First let's understand how Tax Abatement and Tax Increment Financing (TIF) work. Currently, an undeveloped property in Shakopee with no buildings pays $1000 in taxes. Now let us suppose company "X" wishes to build a $50-million widget company. As an incentive to do so the company is granted 100% tax abatement for 10 years. The city will still receive the original "undeveloped" $1000 tax it received prior to the new building, however, Company X doesn't have to pay the tax on the $50-million worth of improvements for the next 10 years. Certainly a worthwhile inducement to locate in Shakopee.
Looking more closely the city gets to use the $50-million building as equity towards the city's overall worth which is called "tax capacity" and some people say this is good. Really? Then I say if this is so good why not abate the taxes on ALL household improvements that increase property values because, after all, the city still gets the increased tax capacity on a home's increased value, right? Except we don't do that, so maybe it's not as good as some folks would have us believe.
Now, lets look at what we the people get from Tax Abatement and TIF. We get to pay the taxes the business is not paying. We do that in the form of we get to pay for any additional roads needed by the business, and we get to pay for police/fire/street workers and equipment that might be needed because of the business.
To be fair, I have supported some Tax Abatement/TIF projects. I am not totally against it. I'm certainly in favor of bringing more jobs to Shakopee. However, for the kind of Abatement/TIF we're offering the jobs need to be high paying jobs and not the current $15 per hour. That's not enough. Here's why.
Take that $15/hr job, multiplied by the standard 5-day-a-week, 2,080 hour work year and you end up with $31,200 in annual wage. OK, but you then need to subtract the $7,800 in total income taxes collected (25% tax) and final result is $23,400 per year. This is clearly not a livable wage especially when property taxes are projected to rise substantially in 2016. I would also argue this wage will most likely be eligible for some form of government taxpayer assistance. Guess who's going to pay that?
This means we the people are subsidizing businesses to create government-eligible, taxpayer-funded, subsidized-assistance employees. I would suggest if we're going to offer major tax incentives, let us do it for businesses that pay wages that are high enough to create opportunities for lower income workers to become self sufficient and move up the economic ladder on their own without needing government assistance. This would increase their quality of life while lowering the taxpayer burdens of the citizens.
This site prepared and paid for by Matt Lehman, 815 8th Ave. East, Shakopee, MN 55379