The stunning election of Donald Trump as president throws the future of urban policy into doubt. During the campaign he promised to bring new jobs and improved infrastructure to the inner cities, but so far he has furnished no details. Some of the strategies carried out by cities and states in the past may offer the incoming administration some guidance.
Confessions of a Serial Tax Abater
Written by The Economic Development CurmudgeonTax abatement in its very many forms is a very significant economic development tool. Frankly, nearly every jurisdiction, and certainly every state uses tax abatement to some degree and in some form. The trouble, however, seems to be that no one really likes tax abatement and all heck breaks loose when an economic developer actually uses it. Moreover, there is a large, verging on huge literature, ranging from academics to progressive think tanks that is uniformly critical of tax abatement, and have been so for decades. A chief criticism (not the only one by any means) is that for one reason or another they allege tax abatement just doesn't work. The problem, however, is despite the "facts" that tax abatement is so very, very wrong, and never, never works, it's critics generally acknowledge that tax abatement's use is expanding each and every year since the 1960's. How do we explain the multi-decade increase of tax abatement programs which are immoral and ineffective? The Curmudgeon is a self-confessed tax abater. In his career he has provided tax abatement to over a thousand firms--from General Motors to a supermarket in a brownfield. He made his mistakes and on occasion got it right. In the spirit of who else can better prevent computer hacking than a former hacker gone holy and noble, the Curmudgeon offers some ideas as to why the literature misses its mark and why the public, voter and tax payer doesn't revolt, and why, heaven forbid, tax abatement can actually be effective. The rather basic and obvious starting point regarding property tax abatement is that no matter how an economic developer abates taxes, it will be controversial to someone. Controversy is best thought of as a natural and inevitable companion to tax abatement. Moreover, tax abatement crosses the ideological divide. Progressives and business conservatives scream at each other regarding tax abatement to firms preferred by one or the other's ideology. But both sides continuously provide tax abatement to the "right" firm compatible with their ideology. Much of the academic and think tank literature has no problem with tax abatement itself, except that it goes to firms they don't think should get it. A good starting point is whether or not the private firms actually want and seek a tax abatement in the first place. A not uncommon critique is that economic developers hawk abatement to firms that not only don't need them, but are not actively looking for them. In effect, we are just throwing tax dollars at firms for no real purpose other than to justify our sad existence. A frequent source of this critique of tax abatement often follows from one or another academic, site selector or trade association magazine who surveys firms to ask how important taxes are in location decisions and dutifully reports that taxes ranks low in the criteria for firm location decisions. By extension, then, tax abatement becomes unnecessary.Another frequent attack observes that taxes are a very low percentage of a a firm's cost of production - taxes are no where as costly as steel or labor in making a car so firms should be indifferent to tax abatement in that it is an insignificant cost. The answer to these critiques is that the firm location decision is a multi-level decision. Mobile firms are not indifferent as to where they want to go. Market, industry and company specific factors determine which parts of the globe and which regions they firm should go. Taxes do not figure prominently at that level. This is not very controversial, it almost seems logical, and there are many studies that carve up the overall location decision into a more "regional or state" location and a second "site-specific" decision. The local economic developer faces the latter most directly. Within a given nation or region there are lots and lots of specific sites--all more or less identical but each offering some combination of costs and benefits to the firm. A specific location for a firm can actually (and usually does) include a number of jurisdictions, each of which wants the firm to locate in its jurisdiction. Each jurisdiction can have sites which present their own strengths and weaknesses and which can result in costs and savings to the locating firm. Also, firms and site selectors go out of their way to present the image, and often it is a reality, that other sites in other municipalities and states are competing. Why? To obtain as favorable a "deal" as possible. If firms (and their representatives, site selectors) don't really want tax abatement, why do they go out of their way to set up deal-situations which require jurisdictions to compete, using whatever resources they have available. Why do they waste months of time, legal costs, public hearings, media and tax payer "input" for something so trivial as a tax abatement? Why do firms do this if they don't value taxes very highly in their location decisions? Taxes do matter in the struggle and competition among specific sites! Actions speak louder than surveys.
Read the Main Article. Your mother would want you to!