Grand Forks Stupidity To Subsidize Development Around the Alerus Center

Imagine a town that has only 100 privately owned homes. Suppose that every privately owned home cost $100,000 to build. The market is in sync and the market resale value of these homes is also $100,000. Now suppose that the folks in the local government decide that they want to build up the tax base so they announce that from now on if a person builds a new home they’ll give them a tax subsidy with a present value of $10,000.
What effect does that subsidy have on the market value of all of those homes? I expect that it’s obvious to our readers but if you’re a member of the Grand Forks City Council Finance Committee or a reporter for the Grand Forks Herald I’ll have to tell you. The market price of each and every one of those houses will drop to $90,000.
Given that would it make sense to enact such a subsidy plan in order to boost property tax revenue? Of course not. The property tax base on the existing homes would fall from $10 million to $9 million. The new home would only add $90,000 to the property tax base so the new property tax base would be $9,090,000. The city would lose over 9% of their property tax base. If a person would have built new without the tax subsidy the city would also have lost the $10,000 subsidy as well.
So the existing property owners lose $10,000 of value that they have in their homes. Owners of property that isn’t affected by the tax break will see their share of the town’s expenses go up. Renters will pay more in rent to cover the higher property taxes the owners of their buildings have to pay. Everyone’s better off except maybe the people who were going to build new and get the tax subsidy anyway.
This is such basic economics it’s incredible that anyone could be stupid enough to propose such a tax break to increase the property tax base. But stupid is what the Grand Forks City Council is all about. The City Council Finance Committee sounds like they are going to show just how dumb they can be.

Grand Forks city leaders want to make greater use of property tax exemptions to boost the local economy, but the traditional goal of job creation may see less emphasis.
That’s the conclusion coming out of the City Council’s Finance Committee Tuesday.
One of the main reasons for this is it’s very hard for the city to make exempted businesses keep their promise to create a certain number of jobs. About the only practical thing it can do is halt exemptions, according to City Attorney Howard Swanson.
When tax exemptions were created as an economic development tool, he said, the goal had been to help businesses make improvements to their properties, which would increase the value and result in higher property taxes after the exemptions expire.

This whole thing is coming out of the city leaders’ desire to subsidize development around the Alerus Center. One of their promises was that the Alerus would bring all kinds of development to the city. Instead the development has stayed far away. Recently the city gave an enormous tax break for someone to build an office building near there.
This is also an offshoot of the years of failure the city has had on economic development. Time after time they throw millions of dollars at some fly by night business which promises to bring so many jobs to town. Of course those promises aren’t held after the money’s all gone.

One of the main reasons for this is it’s very hard for the city to make exempted businesses keep their promise to create a certain number of jobs. About the only practical thing it can do is halt exemptions, according to City Attorney Howard Swanson.

Rather than learning from their failure the city leaders want to make it harder to point out just how poorly they’ve been managing our money.

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