COMMENTARY: Economic development on taxpayers’ backs

A month  has passed since Elanco Animal Health announced it would move its global headquarters from its gleaming, large campus near Interstate 70 in Greenfield and will relocate in downtown Indianapolis.

Ten years ago, Elanco establishing its headquarters in Greenfield was heralded as an economic development boost for both the city and Hancock County, softening the blow from parent company Eli Lilly leaving town.

But the same thing that lured Elanco here — a raft of tax abatements and incentives given away by local leaders to virtually every new company that arrives — is what lured Elanco away.

It stings even more that many of the incentives used to bring Elanco’s headquarters to downtown Indianapolis come from the state of Indiana. That essentially means Hancock County taxpayers — and those from many counties farther away from Indianapolis — are footing the bill for one company’s move from one Indiana community to another.

But the problem here is not who is paying the tax incentives to lure a major company to town. It’s that tax abatements and incentives are used in the first place.

They’re touted as necessary for economic development, to bring companies and jobs to a community — from which residents, restaurants, retail and the other trappings of a thriving community follow.

But in reality, they do none of that. They simply replace the market with the whims of bureaucrats and deal-makers, and they leave taxpayers on thev
hook for poor decisions.

We in Hancock County have been burned before — EnerDel being the most obvious example.

Tax abatements create perverse incentives. For a company, it creates an incentive not to put down roots in a community, but to build and stick around until the tax breaks run out, then begin looking for greener pastures elsewhere. When it leaves town — or if it fails — the community is left with a white elephant. The taxpayers are expected to subsidize the risk, while also having to take on a greater burden of funding their local schools, roads and public safety.

Also, such government-directed “economic development” is naturally inefficient. They distort the free market by prioritizing dealmaking and economic central planning over efficient land use. In a true market, a firm will be incentivized to carefully select its location and consider both its true cost and potential profitability. It will therefore build in the area and erect the building that maximizes profitability — considering cost, access to resources, profitability and yes, the local tax and regulatory environment. There would be fewer large, empty buildings built on hope, rather than prudence, if development were left to the market. Land would be used more efficiently.

Eliminating tax abatements would eliminate the statewide arms race between communities to poach each others’ firms. Economic development would happen organically, rather than being negotiated between business owners and county officials. The firms who invest in a community would be incentivized to plant roots in that community and serve it, rather than leech off its taxpayers for a few years before seeking greener pastures elsewhere.

Our communities would be positively affected by the elimination of tax abatements, which prioritize business over residents. Indiana already has low taxes and a business-friendly regulatory environment. Hancock County has two exits on a major cross-country freeway, low land costs compared to other metro communities and easy access to Indianapolis. It provides housing at all income levels and to serve many lifestyles, whether one wants to live in the Geist Reservoir area or enjoy suburban subdivisions, rural acreage or walkable downtowns.

Most importantly, taxpayers wouldn’t be on the hook for subsidizing mistakes, and our communities wouldn’t be scrambling to fill large tracts of abandoned commercial real estate when the breaks run out.