Tax Abatement Considered at Tonight’s County Council Meeting

2015 Monroe County Council
2015 Monroe County Council

The Monroe County Council will be considering an application for a tax abatement at its work session tonight, 2015-12-22, the only item on the agenda. The packet is available here: Council_Work_Session_Packet_20151222

Tax Abatement Application Facts

Here are the basic facts about the tax abatement application:

  • The applicant is RSSJ Rentals, AKA Robert (Bobby) Scank, local restaurateur (Bobby’s Colorado Steakhouse), who plans to build a 3600 sf building. The application that the building will cost approximately $300,000 — however, Mr. Scank told the Economic Development Commission (EDC) that the cost will be closer to $425,000 (since the tax abatement is tied to the investment, the value of the abatement would scale accordingly).
  • The tenant will be Shoshone Trucking, based in Peru, IN. Shoshone will use the property for truck storage, vehicle maintenance, materials storage, and an office. The company currently has 12 employees, and plans to expand to 20 when they are able to move into the building
  • The jobs to be added are truck drivers, with a starting wage of $21.10/hour plus benefits.
  • The property is 5260 W Vernal Pike.  A map is included below. This property is within the county’s Westside Economic Development Area (TIF District). This means that the costs of and benefits of this take abatement will both accrue to the TIF district, not to the other units of government that service this parcel. This also has implications as to the process (which I’ll discuss below).
5260 W Vernal Pike Map
Parcel Boundary, at West Vernal Pike and Angelina Way
  • The property is zoned Light Industrial, with no zoning changes required for this usage.
  • Mr. Scank reported that he had a 5-year lease with Shoshone Trucking, with 2 2-year options. For this reason, he is applying for a 5-year tax abatement (this is shorter than the more typical 10 years). As with all tax abatements, the percentage of new assessed value as a result of the investment that is abated declines throughout the life of the abatement.
    • For example, for a 5-year abatement, the first year 100% of the new assessed value is abated, in the second year 80%, down to only 20% in the fifth year. After the term of the abatement, 100% of the new assessed value is taxed.

This abatement application is unusually small in scale compared to our typical tax abatement applications. Most of our abatements come in the form of much bigger investments (i.e., bigger buildings); this project is similar in scale  and scope to the abatement that  the Council granted for Eco Logic in 2014.


All tax abatement applications in the unincorporated county (which this is go to the Monroe County Economic Development Commission (EDC) for review, analysis, and recommendation to the County Council. The EDC met last Thursday, 2015-12-17, and voted 3-0 to recommend in favor of the 10-year abatement (the abatement request has subsequently been reduced to 5 years).

All tax abatement applications require two votes by the County Council: what is called a “declaratory resolution” and a “confirmatory resolution”. Tonight will be the declaratory resolution. If the vote is in favor of the abatement tonight, then the Council will schedule the confirmatory review and vote at their 2016-01-12 regular meeting.

In addition, however, because this abatement request is in a TIF district, the Monroe County Redevelopment Commission and the Board of Commissioners (as the legislative body that created the Redevelopment Commission) also are required to approve the abatement request. The RDC’s review of the tax abatement application is restricted to consideration of whether the granting of the tax abatement would jeopardize the Westside TIF’s ability to meet its bond obligations. Since the investment that is associated with this tax abatement will increase the revenue to the TIF district and the overall value of the investment is very small in proportion to the overall value of the TIF district, it would be very difficult for the RDC to find that the abatement would jeopardize the ability to make bond payments. In any case, the RDC met on 2015-12-17 and found that the abatement would not jeopardize the Westside TIF’s ability to meet its bond obligations.

The County Commissioners’ review will be scheduled for their  regular meeting on Friday, 2016-01-08 (assuming the Council approves  the declaratory resolution tonight).

Finally, as a matter of practice, the County Council always requires a memorandum of understanding (MOU) with the recipient of the abatement. This MOU constitutes a binding contract between Monroe County and the recipient of a tax abatement, and specifies in detail the terms of the abatement, including the timeline for the creation of any proposed jobs, criteria for substantial compliance with the terms of the abatement, and any remedies (“clawbacks”) for noncompliance. This MOU would be considered at the same time as the confirmatory resolution.

