Category Archives: Local Government

Outsourcing Responsibility

Sometimes, I wonder why we bother to elect chief executives, since an increasing number of them are clearly uninterested in that boring activity called…what was it? oh yes…governing. Public administration. Management.

Yesterday’s news highlighted the latest in a series of missteps (a nicer word than “fuck ups”) by the Pence Administration. (Actually, I believe this one dates back to Daniels’ time.)

State officials threatened Wednesday to find a private developer in default of its contract for building a 21-mile section of the Interstate 69 extension in central Indiana after a major subcontractor stopped work over lack of payment.

The Indiana Finance Authority has issued a notice of non-performance to I-69 Development Partners LLC for the project upgrading the current Indiana 37 route between Bloomington and Martinsville.

According to bids submitted for the project in 2013, I-69 Development Partners consists of OHL Concesiones of Madrid, Star America Fund LLC of Roslyn, New York, and UIF GP LLC of Delaware.

The dispute comes after Crider & Crider Inc., the contractor responsible for the project’s earth-moving operations, halted work this week.

For the past several decades, public officials–especially but certainly not exclusively Republican elected officials–have had a love affair with so-called “privatization.” I say “so-called,” because genuine privatization involves government’s withdrawal from a given activity (Margaret Thatcher selling off steel mills to the private sector, for example.) In the U.S., what is usually called privatization is actually outsourcing–the practice of choosing a for-profit or nonprofit surrogate to manage a job or provide a service on behalf of a government agency.

I have written extensively about the issues involved in outsourcing, and I’m not inclined to belabor the issue here. Suffice it to say that agencies of government may contract with private entities to provide government services, but they cannot contract away their ultimate responsibility for seeing to it that the project or service is appropriately managed or delivered.

When government hires a contractor to perform a service–in this case, to build a road–it still has the obligation to supervise that contractor’s performance. Effective and competent outsourcing requires that the relevant government agency retain sufficient capacity to manage and monitor the contractor.

Some government functions, of course, simply should not be outsourced. (Private prisons come to mind.) Reasonable people can argue about the wisdom of contracting with private developers to manage the building of roads, but those reasonable people will usually agree that the state retains an obligation to supervise and control its contractors, who are, after all, being paid with tax dollars.

In this case, clearly, that supervision was lacking. And we all know who pays the price when government fails to discharge its most basic responsibilities, one of which is infrastructure:

State Rep. Matt Pierce, D-Bloomington, said many people are frustrated with the traffic delays on Indiana 37 caused by I-69 construction and that he’s not been able to get answers from state officials or the developer.

“People don’t understand why they’re driving through miles and miles of traffic barrels and seeing little, if anything, getting done,” he said.

About 95 miles of the I-69 extension have opened since 2012 between Evansville and Bloomington through southwestern Indiana. The total cost of the I-69 extension is estimated at $3 billion, but the cost of the final leg from Martinsville to Interstate 465 has not been determined.

When that cost is determined, we all know who will pay it.

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The (P)art of the Deal

Economic development efforts often seem like a zero-sum game; Indiana offers training funds or infrastructure improvements or property tax abatements to businesses relocating from, say, Illinois, and Illinois does the same for businesses coming from Indiana.

Even within the state, municipalities try to lure employers to City A from City B by offering tempting “goodies.”

There are lots of problems with this state of affairs. It tends to be unfair to small businesses that have been longtime corporate citizens, and all too often, the relocation would have occurred without the (legal) bribe represented by these incentives. Worst of all, however, is the reluctance of the state to require or enforce appropriate “clawback” provisions.

When state or city government offers incentives to businesses, it is in return for that business undertaking to create a certain number of jobs. The idea is that the government will recoup its up-front investment in the form of additional taxes paid by a growing workforce. The agreement, or contract, obligating the unit of government to provide the incentive should include provisions protecting the government in case of default; in other words, if the business fails to create the promised jobs, or moves its operations elsewhere, it should be required to repay the amounts advanced.

Fair enough. You do what you say you will do, or you pay us back. The Pence administration, however, pursues a narrow version of the clawback.

An IndyStar analysis found that the Indiana Economic Development Corporation — which Pence leads — has approved $24 million in incentives to 10 companies that sent work to foreign countries. Of those incentives, nearly $8.7 million has been paid out so far.

During that same period, those companies terminated or announced layoffs of more than 3,800 Hoosier workers while shifting production to other countries, where labor tends to be far less expensive.

