Small cities weigh tax incentives

A new plan aims to lure businesses with tax-exempt bonds.
Wednesday, February 9, 2005 | 12:00 a.m. CST; updated 7:29 p.m. CDT, Friday, July 18, 2008

The largest private employer in Ashland is Moser’s grocery store, which employs 30 people. The big boss in Hallsville is Mid-State Petroleum, with 10 employees, while in Centralia it’s A.B. Chance Co. For the past 100 years, one out of four people in town worked for the company.

Now, smaller cities in Boone County are taking cautious steps to lure more capital. Chapter 100 bonds, the first tax-incentive plan to gain steam in Boone County, are changing the way of doing business in mid-Missouri.

In December 2003, Regional Economic Development Inc. decided to promote the plan in Boone County and gave presentations to the city councils of Columbia, Hallsville, Centralia and Ashland and to school boards. REDI leaders plan to pitch the plan to the Boone County Commission this spring.

Ashland City Administrator Ken Eftink said the Board of Alderman would consult attorneys about the incentive plan this month, but most board members were optimistic.

Eftink added that board members John Johnson and Linda Miller hope to adopt the policy before they retire in April.

If the proposal becomes law in Ashland, companies in town would save 50 percent

on property tax on new investments for 10 years. The Centralia council said yes to the policy in January, and Hallsville plans to vote on it Monday.

Biff Barner, president of the Southern Boone County School Board, said that “to be competitive in attracting high-quality jobs, a city has to have the ability to offer incentives. We don’t need to offer that in every case but should have it there as a tool.”

Unlike smaller towns, Columbia remains cool to the idea. The City Council has yet to officially consider it, and the only public decision came from the Columbia School Board. In June, the board voted 6-1 to add a member to a committee that will review incentive packages proposed by REDI.

School board president Chuck Headley said sending a member to the review group doesn’t mean the board supports the plan. Because “things are going to happen whether the schools say yes or no, we have to be on the table when we talk about something that might affect schools,” Headley said.

Headley added that Columbia doesn’t need incentives.

“Smaller towns want to grow and have more employment,” he said. “But Columbia is the most attractive community in Missouri, or even in the States.”

Schools worry about tax losses

Approved in 1961, Chapter 100 of the Missouri statutes empowers counties and cities to issue revenue bonds to finance the projects of companies that intend to build or expand facilities. The targeted companies buy the bonds, which are repaid by the city or county, thus making the projects public and exempt from property tax.

REDI officials have suggested that companies benefiting from the bonds offer a payment in lieu of tax, of no less than 50 percent of the property tax they would normally pay. To be eligible, a new company would need a $15 million investment and an existing company a $7.5 million investment.

While the arrangement boosts the companies and the communities trying to lure business, someone foots the bill.

“The biggest hitter is local school systems,” said Dave Griggs, past chairman of REDI.

About 75 percent of property tax proceeds in the area flow to schools, and the rest goes to other taxing entities, including fire and library districts. Any significant reduction in property tax, then, means less money for schools.

“The highest value we hold is to support our schools,” said Bill Powell, a member of the Southern Boone County School Board. “But if less development occurs without tax abatement, schools will have less property tax.”

It’s a vexing question for schools. Without new development, they get no new money. By offering Chapter 100 incentives, they agree to give up half the potential new revenue. What’s more, they have little say. City councils make decisions about whether to offer incentives.

Powell said a fundamental problem with incentives is that they allow one taxing entity to reduce the tax proceeds of another. That’s compounded by the fact that cities run primarily on sales taxes, while school districts rely on property taxes.

“The issue is if the city government wants development, fine, but please limit abatement of tax other than the city’s own taxes, such as sales tax,” Powell said.

Greg Steinhoff, newly appointed director of the Missouri Department of Economic Development, said both Columbia and the state need to be more aggressive and competitive in drawing new business and to be more careful as well.

“The danger of going out and recruiting business is, some are given quite a bit to come here, and they expect more,” Steinhoff said. “If other states offer them more money, they will leave. We need to get people really engaged in the community, either starting business or expanding.”

The incentive behind incentives

REDI officials weren’t enthusiastic about incentives, either, until recent years.

Assistant City Manager Bill Watkins was executive director of REDI from 1988 to 1996.

“We had the general belief that incentives are unfair for existing business,” he said.

But over the past several years, and especially under the direction of Vicky Pratt, REDI leaders began changing their minds. REDI’s 2004 annual report, in fact, recommends the use of Chapter 100 bonds.

“Chapter 100 bonds are the least unfair tax incentive to existing business,” said Watkins. “If they want to expand or acquire more equipment, they are eligible for application, too.”

It takes more than leadership to change minds, however. Griggs said one trigger was Canadian-based Progressive Molded, a car-parts manufacturer that considered coming to Columbia in 2002.

One of the last questions from company leaders, Griggs recalled was: “What can Columbia do for me?”

Columbia could do nothing because it had no incentive policy, Griggs told Ashland School Board members last week.

The company took its 200 jobs to St. Joseph, where it got $400,000 in forgivable loans and tax abatements on both real estate and property taxes.

Columbia in the same year lost a major pharmaceutical manufacturer. Two lessons in a single year prompted REDI to form a subcommittee to study incentives in Columbia and Boone County.

REDI Director Bernie Andrews said the use of Chapter 100 bonds, which the group endorsed in 2003, would probably be limited to one or two projects per year. Desirable companies, he said, would include “light manufacturing, office, research and development type, environmental friendly and offering high-quality jobs and significant new investment.”

“We need high-quality jobs to retain more college graduates,” he said.

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