Special Tax Districts and Business Incentives: Violation of Equal Treatment?
7/12/2004 by Richard Hamming
The Handbook of Texas defines “Special Tax Districts” as follows:
“Special tax districts are those units of local government, exclusive of the county and incorporated municipality, which have separate governing bodies, independent, in general, of other local governments, with power to provide some governmental or quasi-governmental service and to raise revenue by taxation, special assessment, or charges for service. With the exception of school districts, historically most special districts have as their constitutional basis two amendments to the Constitution of 1876: (1) Article III, section 52 (1904), allowing the formation of special districts that could incur indebtedness up to one-fourth of the assessed property valuation, and (2) the conservation amendment, Article XVI, section 59 (1917), allowing the establishment of conservation and reclamation districts with no limit as to amount of debt or taxation.”[1]
Special Tax Districts are used by governments to provide funding for a variety of perceived necessities. Organizations and programs have been established and implemented throughout the nation to promote these tax districts, as well as through the use of tax incentive programs and subsidies. Two organizations in the state of Michigan include the Michigan Economic Growth Authority (MEGA) and the Michigan Economic Development Corporation (MEDC). Regional and local groups have also been organized throughout Michigan for varying sizes of programs and agendas. One group in Michigan is called CORE (Creating Opportunities for Renewed Economies).[2]
MEGA was enacted by Michigan in 1995 to promote high quality economic growth and job creation. Eligible companies may receive a tax credit against the Michigan Single Business Tax. Each credit may be awarded for up to twenty years and up to 100% of the amount attributed to the project. Some of the factors which affect the amount and duration of awarded credits include: the number of jobs created, the average wage of new jobs being created, total capital investment of the business, and the impact of the project on Michigan’s economy. Typical eligible companies are involved in manufacturing, research and development, or wholesale and trade.[3]
MEDC handles business development, incentives, tax cuts, smart labor force and education. According to the MEDC website, Michigan has some of the most innovative tax incentive programs in the United States. The main sources of taxes are the Single Business Tax (SBT), property taxes, and sales and use taxes. SBT is a modified value-added tax that declines 0.1% per year until eliminated in 2021. The SBT offers exemptions, deductions and credits, including an investment tax credit for capital purchases made in Michigan, and provides eligible small businesses an alternative tax of 2% on adjusted business income.[4]
Michael LaFaive with the Mackinac Center for Public Policy mentions that the MEDC is the agency that oversees Michigan’s “Renaissance Zone” program, which provides tax relief to many specific areas of various cities throughout the state. LaFaive states that recent state Senate hearings have considered “whether Michigan’s government should be in the business of trying to pick winners and losers in the marketplace.” Robert D. Plattner, a correspondent for State Tax Notes, argues that “tax incentives that cause a ‘spillover’ tax relief are also unconstitutional.” Spillover relief occurs when companies are given incentives to expand existing facilities rather than build new ones. LaFaive’s message to state lawmakers: “it’s fundamentally unfair for government to grant advantage to one business and not to others.”[5]
Incentives, typically business incentives, are a common method used by states and cities to attract businesses into the area. According to the MEDC government website, Michigan’s incentives “seek to attract and retain high-quality jobs for a highly-skilled workforce, as well as maintain a vibrant economic environment for the business community.”[6] Articles and publications in recent years tend to portray how unfair business incentives are in relation to specific tax districts. The following examples of incentives reflect this opinion.
John Hood, president of the John Locke Foundation and publisher of Carolina Journal wrote last month about this “controversial issue: targeted tax incentives for business.” Hood discusses that “there is a good case to be made that selective tax incentives violate the federal constitution’s Interstate Commerce Clause, which effectively forbids state governments from engaging in ‘trade wars’ via…tariffs. Tax laws that fail to treat firms doing business in your state the same…arguably create the kind of interstate trade barrier that the federal constitution forbids.”[7]
The vice president of the John Locke Foundation, Don Carrington defined incentives (or “corporate welfare”) as follows: “any government act that gives to a company or industry a benefit unavailable to others. It could come as a cash grant, free land, a tax break or any other exclusive arrangement.” He emphasizes that the public is becoming increasingly intolerant of this “because giving away millions of dollars of other people’s money violates the economic and moral principles of most citizens.”[8] Fortunately a common way for tax incentives to be approved involves voting. Discussions regarding equal treatment should take place prior to elections.
