Review Tax Abatement Policy Carefully

July 24, 2006
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The Grand Rapids city economic development team is creating a new policy that would allow a reapplication of sorts for Renaissance Zone tax abatements, as those abatements expire. The city awarded the first Ren Zone abatements in 1997 and those expire in just three years. City economic development staff is using a number of criteria for limited extended tax credits, but topping that list is the number of jobs created. Such a requirement may satisfy the politicians on the city commission, but inexplicably ignores every economic analyst's evidence that jobs — especially manufacturing jobs — will not be created in the great numbers of the last century. That is particularly notable in the technology industries, which the city would be pleased to attract in greater number.

It should be said that the fact the city is reviewing its policies — and planning methods to extend the tax breaks — is itself commendable. It may be that several other of the criteria, however, offer greater opportunity for evaluation. These include property investment, building investment, personal property investments and whether the business has been a catalyst for further development.

Grand Rapids Business Journal this week reports on the success of the Kentwood city economic development team that capitalized on the challenges of vacated industrial space, creating an unexpected boon to the southeast suburb. The fact that the "abandoned" industrial space available is comparatively new and modernized helped the city capture new tenants. Kentwood has seen $47 million in real property and $118 million in personal property investment in the last two years, with 1,500 new jobs anticipated over the life of its abatement period. Kentwood's unemployment rate is currently 4.8 percent, the lowest since 2000.

In Grand Rapids, five manufacturers are requesting industrial abatements for equipment and plant renovations. If granted the city would have a boost of $224,000 in income tax receipts while losing just $63,000 in real and personal property revenue (see the story on page 1.) Those five companies are spending $4.3 million on those investments.

Since 1997 the city has abated more than $900,000 in taxes and 2,080 jobs have been created.  

The abatement of taxes for businesses in the city clearly provides gains, not losses, to city coffers.    

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