Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. His column appears in Indiana newspapers.
One anecdote about a short time I spent living in Ohio offers some keen insights into the ways both residents and local governments think about taxes and quality of life. It is a story Hoosiers should take seriously, as we think about the future of our cities and towns.
The anecdote begins in a small town outside of Dayton’s Wright Patterson Air Force Base. Like most communities outside military bases, this one was fiscally conservative, and its residents voted for state and national leaders who shared that outlook. My neighbors also cared about their community. Sidewalks were quickly removed of snow, and the parks and trails filled with residents on every day the weather allowed. The place was also diverse, like the nearby military base. Weekends saw everything from hard-fought cricket matches to jazz and bluegrass festivals.
It was an unusually nice neighborhood, and I was pleased to move there in late summer. A few days after my daughter started school, she brought home an informational flyer for a school referendum. In clear prose and charts, the flyer described the purpose for the additional tax revenues. The referendum would have added about $80 a month for my family. Keep in mind, the state and local tax burden in Ohio was already much higher than in West Virginia, where we moved from. In fact, my Ohio taxes, back in 2005 were higher than my Indiana taxes are today, despite living in a more valuable house and making more money.
I am and was a fiscal conservative, and with three kids aged six or younger, I was unhappy about parting with another $80 a month. Still, the school’s information was compelling. They wanted to update a couple of modestly overcrowded schools, make some additional minor expenditures, including installing AstroTurf and bench heaters for the high school football field. What struck me most was the school board constructing a financial payback period for the AstroTurf. If memory serves me well, it was three or four years.
The referendum passed overwhelmingly, as did another one three years later, which supported building a new pre-kindergarten through first grade building for younger kids. I voted for both. There are two important lessons here.
The first is one upon which I have often written. Even very fiscally conservative taxpayers are inclined to support higher taxes when they think they can see tangible benefits. It is not the tax rate the matters, but rather the value we receive from taxes that informs our choices. This should surprise precisely no one. Taxpayers do not abandon their rationality the moment it comes to paying taxes. Value matters, not price.
The second and far more important lesson is about the local school board. In preparation for the referendum, the school administration and board compiled detailed information, opened their books for audits and presented all their financial issues in open forums. In deciding to add and renovate schools they focused on the effect on teaching and learning. When it came time to ask for money for more esoteric items, like AstroTurf, they made a strong financial case. The city leadership supported the referendum and provided support to the schools directly in the form of resource officers and a large presence in the morning and evening as students came and went from school.
Now, I ask everyone in Indiana, have you seen this level of sophistication from your school board, town or city? The answer in many places will be yes, but in far too many places, it will be an emphatic no. The reason is simply that Indiana’s local governments have so much less local fiscal control that they do not become proficient at communicating their tax and spending plans. Our system almost entirely de-obligates local governments from thinking about tax revenue the way our Ohio neighbors do. This impacts the approach our local governments take to taxes.
My final question is even simpler. Would you be willing to spend a bit more in taxes to have better streets, better schools and safer neighborhoods? If the answer is no, would it change to yes if your local government did a better job explaining why they needed more of your tax dollars?
The purpose of this anecdote is to reinforce what most people understand about local government and taxes. Good local governments will attract more tax dollars and people because households trust that the money is well spent, and they see the result in the quality of local services. As Indiana thinks about the future, we should consider how we can change our policies to help create better local government.