In a brief submitted by Paul Stam in Maready v. City of Winston-Salem, incentives are again presented as “bad public policy.” The initial portion of the summary of the article follows:
“Targeted state incentives do not provide a net economic gain. Incentives merely redistribute jobs and investment from one business to another and from one region to another. Price adjustments in free competitive markets lead to maximum efficiency in the use of resources and maximum benefit for all. Targeted incentives destroy the efficiency of the free market by favoring inefficient businesses while disfavoring efficient ones. Once this process of incentive price subsidy begins, a number of perverse market consequences result.”[9]
Stam continues later in the article to describe how the government “has no way of determining the social advantages of its decision.” Winners and losers emerge as a result, which cannot be determined in advance.[10]
Peter Enrich, Professor and Associate Dean at Northeastern University School of Law in Boston, also contributed an article regarding incentives. Enrich discusses how eliminating incentives has been a challenging game to play. He does add that “the empirical evidence suggests that tax breaks are a very minor factor in most business location decisions.”[11] This statement may lead to the conclusion that although tax incentives for businesses are unfair and should be eliminated, they really have little impact on decisions made by many companies when choosing where to build or relocate.
Incentives are, however intended for good and for the well being of the community (as defined by the government). Some incentives do help create jobs and others work toward revitalizing and improving communities. A national non-profit organization created by Congress claims to have “successfully built healthy communities for 25 years.” This organization is the Neighborhood Reinvestment Corporation and was created under Title VI of the Housing and Community Development Amendments of 1978, P.L. 95-557 to “revitalize older urban neighborhoods by mobilizing public, private, and community resources at the neighborhood level.”[12]
There are even companies that specialize in helping companies utilize any and all tax incentives available. Incentis Group, for example, provides services including incentives structuring and negotiating, tax burden and incentives analyses, incentives enhancement strategies, incentives and credit compliance, multi-state credits and incentive reviews, site selection, location analysis, economic and fiscal impact studies, economic development consulting, and new market tax credit.[13]
Incentives are not necessarily related to the establishment of special tax districts. Many of these districts are created for specific purposes that may not have a very long lifespan, and often, the taxpayers themselves are in favor of the special tax districts. Examples of recent special tax district issues in the news around the country include Atlanta’s Belt Line transit corridor into downtown. As reported by Julie Hairston with the Atlanta Journal-Constitution, Mayor Shirley Franklin “called the Belt Line ‘a huge opportunity’ for the city to expand its green space, provide effective transit and foster economic development.”[14] A committee has been assembled and is expected to develop a plan for location and possibilities by the end of 2004.
An editorial from Greensboro, North Carolina discussed a request by downtown property owners for a special “tax-and-service” district. The money levied from this district would be used to market the area and keep it clean and “safe.” The businesses desire to attract visitors by enhancing the downtown services and holding more events. The boundaries for the tax district are yet to be determined, and the city is considering added additional police foot patrols.[15]
Often special tax districts strictly levy commercial and business taxpayers. For example, if the property owners are interested, a special tax district in Gainesville, Virginia will be instituted to help pay for projects that had been placed on the “back burner” by the Virginia Department of Transportation (VDOT). One main project to pursue, according to Eric Weiss, a Washington Post staff writer, is the “easing of the gridlock in Gainesville at Interstate 66 and Route 29.” Reactions to this proposal were initially cautious. Complaints about traffic congestion come from many businesses, according to Kris Spitler, chair of the Prince William County Greater Manassas Chamber of Commerce. Weiss states, “she (Spitler) said that special taxing districts have worked well in other places and that the business community would support (the) supervisors.”[16]
John Kiesewetter with the Cincinnati Enquirer reported on a special tax district plan in Hamilton, Ohio that would implement tax-increment financing districts. These districts, according to Butler County Commissioner Michael A. Fox, would allow for “local governments to pay for improvements in an area using anticipated tax increases – the tax increment – from increased property values after the improvements.”[17] Lakota School officials, the proposed recipients of the majority of the money, expressed anxiety since apparently there was little to no communication between the school and the commissioners. This could certainly cause problems with upcoming decision-making and votes, as they occur.
In Galesville, Maryland, the residents are pushing for a special tax district to pay for repairs to the Galesville Memorial Hall. Bill Woodfield, whose family donated the original land for the hall, questioned why donations couldn’t continue to work, but mentioned “as long as the money is dedicated strictly for hall repairs, he said he would not oppose the district.”[18] The variety of sizes and reasons for instituting special tax districts throughout the country shows how widely accepted the process of using these districts.