The state has clawed back or put a hold on some or all of the incentives in four of those cases, returning $746,000 in taxpayer subsidies. But in the other six cases, the companies faced no consequences.

The primary reason: The job creation and retention requirements in the state’s incentive agreements are usually narrowly tailored to a single facility, leaving workers at other sites owned by the same company vulnerable to offshoring.

During the last legislative session, House Democrats  authored language that would have required corporations that move facilities out of Indiana to re-pay any property tax incentives they had received, and also would have prevented those companies from receiving other state tax breaks. The proposal–which was an amendment to another bill–ultimately went nowhere.

Meanwhile, as the Star reported, the state’s much-touted job growth figures pale in comparison to the jobs lost to offshoring.

Those records show that the same 10 companies or their related subsidiaries have laid off or plan to layoff more than 3,820 workers in Indiana because work has been shifted to other countries since 2013.

Those losses are more than three times larger than the number of jobs that would have been created under the state’s incentive agreements, even if they had all come to fruition.

Here’s the thing: companies have the right to move their operations. But that shouldn’t mean they have the right to move and keep the tax dollars that Hoosiers forked over in the expectation that they would honor their commitments, stay in the state, and create jobs.

A deal is a deal–and the state should play hardball, not wiffle-ball.

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Beer, Wine and Cronyism

I rarely follow the ins and outs of liquor permitting in the Hoosier state (or elsewhere, for that matter). To be candid, I consider the complex web of restrictions governing the sale of alcohol to be an unfortunate “leftover” from America’s more Prohibitionary times and impulses; aside from reasonable restrictions on sales to minors, I see no legitimate reason for most of these rules.

However, a lawyer friend suggested I read the court order recently issued in the case of “Spirited Sales v. Indiana Alcohol and Tobacco Commission.” It was an eye-opener.

The take-away lesson will confirm the suspicions of both cynics and libertarian-minded citizens: arcane and excessive regulatory processes can be manipulated if you have friends in high places. (And I might note that with the loss of  reporting on local government agencies, the manipulators have become bolder.)

The 50+ pages of the Marion Superior Court’s order detail how favoritism and cronyism benefitted competitors of Spirited Sales, whose parent company is owned by shareholders of Monarch Beverage, a beer and wine wholesaler.

Spirited Sales had applied for a liquor wholesaler’s permit. The rules (for some unknowable reason) prohibit beer and wine wholesalers from also being liquor wholesalers. The permit was denied, ostensibly due to the “common ownership” of Monarch and Spirit’s parent, although the Court noted in excruciating detail the reasons that the companies were clearly separate under relevant law–and more separate than at least eleven cases in which the Commission had awarded permits to affiliated entities.

The court acidly noted that the only opposition to the permit came from the company’s competitors: No alcoholic beverage producers, retailers, persons interested in public health or morality, no persons concerned about collection of taxes, and no public officials opposed the permit.

Just the competitors.

Despite the clear impropriety, those competitors were allowed to take part in the proceedings as if they were parties; and they had numerous “inappropriate and concerning ex parte communications with the Commission,” which the Court meticulously listed.

The Court also listed all of the ways in which the hearings deviated both from the rules and from the way other hearings were conducted–unexplained delays, refusals to provide information to which the petitioners were entitled,  acceptance of “evidence” offered by competitors, refusal to allow Spirited to cross-examine competitors’ witnesses, and much more.

So–why? What explained this highly inappropriate treatment of a petitioner?

Evidently, people on the Governor’s staff “harbored animosity” toward Monarch and its President, and freely communicated to the Commission their desire to see the petition denied. Several of those discussions are referenced in the Court’s order, and they display a shared intent to deny Spirit the benefit of the impartial hearing to which they were entitled, and a smug satisfaction in their ability to (forgive the language) screw them over.

After ruling that the denial had been “arbitrary and capricious” and that Spirited was entitled to its permit, the Judge wrote

 this Court considers the relationship between members of the Commission, staffers of the Governor’s office, the Hearing Officer, and the Remonstrators as evidenced by emails submitted to the Court, to be disturbing and inappropriate…Such discussions challenge the integrity of the application process and raise questions about the Commission’s willingness to serve all citizens of Indiana equally, fairly and without bias.

