Center for Business and Economic Research - Ball State University


CBER Data Center
Projects and PublicationsEconomic IndicatorsWeekly CommentaryCommunity Asset InventoryManufacturing Scorecard

About

Commentaries are published weekly and distributed through the Indianapolis Business Journal and many other print and online publications. Disclaimer

RSS Feed

Disclaimer

The views expressed in these commentaries do not reflect those of Ball State University or the Center for Business and Economic Research.

Recent

The 2023 ForecastThe reason for worry about a recession is the Federal Reserve’s response to high inflation.

Some Labor Market Facts You Won’t Read ElsewhereIndiana is simply not producing a 21st century workforce.

Three Types of Public DebtAll types of public debt are effectively transfers of wealth from the future to our present selves.

Remote Work Is Indiana’s Biggest Opportunity and RiskThere are now more Hoosiers in remote work than there are in manufacturing and logistics combined.

View archives

Top Tags

jobs and employment 225
economics 173
education 144
economic development 141
taxes 122
state and local government 119
finance 107
recession 100
budget and spending 98
indiana 96
Browse all tags
Reporter / Admin Login

May 4, 2014

The Tale of Three States

Having lived and worked in three different states over the past decade, I have had occasion to watch the way local government operates. In particular, I am interested in how state policy influences the goodness or badness of local government. I start in West Virginia, where I lived a decade ago.

The Mountain State decided in the 1930s to make most budget decisions at the state level. All but a tiny share of property taxes are collected by the legislature and distributed back to local governments using an opaque formula. The legislature, in its munificence, holds about a quarter of total tax revenue in a single large fund it carefully doles out in special earmarks. Successful county or municipal elected officials in West Virginia spend no time at all on such mundane matters as improving schools or paving roads. Instead they lobby the legislature for earmarks.

The results of this practice are a catastrophic deficit of local amenities, ubiquitously bad schools and a lagging economy. Local leadership is all about securing earmarks, not good governance. Tellingly, it is this political environment on which the young Robert C. Byrd learned his craft, when he was not attending Klan meetings. In 2004 I left for Ohio.

In contrast the Buckeyes have a much more decentralized local government. Mayors, county and township officials, school boards and special taxing authorities make their case for higher taxes directly to voters. Rates are set by referendum and local governments collect and spend taxes. Here they can observe first-hand the ill effects of raising taxes and the beneficial effects of good public services. Most local leaders seek a comfortable balance. Not surprisingly, in this environment local elected leaders tend to all know how to read a balance sheet and how to think about investing public funds.

Ohio is not a utopia, but in the three years that I lived in one of the most conservative congressional districts in the Midwest, my township twice voted overwhelmingly to raise our taxes to build new schools and to install AstroTurf on a high school football field. To Hoosier ears that sounds implausible, but the local school board provided voters a break even analysis on the investments. I am rarely a fan of higher taxes, but that was admirable local governance, due mostly to the way local taxes and spending were structured. Then I moved to Indiana.

Local governments in Indiana set budgets but not tax rates. This astonishes many people outside the state, and is in truth a lot like cutting paper with one-bladed scissors. The result is ragged, with almost no balance between tax rates and local services across Indiana’s unfathomably large number of local jurisdictions.

The lack of a clear connection between local tax dollars and the benefits of local spending leave most of Indiana unattractive to residents. Only 12 Indiana counties are winning the national “vote with your feet” election. This, more than any other problem facing the state, is holding back economic and population growth. The problem grows more urgent each year.

Link to this commentary: https://commentaries.cberdata.org/732/the-tale-of-three-states

Tags: government, law and public policy


About the Author

Michael Hicks cberdirector@bsu.edu

Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. Hicks earned doctoral and master’s degrees in economics from the University of Tennessee and a bachelor’s degree in economics from Virginia Military Institute. He has authored two books and more than 60 scholarly works focusing on state and local public policy, including tax and expenditure policy and the impact of Wal-Mart on local economies.

© Center for Business and Economic Research, Ball State University

About Ball State CBER Data Center

Ball State CBER Data Center is one-stop shop for economic data including demographics, education, health, and social capital. Our easy-to-use, visual web tools offer data collection and analysis for grant writers, economic developers, policy makers, and the general public.

Ball State CBER Data Center (cberdata.org) is a product of the Center for Business and Economic Research at Ball State University. CBER's mission is to conduct relevant and timely public policy research on a wide range of economic issues affecting the state and nation. Learn more.

Terms of Service

Center for Business and Economic Research

Ball State University • Whitinger Business Building, room 149
2000 W. University Ave.
Muncie, IN 47306-0360
Phone:
765-285-5926
Email:
cber@bsu.edu
Website:
www.bsu.edu/cber
Facebook:
www.facebook.com/BallStateCBER
Twitter:
www.twitter.com/BallStateCBER
Close