From the Fort Wayne Journal-Gazette:
The City Council’s discussion of property tax breaks for businesses Tuesday was a healthy review of economic development incentives that have been taken for granted too long. While opinions vary widely about which businesses should be eligible, council members appeared to rightly be headed toward consensus on one element of tax abatements: Businesses that fall short of expectations on the number of jobs added and the amount of investment should not get a free ride.
At the very least, Fort Wayne and Allen County officials – and indeed, other local government officials in Indiana – should establish policies to formally review whether companies are fulfilling their projections on jobs and investments. Such a review should come long before the expiration of tax abatements – typically 10 years for buildings and five years to 10 years for equipment.
Indiana law makes clear that local governments have that option but can only move to end an abatement if “the failure to substantially comply was not caused by factors beyond the control of the property owner (such as declines in demand for the property owner’s products or services).” If the company is not in compliance, the local government can schedule a hearing and act to revoke the tax break.
Companies already have to submit annual reports on their progress. Reviewing compliance at the halfway point would make sense. Because businesses receive the highest tax breaks at the beginning of an abatement period and the lowest at the end, they would have already received most of the tax break, yet cities and counties still would have a recourse to end it.
Some Indiana cities have become even more aggressive. Abatement agreements are a contract between a company and a governmental unit, and some Indiana cities have set tougher standards. Indianapolis, for example, has “clawback” provisions, which allow the city not only to end the tax break but force a company that fails to live up to agreements to return the money that had been deducted from its property tax bills.
In 2009, Navistar said it would close its Indianapolis diesel engine plant, costing the 1,800 jobs it promised to keep when gaining an $18 million tax abatement. Though the city did not recover the full amount, it reached a settlement with the company to return $5 million.
The city of Portage – where the Port of Indiana is located – is even more aggressive, writing abatement contracts that allow for a clawback up to five years after the abatement period ends.
Some experts, though, say the clawback applies only if a company closes and, under a provision in the law, “obtained the deduction by intentionally providing false information concerning the property owner’s plans to continue operations at the facility.”
No one in a mayoral administration or on a City Council wants to earn an image of being against economic development, and governments are facing so much competition that many officials prefer to err on the aide of granting tax breaks to virtually any business that wants them. But giving away tax revenue is a serious step, one that should carry obligations for those who benefit.
At a minimum, the new city-county panel borne out of Tuesday’s City Council meeting should guide officials toward tougher enforcement of abatement agreements.
http://www.journalgazette.net/article/20120531/EDIT07/305319985/0/SEARCH
