Q. What do chemical weapons stockpiles, bad reputations and tax phase-ins have in common?
A. All three, it seems, are a lot harder to destroy than they are to create.
This year, to the benefit and presumed delight of those whose companies have the privilege of paying full property taxes, the Fort Wayne City Council decided to start getting tough on companies that accepted tax phase-ins but did not follow through on the requirements for those breaks.
In February, the council tightened requirements for granting and monitoring property tax breaks and changed the name of those benefits to tax phase-ins.
This is indeed a more accurate term. Businesses that qualify for these breaks don’t get to operate tax-free, as though they were locating or expanding on a remote Caribbean island. Rather, they get to have property taxes on new buildings, equipment and improvements phased in over a number of years.
Used carefully, this is an invaluable tool for economic development. When a company is trying to decide where to locate, a short-term discount on taxes could be the enticement that tips the balance between Fort Wayne and, say, Omaha. It’s a win-win if the company lands here and the city gets more jobs and more tax revenue over the long term.
But even remote Caribbean islands, one presumes, have to enforce some rules. This year, the City Council decided to do that, too. In July, the council voted to revoke tax phase-ins from 10 companies that hadn’t lived up to their investment or job-creation promises.
That appears to have been the first time a tax phase-in, abatement, break or whatever the benefit was called at the time had ever been revoked.
The best evidence of that was that no one knew exactly how to get it done.
Council members presumed that they could simply remove the companies that were out of compliance from the list of phase-ins they were approving for the coming year.
But Tuesday, after researching state law, council attorney Joe Bonahoom told the council they had to officially declare the companies out of compliance and give them 45 days to answer the charge. Sort of by default, the council had approved the 10 companies for another year.
Technically, of course, the city doesn’t lose any revenue. It just doesn’t get to collect as much.
The larger need, though, is for the council to be more careful about what phase-ins get approved in the first place.
We always approved them automatically, says John Crawford, R-at large. As budgets have gotten tighter, I’ve been much more critical of giving some of these breaks.
I think the key is to do it on the front end rather than the back end.
Crawford and other council members are beginning to make a clear distinction between competing to attract or keep a business that could locate anywhere, and rewarding someone who opens a business specifically to fill a specific niche for local customers.
The reason, Crawford says, is to get a business to come to Fort Wayne, to expand in Fort Wayne or to not leave Fort Wayne. The abatement should serve some purpose, rather than being like a welcome wagon.
The key is using a powerful economic development tool more precisely, and making sure those who receive a break follow through on their promises.