What if you were Mayor of Indianapolis? What would you promote as the City's abatement policy?
There is an opening in the public dialog to discuss this economic development tool, thanks to a curious abatement situation recently reported on by IBJ reporter, Francesca Jarosz. In a new article entitled "Tax breaks for Rolls-Royce hinge on investment, not jobs" (sorry, the article is open only to online subscribers), Jarosz reports that the Ballard administration has agreed to two property tax abatements for Rolls-Royce. One would be a $1.2 million, 10-year abatement for the company to remodel the downtown Faris building, recently vacated by Eli Lilly. The second would be a $21 million, 10-year abatement for the company's $190 million update of two plants between Tibbs and Kentucky Avenue.
I was interviewed by Jarosz for this article and she passed on that Rolls-Royce has not actually applied for either abatement as yet. So, the approval process is in very early stages.
Over at Advance Indiana, Gary Welsh has made a couple of excellent points; that this is more of the pay-to-play relationship businesses have with the Ballard administration, and that once the Mayor decides his position on an abatement, the rest of the process is just rubber stamping by the Metropolitan Development Commission and the City-County Council. I can't really argue against those positions. If pay-to-play rumors are even 10% true, the Marion County Prosecutor or the FBI should investigate, prosecute, and jail those who are involved. As for a mutant public process, I am all for a more transparent, more responsive, and more accountable system than the one we currently 'enjoy'.
For my purposes here, I'd just like to get a little community dialog going about abatements, using the proposed Rolls-Royce abatements simply as a complicated, real life example.
So, you be the Mayor. Where do you stand on abatements?
Abatements are allowed by state law for any project that will bring an investment in buildings and/or secure new jobs. The company who is awarded an abatement, pays only about half of all new property taxes that result from their investment. An abatement is granted anywhere from 3 to 10 years. The practice in Indianapolis has been to enter into a contract whereby the company agrees to invest an agreed upon amount of money in new facilities, or upgrades of current facilities, and produce an agreed upon number of new jobs, in return for the abated taxes. This is called the "clawback clause". If the company fails to invest the money or produce the new jobs, the City can ask for the company to repay the taxes as a penalty.
As Jarosz points out in this article, 69 of the 80 abatements granted over the last 3 years have included increased job numbers as part of the agreement. Still, that means that nearly 14% have not included additional jobs.
So, if you were the Mayor of Indianapolis, what would you do? Would you allow any abatements?
Surrounding counties have been particularly aggressive with providing abatements to companies considering locating there. So, there is a regional competition for jobs and future taxes from companies choosing what central Indiana city to call home. Then there are the really big companies who can locate anywhere in the US or overseas. Would abatements be part of your approach to attracting new businesses to Indy?
If you, as Mayor, are open to abatements, then under what conditions would you support one?
Is it a certain type of business? In the past, just for examples, abatements have been granted to retailers like Kroger, hotels (with the condos atop the Conrad also being granted abatements), some housing stock, and industrial businesses.
How do you, as Mayor, balance the need of a company like Rolls-Royce, to make significant improvements in their plants in order to modernize them - but not to produce more jobs. If a major employer, like Rolls-Royce, is looking at two aged plants and has $190 million to spend, they have options to move to a new location and build new, or remain and update the existing plants. Should your City grant an abatement, even though no extra jobs will be created? I think the two proposed abatements for Rolls-Royce actually represent the spectrum of upgrades. In the smaller Faris deal, there is remodeling of an office building, presumably for layout and not modernization. Should your City grant an abatement for a company, even a major employer, to simply remodel a building? Should your City grant abatements for any company to locate downtown? Should your City grant an abatement for a major updating of an aging plant, in order to keep the major employer in your City?
There is no doubt that companies view abatements as routine anymore. If they can save millions of dollars in taxes, they are surely going to do so. So, one cannot be sure of the accuracy of any threat to relocate a business should an application for an abatement not be granted.
Would you as Mayor create a public list of what sorts of investments or job creation numbers will automatically result in an abatement?
Tax abatements are a fact of life, for sure. That does not make every one wise, nor every one foolhardy.
If you were Mayor, what role would property tax abatements play in your efforts to increase economic development and job creation?
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