Terre Haute forecast 2020
Professor of Economics, Indiana State University
Associate Professor of Economics, Rose-Hulman Institute of Technology
Over the next few years, three construction projects will define—and in some ways constrain—Terre Haute’s approach to economic development. The November 5 municipal elections set the die for local government officials and their favored projects. Mayor Bennett and every incumbent who made it to the general-election ballot was reelected, a referendum allowing for the reassignment of a casino license to the county passed handily, and a tax levy for school district operational expenses also passed (albeit narrowly). Taken together, these election results can only be seen as an endorsement of current political leadership, the policies they have advocated, and a particular approach to economic development for an area that faces significant challenges going forward.
As a result of recent electoral outcomes, over the next few months and years, the city and county will see the construction of a convention center in downtown Terre Haute, a casino (the location of which is yet to be determined), and a new 500-bed jail near the I-70 bridge at the Wabash River. Regardless of how one views these projects (and the authors of this article have different views on the benefits of them), these are projects that will define the community’s future.
In our view, the casino and convention center are second-best attempts by a community that has failed to attract jobs and people in other ways. Evidence of the failure of the community to generate positive net migration can be seen in the school corporation’s enrollment data, which show that for 15 consecutive years, every “class” has shrunk in size when measured from birth to kindergarten, through every grade to graduation. While births outpace deaths in Vigo County, net outmigration among schoolchildren runs at 1.5 percent to 2 percent per year. In facing this dilemma, however, Terre Haute is not unique. Almost every small metropolitan area in Illinois, Indiana and Ohio faces the same issues—population loss due to outward migration and a shrinking manufacturing base. The only exceptions are communities with large, tier-one research universities (see Figure 1). While Terre Haute does have high-quality postsecondary educational institutions, they are not large enough to act as a magnet for economic development, and those institutions themselves face strong headwinds.
Figure 1: Population change for selected metros, 2010 to 2018
Source: U.S. Census Bureau
All this being said, the current state of the regional economy, like the national and state economy, is good. The labor market remains tight, with historically low unemployment. Nevertheless, some significant closures and workforce reductions have recently caused this rate to drift upward just a bit (see Figure 2).
Figure 2: Seasonally adjusted unemployment rates, January 2010 to September 2019
Source: U.S. Bureau of Labor Statistics and authors’ calculations
These are useful reminders that the Terre Haute regional economy remains vulnerable to two potential obstacles. The first is an ongoing slowdown in the manufacturing sector nationally. Although one could argue that the Terre Haute regional economy is no longer a manufacturing economy—only about one in five area jobs are in the manufacturing sector—it is still the case that, along with the health care and educational sectors, manufacturing offers the best-paying permanent jobs. It is also true that when the national economy sneezes, the Terre Haute economy catches a cold—or worse.
A second obstacle concerns corporate changes that could adversely affect the local economy. Major transactions in 2019 are sure to eventually impact the city. In May, B&G Foods acquired Clabber Girl. In June, Amcor purchased Bemis. In October, Columbian Home Products announced the closure of its former Terre Haute home. In November, the remainder of Hulman and Company, including the final connection of the city to the Indianapolis Motor Speedway, was acquired by Roger Penske. These announcements all came on the heels of the closing of Alorica and workforce reductions at Sony DADC.
Any one of these announcements, or even pair of them, could have been viewed as a normal bump in the road, but collectively they are reason for great concern. Without a Terre Haute owner or home base, it is easy to imagine the transfer of all production of Clabber Girl to B&G’s other facilities. The history of labor strife between Bemis and its workforce makes it easy to imagine a similarly dour story there.
Turning to higher education, which has been another important engine of growth for the area, we find other ominous signs. In August, both Indiana State University and Rose-Hulman Institute of Technology (the respective employers of the authors) announced enrollment shortfalls and resulting budget cuts. While both institutions are optimistic about their long-run enrollment prospects, the demographic reality of west-central Indiana makes it difficult to imagine how ISU can maintain enrollment over the next decade.
The counties that provide significant portions of ISU’s enrollment are in demographic decline. Clay, Knox, Parke, Sullivan, Vermillion and Vigo counties have collectively seen an 11 percent decline in births since 2006, with Vigo seeing an 18 percent decline. Given that approximately 15 percent of ISU’s freshman enrollment (and 18 percent of its total enrollment) comes from these counties, the challenge facing ISU is clear—and the once-burgeoning apartment construction trend that was occurring in earnest during enrollment booms seems in peril.
