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Dr. Daphne Kenyon: Rethinking Property Tax Incentives for Business

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Presentation from Drexel School of Economics / Econsult Solutions, Inc. Joint Conference on Urban Economic Policy
April 27, 2016

Published in: Economy & Finance
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Dr. Daphne Kenyon: Rethinking Property Tax Incentives for Business

  1. 1. 1 April 2016 | Lourdes German Daphne A. Kenyon, Ph.D. Philadelphia, Pennsylvania April 27, 2016 Rethinking Property Tax Incentives for Business
  2. 2. 2 April 2016 | Lourdes German
  3. 3. 3 April 2016 | Lourdes German Outline I. Introduction II. Property Tax Incentive Pitfalls III. Alternatives to Property Tax Incentives
  4. 4. 4 April 2016 | Lourdes German Property Tax Incentives Allowed in a Growing Number Of States Source: Lincoln Institute of Land Policy, Significant Features of the Property Tax
  5. 5. 5 April 2016 | Lourdes German
  6. 6. 6 April 2016 | Lourdes German AP photo
  7. 7. 7 April 2016 | Lourdes German Good Jobs First “Subsidy Tracker” http://www.goodjobsfirst.org/subsidy-tracker Discover Where Corporations are Getting Taxpayer Assistance Across the United States SUBSIDY TRACKER 3.0 is the first national search engine for economic development subsidies and other forms of government financial assistance to business.
  8. 8. 8 April 2016 | Lourdes German
  9. 9. 9 April 2016 | Lourdes German • Granting incentives that don't affect location decisions • Granting incentives when costs exceed benefits • Allowing proliferation of incentives and engaging in destructive bidding wars Property Tax Incentive Pitfalls
  10. 10. 10 April 2016 | Lourdes German Granting incentives that don't affect location decisions • Policy makers may assume tax incentives are decisive • Yet evidence suggests that firms sometimes lobby for tax incentives after they have chosen their location • Policy makers have limited information about whether an incentive will be decisive or simply a tax giveaway
  11. 11. 11 April 2016 | Lourdes German Do tax incentives tip firm location decisions? Yes No • Firm would have located elsewhere without tax breaks • Create jobs; Boost incomes • Some property tax revenue is better than none • Firm would have chosen same location without tax breaks • Incentives deplete tax base without promoting economic development
  12. 12. 12 April 2016 | Lourdes German Peters and Fisher (2004) “The best case is that incentives work about 10% of the time and are simply a waste of money the other 90%.”
  13. 13. 13 April 2016 | Lourdes German Granting incentives when costs exceed benefits
  14. 14. 14 April 2016 | Lourdes German Benefit-Cost Framework for Tax Incentives • Benefits –Revenue gain from expanded economic activity attributable to tax incentive –Jobs –Increase in property values
  15. 15. 15 April 2016 | Lourdes German Benefit-Cost Framework for Tax Incentives Sources: Bartik 2005; Kenyon, Langley, and Paquin 2012 • Costs –Revenue loss from tax incentive –Increase in public service costs –Environmental and congestion costs
  16. 16. 16 April 2016 | Lourdes German Case Study: Providence and 38 Studios • Curt Schilling relocated his video game company to Providence after Massachusetts declined to match a tax incentive package • Following the company’s high profile collapse, Rhode Island taxpayers were left on the hook for about $100 million in bonds and interest
  17. 17. 17 April 2016 | Lourdes German Allowing proliferation of incentives and engaging in destructive bidding wars • Inter-local competition can leave a metro area worse off as a whole. • Incentive wars often shift jobs within a metro area rather than creating new jobs • Tax incentive competition can lead to a reduction in the tax base with no corresponding economic benefit
  18. 18. 18 April 2016 | Lourdes German
  19. 19. 19 April 2016 | Lourdes German
  20. 20. 20 April 2016 | Lourdes German
  21. 21. 21 April 2016 | Lourdes German • Lower Overall Taxes • Cooperate rather than compete • Back to basics - be business friendly without emphasizing tax incentives Alternatives to Property Tax Incentives
  22. 22. 22 April 2016 | Lourdes German Lower Overall Taxes • Aim for broad tax base with low rates • Doesn’t discriminate against existing businesses • No requirement for governments to pick winners
  23. 23. 23 April 2016 | Lourdes German Example: New Hampshire • No broad-based sales or income taxes • Ranked 7th for best business tax climate in 2016 by the Tax Foundation • Minimal use of tax incentives
  24. 24. 24 April 2016 | Lourdes German Dover, New Hampshire City of Dover, New Hampshire
  25. 25. 25 April 2016 | Lourdes German Cooperate rather than compete • The economic benefits of a new firm in one community accrue to the entire area since the firm is likely to hire workers from throughout the region and contract with firms in neighboring communities • Instead of competing, municipalities should collaborate in their attempts to spur economic development in a metro area
  26. 26. 26 April 2016 | Lourdes German Example: Nashville • Nashville has a long history of regionalism dating back to 1963 when the city merged with Davidson County
  27. 27. 27 April 2016 | Lourdes German Example: Nashville • Partnership 2020 is a regional, public- private economic development initiative that involves all 10 counties in the metro area • Planning officials are currently drafting Partnership 2040, the latest incarnation of the metro area economic development plan
  28. 28. 28 April 2016 | Lourdes German Back to basics - be business friendly without emphasizing tax incentives
  29. 29. 29 April 2016 | Lourdes German Example: San Jose, California • San Jose has attracted economic development by turning the zoning code and building permit process from a barrier into an advantage • The city has made a concerted effort to streamline its approval process, and guarantees a schedule for firms it is interested in attracting
  30. 30. 30 April 2016 | Lourdes German Samsung, San Jose, California
  31. 31. 31 April 2016 | Lourdes German 113 BRATTLE STREET CAMBRIDGE, MA 02138 @LANDPOLICY LINCOLNINST.EDU DATE | PRESENTER | TITLE Contact Daphne A. Kenyon, Ph.D. Lincoln Institute of Land Policy dkenyon@lincolninst.edu

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