Property Tax Abatements Used Unjustly
Special Privileges? Not So Fast
Below are excerpts from articles deom the Cincinnati Business Courier and the Houston Business Journal on the subject of special privilege. Instead of making everyone's property tax more fair, many corrupt municipalities have been giving away special privileges to just a few corporations.
After years of granting tax breaks to almost all comers, municipal officials seem to have pulled the plug and the flood has been reduced to a trickle.
The number of tax abatements granted to expanding or relocating companies by Harris County dwindled from 23 in 1988 to 14 in 1999, and only nine in 2000. So far this year, the county had granted only one abatement.
The main reason for the cutback probably is the fact that a number of big-name companies have failed to deliver on their promise of new jobs and future economic paybacks in return for abatements.
Consider three high-profile tax breaks that backfired in a big way.
Authorities also are starting to wise up after watching companies pit cities against each other in bids to obtain tax abatements, only to discover that many of the relocation decisions had already been made. Now city and county are refusing to play the game.
- During the final year of a seven-year, $5.8 million tax abatement agreement with the city of Houston, Harris County and two other taxing jurisdictions, the former high-flying Drypers Corp. transferred jobs out of Houston facilities to plants in Vancouver, Wash., and Marion, Ohio, eventually shuttering the local diaper manufacturing plant altogether.
- Just two years after area taxing entities granted MCI a six-year abatement package for a proposed 750-person communications service center in Sugar Land, MCI shut down the call center and converted it to a network services center to monitor and divert phone traffic.
- Recently after a lengthy legal process, various taxing authorities were finally able to recover unpaid, abated property taxes from Stone & Webster, which filed for Chapter 11 bankruptcy and was subsequently purchased by The Shaw Group. The local taxing entities recovered $612,000 from the company, just half of the $1.2 million that would have been received if Stone & Webster had lived up to the original abatement agreement.
Faced with this new free market stance, companies ended up expanding in the area anyway after their requests for abatement had been denied:
- Albertson's went ahead with plans to build a grocery distribution facility in Katy after Harris County turned down the grocery chain's request for an abatement.
- Sonangol, the national oil company of Angola, abandoned an attempt to seek out an abatement for a new headquarters in west Houston and moved forward with construction without the tax break.
The number of companies that reneged on their tax abatement deals spiked in Cincinnati last year, prompting city officials to terminate tax breaks for eight companies.
Fourteen of the 85 companies that received property tax abatements to help fund company expansions failed to produce the jobs they promised at the time of the abatements, according to a recent report to City Council by Toni Selvey-Maddox, the city's acting economic development director.
Five of those companies now have no employees in the city.
But the city's figures are slightly better than Hamilton County, where a recent audit found 21 percent of companies have either failed to produce the promised number of jobs or didn't make as large an investment as initially proposed. Hamilton County Commissioners responded in July with a new policy that allows the county to seek repayment of tax breaks from companies that don't live up to their pre-abatement promises.
"They're a slippery slope," said Hamilton County Auditor Dusty Rhodes. "Once you start them, they never end. Eventually, there'll be one little old guy paying all the taxes because everybody else will be abated."
Cincinnati Councilman Pat DeWine agreed: "I'm skeptical of the ability of government to predict where tax abatements will help stimulate the economy. What makes more sense is to try to lower taxes for everybody across the board."
But those views haven't kept DeWine from voting for new tax abatement deals or continuing tax breaks for companies not in compliance.
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