Tax abatement policy in works to entice industries, investors to Johnson City

Gary B. Gray • Sep 17, 2013 at 3:54 PM

The Johnson City Industrial Development Board was created by the General Assembly as a means of financing business/industrial facilities that create employment and economic growth, but the group has been relatively dormant until its reformation in February.

Once reactivated, its members, which includes some heavy hitters in the community, have been working closely with the Washington County Economic Development Council and the City Commission to compile a workable template that spells out tax incentives for investors and developers.

“We get one chance to make a first impression,” Washington County Economic Development Council CEO Mitch Miller said Monday following the introduction to commissioners of a draft resolution that would set in place tax abatements. “Basically what you have here is a resolution with four levels designed to attract new industrial, distribution, call center and corporate office companies to the city.”

After a glance at the guidelines for granting tax abatements — on property taxes only, and not on retail developments at this time — Miller was asked to fine tune the numbers to reflect a more-aggressive approach.

The existing resolution offered companies investing from $1 million and hiring at least 25 full-time employees an opportunity to pay no real or property taxes in the first year. That jumped to a liability of 50 percent the next year and from 50 percent to 100 percent in three to four years.

The next three levels identified companies investing at least $2 million and hiring at least 50 employes; $5 million and at least 100 employees; and $8 million and at least 200 employees. The best deals went to those companies making the largest investment, including longer terms and a less-abrupt increase in tax liability.

Miller said the structure would give the city the ability to be more competitive and create new investment in the community.

“Maybe I’m naive, but we need to play a tough game,” City Commissioner Clayton Stout said. “I think we need to be very aggressive. I don’t know if this is generous enough.”

Stout was referring to a larger enticement, and the fact that Johnson City is competing with Kingsport and Bristol, the latter of which landed Bass Pro Shops.

“With a $5 million investment, the city would give up about $127,000 (over an 8-year term), which isn’t a lot,” said City Manager Pete Peterson. I agree with Clayton. It’s very conservative. We want to look at longevity and other factors, such as jobs. Are there 100 new people moving to the area, or are they 100 minimum-wage jobs for local residents? It would really need to be more a case-to-case basis.”

Miller listened to some other suggestions, from offering a full 10 years with no taxes owed to a flat 5-year term. In the end, he said he was fine with dialing the resolution in to strengthen its appeal, extending the term of tax abatement, for example.

The idea is to have in place fixed policies so interested investors will know without hesitation the options available. Ultimately, the City Commission would have to approve financing recommendations and agreements.

The two entities will meet again in about two weeks, and a final draft of the resolution should be ready for consideration by the City Commission next month.

Two primary methods for this type of growth are tax increment financing and payment in lieu of tax agreements.

TIF utilizes future gains in taxes to subsidize current improvements. The improvements are, in turn, meant to bolster tax gains. Completion of public and private projects can mean an increase in the value of surrounding real estate, which generates additional tax revenue. Sales-tax revenue may also increase, and jobs may be added, but these factors do not usually influence how a TIF agreement is structured

The “increment” is the amount tax revenues increase when the value of a site increases, and revenue from tax increments — usually set within a defined district — helps finance debt issued to pay for the project.

The abatement is one form of a in lieu of tax program, which can be structured in any number of ways. One of the most basic methods is to negotiate to limit or defer property taxes on a developer. Generally speaking, local taxpayers subsidize the development, which might otherwise have gone elsewhere.

Three of the board’s 10 members were present.

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