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The economic debate.

In an election for governor in which each candidate seems to be trying to make the same proposal as his opponent--but make it first--there is no area of greater divergence between Democrat Evan Bayh and Republican John Mutz than economic development policy.

In many other areas, when you stack the Republican position papers of Mutz and his running mate, Marion County Prosecutor Steve Goldsmith, against the Democratic position papers of Bayh and State Sen. Frank O'Bannon of Corydon, the voters appear mainly to have a choice between offset printers and photocopiers. All of Bayh's issue4 papers are run off copying machines. All of Mutz's are printed on slick paper.

Otherwise, both camps have covered much of the same ground: taxes, ethics, days care, state government operations and other issues. There are differences among their stands, but often it's a matter of choosing among shades of gray.

Bayh, a lawyer elected Indiana secretary of state in 1986, won the Democratic nomination for governor easily in a May primary. He has been successful, partly through the name recognition built by his father, former U.S. Sen. Birch Bayh, at raising Democratic enthusiasm and money. For lieutenant governor, he chose in O'Bannon a respected, veteran legislative leader known best in southern Indiana.

The themes of the Bayh-O'Bannon campaign have been honesty and efficiency in government. Bayh says the staff reductions and budget savings he has accomplished in a year and a half in office are models for what he would do for state government. And, he says, there is a need for a higher standard of ethical conduct in state government. "Politics as usual" will not be good enough for his administration, Bayh says.

Mutz is an Indianapolis businessman and former state legislator who has served with Gov. Robert D. Orr as lieutenant governor since 1981. He is the Republicans' hope for continuing the party's unborken hold on the Indiana Statehouse begun in 1969 with the inauguration of Gov. Edgar Whitcomb. As lieutenant governor, Mutz has been director of the Indiana Department of Commerce and architect of much of the state's economic development policy.

It is that policy and the record of its performance that has brought the widest disagreement between Mutz and Bayh. In interviews with Indiana Business, the candidates expressed conflicting versions of the recent record and divergent views of the future.

"My opposition knows the Indiana economy is moving along very nicely," Mutz says. "Booming, as a matter of fact."

"I think that there is no question that we can do better," Bayh says. "We need to do better."

It's predictable that Democrat Bayh would find fault with the results of the last 20 years of Republican rule in the Statehouse. It's expected that he would be particularly critical of the time Mutz has been lieutenant governor.

It's just as predictable that Mutz would defend the Republican record and his own. Their viewpoints about the past, however, lead to the directions they say they will take in the future.

Mutz points with pride to the more than 80 pieces of economic development legislation enacted since 1981. Investment of $159 million in economic development projects has stimulated $6.75 billion of private sector investment in Indiana, he says. The best investments, he adds, may be the longterm ones that have yet to begin to pay off.

A favorite example is the Corporation for Science and Technology, which provides money to help turn laboratory projects into finished products. Mutz says it is a key element in diversifying the state's economy, which he says has been too dependent on heavy industry. "A lot of new business ventures come out of there (CST)," Mutz says. "Of the 90 things we've invested in, none--or almost none--are in the automobile industry. That's helping us diversity."

Bayh believes that the emphasis has been too great on incentives and grants. "I think government needs to basically stick to what government is good at: building roads and bridges, having a quality infrastructure, having an excellent education system and having a quality and effectively run environmental program," Bayh says. "Government should not be in the business of trying to influence the decisions made by the free-enterprise system."

He calls the proliferation of state assistance programs "a regrettable fact of life that we can minimize by investing in the basics." Bayh criticizes assistance given out-of-state companies to locate in Indiana. Nearly every day, he says, people from companies that are in danger of closing or would like to expand ask him what the state government does for them. "We see the big give-always--the big plants--and our tax dollars are going to help companies from out of state," Bayh says. Asking what the state does for businesses already in Indiana is a legitimate question, Bayh says.

Bayh has charged that 20 to 25 of Indiana's 92 counties have received "exactly nothing" in economic development assistance. The Commerce Department says, however, that including tourism promotion and all other programs, every county except Union County has gotten some assistance. And a planned recreational facility at Brookville Lake will help Union County, according to the Commerce Department.

Bayh is particularly critical of the $86 million in incentives that brought the Subaru-Isuzu Automotive, Inc., plant to Lafayette. The factory is scheduled to begin production of cars and pickup trucks in July 1989.

Bayh says that while he as governor would honor the agreement made between SIA and Indiana, he cannot justify it. The price being paid for each job, he says, is too high. "I think we got involved in a bidding was that doesn't exist when you're helping Indiana business expand or stay competitive," he says.

Mutz says Indiana got a good deal with SIA. "He (Bayh) has never been at the bargaining table," Mutz says. "That plant has a better return on investment than the (contemporary) ones in Kentucky (Toyota) and Illinois (Diamond-Star Motors). The fact is that this has become a magnet for lots of other activity--and we're not even counting in the analysis Phase Two of the operation."

Mutz says he believes Bayh is fishing in tainted waters in criticizing the SIA deal. "He (Bayh) is in essence utilizing an emotional and I think racial connotation," Mutz says. He says Bayh has never attacked Indiana investments in other foreign-owned businesses. "This (SIA) is a Japanese company," Mutz says, "and he's been willing to attack it.

"In essence, he's shopping or utilizing the hangover of the anti-Japanese sentiment that we generated in this country during the Second World War," Mutz says. "I don't think there's any place for that kind of race-baiting."

