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How communities can stimulate their economy by monetizing property tax credits
 

How communities can stimulate their economy by monetizing property tax credits

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Local communities usually have to rely on outside sources for investment. Here's how a community can stimulate their economies from within without raising taxes or long-term borrowing.

Local communities usually have to rely on outside sources for investment. Here's how a community can stimulate their economies from within without raising taxes or long-term borrowing.

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    How communities can stimulate their economy by monetizing property tax credits How communities can stimulate their economy by monetizing property tax credits Presentation Transcript

    • Monetizing Property taxes:How a community can stimulate its own economy without taxes or long-term debt
      To advance slides, click on Mouse
    • What’s missing?
      Unused resources
      Money!
      Unemployed
      Vacant Land
      Idle Facilities
    • And where do communities usually look for that money?
      External sources
      …and if outside sources are not forthcoming?
      How can a community create new money from within?
      Federal and State government
      Outside investors
    • Create new ‘local’ money???
      Any such money would have to be…
      • Widely accepted
      • Equivalent to ‘legal tender’
      • Easily transferrable
      • Trackablein accounting systems
    • So how can a community create local ‘money’ that achieves those objectives?
      By Monetizing Future Property Taxes
    • Monetizing future property taxes?
      How does that work?
      • By paying willing suppliers with credits against future property taxes
      AND
      • By making those credits transferrable
    • Example: Monetizing property tax credits…
      Suppose a city budgeted $5,000 for a river walk for next year.
      Recognizing that contractors have surplus resources and idle labor this year, the city decides to make a deal….
      The city puts out a bid for the project this year payable in “property tax credits” against next years property taxes
    • Example: Monetizing property tax credits…
      Why would a contractor accept “property tax credits” as payment for a project?
      • it will immediately free up cash set aside for property taxes
      • it will improve the balance sheet’s ‘current assets’
      • there is no other “cash” work available
    • Example: Monetizing property tax credits…
      And because the PTCs are transferable, PTCs can be used to buy needed goods and services from other willing parties
      • Hires an idle employee using property tax credits to augment salary- Buys materials from local firms who also must pay property taxes
    • Example: Monetizing property tax credits…
      … and so a willing contractor accepts the bid to do a project for payment in PTCs.
      Cash that was set aside to pay taxes can now be used for other things.
      Favors others willing to accept PTCs
      • An employee exchanges $1000 in salary for PTCs
      • A local rental firm accepts $2000 in PTCs for equipment
      • A service station exchanges $500 in gas cards for PTCs
      Remaining PTC’s remain ‘as credit’ against future taxes with the county assessors office
    • Example: Monetizing property tax credits…
      The real stimulus is the additional economic activity generated
      For sidewalk work, contractor accepts $5000 in PTCs
      Contractor buys $1000 in gas cards from local station, and $4000 toward equipment rental
      Local gas station uses $1000 in PTCs against rent.
      Rental agency uses $4000 in PTCs to augment salary
      At end of year:
      • Gas station landlord applies $1000 to property taxes
      • Rental agency staff applies their bonuses against their property taxes
      ………..$5000
      +……..$1000
      +……..$4000
      +……..$1000
      +……..$4000
      $15,000
      From $5K in PTCs
    • Why Property Tax Credits (or PTCs)?
      • Since almost everyone pays taxes, they have near universal value
      • They can immediately improve a balance sheet as a tangible asset
      • They can be transferred to others as payment in kind for goods and services
    • Monetizing property tax credits
      The real magic from PTCs comes from making these property tax credits easily transferrable between private parties.
      This can be done as simple as using a web-based application for transfer credits, or accepting letters of transfer
      $5K in PTCs can generate 2-5 times as much in new economic activity
    • Monetizing property tax credits
      Immediate advantages
      For the contractor
      • Puts idle people and resources to work
      • Frees up cash set aside for taxes
      • Increases sales
      For the city
      • Puts future dollars to work against current economic problems
      • Citizens get use of the project results a year earlier
      • No increase in taxes or costs
      • May actually generate new revenue if invested in tax-generated projects
    • Monetizing property tax credits
      Why it works
      Trading with assets is as common and as old as bartering itself
      Since virtually everyone pays taxes (directly or indirectly), PTCs would have broad acceptance
      No changes are required for city tax accounting systems as these already track debits and credits for tax payers (though procedures would be needed for handling PTCs)
      No changes needed for private accounting systems as PTCs would be handled as other non-cash financial assets
    • Monetizing property tax credits
      How a city government would get started
      Identify future funded projects that seem like good candidates. Best would be those that generate new tax revenue.
      Discuss with suppliers: Would youaccept PTC’s for the project if it was moved into current year? (If not, the project is performed in the scheduled year)
      Discuss with subs: Would you accept PTCs from prime if it meant work for this year rather than next year.
      Build and share list of suppliers and subs that will accept PTC’s.
      Begin project funding
    • In summary…
      In good times, PTCs are not necessary. Money would be plentiful and resources would be used to their fullest.
      Economic Activity of a Community
      Money
      Motivation
      Employed Citizens
      =
      Thriving Businesses
      Desire to Spend and Invest
      Available Capital
    • In summary…
      In bad economic times, outside capital contracts result in economic distress.
      Economic Activity of a Community
      Money
      Motivation
      Employed Citizens
      =
      Thriving Businesses
      Unemployed
      Closed Businesses
      Desire to Spend and Invest
      Available Capital
    • In summary…
      Using Property Tax Credits, local communities can create their own stimulus with less reliance on outsiders
      Economic Activity of a Community
      Money
      Motivation
      Employed Citizens
      =
      Thriving Businesses
      Re-employed Workers
      Fewer Struggling Businesses
      Desire to Spend and Invest
      PTCs
      Available Capital
      Local projects
    • Most importantly…
      Rather than waiting and begging for money from the outside, PTCsallow a community to turn inward and do something positive about their struggling local economy.
      Economic Activity
      • Without new taxes
      • Without long-term debt
      • With virtually no risk
      Employed Citizens
      Thriving Businesses
      Unemployed
      Re-employed Workers
      PTC$
      Fewer Struggling Businesses
      Closed Businesses