IBJOpinion

Criticism of IEDC was off-point

January 22, 2011
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IBJ Letters To The Editor

Professor [Morton] Marcus’ warning about the perceived under-appreciation of local economic development organizations [in his Jan. 10 column] places a spotlight on the importance of these groups and those who lead them.

Economic development is becoming increasingly competitive and complex. LEDOs often serve to distill the viewpoints of the divergent players at the local level, whether they are elected officials, advisers or business leaders, and provide a streamlined, central point of contact that addresses a prospect’s questions and needs.

But more than that, as Marcus suggests, a savvy LEDO also is able to play the multifaceted role of caregiver, innovator and adviser to any and all parties involved in a project to keep that deal alive. This critical skill greatly affects the strength of a community’s tenuous grip on a fast-moving, high-maintenance prospect.

Contrary to the article’s criticisms about the Indianapolis Economic Development Corp., however, my experiences with this organization and its predecessor, the Department of Commerce, are different. The IEDC that I work with values the contributions of local government.

Many past and present senior executives within the IEDC come from a LEDO background, and understand a LEDO’s role to a project’s success. The IEDC is keenly interested in the local government’s participation in a project and how the state can tailor its involvement to enhance that project’s chances for success.

I would also take issue with the argument that the state oversells its economic development victories in the press. The IEDC’s role is to retain and attract companies that have the potential to succeed, and to do the best job possible to protect the state’s assets in the process.

On the first point, no amount of due diligence by the IEDC will enable it to guarantee the outcomes of the projects it incentivizes. Further, incurring the expense and delays that would result from dedicating significant resources to that effort would be of a questionable cost/benefit result, since the IEDC’s typical support for a project is in the form of self-policing, performance-based incentives. This leads to the second point.

By definition, performance-based incentives are paid out on a pro-rata basis as benchmarks are achieved. If the jobs are not created, then the incentives are not provided. Criticizing job-commitment announcements for projects that don’t come to fruition may make for provocative headlines, but these announcements are, at worst, victimless events that don’t detract from the state’s deservingly laudable efforts to secure these deals. The fact there will be winners and losers with proposed economic development projects is an occupational hazard of the industry.

Tim Cook
Partner, State and Local Tax Services
KSM Economic Development Advisors

 

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  • do you think
    this guy will be told no if he asks the state for tax credits in the future? Marcus has the guts to call a spade a spade when he sees one no matter the fallout. hats off to him.

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  1. Apologies for the wall of text. I promise I had this nicely formatted in paragraphs in Notepad before pasting here.

  2. I believe that is incorrect Sir, the people's tax-dollars are NOT paying for the companies investment. Without the tax-break the company would be paying an ADDITIONAL $11.1 million in taxes ON TOP of their $22.5 Million investment (Building + IT), for a total of $33.6M or a 50% tax rate. Also, the article does not specify what the total taxes were BEFORE the break. Usually such a corporate tax-break is a 'discount' not a 100% wavier of tax obligations. For sake of example lets say the original taxes added up to $30M over 10 years. $12.5M, New Building $10.0M, IT infrastructure $30.0M, Total Taxes (Example Number) == $52.5M ININ's Cost - $1.8M /10 years, Tax Break (Building) - $0.75M /10 years, Tax Break (IT Infrastructure) - $8.6M /2 years, Tax Breaks (against Hiring Commitment: 430 new jobs /2 years) == 11.5M Possible tax breaks. ININ TOTAL COST: $41M Even if you assume a 100% break, change the '30.0M' to '11.5M' and you can see the Company will be paying a minimum of $22.5, out-of-pocket for their capital-investment - NOT the tax-payers. Also note, much of this money is being spent locally in Indiana and it is creating 430 jobs in your city. I admit I'm a little unclear which tax-breaks are allocated to exactly which expenses. Clearly this is all oversimplified but I think we have both made our points! :) Sorry for the long post.

  3. Clearly, there is a lack of a basic understanding of economics. It is not up to the company to decide what to pay its workers. If companies were able to decide how much to pay their workers then why wouldn't they pay everyone minimum wage? Why choose to pay $10 or $14 when they could pay $7? The answer is that companies DO NOT decide how much to pay workers. It is the market that dictates what a worker is worth and how much they should get paid. If Lowe's chooses to pay a call center worker $7 an hour it will not be able to hire anyone for the job, because all those people will work for someone else paying the market rate of $10-$14 an hour. This forces Lowes to pay its workers that much. Not because it wants to pay them that much out of the goodness of their heart, but because it has to pay them that much in order to stay competitive and attract good workers.

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  5. It is sad to see these races not have a full attendance. The Indy Car races are so much more exciting than Nascar. It seems to me the commenters here are still a little upset with Tony George from a move he made 20 years ago. It was his decision to make, not yours. He lost his position over it. But I believe the problem in all pro sports is the escalating price of admission. In todays economy, people have to pay much more for food and gas. The average fan cannot attend many events anymore. It's gotten priced out of most peoples budgets.

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