Lawrence city commissioners adopted a statistical model Tuesday for weighing the consequences of giving property tax breaks to businesses as part of the city's official tax abatement policy.
The model is used to figure the potential benefits and drawbacks of granting tax abatements over a several-year period to businesses that are considering expanding or locating in Lawrence.
Commissioners support the policy in hopes that it will encourage economic growth in Lawrence. So far, most abatement candidates have asked for a 50 percent tax break over a 10-year period.
Most discussion of the model centered on its role as one consideration for granting an abatement under the city's tax abatement policy.
Dwayne Peaslee, chairman of the Lawrence-Douglas County Economic Development Advisory Board, said there was concern among the board members that the model would become the only tool used in considering abatement requests.
"ITS NO MORE than another tool to use to make the final decision," Commissioner Bob Schumm said. "We should use all the tools available."
Other considerations for granting an abatement in the policy include the kinds of jobs created by the expansion, the compatibility of the expansion with city planning, and the potential for additional expansion.
Schumm emphasized that the decision to grant a tax abatement should rest with the commission.
"We are spending the taxpayers' money," he said. "The final decision ought to rest right here. That's our job."
The model was designed by Kansas University's Institute for Public Policy and Business Research.
More than 200 kinds of data are plugged into the model, including the number of jobs created, families moving to Lawrence and using local schools, the range of salaries, and the business' estimated utility bills.
THE RESULT is a benefit-cost ratio, which is used like a rating. The model's creators have suggested that a ratio of 1.25 to 1 or higher could justify giving a business a tax break.
A ratio of 1.25 to 1 can be interpreted to mean that for every $1 in cost to the city over a 15-year period that the model considers, the community would reap $1.25 in benefits, according to Helga Upmeier, a research associate for IPPBR.
Commissioners wrangled over establishing an exact ratio for either approving or rejecting a tax abatement request.
Commissioner John Nalbandian pointed out that the model's creators suggested the 1.25 to 1 benchmark to ensure clearing any hidden drawbacks to an abatement.
Commissioners generally agreed that there are intangible costs and benefits to every abatement request and that they should be considered on a case-by-case basis.
"I can think of reasons to reject a request with a 1.9 to 1 ratio and I can think of reasons to accept one with a 1.1," Schumm said.