biennium makes some kind of tax increase a distinct possibility.  And if those taxes must be raised because tobacco payment revenue is not available for base spending, how can this new spending really be considered "free?"

But if some of the rhetoric of the administration's proposal rings a bit hollow, the very fact that an ambitious spending plan directed at economic development is surfacing during a time when monies are scarce represents something of a watershed.  Only a few years ago, if you suggested that something was amiss with the state's production-oriented economy, the silence from our leadership would be deafening.  But the recession's painful footprint in Indiana has reminded us very forcefully that we need growth beyond what our traditional industrial base can be expected to deliver.

The battle to attract new investment, new jobs, and, yes, new residents is one that we cannot afford to keep losing.  Michigan , which has also suffered during the recession, has managed thus far to keep its support for new technology initiatives intact.  Connecticut , which is about to lay off six percent of state government workers, has authorized $100 million in bonds to upgrade its state university.  Can we afford to put development on hold until the recession cloud has lifted?

But there are at least three dangers posed by the O'Bannon administration's staking out of the high ground as embodied in the Energize Indiana proposal.  The first is the budget shortfall.  While the proposal's text deplores the use of tobacco settlement monies as a Band-Aid to the budget, the fact remains that a Band-Aid is needed.  If the shortage of revenue forces the legislature to reduce spending in the same categories supported by the new spending, the only result will be empty rhetoric.  What is needed is a complete proposal -- to solve the state's fiscal dilemma, and its economic shortcomings.

A second, very real danger is the political process that's putting the whole thing together.  Spreading the development spending around makes good politics, but not necessarily good management of the economy.  This is particularly so for issues that involve Indianapolis .  The state's largest urban area is the only one for which some new industry development plans may be viable.  It would be a pity to see those plans starved of funds for political reasons.

The final danger we must fight off in the Energize Indiana plan is the notion that this is all that is needed.  If the proposal were to become reality, we would clearly have something to sell and to brag about, yes.  But the bread and butter operations of government, from administering laws, to paving roads, to supporting and financing schools, are in need of attention as well.  Let's hope we're on the road to making that happen.

Link to this commentary: https://commentaries.cberdata.org/392/energy-for-the-indiana-economy

Tags: jobs and employment, economic recovery


About the Author

Pat Barkey none@example.com

Patrick Barkey is director of the University of Montana Bureau of Business and Economic Research. He served previously as Director of the Bureau of Business Research (now the Center for Business and Economic Research) at Ball State University, overseeing and participating in a wide variety of projects in labor market research and state and regional economic policy issues. Note: The views expressed here are solely those of the author, and do not represent those of funders, associations, any entity of Ball State University, or its governing body.

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