Tax abatements: Fuel for local economies, or welfare for businesses?
To avoid some of the pitfalls of making bad deals, or deals likely to fail, a careful reading of a 2006 study by the New York State comptroller (www.osc.state.ny.us/localgov/pubs/research/idabackground.pdf) is in order for local officials as they consider these kinds of tax breaks.
The study’s recommendations include:
- Have clearly defined criteria for selection;
- Evaluate data and make selections objectively;
- Treat different projects uniformly and consistently;
- Require developers to show sound financial management practices;
- Require developers to furnish specific information about job creation data;
- Enact agreements to allow governments to recoup funds if job creation/job retention goals or other terms of the agreements are not met; and
- Encourage citizen participation in the approval process, as citizens have a right to know the value of the forgiven taxes, because, for a time, they and other businesses will share the burden.
Tax abatements should not be entered into lightly. Some companies, even those that can easily afford the taxes, ask just because they can, not because they necessarily are deserving. The above recommendations are a good starting point for officials. Agreements must be monitored and enforced vigorously. They must have safeguards to protect taxpayers if businesses fail to live up to their promises. Finally, the community at large must understand and support the project because, as taxpayers, they are being called upon to help pay for it.