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Column: State looks at economic incentives, but to what end?

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Congratulations to the Indiana General Assembly! These good men and women, unexpectedly, have taken a step forward toward rationality. Or so it would seem.

By a vote of 93-0 in the House and 41-8 in the Senate, they approved House Bill 1020, authored by Rep. Eric Koch, R-Bedford. In the Senate, the bill was sponsored by Sen. Brandt Hershman, R-Buck Creek, who heads the bipartisan Commission on State Tax and Financing Policy.

The bill provides for a study of economic development incentives awarded by the state, counties, cities and towns to companies locating or expanding in Indiana.

The study charges the commission “to review, analyze and evaluate … incentives … provided to encourage economic development or to alter, reward or subsidize a particular action or behavior by a tax-incentive recipient.”

This is a wide-ranging mandate written in that special language that can be understood only by legislators. The commission is to provide a comprehensive review of incentives during a five-year period beginning when the current legislative session is complete. The “nonpartisan Legislative Services Agency is to conduct the evaluation and analysis of each incentive” reviewed by the commission.

What criteria will be used by Legislative Services Agency in the evaluation? What factors will be analyzed? The bill leaves this open, and we must presume that the agency will decide these questions, perhaps with guidance from the commission. And who, if anyone, will guide the commission?

This ambitious program is to “cover exemptions, deductions, credits, preferential rates and other tax benefits that:

Reduce the amount of a tax that would otherwise be due the state

Result in a tax refund in excess of any tax due; or Reduce the amount of property taxes that would otherwise be due to a political subdivision of the state.”

Further, the review would cover programs that “provide improvements or to retire bonds” for sports facilities, revitalization areas, enterprise zones or tax-increment financing districts.

The information gathered by this study could be a great benefit to economic development professionals and the many governmental units that grant subsidies to the private sector.

A five-year study would take us to 2019. During those years, the political composition of the legislature and the administration could change. Different people, even of the same party, might question the results of such a study. They might request a review of the review, kicking the can further down the road.

Such a study, however, may send chills down the spines of both politicians and economic developers. For years there has been little public accountability for the spending on economic development. We do see self-serving annual reports and a flood of news releases, but rarely is there an attempt to match the outcomes of these programs with their costs.

Maybe this study will show what works and what hasn’t worked in economic development. Or maybe it will only confirm that, in this area of human endeavor, meaningful performance metrics are difficult to conceptualize and evaluate.

Morton Marcus is an economist, formerly with the Indiana University Kelley School of Business. Send comments to letters@dailyjournal.net.

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