State and Federal Policies- the Real Drivers of Tax Abatement Abuse

A recent New York Times article illustrates the high stakes game of chance that cash strapped, job deprived communities play when extending large tax abatements to corporations. On a company’s promise that an abatement of taxes will bring jobs and investment to their communities, city leaders often fall victim to the type of downward spiral that the article effectively details.

Gates at an idled GM plant in Lansing, courtesy LSJ

Unfortunately, these stories are hardly new. So you may wonder why these abatements are still granted. Are city councils simply uninformed about the potential negative outcomes? Are they too trusting of business executives and their promises?

Certainly there are local factors that play out in many cases, but a deeper analysis of the use and abuse of tax abatements points to a much larger problem that can’t be decided in local council chambers. State and federal policies for roads, infrastructure, and housing that push development away from cities (especially older, built-out ones) put these places in the unenviable position of being completely uncompetitive in today’s market- especially for industrial facilities. Continued disinvestment in urban infrastructure, state funding formulas, grant programs that reward unsustainable sprawl, and the lack of long term federal/state/urban partnerships all lead to an over reliance of cities on tax gimmicks to simply stay in the game. The typical older industrial community in Michigan (as represented by Ypsilanti township in the NYTimes article) has experienced deep cuts in state funding during the last decade and toils under a state mandated financial system that barely worked during Michigan’s boom years, let alone today.

By contrast greenfield communities, often backed by the state, continue to pop-up all around it offering low taxes (at least in the beginning), no inherited legacy costs and a seemingly endless supply of cheap property. The fact that this model is unsustainable to both the community that obtains the facility (lack of infrastructure, environmental challenges, low capacity for government services, etc.) and to the one who loses it (continued financial decline and blight) rarely impacts decisions.

Described by the developer as "beyond shovel ready", a proposed industrial park awaits tenants in central Ohio

If we are to save our older cities, preserve open spaces, and develop the type of  transparent tax programs that the general public continually requests of government then the tax abatement challenge and all of the policies that impact it need to be revisited.