Tax abatements work when used properly

Debate rages on all sides as to the value and effectiveness of offering companies tax abatements to lure them to build or expand at a given location. From those who claim it is corporate welfare that ultimately cheats the poor and middle class to others touting the benefits of jobs and significant investment, myopic views and uninformed opinions of the process and results benefit no one.

First, tax abatements attract no one and no corporations have tax abatements at the top of their “must have” list. Site selectors (people whose job is to help companies choose locations) provide the below list of conditions to choose a site.

Location, proximity to utilities, infrastructure and workforce dominate the top of the must-have list when a company is choosing a site. The massive investment needed for companies to expand, their particular need for utilities or transportation infrastructure like highways, rail or airports are the expensive and inflexible attributes they examine first. Next is the available workforce — employable and trainable workers are every employer’s persistent challenge.

Next, once all the above attributes are ciphered and a site selector creates a short list of available locations, considerations such as property taxes, local payroll taxes, fee schedules and the cost of utilities provided by municipalities become the next planning challenge.

Lastly, site selectors are keenly aware that government plays a huge part in their ultimate “cost” to locate. Is the government responsive, are the people easy to work with, do they simply answer their phones and provide answers, even if the answer is “I don’t know but will get right back you with an answer” … and then they respond. Are there onerous fees or impossibly complex and subjective zoning regulations? These are all studied in great detail.

When a governmental body is asked to “abate” taxes, it generally means the site in question is at or near the top of the list; on a scale of 1 to 10 it might be a “9,” but there are its 9s. A reduction in taxes or fees might make it a “10.” A shrewd local government should do their homework too. Smart leaders know how they stack up against other sites, and they should know they might not need to grant all of the abatements requested. They need hard calculations as to what they gain vs. what they give up.

Properly designed and granted tax abatements give benefits to both sides. Both the company and the government give up what matters less and gain what matters more. Maybe the government gives up property tax revenue in return for income taxes; the region gets needed jobs that funnel money into the local economy.

Properly done, tax abatements can benefit everyone.

This article was provided by the Warren Area Board of Realtors.