Urban planning community

+ Reply to thread
Results 1 to 15 of 15

Thread: Government Services, Tax Abatements, and You

  1. #1
    Cyburbian michaelskis's avatar
    Registered
    Apr 2003
    Location
    Someplace between yesterday and tomorrow.
    Posts
    11,871

    Government Services, Tax Abatements, and You

    What are your thoughts on this part of the President's campaign speech the other day?


    I agree with his statements regarding teachers helping and that the government did build the roads. But I know too many small business owners that are outraged over his comments as they have struggled for years if not decades to build their business. A photographer friend of mine even mentioned that the biggest hindrance to his business is the government.
    "I learned many great lessons from my father, not the least of which, was that you can fail at what you don't want, so you might as well take a chance on doing what you love." - Jim Carrey

  2. #2
    Cyburbian WSU MUP Student's avatar
    Registered
    Mar 2007
    Location
    Lowering the PCI in the Hills
    Posts
    5,426
    Quote Originally posted by michaelskis View post
    What are your thoughts on this part of the President's campaign speech the other day?

    I agree with his statements regarding teachers helping and that the government did build the roads. But I know too many small business owners that are outraged over his comments as they have struggled for years if not decades to build their business. A photographer friend of mine even mentioned that the biggest hindrance to his business is the government.
    His comments may have been poorly worded, but I agree with the sentiment wholeheartedly. Maybe Elizabeth Warren voiced it more eloquently.

    On a basic level, the government provides the infrastructure required to move the goods and services around and the public education (grade school, college, trade schools, etc.) that educate the vast majority of the workforce. Government programs help subsidize lending programs that many small businesses (and large corporations) utilize and help to regulate the credit industry so that receiving financing through private sources does not become prohibitively expensive. Digging deeper, government programs and government funded research has lead to many advancements in telecommunications and engineering that are now handled by private sector and research conducted by agencies like the BLS, BEA, and Census Bureau form the basis for much of the data that is produced by the private sector (Claritas, ESRI, D&B, ReferenceUSA) and used by private firms of all shapes and sizes for marketing purposes. Government provides police and fire services that ensure that one's private business isn't overrun by looters or burned to the ground. The Department of Defense has done a pretty good job of keeping our borders secure over the past few centuries. And having a government that respects the rule of law helps to ensure that private firms are not constantly at risk of state takeover, like what happened with much of the industrial agriculture sector in Zimbabwe or the energy sector in Russia. Deeper yet, the relatively stable government that we have here keeps the United States an attractive destination for immigrants and maintains the nation as a place that people want to continue living, all of which helps to keep the population growing, which in turn helps foster further innovation.

    The government of course doesn't do all of this on its own and it requires a citizenry that pays their taxes in order to provide those services. It is a two way street. All of this said, I am confident that there are government programs that are anything but efficient and there is definitely waste, but all in all, it seems to me that the government does provide quite a bit of good and most businesses are better off for it.

    If somebody truly thinks that the government is a net hindrance to their business, they should move their firm to somewhere like Somalia and see how well they do with no functioning government at all.
    "Where free unions and collective bargaining are forbidden, freedom is lost." - 1980 Republican presidential candidate Ronald Reagan

  3. #3
    Cyburbian michaelskis's avatar
    Registered
    Apr 2003
    Location
    Someplace between yesterday and tomorrow.
    Posts
    11,871
    Quote Originally posted by WSU MUP Student View post
    His comments may have been poorly worded, but I agree with the sentiment wholeheartedly. Maybe Elizabeth Warren voiced it more eloquently.

