Local Government – Page 66

The Devil You Know….

A couple of political truisms–which I have always accepted as “givens”–went up in smoke last night. The first was that at-large candidates win or lose based upon the performance of their party’s mayoral candidate. The second was that in close races, victory is largely a matter of getting your vote out.

In Indianapolis yesterday, the Democrats got their votes out. They took back the Council, including the at-large seats. But enough of those Democrats scratched Melina Kennedy to allow Ballard a second term.

There will undoubtedly be lots of second-guessing and post-election analysis. Here’s my two-cents-worth: the sorts of things about the Ballard Administration that appall so many of us who watch government closely are not the sorts of things that are apparent to the average voter (and the media largely ignored those issues during his term). No one was enthusiastic about him–he never got out of the low 40s in internal polls–but the average voter was aware of no strong reason to oppose him. Meanwhile, Melina Kennedy never gave people a strong reason to vote for her–her ads did not adequately introduce her to the voters before they began attacking Ballard, and the attack ads were, as Paul Ogden has noted, insufficiently specific; they failed to explain what was wrong with the cozy deals they alluded to–they simply attacked.

Given two candidates seen as interchangeable, voters opted for the one with whom they were familiar.

The good news is that a Democratic Council should be able to block the sorts of cozy deals and poor policy choices that have characterized Ballard’s tenure. The danger is that the Council will simply act out of partisanship, rather than principle. In either case, the next four years are likely to be contentious.

A mediocre (at best) mayor and a hostile council aren’t exactly a recipe for progress.

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Did Not! Did So!

Ah, budget battles.

This morning’s Star detailed the back and forth political arguments about whether the Ballard Administration actually made the budget cuts the mayor promised during his campaign. Their independent analysis amounted to: who knows? That’s not a criticism of the reporters–it’s a reflection of the games public managers play.

This actually began back during the Goldsmith Administration. In fact, it could argued that the City’s dicey finances actually began there; I know Ballard blamed Peterson because he inherited significant budget problems, but Peterson himself inherited a true “smoke and mirrors” budget from Goldsmith. (That doesn’t mean he shouldn’t have done more to fix it.)

Goldsmith’s clever game was to change the way in which the budget was reported from the relatively straightforward system employed during the Hudnut Administration. When you change budget categories, it becomes virtually impossible to compare apples to apples. (He also touted savings from his own exaggerated “estimated growth” figures–as in “we project that expenditures would have reached X if we hadn’t done Y. What good managers we are!)

In this case, Ballard’s folks excluded federal and other grants and some debt service from the budget calculation, and “voila”–they saved money.

I know I’m talking crazy, but what if we focused less on the relative amounts we spend, and more on what we get for our money? What if we focused less on the tax levy (the total amount raised) and more on how fairly we assess property and set rates? What if we rewarded good management rather than providing incentives to cut corners and push higher maintenance costs to the next guy?

What a dreamer I am…..

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Politics and Policy: A Cautionary Tale

I’m sharing my next column for the IBJ, which expands upon my earlier post, and considers the policy issues that the Litebox blunder illuminate.

How did we get from “Enterprise Zones” to Litebox?

Back in my Hudnut Administration days, I remember enthusiastic discussions about Enterprise Zones–a new tool promoted by then-Congressman Jack Kemp to encourage investment in depressed areas of the city. The idea was to offer tax incentives to businesses who were willing to locate in such areas and hire the unemployed who lived there.

It was a great—if reality-challenged—idea.

It didn’t take long for Carmel and other affluent bedroom communities to begin competing for those employers by offering incentives of their own. I don’t know whether those original Enterprise Zones still exist, but I do know that state and local governments are all falling over themselves to lure companies with ever-more-lavish inducements, courtesy of their taxpayers.

Which brings us to Litebox.

Amid great hoopla, Mayor Ballard and Governor Daniels announced the award of major incentives to Litebox, a company promising to create 1200 new jobs. Its sole proprietor was man who not only turned out to have no history of entrepreneurial or business success, but who also has multiple unpaid tax liens and judgments against him in several states.

The story makes vividly clear how slapdash the City’s vetting process has been, and how politically motivated the decision to announce this “job creation” success was. (Really, in the age of Google, this level of incompetence is incomprehensible.) But the story makes a bigger point, albeit implicitly, about the entire policy of cities “buying” jobs by offering financial incentives to companies that promise to move and/or expand.

