"The Effective Use of Property Tax Incentives for Economic Development"

| Posted in analysis, economic development, incentives | | No Comments

The authors of this article from the fall 2013 issue of Communities and Banking estimate that property tax incentives total $5-10 billion per year in the U.S.

The article also offers 5 strategies for improving the effectiveness of these incentives.

  1. Do not approve all requests.  Specifically, don't provide incentives to businesses that would have chosen a site without the incentive.
  2. Take a targeted approach.  If everyone offers incentives to everyone, their effectiveness as a driver of economic growth diminishes.
  3. Avoid incentive wars. Don't compete within your own region. 
  4. Don't compete, cooperate. Recognize that the region benefits regardless of the jurisdiction where the business is located.
  5. Evaluate effectiveness.  Review policies, expenditures and impact.

Interesting, but this article does not take into consideration the fact that individual jurisdictions likely gain tax revenue from these transactions (even after providing incentives), which makes them attractive to communities in the first place.  In many cases, these municipal fiscal benefits outweigh the regional economic issues for the decision-makers. (See our discussion of this topic in our August 21 blog post.)

I wholeheartedly agree that evaluating effectiveness is critical.  Accordingly, I look forward to reading the full report from these same authors, "Rethinking Property Tax Incentives for Business," prepared for the Lincoln Institute of Land Policy.

I am especially curious to learn how they calculated the $5-10 billion estimate.  I also hope this report, which "provides an overview of use of property tax incentives for business" and offers recommendations, including "forgoing these often wasteful incentive programs in favor of other, more cost-effective policies, such as customized job training, labor market intermediaries, and the provision of business services" provides solid analysis to back up that guidance and help municipal leaders make informed incentive decisions. 

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