Controversy Over Fargo’s FedEx Tax Break Shows Need for Reforming Economic Incentives

Last night Fargo City Commissioner Tony Gehrig lost his push to rescind over $600,000 in property tax incentives granted to parcel delivery giant FedEx after the company announced they were moving some of their operations to that city from Grand Forks.

Gehrig may have lost that vote, but the last laugh may yet be his. When Gehrig got a representative from FedEx to admit that the company would move to Fargo even without the tax incentives he revealed that the city was, essentially, handing out free money.

An incentive stops being an incentive when it doesn’t incent anything in particular. At that point, it begins to look like a gift funded by the taxpayers.

[mks_pullquote align=”left” width=”300″ size=”24″ bg_color=”#ffffff” txt_color=”#000000″]An incentive stops being an incentive when it doesn’t incent anything in particular.[/mks_pullquote]

Make no mistake that, in addition to the public outcry over the Fargo City Commission’s decision, state lawmakers have been watching this debacle. In fact, they’ve had an eye towards scrutinizing economic development incentives since the 2015 legislative session. The Political Subdivisions Taxation Committee has, among its duties during the interim, a charge to “study the analysis of economic development tax incentives.”

The committee is looking at a whole host of the state’s economic incentives, and while committee chairman Rep. Jason Dockter, a Republican from Bismarck, told me they haven’t been looking at the PILOT (payment in lieu of taxes) incentive FedEx got specifically, the controversy has caught their eye.

“This is the first time since incentives started that we’ve taken a look at them,” Dockter told me during a phone call this morning. Their work was badly needed. Dockter said the committee has already passed proposed legislation for the upcoming 2017 session that would end four incentives currently in statute – once since the 1960’s – which have never been used.

“It’s pretty unbelievable,” he told me.

Dockter said his committee’s work has been slow, particularly bogged down in reviewing angel fund tax credits which sparked controversy during a heated Republican gubernatorial primary between Doug Burgum, whose companies have used the tax credits, and Attorney General Wayne Stenehjem who argued that Burgum and his partners were using the tax credits outside the intent of the Legislature.

“Next interim,” Dockter told me when I asked about the Legislature reviewing PILOT incentives. That’s a long time to wait. But lawmakers typically have long memories, and I’m certain Grand Forks area lawmakers in particular will remember Fargo greasing the skids for FedEx to leave their community.

Personally, I’d like to see the Legislature embrace two major limits on the use of all economic development incentives:

1. No incentives for companies leaving one North Dakota community and moving to another. The last thing we need is intrastate arms races to see which community can give a company the biggest basket of economic development goodies.
2. No incentives for well-established companies. Frankly, I dislike the idea of politicians picking and choosing companies to give special subsidies to, but if we’re going to do it can we at least limit it to helping companies and people who truly need it? Like start-up companies and small business entrepreneurs?

Regardless, the Legislature is looking at big changes to North Dakota’s maze of economic development programs. Let’s hope Dockter’s committee work turns into meaningful reforms, and that it continues even past the coming legislative session.