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Tax abatement debate lives on at City Hall

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There are changes coming on the Lawrence economic development scene when it comes to tax abatements.

But no, the change is not that we all soon will agree on how to use the controversial economic development incentive.

City commissioners at their meeting on Tuesday approved a new “overarching policy” on how to use tax abatements and other incentives.

Among the changes in the policy:

• Companies must now meet some minimum thresholds in terms of job creation and project size before they can be considered for a tax abatement. A company moving to the city must provide at least 30 new jobs (which would pay a living wage) and have a project that has a value of at least $7 million. Existing Lawrence companies that want to expand must invest at least $5 million and create 20 new employees (also paid a living wage) before they could be considered for a tax abatement.

• The new policy puts more specifics on when the size of an abatement can be increased. The policy says the “baseline” abatement would be 50 percent for 10 years. Companies can start adding on to that baseline if they meet several criteria. Those include: an additional 10 percent for being a local company; 5 percent for a project greater than $10 million; 5 percent to 10 percent if the project meets certain environmental design standards; 5 percent if the project is having to deal with unique site constraints, such as steep slopes; 5 percent if the project is designed to be a “catalyst for the community;” and 5 percent for locating in an existing business park or targeted area.

• A new cost-benefit model will be used to measure the desirability of offering a tax abatement to a company. The new model will be run by city staff. The old model was run by researchers at Kansas University. Interestingly, city commissioners approved the new model without reviewing any sample scenarios of how it would measure several different types of projects. Roger Zalneraitis, the city’s economic development coordinator/planner, said he’s working to develop such scenarios. Zalneraitis said his preliminary analysis of the new model is that it is slightly more restrictive, meaning it produces lower scores for companies seeking to win a tax abatement. But Zalneraitis said he thought the new model was still in the “same ballpark” as the previous model.

Many of the questions at Tuesday’s meeting, however, weren’t about the technical details of the new policy. Instead, they were more philosophical in nature.

Longtime tax abatement opponent Kirk McClure, a professor of urban planning at KU, told commissioners that the policy showed how the city was behind the times in economic development.

He said smart communities are recognizing that companies really don’t need tax abatements to be lured to a community. He said other factors in the business process play a much larger role in where a company locates.

“The assertion that they need the tax abatement to go forward is fabricated,” McClure said.

Two candidates for the City Commission — Dennis Constance and Gwen Klingenberg — made a point to stand up at the meeting and say they essentially agree with McClure on the issue of tax abatements.

Economic development leaders, though, do not. Beth Johnson, vice president of economic development for the chamber, said she wishes communities didn’t use tax abatements. She also said factors other than tax abatements play major roles in where a business will locate. But she said Lawrence often is competing against other area communities with similar attributes. If a neighboring community offers a tax abatement and Lawrence does not, it will give the other community a clear competitive advantage.

“To say we’re not going to offer tax abatements would put us at a great disadvantage,” Johnson said.

City commissioners ultimately approved the new policy, but it was clear disagreement still remains on the commission.

“I’m worn out by all this talk of not being judicious in the use of tax abatements,” said City Commissioner Sue Hack. “We haven’t had a tax abatement in two years. It is not like we’re handing them out at Ninth and Massachusetts Street.”

That comment drew a response from Commissioner Boog Highberger.

“I’m not sure the fact nobody has asked for a tax abatement in the last two years is evidence that we’ve been judicious,” Highberger said. “We just haven’t had the opportunity to be judicious or injudicious.”

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