Source: Sherman Publications

To abate or not to abate? That is the question

by CJ Carnacchio

March 16, 2011

Opinions were mixed and the debate was passionate, but in the end, the Oxford Township Board chose not to oppose tax abatements requested of the village council by manufacturing companies Royal Oak Boring and Royal Oak Medical Devices.

“These tax abatements are great for the community. Not only does it keep the business in our town, it allows the people that work there (and) live here to spend their money here,” said Jack Curtis, who chairs the township’s Economic Development Subcommittee.

“(Tax abatements) don’t work. I wish they did,” said township Treasurer Joe Ferrari. “If you take a look at any research that’s (been) done on the subject, they don’t work.”

Both Royal Oak Boring and Royal Oak Medical Devices are located at 650 S. Glaspie St. in the village’s industrial district. For specifics regarding their tax abatement requests see the shaded box on Page 11.

Instead of opposing the requested tax abatements, township officials, by a 5-2 vote, recommended the village have some type of “payback provision” just in case the companies decide to leave town and a “scoring system” by which the number of new jobs created and the dollar amount of new investment determines how long the tax breaks last.

Township officials also recommended the village council not grant abatements lasting 12 years as requested by both manufacturers.

The village will conduct a public hearing regarding these proposed abatements on Tuesday, April 12 at 6:30 p.m. in the council chambers (22 W. Burdick St.).

Even though it would impact many other taxing authorities, the decision of whether or not to grant the abatements is entirely up to the village council.

If granted, council can also decide how long the tax breaks last, meaning the term could be less than the requested 12 years.

Ferrari was adamantly opposed to the village granting the abatements because, according to all of the empirical research he’s reviewed, they simply don’t work and the arguments in favor of them are “flawed.”

“The cost the government has to bear is not worth what you’re going to get back in investment,” he said.

He cited Mackie Automotive, a company that used to be located in the village industrial district, as an example.

According to Ferrari, the village gave Mackie four abatements for 12 years. The company then “slowly downsized” and left town after seven or eight years. “We never got a chance to get the ‘wealth’ after the 12 years? Where’s the benefit?” he said.

“They can make you any promise they want” in terms of job creation and new investment, but in the end, Ferrari said companies that are given abatements in Oxford “never (deliver) what they promise.”

The only exception was Master Manufacturing, Inc. (675 S. Glaspie St.). “They actually went through with everything they promised,” the treasurer noted.

Ferrari is of the opinion that the best way to stimulate local economic growth and attract new businesses is to cut tax rates for all property owners.

“If you want to bring business in, cut everybody – everybody from Uncle Boomba’s to Chardonnay,” he said. “What works, study after study says, is a lower tax rate for everybody.”

By granting tax abatements for some businesses and not for others, Ferrari said government is in essence betting on which will succeed and which will fail.

“Government picking winners and losers does not work,” he said.

Village Manager Joe Young pointed out that if the abatements are granted, all of the taxing authorities involved will get 50 percent of the additional tax revenues generated by the new investment.

“You’re going to be getting tax revenues from this investment . . . It’s not a case of all or nothing,” he said.

If the township urged the village to deny the abatements, Young said, “You’re basically saying that you don’t want additional tax revenue from this investment because it’s not 100 percent; it’s half of it.”

Young noted that in addition to the extra tax revenue, this new investment would provide jobs and bring people to live here.

“This is an investment in the community to help us grow,” the manager said. “This is an incentive to have them come to this community as opposed to the one next door. As you know Orion Township is very aggressive in their tax abatements. We’re competing for the well-being of our community, which includes the township.”

Curtis also encouraged the township board to support the requested abatements.

“Tax abatements are being offered by all communities,” he said, noting they’re the reason Orion’s I-75 and M-24 corridors are “lit up” with business.

As part of the Economic Development Subcommittee, Curtis knows firsthand how difficult is it to recruit new businesses to come here without any incentives. “We’re battling this with every person we talk to,” he said. “Oxford’s not offering anything.”

Given the township’s sewer tap and water tap fees are viewed as high doesn’t help either, according to Curtis.

Curtis said Oxford should be doing whatever it can to encourage existing businesses to stay here.

“While we are still walking around with a ham under our arm, we shouldn’t ask where the loaf of bread is,” he said. “We’ve got to keep these businesses in our town.”

Curtis indicated that if Oxford doesn’t give these companies abatements, “you’re going to lose it all” in terms of tax revenue because they’ll move to Orion or perhaps even another county.

He noted that Royal Oak Boring has facilities in Mexico and China, so “they don’t need to be here.”

Township officials also shouldn’t be overlooking the need for new jobs in Curtis’ opinion. “People in the State of Michigan are begging for jobs,” he said.

Township resident Ed Hunwick, who serves on the Oxford Downtown Development Authority board, is of two minds when it comes to the subject tax abatements.

Philosophically, he’s definitely opposed to them. “I think they should make them illegal throughout the country, so it doesn’t happen where you get communities like Oxford and Orion competing for business,” Hunwick said.

However, realistically, given the current economic climate, Hunwick said, “I don’t know how you can turn something like this down. We’re not growing very fast here in this community and we need businesses here in order to increase our tax base.”

Hunwick argued getting half of the extra tax revenue now is “better than nothing.”

“I am a firm believer that tax abatements should be outlawed completely, but until that happens, I think you’ve got to play the game,” he told the board. “It doesn’t make any sense to let (businesses) go to another community.”

“Unfortunately, since (tax abatements) do exist, I think it’s something you have to consider,” Hunwick noted.