Indiana’s Talent, Taxes, and Economic Toolkit

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Last February, Intel unveiled plans to locate a $20 billion semiconductor manufacturing center near Columbus, Ohio, the largest private sector investment in the state’s history. Company executive Keyvan Esfarjani then summed up the reasons why Intel planted its flag in Buckeye State: “It really comes down to three things: land, infrastructure and, most importantly, talent. “, did he declare. “Ohio responds to all of that.” (Of course, $2.1 billion in state incentives didn’t hurt either.)

In Indianapolis, state lawmakers took note of Intel’s announcement in crafting Senate Bill 361. SB361 helps the Indiana Economic Development Corporation accelerate land acquisition and infrastructure improvements, and authorizes a $300 million closing fund to help pursue advanced industrial investments like Intel’s. .

Less than a month after Governor Holcomb signed the bill, IEDC is negotiating land purchases in northern Boone County to bring together 4,000 to 7,000 acres strategically located along I-65 between Indianapolis and the flagship research campus of Purdue University. No details were released, but the Boone County site could be a strong candidate as the state’s first Innovation Development District (IDD) authorized by SB361.

IDDs are a new type of economic development zone that can be created by IEDC to capture additional growth from national and local (property) taxes to invest in land, infrastructure and other incentives to attract new large projects or build smaller, high-growth communities. businesses. The General Assembly recognized the need to improve the IEDC toolkit, despite concerns over local membership and another layer of funding authority from tax increases added to the base of the IEDC. property tax.

Beyond physical locations and financial incentives, what about talent – Intel’s (and most other growing employers’) top priority, according to survey after survey of business executives, site selectors and economic development professionals)?

The General Assembly also passed HB1002, which reduces Indiana’s personal income tax rate from 3.23% to 2.9% over seven years (which today would be the highest flat rate bottom of all states that levy an income tax). The simplest case of these cuts is to return some of the state’s historic surplus to the taxpayers who built it up over the past two tumultuous years.

But they’ve also been touted as a way to boost Indiana’s appeal as an affordable place to live and work for new workers. If we listen to Americans (as interpreted by the 2015-2021 census housing surveys), the top reasons for residential moves were housing and community attributes (37%), personal/family issues (28% ) and employment-related changes (22%), with taxes on a “miscellaneous” list totaling 11%.

Reducing Indiana’s income tax could make a difference, but in cases where regional population growth can be influenced by significant differences in tax burden (from Illinois to northwest Indiana, for example), we can already claim a benefit.

There are limits to cost as a talent management strategy. We recognize this through programs like READI, which supports regional partnerships aimed at driving population growth – the “community attributes” factor. A recent analysis by Ball State economist Michael Hicks (via the Brookings Institution) on Midwestern cities identifies a strong link between the quality of taxpayer-funded services, well-performing local schools, other public amenities, and population growth, property values, employment, and income.

An opportunity cost of HB1002 is the lost revenue that could have had a stronger impact on population growth by supporting READI and other quality of life investments.

Indiana needs to expand its workforce; we also need to raise our level of education to prepare Hoosiers for jobs at Intel and other high-tech industry employers. This means consistent and competitive spending on education, from kindergarten to post-secondary and workforce programs.

HB1002 will reduce net tax collections by approximately $200 million next year and $875 million over the next two-year budget cycle (2024 and 2025). Given the government’s strong fiscal position and healthy reserves, this does not pose a near-term threat to education spending commitments (although funds for higher education have been cut). essentially stable since 2020).

But the cumulative “cost” of HB1002 climbs to $6 billion by 2030. With K-12 support per student (a plurality from the state budget) increasing by 4% per year since 2019, it is easy to envision a difficult future debate between school funding and planned tax cuts (particularly if high inflation erodes the impact of state spending on teacher salaries and other running costs) .

Success in today’s K-12 classrooms shapes Indiana’s talent pool that fuels our future economy, so state policymakers must approach these trade-offs with caution.

Indiana’s economy is growing and unemployment has fallen to its lowest level in 50 years. Success isn’t defined by securing increasingly rare mega-deals, but Intel is a useful indicator of the kind of advanced, high-tech industrial opportunities we want to continue to recruit, retain and encourage.

The General Assembly has certainly enhanced our business attraction toolkit via SB361. But IEDC’s focus on Boone County also shows the importance of human capital; there’s an obvious reason for choosing a location on the outskirts of the state’s most populous and fastest-growing metro, less than a half-hour drive from a major research university.

So the challenge of creating an economic climate conducive to growth continues into next year and into future budget sessions, striking the right balance between a competitive fiscal climate and the capacity for revenues to invest in other competing priorities – education, infrastructure and livable communities that attract new residents and employers willing to put their skills and ingenuity to work.

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