Detroit shows why cities sour on tax abatements as business lure
Detroit has sold itself short. At least, that's what City Councilman Mel Ravitz thinks. From 1974 to 1982, Detroit didn't collect some $316 million in business property taxes. In return for easing levies on development projects, the city would have jobs for its citizens. Or so the theory went.Skip to next paragraph
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Unfortunately, the concept did not live up to expectations.
Only a quarter of the new jobs promised by businesses were created, and only a little over a third of current jobs were retained, according to Mr. Ravitz, who comes up for reelection in 1985.
His Detroit study is perhaps the most concrete evidence of why local and state governments are souring on such development incentives, generally known as tax abatements.
''A lot of states are realizing they're not as effective as once thought,'' says Bob Reinshuttle, finance and taxation director for the Council of State Governments.
''Outright tax abatements are just old-fashioned,'' adds Robert Clatanoff, a research associate with the International Association of Assessing Officers. ''Tax abatement, no matter how it's structured, is directed toward a single company. . . . What's of interest to city (government) people is developing a whode area.''
Instead, local and state governments are looking to such incentives as enterprise zones and are tailoring programs to meet the specific needs of a company, these observers say. Some Indiana towns, for example, are extending utility services free of charge to new industrial sites.
Detroit's predicament is especially dramatic because of abatements to five General Motors and five Chrysler projects. Altogether, these projects created the largest gaps between job projections and actual jobs, according to Ravitz's figures. (Spokesmen for both auto companies blamed the shortfall on the severe depression in the industry. A GM representative said the company passed up a larger abatement in its Poletown plant because it suspected that there might be delays in opening the plant.)
Still, not counting abatements to the auto giants, more than 70 percent of the jobs expected to be retained actually were, the figures show. New job creation jumped to more than 40 percent.
Ravitz has drafted an ordinance that would bind businesses to deliver the jobs promised when given a tax incentive. Such a contract could be modified with the approval of the City Council, but a company failing to meet its goals would forfeit the incentive and have to pay back taxes.
''It's a businesslike arrangement,'' Ravitz says, which would allow the city to monitor better how businesses are meeting their goals.