A specific type of special tax district was considered in Derry, New Hampshire in February of 2004 called a Tax Increment Finance (TIF) District. A bulletin from the New Hampshire Office of State Planning states, “once public improvements in the district have been paid for, the increased tax value of the district would become part of the general revenue of the town and benefit everyone.” TIF districts have been used in other New Hampshire communities previously.[19] Another TIF District was created as a part of a special tax district in the Chicago area in January 2004. The Route 12 taxing district unanimously approved after the school districts signed an intergovernmental agreement with the Village of Fox Lake. As stated in an article by Lee Filas:
A tax increment financing district is established by municipalities to help offset developer costs of rebuilding in blighted areas. Under the state TIF law, property tax rates are frozen at current levels for up to 23 years with money generated from assessments going back to the developer to help offset the costs of construction.[20]
In Virginia, landowners in the Tysons Corner area of Fairfax County pushed for a special tax district to extend the Metrorail to Dulles International Airport. These commercial property owners would pay an additional real estate tax for the extension of the rail. Eric Peterson, director of Landowners Economic Alliance for the Dulles Extension of Rail (LEADER), mentioned that “to form a tax district, a majority of property owners must support it.”[21]
Some special taxes are implemented to help pay for improving existing schools and building new schools. In Victorville, California, several school districts considered forming community facilities districts with new housing developments. Due to the booming new housing market, developers approached the school officials to form the new special districts. Special taxes would be tacked onto new home purchases. The executive director of the Howard Jarvis Taxpayers Association, Kris Vosburgh, said “the law is clear that buyers must be fully informed of the additional tax before they buy the home.”[22]
In New York City, a special school district known as the Chancellor’s District was successful during it’s existence from 1996 through 2003 in faring better than other struggling schools in the area and attracting more certified teachers. Its elimination was a very debated issue between both sides. David Herszenhorn with the New York Times reported regarding a three-year study, “the teachers’ union president, Randi Weingarten, a stout critic of the decision to end the Chancellor’s District, said yesterday that she found the results of the N.Y.U. study ‘both incredibly gratifying and incredibly sad.’” The overhaul of the school system, known as Children First, eliminated the special district so that reform takes place throughout all of the hundreds of under-performing schools in the system, rather than the select few affected by the Chancellor’s District.[23] This decision in New York implies an elimination of a special district that was clearly violating equal treatment among school districts within the city.
Another type of special tax district is called regional special districts. An example of this type is the Zoo-Museum District (ZMD) in St. Louis, Missouri, which was established in 1971. According to the St. Louis government website, the five entities of the ZMD are financed by property taxes of the city and county. The institutions that are part of the ZMD are the St. Louis Zoological Park, the St. Louis Art Museum, the Missouri Botanical Garden, the St. Louis Science Center, and the Missouri History Museum. The property taxes also allow for free entry by visitors (except for the Botanical Garden).[24]
Business Improvement Districts (BIDs) are another common type of special tax district utilized by state and local governments. BIDs are also referred to as special improvement districts, special assessment districts, business assistance districts, business improvement zones and special services districts.[25] BIDS are establish to provide for the particular needs of the district. According to Paul R. Levy in the introduction to Lawrence Houstoun’s book, BIDs work to “improve the area’s safety and appearance; to enhance its image and competitiveness; to boost office, hotel, and retail occupancy; to animate streets; and to foster a resurgence in city-center housing.”[26]
These intentions may sound like a great idea and plan initially, but problems can arise within such districts. Geoffrey Booth warns “too many competing districts within a region can lead to a surplus of retail space, lease restrictions, and low rents that frustrate rather than facilitate the transformation of suburban business districts.” Booth also states that for ideal development and opportunities to function properly, the state and local governments involved need to take into account all aspects and trends of the local residential, business, and cultural communities.[27]
The establishment of special tax districts should take into account the use of a cost-benefit analysis by whoever is involved (typically by the government) to initially determine if the district is a financially responsible decision. The property owners’ and taxpayers’ input would then be acknowledged through a process such as voting. This ideal situation has been shown to not always be the case throughout the states and local governments. The issue that arises from this discussion is if the creation of special tax districts provides unfair and unequal treatment to others. The examples given throughout the country regarding special tax districts, business tax incentives, Business Improvement Districts, school districts, and other regional special districts provide differing opinions and results from how the various municipalities handle and approach these issues. Arguments for both sides can be found, and unfortunately a resolution to these issues will not likely arrive soon.
Bibliography
[T1]
“About Us.” NeighborWorks – About Us. (1 July 2004).
Berg, Emily. “Special Taxes to Pay for New Schools in Victorville, California.” Daily Press, 3 April 2004.
Booth, Geoffrey. Ten Principles for Reinventing America’s Suburban Business District. Washington: ULI – the Urban Land Institute, 2002.
“Business Incentives: Introduction.” MEDC – Business Incentives, 2004.
Carrington, Don. “A Winning Strategy to Ax the Incentives.” The News & Observer, 6 August 1999.
“A Downtown Tax District Must Have Business Backing.” News & Record (Greensboro, NC), 21 March 2004, H2.
Enrich, Peter D. “Breaking the Incentive Cycle: A Role for the Courts.” Accountability: The Newsletter of the Business Incentives Clearinghouse, September 1999. (1 July 2004).
Filas, Lee. “Special Tax Zone for Water Park Moves Forward.” Chicago Daily Herald, 15 January 2004, News 4.
Hairston, Julie B. “Belt Line Tax District under Study.” The Atlanta Journal-Constitution, 13 May 2004, 2C.
Herszenhorn, David M. “A Special School District is Gone, but a Study Cites its Benefits.” The New York Times, 1 July 2004, 2B.
Hood, John. “Credits to the Supreme Court.” Carolina Journal Online, 14 June 2004. (1 July 2004).
