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4/16/2017 8:32:00 AM
EDITORIAL: Time to rethink tax abatements

Vincennes Sun-Commercial

The county council approved a tax abatement for Futaba of Indiana America at its meeting on Tuesday.

FIA, located in the U.S. 41 Industrial Park and a leading local employer, is a major parts supplier for various Toyota plants, including the facility at Fort Branch and another at Georgetown, Kentucky, where Toyota recently announced plans for a $1.3-billion “re-tooling.”

FIA is planning a $31-million investment in its local plant to accommodate Toyota's plans to redesign its Highlander and Lexus ES models; while no new jobs were promised as a result of the investment, FIA officials hinted that there could be some employment opportunities in the future once the project is completed.

The council's giving the request for abatement its OK was a matter of course; companies automatically seek tax relief when looking to expand or add new equipment.

The abatement will reduce FIA's annual property-tax bill by a certain percentage until the stipulated period runs out, usually 10 years — the first year no taxes are paid, then each succeeding year the amount of the tax bill abated (or reduced) decreases, until at the end FIA would pay 100 percent of its taxes owed on the designated equipment.

Of course, by then, after 10 years of use, the equipment will have so depreciated that its value for tax purposes will be much less.

Tax abatements have been around for some time now, so long that a company's requesting such tax relief has become de rigueur within the framework of doing business in a community.

Local governments come to expect a request for tax abatement whenever there is news of a company's expanding, and especially when there's a prospect of landing a big development project. Some type of “incentive package” is always put together to make the community more attractive.

Whether tax abatements in the end actually benefit a community is a question drawing a lot of interest these days. Dubois County has a committee that reviews and “scores” each request to decide whether it's “a win for the county and the taxpayer besides being a win for the business,” according to Becky Beckman, a member of the county council there.

Many communities are tying performance goals to their tax abatements — benchmarks that a company has to meet over the course of the abatement or risk having to go back and pay a portion of the reduced tax bill — and being aggressive in holding recipients accountable.

Current tax abatements do come with a list of requirements the applicant must meet, a list which is reviewed periodically to see how the company is faring. However, rarely, if ever, is an abatement rescinded because its recipient failed to live up to the requirements.

We like the idea of there being a quid pro quo when it comes to tax abatements.

For instance, there could be a requirement that, at the end of the designated period, the compensation packages for hourly workers — a combination of their pay and benefits — was 20-percent higher than at the beginning.

If the company failed to reached that goal (say the increase was only 15 percent) then it would have to make up the difference, preferably from the property-tax dollars it had saved.

If, on the other hand, the company exceeded the goal and increased worker compensation by 25 percent, then it would receive further property-tax abatement equal to that amount.

Property-tax abatements were originally intended to be employed judiciously, almost as a last resort for communities trying to lure new development and bring in additional jobs.

Today, they've become almost automatic, rarely raising a ripple of concern before a vote.

Here at least, we find ourselves in favor for an original-intent interpretation of the law.

Copyright 2017 Vincennes Sun Commercial

Editor, John C. DePrez Jr.; Executive Editor, Carol Rogers; Publishers: IBRC and IAR

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