Officials debate benefits of commercial tax cuts - Ames Tribune

While proponents of Gov. Terry Branstad and the Iowa House of Representatives? proposal to reduce commercial and industrial taxes 40 percent over five years said the reduction will stimulate economic growth statewide, some local officials disagree.

Do local tax incentives make less sense under the plan?

Mark Jackson, city administrator for Story City, said that while local governments have reacted most immediately to the possible loss of local services resulting from the loss of commercial tax revenue, he thinks the economic development impacts are far more negative.

?Unfortunately, sometimes what the government does is the direct opposite of the intended consequence,? Jackson said. ?I think this is one of those times. There does need to be some form of commercial tax reform, but this is too much, too fast.?

Mayor Ann Campbell said tax relief already exists in those locally offered business incentives. While the city of Ames uses tax increment financing ?sparingly? and tax abatements more routinely, she said if commercial tax revenues are cut too severely, ?we won?t have it there to use.?

Dan Culhane, CEO of the Ames Chamber of Commerce and the Ames Economic Development Commission, said ?it?s an old adage that if one city won?t grant tax increment financing, some other city always will. But in defense of some kind of permanent commercial property tax reform, these abatements and financing incentives have a time frame, and when they expire, assessment then returns to 100 percent of taxable valuation.?

Jackson said Story City uses tax increment financing to attract new commercial and industrial development, but said lower commercial revenues will mean the return on investment will happen over an extended period of time, increasing the risk to cities for economic development ventures such as tax increment financing.

?When Pella Corporation came to Story City, our numbers showed we saw payback in nine years or less,? Jackson said. ?If we were to use those numbers today under (the governor?s proposed plan), it would be another seven years.

?When you start going beyond that, you start questioning your return on your investments. Does it make good financial or economic sense to be extended debt wise that far out??

The fact that Pella Corporation came and went in a decade is another consideration of municipal finance risk, Jackson said.

?Realistically, the time frame for how long a company stays is not as long as it used to be,? Jackson said. ?There are a number of projects that cities are going to take a pass on because the payback is simply far too long. And you?re assuming a significant amount of risk along with it.?

Are lower property taxes the key attraction?

Campbell wrote in a letter to Branstad that according to economic development experts hosted at a recent National League of Cities conference, ?the amount that a company will pay in property taxes is not one of the top five reasons a company chooses to locate in a particular site.?

Jackson thinks the reason is about 10th on why companies choose particular sites.

?In terms of recruiting companies, we hardly ever get asked that question,? he said. ?The top thing they are looking at is location, then the education level of their work force, followed by infrastructure like transportation or technology. Then they look at local competition and do they have room to grow. Taxes are always far, far down the list.?

Both Campbell and Jackson said that if property tax cuts become so draconian that they limit local government?s ability to adequately fund education and basic services, and to provide high quality lifestyle services, such as libraries and recreation programs, it may ultimately end up making Iowa less attractive to companies looking to locate here.

Culhane said the Iowa Chamber Association supported both the House legislation and the Senate bill passed earlier.

?I think the House bill would certainly be welcomed by any commercial or industrial property taxpayer,? Culhane said. ?Where we sit as both a chamber and as an economic development commission, we understand there is a balance to be struck. We certainly have been begging for close to 10 years for some kind of commercial and industrial property tax relief. But we cannot have tax cuts that are so drastic that it does local municipalities a great deal of harm.?

Culhane said he expects to see a compromise between the House and Senate bills, ultimately reaching a break on commercial and industrial property taxes ?that everyone can live with.?

?Something needs to give here,? he said. ?Is the perfect solution 40 percent? That is for the legislators to decide, but it?s clear to chamber organizations across the state that commercial taxpayers deserve some relief at some point in time.?

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Source: http://amestrib.com/articles/2011/05/20/ames_tribune/news/doc4dd67937df166703818900.txt

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