Posted by
Stephen Leykauf on Monday, August 06, 2007 8:30:28 PM
It was the best of times in South Bend. Local industries such as Oliver Plow, Singer, Birdsell, and Studebaker Wagon had provided the area with an economic genealogy which positioned the local economy for industrial descendents like Bendix, Allied Signal, and Studebaker of the the 1950s and 1960s. According to the Center for History, “Oliver plows were being shipped to an impressive list of places, including the British Isles, Japan, France, Germany, Mexico, Sweden, Greece and South American countries, prompting a nearly endless line of business visitors to South Bend from around the globe.” Singer Cabinet Works emerged as the world's largest cabinet factory by 1901. Birdsell Manufacturing Co. was once the largest factory of its kind in the world The Studebaker Brothers Wagon Company was the world’s largest producer of wagons in the 19th century, later successfully transitioning from the building of wagons to building automobiles. Studebaker employed 22,000 at its peak. South Bend was a highly industrialized economy. Residents enjoyed good-paying jobs at stable industrial enterprises. Times were good.
Coincident with the beginning of a political party dynasty that would stretch fifty years to the present, the South Bend community began a reversal of the fortunes it had inherited from the previous hundred years. South Bend government was perceived to be friendly towards unions, during an era of declining union influence. Continuing pro-labor support in the face of falling manufacturing union membership gave South Bend and similarly governed communities the perception of being out of touch with an industrial sector that was increasingly global. Indiana was the cradle of the Automotive industry. But when giant “transplants” Honda, Toyota, Mitsubishi, Mazda, and Nissan located their operations, South Bend was passed over, never receiving serious consideration. The IN-KOTE move into the area appears to be an exception. But unlike its predecessors, IN-KOTE represented modern, world-class manufacturing with very minimal labor content. And IN-KOTE elected to locate within the municipal influence of small-town New Carlisle, not South Bend.
According to South Bend’s development plan, for the period 1998 – 2003, local employment in education grew 26.4% and local employment in health care grew 20.2% while local employment in manufacturing declined 11.7%. South Bend disguises its woefully low manufacturing employment by including over 2,000 AM General “ghost employees” who work seven miles away in Mishawaka in their employment figures.
With the United States shifting from a manufacturing to a service economy, South Bend’s embrace of the education and health care industries seemed a wise course. After all, both were growing at a rate of about 9% per year while their manufacturing counterpart struggled to match the CPI of around 3%. But South Bend recognized that high employment growth in education and health care could not be sustained. With fourteen colleges and universities in South Bend, there is little room for a fifteenth. And our two hospitals draw an overwhelming majority of patients from the Michiana area, a limited total available market. Health care employment will freefall when St. Joseph Medical Center, South Bend’s fourth largest employer, moves to Mishawaka to follow the exodus of population migration from South Bend to Mishawaka and Granger.
Labor traditionally supported the Democratic Party. Faced with steadily declining ranks of South Bend manufacturing labor, a new voting block had to be nurtured. Reconfiguring the local economy from Manufacturing to Education and Health Care would impose building needs. Aggressive support of Construction was a logical choice. The local government driven building boom that followed would see serial projects including the College Hall of Fame, Juvenile Justice Center, Morris Center for Performing Arts, Studebaker Museum, and many schools. This building spree’s crown jewel was the $56,000,000 County Jail. This project cost far exceeded that of permanently housing all prisoners in the downtown Marriott. Escape, you ask ? With air conditioning, color TV, and three gourmet meals each day, why would anyone want to leave ?
But the real power of construction spending is not a matter of the loyalty it reciprocates. High construction spending creates an image of prosperity and developmental progress. Just as prosperity fosters consumer spending, high spending conversely creates the perception of well being. It’s that “feel good” aura which gives voters a contented feeling when they step into the voting booth.