Hough, Debbie. “Galesville to Vote on Special Tax District.” The Capital (Annapolis, MD), 24 March 2004, C3.
Houghton, Kimberly. “Town to Consider Special Tax District.” The Union Leader (Manchester, NH), 17 February 2004, B1.
Houstoun, Lawrence O., Jr. BIDs: Business Improvement Districts. Washington: ULI – the Urban Land Institute, 2003.
“Incentives Structuring & Negotiating.” Incentis Group: Incentives Structuring & Negotiating, 2004. (1 July 2004).
Kiesewetter, John. “Bulter County to Create Special Tax Districts.” The Cincinnati Enquirer, 7 May 2004.
LaFaive, Michael D. “Are Targeted Incentives Constitutional?” Mackinac Center for Public Policy – Economic Development, 1 December 2003. (1 July 2004).
“Program Purpose and Description” and “Eligibility.” Michigan Economic Growth Authority (MEGA). (24 June 2004).
“Regional Special Districts.” About St. Louis: Government. (1 July 2004).
Rein, Lisa. “Virginia Landowners Offer Special Tax to Revive Metro Dulles Route.” The Washington Post, 22 January 2004, B01.
Stam, Paul and Tom Vass. “Targeted Business Incentives are Bad Public Policy.” Paul Stam - Articles. 19 February 2003. (29 June 2004).
“Tax Districts, Special.” The Handbook of Texas Online. 23 July 2003. (10 July 2004).
“Tax Cuts.” MEDC – Tax Cuts, 2004.
Weiss, Eric M. “Gainesville Tax District Proposed.” The Washington Post, 24 June 2004, T01.
“What are Business Improvement Districts?” What are BIDs? 26 April 1999. (1 July 2004).
[1] “Tax Districts, Special,” The Handbook of Texas Online, 23 July 2003, (10 July 2004).
[2] CORE has coordinated several Downtown Development Authorities (DDA) Michigan bills which have recently passed the state Senate in June 2004 (SB1201, SB1202, SB1203 and SB1240).
[3] “Program Purpose and Description” and “Eligibility,” Michigan Economic Growth Authority (MEGA), (24 June 2004).
[4] “Tax Cuts,” MEDC – Tax Cuts, 2004,
[5] Michael D. LaFaive, “Are Targeted Incentives Constitutional?” Mackinac Center for Public Policy – Economic Development, 1 December 2003, (1 June 2004).
[6] “Business Incentives: Introduction,” MEDC – Business Incentives, 2004,
[7] John Hood, “Credits to the Supreme Court,” Carolina Journal Online, 14 June 2004, (1 July 2004).
[8] Don Carrington, “A Winning Strategy to Ax the Incentives,” The News & Observer, 6 August 1999.
[9] Paul Stam and Tom Vass, “Targeted Business Incentives are Bad Public Policy” Paul Stam – Articles, 19 February 2003, (29 June 2004).
[10] Stam and Vaas, par. 30.
[11] Peter D. Enrich, “Breaking the Incentive Cycle: A Role for the Courts,” Accountability: The Newsletter of the Business Incentives Clearinghouse, September 1999, (1 July 2004).
[12] “About Us,” NeighborWorks – About Us, (1 July 2004).
[13] “Incentives Structuring & Negotiating,” Incentis Group: Incentives Structuring & Negotiating, 2004, (1 July 2004).
[14] Julie B. Hairston, “Belt Line Tax District Under Study” The Atlanta Journal-Constitution, 13 May 2004, 2C.
[15] “A Downtown Tax District Must Have Business Backing,” News & Record (Greensboro, NC), 21 March 2004, H2.
[16] Eric M. Weiss, “Gainesville Tax District Proposed,” The Washington Post, 24 June 2004, T01.
[17] John Kiesewetter, “Bulter County to Create Special Tax Districts,” The Cincinnati Enquirer, 7 May 2004.
[18] Debbie Hough, “Galesville to Vote on Special Tax District,” The Capital (Annapolis, MD), 24 March 2004, C3.
[19] Kimberly Houghton, “Town to Consider Special Tax District,” The Union Leader (Manchester, NH), 17 February 2004, B1.
[20] Lee Filas, “Special Tax Zone for Water Park Moves Forward,” Chicago Daily Herald, 15 January 2004, News 4.
[21] Lisa Rein, “Virginia Landowners Offer Special Tax to Revive Metro Dulles Route,” The Washington Post, 22 January 2004, B01.
[22] Emily Berg, “Special Taxes to Pay for New Schools in Victorville, California,” Daily Press, 3 April 2004.
[23] David M. Herszenhorn, “A Special School District is Gone, but a Study Cites its Benefits,” The New York Times, 7 July 2004, B2.
[24] “Regional Special Districts,” About St. Louis: Government, (1 July 2004).
[26] Lawrence O. Houstoun, Jr., BIDs: Business Improvement Districts (Washington: ULI – the Urban Land Institute, 2003).
