Cities provide billions of dollars in tax incentives each year to lure businesses, a practice that continues to increase despite criticism that it often erodes the tax base and fails to deliver public benefits. Now, officials and experts are taking a closer look at these incentives and identifying strategies to prevent waste, ensure accountability and transparency, and produce the maximum benefit for each public dollar invested.
“There are times when the use of incentives is appropriate but it’s with caveats,” Ron Rakow, commissioner of assessing for the city of Boston, said at a panel convened by the Lincoln Institute at the American Planning Association’s 2017 National Planning Conference in New York.
At the session, and in a piece recently published in the institute’s quarterly magazine, Land Lines, Rakow discussed Boston’s efforts to apply new rigor to its tax incentive practices. The city only issues incentives to attract a key company or stimulate development in places where it fails to happen organically, or where developers face unique economic or construction challenges, he said. Boston also requires thorough financial disclosures, and makes tax breaks contingent upon creation of jobs or delivery of other promised benefits.
Rakow cited Boston’s Fan Pier, a long underutilized waterfront area south of downtown where the city offered $12 million in property tax breaks and provided $38 million in infrastructure through a partnership with the state of Massachusetts to attract Vertex Pharmaceuticals (the state also provided $10 million in tax credits). The surrounding Seaport district has seen an explosion of new investment and jobs.
Greg LeRoy, president of the nonprofit organization Good Jobs First and a critic of tax incentives, said Boston is the exception, and that many communities continue to provide incentives haphazardly, to the detriment of taxpayers. Good Jobs First tracks the use of tax incentives across the United States, and will soon dig into disclosure data required by a new government accounting rule.
Daphne Kenyon, an economist and Lincoln Institute fellow, shared results of a recent study of Franklin County, Ohio, which includes Columbus. The study showed that property tax breaks did not increase the tax burden on other property owners, an oft-cited side effect of eroding the tax base. Among other practices, Ohio uses tax incentive review councils to monitor the performance of incentives.
The panel was part of a series of sessions at the conference that seek to promote the integration of economic development, land-use planning and public finance, and promote municipal fiscal health. Lincoln Institute president George “Mac” McCarthy provided an overview of the pillars of fiscal health, calling for a holistic approach to evaluating land use decisions that takes into account the long term economic, social, and environmental impacts. Lourdes Germán, director of international and institute-wide initiatives, led a session on infrastructure finance, from municipal bonds to public-private partnerships, as well as a deep dive into the financing of the Hudson Yards development project in New York City.