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The Best and Worst Economic Moves of the 2016 Session

Posted 2:20 PM by

This article appeared in the March 29 issue of Inside INdiana Business’ Inside Edge newsletter

Attracting and keeping jobs in Indiana is a hot topic every legislative session, especially in an election year. It’s ironic, then, that in 2016 the Indiana legislature took very few actions specifically designed to address economic development issues.

More notable were actions the Indiana General Assembly chose not to take.  As we identify the legislature’s best and worst on the economic development front for 2016, it’s what legislators didn’t do that immediately drew our attention.

Best

Earlier this year, Carrier and United Technologies Electronic Controls (UTEC) announced plans to move their respective Indiana operations to Mexico. These announcements ignited a bonfire in the Indiana Statehouse and sparked a statewide conversation about what, if anything, should be done in response.

Immediately after these announcements, some lawmakers promoted the so-called “Carrier Clawback” provision. This amendment, proposed late in the session as an add-on to SB 308, would have automatically recaptured incentives paid to companies that experienced a predetermined drop in Indiana headcount as a result of lost jobs.  Sounds good on its face, right?  In fact, such a provision would have been awful public policy, and defeat of this measure was the most positive economic development action taken by the 2016 Indiana legislature.

What made this amendment so dangerous?  While neither elected officials nor their constituents supported Carrier and UTEC’s decisions to move jobs to Mexico, the proposed language was rigid and unforgiving.  The fact is, every local government in Indiana has the ability to insert clawbacks into their incentive contracts with private companies, and the vast majority of Indiana communities choose to do so.  (At the state level, the IEDC has been including clawback language in its incentive contracts for many years.).

To demonstrate one of many possible unintended consequences of this “fix,” here’s an example. Let’s say a growing business of 200 employees secures incentives in return for agreeing to hire 100 additional workers, resulting in a targeted total of 300 employees. Imagine this company’s headcount balloons far beyond what they promised, ultimately reaching 500 workers.  But, like many Indiana companies, the company’s workforce ebbs and flows based on the calendar and demand for its product. A recession hits, and the company’s headcount drops 175 employees from its 500 person high to 325 workers. (Remember, this total is still 25 workers beyond the 300 person headcount the company targeted).

Under the proposed and ultimately rejected language of SB 308, even though the company exceeded its 300-employee target, its drop in headcount would have resulted in the payback of its incentives.  Given that this company ultimately exceeded its promised target of 300, requiring the incentives to be paid back would be patently unfair.  In fact, many words could be used to describe such an outcome. Onerous? Heavy-handed? Maybe even oppressive? Our favorite is bad.

The Carrier clawback requirement would have been viewed as intrusive micromanaging at the state level and counter to the concept embraced by both political parties that decisions with a fundamentally local impact should be made locally.  While well-intentioned, this overreach would have been construed as paternalistic, subjecting the state legislature to “nanny state” criticisms.

Luckily, this language did not become law. Kudos to Indiana lawmakers on that call.

Worst

While choosing not to implement the Carrier provision was a great decision by the Indiana legislature, our vote for the worst economic development move in 2016 was a different sort of action not taken: Indiana’s failure, again, to adequately fund Indiana’s Skill Enhancement Fund program (SEF).  SEF, sometimes referred to as the Training 2000 Program, provides reimbursements to companies for 50% of their qualified training expenses through a competitive application process.

SEF is so important because workforce readiness continues to be one of Indiana’s chief economic challenges, especially with regard to the highly skilled, high-wage jobs the state covets.  In particular, industries such as manufacturing, life sciences and technology comprise the state’s strongest industries. Despite the state’s desire to aggressively fill positions in these sectors, a ready and qualified employee candidate pool continues to confound these industries in every corner of the state.

Nowhere is this looming gap more present than in Indiana’s burgeoning tech industry.  Just last week our firm participated in a meeting with the IEDC where one of its employees referred to Central Indiana as the Silicon Valley of the Midwest.  While some might call this moniker more aspirational than fully achieved, the fact is that Indiana has been riding a wave of phenomenal tech successes over the past several years. Whether it’s the innovative, disruptive concepts and start-ups that continue to originate from the ranks of past and present executives of companies like Angie’s List or Salesforce, or the scores of tech firms that relocate or organically grow here in the state, Indiana’s success in the tech arena is real and has the makings of something lasting.

Without SEF in greater supply, this rally could stall and stall badly. A look at the biggest economic development tech deals of the last two to three years reveals a constant in nearly every one of them: each involved companies that invest heavily in training, and each utilized SEF to help justify this continued investment in Indiana.

The IEDC has done an outstanding job in recent years turning SEF into the best program of its kind in the country.  But perpetually underfunded, SEF can’t keep up with demand.  It’s time for lawmakers to step up and better capitalize this potent economic development tool.

Tech firms continue to thrive in Indiana, despite calls from board members, investors or commentators to relocate or establish a second location in parts of the country with a stronger quality of life. The state needs to preserve every advantage it can to remain relevant and thrive in this highly competitive space.   

Sometimes no action is the best action. And sometimes, no action costs Indiana jobs. The state sees examples of both in this year’s Best and Worst List – Legislative Edition.

About the Author
Tim Cook is the CEO of KSM Location Advisors, part of the Katz, Sapper & Miller Network. Tim works closely with companies across the country during the site selection process, assisting in negotiating and securing economic development programs. Connect with him on LinkedIn.

 

About the Author
Katie Culp is president of KSM Location Advisors, part of the Katz, Sapper & Miller Network. She commands swift and ethical expertise in the incentives, site selection, and state and local tax arenas. Connect with her on LinkedIn.

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