No too long ago, local economic development officials eliminated “tax abatement” from their vocabulary, arguing that “phase in” more accurately described the incentive offered by their favorite job-creation tool.
But now that a heretofore obscure 29-year-old agreement with General Motors has induced Allen County Council members to waive all taxes on $110 million worth of new equipment for a full decade – thereby eliminating the year-by-year phase-in of taxes granted by all such previous deals – perhaps yet another term is needed.
One that illustrates the danger of making desperation-driven, open-ended commitments, perhaps.
Three decades after the fact, it's almost impossible to grasp the fear that gripped this community after International Harvester transferred truck production to Springfield, Ohio, in 1983. Faced with the loss of 3,000 well-paying jobs, economists and politicians predicted a local unemployment rate of 20 percent, and the elimination of another 12,000 Harvester-dependent jobs.
But the expected calamity never came, in part because GM announced plans to build a 3,000-employee truck plant in southwest Allen County the following year in exchange for an incentives package estimated to be worth more than $71 million in 1986 (the equivalent of more than $151 million today) – nearly $26 million of it in the form of tax abatements.
Not widely known until recently, however, was the fact that County Council's Aug. 10, 1984 declaration of GM's 937 acres as an “economic revitalization area” seems to have committed the county to offering the company far more generous incentives than were available at the time – whether it wants to or not.
As council President Darren Vogt noted last month, officials in 1984 couldn't have predicted that the state's General Assembly in 2011 would authorize 100 percent abatements for 10 years. When they signed the deal that has been interpreted as assuring GM the maximum benefits allowed by state law, abatements eliminated taxes on new buildings or equipment in the first year only, gradually increasing taxes to 100 percent by the end of the deal.
John Stafford, who recently retired as director of the Community Research Institute of IPFW, was the county's economic development director in 1984 and said the promise of perpetual tax savings was intended to attract ongoing investment in the plant. “Equipment is a critical part of the facility. If you stop investing, the plant loses traction,” he said. The fact that GM has upgraded the plant and expanded its work force continuously for nearly 30 years indicates the strategy worked.
Before GM's latest request surfaced last month, County Council had shown little enthusiasm for granting the maximum abatement allowed by law. But what about other companies looking to relocate or expand here? Even without a deal like GM's, won't they expect equally generous incentives?
And if they do, hasn't it just gotten a lot more difficult for job-hungry politicians to say “no”?
Stafford said GM's sheer magnitude – 3,800 employees and an annual payroll of $286 million – would make it difficult for other companies to justify similar treatment. Each application for incentives is different and must be evaluated accordingly, he said, and Vogt agreed.
“There's no cookie-cutter model (when preparing economic development incentives). Every project has unique aspects,” said County Commissioner Nelson Peters. If one company's proposed investment or job creation isn't deemed worthy of a GM-like “super abatement,” he added, some other form of assistance may be possible.
But unless I miss my guess, other companies will seek a GM-like deal even if their investment, jobs and salaries aren't GM-like. That means some kind of consistent policy is needed but, as of now, neither the city nor county “phase-in” packages include 100 percent, decade-long abatements. They authorize only a maximum 100 percent abatement for five years, with gradual increases through the 10th year.
But with BAE looking for a new headquarters for its 1,000 well-paid employees and he constant search for other employers, this is the time for analysis – not desperation. Are deals such as the one recently given GM – which would in effect transfer the company's new taxes to other property owners for 10 years – in the community's best interest? If so, what level of jobs and investment should be required in return?
The future of economic development in Allen County, in other words, should be guided by something more forward-looking and precise than a 30-year-old agreement that has yielded undeniable benefits but also questions that were never foreseen but must nevertheless be answered.