Kirk McClure

April 20, 2007

Lawrence has granted 25 property tax abatements to 17 firms

Draft 2006 Tax Abatement Report

• Describes 8 firms with 11 abatements.

Firms are considered to be in substantial compliance if they generated 90% of promised full-time jobs, paid 90% of the mean wage in each occupational category, and invested 90% of promised investment.

• Full-time jobs:            5 are in substantial compliance, and 3 are not.
• Wages:                       4 are in substantial compliance, and 4 are not.
• Investment:                 5 are in substantial compliance, and 3 are not.

Prior tax abatement reports

• 9 firms were granted tax abatements but were not reported in 2006.  Of these:

• 2 firms have had there abatement expire with the firm in substantial compliance on jobs generated and with the firm still in operation.

• 4 firms are within the benefit period but the firm has gone out of business.
• 2 other firms did not report.
• 1 firm surrendered its abatement.

Record of performance

This is an extremely poor record of performance.

With a program granting 25 abatements to 17 firms over a 15 year period, the City should have only a small number of failed abatements or firms out of compliance.  A 10 percent non-compliance level would suggest that the Public Incentives Review Committee (PIRC) should be deliberating over 2 to 3 abatements in non-compliance and only 1 or 2 firms not performing.  In addition, the City should be learning from its experience with program performance improving over time.  Neither is the case.

· Of the 17 firms granted abatements, evaluated in terms of jobs and wages created:

• 6 have met or are meeting the promised jobs and wages.
• 11 are either out of compliance, out of business, or not reporting,

This record of success is unimpressive.  The abatements are: 

• Successful only:         35% of the time;
• Non-compliant:          40% of the time; and
• Complete failure:       25% of the time.

There is no record to progress.  The trend for non-compliance shows no signs of improving.  The record of firms closing shows no signs of improving.

Recommendation

The City Commission should be informed that this program is performing at such a poor level that its continued use is unwise. 

The PIRC should confirm that tax abatements have been shown to have no measurable impact upon a firm’s location or expansion decision.  (See:  Luke Middleton, Research Economist. Literature Review: Tax Abatements and

Economic Development Incentives, Center for Economic and Business Analysis, University of Kansas, attached).

The PIRC should recommend that the City focus its attention on those economic development strategies that have proven successful including: 

• Ensuring adequate supplies of land for employment centers;
• Provision of a highly skilled labor force at competitive wage levels; and
• Provision adequate infrastructure serving the needs of the firms.