Demystifying Economic Development
Demystifying Economic Development
By Steve Weathers
President & CEO, ECIDA
When I first joined the Erie County Industrial Development Agency as President and CEO in late 2013, I was surprised to find that the incentive programs had what many may call a "bad rap" in the local community.
As I investigated the reasons for the negative feelings toward this form of encouraging private investment through tax savings on economically positive businesses, I found some confusion and misinformation about how tax incentives work. In fact, many people did not understand exactly what the ECIDA was, or what our role is in the economic development of Erie County. I can't blame them; the subject of tax incentives isn't exactly thrilling. But it is an important concept for the business community and the public to understand, because it can be, and has been for nearly forty-five years, a very useful tool for creating jobs and growing the local economy in Erie County.
A tax incentive, or "tax break" granted to a business by an IDA is not a check presented to them. It is not a sum of money awarded to a business in a handshake deal. It is not a gift. Rather, it can be thought of as a "buy two get one free" type of discount; the business has to purchase, or invest, in a project in order to get the tax savings on, for example, a portion of the sales tax on construction materials purchased for a development. Or a one-time elimination of the 1% mortgage recording fee charged when a property is mortgaged—in order to receive this tax break, the business must invest, or purchase a property. A discount on the property taxes after the completed building is assessed could also be granted. In all cases, the tax break does not exist without the business first investing in the development or project, which is why the tax incentives do not take away from existing pools of tax monies such as schools, infrastructure or social programs.
Some will argue that a successful developer or business would create the project anyway without the tax break, which means the potential tax revenue will be lessened by the tax breaks. But the requirements that a business must fulfill in order to qualify for a tax incentive, and the fact that all applications and documents related to their application are public documents, means that a business would not likely apply for the funding unless they really needed it to make the project economically feasible. It is important to remember that especially in very large developments, where public and private stakeholders play a role, the financing is complex and often layered, even when a large company is creating the project, and the financial risk is substantial. It is rarely as simple as "they can afford to do it without the tax breaks, they have plenty of money." Often the tax breaks on, for example, property taxes over a period of seven years, will allow a developer to leverage those monies to create a larger manufacturing floor, add more jobs, or invest in another development.
So why all the negative views? Because in most cases, it takes years to realize the economic benefits of tax incentives. They do bear fruit, and communities see millions in private investment from payroll created by the jobs that are made possible by these incentives, property taxes when the discount term expires and the new building is taxed at full assessment, and sales tax increases when the construction materials are purchased at full taxation, above and beyond the discounted rates (these materials would not be purchased at all if the project were not built).
Adaptive reuse projects, which are not required to create jobs so much as they are required to bring abandoned or dilapidated buildings back to life, and back on the property tax rolls, also have the added benefit of remedying urban blight, and revitalizing neighborhoods. Many of these projects would be impossible without the tax savings incentives due to structural repair, environmental clean-up and remediation costs.
I encourage anyone with a question about economic development, tax incentives, or IDAs to call our offices, or visit our website at www.ecidany.com, and at least learn the facts about how these programs encourage private investment. And if you are in business, it may be the most valuable step you can take for yourself, your employees, and your community.