    On a basic level, the government provides the infrastructure required to move the goods and services around and the public education (grade school, college, trade schools, etc.) that educate the vast majority of the workforce. Government programs help subsidize lending programs that many small businesses (and large corporations) utilize and help to regulate the credit industry so that receiving financing through private sources does not become prohibitively expensive. Digging deeper, government programs and government funded research has lead to many advancements in telecommunications and engineering that are now handled by private sector and research conducted by agencies like the BLS, BEA, and Census Bureau form the basis for much of the data that is produced by the private sector (Claritas, ESRI, D&B, ReferenceUSA) and used by private firms of all shapes and sizes for marketing purposes. Government provides police and fire services that ensure that one's private business isn't overrun by looters or burned to the ground. The Department of Defense has done a pretty good job of keeping our borders secure over the past few centuries. And having a government that respects the rule of law helps to ensure that private firms are not constantly at risk of state takeover, like what happened with much of the industrial agriculture sector in Zimbabwe or the energy sector in Russia. Deeper yet, the relatively stable government that we have here keeps the United States an attractive destination for immigrants and maintains the nation as a place that people want to continue living, all of which helps to keep the population growing, which in turn helps foster further innovation.

    The government of course doesn't do all of this on its own and it requires a citizenry that pays their taxes in order to provide those services. It is a two way street. All of this said, I am confident that there are government programs that are anything but efficient and there is definitely waste, but all in all, it seems to me that the government does provide quite a bit of good and most businesses are better off for it.

    If somebody truly thinks that the government is a net hindrance to their business, they should move their firm to somewhere like Somalia and see how well they do with no functioning government at all.
    If he had worded it like that, it would have gone over much differently with the conservatives. I agree that for most business owners, there are several good (all but inefficient) things that the Government does to service businesses. But I also think of these massive private business parks were everything (roads, security, water, electric, communications.... etc) are all privately owned. Although these do still get access to the development on public roads.
    "I learned many great lessons from my father, not the least of which, was that you can fail at what you don't want, so you might as well take a chance on doing what you love." - Jim Carrey

  4. #4
    OH....IO Hink's avatar
    Registered
    Jan 2005
    Location
    Hang on Sloopy...land
    Posts
    9,580
    Quote Originally posted by michaelskis View post
    If he had worded it like that, it would have gone over much differently with the conservatives. I agree that for most business owners, there are several good (all but inefficient) things that the Government does to service businesses. But I also think of these massive private business parks were everything (roads, security, water, electric, communications.... etc) are all privately owned. Although these do still get access to the development on public roads.
    I don't know of one (at least locally) large private business park. Almost all business parks around these parts are LARGELY subsidized through tax abatement or some other economic means. I would even argue that places like that are the MOST using of public services / money.

    I think that some R's are just trying to find a way to pick apart words. That is what they do. You don't see many mainstream R's or even normal people really caring. Only those partisan or talking head followers who repeat Hannity and Rush like the bible...
    A common mistake people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools. -Douglas Adams

  5. #5
    Cyburbian michaelskis's avatar
    Registered
    Apr 2003
    Location
    Someplace between yesterday and tomorrow.
    Posts
    11,871
    Quote Originally posted by Hink View post
    I don't know of one (at least locally) large private business park. Almost all business parks around these parts are LARGELY subsidized through tax abatement or some other economic means. I would even argue that places like that are the MOST using of public services / money.
    A tax abatement is the government getting out of the way. It's kind of like a tax return...

    Quote Originally posted by Hink View post
    I think that some R's are just trying to find a way to pick apart words. That is what they do. You don't see many mainstream R's or even normal people really caring. Only those partisan or talking head followers who repeat Hannity and Rush like the bible...
    I disagree and I think that many of the D's view Obama as incapable of doing wrong regardless of what his words are.
    "I learned many great lessons from my father, not the least of which, was that you can fail at what you don't want, so you might as well take a chance on doing what you love." - Jim Carrey

  6. #6
    OH....IO Hink's avatar
    Registered
    Jan 2005
    Location
    Hang on Sloopy...land
    Posts
    9,580
    Quote Originally posted by michaelskis View post
    A tax abatement is the government getting out of the way. It's kind of like a tax return...
    If the free market were free, that tax abatement wouldn't be necessary. Instead of starting at 0, they are starting at -10, but they are still on a level playing field. Everyone else is paying that tax, if you can't you shouldn't be surviving. It isn't the government getting in the way, it is the government subsidizing your inability to pay your taxes.

