Tax Freezes Should Have Requirements To Eliminate Hidden Costs To The Public

The interests that oppose any serious reform to local policies on tax freezes are positioned to win. At this point, all they may need to do is run out the clock.

That’s because, as one of them said in his normal, matter-of-fact candor, on September 1, two anti-tax freeze voices will leave the Shelby County Board of Commissioners – Julian Bolton and John Willingham. Both have been strong advocates for changes in the program, and at times, their frustration has even led them to suggest the abolition of the tax freezes altogether.

Meanwhile, the committee convened by the two mayors seems to be letting the air out of the ball, and its input seems to be moving closer and closer to a time when real estate developers have friendlier faces on the county’s legislative body.

As a result, the ultimate arbiter on whether there will be changes in the PILOT (payment-in-lieu-of-taxes) program is Shelby County Mayor A C Wharton. In the past, he’s called for changes that inject more common sense and strategic thinking into the tax freezes, which now waive between $60-80 million in taxes a year, but if events since the consultants called for sweeping reform of tax freezes policy teaches us anything, it is that there will be a great deal of pressure exerted on him to keep the status quo. Privately, real estate developers already predict that there will no substantive changes in the policies.

But Mayor Wharton is one of those unusual elected officials who actually seems to care about policy, so look for him to take a more studied approach to the recommendations of the consultants’ report. So far, he’s managed to stay above the political fray through the appointment of the study committee and because of the focus has been on comments from the City Council and Shelby County Board of Commissioners, but his time is running out.

Setting Standards

So, while it seems increasingly certain that the final recommendations of the consultants will be watered down because of the political clout of the real estate development industry, as Mayor Wharton considers his next steps, we submit a recommendation of our own – tying incentives to wage and health benefits standards.

At least in this way we can be certain that our tax freezes aren’t going to companies who pay so poorly that we then have to subsidize their employees through public services, such as medical care and social services. This link between tax freezes and standards alone could shift the local mindset from “jobs, any kind of jobs” to “good jobs.”

While on the surface this doesn’t sound like anything drastic, it in fact would produce a sea change in our economic development strategies. After all, it’s only been a few months since the Industrial Development Board gave an eight-year tax freeze to a company paying so little that a family of three would still quality for food stamps. Under the IDB matrix, a company can now pay salaries that are only 70 percent of the per capita income for Shelby County and still get points for a tax freeze. It’s bad enough when we give our taxes away for low-wage companies, but when they don’t even hit rise to the per capita income, there’s should be a serious question about whether there is any public benefit in the public investment.

The trend toward governments setting standards that require “quality jobs” in return for business incentives is expanding. There are more than 120 governments that have attached standards to their incentives, including almost every state and about 50 local governments.

Wage and Health Care Standards

These standards are attached to every conceivable type of incentives, from tax credits to training, from industrial revenue bonds to loan programs, from enterprise zones to tax increment financing. The most common standard is on wages, but the requirement that companies must also have employer-provided health care benefits is also gaining in popularity.

Generally, wage requirements aim at more than poverty thresholds. More and more jurisdictions are requiring a living wage or requiring companies to at least pay the statewide average hourly wage plus health benefits.

While most states cite the hidden public costs as a motivator for the standards, some also say that chasing any kind of job actually contributes to a weaker community economy, because low-wage jobs routinely don’t offer training that qualifies employees for advancement. In this way, the workforce of these low-paying employers often is characterized by large-scale turnover, leading the employer to complain about the need for subsidies because of the unreliability and presence of a quality workforce.

In other words, it’s a vicious cycle, fed by incentives that are given to companies who salaries that are so low that their employees rely on the public health department and The Med for health care. In this way, while taxes are being given away on one hand, on the other hand, taxpayers are paying for public services that are essentially subsidies (rather than incentives) to the company’s bottom line.

In effect, these low-wage jobs have hidden costs, and as we’ve suggested before, the evaluation for all tax freezes should include a tally of all public costs, not only of roads and interchanges, but public health care costs, utility subsidies and housing assistance caused by low-wage jobs.

For example, in Minneapolis, companies seeking business incentives must provide the names of all programs to which they are applying, profiles of their workforce, projections of future wages and the total cost of public assistance for their workers. There are some who say that government shouldn’t get involved in setting standards for the paychecks of company employees. But then again, they don’t have to. All it takes is for the company not to ask for the tax freeze.

We should be well past a day when we are too embarrassed to ask companies for information to justify their requests for public subsidies or to set standards that make subsidies more palatable as public policy.

The heart of economic development is in increased opportunity, better jobs and bigger paychecks. Tax incentives should be aimed at achieving all three objectives, because if government is a party to a process that puts its own citizens in low-wage, dead end jobs, it is not just bad public policy. It is unconscionable public policy.