Government and Economic Development and Real Estate & Retail

EYE ON THE PIE: Here's government behavior at its best

June 25, 2007

At last, the professional basketball season is over. At last, the saga of the Sopranos is ended. The Cubs, the Cards, the White Sox and the Reds are in their usual states of disgrace. Our governor has announced his candidacy for reelection. There seem to be no surprises in our world.

How normal are things? Consider this: Indiana and Illinois have agreed on reciprocal discounts for motorists on their toll roads. If you live in DeKalb County, Indiana, and visit relatives in DeKalb, Ill., your trip will cost less if you have an IPASS issued by Illinois or an i-Zoom from Indiana.

Based on my experience, you'd best have one of those identifying transponders in your car, because the folks who operate the Indiana Toll Road and the Chicago Skyway are not spending money on employees or machines to collect cash. "Automate or wait" seems to be their motto.

I know Gov. Mitch Daniels put performance measures in the contract that leased Interstate 90, but do they apply to waiting time for paying a toll? Thousands of motorists can attest to the fact that it is a mess as things stand today. Tell us, Mitch, is the trip from Broadway in Gary to Stony Island in Chicago faster or slower today than before the lease-holders took over?

What could be more normal than applause for our Legislature? Karl Berron of the Indiana Association of Realtors praises the General Assembly for the latest property-tax mess. The IAR, Berron says, is "a group of 20,000 professionals from around the state who strive to help Hoosiers achieve the American Dream of affordable homeownership." That is, they lobby for preferential tax treatment for homeowners and no taxes on real estate transactions.

What did the General Assembly do to get the plaudits of the IAR? It established a tax rebate (not a tax reduction) funded by increased gambling revenue. It is, as Berron admits, "expensive to administer, unwieldy to implement, and short-term in nature." But, hey, what do you expect? Sausage-making isn't pretty.

The Legislature continues to buy the fiction that property taxes must be cut. We hear that "[v]oters are clamoring for property tax relief." What do Hoosiers know about taxes in their own and other states? Have they realized that lower property taxes means higher taxes on other sources and there may be no net benefit from the change?

Of course, real estate agents want lower property taxes. Economic theory tells them lower property taxes would raise property values and, hence, commissions. But what if a confusion of local "option" taxes, and lower spending on local services make our communities less livable? What then happens to property values?

The IAR's Berron finds it "unfortunate" that local officials oppose the legislation concocted by the General Assembly. However, if our legislators understood these bills before they voted for them, and if they had respect for local democracy, we would not have a property-tax mess.

But then, we do get examples of inappropriate local government behavior. Have you followed what is going on in Greenwood? A sporting goods store named Cabela's is being wooed with an $18 million bond deal. A few years ago, in Hammond, Cabela's was hooked by similar public subsidies.

Hammond is depressed and depressing; Greenwood is not depressed although it, too, can be depressing. In Hammond, there was no nearby competition for Cabela's; in Greenwood, competing merchants do exist who are not getting comparable tax breaks.

There are conditions under which public subsidies for economic development are appropriate. Cabela's in Greenwood does not meet those conditions. But November will bring elections for mayor and a big Cabela's feather would look nice in Mayor Charles Henderson's crown.

Yes, all is normal in our world.



Marcus taught economics for more than 30 years at Indiana University and is the former director of IU's Business Research Center. His column appears weekly. To comment on this column, send e-mail to mortonjmarcus@yahoo.com.
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