In other sectors, the restaurant industry now mostly seems to be trading one new outlet for another that closes. The only industry that continues to build its capacity is health care. That growth is also driven by demographic trends: As west-central Indiana ages, its health care needs expand.
Recognizing that such headwinds are substantial, community leaders are putting great faith in the aforementioned convention center and casino projects. Even those seemingly positive developments, however, give us concern. Now that the community has approved casino gambling for the area, the key question is whether a casino can become a significant driver of ongoing economic activity. We have our doubts. There will undoubtedly be a honeymoon—initial enthusiasm for something new. While the construction jobs associated with the opening of the casino will be well-paying, they would be temporary. The permanent hospitality and leisure jobs that the casino will create tend to be low-paying—about one-third of the average weekly pay of jobs in manufacturing and health and education.
With regard to synergies with the rest of the area economy, the location of the casino will be important. Claims have been made that it will attract new spending to the area, and it may. But if all of that new spending occurs at the casino itself, it may come at the expense of current spending at other retail and entertainment venues. Spin-off benefits from such ventures are difficult to estimate, but the experience of other communities suggests that such benefits only tend to be significant when the casino is located near other venues where people spend their entertainment dollars. If a casino takes a “captive audience” approach, then there may be little to no benefit for non-casino businesses in the area. As a 2013 Federal Reserve Bank of Boston article put it: “Putting a casino on an unused site outside a city center near an interstate highway exit may minimize traffic and crime effects on the city, but at the cost of essentially eliminating the possibility of positive economic spin-off effects.”1
The convention center, funded by revenue from a food and beverage tax, may generate a much-needed boost to activity downtown. The key question, and the reason the authors of this outlook disagree on its ultimate impact, is whether the convention center will be large enough to attract gatherings that are not already occurring in the city. If one of us is right, it could attract the types of gatherings (200 to 500 visitors) that cannot be accommodated in other venues. If the other is right, it will simply move wedding receptions (and other similarly sized events) from one location to another.
Turning to the last big project mentioned at the outset of this outlook, groundbreaking for a new county jail, funded by a sizable increase in the county income tax rate, took place in late 2019. That project will certainly add construction jobs to the area in 2020. Nevertheless, we remain of the view that no community ever increased its long-term economic prospects by building a bigger jail.
In a hopeful sign, by giving its new school superintendent what he asked for, an $8 million property tax increase to fund the operational side of the Vigo County Public Schools, voters signaled a willingness to invest in its schools and children. This tax increase will make necessary budget cuts less draconian than they would otherwise be. In advance of the election, Superintendent Hayworth had proposed closing three elementary schools, selling the administration building, and cutting the number and salaries of some of the county’s highest paid administrators. Those cuts will remain in place despite the tax increase.
A far-larger challenge for the school system lies on the horizon: convincing voters to pass a much bigger tax increase to fund capital improvements—in particular, replacing or rebuilding the three high schools. In 2018, the county saw only 1,131 births (a decline from more than 1,500 in the 1990s). The decline in births and continuing negative outward migration of families puts the corporation on a path to see a 17 percent further reduction in countywide enrollment over the next 20 years. Given that state operating funds are based on enrollment, the strain on the school corporation’s finances will likely continue for years to come. The challenge of right-sizing any operation is difficult in a period of systemic contraction and doubly so when major capital investment is required. Though the margin was narrow on the November vote, the passage of the tax increase signals a willingness in the community to take on this task.
In sum, though the construction jobs that are associated with the previously described projects will surely boost the local economy through the end of 2020 (and perhaps beyond), we are decidely pessimistic about the region’s long-term economic future. The manufacturing and educational sectors seem to be losing steam as engines of local growth, while the principal new initiative—a casino—is in an industry that typically generates lower-paying jobs and has a dubious record of generating lasting economic growth. Absent a transformative relocation of significant manufacturing or financial services to the community, it may be that 2020 and 2021 will be the last good employment years for a while.
- Alan Mallach, “Casinos and Cities: Can They Live Together?” Federal Reserve Bank of Boston, May 29, 2013, www.bostonfed.org/home/publications/communities-and-banking/2013/summer/casinos-and-cities-can-they-live-together.aspx.