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Archive for Monday, August 26, 2013

Editorial: Policy flexibility

The desire to provide tax incentives for smaller businesses may suggest the need for some revisions in the city’s abatement policy.

August 26, 2013

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Providing a property tax abatement for a homegrown Lawrence business probably is a good deal for the community, but the abatement raises some questions about the city’s abatement policy that officials may need to consider.

Sunlite, a company that manufactures an innovative type of LED lighting, has asked the city for a 50 percent, 10-year tax abatement on a building it plans to move into off Wakarusa Drive, just north of Bob Billings Parkway. Over the next 10 years, Sunlite officials say they plan to invest $2.3 million and add 40 jobs at their new location, which previously was occupied by Midwest Graphics.

Supporting this kind of existing local business should be a priority for the city, but the Sunlite request doesn’t really fit the city’s current economic development policies. To receive a tax abatement, the city’s current policy says a company must invest at least $5 million; Sunlight plans to invest about half that amount. The policy also requires companies to produce a cost-benefit to the community of at least $1.25 for every $1 the city abates in property taxes. Mostly because it is repurposing an existing building that’s already on the city property tax rolls, Sunlite’s plans project a cost-benefit of $1.15 for every $1 of city investment.

Recognizing that filling an empty commercial building and creating 40 additional $40,000 jobs both are positive steps for the community, the city’s Public Incentives Review Committee is recommending that the Lawrence City Commission, which will consider the issue at its Tuesday meeting, approve an abatement for Sunlite. That seems like the right step, but it sets a broader precedent that commissioners may want to consider.

Perhaps the current standard of a $5 million investment is too high, but how low will the city go? If a $1 million investment qualifies a company to seek a tax abatement, the city can expect to receive far more requests than it does now. How important is the cost-benefit analysis? Should the city consider different standards for companies that plan to use an existing building rather than build a new facility?

The other question that arises with almost any tax abatement request is: What will the city do if a company doesn’t meet the capital investment and job creation projections it included in its abatement request? Companies now have to sign a performance agreement that allows the city to pull back tax abatements if the company underperforms, but the city has to have the political will to do that, which isn’t easy if a company can claim special circumstances or hardships.

Helping small companies grow is a valid use of tax abatements and involves less public risk than supporting a larger enterprise. However, simply continuing to ignore their incentives policy on a case-by-case basis isn’t a good strategy. City officials need to take a closer look at how incentives should work for smaller companies and consider revising their policies accordingly.

Comments

Paul R Getto 1 year ago

Let them have the incentives. Make them sign a contract to repay the taxpayers if their predictions do not pan out over the years.

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jafs 1 year ago

Why not do it the other way, and provide incentives if/when companies actually deliver what they promise to deliver?

Seems quite a bit less risky that way to me.

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