Sweet Jesus, $47 Million? - ctd

Some people's view of the world is black and white and isn't troubled by the complexities of a case like this. Not me. My head hurts thinking about all the angles to this deal. I start with Eric Nicholson's reaction: "Sweet Jesus, $47 million?" But I end up torn. It might not be the best deal Richardson could have swung. But it might not be such a bad deal, either. I'm sorry if you've read this far and are disappointed in that wishy washy answer.

Source: The Wheel.

That's what I wrote when I first covered the topic of the $47 million tax rebate Richardson granted to the developer of Palisades. I'm back to make up for my wishy washy answer.

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My earlier answer was premised on the assumption that we agreed on the value of offering selective economic incentives for the right projects and that Palisades was one of the right projects. I was interested in the follow-up question: did we pay too much?

Today I want to back up and challenge those assumptions. In fact, I don't think we ought to be offering selective economic incentives. Nor do I think Palisades is the right project for such incentives.

My thinking is based not so much on Palisades in particular, but economic development incentives in general. Matthew Yglesias, in a Vox article on May 19, 2015, spells out the case against these common tax breaks.

As Mark Robyn writes for the Tax Foundation, "Larger firms have a level of political and economic influence that is not enjoyed by smaller firms, and are more likely to secure special treatment" even as "tax incentives in one area means that the revenue will have to be made up in another area."

Source: Matthew Yglesias.

This is a simple matter of physics. If you press down on one side of a seesaw, the other side goes up. If you give a targeted tax break to one party, the (relative) tax burden on everyone else goes up. It's also a matter of fairness. People who live and work in tax-favored Palisades benefit at the (relative) expense of everyone else in Richardson.

Similarly, Richardson's Home Improvement Incentive Program gives a tax break to people who upgrade their home. People who can't afford to do so don't get a tax break. Dollar for appraised dollar, the better off pay less in property taxes for the homes they live in than the less well off.

But at least the Home Improvement Incentive Program is open to everyone (who can afford it). The targeted tax break for Palisades isn't. There are no hard and fast rules for who will be given a tax break and what size tax break they will get. That makes it doubly unfair. Not only does it shift the tax burden, it does so in an arbitrary manner.

And yet, for all the consensus that exists about the evils of targeted tax breaks, they are devilishly hard to do away with. The basic problem is competition. As long as a city or state fears that its neighbors may offer a targeted tax incentive to poach a big employer, it needs to be prepared to offer its own to stay in the game.

Source: Matthew Yglesias.

Even if you're OK with the unfairness of targeted tax breaks, Palisades is the wrong kind of development to target. If Plano hadn't offered Toyota a tax break, Toyota could have gone to, say, Frisco or Allen. Same thing with State Farm at CityLine. But that doesn't apply to Palisades. There's no "whale" of a company we landed with the tax break that could have gone somewhere else. A developer can't pick up that land and move it to Frisco. That gives Richardson leverage that doesn't exist in the other cases. And yet the price Richardson paid is in line or even exceeds what was offered in the other cases. That tells me Richardson overpaid.

Richardson has a new mayor. It has a new council member with experience in real estate law. It will have another new council member when the current vacancy is filled. Let's hope it's someone who also brings some expertise to this problem. Let's hope the new council manages to restrain themselves in the future before handing out significant tax breaks.

If all the different localities in America were able to band together in a cartel and categorically reject targeted tax breaks, the whole country would end up better off. Fortunately, while business cartels to restrain competition are illegal, there's nothing wrong with governments banding together in this way. It could happen voluntarily at the regional level, but even better would be federal action.

Source: Matthew Yglesias.

The Texas legislature is showing keen interest on restraining cities with regard to local regulation of oil and gas fracking. Perhaps Richardson (and surrounding cities) ought to lobby the legislature to restrain cities in a way that actually benefits cities: end the self-destructive sibling rivalry leading to tax giveaways. Tie all cities' hands so businesses can't play one off against the other. "Stop us all before we give away still more taxpayer money."

Not that I expect cities to recognize their inherent weakness and see the value in having their hands bound. Not that I expect the state legislature to make it harder to give away tax breaks to favored businesses. But I can dream anyway. In the meantime, we'll continue to have situations like Richardson's $47 million tax break for Palisades.