Letter to the Editor: Why have an economic development tax if it’s not used for economic development?
Over the last year, we all have witnessed some very interesting and controversial purchases by various government entities throughout Dubois County. In lieu of this, this past spring I undertook project for the Freedom Makers of Dubois County and for the citizens of Dubois County to try to understand the revenue and spending of the Dubois County, Jasper, and Huntingburg governments. Accessing these budgets from the State’s budget Gateway – ‘https://gateway.ifionline.org/’ and then gathering EDIT fund information from the county offices, I downloaded the budgets of our various governments and investigated the overall revenue and spending line items. With 2012 and 2013 budgeting currently making the news and an election this November, I wanted to make sure to share what I have learned so far.
Dubois County government in 2011 was in the red $155.6k when comparing total spending versus revenue, forcing the county to reduce its cash reserve to cover costs. A couple things to note are not every department operating fund was in the red, it was about 50-50. Also, the data available is a snapshot in time of 2011 governmental activity.
This is important because cash flow in one year doesn’t give you a true sense of the year over year budgeting plans of local government. Just with our households we save up one year for a big purchase next year, and this is typical of local government and distorts cash balances in the funds. Still, it is worth noting that the departments in the black could not overcome the $586,000 shortfall in the general fund or the $140,000 local road and highway fund.
There is one fund that disturbed me when I read through the spending data and that was the EDIT fund, because the spending didn’t line up with apparent purpose of the tax.
The county Economic Development Income Tax (or EDIT), was originally developed back in the 80’s to be a temporary tax to help build our county jail and then be removed by the county council once the jail was built. The tax was never removed by the county council and now we watch as the county in 2011 received $1.95 million in EDIT funds but then spend $2.5 million depleting the cash reserves by $600k to make up the difference.
The disturbing part was the budget items that EDIT was spent on, and regardless of budget versus cash flow, you should be taken aback by the details. To summarize 2011, ¼ of the $2.5 million was spent on roads, ¼ was spent on the 4H fairgrounds, ¼ was spent of the City of Dubois storm water repairs, and the remaining dollars were spent on various annual County programs like 2-1-1, vaccines, and the county GIS.
Only $60k was appropriated to the ‘Dubois County area development’ fund. $60k out of $2.5 million! If you believe EDIT funds should be used for economic development, you are hard pressed to justify how the vast majority of the $2.5 million was used for the stated purpose of the tax.
Why do we have an EDIT tax when it is only being spent on standard budget items and not economic development? I understand the state allows the counties to use it on a wide variety of budget items, but the city of Richmond this past June had a debate on just because we are allowed to spend EDIT money on so many things should we? It is called an economic development tax after all, so what do we want from our elected officials?
These facts are presented to hold our elected officials accountable. Here I highlight the County government but I can easily point similar facts about the other local government entities.
In the data available for 2012, the county is continuing to spend EDIT funds on the same sort of budget items. Is this what you want from your local government in 2013 and beyond? As a county, we want to grow economically and encourage our kids to live and work in Dubois County, but when every dollar in the EDIT fund is being mostly used on standard budget items what is left for incentive programs to encourage growth?
There are many questions to ask our elected officials and ourselves in reviewing local taxation and spending by our local governments. What do you want your economic development spent on? With an election this November, this is an excellent time to review your choices for commissioners and county council and see how they measure up to your answer.
Adrian Engelberth Jasper, IN
The next questions I see are…
Why must EDIT funds must be used on standard budget items?
Are the taxes that should be used for this not high enough?
Was the decision to use EDIT funds easier than dissolving/reducing the EDI Tax and raising the property taxes, etc?
Is the overall effect an artificial slow down in the rate of increase in other taxes as they draw from EDIT funds?
I agree. Also a question to be asked is…
If the county (you can put Jasper and Huntingburg here too) are to get involved in economic development, what then of the numerous budget items currently being funded by EDIT funds? What gets cut so the governments can be active in attracting new businesses.
It is no secret kids are leaving and not coming back. Social reasons are there but also employment oppurtunies are with that as 1-2. Tough questions. Do we have the people in office to address this? That is another good question.
It is a catch-22 or chicken-egg dilemma.
Aside from the fact it increased for a couple years, Dubois County has comparably low unemployment (5.4% back in May).
