The City of Hometown has a population of about 100,000 and is located in a fairly rural area of a Midwestern state. The current unemployment rate in Hometown is about 5%. A private company has recently approached the City of Hometown about the possibility of having the city provide a tax abatement to the company for the development of a new distribution center on the city’s west side. The center would include several large warehouses and multiple parking lots to facilitate the storage, loading, and unloading of appliances for various large national manufacturers. The company estimates that there would be between 20-25 trucks utilizing the center per day. The company is asking for a tax abatement for city and school district property taxes for a period of 12 years, with all of the property tax being abated in years 1-6 and one-half of the property tax being abated in years 7-12. The owners estimate that there would be approximately 30-40 new jobs created and have assured local officials that they would make an effort to hire local residents. State law indicates that the city government has the sole discretion in terms of deciding whether to grant a property tax abatement within the city limits. The school district may serve in an advisory capacity, but the final decision is made by the city, i.e., the city officials decide whether to grant the tax abatement for both city and school district property taxes. (The city does not have the option of just granting the abatement for city taxes.) The state law provides city governments with fairly broad discretion in terms of whether to grant a tax abatement and the provisions of the abatement, such as the number of years and the level of the tax abatement. The property tax rate for the City of Hometown is currently $.35 per $100 assessed value and the property tax rate for the Hometown School Districts is $1.80 per $100 assessed value. Both jurisdictions utilize a 100% assessment ratio. As the City Manager of Hometown, you have been asked to help the Mayor and City Council members evaluate whether the tax abatement should be approved. In particular, you have been asked to address the following questions:
What are the major issues that you think the Mayor and City Council should focus on?
What additional information would be useful to have? (Be sure to explain why that information would be helpful.)
What changes, if any, would you recommend to the proposed provisions of the agreement? Explain why these revisions would be beneficial.