I feel like Rip Van Winkle waking up from his nap...it's been forever since I posted on this blog.
Well, I have a ton of things to post, so let's get started…I have a long post today with several more coming in the next couple of weeks.
I was in a meeting a couple of weeks ago and we were discussing the fact that the Unified Government is in a tough economic position with expenses threatening to easily overwhelm revenue. As I was explaining how challenging it was to create the 2013 budget, one of the women at the meeting said, "Well, we wouldn't be in such bad shape if we stopped giving tax breaks to businesses out west just so that we can say we are number one in new developments!!"
As she shared her opinion, the words "tax breaks" sounded as if they were bitter tasting and hurt her mouth to say. Her statement disappointed me, because she doesn't seem to understand the fact that when we (the UG) give "tax breaks" to encourage business development, we actually get MORE tax money…not less... and we get some of it right away from those new developments. We may not get "everything" right away, but we DON'T lose money.
Here's my perspective on the tax break process. It may be a little simplistic, but I'm confident that it's conceptually correct.
Just like home buyers look for the best mortgage deal with the lowest interest rate and the best monthly payments when they want to buy a house, businesses also look for the best possible economic deal when they that want to build or expand a commercial property.
Now, of course it would be great if companies would just build new stuff in our city because we're swell people who would really appreciate their projects and love them to pieces for improving our community. However, the cold, hard reality of the world today is that communities who offer good economic deals are more likely to get businesses to build or expand than communities who don't offer good economic deals.
Here's an example of one type of incentive that the UG offers to encourage economic development. This example involves our very own General Motors Fairfax Assembly plant
A few weeks ago, when General Motors announced that it plans to expand the Fairfax plant, the headlines all said, "GM gets tax breaks!"
Yes they did get a tax break, but that's a good thing, not a bad thing for citizens of Kansas City, Kansas.
Building an additional structure at the Fairfax plant will increase the overall value of that property. An increase in the overall value of the property means that GM should pay more property taxes to the UG. However, to encourage GM to make a huge financial investment in our community, the UG agreed to postpone getting the full amount of "new" property taxes from GM.
Here's the Cliff Notes version…
* GM will CONTINUE to pay as much property tax as it always has paid on the existing plant. The UG will NOT lose any tax money that it is currently collecting from GM.
* GM will begin paying MORE property tax than it currently pays as soon as the plant expansion is completed.
* However, GM will not pay the FULL amount of increased property tax on the plant expansion for a period of several years. This is the financial incentive that the UG used to encourage GM to go ahead with the plant expansion.
The specifics of incentive packages are different for different economic development projects, but the bottom line is that we (the UG) NEVER enter into an economic development agreement with the intent of REDUCING the amount of property tax, sales tax, etc. that we are already collecting.
However, it is occasionally necessary to postpone receiving the full value of increased taxes for a period of time to encourage a developer to pick our city over others and go forward with a given project. In all of these cases where we postpone receiving the full value of increased taxes, we are still receiving some amount of increase right off the bat.
And it's not just businesses who can benefit from tax breaks. Homeowners in some parts of our city can get a very similar deal through our NRA program. They get a grace period where they don't have to pay the full increase in property tax if they raise the value of their property by remodeling or adding on. The UG is willing to postpone getting ALL of the property tax dollars because the improvements to the property will have other positive benefits to the neighborhood and community.
Let's get back to GM for a moment before I wrap up this post...
Did you know that GM is the largest tax payer in Kansas City, Kansas and that the Fairfax plant (which was built in 1987) employs more Wyandotte County residents than every KCK employer except the UG and BPU?
Cool, huh?
So, how did the city of Kansas City, Kansas encourage GM to build the Fairfax plant in 1987?
You guessed it...tax breaks. :-)
Up next...my thoughts on the Unified Government's 2013 budget.
~ Brian
bmckiernan@wycokck.org
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