When businesses move into areas with low(er) unemployment rates they have to spend more in wages to poach employees from surrounding businesses. Not many would want to do this with the plethora of options nearby. As an example, Evansville unemployment is 8.1% as of May and that represents several times more people.
As a result, graduates have to leave the area to find employment.
This is just one facet of the problem of youth leaving the area.
Thanks, Adrian! Your explanation made a lot of sense. There are no simple answers, but it seems to me that if we are going to make Dubois County attractive to employers and new people, we have to behave responsibly with the budgets. It looks like Economic Development is at the bottom of the priority list for the county and and cities. I could see utilizing the EDIT monies in this manner for an emergency, but otherwise, it should be used for the purpose intended.
Well you did a good job at telling where the money is going, now finish the story and explain why before you condemn the local government. Explain why they can or can't make up the shortfall somewhere else. There is more involved than just raising taxes, maybe they can't raise taxes. You say you want economic development, well companies are not going to locate here if the infrastructure is falling apart or if there is nothing here for entertainment. Maybe the money is being used for what it's intended for, just indirectly. Maybe the reason for the tax shortfall is because of new business not paying taxes. You Adrian get upset with government buying properties taking them off the taxable income when the same government says to corporations "you can locate here and we'll even let you off TAX FREE for ten years just to show our gratitude". Now that is taxable property not bringing in tax income creating a bigger shortfall causing taking more money from EDIT funds followed by more complaining by the people who do pay taxes.
I was just thinking about a couple of your points.
I was disappointed when we added the tax caps to the state constitution last year. It felt like folks were being duped into supporting it. Aside from being easily circumvented by artificially raising property values or keeping an old tax in place, but other towns that did something similar had lackluster or disastrous results.
However, the tax abatement program while offering tax free status for some years assumes the result is that those provided jobs and the taxes generated locally from the business arrival or advancement will offset the taxes lost. What is unfortunate is companies that have been around a while feel like those DirecTV customers that aren't allowed a promotional deal. Hopefully, these new companies will feel loyalty to the town and not pack up and leave after taking advantage of freebies.
I agree that it might sound like one is talking out both sides of their mouth when getting upset about taking property off the tax rolls for the city vs for a business, but it is a matter of intent. I can see far enough a head that encouraging businesses to come here through tax abatement could work better than unused land/buildings only collecting property tax. I may also agree with the city taking depending on the reason.
You are absolutely right when say companies will not want to come here if we have a crumbling infrastructure. I think the city using EDIT funds for that when it is needed is acceptable but should not preclude them from asking the question why the appropriate taxes are not enough. Is it because the tax cap was a bad idea? Unexpected expenses? Is a one year analysis is not enough to see the whole picture? and so on.
Adrian's research paints only one tree in blurry forest.
I have spent 30 minutes giving the verbal highlights of what I have researched. I still need to take 300 words out for the papers and the one tree gets a bit more blurry. I plan on writing more to further the discussion with more specifics. I had to lay the foundation for the ongoing debate because this is bigger than Dubois County. We don;t even get 100% of our EDIT money back. We send our EDIT money to the state so they can document it. Then they only give it back after 2 years go by and they have collected State income tax forms. If only 90% of Dubois County residents submit income tax forms, then we only receive the EDIT money from those returns.
Also, property tax caps are great things. The problem is the exemptions were not capped too. So now towns like Peru, IN have 40% of their population pay $100 or less in property taxes because of exemptions. The mayors of Indiana are going to push the state congress to address this. The caps are not the problem, the exemptions are allow a good % of IN residents to pay nearly no property taxes. Sadly, local governments have no idea how bad it is. The mayor of Peru had to sit in the county office for 3 weeks just to find out why their property tax is so low.
Also, many Dubois County residents saw their assessed value fall as well as a decent % hit their cap. Having lived in Illinois, trust me when I say a cap is a wonderful thing. Many Illinois residents pay $4-10k in property taxes for a standard house you see in Jasper.
Adrian, I know this is quite a few days after the fact so you may not see it, but I don't want you to think I was slighting with the one tree comment. In fact, it was quite the opposite. I think you did well to address what you have read with the space you have and look forward to reading more.
I don’t want the infrastructure to fall apart. The issue is the EDIT is called economic development income tax for a reason. The state has widened the ability of local government to spend it on a multitude of things so if roads are needed to attract businesses, spend the money on it. If the tax money is used to fix or upgrade infrastructure because business won’t move here, great! Let’s fix that road that prevents new businesses from starting up or locating here, or drives existing businesses away.
