The price of success

May 9th, 2017

By Linda Lipp | Greater Fort Wayne Business Weekly

By most measures, northeast Indiana is a great place to do business. The economy is booming, unemployment is low and wages have finally begun to grow.

So why then do cities and counties still feel the need to offer tax abatements and other incentives to get companies to move here or expand what they already have in the area?

“As a believer in all things market, even tax incentives markets exist. As such, to obtain new businesses and new jobs, we still have to play in the tax abatement market. All 92 counties in Indiana offer tax abatements. It’s just the reality if you want to keep the economy moving and keep attracting new businesses,” said Fort Wayne City Councilman Russ Jehl.

“We could chose not to do it, but there is market competition for them in a community sense. They can go to other communities and get those abatements elsewhere,” agreed John Sampson, CEO of the Northeast Indiana Partnership. “I guess, philosophically, we could say, ‘gee whiz we’re just a great community and they can expand and we don’t need to offer abatements,’ and that may be the case, but the facts are they can go elsewhere and get those abatements.”

Sampson doesn’t even like the word, “incentive;” he prefers “investment.”

“It’s us being responsive to the needs of the business. It’s enlightened self interest. Those companies have the opportunity to expand anywhere, and the question is whether they will do it here or someplace else,” Sampson continued. “It’s harder to move, because there is an emotional attachment, but if they run the numbers and find they can do better elsewhere, then that’s our loss. It’s not about being charitable or benevolent. It’s about the community investing in their future, and we do that by helping expand their capital base or employment base.”

From trouble to triumph

In 2011, as Indiana struggled to recover from the Great Recession, the Legislature gave cities and counties the authority to offer “super” abatements that allowed companies to save more money longer. Many counties adopted the new rules.

“I think it’s great we have the tools to be able to adjust to that up and down… The legislature gave us the ability to negotiate,” said Scott Naltner, director of business development at Greater Fort Wayne Inc.

Just because the option was available didn’t mean it had to be used, however. It was always up to the city or county council.

As economic conditions improved, some communities reworked and tightened up their approach to tax abatements. Prior to 2014, about 90 percent of companies in Fort Wayne and Allen County that requested abatements received them for the maximum of 10 years “just for showing up,” Jehl said.

Now, only about half get the full 10 years, based on a formula that stresses the creation of high paying jobs by companies who could choose to go elsewhere to do what they do. That also tends to leave out service providers who likely pay lower wages and are here because that’s where their services - dentistry, for example - are needed, Jehl said.

Companies that score lower on the scale may get three- or five-year abatements. And the time when companies won points in favor of an abatement request just for job retention - “for not firing anybody” - also are gone, Jehl said.

“The bottom line is Fort Wayne and Allen County are attracting the jobs we want, so the policy is working,” he said. “We’re still attractive but no longer generous. We’re seeing that more revenue is being produced on behalf of the public to spend on public safety and infrastructure and parks as a result of the abatements.”

Pay for play

Kendallville has always considered tax abatements on a case by case basis, particularly when it comes to the length of the abatement, said Mayor SuzAnne Handshoe. “Some are more generous than others.”

The city also considers whether the request is part of a corporate choice about where to expand an operation. “A lot of times they play one location off another,” Handshoe said. “Sometimes we may not like what we have to do with a tax abatement but we want to do everything in our power to keep business and industry here and keep people working.”

The city is giving more consideration to the wages a company pays - for new jobs or retained ones - than it used to when the economy was weaker. And it does offer abatements for service and other nonmanufacturing businesses, especially when the business is home grown and/or located downtown. Investing in a 100-year-old building improves its assessed value and incentivises growth, Handshoe said.

Measured response

Whitley County also has been evaluating projects on a more extensive cost-benefit basis since Jon Myers joined the economic development corporation there two years ago.

“We look at what abatements cost the community in revenue vs what’s coming in,” Myers said. Although the county had done that before, Myers said his approach was influenced by the work he did for the Indiana Economic Development Corp. under former Gov. Mitch Daniels.

“Having worked for Mitch, we never gave anything away for free. This has to make sense for the state, for the county to generate more income from the project than what they give up in terms of incentives,” Myers said.

The type of jobs an employer expects to offer and the size of the wages a company is willing to pay will give it a higher score when its abatement request is evaluated, Myers said.

The LaGrange County EDC uses some of the same metrics that other counties use to evaluate a potential abatement’s cost vs. its potential benefit. But even before that, it asks the “but for” question, said Ryne Krock, the organization’s CEO.

“Would this project happen but for this incentive?” he said.

If there are questions about the real need for an abatement, “we go to the table and have that conversation up front. We say ‘here’s the benefits of doing business here, regardless of any incentives the county or the town could put on the table.’”

Alternate offers

“I’ve avoided abatements in as many cases as possible, and I think we’ve done a very good job in doing that. If there are other ways we can assist, that are non-financial, then we try to do that,” Krock said. “Things are really good right now and that ‘but for’ question is probably as hard as its ever been.”

In a couple of situations in Columbia City, where a business expected to invest in equipment without creating many, if any jobs, it just didn’t make sense to do an abatement because of the amount of paperwork and time involved. Instead, Myers suggested the business ask for training dollars.

“That’s a big thing for us. The economy is booming, there’s low unemployment. If we’re going to put money in a project, we believe it’s better go put it into the employees so they can get trained up, make a little extra per hour, and if the economy does turn down and the companies leave or close, then we still have a workforce that has skills in machining or industrial maintenance or something like that,” Myers said.

Training grants also show the region is willing to do what it takes to provide a skilled workforce.

“If we’re not responsive to workforce needs, they clearly will go elsewhere,” Sampson said.

Fort Wayne and Allen County are in the process of drafting some more nips and tucks to their abatement policies, Jehl noted. Those will codify that most service providers are no longer eligible for abatements. Reflecting the low supply of empty buildings, the revisions also will reduce the vacant building abatement, which actually takes money away from taxing bodies. And the median wage used on the city/county score card will be raised to reflect increased wages.

The proposals are currently circulating among city and county council members and administrators, Jehl said.