In summary, here are the relevant dates:

  • Review by Economic Development Commission: 2015-12-17 (Completed)
  • Review by Redevelopment Commission: 2015-12-17 (Completed)
  • First Review by County Council: 2015-12-22
  • Review by County Commissioners: 2016-01-08 (tentative, if  first review by the County Council is successful)
  • Second Review by County Council: 2016-01-12 (tentative, if  first review by the County Council is successful)


The property is currently assessed at $62,300 and pays approximately $1080 in property tax per year. The following table summarizes the value of the investment and the 5-year abatement, over a 10 year period. I used estimated tax rates provided by the Assessor’s Office — and made the assumption that neither the property value nor the tax rates would change during the 10-year period.

Screenshot 2015-12-22 07.27.20

There are two numbers that matter most in the analysis of the abatement. The first is the total of the column “Estimated Revenue Not Received”, $21,412. This is essentially the value of the abatement to the property owner over a 10-year period, and is also the revenue forgone as a result of the abatement, assuming the investment went on as planned, without the abatement.

The second number is the total of the Additional Taxes Paid from Investment column, $49,962, which is the estimate of the additional amount of taxes over the status quo that would be brought in as a result of the investment.

These two numbers really can be seen as reflecting the  two different sides of the abatement: the tax revenue forgone (assuming the investment goes ahead) and the additional tax revenue generated by the investment.

In addition, it is useful to look at the two columns labeled Cumulative Without Improvements and Cumulative With Improvements. In particular, these numbers show that even WITH the abatement, the property will be generating more revenue by the second year of the abatement than it would have without the investment.

Tax Abatement within a TIF District Critique

So besides the usual criticisms of tax abatements in general (in my opinion the most salient being that the literature shows that tax abatements have a minimal impact on a business’s decision to make an investment), this abatement is subject to another critique — that it is a tax abatement within a TIF district. Indiana is one of the few (not the only — at least Iowa and Missouri also permit them) state that permits tax abatements within TIF districts, so overall this is a relatively rare and not-well-studied situation.

I’ve heard  this critique take 2 different forms, which can actually be seen as diametrically opposed:

  • A tax abatement in a TIF district is “double-dipping”, as it combines two economic development incentives
  • A tax abatement in a TIF creates two economic development incentives working against each other, because the purpose of the TIF district is to capture revenue from development in the district, and a tax abatement diminishes the amount of revenue for capture

I  reject double-dipping argument, at least  in the general case. Tax abatements and TIF districts are often lumped  together in public discourse as similar economic development incentives. However, they are really very different. While a tax abatement is clearly an economic development incentive that works to the benefit of an individual business/investor by reducing the amount of new taxes paid by the business, the TIF district  serves to provide infrastructure that makes particular parcels of land broadly develop-able. Any business that is going to expand or site at a particular location will generally only do so if there  is existing infrastructure.

So the benefit to an individual business owner  of being in a TIF district is simply having access to land with infrastructure. But this is not a particular benefit beyond any other land that has infrastructure that is outside a TIF  district. The benefit of a TIF district accrues more directly to the unit of government that created the TIF  district — the ability to raise revenue to put in infrastructure to support employment.

Incidentally, I’m not saying that double-dipping couldn’t occur in a specific case.  A redevelopment commission could choose to invest in or provide some other sort of direct assistance to a particular property (other than providing publicly-available infrastructure) and then also allow a tax abatement on the same property. However, this is not the case here, and in general.

The second argument — that a tax abatement in a TIF creates two economic development incentives working against each other, because the purpose of the TIF district is to capture revenue from development in the district, and a tax abatement diminishes the amount of revenue for capture — does have some merit — but this merit has to be evaluated on a case by case basis. First, we have to start  from the premise that the goal of the TIF district is not to accumulate as much revenue as possible, but to provide overall benefits to the community. These benefits can include redevelopment of blighted/brownfield land, amenities that improve the quality of life of residents of the community, and employment available to local residents (in urbanized areas, providing housing is an additional potential benefit of a TIF district).

