Jason Flohrs: You’re Paying for Private Business Development

When it comes to where we live, there are few things more exciting than an announcement of a new business coming to town. Not only do we get the delicious delicacies of a new restaurant or the latest fashion of a new clothing store, but it’s also validation that the place we chose to live is a good one.

Local politicians are also big fans of new businesses, as it provides a tangible example of their value come election time. Unfortunately, many politicians have become too gung-ho about new businesses and are spending millions of taxpayer dollars to bring them into their towns.

Take Fargo, for example. The city has been using all manner of special tax maneuvers, ranging from tax increment financing districts (TIFS) to payment in lieu of taxes (PILOT) to attract businesses to the city. While the mechanisms for these programs are arcane and complicated, their purpose is simple- tax breaks for economic development. Since Fargo began using TIF’s as a financing tool for development it has committed almost $55 million of taxpayers’ dollars – and a whopping 43 percent has been committed in the last 5 years alone.

That’s a lot of money – about 7% of a city taxpayer’s property tax bill. Under pressure from local community leaders, Fargo recently “reviewed” its myriad of incentive programs, and they are set to adopt the “new” guidelines at a city council meeting on Monday. Unfortunately, this review amounted to little more than a rubber stamping of existing programs. Little to no actual reform was implemented, meaning the breakneck pace of incentive spending is unlikely to slow down.

[mks_pullquote align=”right” width=”300″ size=”24″ bg_color=”#ffffff” txt_color=”#000000″]Council members need to quick picking winners and losers and let the free market work, so all businesses and taxpayers can benefit.[/mks_pullquote]

Those supporting these existing programs often argue they are necessary to attract businesses and new development to an area and that they are of no cost to the taxpayers since without the incentive the business wouldn’t exist to pay taxes anyways.

This argument is wrong on multiple accounts.

Foremost, decisions to start or relocate a business is most often make in absence of the knowledge of any incentive programs. Its only after the decision has already been made for usual business reasons do the opportunities for incentives present themselves.

Take, for example, Fedex’s recent move from Grand Forks to Fargo. Executives at Fedex clearly stated they were planning to move to Fargo anyways because of air shipping schedules. Yet the city still saw fit to give away $620,000 of taxpayer dollars to a multibillion-dollar company. That’s money which could have instead been spent on police, roads and schools – the core functions of our local governments.

The assertion that the programs are also costless to taxpayers is also off base. There is an additional cost of the expanded public services that are consumed by the new entities the city is trying to lure, including infrastructure, fire, and public schools. When these costs aren’t picked up by the new entities – sometimes not for decades – they instead fall to other taxpayers to pick up the slack.

This isn’t just a Fargo issue. Lawmakers in Bismarck have begun a multi-year analysis of the state’s role in these incentive programs, and are signaling changes to come. The state has also spent millions in recent years trying to “buy down” local property taxes, but with tighter state budgets, that’s unlikely to continue. Ending these unneeded corporate handouts would be a much better way to actually get relief to taxpayers who need it.

City leaders need to take this draft back to the drawing board. The current policy “revision” will only perpetuate the problem, and put city taxpayers on the hook for millions more in economic handouts that 99% of businesses in the city will never receive. Instead, they should start to phase these programs out, shorten the terms of the city’s commitment, and limit the number of programs that companies can “stack” together.

Fargo is an excellent place to live in and grow a business – we can see that in the organic growth that is happening all across the city. Council members need to quick picking winners and losers and let the free market work, so all businesses and taxpayers can benefit.