Tax abatements have drawn heavy scrutiny recently as city and county leaders debate the appropriateness of the incentive for certain developments.
Yet a separate incentive that offers direct payments to local companies for providing high-paying jobs has received barely a look.
Since 2009, Fort Wayne has committed nearly $2.4 million of its income tax revenues to the grant program, and Allen County is examining four new deals worth a combined $900,000.
City and county economic development experts said the program provides another way to entice major employers to locate here. Even typically conservative elected officials said the program is a benefit, even if it makes them uncomfortable.
In order to stay competitive we have to do that, said Allen County Council President Larry Brown, R-4th. I wish we didnt.
While the two governments recently unified under a joint policy for the program, each calls the grants by a different name. Allen County calls them Local Economic Development for a Growing Economy agreements while the city calls the awards County Economic Development Income Tax grants.
The difference in names means the county typically pays its grant through buying or leasing equipment a company needs while the city simply pays the company the benefit.
Brown is leading a joint effort by the city and county councils to examine property tax abatement policy. The examination comes as the two councils have questioned whether such perks should be given to service providers, such as dentists and doctors offices. The group, however, likely wont expand its reach to examine grants or other incentives, because such an effort would likely prove unwieldy, Brown said.
If we try to take on that initiative in this effort, its going to take forever, he said.
John Urbahns, Fort Waynes director of community development, said that as the economy begins to improve, the income tax grants will likely be reviewed, although he said that would be done by city staff instead of a council committee.
Not a giveaway
The numbers make clear the struggles the local economy faces. The countys per-capita income in 2010 was at 85 percent of the national rate and has fallen over the past decades.
In fact, wage decline has been cited by numerous experts as one of the major issues facing the local economy.
That is why the grants focus so heavily on high-paying jobs, according to Mark Royse, deputy director for Allen County Community Development. The countys first effort with the program was in 2002 when it committed $2.5 million over a decade to help Uniroyal Goodrich stay in the region. The final $250,000 payment of that agreement will be made next year.
To be eligible for the program, a company must be considering a project in the area that will create or retain jobs. Additionally, that project must be competitive, meaning the company has other places in the nation to invest the money.
It also must meet two of three secondary criteria: It will create jobs that exceed average private wages in Allen County; it is a business in one of six cluster industries; or it is a project with at least $5 million investment or it will create or retain at least 100 new jobs.
If a company with a building or expansion project meets those criteria, it earns points for the average wages of employees and other factors to determine the size of the benefit. The wages paid by the company is where a company can earn the most points – meaning a longer benefit.
Royse said this is intentional to battle not only the problem of falling wages, but also the concerns of local property tax caps. He said there are no caps on income tax revenues, so there is an interest in helping create as many high-paying jobs as possible to generate more revenue for local governments.
In effect, the program offers companies a reimbursement of the local income taxes from the jobs their project is creating or retaining. For new jobs, the company is reimbursed more than for retained jobs.
For example, if an eligible companys project created new jobs with $1 million in new salary, it could receive a $7,000 benefit. A company simply retaining that payroll would receive a $3,700 benefit. The number of points the project earned is the number of years that benefit is paid.
Royse said not every company interested in the program qualifies because the rules are set up to ensure the money is used only on projects that are truly meaningful for the community.
You have to have a high enough standard that its not just a giveaway program, he said.
Seventeen such projects have been found worthy of receiving this benefit from the city or county since 2009. Those awards are worth nearly $3.5 million in reimbursed income taxes – not including the earlier Goodrich agreement. Of that total, $2 million was dedicated to General Motors, split evenly between the city and county.
Finding a balance
The incentive program is not widely known or advertised, according to both city and county officials. In fact, most companies become involved with the incentive after working with the Fort Wayne Allen County Economic Development Alliance and the state on an incentive package.
Because the projects must be competitive with other areas, there is a need to be creative in attracting those developments, Urbahns said.
Most communities do tax abatements, he said. This gives us a chance to have a little extra edge.
But determining whether a project is truly competitive – and that such an incentive is necessary to lure it – can be difficult. The city typically relies on a company to state whether the project is competitive or not, which happens when filing paperwork with the state.
For example, the city last month made its second of four $54,000 payments to Swiss Re as part of a grant agreement for its participation in leasing new office space constructed by developer Hanning & Bean. At the time, a company spokesman said the company never considered leaving the city, but a grant agreement was approved to retain the company regardless.
The agreement states the company would invest $550,000 in new equipment and retain 245 jobs locally. It requires the company to employ at least 215 people through May 1, 2014.
Officials for the Switzerland company did not return a request for comment last week. The agreement was made under the citys old rules before creating a joint policy with the county.
Even General Motors – touted as one of the major drivers of the local economy – wouldnt openly say the grants are critical. The city and county approved each providing $1 million to the automaker in 2009, the height of the recession. A spokesman said the incentive was only one factor considered when deciding whether to invest millions in the local plant.
Economic incentives are an important component of developing a business case for investment, but many factors are included such as market conditions, supplier logistics, facility business performance, etc., spokeswoman Stephanie Jentgen said in a statement. Since GM opened Fort Wayne Assembly more than 25 years ago, Allen County and the City of Fort Wayne have provided outstanding leadership and support in helping create a positive environment for business, both large and small.
Ashley Steensma, vice president of business development with the Alliance, said the grant program works to differentiate Allen County and Fort Wayne from other communities. Because everyone offers some kind of abatement, she said, this program has won the community projects that were highly sought after in another part of the country. Steensma declined to name specific projects where this happened, citing the confidentiality of negotiations.
It has worked in our favor, she said. The point is to increase our average annual wage for the community.
Ensuring a benefit
Urbahns said the city and county follow up with the companies to ensure they are meeting their contracts. In fact, the benefits paid to a company are based on its payroll data, meaning 2012s check is based on 2011 payroll.
If a company isnt paying the full amount promised, it doesnt get the full amount of the benefit. If it pays more than projected, the benefit is capped at the contract amount, he said.
Royse said the county budgets $500,000 for the program annually. The city budgeted about $300,000 for this year.
Tom Lewandowski, president of the Northeast Indiana Central Labor Council, AFL-CIO, has been a staple at City Council meetings, questioning the benefits of tax abatements. He said while he was vaguely aware of the grant program, he focused on abatements because they seemed to be the most public form of incentive.
He said he was concerned about a program offering grants to companies that are seemingly done in secret.
It may not be corrupt, but it has a tendency to be corrupting, especially when theres no sunlight, he said.
Allen County seeks approval for all grants from its council, commissioners and redevelopment commission, Royse said. The city, however, has only recently changed its policy to bring more grant agreements to its council.
More than a dozen such grants worth hundreds of thousands of dollars were approved by the mayor. The General Motors grant was the first agreement to get the City Councils approval – it was unanimous – followed by similar support for an agreement for Greatbatch Medical.
Urbahns said the city will now take all grant agreements to the council that will cost more than $100,000 in city income taxes over the course of the agreement. That means pending agreements with Franklin Electric ($360,000) and R3 Composites ($332,332) would have to appear before the council before becoming reality.