THE SIGNIFICANCE OF TAX ABATEMENTS FOR LOCAL ECONOMIES
By Collin Huffines
In the intricate dance of economic development, strategic incentives have emerged that possess the power to ignite a vibrant ecosystem of commerce and prosperity.
Enter tax abatements--powerful tools utilized by governments to help spur economic growth and attract investment in local communities. Abatements are offered to businesses and reduce or eliminate taxes on capital investment for a specific period, thus encouraging economic activity.
In this article, we unravel the significance of tax abatements as the linchpin of sustainable economic progress in communities.
1. Abatements stimulate business investment.
Tax abatements serve as catalysts for attracting new businesses or encouraging existing ones to expand their operations. By offering tax relief, governments can incentivize entrepreneurs, investors and corporations to invest in their community.
These incentives enable businesses to allocate their tax savings into infrastructure development, hiring additional employees or investing in research and development. Such investments have a ripple effect on the local economy, creating jobs, fostering innovation and boosting economic growth
2. They encourage regional competitiveness.
In an increasingly globalized world, cities and regions are in constant competition to attract business investment and retain talent. What was once seen as providing a competitive edge by helping to make a location more appealing than others not doing abatements, tax abatements are now effectively a requirement for communities hoping to secure corporate expansion and attraction new investment.
By reducing tax burdens, governments can showcase their commitment to supporting business growth, thereby attracting both domestic and foreign investment. This increased competitiveness can lead to the establishment of new industries, diversification of the local economy and the creation of a more vibrant business environment.
3. They revitalize underutilized areas.
Tax abatements are particularly useful in revitalizing economically distressed or underutilized areas. By targeting specific zones or districts, governments can incentivize developers to invest in infrastructure, affordable housing or commercial spaces.
This can help transform neglected neighborhoods into vibrant communities, generate employment opportunities and improve overall quality of life. Tax abatements can kickstart the process of urban renewal, attracting additional private investment and driving sustained economic growth.
4. Abatements help create jobs.
One of the primary benefits of tax abatements is their potential to generate employment opportunities. Job creation is a key component of the tax abatement process, ensuring not just success for the company but for those careers created in the process. When granted to projects that will create high wage careers, these opportunities can have a far-reaching impact, reducing unemployment rates, growing wealth in the community, and increasing consumer spending power.
5. They create long-term revenue growth.
Although tax abatements are commonly seen as a tax base reduction, they can yield substantial long-term benefits. Typically, the sites where tax abatements are approved contribute marginally to the tax base, as opposed to other developed sites.
Depending on the term of the abatement and amount of capital investment, more tax revenue can be generated by the end of the abatement than would be if the abatement and project never happened.
The increased economic activity that abatements spur can lead to higher tax revenues over time, offsetting the initial abatements and providing a net positive impact on government finances.
Additionally, tax abatements can lead to increased property values of surrounding areas, generating additional property tax revenue for local governments.
Most companies expect local governments to provide some level of tax abatement if the company is committing to invest in their communities. Sometimes, this is perceived as if the local governmental unit is “giving away” tax dollars.
However, in today’s competitive business world, providing these incentives is expected. Companies go to a community that is willing to provide abatements. Communities provide abatements to assure they will get the added tax base once the abatement expires.
In growing economies, it is important to view tax abatements as a tool, with which further economic growth and development can happen.
Of course, it is essential for governments to strike a balance between providing incentives and ensuring fiscal responsibility. Tax abatements are not provided, or even warranted, for every business investment that might happen in a community.
Abatements are typically only provided in the event of a massive capital investment, substantial job creation, and higher wages. All of these contribute to the overall prosperity and well-being of their local economies.
Tax abatements in Tippecanoe County
Below is a breakdown of the tax abatements provided in Tippecanoe County. Greater Lafayette Commerce helps the local units of government and the companies with reporting compliance required by state statute.
Tippecanoe County (unincorporated) - Since 2011
- 19 tax abatements
- $43,736,707 investment
- 525 new jobs
City of Lafayette – Since 2011
- 63 tax abatements
- $1,958,554,579 investment
- 15,350 new jobs
City of West Lafayette – Since 2020
- 7 tax abatements
- $50,579,955 investment
- 110 new jobs
Town of Shadeland – 2022
- 2 tax abatements
- $220,000,000 investment
- 80 new jobs (pending completion of new facility)
Total – Since 2011
- 91 tax abatements
- $2,052,871,241 investment
- 15,985 new jobs (since 2011)
Collin Huffines is the economic development manager at Greater Lafayette Commerce.