    Quote Originally posted by michaelskis View post
    I disagree and I think that many of the D's view Obama as incapable of doing wrong regardless of what his words are.
    I don't disagree that many D's think he can do no wrong. But that has nothing to do with the mainstream of people - even R's and D's not caring about things like that. It isn't a REAL issue, it is a fabricated issue to have 24hrs to talk about it. Hannity and Rush wouldn't be successful if they didn't get people indoctrinated to believe that the media is hiding something, and not reporting on the "true" stories. You want to see two guys who make more money then our politicians try and pretend like they speak for the people... look at those guys. Being out of touch in reality doesn't mean you can't pretend you understand the working man's plight.... ask Romney.

    Reality, logic, and politics have never met, and they most likely never will.
    A common mistake people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools. -Douglas Adams

  7. #7
    Cyburbian imaplanner's avatar
    Registered
    May 2004
    Location
    Snarkville
    Posts
    6,587
    Quote Originally posted by michaelskis View post
    A tax abatement is the government getting out of the way. .
    100% false Mike. Tax abatement is giving properties and businesses government services for free. The last city I worked for used tax abatement to lure developers. In some instances where we built roads and sewer to properties and abated specific developers from the special assessment taxes that would have reimbursed the city.
    Children in the back seat can cause accidents - and vice versa.

  8. #8
    Cyburbian michaelskis's avatar
    Registered
    Apr 2003
    Location
    Someplace between yesterday and tomorrow.
    Posts
    11,871
    Quote Originally posted by imaplanner View post
    100% false Mike. Tax abatement is giving properties and businesses government services for free. The last city I worked for used tax abatement to lure developers. In some instances where we built roads and sewer to properties and abated specific developers from the special assessment taxes that would have reimbursed the city.
    I guess I don't understand. I thought it was the "reduction of or exemption from taxes granted by a government for a specified period, usually to encourage certain activities such as investment in capital equipment. A tax incentive is a form of tax abatement."

    Yes there is a prid pro quo which I should have been clear about above. What I was trying to get across is we pay taxes for services. In the event that we take care of those services (AKA rebuild a major intersection near a particular development... such as a Wal Mart in a particular Michigan Community), they get to pay less in taxes for a period of time, such as was the case in a project that I worked on.

    I see how you would have taken my comments in the direction that you did and I should have clarified that I don't see taxes as the government's money. I see it as my money that I use to pay for services that the government provides. Similar to my city's garbage collection. It is a separate fee. I pay, they take my garbage. I don't pay, I find a private contractor to do so (which we have several).
    "I learned many great lessons from my father, not the least of which, was that you can fail at what you don't want, so you might as well take a chance on doing what you love." - Jim Carrey

  9. #9
    Cyburbian imaplanner's avatar
    Registered
    May 2004
    Location
    Snarkville
    Posts
    6,587
    Quote Originally posted by michaelskis View post
    I guess I don't understand. I thought it was the "reduction of or exemption from taxes granted by a government for a specified period, usually to encourage certain activities such as investment in capital equipment. A tax incentive is a form of tax abatement."

    Yes there is a prid pro quo which I should have been clear about above. What I was trying to get across is we pay taxes for services. In the event that we take care of those services (AKA rebuild a major intersection near a particular development... such as a Wal Mart in a particular Michigan Community), they get to pay less in taxes for a period of time, such as was the case in a project that I worked on.

