Earlier, I argued against giving targeted tax breaks to developers. Reader Steve Benson raised two counter-arguments.
First, development can sometimes result in added tax revenues greater than the cost of the city services consumed by that development, thus reducing the real tax burden on other taxpayers.
Second, if cities are prohibited from offering targeted tax breaks, some development projects in the category above won't proceed.
Is Steve correct? And if so, should I change my mind about the Palisades development in particular, and targeted tax breaks in general?
Steve's first counter-argument can be true in some cases. Development can sometimes result in added tax revenues greater than the cost of the city services consumed by that development, thus reducing the real tax burden on other taxpayers. Does the math still hold after development incentives are granted? For example, does the math still hold after you factor in Palisades' $47 million in tax rebates? Or was that figure, $47 million, at least partially determined by the maximum the city could afford to grant in tax rebates without needing to raise the tax rate on everyone else? I dunno. But before I can accept Steve's counter-argument, I'll need data. The City of Richardson has not forecast reduced tax rates now that Palisades has been approved. I consider that telling.
Steve's second counter-argument can also be true in some cases. If cities are prohibited from offering targeted tax breaks, some good development projects won't proceed. Again, how many such deals exist, versus deals that go ahead anyway, at least in some form? Does the tax revenue lost from missed opportunity exceed the tax revenue lost from unnecessary targeted tax breaks? I dunno. But before I can accept Steve's counter-argument, I'll need data. No one has claimed that the Palisades land is undevelopable without a tax break. I consider that telling. Some lesser development would have been likely to happen even in that case. And could that lesser development, without the $47 million tax break, end up paying the city even more tax revenues than the current plan with the $47 million tax break? That's more probable than that the land would sit idle for another twenty five years.
In the case of targeted deals to lure, say, Toyota or State Farm, it's even more probable that the tax break does not have a positive return, given that big companies leave empty buildings when they pick up and move. In those cases, it becomes a game of musical chairs, with the big companies paid to play. Steve says that he'd like for "local governments to maximize the revenue gained from development projects." Given the sibling rivalries between cities to poach big employers from each other by offering targeted tax breaks, it's reasonable to suspect that local governments, in sum, are today not maximizing the revenue to be gained from relocation projects. State regulation could change that, at the expense of local control. A side benefit of state regulation would be fairness, with all businesses paying the same tax rate.
So, is Steve correct? Yes, in some cases. But do those cases outweigh the many cases where targeted tax breaks don't maximize revenue? Overall, it's at best an unproven claim. I still believe that, on the whole, targeted tax breaks cost more than they return in benefits. And I suspect that's the case with Palisades, too. The burden of proof ought to lie with the side wanting to give away taxpayer money. The City of Richardson failed to do that, failed to even try actually, in the case of the $47 million tax break given for the development of Palisades.
In a case like this, there's plenty of room for alternative views. Like I said before, my head hurts thinking about all the angles to this deal. As always, I appreciate when readers advance the conversation in a courteous manner and are willing to give their names. With that, I think I'm out.