How communities can stimulate their economy by monetizing property tax credits


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Communities hit hard by recession often have to rely on outside sources for investment. Here's an idea how a community can generate investment from within without new taxes or long-term debt.

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How communities can stimulate their economy by monetizing property tax credits

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