    I see how you would have taken my comments in the direction that you did and I should have clarified that I don't see taxes as the government's money. I see it as my money that I use to pay for services that the government provides. Similar to my city's garbage collection. It is a separate fee. I pay, they take my garbage. I don't pay, I find a private contractor to do so (which we have several).
    I see where you are coming from. Maybe one of the redevelopment experts on here will chime in a clarify, but tax abatement can basically take the form of abatement of any taxes- sales and property tax, or special assessment taxes. In my example of special assessment taxes, a tax abatement is basically the government giving someone something specific for free (like building a road to serve the development and not charging the developer). In the sense of general property tax abatement, it still is giving someone services for free. traffic control, police services, all kinds of things.

    My basic point would be that tax abatement is not government getting out of the way, it's actually government injecting itself into a development even more by giving someone a tax break. when you give someone a tax break but don't reduce services, that money has to come from some other tax paying citizen.

    Now on to the question of whose money it is. You see your money as your money. And it is. but at the same time all of that money is the governments as well. We don't function independently of one another. Money is simply a piece of paper issued by the government that only has value based on the creditworthiness of the government. Without the government, all that money in your pocket is 100% worthless.
    Children in the back seat can cause accidents - and vice versa.

  10. #10
    Cyburbian Brocktoon's avatar
    Registered
    Apr 2006
    Location
    Promoting synergies...
    Posts
    3,558
    Quote Originally posted by imaplanner View post
    I see where you are coming from. Maybe one of the redevelopment experts on here will chime in a clarify, but tax abatement can basically take the form of abatement of any taxes- sales and property tax, or special assessment taxes. In my example of special assessment taxes, a tax abatement is basically the government giving someone something specific for free (like building a road to serve the development and not charging the developer). In the sense of general property tax abatement, it still is giving someone services for free. traffic control, police services, all kinds of things.

    .
    In an attempt to clarify, I would define a tax abatement as a reduction or elimation of a companies tax liability. An incentive can be a tax abatement or other inducement to encourage a company to remain or locate to a particular area. In the example of building a road for a developer that would be an incentive and not an abatement unless their was a specific tax levied to build that road.
    "If you don't like change, you're going to like irrelevance even less" General Eric Shinseki

  11. #11
    Cyburbian WSU MUP Student's avatar
    Registered
    Mar 2007
    Location
    Lowering the PCI in the Hills
    Posts
    5,426
    Regarding abatements and taxes, I agree with Michaelskis that the tax money can be looked at as the money of the citizens, not the governments money. But the citizens pay that money to their taxing authorities with the expectations that it will be spent on public goods and that all taxed entities are subject to the same rules. The tax money goes to support and subsidize public goods, like the roads, water/sewer, education, and police and fire protection that most individual households or firms would be unable to provide all on their own.

    When a firm is given an incentive such as a tax abatement or upgraded infrastructure, it is a tax expenditure for the municipality (federal, state, or local). When the municipality incurs that tax expenditure, it does so at the cost of some other potential expenditure. If, for example, a property tax abatement is granted to lure a new manufacturing plant, it means that there will be fewer tax dollars to put towards education, local health programs, police programs, parks, etc.

    I am not making a judgement here about the efficiency or efficacy of tax abatements or incentive programs but just trying to point out that when the government makes one, everybody is on the hook for it and another way to look at it is that the abatement is not the government getting out of the way of a private firm but that private firm receiving special treatment by moving funds from one program to another.
    "Where free unions and collective bargaining are forbidden, freedom is lost." - 1980 Republican presidential candidate Ronald Reagan

  12. #12
    Cyburbian Brocktoon's avatar
    Registered
    Apr 2006
    Location
    Promoting synergies...
    Posts
    3,558
    Quote Originally posted by WSU MUP Student View post
    When a firm is given an incentive such as a tax abatement or upgraded infrastructure, it is a tax expenditure for the municipality (federal, state, or local). When the municipality incurs that tax expenditure, it does so at the cost of some other potential expenditure. If, for example, a property tax abatement is granted to lure a new manufacturing plant, it means that there will be fewer tax dollars to put towards education, local health programs, police programs, parks, etc.
    I am going to disagree with you on this. First off tax abatements are rarely 100% and are always temporary (although they do get renewed in some places). If a company gets a 50% tax abatement (PA 198 in Michigan if memory serves) which can last up to 12 years or the useful life of the equipment won't the community be better off than not having that company in the community at all? Also thoses employees pay income tax which comes back to the community through state shared revenue and shop thereby supporting local businesses. Once that abatement expires then they are fully on the tax roll. Futhermore if an existing company relocates out of a community then what is the impact to all of the taxing jurisdictions?

