IEDC needs to get out of the real estate development business

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28-04-2025

Media reports identified significant accounting problems at the Indiana Economic Development Corp. In response, Gov. Mike Braun has ordered an independent accounting audit. Every Hoosier should applaud that order, but the problems with the IEDC are broader than an accounting issue.
Indiana is at a point where fundamental questions about economic development policy and the role of the IEDC need a full-throated public debate. It is best to begin with what the IEDC and the state's development policies get right.
Among former Gov. Mitch Daniels' very first public acts was to reorganize the state's Department of Commerce. He moved the business development group to a new quasi-public corporation, the IEDC, and moved other responsibilities in community development, tourism, energy development and agriculture into their own agencies.
This reorganization worked very well and sparked a great deal of innovation, particularly in rural policy. At the IEDC, the reorganization attracted talented staff and leadership who embodied the Daniels ethic: lean, effective, efficient and humble.
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When I arrived in Indiana in summer 2007, I was shocked at the quality of IEDC and its small size. It was then about 65 people. Ohio, Illinois and Michigan had well over 500 people working in unwieldy organizations trying to perform many of the same tasks.
In 2013 I co-authored an efficiency study of the IEDC comparing it to other groups across the country. It fared extraordinarily well by comparison. So, too, did its venture capital arm, which we also studied.
The key thing about the IEDC was the conceptual simplicity of its mission. It acted as a supporter of Indiana, providing services to businesses looking for a home. It mapped sites around the state, oversaw a modest tax incentive program and provided a fast, efficient processing of well over 1,000 requests by businesses each year.
The Pence administration viewed the IEDC quite similarly, appointing seasoned businessmen to lead it. There was a modest expansion of duties to oversee the Regional Cities Initiative, which ended up being one of the most successful place-based economic development policies of the 21st century.
All that changed during the Holcomb administration, though the legislature and new leadership played a big role in this change. Instead of acting as a business concierge, the IEDC morphed into a real estate development company, pushing the state's economic development polices back into the 1970s.
This badly distorted the IEDC's mission, including pushing for incentives to relocate corporate headquarters within the state. The most obvious, but certainly not the only problem, was the LEAP district in Lebanon.
Over the coming years, much will be written about the folly of this project. Hoosiers will be lucky if we taxpayers lose only a few hundred million dollars in the endeavor. What we do know is that no private developer would have done such a deal without performing better due diligence. The IEDC needs to get out of the real estate development business.
We should offer Braun considerable grace in dealing with this monumental error foisted upon his administration. But it's also time to wholly reconsider our policies toward making the Hoosier economy grow.
The first thing we should do is acknowledge that the IEDC isn't going to make Indiana a prosperous place. That cannot be its job. It should tell the story of Indiana, warn legislators when there are problems, answer every question a potential business has about the state and do almost nothing else.
We also need to understand that economic growth is a private sector matter and the government exists only to create conditions for growth. Allocating tax dollars to land development won't cause economic growth.
We also need to acknowledge that mobile American families and businesses aren't looking for low-tax environments. They aren't the mono-dimensional idiots that the anti-tax crowd supposes them to be.
American families and businesses are savvy and look for places where the quality of public services is a good match to their taxes. They are looking for value, not just price.
In the modern economy, jobs follow people. People don't follow jobs. That's been increasingly true for a half-century. Today, only a tiny fraction of new jobs are created in the types of businesses that could be lured through tax incentives, the traditional tool of economic developers.
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If business tax incentives worked, Indiana would have among the strongest economies in the nation. When Daniels took office, Hoosier manufacturing firms ranked 36th from the bottom in low tax rates. Today, they rank 4th-lowest and factory employment is down by 10%.
I know of no researcher who studies tax incentives and thinks they boost job creation in any meaningful way. Trust me, an economics professor could get rich by finding defensible estimates of tax incentives boosting a region's economy.
It's time to reconsider how Indiana approaches economic development. But the biggest reason to have a statewide debate on economic development policy is the passage of Senate Enrolled Act 1 and its unintended effect on the state's single-largest business incentive.
Indiana's new tax reforms in SEA 1 render our most common form of tax incentives — local property tax abatements and tax-increment financing — unusable and obsolete.
Since the Daniels reforms, local governments have been able to grant a tax abatement (no tax payments) to businesses for up to 10 years and TIF districts for 25 years. Most local governments, desperate for new businesses and their tax revenues, offered lavish abatements or created TIF districts.
In doing so, they essentially deferred all taxes for a decade, knowing that after that time, they'd be able to tax that investment at 30% of its value. For dozens of cities and counties with large factories and logistics firms, this remains a major source of tax revenues.
SEA 1 ended that. No rational mayor or county commission will again offer tax abatements or TIF. It'd be spectacularly moronic to have a business come to a town, use public services and never pay a cent in taxes.
Over the past half-century, the economy changed, making high-quality public services that attract new residents the ticket to economic growth. Then, during the Holcomb administration, Indiana ditched its small government economic development policy for an embarrassing and costly real estate speculation plan. And, finally, in a hastily developed tax plan, the legislature effectively ended the state's largest and most widely used economic development tools.
All of these facts force Indiana to re-examine how it approaches economic development policy.
Michael J. Hicks is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University.
This article originally appeared on Indianapolis Star: IEDC audit begins reckoning over economic development | Opinion