Strong Neighborhoods Are Vital to Economic Progress

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A legislative panel recently discussed the merits of a proposal by State Representative Cherrish Pryor (D-94) that would provide property tax breaks to long-time residents of low-income neighborhoods that are now on the rise. The underlying question seems to be "what can cities do to achieve and maintain diversity in neighborhoods in which the cost of living is rapidly increasing?" This is a question that deserves the recent dialogue afforded to it by the legislative panel.

Not surprisingly, the question and the proposed solution bear with them basic tenets of differing political philosophies. Namely, the value of subsidies to the poor. Some might contend that the private sector should drive development consistent with market forces and if the consequences involve displacement of long-time residents, well, that’s just market forces at work. Others might say that these incumbent residents have contributed to the marketability that has attracted new development, thus making them deserving of sharing in the neighborhood’s success - by continuing to live there.

The truth is, if there’s an equitable solution, it probably lies somewhere in the middle of these opposing views and relies upon cooperation of the city, private developers, and neighborhood residents. My view is that local government is best-positioned to address granular challenges such as the displacement of residents. Like many fellow Republicans, I believe that the states are laboratories of democracy (and innovation). But so are cities. Cities and their elected officials should be encouraged to test out theories, implement plans, report what works (or what didn’t), refine their plans and test them again. However, the objectives, implementation, and results should be clear and transparent to all.

Rep. Pryor should be commended for her attempt to tackle the challenge of ensuring diversity in transitioning neighborhoods. However, the valid concern about the proper role of subsidies should be dealt with if the proposal is to move forward. If the government provides a subsidy to individuals whose property rapidly increases (and thereby property taxes) as a result of new development, then, when those individuals sell their home and realize their home’s enhanced value, the subsidy they received should be returned to the taxpayers. Adding a provision like this would only serve to support the objective of maintaining diversity.

Indiana needs diverse, dynamic neighborhoods in its cities. If a targeted, temporary tax break can help bridge a neighborhood transition, then it may be worth testing so long as there is substantial local buy-in. The reduced taxes are exclusively local funds (not the state’s) after all.

However, sustainability is critical. If new development plans do not include a mix of housing options, then displacement is inevitable over the long term, rendering a transition-oriented property tax break ineffective. Accountability is also crucial. All parties should preemptively agree that if the objectives are not achieved, it’s time to go back to the drawing board.

As the legislature cogitates on this proposal and other city-focused proposals in the future, it should err on the side of supporting their efforts. Why? Because cities are facing challenges that can only be solved locally. But at the same time, consider providing basic guidelines for testing out new ideas, such as agreeing upon the objective, establishing metrics for success, embracing transparency and ensuring accountability.

If Indiana’s cities prosper, so will the state.

Eric Shields is principal of Cardinal Strategies LLC,

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