The revenue captured by a TIF district is simply a means to the above purpose(s), in that the revenue allows for the investment in the infrastructure (in particular, pays the bond that created the infrastructure). So in the case of a tax abatement within a TIF, the abatement would only work at cross-purposes with the goals of the TIF district  if it impaired the ability of the TIF  district to invest in the infrastructure necessary to meet its goals. This could mean impairing its ability to make  debt service payments, but could also mean impairing its  abilities to make other infrastructural improvements that aren’t funded through debt.

So as long as the abatement does not impair the ability of the TIF district to make the necessary investments to meet its goals, it does not work at cross-purposes to the TIF district. Again, making this determination requires looking at the specific case. Is the abatement relatively large compared to the overall cash flow of the TIF district, such that it could materially affect that cash flow?  Is the TIF district putting in special infrastructure or other incentives specifically to serve this property? Does the project necessitate special services or greatly increased demands on government? If the answer to any of these questions is in the affirmative, then the abatement could be seen as working at cross-purposes with the TIF district; if not, though, the abatement can be seen as working in concert with the TIF district. If the abatement plays a role in incentivizing the investment (again, it is not a given that this happens), then the abatement can increase, not decrease, the revenue available to make investments in the TIF.

And finally, even if you take an entirely negative view of tax abatements  — in effect, see them as harming all of the other taxpayers — the taxpayers that are harmed  in the case of a tax abatement within a TIF district — are only the other property owners (businesses) in the TIF district. So even if  you take a categorical stance against tax abatements, having the tax abatement in a TIF district actually mitigates the harm done to the other taxpayers AND units of government.

Council Meeting Tonight

The Council will take the first  vote on this tax abatement application tonight. As always, the meeting is open to the public, and will be held this evening (December 22, 2015) at 5:30 in the Nat U Hill room of the Monroe County Courthouse, and it will be broadcast on CATS. Public comment will be taken on this tax abatement application. Hope to see you there!

Whose Taxes are Abated? The Answer May Surprise You

WestsideWho Pays Taxes in Indiana?

The discussion in the media about “dark box” assessments (the use of vacant stores as comparables for the assessments for property tax purposes of big box stores) has made me want to look more broadly about who pays taxes and who doesn’t in Indiana’s system of taxation. There is a feeling expressed by many residents that businesses are treated more favorably than individual taxpayers. This view is almost inevitably expressed any time a business is given an economic development tax abatement. On the other hand, politicians (particularly Republican politicians, unsurprisingly) often claim that Indiana needs to lower taxes on businesses in order to continue to attract jobs (see recent debates on the corporate income tax and business personal property tax).

As you might imagine, though, Indiana’s system of taxation is complex, and it can be difficult to disentangle the various threads, to determine whether or not the system is fair, both overall and across the various classes of taxpayers (businesses, homeowners, renters, farmers, etc.). I’m hoping to explore these issues of taxation — who pays and who doesn’t pay — over the next series of blog posts.

Today’s post explores the issue of tax exemptions: that is, when do property owners (individuals and organizations) pay taxes on less than the full assessed value of their property.

To do this, I’ll be looking at the real estate data for Monroe County for 2015 (for property taxes to be paid in 2016), which the Monroe County Auditor’s Office kindly provided for me. Note that there is an important caveat to this data: it does not include property owned by other units of government, which includes state (including Indiana University and Ivy Tech), federal, city, county, and school corporation. None of these governmental entities pay real estate property taxes at all (which makes some sense when you consider them as units that are providing governmental services. The data set also does not include personal property, which applies almost exclusively to business.

Tax Exemptions in Monroe County

Indiana has a number of purposes for which it exempts property from full taxation. The most familiar include the homestead deduction (which exempts some property value from homeowners who occupy their homes), the exemption given to non-profit organizations and churches, and tax abatements given to businesses as incentives for investment in job-creating development. But there are actually several dozen different types of real estate property tax exemptions given to property owners for a variety of purposes.

Large HouseFirst, how much property value is exempted from taxation overall in Monroe County? In 2015, it is approximately $3.2 billion (yes, billion), out of a total of $9.8 billion in gross assessed real estate value.

So whose taxes are exempted? I’ve taken the 2015 real estate data and collapsed the dozens of exemption types) into 11 categories, which I think are more illustrative. For example, I collapsed the homestead deduction, supplemental homestead deduction, and mortgage deduction into the category “Homestead”. I collapsed the two types of economic development incentives — tax abatements and enterprise zone abatements — into the category “Economic Development”. Etc.

