The Associated Press has published an article (sent to me by alert reader and frequent commenter “anp”) about how municipalities are starting to hold companies more accountable for the tax incentives they take.
As the economy sputters along, municipalities struggling to fix roads, fund schools and pay bills increasingly are rescinding tax abatements to companies that don’t hire enough workers, that lay them off or that close up shop. At the same time, they’re sharpening new incentive deals, leaving no doubt what is expected of companies and what will happen if they don’t deliver.
They call these “clawback” (or “recapture”) provisions, and such a provision sure would have come in handy had it been written into the MidTown Plaza agreement. Instead, Peoria gave away the store and is left holding the bag. A recent Journal Star article states that MidTown Tax Increment Financing (TIF) district “has an annual $351,000 bill but doesn’t bring in the property and sales tax revenue to cover expenses.”
The AP article gives several examples of successful clawback provisions in other cities. Here’s one:
[In DeKalb, Ill.,] Target Corp. got abatements from the city, county, school district and other taxing bodies after promising at least 500 jobs at a local distribution center.
So when the company came up 66 workers short in 2009, Target got word its next tax bill would be jumping almost $600,000 — more than half of which goes to the local school district, where teachers and programs have been cut as coffers dried up.
Even better news is that there is no evidence that these kinds of provisions “scare off other employers,” according to Greg LeRoy, executive director of Good Jobs First. Incidentally, the website for Good Jobs First is fantastic. If you do nothing else, read A Beginner’s Guide to Accountable Development.
This is an idea whose time has come. If DeKalb can do it, so can Peoria. If it’s good enough for Target, it should be good enough for local developers here in the river city. We should all demand of our council representatives that recapture provisions be written into any new developer subsidies; in fact, it should be boilerplate language. There’s no excuse for taxpayers shouldering all the risk while developers reap all the rewards of sweetheart economic development incentives.
I think there should also be a fine associated with building a new building and abandoning it within the first 10 years. If you have the $$ to build something new, one would reasonably expect the company to have the financial strength to be there 10 years. If not, each passing month imposes another fine until a new tenant or owner opens and occupies that space.
What constitutes occupancy? A lone security guard and a desk? There are a lot of occupied buildings along the whole length of Adams, Washington, and Jefferson but you hardly ever see anyone or anything moving in or out of them. There is a lot of storage down there. Not exactly the occupancy that one might want.