[27] Geoffrey Booth, Ten Principles for Reinventing America’s Suburban Business District (Washington: ULI – the Urban Land Institute, 2002).
[T1]Can be “Works Cited” or “References” also..
“Special tax districts are those units of local government, exclusive of the county and incorporated municipality, which have separate governing bodies, independent, in general, of other local governments, with power to provide some governmental or quasi-governmental service and to raise revenue by taxation, special assessment, or charges for service. With the exception of school districts, historically most special districts have as their constitutional basis two amendments to the Constitution of 1876: (1) Article III, section 52 (1904), allowing the formation of special districts that could incur indebtedness up to one-fourth of the assessed property valuation, and (2) the conservation amendment, Article XVI, section 59 (1917), allowing the establishment of conservation and reclamation districts with no limit as to amount of debt or taxation.”[1]
Special Tax Districts are used by governments to provide funding for a variety of perceived necessities. Organizations and programs have been established and implemented throughout the nation to promote these tax districts, as well as through the use of tax incentive programs and subsidies. Two organizations in the state of Michigan include the Michigan Economic Growth Authority (MEGA) and the Michigan Economic Development Corporation (MEDC). Regional and local groups have also been organized throughout Michigan for varying sizes of programs and agendas. One group in Michigan is called CORE (Creating Opportunities for Renewed Economies).[2]
MEGA was enacted by Michigan in 1995 to promote high quality economic growth and job creation. Eligible companies may receive a tax credit against the Michigan Single Business Tax. Each credit may be awarded for up to twenty years and up to 100% of the amount attributed to the project. Some of the factors which affect the amount and duration of awarded credits include: the number of jobs created, the average wage of new jobs being created, total capital investment of the business, and the impact of the project on Michigan’s economy. Typical eligible companies are involved in manufacturing, research and development, or wholesale and trade.[3]
MEDC handles business development, incentives, tax cuts, smart labor force and education. According to the MEDC website, Michigan has some of the most innovative tax incentive programs in the United States. The main sources of taxes are the Single Business Tax (SBT), property taxes, and sales and use taxes. SBT is a modified value-added tax that declines 0.1% per year until eliminated in 2021. The SBT offers exemptions, deductions and credits, including an investment tax credit for capital purchases made in Michigan, and provides eligible small businesses an alternative tax of 2% on adjusted business income.[4]
Michael LaFaive with the Mackinac Center for Public Policy mentions that the MEDC is the agency that oversees Michigan’s “Renaissance Zone” program, which provides tax relief to many specific areas of various cities throughout the state. LaFaive states that recent state Senate hearings have considered “whether Michigan’s government should be in the business of trying to pick winners and losers in the marketplace.” Robert D. Plattner, a correspondent for State Tax Notes, argues that “tax incentives that cause a ‘spillover’ tax relief are also unconstitutional.” Spillover relief occurs when companies are given incentives to expand existing facilities rather than build new ones. LaFaive’s message to state lawmakers: “it’s fundamentally unfair for government to grant advantage to one business and not to others.”[5]
Incentives, typically business incentives, are a common method used by states and cities to attract businesses into the area. According to the MEDC government website, Michigan’s incentives “seek to attract and retain high-quality jobs for a highly-skilled workforce, as well as maintain a vibrant economic environment for the business community.”[6] Articles and publications in recent years tend to portray how unfair business incentives are in relation to specific tax districts. The following examples of incentives reflect this opinion.
John Hood, president of the John Locke Foundation and publisher of Carolina Journal wrote last month about this “controversial issue: targeted tax incentives for business.” Hood discusses that “there is a good case to be made that selective tax incentives violate the federal constitution’s Interstate Commerce Clause, which effectively forbids state governments from engaging in ‘trade wars’ via…tariffs. Tax laws that fail to treat firms doing business in your state the same…arguably create the kind of interstate trade barrier that the federal constitution forbids.”[7]
The vice president of the John Locke Foundation, Don Carrington defined incentives (or “corporate welfare”) as follows: “any government act that gives to a company or industry a benefit unavailable to others. It could come as a cash grant, free land, a tax break or any other exclusive arrangement.” He emphasizes that the public is becoming increasingly intolerant of this “because giving away millions of dollars of other people’s money violates the economic and moral principles of most citizens.”[8] Fortunately a common way for tax incentives to be approved involves voting. Discussions regarding equal treatment should take place prior to elections.
