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Economic Incentives – Can they work?

By John Phair, Partner, President & CEO

Economic development tools seldom have the desired impact they start off with. Most communities offer tax abatements, inexpensive land or help with permits. Others offer more exotic fare: TIF funded equity in a new company or project; zoning or construction infrastructure improvements, including streets and utilities; building acquisition and demolition; street realignments…All of these and more.

But, do they have the desired effect? Maybe, but not usually. None of this matters to the community if the incentives do not act as a catalyst for additional development. The incentive certainly benefits the individuals concerned who are the beneficiaries of a tax abatement. But if the incentive creates resentment in the investment community, or receives negative publicity as a government “handout”, or if it leads to less than the promised number of jobs, the economic incentive becomes a negative and can discourage further investment.

I would suggest that the South Bend community must focus on a growth agenda, not individual incentives. Let’s get a vision in place that fosters positive growth, encourages local investment and takes advantage of our assets.

In 1950, the sleepy government town of Austin, TX had 160,980 people; South Bend, IN had 115,911. South Bend’s population peeked in 1960 at 132,445. Today, Austin, TX has a population of over 1.7 million. South Bend’s population is currently 100,886, according to the 2013 US Census Bureau. Fifteen South Bends can now fit inside of Austin. We would be nothing more than an average size neighborhood there.

Population growth means everything. Without it, we cannot generate future job opportunities for our children, raise enough tax dollars to have the best schools, or provide opportunities needed to attract immigrants from other cities, states or countries. Investment dollars follow demographic trends and go where there is growth – and right now it is not here.

I was recently introduced to a program called Regional Cities Transformations (RCT) by the Indiana Economic Development Corporation (IEDC). On October 1, 2014, the IEDC issued a report by the catchy name “Benchmarking U.S. Regional Cities; A Study and Guide For Transformation” – really catchy, right?!

Surprisingly exciting, however, the 2014 Indiana Legislature passed a bill expressing its desire to grow the state’s economy through strategic regional city economic development. They required the IEDC to come up with the tools. This study is one of the tools!

The report is loaded with facts and sprinkled with anecdotes, including:

    1. Overall population growth in Indiana since 1990 is up slightly but well below the averages of all growth markets that were reviewed.
    2. Indiana population growth is nearly all the wrong kind of growth. Having almost nothing to do with attracting talent, but relying more on births versus deaths and an aging population.
    3. The IEDC growth team visited most of the eleven growth cities identified in the study – places like, Raleigh, NC; Nashville, TN; Manhattan, KS; and Boise, ID. These cities provided a bit of a road map on how “growth cities” have done it.

The Growth Cities all had a few basic things in common:

    1. Bold vision, tenacious leadership and broad civic leadership (we are missing most of this in St. Joseph County).
    2. A region that rallies around its city (not happening here).
    3. Regional investment supporting quality of life issues (we certainly have some of this, probably need a little more).
    4. Plans must be visionary, market based and action orientated to guide regional transportation (we are a real loser here – we are still crying about the Toll Road sale).
    5. Private Sector investment responds to business climate and talent base (every locally based investment fund, credit union or bank invests more outside the county than it does locally).
    6. Long term partnership requires nonpartisan thinking (we’re not as bad as Washington DC, but we have a one party system that is clearly antigrowth and more about status quo).
    7. Higher education partners are critical for regional transformation (we are moving in the right direction here, a real upside opportunity).

St. Joseph and Elkhart Counties are in different worlds. In fact, the contribution each could make to the other would be — could be a real winner. The IEDC is proposing an opportunity for Indiana cities to “transform” themselves. Can South Bend become an Austin, TX story? Maybe…But to do so, we must embrace a growth strategy and all the points mentioned above. The IEDC is offering incentives and real help. Although still subject to legislative approval, a dynamic vision would lead to major dollars from the state to create eight transformative cities/regions in Indiana.

Could one be here? Elkhart and St. Joseph County work together – the impossible dream?

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