The concurrence of South Bend funded construction, Notre Dame University funded construction, and privately-funded construction consistently placed South Bend on the list of top ten cities for construction spending per capita. Thus, South Bend vaulted into the select community of national leadership in construction. But then external events intervened to cause the gravy train to jump the track. Three years ago, structural steel was $290/ton. Today that ton of steel costs $540. When costs rise in one sector, it provides an opportunity for producers of other materials to increase their prices. Construction costs raised a total of 25% over the last three years. Prior to 2003, cost of construction inflation averaged only 3% per year. Therefore, economic factors upped the ante for South Bend to stay in the construction leadership game. Local government had to increase revenues to enable its continuing cultivation of the Construction voting block. South Bend had at least seven avenues to grow their income:
Create taxes. Stiff opposition when creating the $25 wheel tax indicated that new taxes should be tabled – at least for now.
Raising taxes. The largest revenue gain promised to come from the largest source of local government revenues – property taxes. About 36% of local government income comes from taxation of homes and businesses. But then the state implemented its “Circuit Breaker” law capping property tax at 2% of market valuation. Properties can easily be reassessed to increase market value, thus increasing tax. Local government, despite its whining over the 2% limitation, can “game” Circuit Breaker. Bureaucratic protests notwithstanding, watch as property owner payouts increase under Circuit Breaker.
Intergovernmental. Unfortunately, local government funding received from other governmental entities has decreased to 5% of total revenues.
Lease infrastructure. Indiana’s toll road provides a model for this huge moneymaker. An asset is financed through public taxation. Soon after bonding for the asset is retired, the community-owned infrastructure is then leased. The government collects on the principal twice, once during the asset’s purchase and a second time when it is leased – plus appreciation on the principal during the original payoff period. Long-term leasing of South Bend assets will be considered.
Borrow. High government operational costs do not allow cities to pay cash for capital improvements. South Bend has incurred significant indebtedness to finance its building spree. Continuing debt expansion against a backdrop of manufacturing hemorrhage could place its Standard & Poors rating at risk, resulting in future financing at unfavorable interest rates.
Increase tax base – Attract business. Manufacturers continue to shun union towns and those with governments that are sympathetic towards labor. Manufacturing companies can work with unions, or they can be competitive in a global marketplace, but they cannot do both. Obviously, labor unions have been good for American workers. But South Bend needs to recalibrate its thinking. South Bend’s competition for economic development projects is no longer just Atlanta, Dallas, Raleigh, etc., but the entire world. The global workforce is now the competition. The rules of business have changed. Bureaucrats who “just don’t get it” will preside over manufacturing erosion. Past glories don’t buy us favor – prospective new manufacturers are more interested in South Bend’s future than in South Bend’s storied past.
Increase tax base – Annexation. Roseland, with its significant commercial corridor tax base, is a crown jewel in its own right. But it also is strategic as a building block in extending South Bend northward. And an annexed Roseland would replace much of South Bend’s population loss to surrounding communities. Roseland’s pre-2007, highly publicized melt-down caused South Bend bureaucrats to salivate over the possibilities. Roseland upheaval argues in favor of annexation into a more stable South Bend. Soon after a responsible town council took charge of Roseland in January 2007, a disappearance of Roseland’s 2004-2006 records was discovered. If a theft of government records occurred, that theft could be a very serious crime. But inaction on the part of the St. Joseph County Prosecutor would contribute to extending the town’s misery, thus building a case for annexation. Almost five months later, St. Joseph County has withheld defense of Roseland on the matter of “ghost records”.
This, then, is the story of manufacturing-originated well-being of many, mortgaged to perpetuate the power of a few. And so it was that South Bend, the progeny of a gilded economy, squandered its manufacturing heredity.
Note from the article’s author:
This narrative relates a history of the triumph of politics over principle . . . the power of the purse . . . an underlying theme, "actions have consequences". It includes “stacking the deck” to continue incumbency, and power at any price. St. Joseph County bureaucrats continue to get away with treating its citizenry like chumps because most residents are either ill-informed or just too busy with life to care. If you feel that this article has any merit, please feel free to pass it along to a friend, neighbor, or colleague.