Thoughts on Tax Incentives

Tax abatements are the topic of conversations all over town lately, following a close vote for what most people feel is a bad decision — to grant a million-dollar tax abatement to a health club that is already constructed, open, and operating. While a welcome addition to Oak Ridge, that particular business does not contribute much in the way of sales taxes (dues being non-taxable), does not meet an unfilled need, and the jobs created are not in the salary class that particularly merits the incentive.

AnotherThing2 wrote last night about County displeasure surrounding Oak Ridge abatements, particularly a different situation where the City agreed to an in-lieu-of-tax arrangement for a new restaurant on the river. In this case, the developer will pay the full amount of the property taxes, but that sum will be dedicated to waterfront improvements — which benefit him, through creating more traffic to the waterfront, but also benefits rowing activities, which brings a substantial sum in the way of sales tax revenues from visitors who travel to attend these events. It seems likely to spur additional growth in that area, generating new property and sales tax receipts as well.

This arrangement does not upset me, since there’s a clear path to reinvesting in an activity that will increase tax revenues in the long run — not just for Oak Ridge, but also for Anderson County. Especially since the County superseded the sales tax rate last May, it seems that Anderson County would be interested in anything that bolsters sales tax collections, whether in Oak Ridge, Clinton, or anywhere else within the County borders.

Regarding the health club abatement, I can certainly appreciate the concern and resentment. It takes money from the County coffers, just like it does from Oak Ridge, and doesn’t appear to bring anything that wouldn’t have otherwise occurred without the incentive. At the same time, it is possible to structure an incentive policy which works to attract businesses that would benefit both the City and the County — our needs are not mutually exclusive!

It seems that there might be something to be gained from the IDB members speaking with County Commission — or a subset thereof — and discussing the philosophy and interpretation of tax abatements, criteria, and goals.

The only responsible way to deal in tax incentives is to identify very clear goals: bringing businesses that would meet a defined need, whether jobs in a specified field or minimum salary level, retail that meets a demand otherwise filled by shoppers leaving the county, or one that serves to trigger additional development or revenue. In all cases, the IDB should document the expected return on investment.

Providing information on the County’s ROI (separate from the City’s) to County Commission would not entail much (if any) additional effort, but might very well generate a heightened spirit of cooperation between the two. Going through the exercise would also give the IDB an extra “gut check” as to whether a particular abatement was indeed a good investment.

If the deal is not good for the County, it’s probably not good for the City. The “we should be as generous as possible” line quoted from one IDB member was ludicrous; the IDB is not Santa Claus, but is supposed to be more like a savvy stockbroker — one who handles the public’s money with a clear goal of responsible investment and return.

2 Responses to “Thoughts on Tax Incentives”

  1. on 28 Sep 2006 at 9:18 am Anotherthing2

    Very good ideas. I don’t have a problem with the waterfront development or using any tax dollars there although the health club thing I thought was handled rather poorly and didn’t meet any sensible criteria.

    As for meeting with county commission what you defined is probably a good idea but the last time this same issue flaired up, I remember the meeting as more of a dog and pony show and a feel good meeting for all involved.

  2. on 20 Nov 2006 at 7:32 am Citizen Netmom » Of interest: the IDB

    […] Of interest: the IDB Following the blowup when the Oak Ridge Industrial Development Board decided (and then un-decided) to grant a million-dollar tax abatement to a local health club after it was already constructed and open, someone must have realized that it would be a good idea for the IDB to have a website and make a few things public. […]

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