Property Tax Exemptions by Category
Property Tax Exemptions by Category

As you can see from this table, the vast majority of property tax exemptions are given to homeowners — over $2.6B, or 82% of the total $3.2B in exemptions granted. This may — but probably shouldn’t — come as much of a surprise: the property tax system we have is a political artifact, and residents, not businesses, vote. Further, homeowners vote at a higher rate than renters, and homeowners with greater wealth (often meaning higher-end homes) vote at a greater rate still. So it really isn’t surprise that our tax exemption system provides enormous tax benefits to homeowners — abatements that dwarf all of the rest of the types of tax exemptions combined.

Sherwood Oaks Christian ChurchThe next largest beneficiary of favored property-tax status — still a distant second to homeowner exemptions — religious institutions! Churches and other religious institutions enjoy $158M in exemption from property taxes.  Coming in third is economic development incentives, including both tax abatements and enterprise zone abatements, which are similar, but are only allowed in one of a fixed set of so-called “enterprise zones” throughout the state. I will do a separate blog post and provide more detail on these economic development exemptions.

There are several exemption categories that might broadly be thought of as the non-profit sector. This includes:

  • educational exemptions — which does NOT include public schools or IU or Ivy Tech — think private educational organizations as well as IU fraternities and sororities
  • hospital  — in particular IU Health Bloomington Hospital (I will do a separate post on this one at some point)
  • charitable — what most people think of as the nonprofit sector, including Middleway House, Community Kitchen, Stone Belt, etc.
  • membership organizations — including the YMCA, Boys and Girls Club, Sycamore Land Trust, and other charitable organizations — and oddly the Indiana Railroad company

There are several other categories of exemptions, including what I call socioeconomic exemptions. These include exemptions available for blind or disabled property owners, seniors, and veterans. Energy efficiency exemptions include exemptions for solar and geothermal installations. Finally, there are exemptions for low-income housing, as well as a couple of very small exemptions that I have lumped together under miscellaneous (cemeteries, rehabilitation of historic properties, and model homes).

Hopefully this has been illuminating, and perhaps you have been surprised by which classes of taxpayer have been most favored in Indiana’s property tax system. I plan to explore many related topics in future blog posts, and will be drilling down on several categories of tax exemption, including those given to non-profits, hospitals, and for economic development.

City Tax Abatement Request for Mixed Use Building 338 S Walnut St

I was recently appointed to the City of Bloomington’s Economic Development Commission (EDC), as a County Council nominee, and just received word that we will be considering a tax abatement request for a mixed-use development at 338 S Walnut St downtown. One of the primary roles of the EDC is to evaluate and make recommendations on requests for tax abatements. The EDC is purely advisory; the City Council has the ultimate authority to approve tax abatements in the City of Bloomington.

Monroe County also has an Economic Development Commission, which makes recommendations on tax abatements in the unincorporated part of the county. This will be my first time considering a tax abatement on a project with a residential component; County projects have all been for employment-generating facilities (manufacturing and logistical facilities), at least during the time I’ve served on the Council.

The photo below shows the currently vacant lot currently on 338 S Walnut, along with a bit of the two adjoining properties — 340 S Walnut to the south (owned by the same owners as 338 S Walnut) and the old Costume Delights to the north.

338 S Walnut St
338 S Walnut St

Interestingly, 338 S Walnut St used to be the home of Monroe County Health Department’s Futures Family Planning Clinic; the clinic has since moved into the basement of the Monroe County Health Building. The building has already been demolished, and the lot is currently vacant.

Former County Futures Family Planning Clininc
Former County Futures Family Planning Clinic

The following is an architectural rendering for the planned project provided as part of the tax abatement application. The building is expected to be mixed-use, residential and commercial, and provide a total of 14,400 square feet. It will also include some on-street landscaping.

Renderings - 338 S. Walnut St._Page_3
Renderings – 338 S. Walnut St._Page_3

The owners anticipate investing around $2M in the property, and are asking for a 3-year phase-in of the property taxes associated with the new assessed value. This means that the new assessed value would be 100% abated the first year, 66% the second year, 33% the third year, and subsequent years would be taxed at the full value.

