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Commentary: Andrew Steele: Time to rethink tax/development relationship

Updated: July 9, 2013 12:42PM



A resident challenged the City Council last week on the issue of tax abatements, and got the answer I suppose any of us sitting on the council would give.

If we don’t give it, someone else will. It’s better to have the business, with a temporary discount on taxes, than not to have it at all.

There’s no way around that logic (although sometimes I wonder if every business that’s been given an abatement would actually have located somewhere else if the abatement had been refused – it’s sort of a game of chicken, in that sense).

The only way around the problem is to blow up the whole system, which no city can do on its own. But it is something the state can, and should, do.

What exactly is the public policy justification for creating this sort of false competition among municipalities? They already do compete, for residents as well as businesses, on a tax basis, as well as many other bases. When you force everyone to offer abatements, you’re not encouraging any particular behavior or promoting an outcome that benefits the community.

The idea that tax abatements will help communities that need redevelopment, or just a boost to their business community, isn’t true if everyone can offer an abatement. That’s how you end up in a situation where every community has to hand out abatements.

There is the argument that some small- to mid-sized businesses need the boost of a tax break in order to survive their first years. But that’s not the explicit point of this, and that’s not part of the formal process.

Either the abatements continue unabated, or the whole thing needs to go. Theoretically, only some communities, that really need a competitive edge, could be given the power to offer abatements. But in reality that’s not how things seem to work in Indianapolis.

The unfortunate aspect of all this is that abatements, like so many other policy measures intended to help communities in need of help, tend not to “work” in the places they’re most needed.

Everyone offers them, so they become a moot point when it comes to a business’ decision about where to locate. They’re no longer an economic development incentive; they’re a benefit to a certain class of property tax-payer.

The other big economic development tool municipalities have, the Tax Increment Financing district, is similar in that regard. TIF districts can be important tools in places like Crown Point, but Crown Point could manage without them.

Meanwhile, the explicit justification for TIFs — “redevelopment” — is not always, or even often, a characteristic of TIF districts. Often they’re about “development.”

Because of TIF’s utility in concentrating capital it’d be tough to argue to get rid of them. But the toolbox of policies meant to provide help where it’s needed could use a significant re-tooling.



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