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

Two Key Economic Lessons in One BillHoosiers face trade-offs and opportunity costs in the wake of SEA1.

Time to Fix Economic Development PolicyAllocating tax dollars to land development won’t cause economic growth.

The Unanticipated Effects of SB1Businesses, governments and households may all feel the effects.

The Stupidest of PoliciesThis whipsawing of tariff rates has unnerved financial markets, which on Wednesday, were toying with a liquidity crisis.

View archives

Top Tags

jobs and employment 261
economics 201
state and local government 188
education 186
economic development 171
indiana 171
budget and spending 145
taxes 144
law and public policy 142
workforce and human capital 139
Browse all tags
Reporter / Admin Login

June 21, 2015

Watch Economic Development Spending

Local governments in Indiana spend tax dollars on many goods and services that make our lives better. Police and fire protection, roadways and other infrastructure, parks and amenities comprise the bulk of this spending. As in most states, the single largest piece of spending is our local public schools. We may argue about the right size and scope of this spending, but the need for these things is not at issue.

Quietly hidden from the watchful gaze of most taxpayers is the second largest expenditure—traditional economic development. In 2015 Hoosier cities and counties will spend about 1.5 billion dollars on tax abatements, TIF and direct economic development expenditures. That is more than they will spend on fire, police, and parks combined. While most of us would agree that we should be doing some traditional economic development, it is certainly time to ask serious questions about the effectiveness of these policies.

There is abundant technical research on traditional economic development policies, some of which I have authored. The results of this work are very mixed. Some policies work, while others do not. Instead of detailing that research here it might be better to simply look at the availability of ‘footloose’ businesses that we spend so much money trying to attract.

For a long time, Americans have been radically changing their buying habits. Today most household income is spent on locally-produced services. Businesses that provide these services must locate where their customer are, not where economic developers lure them. At the same time, we have become very good at manufacturing goods. This is due to huge capital investments. So, even when we adjust for inflation, a million dollars in capital purchases in 1950 would have brought in 20 new jobs, while today it is four or fewer. The net result is that since 1970 the U.S. has created 90 million new jobs, but there are actually fewer ‘footloose’ jobs.  

The simple fact is that today, maybe one out of 50 jobs could be lured from one place to another with abatements, tax credits or other economic development tools. Over the past decade, fewer than 150 factories with more than 500 workers opened or relocated in the U.S. Given the more than 3,100 counties in the country, that means that you might expect one of these factories every 22 years or so.

These are grim facts for those who feel that attracting new businesses offer a path to prosperity for Hoosier communities. Fortunately there is another way, and the most thoughtful Indiana communities, along with hundreds more across the country, have already adopted them. What works for those communities is attracting people, for it is people that businesses increasingly seek out, either as workers or customers.

That is good news for Indiana, for it turns out that as businesses have become less mobile, households have become highly mobile. To attract households all you need is good schools, safe, livable communities, and a nice mix of recreation. If communities really want to prosper, that is where they need to focus their spending.

Link to this commentary: https://commentaries.cberdata.org/791/watch-economic-development-spending

Tags: community, economic development, growth, jobs and employment, quality of life and placemaking, budget and spending


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. 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.

© 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