From the Lafayette Journal Courier:
Property tax abatements are an essential economic development tool, but in years past, this tool has been criticized for taking money out of classrooms by depriving schools tax revenues.
Property tax reforms adopted in 2008 eased the effects of abatements on school districts' general funds, which now are financed through the state's sales tax instead of property taxes.
Lafayette School Corp. Superintendent Ed Eiler said abatements used to concern school districts -- and other public entities -- over lost revenue that the abatements represented. They also were concerned that abatements might shift the tax burden to others, causing increases in taxes.
"The impact of abatements are on more of the support functions of the schools," Eiler said. "It does not have quite the impact on the classroom that it (did before property tax reforms)."
Property tax revenue allocated to school districts funds capital accounts that are used for facility maintenance and building projects, new school bus purchases and transportation expenses. Property taxes also fund school districts' debt services.
"Schools are less dependent on property taxes than they were," said Larry DeBoer of Purdue University's Department of Agricultural Economics. "(But) schools are still the biggest collector of property taxes in most counties."
In 2008 -- before the property tax reforms -- Tippecanoe County collected $195 million in property tax revenue. Of that, $115 million went to schools, DeBoer said. By comparison, Tippecanoe County collected $138 million in property taxes in 2011, and $66 million went to schools.
On the other side of the discussion, abatements are incentives to entice new developers to invest in an area or spur current businesses to expand.
Abatements gradually phase in property taxes over the life of the agreement. For example, a company receiving a 10-year real estate abatement does not pay any property taxes on the abated development the first year. One-tenth of the property taxes on the development is added each year until the end of the abatement when the company is paying 100 percent of the assessed value of the real estate.
Four abatements come before the Lafayette City Council today for approval. If approved, Alcoa Inc. and Heartland Automotive would receive 10-year abatements on real estate, and Wabash National and Rea Magnet Wire would receive seven-year abatements on personal property (equipment).
"Tax abatement is on new investment, not existing investment," said Dennis Carson, Lafayette's director of economic development. "It does not affect the existing tax base or assessed value of any of the taxing units in a negative way."
Carson's point is that abatements do not take tax revenue away from public entities. In fact, it gradually adds revenue.
Abatements are intended to be used only in a "but for" situation, DeBoer said, explaining the "but for" the abatement, the project would not have gone forward.
Carson noted this was the case in the Alcoa and Heartland Automotive developments, as well as for Rea Magnet and Wabash National.
Lafayette was competing with other Alcoa sites for a $93 million development, Carson said. And Heartland Automotive has been wined and dined by Clinton County economic developers in an attempt to lure them away from building a new factory in Lafayette at Park 350, where Heartland already owns land.
"In all of these cases we have right now for pending tax abatement, they were competitive deals where if it was not for tax abatement, these investments would be going somewhere else," Carson said. "Therefore, in these cases, all taxing units would receive nothing."
"You've got to look at the long-term effect," said Ross Sloat, business manager for West Lafayette schools.
Abatements bring in new development, but it might also increase the tax burden on others if tax rates are increased to cover public entities' expenses, Sloat said.
DeBoer warned that if tax levies go up, public entities run the risk of actually losing money because some properties would hit tax caps established in the 2008 reforms and adopted into the Indiana Constitution in 2010.
"With tax caps, it's important to abate only property that would not have been there," DeBoer said.
New development brings more jobs to the community, driving more local and state taxes, which is another reason for abatements, Carson said.
"Other taxes are generated, such as COIT (county optional income tax), EDIT (economic development income tax), sales and use taxes," he said.
"The jobs and investment from these companies will create six or seven additional jobs in the community through suppliers, service and other small businesses," Carson said. "The employees from these companies will buy homes, eat in restaurants and frequent many local businesses, all contributing to the local economy that supports our schools -- not to mention that many of companies are leaders in community efforts such as Read to Succeed among other things."
DeBoer noted that for schools, this growth can be a double-edge sword.
It's true that more people might move to the area, buy houses and pay taxes. But schools are left to finance the education of more students while tax revenues catch up to the population shift, DeBoer said.
If, for example, an abatement is approved in the Lafayette school district, but new employees move their families to Tippecanoe school district, Tippecanoe School Corp. doesn't receive the eventual tax revenues from those corporate investments, DeBoer noted.
Bringing the discussion full circle, Eiler pointed out that the benefits of abatements outweigh the delay in receiving revenue from higher assessed values caused by abatements.
"We're in this together," Eiler said. "There's got to be some give and take."
"We're going to be very supportive of having a vibrant economic community. I think we're all beneficiaries of a healthy economy."
"These investments, at least here in Lafayette, help to keep Lafayette growing," Carson said, "thereby supporting and increasing all assessed values, and at the same time, keeping the tax rate stable that helps keep the tax caps from kicking in."
http://www.jconline.com/apps/pbcs.dll/article?AID=2012204020312
