Economic Development News
A follow-up on the "Great Abate Debate"
Business attraction and economic development incentives
Published: Monday, August 10, 2015 4:00 pm
By: Randy Allen, President/CEO
The News Tribune ran a lengthy article in the July edition of #JCMO magazine on the status of Economic Development Incentives used in Jefferson City and Cole County to attract new business and to incentivize the growth of larger existing businesses. Today I want to add just a little more flavor to the analysis and discuss some future trends.
The Chamber's incentive committee is made up of the Jefferson City School District, County of Cole, City of Jefferson, and the Chamber’s executive committee members. In 2007 this group discussed the ability and need to use these economic development incentives so we could “dress out” for the business attraction and existing business expansion growth game. The group decided that we would not offer local abatements or incentives without the unanimous consent of all of those parties. We believe this has worked well as the Chamber, as the economic development expert, has laid out the specifics of the proposed projects on each occasion.
A primary concern of the taxing entities is always loss of tax revenue from these incentives. The Chamber has developed an ROI formula that is used when assessing the cost and benefit of these attraction and expansion projects.
For example there is always loss of property tax revenue when real estate property tax abatements are put in place. Some are a real loss but most are only a loss of future revenue if the project and investments come to fruition. The assumption is generally that without those abatements the project may not move forward. The other assumption we have made is that the additional jobs will produce new wages which will produce additional sales tax and property tax revenues through the spending of these new wages on real estate, personal property, and purchases subject to sales tax. We have developed a simple and conservative approach to determining this number.
It goes something like this:
Over the last 10 years or so there appears to be a close correlation between the amount of wages produced in our County to the resulting real estate appraised value and the amount of taxable sales generated. This makes sense since the real economic driver in any community is the amount of wages paid to workers from employment in your county.
In 2013 the amount of wages produced from employment in Cole County was about $1.975 billion. Ten years before in 2003 that amount was about $1.618 billion. That equates to a 22% increase over that period.
This contrasts to a growth of about 23% in taxable County appraised value combined with County taxable sales value over that same 10 year period. One can conclude therefore that there is a strong correlation between the growth of wages in the community to the increase in County taxable sales and appraised values combined.
These wages also have an additional multiplier effect depending on the types of jobs that are producing the wages. This multiplier was not considered in our assessment of the Return on Investment for City and County taxes from these new jobs. We concluded using these ratios that for every $100 of wages newly created from these projects, the City of Jefferson and the County of Cole can expect to receive $2.57 combined revenue from sales and property taxes.
(Click on chart to enlarge image)
In the case of Continental Commercial Products (CCP) the $6 million annual new wages will create about $154,308 of new revenue each year. Over the 10 year abatement, assuming there is no increase in wages (very unlikely) that would equate to $1.54 million of additional City and County tax receipts. Also, it is assumed that another $80,000 per year or $800,000 over ten years would be collected through the gross receipts utility tax to the City due to increased electrical usage for the new operation. Deducting the loss of the current facility Real Estate Taxes paid to the City and County of $13,420 per year and the $500,000 Infrastructure Grant provided by the city and county, the net 10 year ROI is approximately $1.6M
In addition to the City and County, we have estimated using the same model, that the total net return to the JCPS over the ten year period will be approximately $1.2m more.