IBJOpinion

MARCUS: Our economic development is endangered

Morton Marcus
January 8, 2011
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Morton Marcus

Another year, another “new” legislative session, another season of Cubs baseball. Thus far, the saddest bill proposed in the General Assembly allows Hoosier local governments to seek bankruptcy and management by a state-appointed agent. This bill is a back-door confession that the state’s 30-year war on local governments has succeeded. Bankruptcy is the flag of surrender and state management is occupation by a foreign power.

Ostensibly, this legislation is aimed at Gary, where fiscal shenanigans are not the art form they are in Indianapolis. Gary today, where tomorrow? With so many communities in financial distress, essential governmental functions are starving for dollars and leadership.

It is difficult to head an agency no one wants to support, even if its activities are vital to the future of the locality. We know about the cutbacks in public safety and education across the state. But there are less-publicized problems of equal long-term importance.

For example, this may be the year economic development in Indiana comes apart.

In the past, we have been entertained by annual reports of the state’s Indiana Economic Development Corp. telling us about more jobs than ever promised and more capital investment than ever on the drawing board. But what is happening on the local level? Are all new or expansion projects the result of action by the state agency? Doesn’t any credit go to local economic development organizations? Are there deals made without the state’s gentle touch?

It is no secret that many LEDOs find the IEDC high-handed, secretive and uncooperative. In most cases, the IEDC, however, is trying to protect the client’s confidentiality with the implication that local groups have loose lips.

All the wondrous news out of the IEDC leaves the impression that LEDOs may be unnecessary and counterproductive. This concept is perfectly in accord with the financial squeeze on businesses and local governments. Why put up money for something the state covers so well without local input? When the IEDC brings the client to town for the ribbon-cutting, the mayor and the county council president will get an opportunity to utter some clichés; if the governor shows up, they may even get on TV.

When many LEDOs were formed in the early 1980s, the motivation was to restructure the local economy after the loss of significant firms. Those job and payroll losses endangered other local businesses and a severe, protracted slump could be anticipated locally. Leading citizens and government officials responded by supporting the LEDO movement.

In the next few years, there is a strong chance we will see many LEDOs submerged into regional groupings. Others will be swallowed by chambers of commerce. Still others will be split, so that one part is under the city and another under the county.

Because money is hard to find, some LEDO boards may decide to assign a fundraising task to the economic development professional they hired to head the LEDO. This is like asking the surgeon to raise money for the hospital.

Today, LEDOs throughout the state will be easy targets to scale back because they are “too expensive.” The economy today, however, demands that LEDOs be strengthened, not weakened. Competition will be intense for business expansions in 2011 and 2012. The best-prepared communities will have a strong advantage with a LEDO that has sustained support and a knowledgeable, flexible staff.

It will take more than simple property tax abatement and a welcoming smile to attract today’s business executive to Mytown, Indiana. A community ready for a new firm or an expanding company has a LEDO staff with the knowledge and skill to match the community’s resources to the needs of the searching firm.

That knowledge and skill do not survive a starvation budget and a minimalist mission.•

__________

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. He can be reached at mmarcus@ibj.com.

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  • LEDOs Must Call The Bluff; Stick To Their Guns
    Great points, Morton. Your contention that "this may be the year economic development in Indiana comes apart" should be amended to read "local economic development," and the IEDC's biggest wish would then come true. But the LEDOs have jokers in their respective decks that can help them stick to their guns before the State comes in to steal the show, political points and the credit of their expansion/relocation client(s). Lead source, due diligence and bringing the State in at the right time are three keys the LEDO can turn strategically to keep the State and its IEDC on the defensive when the two lock horns over a project. That client and what's best for that client (the job-creating/relocating/expanding company) cannot be ill-served or forgotten in the wake, however.

    The LEDO often holds the upper hand when it comes to the lead source. A smart relocating company will survey a LEDO or LEDOs directly in the beginning when seeking a site for expansion or relocation. A less astute client, or a client with multiple search states and less time to spend with each community, will go directly to the State with location and site parameters and the State will then go directly to the LEDOs with that client's request. The LEDO, in both cases, will respond to the request by that client, either directly in the first case or through the State in the second. That client, upon receipt of responses by the LEDOs, will in most cases be compelled to respond directly to the LEDO(s) of interest. This is where leverage goes to the LEDO as that LEDO can choose exactly when to bring the State to the table. And for those who are unclear as to why the two (LEDO and State) are mandated to team up on a project is because tax, training and other public incentives that benefit and encourage that expanding/relocating client are at stake. Both local and State units bring those benefits together for the good of that job-creating, investment-generating project. So, the LEDO at first, second and third passes, can speak to that client intimately about the virtues of his/her community and if that LEDO knows what he or she is doing, the virtues of the State can be covered by that LEDO, as well. All of this can take place before anyone at the State's name even comes up. Even more, that LEDO can and should move forward with its local incentive procedures far in advance of bringing that State incentive contact into the picture because the State will not lift its finger on its own incentive commit-
    men(s) until that local commitment is in place, anyway. So the LEDO should protect that client from the beginning, shore up the local resources (including an announcement date, if possible) and bring the State in later rather than sooner. There is nothing at all wrong with keeping the State unit on the reactionary side; in fact, that is where the State wants to put the LEDO. The LEDO often has the luxury of choosing when to bring that State contact into the fold. There is no penalty for bringing the State in later because both the local and State units have the same goal: creating jobs in the community/Indiana, and the State will commit what it intends to commit whether it is there earlier (adding another pressure point to the LEDO to publish its commitment) or later.

    So LEDOS, call the State's bluff. Protect that client as long as you can. You are just as good as, if not far better than, the State when it comes to being an ambassador to these investment-providing, job-creating prospects.

    And don't get me started on the regional economic development organizations.

    FF

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