Are Local Property Tax Breaks for Businesses and Nonprofits Broken?

By Mattoon, Richard H. | Chicago Fed Letter, March 2013 | Go to article overview

Are Local Property Tax Breaks for Businesses and Nonprofits Broken?


Mattoon, Richard H., Chicago Fed Letter


On November 30, 2012, the Federal Reserve Bank of Chicago, Metropolis Strategies, and the Civic Federation held a workshop to explore the role of property tax incentives in supporting business growth, as well as the tax treatment of properties owned by nonprofits.

Local governments increasingly find themselves caught in a vise. On the one hand, they want to stimulate economic development by attracting (and retaining) businesses, often through die use of property tax incentives. On the other hand, they grow concerned about the erosion of their tax base as the number of property tax incentives for businesses - as well as the amount of properties owned by tax-exempt nonprofits - increases. Government officials, business owners, nonprofit leaders, and researchers gathered at the workshop to discuss these and related issues affecting local economic growth and tax revenues.

Role of business property tax incentives

Daphne Kenyon, Lincoln Institute of Land Policy, presented her recent report on property tax incentives offered by state and local governments to entice businesses to move to (or stay in) their jurisdictions.1 Kenyon noted the continued growth in the use of three major types of incentives: 1) tax abatements, which offer a full or partial reduction in property tax liability for industrial and commercial real estate over a temporary period (most commonly, a decade); 2) tax increment financing, or TIF, which involves earmarking future property tax revenue gains to subsidize current improvements (often in designated blighted geographic areas); and 3) enterprise zones, which are designated economically depressed areas in which tax and regulatory relief is offered to entrepreneurs and investors to encourage business development. In 2010, 37 states allowed tax abatements, 49 permitted TIF programs, and 42 authorized enterprise zones.2 Kenyon questioned the effectiveness of these incentives in developing business activity, noting that property taxes tend to account for a very small share of the total costs for most businesses. On average, property taxes equal 0.3% of total costs (for a manufacturer), whereas labor costs equal 21. 8%.3 That said, property tax incentives can be an effective means to draw businesses into specific parts of a metropolitan area. By altering the relative costs of running a business within a metro region, these incentives can influence business location. Kenyon explained, however, that copycat behavior by neighboring states and jurisdictions often reduces the effectiveness of offering incentives to induce business investment.

According to Kenyon, the use of these incentives lacks transparency and independent evaluation. While 44 states produce tax expenditure reports, only 18 include property taxes - with merely eight estimating forgone local property tax revenues due to incentives.4 To highlight the importance of independent evaluation, Kenyon cited two reviews of Minnesota's Job Opportunity Building Zone (JOBZ) program. The state agency's report stated that about 5,500 jobs had been created by die JOBZ initiative; in contrast, an independent evaluation later found that the number was closer to 1,000, at a cost that was about five times greater than the agency's estimate.

Given such concerns, Kenyon recommended alternative strategies, local policy reforms, and state policy reforms. Her favored alternatives involved several nontax policies, such as job training customized to individual firms' specifications, labor market intermediaries (programs that help workers match with firms) , and regulatory assistance (to help resolve problems with state or federal agencies). Kenyon's other nontax policies included business incubators for start-ups and business improvement districts, where property owners agree to pay for expanded public services, such as more police patrols and street cleaning, which may raise property values.

For local governments, Kenyon suggested five policy reforms. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Are Local Property Tax Breaks for Businesses and Nonprofits Broken?
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.