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The most recent census projections show that Indiana’s metropolitan areas will continue to grow while most smaller communities will shrink.
In a state with strong rural political representation, this imbalanced urban growth often creates conflict within our Legislature that damages urban vitality while failing to boost rural areas.
While urban-rural tension will remain a fact of life for Indiana and its Midwestern neighbors, it also might be obscuring critical shared lessons of collaboration.
Can traditional urban economic development tools be leveraged in rural communities? With policy tweaks to fit local contexts, can small towns adopt cities’ playbooks for making their communities places people want to work and live?
The Legislature’s recent creation of the Small Town Opportunity Initiative illustrates such urban-rural partnerships beginning to tackle this challenge of economic development head-on.
The state allocates up to $300 million a year in economic development tax credits that are designed to incentivize Indiana taxpayers to invest in a range of entrepreneurial activities within the state.
A key pillar of this strategy is the Redevelopment Tax Credit, or RTC, which provides a 20% to 30% credit for the renovation or construction of buildings in underinvested communities across the state.
RTCs are awarded to projects competitively before construction begins and are used by developers to fill gaps between project costs and capital that can be raised through conventional means.
These credits have played a major role in large urban projects but have seldom benefited more modest projects in small communities. This appears to be a function of both the larger scale and financial leverage of urban projects, as well as the relative lack of development interest in small towns.
Indiana politicians, including Gov. Mike Braun, have often touted the importance of small-town reinvestment. But even excellent region-specific programs such as READI have struggled to consistently push funds into rural communities.
In response, community leaders and legislators, led by Rep. Lori Goss-Reaves, R-Marion, unsuccessfully proposed earmarking $100 million annually in RTCs for small-town redevelopment during the 2025 legislative session through the Small Town Opportunity Initiative, or STOI.
In the most recent legislative session, an unlikely champion for small-town reinvestment emerged in Republican Rep. Danny Lopez, who represents the metropolitan hub of Carmel in the House but drove the revival of focused rural tax credits.
Lopez worked with Goss-Reaves and Rep. Craig Snow, R-Warsaw, to revive the STOI act’s objectives, which eventually morphed into a small-town carve-out of $15 million in tax credits paired with $35 million in credits directed through regional development groups.
This kind of substantial legislative change seldom passes in a short session, but ultimately the STOI passed through both houses and was signed by the governor on March 12 as a component of House Enrolled Act 1406.
This state tax incentive of $15 million can drive at least $50 million in private revitalization investments in Indiana’s small towns.
It is now up to community leaders and developers to team up on good projects to maximize the impact of these tax credits and show that if the state sets aside small-town incentives, these communities can deliver.
Indiana’s small towns need to prosper to maintain workable economic and political alignments across the state’s metro-rural divide.
The collaborative leadership of urban and rural members of the Indiana House to create STOI is an encouraging signal that central Indiana and rural communities can work together on shared goals of economic growth and community flourishing.•
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Taft is director of Interurban at Indianapolis-based Sagamore Institute. Send comments to [email protected].
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