Tax abatements: The cost of doing business in Hancock County

Incentive packages often include tax breaks offered to companies considering the county for a new business venture or an expansion of current facilities; company leaders promise to create new positions in exchange for deep discounts that save them money on their property taxes in the early stages of development.

The arrangement seeks to create more employment opportunities for Hancock County residents while supporting companies that generate more tax dollars.

But in 2015, nearly a third of the local companies given tax breaks failed to meet at least one of their employment goals, leaving local officials with a tough choice: hold out hope for better performance next year or revoke tax incentives.

Last year, four of the 13 companies that filed annual performance reports with the county fell short of hiring estimates. Those companies received about $14.2 million in tax deductions in 2015, records show. The remaining nine businesses met their promises and, in most cases, surpassed expectations.

This month, government officials debated whether to strip two companies of their property tax discounts, despite pleas from company leaders for more time to meet their goals. The Fortville Town Council agreed to give Genesis Plastics Welding another year to improve, while the Hancock County Council voted to withdraw a tax incentive package for former manufacturing giant EnerDel.

As they approved tax breaks for next year this month, Greenfield City Council members debated whether the city needs a better way to hold companies accountable when they fail to meet expectations.

Property taxes help support county and city expenses, including road work and salaries for emergency personnel. Discounting a company’s taxes reduces public funding, and government leaders say they have to keep taxpayers in mind when they approve incentive packages year after year.

Tax deals vary depending on the scope of a company’s proposed project. For example, the tax package granted to EnerDel, which touted plans to create 1,200 jobs in 2010, would have saved the company $31 million over 10 years. Genesis, on the other hand, listed just 119 jobs in its 2011 plans; it was promised $350,000 in breaks over a 10-year period.

Revoking tax breaks is rare, said Hancock Economic Development Council director Skip Kuker. Even companies that under-perform generally maintain their deductions, county records show.

There is no legally binding threshold companies are required to meet in terms of performance to qualify for tax breaks, and county officials say they try to be understanding when companies don’t prosper as expected.

“Nobody has a crystal ball,” Kuker said. “There are certain situations that are just far beyond the control of the company that you don’t want to punish them.”

Annually, companies requesting tax deductions are required to submit paperwork detailing current performance, including how many people they employ and their salaries, for review by county and municipal councils.

The councils must then decide whether to continue the tax abatements, a 10-year property tax phase-in often negotiated as a means of attracting new development or prompting existing businesses to expand.

Recently, leaders of two Hancock County companies went before governing boards to plead for their annual tax break to be continued, despite having reported employment shortfalls.

Earlier this month, a representative for EnerDel, a lithium battery manufacturer that was expected in 2010 to be one of Hancock County’s biggest economic development deals, told the Hancock County Council the company now has zero full-time employees at its local branch. Still, the company’s CEO, Michael Canada, asked the council to continue its property tax break in 2017.

The council turned him down.

In Fortville, Genesis Plastic Welding, a medical and military device manufacturer, reported about 35 fewer employees than business leaders had promised when accepting a tax break in 2011.

The company’s CEO, Tom Ryder, told government leaders the company had fallen on hard times after a major customer ended its contract with the business, but the company was beginning to rebound and hire more employees.

The council voted to continue giving Genesis its tax deduction, citing Genesis’ dedication to the community.

In Greenfield, city council leaders are considering inviting company leaders to meetings to discuss their performance when they aren’t meeting their goals; council members say they wonder whether the city needs a more formal agreement about expectations.

When a company under-performs, council members owe it to taxpayers to explain why they’re still handing out discounts, said council president Gary McDaniel.

Canceling tax breaks for a business failure like EnerDel is a “no-brainer” because the company had no workers and nothing to offer the county in exchange for a deal, McDaniel said. Sometimes, though, revoking a tax abatement sends the wrong message, he said.

When companies with hundreds of workers fall on hard times or fall victim to a recession, taking away their tax deductions can discourage them from trying to increase their workforce and suggest the city doesn’t support their operations, McDaniel said.

“When I approve a tax abatement, I always look at the bigger picture,” he said. “You have to consider the other hundreds of people they’re giving jobs to and what they’re contributing to the community.”

Governing boards consider the amount of property taxes companies are paying, overall employment numbers and the benefits and salaries provided to local workers, Kuker said.

In 2015, companies receiving tax abatements in Hancock County paid $6.3 million in property taxes and employed 3,770 employees — roughly 1,800 more than estimated — paying an average annual salary of roughly $50,700, according to the Hancock Economic Development Council.

Sometimes, all a company needs is some time to reach its goals, Kuker said. Early in a company’s 10-year tax abatement, it might not immediately meet job creation goals, but over time, the company inches closer to those numbers.

Elanco Animal Health, for example, received a property tax discount from Greenfield in 2012 after promising to create 200 new jobs. In 2014, the company was still about 40 employees short. Since then, the company has added 274 jobs to its Greenfield location, bringing its total workforce to 800, said Keri McGrath, spokeswoman for Elanco.

Tax deductions are an excellent tool officials can use to attract new business to Hancock County, Kuker said. If county officials don’t provide worthy incentives, business leaders will look elsewhere, and the area could miss out on new jobs and property tax revenue, Kuker said.

The compliance forms companies are required to submit allow governing boards to keep tabs on performance, even if it’s gradual, he added.

“Everyone wants to look at the here and now, but I’m looking out to 10 years when these tax abatements are done, and they’re paying the full freight, they’ve got all of their employees and they’re coming to me for an expansion,” Kuker said. “Economic development is a marathon — not a sprint.”