EYE ON THE PIE: Let's put retail where we want it

October 17, 2005

Before we get into anything this week, let me clear up an error from last week. I wrote that Techpoint received $2.3 million in government incentives for locating at Indianapolis International Airport. The company was Transpoint. My apologies to all who have cause to be offended.

Now let's get on to the problem of the chicken and the egg. Many folks wonder which came first. When we have trouble identifying causality, we cite the chickenand-egg problem. Is the clothing store that failed on 45th Street now successful on 75th Street because it changed its inventory? Or did success arise because the customers on 75th are clothes-aholics and will buy any kind of clothing, whereas those people around 45th are picky about how they look?

Which comes first, housing or retail services? Home buyers want to live close to good shopping. Retailers don't want to be stuck out in Nowheresville waiting for customers.

Traditionally, the housing-first model has been in operation. Homes are built, families move in, they have money retailers see, smell or otherwise sense, and the retailers build. Then even more people move into the area because it has all the amenities of retail trade.

The first home buyers are pioneers seeking to escape high-density areas, to have larger lots and bigger homes, and to avoid congestion. The second group of home buyers is more conservative. They want to be near and like pioneers, but they don't want to be caught out in "the sticks." The presence of good shopping attracts these followers.

What if you were concerned about how your county was using its land resources? What if you and your fellow citizens were worried about deterioration in older sections and unconstrained growth on the fringes of the towns? Would you build new housing in older sections or new retail stores to stimulate urban resurgence? Would you provide subsidies of any sort for either the new housing or for the buildings and lots used for new retail trade?

We have many programs to provide such subsidies. One that is hardly used in Indiana is STIF (sales-tax-increment financing). STIF does not increase taxes or provide tax abatement. It uses the increase in sales taxes derived from the use of property to finance improvements that are necessary to get investors to build or remodel on underused land.

Should STIF be available in every county? This would mean the Legislature would step aside and let counties make their own decisions about how they want to finance their development.

But STIF is based on the sales tax, which is a state tax. Would the Indiana General Assembly give the counties a blank check? No, our Legislature is not that generous. Maybe the Legislature would raise the sales tax 1 percent and give that money to the counties, which could then decide if they wanted to forgo some of the increment in their new taxes to attract retail services.

Should STIF be available in every part of a county? Should STIF be restricted to areas that require rejuvenation? Or should it be used only in areas that are carefully planned to avoid sprawl and balance the many demands of modern society?

If these questions are of interest, you will enjoy attending a free, two-day seminar at the Lake County Welcome Center (Kennedy Avenue exit on Interstate 80/94) during the mornings of Oct. 18 and 19. Experts on STIF from several states will join legislators, builders and developers to explore the issues and consider future actions. For more information, call (219) 308-9476.

Marcus taught economics 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, go to IBJ Forum at www.ibj.comor send e-mail to mortonjmarcus@yahoo.com.
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