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ECONOMIC ANALYSIS: Why Hoosiers should shed distrust of referendums

February 11, 2008

Should Indiana's taxpayers vote on school construction? This seemingly simple question is a vexing issue for the Legislature. The debate surrounding the issue is surprisingly misguided and emotional. A few ill-informed editorials have not added value to the debate. Let me add a bit of data to the discussion to enlarge our understanding.

Under Indiana's current system of government, no elected official reviews the complete budgetary process for local government spending. This, perhaps more than anything else, has caused our property tax mess.

Proponents of local referendums argue that by permitting taxpayers to choose the level of new construction costs, school building will be placed into the hands of citizens most directly affected. Opponents of the plan argue that Indiana voters will not support the level of school construction needed. Let's examine the experience in surrounding Great Lakes states.

Illinois, Michigan and Ohio all have local school levies. Indiana does not. Per-student educational spending in Illinois, Michigan and Ohio is all higher than in Indiana. Taxpayers in surrounding states are willing to spend more for each student than are Hoosier taxpayers. Though this may not affect outcomes, it certainly does not mean residents in these states are not willing to support education. (Interestingly, educational outcomes, by graduation rates or test scores, are better in Illinois, Ohio and Michigan than in Indiana.)

Opponents of referendums argue that with the aging of baby boomers, fewer Hoosier residents have kids in school, so new spending won't be supported. That is not the experience in our surrounding states. On both a per-student and per-resident basis, school spending in our surrounding states is higher than in Indiana. Tellingly, the average age of residents in the surrounding states is-with the exception of Illinois-higher than in Indiana. Also, the average age of a mother giving birth in Indiana is the lowest of these four states.

The age argument just does not scour. In both Michigan and Ohio, school referendums have passed at 60 percent and 62 percent, respectively, over the past five years. Property taxes in both states are already much higher than in Indiana.

Referendums (or something akin to them) are widely viewed by economists as critical to the success of local government spending efforts. The reason is that such factors as school performance influence property values. Without the local link, the bond between the costs and benefits of government spending is severed.

There are arguments against referendums, such as that elections are messy and tend to attract special interests.

Yet I trust Hoosiers to make the right local choices on schools. In fact, if school boards become more responsive to costs, I predict Hoosiers will entrust them with more money, as residents have done in Illinois, Ohio and Michigan.



Hicks is director of the Bureau of Business Research at Ball State University. His column appears weekly. He can be reached at bbr@bsu.edu.
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