EDITORIAL: Evaluate worth of abatements

To lure new jobs to their respective areas, leaders offered tax abatements. They assumed the costs associated with these abatements were well worth the return in jobs and business.

Now, Ball State’s Center for Business and Economic Research is questioning just how effective property tax abatements can be in creating jobs.

In Indiana, the state legislature has authorized several types of tax abatement for use by local governments. These include breaks on taxes qualifying firms pay when they improve real estate and personal property. There are also credits on personal income tax for firms investing in specific locations or activity.

The Ball State study revealed the abatement process may be the cause of higher property tax rates overall and cost millions in lost tax revenue.

The study suggests “either abatements are leading to higher taxes for other taxpayers within a county or that high existing property tax rates lead to heavier use of property tax abatements,” said Michael Hicks, CBER director, who co-authored the study with Dagney Faulk, CBER’s research director. “We found that the frequency of use of abatements also tends to lead to higher local property tax rates for existing taxpayers.”

He said counties employing abatements sparingly and infrequently tend to see lower taxes. Counties offering more generous abatements tend to have higher tax rates for other existing households and businesses.

We are not suggesting local leaders immediately terminate extending abatements to new businesses. However, this study certainly merits a closer look at how abatements can impact property taxes.

If abatements do indeed perform poorly as tools for job growth, leaders must seek other means to boost employment opportunities.

What is needed now is a more comprehensive study of the impacts of abatements. And, as Francis Bacon urged, “research should not be undertaken to contradict and confute, nor to believe and take for granted ... but to weigh and consider.”