In saying that, I am hard pressed to see how $2.5 million minus $60k of spending of roads, and other standard budget line items equals attracting businesses. The 4H fairgrounds got $700k of EDIT funds. While that is great, and I love the fairgrounds, that is not economic development. Vaccines? 2-1-1? The $700k storm sewer issue in Dubois County is not economic development, which is a standard budget line item that was not saved up for.
Standard infrastructure in my book is not economic development. It is the day in and day out reason we have the government in place. EDIT is for special projects that are specific for increasing the job base and in worst case scenarios maintaining the job base. All the local governments have done is abused the EDIT to supplement the COIT and other local and state wide revenue sources so painful budgeting isn’t done on their watch. I would love to see a published document on the specific economic development reason EDIT money is being spent, per line item.
To be honest, the biggest infrastructure expansion Dubois County needs is high speed internet access outside the cities and towns. That can have a better case for EDIT money than any road I saw on that list. That is why I am and a multitude of others who came up to me the last few days glad someone wrote this down are so upset. Spend the money from the tax the way it is supposed to or cut/eliminate the tax completely.
Great work, Adrian. Thank you for bringing this issue to the public. It is definitely a complex issue, and (to Joseph’s point) it has been easier to leave the EDIT tax in place due the constitutional property tax caps put in place by the Daniels administration. There is an absolute limit on what the County can raise through property taxes, so they are finding it expedient to make up the difference through these income tax options.
Again, I can’t say enough how much I appreciate your investigation of this issue. There’s no simple answer or solution, but you are right to initiate the dialogue. Well done.
Yeah, I agree. We need to ask why the local government is using funds that were raised for economic development are being used on normal course of business governmental activies. If the argument is "well these normal course of business activies help spur economic development" then why have an economic development tax? Those are normal operations that are funded through the usual means (property taxes or others).
If the argument is "well business we don't want your jobs but we want your tax monies", I'm not sure that is the answer for bringing our kids back here. How are we going to grow Dubois County? How are we going to retain our youth and help prosper this area? From the latests population data I'm pretty sure we've stayed constant if not lost of people. Regardless, there wasn't an exponential growth rate.
I think a simple answer would be for the government to step up and encourage economic development. This is what this tax was meant for. Tax abatements might not be the answer (a coupon for 10 years worth of no property taxes). I think for a business to want to move or to start here the regulatory climate must be the least burdensome. The county coud use this money to build a road, drag a pipeline to the new facility, take electricity to where this new facility might me located, etc. If Dubois county spends 100,000 dollars to get a new business to come here that is here for 50-100 years and gives 100-500 people jobs, is that not worth it?
The point is that our economic development monies are not being used on economic development. The best way our government and revitalize this area is through bringing economic development. Let's start using these economic development monies on bringing jobs here.
You also need to bring a bigger workforce here to bring jobs here. People are not going to move here if the area is in bad shape. I know it's a chicken and egg discusion but part of economic development is workforce development. We need to attract potential employees along with potenial employers so in some way this kind of spending is warented if they can't get the money somewhere else.
But the area isn't in bad shape. The big companies already recruit people to move here. The point isn't whether money should or should not, it is that it isn't the point of EDIT to do the normal job of budgeting. It is above and beyond for econ dev, which is new jobs and/or new businesses. Using money on sidewalks is standard budget items, not economic development.
Bringing new people here is the easy part. We just need to stop driving our kids away. They want to come back, but only if the area changes and grows into something they want it to be. To be honest, it is time for the older generations to let go and let the under 50 generations take positions of leadership.
The HTC program will highlight many things, and being part of the leadership pillar, some things might be hard for some people to obsorb.
In closing, there are many ways to pay for needed road repair. EDIT money should be specifically driven by (non government) job base expansion. If that requires a main county road to be repaved, new fiber optics to be run, new power to be run, great! If it is just to fix a rural county road… or vaccines, 2-1-1, 4H fairgrounds… not great. It does show those in some positions aren't trying hard enough to spend within revenue. It is a balancing act, but the people must hold their elected officials accountable to use the money in the manner they should. Watching the corrupt Federal government should give everyone enough energy to tell local government, don't you dare be like them…