Michael Hicks: Indiana needs more municipal flexibility


Michael Hicks

Over the past half-century, a tad more than 90% of population growth in Indiana occurred in metropolitan counties. Half of all the growth in Indiana over the past 50 years occurred in the Indianapolis metro area. That trend is accelerating over the past decade.

Rural population in the state peaked at the beginning of the Great Recession. Since then, 103% of population growth has occurred in metro areas, with Indy capturing more than 71% of the state’s total population growth. It isn’t just people. Urban Indiana captured more than 100% of new jobs created in the state since 2000, and nearly all the economic growth so far this century.

In the months since COVID, we might have expected things to change. Roughly a third of Hoosier employees now work at least partially from home. This explosion in remote work means a substantial share of families are less geographically connected to their worksite. That has slightly improved the prospects for rural Indiana. Since COVID, cities have only accounted for 99.3% of population growth. That results in net growth of about 100 families across all of Indiana’s rural counties since the end of the COVID recession. In contrast, Hamilton County alone had nearly 16,000 new residents in the first two years after COVID.

Cities aren’t just critical to Indiana’s economy, they are the future of Indiana’s economy.

One fortunate geographic quirk of Indiana is that we are a very condensed state. Unlike the upper Midwest, Plains, or southwestern states, almost nine in 10 Hoosiers live within 20 minutes of a metropolitan area. The benefit of that is that almost anyone can access urban labor markets, urban amenities and public services in cities. That should be a boon to both urban and rural Hoosiers.

Unfortunately, many Hoosier cities aren’t thriving. In fact, Indiana has some of the worst performing metropolitan areas in the country so far this century. Including the stunning growth in the Indianapolis region, Indiana ranks 32nd nationwide in urban growth, a full one-third slower than the national average.

There are many causes to Indiana’s sluggish growth. Lower levels of educational attainment along with lower quality public services are the dominant causal factors in slow growth. For the most part, elected city leaders work very hard to remedy these problems. However, there is just too little flexibility for cities to boldly experiment with public policy options. That is a problem that begins and ends in the legislature.

According to the staff at Accelerate Indiana’s Municipalities — a 130-year-old association of municipal governments — in a typical short session they face roughly 40 bills per year limiting the power of city government. In a budget session, that number more than doubles, with some years seeing more than 100 bills designed to strip fiscal or regulatory power from cities.

The recent history of restricting cities has seen some hurtful policies. Indiana cities have very little fiscal flexibility. Property taxes are capped. Implementing or raising the Food and Beverage Tax requires legislative approval. The local option income tax on a city requires all taxing bodies to face the same rate. And maybe worst of all, it is virtually impossible for cities to annex surrounding neighborhoods, even if they already provide them with public services.

I can name several Indiana cities that are poised to grow but are landlocked. Residents want to live in the city and access city services. Builders want to build homes in the city, and the city wishes to expand water, sewer, police and fire protection to these new parts of the city. But the city cannot annex the property, so no homes will be built and no sewer or water expanded.

Indiana’s annexation rules have created de facto urban growth boundaries that are more like Portland, Oregon or San Francisco than a Midwestern city desperate for new residents. It is a bizarre outcome.

No doubt many of the bills considered each year to restrict the freedom of cities are reasonable in their assessment of a particular project or plan. As in any organization run by humans, some mistakes are inevitable. Even so, the legislature would do well to stay away from trying to judge these matters as if they were a city council or mayor’s office.

The reasons for this are both philosophical and practical. One great gift of our form of government is simply that states and cities are the laboratory for policy ideas. States should be in the business of permitting cities wide latitude in their affairs. That sort of Federalism argument is part of the pantheon of conservative thought.

Moreover, most city policies the legislature seeks to limit are the result of democratic voices in those cities. One good example is SB 52, which had sought to limit the use of dedicated bus lanes. Having not studied the issue in depth, I just don’t know if the style of bus lanes used by Indianapolis is wise or not. I do know that the IndyGo plan has been heavily vetted, supported by voters across many electoral cycles, and the mayor who supports it was re-elected handily. That speaks to the democratic nature of the proposal.

There’s also a practical reason. In the more than two decades I’ve been studying cities, I can think of no examples where mistakes in city spending or policy have broad economic spillovers. Even in massive cases of failure, such as Detroit in the 2000s, nearly all the negative consequences were concentrated within city limits. In contrast, there are hundreds of examples where the benefits of successful cities spill over into neighboring communities.

This means that there is really no downside to the legislature in allowing broad policy experimentation in taxes, infrastructure, policing or education within a city. Likewise, there are just no upsides to restricting experimentation. It is almost really that simple.

The Indiana legislature does understand the importance of cities. The Regional Cities and READI grants are testament to that concern. The most logical extension of this concern would be to evaluate legislation directed and municipal government differently in the future. Don’t ask whether it is good for the city or not. Rather, legislators should simply ask whether this will allow cities to experiment or not. If it does, vote yes; if not, table the bill.

Michael J. Hicks is the director of the Center for Business and Economic Research and an associate professor of economics in the Miller College of Business at Ball State University. Send comments to [email protected].