KENNEDY: Perverse incentives lead to bad decisions

“Simple” legislative approaches to complicated issues tend to distort subsequent decision-making. I am hardly the first—or only—person pointing to the unfortunate consequences of constitutionalizing the tax caps (nor the only person rolling her eyes at Gov. Pence’s duplicative “balanced budget” proposal).

Such proposals are intended to raise the national profile of their sponsors; unfortunately, political theater often spurs perverse public decision-making.

Take, for example, the proposed approach to design and construction of an admittedly much-needed Marion County justice center.

The current plan to the extent we can tell (the administration has been inexcusably secretive throughout the process) has private developers designing, constructing and financing the center, then leasing it to the city.

As I noted in a post at INforefront.com, the sole “virtue” of this approach is that it will allow the administration to avoid a public referendum and the public scrutiny such a referendum would require. That’s because project debt that would result in taxes exceeding the now-constitutional tax cap must be submitted to public vote. (Legally obligating the city for lease payments is somehow not considered “debt.”)

The same day I posted my list of problems with the city’s approach, a thoughtful letter to the editor of The Indianapolis Star from a Les Zwirn identified others.

A few of those issues:

A sale and leaseback will cost more. Not only can cities with excellent credit ratings (Indy’s is triple A) borrow money at lower rates than private developers, but private entities must cover profits and taxes in the lease payments. (And the administration’s estimate of revenue available to cover those payments includes some highly problematic “savings” it anticipates by reason of the new construction.)

That need to build in a profit margin is a powerful incentive to cut corners on design and construction—an incentive to base decisions on return-on-investment considerations rather than quality and/or the long-term value of what will eventually be a public asset. As Bruce Race pointed out in IBJ on Jan. 3, the current proposal violates several important principles of urban design.

IndyCAN—a coalition of over 20 faith congregations—is concerned that the current approach creates incentives to increase mass incarceration and makes no provision for establishing a “community benefit” fund to shift resources from jails to community-based programs that address the causes of violence and recidivism.

Zwirn and IndyCAN also note the “complete absence of public participation and oversight” (which the administration clearly considers a feature, not a bug). Such oversight is particularly important in public projects of this size and scale, because they provide lots of opportunities for crony capitalism—for spreading the goodies among one’s political donors and friends.

Zwirn’s letter also raised important efficiency issues.

The proposal leaves us with an outdated and inadequate City-County Building. It splits the civil courts off from the criminal courts, thereby impeding the ability of our local courts to work together. And, by not including the state appellate courts in the planning process, the opportunity to free up room in the Statehouse is lost.

The problem with “deals” negotiated in the dark and delivered to the City-County Council as “take it or leave it” propositions with no meaningful opportunity to ask tough questions or consider potentially superior approaches—is that we taxpayers get stuck with decades-long liabilities assumed by people who will be long gone when the bills come due.

All in order to avoid the tax cap’s referendum requirement.•

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Kennedy is a professor of law and public policy at the School of Public and Environmental Affairs at IUPUI. She blogs regularly at www.sheilakennedy.net. She can be reached at skennedy@ibj.com. Send comments on this column to ibjedit@ibj.com.