The property currently generates around $4000/year of property tax. At full value, the new project will generated around $40K/year of property tax, so even after the first year of the abatement, the new project will be generating 3 times as much property tax as it is currently.

The following abatement schedule (from the EDC packet) shows the estimated taxes with and without the abatement:

338 S Walnut Proposed Abatement Schedule
338 S Walnut Proposed Abatement Schedule

The EDC meeting to evaluate this application is on November 21, 2014 at noon. I’m not yet sure when this application will appear on the City Council agenda.

Monroe County Tax Abatement Compliance Findings for 2014

Factory Development in Westside of County
Factory Development in Westside of County

The Monroe County Council held its annual tax abatement compliance hearings at its regular June 10, 2014 meeting and after some good discussion about the value of tax abatements, found all tax abatement recipients in compliance with the terms of their abatements. This post will give a little more background about the process.

What is a Tax Abatement?

A tax abatement is a phase-in granted to a company on the new property taxes owed on the increased assessed value generated by the company’s investment in either real property (buildings) or personal property (equipment). Tax abatements typically have a duration of 10 years (although abatements of any duration up to 10 years are allowed by law, and a new law provides for abatements for personal property of up to 20 years in 2015), and typically start at 100% for the first year of the abatement, and step down gradually, so that by the 10th and final year of the abatement, only 10% of the taxes on the new assessed value are abated. Tax abatements are only granted on new investment, and so will never result in a decrease in property taxes owed by a company.

What is the Purpose of a Tax Abatement?

The intention of a tax abatement is to incentivize a company to invest in real property and equipment in a way that creates or preserves jobs and increases wages and benefits. Generally, a company’s investment in real property and equipment should have two separate benefits.

The first is that the tax base increases. The primary benefit of an increased tax base is that the tax rate goes down (slightly) for all taxpayers in the district, and subsequently that the circuit breakers (tax caps) have a slightly lower impact on units of local government (see my previous posts on the circuit breakers here and here for more background). Additional assessed value also does result in a small amount of additional revenue for local government — but only for so-called rate-controlled funds like cumulative capital development funds.

Traditionally, increased assessed value was the primary motivating factor for economic development tools like tax abatements; however, contrary to popular understanding, Indiana’s system of property taxation means that additional assessed value doesn’t actually generate a lot of additional revenue for government. I wrote a posting a few weeks ago that dealt with this issue explicitly (Does New Development Generate New Property Taxes for Local Government?).

The second, and more important goal is to use that investment to create additional jobs and and wages to the community. This goal isn’t as simple as it might seem, and there is a lot of contested terrain here.

First of all, many local economies, such as that of Bloomington/Monroe County, are regional in nature. Our businesses and public-sector institutions like IU and Ivy Tech provide jobs for residents of surrounding counties as well as Monroe County (there is also some outbound commuting as well, for example, to Crane). However, because of the way that income taxes in Indiana work, local governments in Monroe County only receive income taxes from Monroe County residents, regardless of where they are employed.

Second, when communities have relatively low unemployment (Monroe County’s unemployment rate for May 2014 was 5.2%, one of the lower rates — but definitely not the lowest — in the state), it is questionable as to whether additional jobs actually go to existing residents or simply encourage people to either move here or encourage people to commute from surrounding jurisdictions, neither of which necessarily benefit existing residents.

Third, some believe that government incentives should only be used to create higher-paying jobs — for example, those that raise the overall median wage for the area. However, a counter-argument, is that it is important to have jobs at many wage levels, to provide entry-level opportunities for residents, especially those at the lower skill levels. For example, jobs in the life sciences and technology industries tend to provide higher wages, but also require much higher skill-levels. These jobs might raise the median wage for the area, but might also be inaccessible to large numbers of residents.

Many local governments in Indiana have been increasingly dependent on income taxes for revenue for basic services (and there are a number of reasons why they have been forced to do so, including many laws that restrict the increase in property taxes, regardless of the increase in costs of services). So the creation and sustainment of both jobs and payroll have become essential to the funding of local government.

Do Tax Abatements Work?