In a brief submitted by Paul Stam in Maready v. City of Winston-Salem, incentives are again presented as “bad public policy.” The initial portion of the summary of the article follows:
“Targeted state incentives do not provide a net economic gain. Incentives merely redistribute jobs and investment from one business to another and from one region to another. Price adjustments in free competitive markets lead to maximum efficiency in the use of resources and maximum benefit for all. Targeted incentives destroy the efficiency of the free market by favoring inefficient businesses while disfavoring efficient ones. Once this process of incentive price subsidy begins, a number of perverse market consequences result.”[9]
Stam continues later in the article to describe how the government “has no way of determining the social advantages of its decision.” Winners and losers emerge as a result, which cannot be determined in advance.[10]
Peter Enrich, Professor and Associate Dean at Northeastern University School of Law in Boston, also contributed an article regarding incentives. Enrich discusses how eliminating incentives has been a challenging game to play. He does add that “the empirical evidence suggests that tax breaks are a very minor factor in most business location decisions.”[11] This statement may lead to the conclusion that although tax incentives for businesses are unfair and should be eliminated, they really have little impact on decisions made by many companies when choosing where to build or relocate.
Incentives are, however intended for good and for the well being of the community (as defined by the government). Some incentives do help create jobs and others work toward revitalizing and improving communities. A national non-profit organization created by Congress claims to have “successfully built healthy communities for 25 years.” This organization is the Neighborhood Reinvestment Corporation and was created under Title VI of the Housing and Community Development Amendments of 1978, P.L. 95-557 to “revitalize older urban neighborhoods by mobilizing public, private, and community resources at the neighborhood level.”[12]
There are even companies that specialize in helping companies utilize any and all tax incentives available. Incentis Group, for example, provides services including incentives structuring and negotiating, tax burden and incentives analyses, incentives enhancement strategies, incentives and credit compliance, multi-state credits and incentive reviews, site selection, location analysis, economic and fiscal impact studies, economic development consulting, and new market tax credit.[13]
Incentives are not necessarily related to the establishment of special tax districts. Many of these districts are created for specific purposes that may not have a very long lifespan, and often, the taxpayers themselves are in favor of the special tax districts. Examples of recent special tax district issues in the news around the country include Atlanta’s Belt Line transit corridor into downtown. As reported by Julie Hairston with the Atlanta Journal-Constitution, Mayor Shirley Franklin “called the Belt Line ‘a huge opportunity’ for the city to expand its green space, provide effective transit and foster economic development.”[14] A committee has been assembled and is expected to develop a plan for location and possibilities by the end of 2004.
An editorial from Greensboro, North Carolina discussed a request by downtown property owners for a special “tax-and-service” district. The money levied from this district would be used to market the area and keep it clean and “safe.” The businesses desire to attract visitors by enhancing the downtown services and holding more events. The boundaries for the tax district are yet to be determined, and the city is considering added additional police foot patrols.[15]
Often special tax districts strictly levy commercial and business taxpayers. For example, if the property owners are interested, a special tax district in Gainesville, Virginia will be instituted to help pay for projects that had been placed on the “back burner” by the Virginia Department of Transportation (VDOT). One main project to pursue, according to Eric Weiss, a Washington Post staff writer, is the “easing of the gridlock in Gainesville at Interstate 66 and Route 29.” Reactions to this proposal were initially cautious. Complaints about traffic congestion come from many businesses, according to Kris Spitler, chair of the Prince William County Greater Manassas Chamber of Commerce. Weiss states, “she (Spitler) said that special taxing districts have worked well in other places and that the business community would support (the) supervisors.”[16]
John Kiesewetter with the Cincinnati Enquirer reported on a special tax district plan in Hamilton, Ohio that would implement tax-increment financing districts. These districts, according to Butler County Commissioner Michael A. Fox, would allow for “local governments to pay for improvements in an area using anticipated tax increases – the tax increment – from increased property values after the improvements.”[17] Lakota School officials, the proposed recipients of the majority of the money, expressed anxiety since apparently there was little to no communication between the school and the commissioners. This could certainly cause problems with upcoming decision-making and votes, as they occur.
In Galesville, Maryland, the residents are pushing for a special tax district to pay for repairs to the Galesville Memorial Hall. Bill Woodfield, whose family donated the original land for the hall, questioned why donations couldn’t continue to work, but mentioned “as long as the money is dedicated strictly for hall repairs, he said he would not oppose the district.”[18] The variety of sizes and reasons for instituting special tax districts throughout the country shows how widely accepted the process of using these districts.