    It would be great if no city, region or state offered incentives but that is not case. If you look at your cities tax base I would be a large siginifacnt portion of the total taxes collected are from the businesses in the community. Before offering an abatement you need to consider the full economic impact the company will have on the community. A community should not give more than it gets but you need to look at it over a period of time ( the length of the lease or if they build to suit then 20 years).
    "If you don't like change, you're going to like irrelevance even less" General Eric Shinseki

  13. #13
    Cyburbian WSU MUP Student's avatar
    Registered
    Mar 2007
    Location
    Lowering the PCI in the Hills
    Posts
    5,426
    Quote Originally posted by Brocktoon View post
    I am going to disagree with you on this. First off tax abatements are rarely 100% and are always temporary (although they do get renewed in some places). If a company gets a 50% tax abatement (PA 198 in Michigan if memory serves) which can last up to 12 years or the useful life of the equipment won't the community be better off than not having that company in the community at all? Also thoses employees pay income tax which comes back to the community through state shared revenue and shop thereby supporting local businesses. Once that abatement expires then they are fully on the tax roll.
    I have not seen any definitive, peer reviewed studies that show that the investments that firms makes in personal or real property consistently payback the revenue because of tax abatements. In fact, the majority of the studies that I see show that the incentives, especially abatements, tend to be losing propositions for the communities because a) if the total promised investment is not made, there is generally little effort to clawback the incentive (though that is a trend that is thankfully changing) and b) once an abatement period ends, the firms threaten to relocate which just starts the cycle all over again.

    Projected sales tax revenues and spin-off investments in real estate and other jobs are definitely not guaranteed and usually grossly overstated with the defense that, "Well, those were just projections anyway, and because X assumption never panned out, we were only able to achieve outcome B instead of previously promised outcome A."

    Futhermore if an existing company relocates out of a community then what is the impact to all of the taxing jurisdictions?
    Let's look at this scenario: The Smith Firm has a potential tax liability of $1,000,000 before any abatments, is located in my community, Happyville, and threatens to relocate across the state to Whoville (a community with similar tax rates) if they don't get an abatement from me. Happyville declines the abatement and Whoville approves it. Happyville loses out on $1,000,000 in revenue and Whoville gains $500,000 in revenue. It sounds like my region losses out on $1,000,000 while Whoville losses out on $500,000 with a net loss for the state on their portion as well. Even if you look at it as Whoville gaining $500k in revenue, it's still a net loss for the state. And again, with sales tax and other spin-off revenue not guaranteed, the abatement does not look like a winning proposition in my eyes.

    I agree that it would be nice if no city, county, or state would offer tax abatements or incentives of any sort, especially for businesses just relocating within the region or even the nation.
    "Where free unions and collective bargaining are forbidden, freedom is lost." - 1980 Republican presidential candidate Ronald Reagan

  14. #14
    Cyburbian Brocktoon's avatar
    Registered
    Apr 2006
    Location
    Promoting synergies...
    Posts
    3,558
    Quote Originally posted by WSU MUP Student View post
    I have not seen any definitive, peer reviewed studies that show that the investments that firms makes in personal or real property consistently payback the revenue because of tax abatements. In fact, the majority of the studies that I see show that the incentives, especially abatements, tend to be losing propositions for the communities because a) if the total promised investment is not made, there is generally little effort to clawback the incentive (though that is a trend that is thankfully changing) and b) once an abatement period ends, the firms threaten to relocate which just starts the cycle all over again.

