Local Government – Page 67

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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Job Creation Delusions

Given the state of the economy, it’s understandable that candidates and incumbents alike would focus on job creation. It’s also understandable that the mayor and governor would make a big deal out of promises to locate new factories in Indianapolis.

But it’s beginning to look as if the “vetting” process could use some vetting of its own.

Yesterday, Mitch Daniels and Greg Ballard–along with representatives from Develop Indy–held a media event at a field in northwest Indianapolis to announce that a California businessman would be building a factory to manufacture huge TV screens mounted on trucks. (Reading the initial story, my husband opined that the business seemed goofy to him, but I reminded him that, at our ages, we’re tech dinosaurs, so what did we know?)

Turns out it isn’t just the business plan that’s goofy. First the IBJ ran a story noting that the owner of the enterprise lacked experience. Then this morning’s Star reported on the bizarre behavior of both the “entrepreneur” and a project manager from Develop Indy. The story also noted that Litebox, the company being applauded for bringing jobs to Indianapolis, had yet to purchase the land on which the factory was supposed to be built.

Economic development is never a sure thing. Well-conceived, well-financed projects may not make it. But surely, before they commit public resources to a project, the city and state could do a minimal amount of due diligence.

The media have raised questions before about the veracity of jobs claims made by both the state and city, and this embarrassing episode would seem to confirm their skepticism.

It’s hard not to to speculate over the timing of this announcement–apparently, it was rushed in order to help Ballard before the election. It blew up in his face, and didn’t add any luster to the Daniels administration, either. That’s what happens when people act out of desperation.

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Ballard’s Brand of Socialism

This morning, Matt Tully criticized Melina Kennedy’s campaign for recent, negative ads. Essentially, he said that she had already demonstrated that she was the superior candidate, and that the ads were beneath her–that Ballard, whatever his deficiencies, is a decent guy and didn’t deserve the negative characterizations.

I agree with Tully about negative ads, which are never nuanced arguments about policy. I don’t watch much live television, and thanks to TIVO, rarely watch campaign ads, but I’ve seen distasteful stuff from both campaigns, and we all know why: they work. That’s not an endorsement of the tactic, just a recognition of reality.

And the reality that the Kennedy campaign has not–and probably cannot–address is that, yes, Ballard is a decent guy, but so clueless that he is not really running the city. From what my remaining friends in the GOP tell me, soon after his surprising election, the “usual suspects” swooped in to “help” the neophyte and not-so-incidentally help themselves at taxpayer expense.

I’ve written before about the parking meter fiasco that enriched ACS (a company closely tied to the Mayor’s closest advisers), and I won’t belabor that fifty-year giveaway again (although from my point of view, it is reason enough to vote for Melina Kennedy).

I haven’t previously examined the equally scandalous deal struck for the parking garage in Broad Ripple. As Paul Ogden has amply documented, this is yet another example of what I’ve come to call “Ballard socialism.” The basic story is that taxpayers are paying to build a garage that the city then simply gives to the developer. We pay 6.35 million for a facility that will be owned 100% by Keystone Development (where Paul Okeson, former Deputy Mayor in the Ballard Administration, now works). The developer gets 100% of the parking revenues and 100% of the rent from the commercial space.

As Ogden points out, there is no requirement that the developer put a single penny into this deal.

Why do I call this “Ballard socialism”? Socialism is a term that simply means spreading the cost–we share costs of such services as police and fire protection among all of us, via taxes; we pool the costs of automobile accidents via insurance. But in the Ballard Administration, as a disillusioned Republican friend of mine recently complained, we turn this time-honored approach on its head. We socialize the risk–but we privatize the profits.

I am perfectly willing to believe that Greg Ballard does not understand the details of these sweetheart contracts. But he’s the Mayor, and it is not unfair to hold him responsible for the actions of his administration–actions that will cost the city dearly in an era of diminishing resources.

Cynics will say that city government has always operated to benefit political insiders, and it’s true that people who know people always have an edge. But I’ve lived in Indianapolis my whole adult life; I’ve been involved in both Republican and Democratic politics since I was twenty, and I have never seen anything on this scale. Whether it’s corruption or ineptitude, we need to clean house.

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