The academic literature on the effectiveness of tax abatements is mixed; most studies show that tax abatements have little effect on whether or not a company selects a particular region to locate (workforce and quality of life factors are more dominant)– but may have an effect on which jurisdiction a company locates within a region. Many local officials also feel that they need to make abatements available because other jurisdictions do. Tax abatements do also have some effect on expansion investments made by companies already in a particular location. I’m giving a little of short-shrift to this important topic, because I think that it deserves a posting on its own.

What is the Process for Assessing Compliance?

Tax abatement compliance hearings is a statutorily-mandated annual process for all companies with tax abatements granted by the county (the City of Bloomington uses the same process for their abatements that compares the proposals made by companies at the time of application for a tax abatement (the “statement of benefits”) with the actual investment made, jobs created or retained, and payroll of those jobs. In other words, did the company do what they said they were going to do at the time that they applied for the abatement?

The compliance process begins with submission of data from the abatement recipients (on investments made, jobs created, and the salaries of those jobs created). The data is submitted both on a state-mandated form (the CF-1), which is generally considered very difficult to follow, and a Monroe County-specific form meant to make the data easier to interpret.  The following are the Monroe County data sheets submitted by all Monroe County tax abatement recipients. These data sheets document the basic parameters of the abatement — when it began and when it ends, the number of jobs and payroll at the beginning of the abatement, and the number of jobs created (or lost) and the payroll at the present.

This data is then reviewed by the County’s Economic Development Commission (EDC), a three-person citizen panel, who then makes recommendations to the County Council on whether to find the companies in compliance with their proposals that they submitted when they applied for their abatements. These proposals specify the investment the company will make, the estimated number of jobs the investment in create or retain, and the payroll represented by those jobs. The roles and responsibilities of the Economic Development Commission are specified in IC 36-7-12.

If the company has actually achieved all of their commitments (i.e, created all of the jobs and wages that they had proposed in their application), then no additional review is required by the EDC — the company is in full technical compliance. However, even if the abatement recipient has not actually been successful at achieving all of their commitments, the EDC can find the company in substantial compliance, if the reasons that they are not technically in compliance are out of the company’s control, or if technical compliance no longer makes sense.

For example, because of the economic downturn and changes in their customers’ orders, Baxter Pharmaceuticals was unable to create the number of jobs that they had originally proposed. On the other hand, the payroll of the jobs they did create and sustain are substantially higher than proposed. Another example was BioConvergence, in which their initial business plan did not materialize because Cook essentially opened a directly-competing business right next door to them. Representatives from BioConvergence and Baxter have attended past Council abatement hearings and EDC meetings in person to explain their respective situations and answer questions.

The Monroe County Economic Development Commission (EDC) consists of Greg Travis, Regina Moore, and Kirk White. For 2014, the EDC recommended that all abatement recipients be found in compliance with their statement of benefits, although several of the compliance findings were contingent on the provision of additional clarifying information.  The findings of the EDC are here:

These recommendations are then presented to the Council, and the Council votes whether or not to find the recipients in compliance. The Council conducted the hearings at the meeting on June 10th. The hearings are an opportunity for the council to discuss and vote on the recommendations of the EDC, and also for members of the public to be heard. We did not hear from any members of the public at the meeting on June 10th, although we have definitely heard from members of the public at past tax abatement compliance hearings.

Memorandum of Understanding

One of the common concerns about tax abatements is that it is difficult for a unit of government to seek recourse from companies who do not comply with the terms of their abatement. First of all, the company can’t be held accountable for circumstances beyond its control — and that can include a lot of gray area. Second, the only statutory remedy the government has is to rescind the abatement — and rescission will almost certainly result in litigation, which most units of government try to avoid like the plague!

In order to address these concerns, and also to generally provide more accountability between both parties, in recent years, the Council has begun making use of Memorandums of Understanding (MOUs). MOUs are binding contracts between the abatement recipient and the county spelling out mutual expectations much more specifically than are found in the state statute governing tax abatements. For example, each MOU the Council has drafted specifically defines what “substantial compliance” is, addresses when jobs are supposed to be created by, addresses the liquidated damages for non-compliance (commonly called clawback provisions) and specifies that any litigation be conducted within the Monroe County Circuit Court jurisdiction.

