Sunday, January 29, 2006

You Pay The Taxes They Don't

After too many years of zero local and state taxation for multi-million and billion dollar corporations, mislabled as "development and recruitment incentives", many in the public and judicial sector are beginning to see the light. The myth that "incentives" add to economic development don't hold up.

This doubt of course has put fear in the heart of lobbying groups like the Chamber of Commerce, who help to both craft the free ride on taxation and define their usefulness as "recruiters." A story in Sunday's Kingsport Times-News notes that Tennessee business groups and Chambers of Commerce are providing financing and legal briefs for a case in Ohio regarding Daimler-Chrysler against these tax freebies that's headed to the Supreme Court, and Tennessee state officials are consulting as well.

Tax Increment Financing (TIF) districts were established some 50 years ago to bring economic development to "blighted" areas. Today, it's a tool to seize private property and freeze tax payments for decades for enormous corporations. But more study has shown that the real costs created for communities - expanding roads, building schools, creating utilities like sewer, water and electric needs - are shifted from business to the private sector.

Reason magazine, in a recent report (which deserves your full reading) notes:

At a time when local governmentsĂ‚’ efforts to foster development, from direct subsidies to the use of eminent domain to seize property for private development, are already out of control, TIFs only add to the problem: Although politicians portray TIFs as a great way to boost the local economy, there are hidden costs they donĂ‚’t want taxpayers to know about. Cities generally assume they are not really giving anything up because the forgone tax revenue would not have been available in the absence of the development generated by the TIF. That assumption is often wrong.

"There is always this expectation with TIFs that the economic growth is a way to create jobs and grow the economy, but then push the costs across the public spectrum,"” says Greg LeRoy, author of The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation. "“But what is missing here is that the cost of developing private business has some public costs. Road and sewers and schools are public costs that come from growth.” Unless spending is cut —and if a TIF really does generate economic growth, spending is likely to rise, as the local population grows —the burden of paying for these services will be shifted to other taxpayers. Adding insult to injury, those taxpayers may include small businesses facing competition from well-connected chains that enjoy TIF-related tax breaks. In effect, a TIF subsidizes big businesses at the expense of less politically influential competitors and ordinary citizens."

At a recent meeting of the Hamblen County Commission, one wise citizen asked commissioners and Property Tax Assessor Keith Ely just what tax breaks and incentives were being given a new projected development by the Colgate Company in Morristown. No one had any information. While it is a city industrial project, led by the state and the local chamber of commerce offices, that information is yet to be revealed. Typically, TIFs could range from seven to 30 years. All infrastructure needs created for schools for example, will be funded by the county, or in other words, the rest of the taxpaying public.


  1. Yea, Colgate will leave town after the TIF expires...Morristown has been dooped too many times. I know that one company Vifan built a monster building and it only works a tiny amount of people and pays next to nothing to the county government.

    All the companys there use up humans like dry firewood and insist on not re-seeding the human forest...and we let them.

  2. You've got it, Jed.

    The standard operating procedure is to vacate before the TIF expires.

    In a side note, the recently closed/bankrupt Laenzig fibers has left behind a waste site so toxic the EPA sealed the whole dump with concrete back in the 1980s (if memory serves) and guess who is responsible for it now? Law says the next buyer of the property is unable to purchase it so the county has inherited it.

    Dumps and the dumped on, biz as usual.

  3. observer5:06 AM

    So county commission doesn't have a clue about what's going on with Colgate and about county tax incentives that are being given out by the Industrial Board?

    Wanna bet that a few certain people at the city knew about the whole deal?

    It looks like public policy and tax decisions are being made by the unelected elite at the Chamber of Commerce!

  4. I am sure the town administrator, appointed industrial board members of the chamber, and perhaps a handful of others - yet ELECTED council members will have to vote to OK the deal. The question is, will anyone one of them KNOW what the dollar amounts are, will the ASK and will the public ever be told?

  5. Anonymous2:07 PM

    Thom Robinson, president of the Morristown Area Chamber of Commerce, said he didn't have details about wages at the new facility. He said Colgate agreed to meet and surpass a local request that workers earn at least $9.50 an hour.

  6. Anonymous6:19 PM

    Mr. Powell,

    If you think an industrial recruit remains in a city only as long as its TIF lasts, you're just wrong.

    According to reports, Colgate plans to invest somewhere around $50 million. Colgate is going to walk away from a trained workforce and a $50 million investment when their tax break expires in a few years? Dream another dream.

    If you think Tennessee cities can recruit industry without TIFs, your wrong in another way.

    Most industrial prospects come from state government. Without TIFs, Morristown isn't even on the radar screen.

