Chris Watts, President, Indiana Fiscal Policy Institute

First off, my sincere apologies if the title of this column has you humming ‘We built this city on rock…and…roll!” the rest of the day. But like cheesy ‘80s lyrics, the plight of Indiana’s cities and towns has been stuck in my head lately.

Maybe it’s that 2019 is a municipal election year, giving local issues a more prominent spot under the political spotlight (along with the presidential ambitions of a certain northern Indiana mayor). And who could forget that July is national ‘Small Cities Month?’

What really got me thinking was a new report from the Brookings Institution released last month finding that larger cities are becoming denser employment hubs, confirming that proximity to industry clusters, anchor institutions and a concentrated workforce create a competitive advantage around urban cores.

Indianapolis was featured in this study, increasing job density 42% from 2004 to 2015 (with the clustering of technology, hospitality and healthcare jobs around downtown boosting the metropolitan average).

In today’s talent-driven economy, employment and investment trends are tied to population. It’s no surprise that Indianapolis (again) boasted the state’s largest numeric increase in residents last year. Thanks to an analysis by the Indiana Business Research Center, we know that Indiana’s cities and towns collectively accounted for 80% of our population growth last year.

For a different perspective on economic urbanization, I looked at Marion County and the 25 other counties where at least 60% of the population lives in a city or town, jurisdictions that are also home to 22 of Indiana’s 23 largest cities.

These counties make up less than a third of Indiana’s area in square miles. But they hold nearly two-thirds of all Hoosiers, more than two-thirds of the state’s jobs, and account for two-thirds of our recent population growth.

Any way you measure it, there’s a clear migration of human capital and business opportunities to cities and more urbanized areas across Indiana. On a state level, it mirrors the ‘metropolitan revolution’ that Brookings finds nationally.

State policymakers have recognized the significance of this trend. The Regional Cities initiative was a $126 million effort launched in 2015 to stoke population growth and economic development in Indiana’s metro regions with competitive funding for ‘transformative’ projects.

Regional Cities was an early salvo in an onslaught of quality of life programs, with community development initiatives like ‘Stellar Communities’ and ‘Indiana Main Streets’ along with grants for specific purposes, like ‘Next Level Trails.’ Indiana’s Office of Community and Rural Affairs (OCRA) is leading the charge to empower more areas to make the same sorts of livability enhancements that draw new residents to larger cities, like rural broadband deployment through Governor Holcomb’s ‘Next Level Connections’ fund.

Tax policies have shifted too. In recent legislative sessions, housing incentives, local financing options for culture and hospitality initiatives and redevelopment credits have joined traditional business tax breaks, as lawmakers acknowledge that appealing to potential employees is critical to attracting growing employers.

But these efforts to help Indiana’s cities and towns are undermined by deeper fiscal challenges. The places that represent our broadest economic potential are also clearly disadvantaged by our local tax structure.

More urbanized areas of the state lose more of their property tax revenues to our constitutional tax caps because they tend to have more overlapping units of government dividing up levies under the caps. The 26 counties mentioned earlier, for example, lose twice as much of their levy to circuit breaker credits as the 92-county average.

Fast-growing communities also lose out, as tax levies and revenue formulas are calculated based on historic – and static – budget assumptions. Growth in assessed property values (critical to the local tax base) typically lags behind the trajectory of population and employment.

Indiana thrives when our cities and towns succeed alongside their rural neighbors. Purdue economist Larry DeBoer notes that the fiscal climate of rural counties is lent some stability by the 2% assessment of farmland under the property tax caps; this is small comfort against the broader challenge of rural population decline, with weather-related crop delays and market-limiting tariffs emerging as recent threats.

But supporting dynamic cities is the surest way to grow our economy provide a tax base that sustains Indiana’s diverse urban, suburban and rural communities.

A blueprint for boosting Indiana’s cities and towns may include more state aid, and grant programs like Regional Cities. But realistically, it starts with a hard look at our local revenue system, and whether governments have the ‘own source’ capacity to keep up with service costs and infrastructure demands. For more ambitious quality of life programs and capital projects, we may need to rethink structures for interlocal cooperation, revenue distribution and regional investment.

Simply put, if economic trends point towards cities as the cornerstone of Indiana’s future, it’s up to state policymakers to provide a fiscal foundation solid enough to aim higher and build taller.

The Terminal