Bayh says that charge is ridiculous. "The national origin of the facility is irrelevant," Bayh says. "It was a poor investment of tax dollars and that's what I brought to the attention of the taxpayers." He noted that he has also been critical of the package that persuaded North Carolina-based Nucor Corp. to build a steel mill in Crawfordsville. "I have been scrupulous in avoiding saying anything about race or national origin," Bayh says. "He (Mutz) is just covering up his own mistake."

Bayh says his basic objection to SIA is that the money went to an out-of-state company. "For that same amount of money," Bayh says, "you could have created literally 40 times the job opportunities." He bases that figure on an average cost of jobs created or retained during the Orr-Mutz years, which he says is between $1,100 and $1,200 a job. "I can guarantee you that if we'd announced a program saying that we're going to have an $86 million fund to help Indiana businesses stay competitive, retool or expand, there would have been a very long line."

Bayh has proposed that state business assistance be granted on a set of criteria that would favor Indiana-based companies, companies that export, those that buy from Indiana suppliers and vendors and use Indiana raw materials. He also has proposed a revolving fund that would provide grants and loans exclusively to businesses owned in Indiana.

Mutz says that Bayh's frequent harping on the 40 percent of state assistance that has gone to out-of-state companies is not a real issue. "Anybody realizes that we are living in a world of change. There are going to be some companies going out of business and other new companie4s coming into business," Mutz says. While state assistance helped save the Navistar International Corp. plant in Indianapolis, Mutz says, nothing could be done to forestall the July announcement that the AM General heavy truck plant in South Bend would case. "They didn't have any orders for trucks," Mutz says.

"A good economic development program could not aim only at in-state businesses," Mutz says. "That would be a really uninformed way to go about it, because we know we are going to have to have additional investments of capital from outside, in the same way that our Indiana businesses also invest outside Indiana."

Attracting a foreign auto plant was part of what Mutz says were three core elements of the Orr administration's economic development program. The goals were to take care of existing industry in Indiana, attract investment from outside the state and encourage entrepreneurial activity.

The next administration must take the next step, Mutz says. He has four goals: supporting entrepreneurs; improving infrastructure; making advanced technology available to small- and medium-sized businesses and concentrating on human resources through education literacy programs and child care.

Mutz says the state should aim to reduce the cyclical swings in its economic health that come from its dependence on heavy industry. The new General Motors plant in Allen County and the Isuzu share of the SIA plant are moves in that direction, he says, because they are truck factories. "Trucks are the most stable part of the automobile industry," he says.

The roadbuilding that will accelerate in coming years through the state's new bonding capacity, Mutz says, will help make less-prosperous sections of Indiana more attractive. It will work like the marina development in northwest Indiana, which will give those cities a larger share of the Lake Michigan boating industry.

"We must take advantage of our natural phenomena," Mutz says. A recent comprehensive tourism study showed that the places with the greatest potential for growth are areas near Chicago, Cincinnati and Louisville. "We need to get some roads built into these areas," he says.

Mutz also says he will push for programs that will bring flexible manufacturing and computer-aided design and manufacture into the hands of small companies. Part of that job, he says, can be accomplished through Purdue University's Technical Assistance Program, an outreach effort similar to agricultural extension.

Bayh says the missing ingredient in the state's efforts is what he calls an "Indiana Focus." Besides giving preference to existing Indiana companies, Bayh believes that the state should be working harder to develop answers to its problems from within its own resources.

His program aims at helping small- and medium-sized businesses innovate and grow. His proposed State Technology and Research Institute, modeled on the Thomas Edison Program in Ohio and the Ben Franklin Partnership in Pennsylvania, would go beyond TAP, Bayh says, by working with all Indiana universities. It would finance itself by licensing inventions it develops.

At the same time, he would create a Manufacturing Excellence Extension--modeled on Michigan's Modernization Service--to bring advanced technology to small- and medium-sized businesses. Bayh also believes that the Orr-Mutz administration has neglected labor-management relations. He says the existing Indiana Labor and Management Council should receive an additional $600,000 a year from the Department of Commerce.

He also criticizes the administration's record on assisting businesses owned by women and minorities. Bayh says he will ask the General Assembly to instruct the Indiana Institute for New Business Ventures to give priority in loaning money from the Indiana Seed Capital Revolving Loan Fund to businesses owned by women or minorities.

A major unresolved question, Bayh says, is the effectiveness of existing Department of Commerce programs. He says the Indiana Economic Development Council should be strengthened and made more politically independent as an evaluator of state programs. In addition, he says, the State Board of Accounts should be empowered to audit all state assistance projects.

Both candidates have sworn off increases in sales, personal income and corporate taxes, but neither candidate promises relief in Indiana business taxation. Bayh says that while the gross receipts tax and--in some cases--the inventory tax inhibit economic growth, the revenue they generate is needed. He says he'd like to gather suggestions from the business community and tax experts on how to replace those two taxes with fairer levies without reducting state revenue. He says he has an open mind on freezing total revenue from the gross receipts tax, which would allow gradual reductions of the rate.

Mutz notes that because recent tax increases have come primarily in personal income taxes, the share of the overall tax burden on businesses has decreased. "Right now, it is not high enough to discourage investment in Indiana," he says. He says he would support restarting the phaseout of the gross receipts tax if enough revenue is available. In the case of the inventory tax, Mutz says recent changes in law have allowed companies in interstate commerce and in enterprise zones to get out from under the tax.
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Title Annotation:the economic policies of the Indiana gubernatorial candidates; includes related article on the Robert D. Orr years as governor
Author:Dawson, David E.
Publication:Indiana Business Magazine
Date:Oct 1, 1988
Previous Article:BASF opposed early in Evansville, late in Terre Haute.
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