The obvious arguments against such efforts are familiar: it puts government in the position of helping some businesses but not others, which troubles those of us who believe in real markets; and it is a zero-sum game overall, since the company that moves from Ohio to Indiana is not creating more jobs–it is simply moving them from one place to another.

But the Litebox fiasco points up another problem with these programs. Even if competent people are running them, they are unlikely to know enough about the technologies and economic realities of very different industries to make truly informed decisions. The same technological and cultural changes that increasingly challenge tech businesses and that make investment decisions risky even for savvy and highly knowledgeable experts, make it virtually impossible for government officials to accurately gauge the viability of tech business deals. (In this case, reporters quoted industry sources who pointed to “ridiculous” assumptions in the Litebox business plan, but in most cases, the miscalculations are more difficult to spot.)

As a recent Indianapolis Star article reported, citing several examples, even companies with sound performance histories and none of the obvious red flags that were ignored in the Litebox example routinely fail to deliver the jobs that are promised.

When you add in the inevitable politics involved–the temptations of cronyism, the huge pressures to score political points, to look like you are delivering on your campaign promises–it’s no wonder that the jobs frequently don’t materialize.

It’s long past time to re-examine these programs and the policy assumptions they’re built on. It was probably inevitable that the use of tax and other incentives would not be limited to truly depressed areas; I was among those who failed to appreciate that inevitability.

Here’s a truly radical suggestion: what if we took the tax dollars that are currently being siphoned off to these favored businesses and used them to create a city that people want to live in? What if we decided to compete not with handouts, but with a superior quality of life?

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Questions

I get tired of beating the same dead horse, but the Star’s story this morning about the Litebox episode–a piece of real reporting that is becoming increasingly rare–raises additional questions.

The story makes vividly clear how slapdash the City’s vetting process has been, and how politically motivated the decision to announce “job creation.” But the story makes a bigger point, albeit implicitly, about the entire policy of “buying” jobs for one’s area by offering financial incentives to companies that will promise to move or expand.

The obvious arguments against such efforts are familiar: it puts government in the position of helping some businesses but not others that may be their competitors, which troubles those of us who believe in real markets; and it is a zero-sum game overall, since the company that moves its company from Ohio to Indiana is not creating more jobs–it is simply moving jobs from one place to another.

But the Litebox fiasco pointed up a problem I hadn’t previously considered. Even if competent people are running these programs–clearly not the case here–they are unlikely to know enough about the technologies and economic realities of very different industries to make truly informed decisions. This may not have been the case when local officials were competing to attract an automobile factory, but the same technological and cultural changes that increasingly challenge tech businesspeople and that make investment decisions risky even for savvy and knowledgable investors make it virtually impossible for government officials to accurately gauge the viability of tech business deals.

When you add in the inevitable politics involved–the huge pressures to score political points, to look like you are delivering on your campaign promises–it’s no wonder that the jobs don’t materialize. As the Star pointed out, even companies with sound performance records and none of the red flags that accompanied the Litebox proposal have more often than not failed to deliver on their promises.

It’s time to rethink these incentives. Even in competent administrations, as currently structured, they are bad public policy.

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WTF?

Excuse the title of this post, but I just read the lead story in the Indianapolis Star about Litebox–the company that was showered with praise and promises of tax breaks just yesterday by both Mayor Ballard and Governor Daniels.

In my post yesterday, I questioned whether the obviously strange owner had been adequately vetted. Today’s news makes it abundantly clear that the answer is no. In fact, today’s story makes it clear that the company and its proprietor had not been vetted at all.

What sort of process awards tax incentives to a man who not only has no history of entrepreneurial or business success, but who also has multiple unpaid tax liens and judgements against him in his home state? As a policy matter, I have qualms about the practice of “helping” businesses financially in order to lure them to one’s city. But if we are going to play that game–and it is a game–the least we can do is insure that the businesses favored by state and local government are real, and that they pay their bills. If the rationale for these programs is job creation, the least we can do is ensure that the companies that benefit are capable of producing jobs.

This fiasco is a good example of why I keep harping on the issue of competence.

Didn’t anyone bother to check on this charlatan? Or were they so anxious to announce “jobs” that they didn’t bother?

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