Monday, April 21, 2008

What does the tax abatement report really say?

On Friday, the Lawrence Journal World stated, “The [Public Incentives Review] committee on Thursday unanimously approved its annual report, finding that all eight companies receiving tax breaks are in compliance with the city’s economic development policies.”

This is not what the Public Incentives Review Committee (PIRC) did. The PIRC made no finding of compliance or lack of it. Rather, the PIRC swept the high level of non-compliance under the rug as it has for many years in the past.

The newspaper also said, “In total the companies had exceeded their job creation projections by 87 full-time jobs and 123 part-time jobs.” This is a case of looking at the glass as one-quarter full rather than three-quarters empty.
Here are the facts:

· In terms of making the promised investments, of the 11 currrent abatements, only 8 delivered, 2 fell well short, and 1 chose to lease the property.

· In terms of paying wages at or above the average found in the community, 4 of the 8 firms have substantial numbers of workers being paid from $3 to $6 per hour below the community average within each occupation group.

· In terms of producing the promised jobs, 4 firms fulfilled their promises, 1 firm fell 2 workers below the promised amont, and 3 fell well below the promised job production.

It is true that the total number of jobs at all firms given tax abatements is in excess of the total number of jobs promised. The firms that met the promised number of jobs produced more extra jobs than the shortfall experienced by the firms that failed to meet their promises. However, this statistic would have merit only if the jobs would not have been generated in the absence of the tax abatement. This is simply not the case.

The tax abatement is a needless giveaway. The firms would have produced the jobs without the tax abatement. Some of the firms have made public statements to this effect. All of the published research on tax abatements finds this to be true. Property taxes are too small a percentage of a firm’s total operating expenses to be crucial to the decision to build or expand. However, lower taxes are always helpful to enhance profits; thus, firms ask for the tax abatements even when they are not important to the decision to build or expand. The firms will even lie to the City saying that without the tax abatement the firm cannot build or expand.

What the report shows is that Lawrence has an ongoing problem with its tax abatement program. In a normal economic development program, non-compliance should be minimal. The PIRC should be discussing what to do with no more that one firm that is out of compliance. Instead, the PIRC is trying to cover up the fact that non-compliance is normal in Lawrence. Six of the eight firms are substantially out of compliance in at least one of the important areas or investment, wages, or jobs. This is not a new or temporary condition; it has been going on for years.

The City has been misled. It has been told by business advocacy organizations, such as the Chamber of Commerce, that tax abatements are needed to attract firms even though the experience both locally and nationally says the opposite. The City has been led into a position of offering abatements, almost automatically, to firms just for the asking. Yet, these firms fail to make the promised investments, fail to pay wages comparable to other firms in the community, and fail to produce the promised jobs. In many cases, the firms go out of business before the City can hope to realize any benefits. (Note that the PIRC report is deficient in that it only reports on existing abatements; it does not report of the firms that have been given abatements that went out of business such as Davol or E&E.)

An ongoing problem of non-compliance hurts the City. Not only does the City not get the jobs and wages and taxes promised, but it cannot negotiate effectively with future firms. Word is out; Lawrence is a pushover town. A firm can promise much, produce little, and still keep its tax break.

The City of Lawrence is confronting a severe budget problem. Revenues are not flowing into the City as expected. Planned expansion of the library has been scrapped. Social service agencies saw their budgets cut (although the Chamber of Commerce was given even more taxpayer money to further its failed economic development activities). Discussion has already been started on possible elimination of the bus system, the public transit needed by many people of low-income. We would all have been better served if we had not offered needless giveaways to firms in the form of tax abatements. Those lost tax revenues are sorely needed.

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