Organization

Limits set on tax captures

Jackson-area government entities to set limits on tax captures

By Brad Flory
Jackson Citizen Patriot
May 16, 2010

The theory of growth for 20 years in Jackson County assumed everyone wins when local governments give up tax money to create jobs.

Today, the win-win theory is cracked and crumbling.

Three units of government—Jackson County, Jackson Community College and Jackson District Library—have set limits on sacrifices they will accept in the name of economic development.

Between the three, they lose about $2.2 million a year in property tax that is either captured or not collected.

‘Originally, the policy of the college was automatic approval of these things with no questions asked’, said Edward Mathein, board chairman at JCC, which enacted new policies in January. ‘We cannot afford to do that anymore.’

Ishwar Laxminarayan, director of Jackson District Library, said Michigan libraries lose more than $10 million a year in taxes captured for job-creating programs.

‘We are absolutely concerned that we will lose more and more money’, Laxminarayan said.

Several millions of dollars in local property tax are captured or never collected each year in Jackson County—but most of it is not exactly lost.

School districts, including the Intermediate School District, are reimbursed by state government for any losses.

Educators are happy to be made whole, but they suspect Lansing’s obligation to make reimbursements must affect education funding at least indirectly.

‘It takes money out of the pot, so there is less money to go around’, said William Hannon, deputy superintendent for finance and operations at Jackson Public Schools.

City, villages and townships also lose money, but typically they create tax captures for purposes they deem important.

Losses are more direct for other units of local government.

Jackson County government pegs its loss at $1.6 million a year. The District Library loss is an estimated $300,000 a year. JCC would lose slightly less than that figure.

Renaissance zones, where companies pay virtually no property tax, account for a large share of those tax losses. Properties with $120 million in taxable value are located in 11 renaissance zones, mostly of a type designed for tool and die shops, in Jackson County.

Factory properties worth another $133 million in taxable value pay half the normal tax bill because they have Industrial Facilities Tax abatements.

Many other companies pay their full property tax bill, but some or all of the money is diverted from normal government services.

Taxes are typically captured from a geographic district, a process usually overseen by downtown development authorities or local development finance authorities.

Instead of passing it on to governments that levy taxes, the authorities use captured tax money to pay for projects or improvements within the district.

Jackson County has 15 tax captures in the city and various villages and townships. Countywide taxes are captured from property with taxable value totaling $125 million.

Critics say the job-creating mission of tax captures can grow vague and open-ended over time.

‘These things go on forever’, Randy Treacher, Jackson County administrator said. ‘They are supposed to go away, but they never do. It is not that any money is misspent or misappropriated by anyone’, he said. ‘Our concern is it is not being spent for the original intent.’

The first local development finance authority formed in Jackson County was created by the village of Parma in 1988 to help bring the MACI plant to Sandstone Township.

MACI taxes were captured to pay off 15-year bonds that financed water, sewer and roads to the plant site.

Fifteen years passed, but the tax capture continues. Today, the local development finance authority exists to acquire and improve land for the Parma-Sandstone Industrial Park, and the tax capture will continue at least 11 more years.

In 2002, the LDFA took on a new debt to improve the village of Parma’s water system. It still owes $1.8 million in payments spread out to 2021.

Its most recent annual report says the Parma LDFA captured $582,855 in property taxes, almost all from MACI, in 2008. It spent $183,654 on bond payments and other expenses. The remaining $399,201 was distributed back to taxing units like county government.

Beginning about four years ago, local governments began enacting policies to automatically opt out of all new tax captures. They have no legal power to opt out of renaissance zones or tax abatements.

County government, which started the trend, has since refused to participate in one new DDA, two expanded ones and a SmartZone in Blackman Township.

Jackson District Library later followed suit by enacting a similar policy.

‘We are not going to be a part of anything that is totally unlimited and has no end date’, Laxminarayan said. ‘The more we get into these long-term situations, we lose more and more control.’

JCC board members decided in January to opt out unless two conditions are met: New jobs created must pay 150 percent of minimum wage and college taxes cannot be taken for more than 10 years.

Leaders of the college, county and library all stressed that they will still consider supporting economic-development projects on a case-by-case basis. But they will do it only under negotiated terms that include a time limit for giving up taxes.

The familiar idea that government does not lose anything when taxes are captured from new companies has become a point of debate.

‘The theory behind it is, if you don’t have that tax money now, you don’t lose it’, said Amy Torres, economic development director for the Enterprise Group in Jackson. ‘Fifty percent of something is better than 100 percent of nothing’, she said.

Treacher responded, ‘How do you know who would be here and who wouldn’t (without tax incentives)? Treacher said. How do you know every factory would still be a corn field?’

Philosophy aside, tight budgets probably force leaders at all levels of government to seek all the money they can claim.

‘There would probably be less concern if property values and revenues were not falling’, Mathein said.

Torres expressed sympathy for local governments facing tight finances, but she said the trend can only hurt efforts to attract jobs.

‘If everyone opts out, you are a little limited in what you can do to attract employers’, Torres said. ‘It comes back to the philosophical argument over whether tax incentives are good or bad. But if Jackson County or the state of Michigan stops using incentives, they will lose unless everyone else quits doing it, too’.

Details

Tax captures—Officially called tax increment financing, a portion of property tax paid in a geographic district is diverted from normal government services to finance projects in the district.

SmartZone—A specialized tax capture to attract firms in alternative energy, life sciences and advanced manufacturing. Another special-purpose tax capture used in Jackson County is Brownfield redevelopment.

Renaissance zones—Businesses that locate in distressed Renaissance Zones pay virtually no property tax for 12 years. Zones specific to tool-and-die businesses are used in Jackson and six surrounding townships.

Industrial Facility Tax—A discount, typically 50 percent, on property tax factories pay for new construction or equipment. Tax breaks in Jackson also go to non-industrial properties through programs to rehabilitate obsolete buildings and create neighborhood enterprise zones.