Our city is about to engage in a high-stakes gamble to avert a death spiral—or
accelerate it and make it much more of a certainty.
A death spiral is a deteriorating financial situation where short-term decisions preclude future opportunities in a way that’s self-reinforcing. A classic business example is a company that cuts funding for research and development and falls behind in innovation. Customers switch to a competitor, leaving even less money for the company to invest in competitive new products.
Cities can face a similar scenario when confronted with a significant economic shift. To compensate, leaders increase tax rates while services and conditions—such as crime, schools and roads—deteriorate. Residents who have a choice (mostly upper- and middle-class) move to safe havens outside the city limits. The result is a soaring demand for public services and a deteriorating tax base from which to fund them. As conditions worsen and costs increase, businesses follow their customers and employees out of the city—and the cycle begins anew.
Indianapolis has been fighting just such a situation for decades. The trigger was the loss of manufacturing jobs and the flight that came with school desegregation. The death spiral was almost averted with the redevelopment of the downtown core, recruitment of professional sports teams, preservation of historic neighborhoods, etc. However, we largely ignored schools, we didn’t do enough with the neighborhoods, and we literally and figuratively paved the way to the surrounding counties.
Although the wealth has been moving to the surrounding counties, Marion County continues to shoulder the cost of ever-larger regional facilities such as sports stadiums, medical facilities, government offices and not-for-profits.
Our leaders have kept the city afloat by deferring investment in infrastructure and refinancing debt. We currently face at least $4.5 billion in deferred infrastructure costs and we are paying on debt for stadiums that no longer exist. Most discretionary operating expenses were cut years ago. We are now seeing parks, schools, libraries and bus systems shutting down.
That’s not to say there isn’t waste and inefficiency; there most certainly is—but it looks different now. Whereas it used to look like a couple of guys making $20 an hour leaning on a shovel at a patronage job, it now looks like very-well-connected people in suits billing $540 an hour. The city requires an increasing number of expensive attorneys, PR firms and consultants—as well as spiraling debt service and taxpayer subsidies to private businesses—to keep all the balls in the air. This leaves even less money to trickle down to basic services such as buses, streets and libraries.
Our current financial glide path is simply not sustainable.
I’m no fan of Mayor Greg Ballard’s plan to fund infrastructure needs through our water bill; it’s terrible economic policy. That said, it should be understood as a high-stakes gamble: If that money is sharply focused to redevelop vacant and underutilized property and attract middle-class residents back to Marion County, we can avoid the fate that has befallen other cities such as Detroit.
Detroit is in the unenviable position of having to “right-size.” That’s a polite way to say it is performing self-administered amputations of entire neighborhoods in a last-ditch effort to keep gangrenous disinvestment from killing the entire city.
However, if the proceeds from the transfer of the water company are used to prolong the status quo, as is being suggested—by plugging holes in the city budget, giving more taxpayer subsidies to private businesses and sports teams, financing infrastructure that will last 15 years with 30-year bonds, and currying political favor—our fate will be sealed. The great sucking sound that you will hear will be the exodus of more middle-class residents and businesses from Marion County because of excessive water and sewer rates—and the sound of the vortex of a death spiral.•
Wiegand is information technology director for a local company. He sits on the steering committee for the Emerson Avenue Corridor Gateway Project and is active in his Emerson Heights neighborhood on the east side. He previously spent eight years at Eastside Community Investments, a neighborhood development organization.