Is the use of Tax Abatements Political or Policy Driven?

On January 23, 2008 the League hosted the Public Act 198/Tax Abatement seminar to discuss the pros and cons of this legislation and the use of tax incentives for economic development.  Public Act 198 of 1974 has been one of the more powerful economic development tools that government policy makers have continued to use as a means of attracting and attaining jobs and investment to their communities

Yet, the debate continues on the effectiveness of property tax abatements and tax incentives generally as economic development tools.  This seminar, as Greg LeRoy, Executive Director, Good Jobs First recognized, was an effort to break down the silos between economic development and land use planning in Michigan.

Issues Discussed:

• Abatements are good for investment but you have a loss of tax revenue;  $330 million is lost annually to the State because of tax abatement 

• There is no relationship between abatements and economic health

• Most communities are giving out fewer abatements because fewer companies are asking for them

• Abatements are not contributing to a restructured economy

• Abatement activity is cyclical, market driven 

• Tax breaks tend to be at the bottom of business surveys, behind other items, such as quality of life and having access to a talented labor market 

• It will probably be impossible to eliminate incentives, because of the political perception that one must do all they can to attract and retain jobs

• Tax abatements should be part of an overall relationship-building that you have with businesses

• Abatements are needed so that communities can be competitive

• It’s a public relations tool for attracting business

• Whether or not to use clawback clauses

• Tax abatements are all about the employees and the businesses they support in the community

Recommendations from speakers

The state should do an analysis of all its incentive programs
Reconsider writing state law on how these incentives can be used
Give incentives to use current infrastructure
Communities should have regional policies on economic development 
Evaluate requests and monitor outcomes
Increase targeting by industry, degree of distress, type of investment, type of job and necessity
Think about what communities should look like for the millenials

The takeaway:

Tax breaks may not be the end all for attracting and retaining jobs in Michigan but municipalities should take into consideration how they should be used across the board.

Resources from this Seminar

Streaming Audio
Kelly Stanford, manager member services, talks with speakers from the January 23rd Public Act 198/Tax Abatement seminar about the pros and cons of tax incentives for economic development and the impact on communities.

Powerpoint 1: The Geography of Incentives

Powerpoint 2: PA 198: An Effective Tool?

Public Act 198 Tax Abatements: Current Practices and Policy Recommendations
Gary Sands and Laura Reese

Reports of Interest

The Geography of Incentives: Economic Development and Land Use in Michigan
Greg LeRoy