    Projected sales tax revenues and spin-off investments in real estate and other jobs are definitely not guaranteed and usually grossly overstated with the defense that, "Well, those were just projections anyway, and because X assumption never panned out, we were only able to achieve outcome B instead of previously promised outcome A.".
    I would argue most of the studies you have read do not meet the standard you have set. When I mentioned a study I meant a study on the incentive offered to the company. Economic impacts are a best guess but there is methodology behind them if you use a reputable economist. There are those companies that do not perform but is a small percentage. Clawbacks are a must and need to be enforced. Any company that balks at a clawback should not get an incentive. For every 38 Studios deal there are hundreds of other incentive deals that occur and the company meets its obligation.


    Let's look at this scenario: The Smith Firm has a potential tax liability of $1,000,000 before any abatments, is located in my community, Happyville, and threatens to relocate across the state to Whoville (a community with similar tax rates) if they don't get an abatement from me. Happyville declines the abatement and Whoville approves it. Happyville loses out on $1,000,000 in revenue and Whoville gains $500,000 in revenue. It sounds like my region losses out on $1,000,000 while Whoville losses out on $500,000 with a net loss for the state on their portion as well. Even if you look at it as Whoville gaining $500k in revenue, it's still a net loss for the state. And again, with sales tax and other spin-off revenue not guaranteed, the abatement does not look like a winning proposition in my eyes.

    I agree that it would be nice if no city, county, or state would offer tax abatements or incentives of any sort, especially for businesses just relocating within the region or even the nation.

    That is why in many states do not allow state wide incentives or tax abatements for a company that moves within the state. Arizona does not do tax abatements but in Michigan MEDC would not approve the abatement ( a necessary requirement) if the company was just shifting from one part of the state to another unless they were also doing an expansion. I would surprised to see a other states not have a provision that tax abatements can be given if a company just moves from one part of the state to another without any net new investment within the state.

    As for companies threatening to leave after a tax abatement you a grossly overstating the threat to move. If I invest $20M in a factory and lose a tax abatement worth $10K year I am not going to leave and build or lease a new facility over that amount. Taxes and their impact on business operations are grossly overstated. Labor costs, equipment costs and utilities are usually far greater components to a company’s overall overhead than taxes. Anything a company can do to reduce overhead will be pursued but you are grossly underestimating the cost to move a facility and retrain a workforce.
    "If you don't like change, you're going to like irrelevance even less" General Eric Shinseki

  15. #15
    Cyburbian Rygor's avatar
    Registered
    Jun 2009
    Location
    Where the Wild Things Are
    Posts
    2,197
    I will add that in the case of tax abatements, let's not forget that even IF a company decides to leave, the improvements on the land still remain, and thus somebody is still paying property taxes on the property over and above what it would have been had it not been developed. Secondly, most business aren't going into a project with the intention to leave after the abatement period ends. They are investing far too much time and money into their building, infrastructure, and equipment (plus establishing an employment base) to make it worth picking up and leaving10 years down the road, and it's unlikely that incentives would be the main lure unless they plan to expand dramatically and their site cannot accomodate expansion (in which case most communities will try very hard to encourage expansion within the existing community, and the companies are generally very willing to work with them since they don't want to have to uproot all of their employees, etc.).
    "When life gives you lemons, just say 'No thanks'." - Henry Rollins

+ Reply to thread

More at Cyburbia

  1. When you don't pay for services ...
    Friday Afternoon Club
    Replies: 53
    Last post: 07 Oct 2010, 11:03 AM
  2. Replies: 14
    Last post: 23 Jul 2007, 10:26 PM
  3. Cost of services
    Economic and Community Development
    Replies: 3
    Last post: 30 Jan 2006, 8:46 PM
  4. cost of services
    Land Use and Zoning
    Replies: 0
    Last post: 19 Aug 2002, 11:42 AM
  5. Wrecker services
    Land Use and Zoning
    Replies: 4
    Last post: 26 Mar 2001, 9:59 AM