Abatements useful tool for communities
ALPENA – Tax abatements are a useful incentive to offer potential developers, or existing businesses wanting to expand. By easing the tax burden of businesses owners, it often allows them to invest more into their stores, shops and factories. Incentives often are approved in hopes jobs will be created and the tax roll will be increased once the abatement expires.
Currently in Alpena there are six business-related abatements on the books. All are set to expire by 2021. Lafarge has both a personal property tax break and a real property exemption that was for 11 years. They are scheduled to expire in 2018. The others are Magnaloy Coupling Company, Dean Arbour Ford, David Kneeshaw for the renovations made to the building that houses the Mexican restaurant on State Avenue and Alro Steel.
Alpena Planning and Economic Development Director Adam Poll said the current abatements were in place when he accepted his job in Alpena. He said knowing Alpena Municipal Council is open to the idea of granting abatements could make it easier to attract new development into the city.
“It is a great tool,” Poll said. “It can be very beneficial for a large business who wants to open, or one who wants to expand. It makes Alpena that much more appealing because it is less of a tax burden on the business and in some cases allows them to make the project better or create more jobs.”
Approving an abatement comes with risks, however. There is always a chance the business doesn’t meet its promised criteria in terms of investment and job creation and in some cases be forced to close its doors. In these cases the city loses out on all of the tax money for the duration of the deal, and workers lose their jobs.
Clerk/Treasurer Karen Hebert said an abatement was issued to ATI Casting Services LLC in 2007 and none of the job numbers were met. To make matters worse, the company was forced to close its door after the market collapsed and demand for its products dropped drastically. Hebert said ATI’s abatement expires in 2016, but overall the city missed out on tax revenue and the job creation it was promised.
The city keeps constant watch on abatement recipients to make sure they are living up to the guarantees they made. Each year Hebert presents an update to council informing it which are compliant and which are not. She said only ATI has failed to meet all of the terms and most others are near or above the agreed upon goals.
“The majority of them have met or exceeded the capital investment investment they promised, so that is a plus,” Hebert said. “Most of them have also, even through the down times, been able to keep their employment numbers at a level they said they would. Some may have dipped below, but they are slowly coming back up.”
After the ATI failure, some on council have wondered if granting abatements of shorter length may be a wiser approach. Hebert said now that the state has done away with personal property tax, many companies will not need lengthy deals.
“The law changes are going to benefit businesses, so I don’t think it will be as critical for them to get the abatements for the length of time they have in the past,” Hebert said. “It will be more beneficial for the city if they get them for shorter durations and we can begin collecting the tax revenue sooner rather than later.”
As the business climate in Alpena picks, having local government that is supportive of abatements often gives certain communities a leg up on others. Businesses often shop for the best deal and choose where the better abatement deal is before deciding where to build. Poll said his former employee – City of Waterloo, Iowa – used a different method to attract potential developers. He said while Alpena offers tax break incentives, Waterloo offered more tangible things, such as property.
“We had a brownfield TIF like anyone else, but we were able to do a bit more in the area of buying and selling property,” Poll said. “We banked property and then basically gave it to them in exchange for a development agreement. We got into tax credits when we had to, but for the most part we were able to do a lot without them by just providing land.”
In order to be considered as a place to have development take place, communities are forced to complete against one another. Many times for larger projects, states step up to offer incentives. Alpena Area Chamber of Commerce Economic Development Director Jim Klarich said cities like Alpena need to be able to provide tax relief or other incentives because they often are competing with other locations, even some overseas.
“Whether the incentive is good or bad isn’t the point. The point is it’s reality that so many communities are giving them, whether it is in the state, other places in the country or internationally,” Klarich said. “It is part of the world we live in and something we have to deal with if we want to continue to grow. Right now everything is globally competitive right now and businesses are looking at what is the most profitable solution for them. Incentives offers them some of that.”