4 economic principles every local politician should know

By Paul Gorski

There are four basic economic principles our local politicians should know: 1) Tax abatements are not effective tools for long-term economic growth; 2) Locally, TIF districts have not proved to be useful tools in generating long-term economic growth; 3) Investments in public healthcare can have a positive effect on local economies; 4) Investments in public education have long-term benefits to local and regional economies.

Let’s tackle that last one first. Investments aimed at reducing high school dropout rates have a direct benefit on local economies. Higher education levels are associated with lower criminal activity, which is a positive for any community.

High school graduates are also less likely to enroll in state Medicaid programs and federal Medicare health care programs, reducing the participation in these taxpayer-funded programs. In addition, high school graduates earn more money and contribute more in income tax revenue compared to high school dropouts over their respective lifespans. Therefore, the public investment in education eventually comes back to the state economy.

Investments in public healthcare aimed at keeping residents out of emergency rooms as their primary source of care can have a positive effect on resident health and local hospitals’ bottom line.

Local hospital systems often carry the burden of treating low-income, underinsured patients in their emergency departments. Programs that increase clinic access, provide for mobile clinics and programs that help avoid chronic health conditions can help hospitals save money and improve the health of the community. Local governments can help by providing financial assistance for vaccinations, wellness education, and promoting access to care.

Tax abatements, often in the form of property tax relief, have not been shown to promote long-term economic growth. From my March 2014 column: “Michigan researchers found that while tax abatements in Michigan might work for some industries in some high-tax rate areas, that “net tax abatements result in a net cost to the local government.” In other words, the tax reductions cost the local governments more than the promised economic benefit.” The article details similar examples.

Tax increment financing (TIF) districts offer a slightly brighter prospect for economic growth, but we have not used them wisely, and property values have been dropping in some of our TIF districts, so there is not enough money coming in to repay the money borrowed to improve those areas. Not only are we not improving these areas, we are putting ourselves deeper into debt.

Course summary: invest in public health and public education, and use tax incentives sparingly.

Paul Gorski (paul@paulgorski.com) is a Cherry Valley Township resident who also authors the Tech-Friendly column seen in this newspaper.

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