    If you think county government bears the lion's share of infrastructure costs, you're wrong again.

    The state pays for sewer extension and industrial acess roads.

    In Tennessee, on the local level, education is funded by sales tax. Presumably, the individuals who take these new jobs at Colgate will eat and wear clothes,so they'll pay sales tax. Furthermore, almost all of the sales tax generated in Hamblen County comes from the city of Morristown, not county government.

    What Hamblen County will reap - without investment or the intellectual contribution of county commission - is hundreds of thousands of dollars in property tax from Colgate.

    You say - without factual basis - that TIFs "could range from seven to 30 years," but I've got another "could-have"

    Radio talk hosts could make between $1 million and $10 million or more per year.

    All TIFs - like radio talk hosts - are not created equally.

  7. OMG!

    It's the Anonymous Jack/Mike Fishman... AGAIN!
    "According to reports?"
    What reports? Where can we read these reports?
    The only time I've seen this much crap is that year we cleaned out the septic tank.

  8. Dear Shy, Reclusive No-Name, Too Embarassed to sign on except
    as Anonymous -

    If you had bothered to READ the link above you would have read the Facts of research provided by the book quoted in this post.

    But you didn't.

    The amount of seven to 30 million comes from there, not from me.

    Also, according to the story this post links to, research showed billions of dollars nationwide spent on grants chase only millions of dollars captured.

    And, as the quote in this post stated and as you stated, the burden of taxes paid is shifted to others - individuals or existing business, whether in city, county, state, or national.
    The costs of expanding populations and their education are not covered by TIFs, only costs related to secretive recruitment.

    I doubt there are more than a few dozen radio talk show hosts who make anything close to one million a year or more. But thanks for listening to my old radio show - bet your ears burned often, didn't they? I never took the job in hopes of earning millions - I took it because I support and encourage free and open forums of discussion and sharing of information. No word yet from the local press on what the tax-deal-to-be with this new company will reach.

    However, the commenter above you found a link to the
    info which you can read here:

    Colgate is paying nothing for 40 acres of land. And a seven year free ride on taxes.
    Here's a direct quote from the story in the Courier-Journal of Kentucky about this move:
    "The 475 employees at the Clark County facility learned in October the plant would stop production by Jan. 1, 2008, ending more than 80 years of Colgate manufacturing in Southern Indiana.

    Yesterday's announcement provided new details about Colgate's plans for toothpaste production. Officials in Morristown, for example, said the new plant there would employ 220 people — less than half the number in Clarksville.

    They also said they have agreed to give Colgate 40 acres for the factory at no cost, along with money for infrastructure, a seven-year property-tax abatement and other incentives.

    Tennessee also is a right-to-work state, which means employees there aren't required to join a union or pay dues. Indiana Gov. Mitch Daniels said last month that Colgate decided to leave Indiana because company officials "want to be in a right-to-work state."

    Daniels stopped short of endorsing right-to-work legislation in Indiana, but his remarks about Colgate were later cited by Kentucky Gov. Ernie Fletcher as an example of what can happen to a state that requires union membership at unionized facilities. Fletcher is pushing for a right-to-work law, which drew a rotunda-packing union rally at the state Capitol Tuesday night.

    Brett Hall, a spokesman for Fletcher's office, said Colgate's decision to move to a right-to-work state reaffirms the governor's reasoning for a similar law in Kentucky.

    Rick Davis of New Albany, Ind., a 30-year veteran of the Clarksville plant, called the decision to move to Tennessee "sickening." Davis said he earns about $22 an hour, the average wage for a union employee. He said the move to Morristown was based on "corporate greed" and the company's desire to "get rid of unions."

    In a statement yesterday, Colgate said the move was based on the cost of land, the cost of preparing a site and unspecified operating costs."

    So sad I have to read the info on the deal in an out
    of state newspaper.

    How many hundreds of corporations get free rides on taxation? It's called corporate welfare.

    One previous commenter noted a wage at or perhaps above $9.50 per hour with this new company, jobs sorely needed no doubt!!
    But let's say the average pay would be $11 an hour - that's a whopping $22,880, before ANY taxes are taken out. For a family of 4, that would put your earnings at poverty level. Health benefits? Paid by employees and employers alike, but what percentage is taken from a weekly check versus percentages taken from corporate assets?

    As for companies that bail a community after their free ride comes to an end, just look at the industrial history of the northeast.

    I'm sure you, Oh Anonymous one, don't want to consider whether the current system invoked by states to fund development is cost effective or not.

    I certainly think the issue is worthy of debate and consideration, especially since tax dollars are used.