Much as I regularly lament the lack of comprehensive local coverage of municipal issues in a new newspaper-depleted era, I have to give credit to FranklinNow for their clear explanation of the ramifications of the City of Franklin 2010 Budget's 2.9% tax levy increase.
The new levy is $5.94 per $1,000 of assessed property value, which is reportedly the lowest in Milwaukee County.
Far from hiding it inside the story, FranklinNow included a "By the Numbers" pull quote that did the math for those who may not understand the personal ramifications of a 2.9% tax levy increase (though they did not do so online).
So, a family living in a home in Franklin with an assessed value of $250,000 faces an annual property tax bill increase of... $27.
Twenty-seven dollars.
To keep the increase from rising over the price of dinner for two at Olive Garden, cuts had to be made. In addition to an across-the-board, 1.7% cut in the overall operating budget (from FranklinNow):
The budget reduces funding to the July 4 celebration and St. Martin's Fair by 50 percent, leaves open a highway worker and custodial position and cuts funding for an intern in the planning department.
Tax dollars to other areas, including the library and street improvement funds, were frozen.
Not great news from an Economic Development standpoint.
How, with community amenities and services dwindling, do you attract to Franklin the sorts of companies that will drive down personal property taxes?
Indeed, the cost of a dinner for two at Olive Garden is not so bad, you may argue, but what about business's aversion to taxes? Conservative dogma states that "high" taxes scare business away; Franklin is a "tax hell," and that's hinders its attractiveness to business and commercial development.
Really?
Robert Ady was a longtime executive at the Fantus Company, the legendary site location business that virtually invented the process. Now the head of his own company, Ady International, Robert Ady is said to have assisted in more site locations than any living person.
Based on hundreds of face-to-face dealings with companies deciding upon the best place to locate or relocate, here are some of Ady's observations:
“[I]n the facility location process, taxes are not relatively important when compared with other cost factors such as labor, transportation and utility and occupancy costs. . . . In summary, site selection data do not suggest any correlation between low taxes and positive economic growth, or between high taxes and slow growth. The location requirements are too many, the process too complicated, and other factors too important to justify a strong relationship.”
As further reported by author Greg LeRoy:
Ady’s finding is consistent with those of others: tax-rate differences and tax incentives are too small to make a difference. Subsidies cannot make a bad place a good place. Good places are competitive because they have the long-term business basics that a company needs to produce supply to meet demand. So if cities and states want to grow good jobs, instead of cooking up more tax breaks, they should focus on improving their business basics—the valuable inputs and linkages they have.
Like, for instance, walkability, which has been shown to increase property values in communities that embrace the concept. This is why the National Association of Realtors is a vocal proponent of Smart Growth and Sustainable Development practices - specifically walkable, less car-dependent communities.
Simply put, it's easier to sell houses in - and attract CEOs to - communities that invest in long-term amenities like non-vehicular connectivity. Even if it costs TWO dinners at Olive Garden per year.
LeRoy explains the importance of creating attractive communities:
There are often personal factors in location decisions. Executives especially like to create a short commute for themselves. They may also locate for amenities such as golf courses or good schools for their children. The smaller the company, the more likely it is that such factors will come into play, but they are sometimes evident at bigger companies, too. For example, a study of 38 companies that left New York City found that 31 moved closer to their chief executive’s home, reducing the average CEO commute to eight miles.6 When the founder of Kinko’s sold the company to a group of New York investors, the company moved its headquarters in 2000 from Ventura, California, to Dallas, where the new CEO lived.
Back to the tax boogie-man. Robert Ady's chart of site location cost factors for an office project puts "Labor" at 72% and "Taxes" at a mere 5%.
Again, Greg LeRoy:
Federal tax statistics suggest that even Ady’s low ranking of taxes is overweighted. They provide even stronger evidence on why taxes—and therefore tax breaks—can rarely influence corporate location decisions. Internal Revenue Service statistics show that all state and local taxes make up only 1.2 percent of the typical company’s cost of doing business, far less than labor, materials, marketing, overhead, transportation—the business basics. And then companies get to deduct those state and local taxes when they file their federal tax returns, so Uncle Sam actually foots up to 35 percent of the bill. The bottom line: after federal deductibility, state and local taxes make up only 0.8 percent of the average company’s costs.
And, in Franklin, we have an alderman wishing on a star that a property tax freeze will fill public safety positions, create a sustainable community, and somehow increase the quality of life for local families.
I'll bet him dinner at Olive Garden that he's wrong.
(Greg LeRoy's book is called THE GREAT AMERICAN JOBS SCAM, and is highly recommended for it's solid research and excellent sourcing.)
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