A specific type of special tax district was considered in Derry, New Hampshire in February of 2004 called a Tax Increment Finance (TIF) District. A bulletin from the New Hampshire Office of State Planning states, “once public improvements in the district have been paid for, the increased tax value of the district would become part of the general revenue of the town and benefit everyone.” TIF districts have been used in other New Hampshire communities previously.[19] Another TIF District was created as a part of a special tax district in the Chicago area in January 2004. The Route 12 taxing district unanimously approved after the school districts signed an intergovernmental agreement with the Village of Fox Lake. As stated in an article by Lee Filas:
A tax increment financing district is established by municipalities to help offset developer costs of rebuilding in blighted areas. Under the state TIF law, property tax rates are frozen at current levels for up to 23 years with money generated from assessments going back to the developer to help offset the costs of construction.[20]
In Virginia, landowners in the Tysons Corner area of Fairfax County pushed for a special tax district to extend the Metrorail to Dulles International Airport. These commercial property owners would pay an additional real estate tax for the extension of the rail. Eric Peterson, director of Landowners Economic Alliance for the Dulles Extension of Rail (LEADER), mentioned that “to form a tax district, a majority of property owners must support it.”[21]
Some special taxes are implemented to help pay for improving existing schools and building new schools. In Victorville, California, several school districts considered forming community facilities districts with new housing developments. Due to the booming new housing market, developers approached the school officials to form the new special districts. Special taxes would be tacked onto new home purchases. The executive director of the Howard Jarvis Taxpayers Association, Kris Vosburgh, said “the law is clear that buyers must be fully informed of the additional tax before they buy the home.”[22]
In New York City, a special school district known as the Chancellor’s District was successful during it’s existence from 1996 through 2003 in faring better than other struggling schools in the area and attracting more certified teachers. Its elimination was a very debated issue between both sides. David Herszenhorn with the New York Times reported regarding a three-year study, “the teachers’ union president, Randi Weingarten, a stout critic of the decision to end the Chancellor’s District, said yesterday that she found the results of the N.Y.U. study ‘both incredibly gratifying and incredibly sad.’” The overhaul of the school system, known as Children First, eliminated the special district so that reform takes place throughout all of the hundreds of under-performing schools in the system, rather than the select few affected by the Chancellor’s District.[23] This decision in New York implies an elimination of a special district that was clearly violating equal treatment among school districts within the city.
Another type of special tax district is called regional special districts. An example of this type is the Zoo-Museum District (ZMD) in St. Louis, Missouri, which was established in 1971. According to the St. Louis government website, the five entities of the ZMD are financed by property taxes of the city and county. The institutions that are part of the ZMD are the St. Louis Zoological Park, the St. Louis Art Museum, the Missouri Botanical Garden, the St. Louis Science Center, and the Missouri History Museum. The property taxes also allow for free entry by visitors (except for the Botanical Garden).[24]
Business Improvement Districts (BIDs) are another common type of special tax district utilized by state and local governments. BIDs are also referred to as special improvement districts, special assessment districts, business assistance districts, business improvement zones and special services districts.[25] BIDS are establish to provide for the particular needs of the district. According to Paul R. Levy in the introduction to Lawrence Houstoun’s book, BIDs work to “improve the area’s safety and appearance; to enhance its image and competitiveness; to boost office, hotel, and retail occupancy; to animate streets; and to foster a resurgence in city-center housing.”[26]
These intentions may sound like a great idea and plan initially, but problems can arise within such districts. Geoffrey Booth warns “too many competing districts within a region can lead to a surplus of retail space, lease restrictions, and low rents that frustrate rather than facilitate the transformation of suburban business districts.” Booth also states that for ideal development and opportunities to function properly, the state and local governments involved need to take into account all aspects and trends of the local residential, business, and cultural communities.[27]
The establishment of special tax districts should take into account the use of a cost-benefit analysis by whoever is involved (typically by the government) to initially determine if the district is a financially responsible decision. The property owners’ and taxpayers’ input would then be acknowledged through a process such as voting. This ideal situation has been shown to not always be the case throughout the states and local governments. The issue that arises from this discussion is if the creation of special tax districts provides unfair and unequal treatment to others. The examples given throughout the country regarding special tax districts, business tax incentives, Business Improvement Districts, school districts, and other regional special districts provide differing opinions and results from how the various municipalities handle and approach these issues. Arguments for both sides can be found, and unfortunately a resolution to these issues will not likely arrive soon.
Bibliography
[T1]
“About Us.” NeighborWorks – About Us.
Berg, Emily. “Special Taxes to Pay for New Schools in Victorville, California.” Daily Press, 3 April 2004.
Booth, Geoffrey. Ten Principles for Reinventing America’s Suburban Business District. Washington: ULI – the Urban Land Institute, 2002.
“Business Incentives: Introduction.” MEDC – Business Incentives, 2004.
Carrington, Don. “A Winning Strategy to Ax the Incentives.” The News & Observer, 6 August 1999.
“A Downtown Tax District Must Have Business Backing.” News & Record (Greensboro, NC), 21 March 2004, H2.
Enrich, Peter D. “Breaking the Incentive Cycle: A Role for the Courts.” Accountability: The Newsletter of the Business Incentives Clearinghouse, September 1999.
Filas, Lee. “Special Tax Zone for Water Park Moves Forward.” Chicago Daily Herald, 15 January 2004, News 4.
Hairston, Julie B. “Belt Line Tax District under Study.” The Atlanta Journal-Constitution, 13 May 2004, 2C.
Herszenhorn, David M. “A Special School District is Gone, but a Study Cites its Benefits.” The New York Times, 1 July 2004, 2B.
