Dr. Daphne Kenyon: Rethinking Property Tax Incentives for Business

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April 2016 | Lourdes German
Daphne A. Kenyon, Ph.D.
Philadelphia, Pennsylvania
April 27, 2016
Rethinking Property Tax
Incentives for Business

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Outline
I. Introduction
II. Property Tax Incentive Pitfalls
III. Alternatives to Property Tax Incentives

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Property Tax Incentives Allowed in a
Growing Number Of States
Source: Lincoln Institute of Land Policy, Significant Features of the Property Tax

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AP photo

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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.

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• 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

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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

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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

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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%.”

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Granting incentives when
costs exceed benefits

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Benefit-Cost Framework for Tax Incentives
• Benefits
–Revenue gain from expanded economic
activity attributable to tax incentive
–Jobs
–Increase in property values

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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

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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

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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

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• Lower Overall Taxes
• Cooperate rather than compete
• Back to basics - be business friendly
without emphasizing tax incentives
Alternatives to Property Tax Incentives

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Lower Overall Taxes
• Aim for broad tax base with low rates
• Doesn’t discriminate against existing
businesses
• No requirement for governments to pick
winners

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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

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Dover, New Hampshire
City of Dover, New Hampshire

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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

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Example: Nashville
• Nashville has a long history of regionalism
dating back to 1963 when the city merged
with Davidson County

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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

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Back to basics - be business friendly without
emphasizing tax incentives

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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

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Samsung, San Jose, California

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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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