Signed CF-1 Forms

After the council voted (unanimously) to find all of our abatement recipients in compliance, I signed on behalf of the Council all of the compliance forms (called CF-1 forms) that are then filed and serve as documentation of compliance with the terms of the abatements.  The following are the signed CF-1s for 2014 for all Monroe County tax abatement recipients. Note that there can be more than one form for each company, for several reasons. First, a company can receive multiple abatements. An abatement is for a specific investment, and a company can make multiple investments, all of which are eligible to receive an abatement (of course, they cannot double-count the jobs or wages created by the investment!). Second, companies apply separately for abatements of real property and personal property (equipment), so a given investment  might have two separate compliance forms if it involves both real and personal property.

I hope this posting gives a little bit of context to the whole concept of tax abatements as an economic development tool, and also provides the public with easy access to the actual documentation that abatement recipients provide the county during the annual compliance process. I know I’ve only scratched the surface, and will attempt in future postings to address some of the criticisms that are often levied against tax abatements (some of them highly legitimate and others not much).

Additional References

Two Carmel Tax Abatements May be Revoked

The IndyStar reported this morning that two Carmel corporate tax abatements may be at risk of being revoked.

Both companies, Dormir (AKA Sleep LLC) and Pharmakon Long Term Care Pharmacy, Inc. were given personal property tax abatements by the City of Carmel in 2008 for moving their facilities to Carmel. The tax abatements were on the value of information technology (IT) equipment installed at the facilities for use in manufacturing and distribution activities.

When a company applies for a tax abatement in Indiana, it is required to file a Statement of Benefits stating the amount of the investment the company is requesting a tax abatement on, as well as the number of jobs and salaries that it estimates will be created by the investment. The company is then required to file annually, for the length of the abatement, a Form CF-1 Compliance with Statement of Benefits – Real Property (for tax abatements on improvements to real property), or a Form CF-1 Compliance with Statement of Benefits – Personal Property (for tax abatements on personal property, i.e., manufacturing and logistical equipment). This form requires the company to report the actual salaries and jobs created as a result of the investment. These forms are then reviewed annually by the body that granted the tax abatement (in this case, the Carmel City Council) for compliance with the terms of the tax abatement.

According to the draft resolutions in the Carmel City Council meeting packet for 2012-09-04, neither company submitted their CF-1 forms this year for review (the form was due on May 15).  Also according to the resolutions, Dormir submitted a letter of explanation on August 8. This letter is referred to as Exhibit A in the draft resolution, but unfortunately has not been included in the meeting packet.

I have included the relevant portions of the meeting packet here: Tax Abatement Revocation Carmel 2012-09-04 Meeting.

Note: in the time I have been on the Monroe County Council, although we have occasionally had to chase down the information or follow up for more details,  we have not had a company with a tax abatement decline to provide a CF-1 compliance form.

Economic Development Commission Meeting on Tax Abatement Compliance Tonight

The Monroe County Economic Development Commission (EDC) will meet tonight  (Monday, June 4, 2012) at 4:00 P in the Monroe County Government Center in room 106A to review the statements of benefits provided by all companies with tax abatements in Monroe County. This is an annual process in which the EDC assesses whether or not the companies which have tax abatements are in substantial compliance with the statements of benefits they provided to the EDC and the County Council when they initially sought the tax abatement.

The recommendations of the EDC will be provided to the County Council for discussion and vote on compliance at the June 12, 2012 Monroe County Council meeting.

The following companies currently hold tax abatements in Monroe County:

  • Author Solutions / 1663 Liberty Drive
  • Baxter Pharmaceuticals
  • Bioconvergence
  • Cook, Inc.
  • Full-O-Pep Applicances
  • Grocery Supply Corporation
  • Heitink Plywood Technologies
  • Heitink Veneers
  • Mackinac LLC
  • Mirwec Film
  • Printpack
  • Sabin

The full packet can be found here: 2012-06-04 EDC packet

The EDC meeting is open to the public.

