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March 20, 2014

Ladwig: The next-worst economic-development program

Tens of thousands of tax dollars are awarded each year to select businesses in facade grants

Now that the Legislature has agreed to let our friends at Ball State University regularly evaluate the effectiveness of the various tax “incentives,” here is a nomination for the next-worst economic-development program.

Popular throughout Indiana, it is called a “façade” grant. Tens of thousands of tax dollars are awarded each year to select businesses to dress up their exteriors. We like them not because they work but because they demonstrate what city hall thinks of you (not much).

The name itself is fair warning. Façade is of course French, the language of a people who reduced liberty, the noblest stirring in the human breast, to a basketful of guillotined heads. The portent could only be clearer if there were a collateral reference to Gen. Grigory Potemkin and his fake Ukrainian villages.

But we risk slanting our little report; let one mayor present the program in its best light:

“Our Commercial Façade Grant program helps local businesses invest in our community and provide welcoming atmosphere for their customers. This program ensures that our commercial corridors remain vibrant so that our citizens have convenient access to goods and services they need.”

Mayors throughout Indiana, noticing ragged storefronts here and there, conclude that commercial property owners are indifferent to how their property looks. Progress requires an outside incentive (government money) to get them to attract customers and make profits.

But what if Hoosier businessmen already know that? What if they understand that the appearance of their business is important to bringing in customers and making money?

That would mean something else is interfering with our commercial ideal. May we make a suggestion? How about taxes, regulations and zoning restrictions that have built up over the years on those distressed properties — all of them the result of bad government decisions detached from either market forces or customer preferences, decisions that can ruin even the most thoughtful business plan.

And if that were the case, the grants would be good money thrown after bad. In my city that means almost $3 million “leveraged” by more than 60 businesses over five years.

With that kind of investment, Indiana should look like Las Vegas. It doesn’t because a new facade in itself cannot significantly move a bottom line. Again, if it could, the owner would have made that investment long ago.

Rather, those “commercial corridors” targeted by the mayors contain a high proportion of aged business whose problems are the mayors themselves, i.e., their anachronistic taxes, regulations and other self-defeating economic policies.

And because government will continue to plunder — that is its business — those same commercial corridors will be in distress again in a few years. New facade grants will have to be awarded. It is a perpetual ribbon-cutting ceremony.

Finally, the typical city hall is inept at selecting those businesses where its help would help. One of my mayor’s first grants this year, for instance, was to a heating and air-conditioning company (in a heavily Democratic district, interesting enough). It is a business that draws its customers from phone and Internet listings, most of them never setting eyes on a façade, renewed or otherwise.

Considering the conflicting assumptions of façade grants and their obviously self-serving political structure, it is tempting to indulge in a flippant critique. It must be said, nonetheless, that in a public-policy sense the program is plain silly.

Better to post signs outside distressed storefronts showing what proportion of gross revenues there are paid in taxes and regulatory costs. And a nice touch would be a chart tracking that percentage over time.

Oh, and you might add the faces (las facades) of the mayors in office during the property’s decline.

Craig Ladwig is editor of The Indiana Policy Review. Contact the author at cladwig@inpolicy.org.

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