This is precisely the sort of cronyism and influence peddling that undermines the rule of law, and gives rise to the belief that “it isn’t what you know, it’s who you know…”

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Getting From Here to There

MIBOR and the Indianapolis Chamber of Commerce sent out a media release announcing the results of recent polling on Indianapolis’ upcoming transit referendum.

Poll results released today shows broad-based support across Marion County registered voters for this fall’s ballot initiative to improve mass transit in Indianapolis. Following last week’s public rollout of the grassroots initiative, Transit Drives Indy, there is clear momentum and public support for the Marion County Transit Plan.

As American Strategies reported, “Fully 61 percent support the referendum, which will appear on the ballot this November, with just 33 percent opposed. The measure attracts bipartisan support and majority backing in each region of the county.”

Support was broad-based. According to the self-identification of respondents, 74% of Democrats, 55% of Independents, and 47% of Republicans support the effort to expand transit and intend to vote for the tax necessary to support it.

 Across the region, support was strongest in the northern (66%) and central (62%) parts of the county, though support was strong across the entire county.

“We are pleased with the broad support among Marion County residents who recognize the value that improved transit service will bring to our neighborhoods, our business community and our city—jobs, quality of life, and greater independence,” said Mark Fisher, vice president of government relations and policy development of the Indy Chamber. “The Marion County Transit Plan will better connect job seekers and employers while ensuring Indianapolis remains competitive for talent.”

MIBOR (Metropolitan Indianapolis Board of Realtors) president Roger Lundy pointed out that all of central Indiana will benefit from improved mass transit. Transit is key to connecting neighborhoods, to providing access to housing opportunities, and enabling independence for vulnerable populations–the disabled, and especially the aging population that is growing dramatically as residents of central Indiana live longer.

It isn’t just older Hoosiers who want the ability to move about the city without a car. Downtown Indianapolis is in the midst of a housing boom, and despite the whopping number of new units being built, and the premium rents being charged, occupancy rates have remained well over 90%. Many of the people moving into the center city are millennials, and of that age cohort, some 10% do not own–or want–a car.

What they and their grandparents do want is what so many cities have: reliable, frequent, modern mass transit options that enhance the quality of community life. Convenient, cost-saving and environmentally friendly transportation options.

We’ve waited a long time to join the ranks of cities that actually work.

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Another Troubling Data Point

The Kinder Institute at Rice University recently completed a study of mayoral elections in Indiana. (The reason for the focus on the Hoosier State was the partisan nature of our mayoral elections; elsewhere, evidently, elections for municipal offices tend to be nonpartisan.)

The report, Mayoral Elections in Indiana 2003-2015 examined a variety of facets of mayoral elections in the Hoosier State, analyzing mayoral races in 474 general elections and 706 primary elections in more than 120 Indiana cities. (To be candid, I didn’t think Indiana had 120 cities….)

The Institute documented a swing toward the GOP over the time period studied. That didn’t come as a big surprise; the small cities and towns that dot the Hoosier state tend to be more rural in nature, and to reflect the more conservative politics of rural Indiana.

What did surprise (and depress) me was the following “data point”:

In addition to the partisan shift, the report also found that more than 20 percent of all mayoral elections in Indiana go uncontested. This issue is especially acute in the state’s smallest cities. For example, in cities with less than 5,000 residents, nearly 29 percent of mayoral elections were uncontested, compared with 13 percent in the state’s largest cities.

Evidently, citizens in Indiana–and especially in our state’s smaller communities– are uninterested in the management of those communities. That seems counter-intuitive for a whole lot of reasons.

It’s understandable that the prospect of a partisan rough-and-tumble would turn off potential candidates for office, especially in this age of nasty politicking. But the hardball politics of larger communities are rarely on exhibit in small towns where everyone knows everyone else.

Furthermore, the public management issues in small towns tend to be very practical: policing and fire protection (the latter often handled by a volunteer brigade), collecting trash, paving streets, retaining the merchants on Main Street. These are issues far removed from the ideological wars that characterize campaigns for state and federal offices, but their proper oversight directly and substantially affects community residents.

Tending one’s own garden only takes you so far. Like it or not, we live with other people, and the rules and processes we put in place to regulate our interactions with our fellow-citizens affect our daily lives.

So why is it that, in one-fifth of Indiana’s cities and towns, no one cares enough to take on the responsibility for managing those processes and providing essential services? And why is the problem more acute in the smaller communities that we think of as more “neighborly” and interdependent?

Any theories?

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