Update on Tasus Tax Abatement

This is an update from my post on the Draft Tasus Tax Abatement Memorandum of Understanding from 12/13/2011:

Last night, the Monroe County Council approved a tax abatement request from Tasus Corporation. Tasus requested and received a 10-year abatement on the new personal property taxes that would be assessed based on their intended purchase of a 1450 ton press and some related equipment. The company estimates that this investment will result in 7 additional jobs. The abatement passed 4-1, with councilors Dietz, Henegar, Kelson, and Langley voted in favor, and Thomas voted against. Councilors Hawk (illness) and McKim (out of town for work) were absent.  The Memorandum of Understanding with Tasus was accepted unmodified.

This abatement was almost identical to a previous abatement granted to Tasus in 2010, for their first 1450 ton press. The Tasus Abatement ERA 2010-10-12 Excerpt from Council Minutes, in which the Council votes (6-0, councilor Newmann is absent) to declare the Tasus property an Economic Development Area (ERA), which is the first step of the County Council in granting a tax abatement, gives some good background on the project. Tasus president Melanie Hart also gave the following presentation to the Council.

Draft Memorandum of Understanding for Tasus Tax Abatement

This article is an update on the previous post EDC Recommends Approval of Tax Abatement for Tasus Corporation. The Monroe County Council will be voting tonight (12/13/2011, beginning at 5:30 PM) on approval of a tax abatement on personal property (capital factory equipment) for Tasus Corporation, which the company estimates will result in the creation of 7 new jobs.

Beginning in 2009, with the tax abatement granted to Printpack, the Monroe County Council began the practice of requiring a Memorandum of Understanding (MOU) with all companies that receive a tax abatement. The MOU is a contractually binding document that clarifies the mutual responsibilities of both parties — the company receiving the abatement and Monroe County Government. Monroe County Government agrees to provide the abatement on new taxes generated by the company’s investment, and the company receiving the abatement agrees to actually make the investment and generally maintain some particular level of employment. Other terms may have to do with the contractors used in any construction, green construction requirements or other environmental requirements, and wages and benefits for employees.

There are also two other very important clauses in all MOUs from Monroe County: (a) one that requires that any litigation be conducted in the Monroe County Circuit Courts (so a company couldn’t breach the agreement and make it too costly for Monroe County to enforce the agreement by dragging the litigation into an out-of-state court); and (b) one that makes the agreement binding on any other companies that may purchase or be purchased by, or merge with the company signing the MOU.

The reason for the MOU is that in the past, the only remedy for non-compliance with the terms of an abatement would be rescission of the abatement, a remedy that is so likely to be contested successfully in court that almost no local government would attempt it. The MOU defines “substantial compliance” with the terms of employment that the company promised when it sought the abatement (in the so-called “Statement of Benefits”) precisely. This way, with the MOU, local governments and the company can both determine unambiguously if substantial compliance with the terms of the abatement, and noncompliance can trigger specific remedies — usually refunds of the tax benefits gained through the abatement.

The MOU with Tasus Corporation that the County Council will vote on tonight, if they vote to approve the tax abatement, is available here: Tasus MOU Draft 12 December 2011.

The most salient clause in the MOU is the definition of substantial compliance with their statement of benefits:

Tasus shall be considered in substantial compliance with the terms of this MOU provided that
the equipment is purchased, installed and utilized at its Monroe County manufacturing
facility throughout the duration of the Abatement, maintains a total full-time workforce of
at least 128 persons, beginning at least by April 15, 2011, and meets the provisions of IV
B, below.

Tasus currently has 123 employees, before this new equipment is installed. In this MOU, Tasus is essentially agreeing to maintain a minimum of 128 employees throughout the 10 years of the abatement, meaning that at least 5 net new jobs will be created and maintained (and that other jobs will not be eliminated in the process).  Any full-time employment level lower than 128 would trigger the remedies identified in the MOU.



Tasus Tax Abatement Application Receives Positive Recommendation from EDC

This evening, the Monroe County Economic Development Commission (EDC) voted 3-0 to recommend that the Monroe County Council grant a tax abatement to TASUS Corporation. Tax abatements are always a controversial subject, and I hope to blog about them frequently in the months to come — but I wanted to use this opportunity to talk a bit about the process and the various bodies that are responsible for considering and approving (or rejecting) an application for a tax abatement.

Continue reading “Tasus Tax Abatement Application Receives Positive Recommendation from EDC”