Hood, John. “Credits to the Supreme Court.” Carolina Journal Online, 14 June 2004.
Hough, Debbie. “Galesville to Vote on Special Tax District.” The Capital (Annapolis, MD), 24 March 2004, C3.
Houghton, Kimberly. “Town to Consider Special Tax District.” The Union Leader (Manchester, NH), 17 February 2004, B1.
Houstoun, Lawrence O., Jr. BIDs: Business Improvement Districts. Washington: ULI – the Urban Land Institute, 2003.
“Incentives Structuring & Negotiating.” Incentis Group: Incentives Structuring & Negotiating, 2004.
Kiesewetter, John. “Bulter County to Create Special Tax Districts.” The Cincinnati Enquirer, 7 May 2004.
LaFaive, Michael D. “Are Targeted Incentives Constitutional?” Mackinac Center for Public Policy – Economic Development, 1 December 2003.
“Program Purpose and Description” and “Eligibility.” Michigan Economic Growth Authority (MEGA).
“Regional Special Districts.” About St. Louis: Government.
Rein, Lisa. “Virginia Landowners Offer Special Tax to Revive Metro Dulles Route.” The Washington Post, 22 January 2004, B01.
Stam, Paul and Tom Vass. “Targeted Business Incentives are Bad Public Policy.” Paul Stam - Articles. 19 February 2003.
“Tax Districts, Special.” The Handbook of Texas Online. 23 July 2003.
“Tax Cuts.” MEDC – Tax Cuts, 2004.
Weiss, Eric M. “Gainesville Tax District Proposed.” The Washington Post, 24 June 2004, T01.
“What are Business Improvement Districts?” What are BIDs? 26 April 1999.
[1] “Tax Districts, Special,” The Handbook of Texas Online, 23 July 2003,
[2] CORE has coordinated several Downtown Development Authorities (DDA) Michigan bills which have recently passed the state Senate in June 2004 (SB1201, SB1202, SB1203 and SB1240).
[3] “Program Purpose and Description” and “Eligibility,” Michigan Economic Growth Authority (MEGA),
[4] “Tax Cuts,” MEDC – Tax Cuts, 2004,
[5] Michael D. LaFaive, “Are Targeted Incentives Constitutional?” Mackinac Center for Public Policy – Economic Development, 1 December 2003,
[6] “Business Incentives: Introduction,” MEDC – Business Incentives, 2004,
[7] John Hood, “Credits to the Supreme Court,” Carolina Journal Online, 14 June 2004,
[8] Don Carrington, “A Winning Strategy to Ax the Incentives,” The News & Observer, 6 August 1999.
[9] Paul Stam and Tom Vass, “Targeted Business Incentives are Bad Public Policy” Paul Stam – Articles, 19 February 2003,
[10] Stam and Vaas, par. 30.
[11] Peter D. Enrich, “Breaking the Incentive Cycle: A Role for the Courts,” Accountability: The Newsletter of the Business Incentives Clearinghouse, September 1999,
[12] “About Us,” NeighborWorks – About Us,
[13] “Incentives Structuring & Negotiating,” Incentis Group: Incentives Structuring & Negotiating, 2004,
[14] Julie B. Hairston, “Belt Line Tax District Under Study” The Atlanta Journal-Constitution, 13 May 2004, 2C.
[15] “A Downtown Tax District Must Have Business Backing,” News & Record (Greensboro, NC), 21 March 2004, H2.
[16] Eric M. Weiss, “Gainesville Tax District Proposed,” The Washington Post, 24 June 2004, T01.
[17] John Kiesewetter, “Bulter County to Create Special Tax Districts,” The Cincinnati Enquirer, 7 May 2004.
[18] Debbie Hough, “Galesville to Vote on Special Tax District,” The Capital (Annapolis, MD), 24 March 2004, C3.
[19] Kimberly Houghton, “Town to Consider Special Tax District,” The Union Leader (Manchester, NH), 17 February 2004, B1.
[20] Lee Filas, “Special Tax Zone for Water Park Moves Forward,” Chicago Daily Herald, 15 January 2004, News 4.
[21] Lisa Rein, “Virginia Landowners Offer Special Tax to Revive Metro Dulles Route,” The Washington Post, 22 January 2004, B01.
[22] Emily Berg, “Special Taxes to Pay for New Schools in Victorville, California,” Daily Press, 3 April 2004.
[23] David M. Herszenhorn, “A Special School District is Gone, but a Study Cites its Benefits,” The New York Times, 7 July 2004, B2.
[24] “Regional Special Districts,” About St. Louis: Government,
[26] Lawrence O. Houstoun, Jr., BIDs: Business Improvement Districts (Washington: ULI – the Urban Land Institute, 2003).
[27] Geoffrey Booth, Ten Principles for Reinventing America’s Suburban Business District (Washington: ULI – the Urban Land Institute, 2002).
[T1]Can be “Works Cited” or “References” also..
No comments:
Post a Comment