Tax Breaks: A Flawed Process

by Jeff Rader

DeKalb County, like the rest of the country, is facing extremely difficult decisions about how to manage its money. The latest example is the proposed tax abatement on behalf of the Town Brookhaven project (on Peachtree Road near Oglethorpe University).

The use of tax breaks for developments is a complex issue that ultimately boils down to a prediction about new wealth and job creation. Therefore, it is important to have a well-defined process that allows policy makers to make the best possible informed decision.

At last week's (June 9) Board of Commissioners meeting, I introduced a resolution to oppose the Town Brookhaven request for tax abatement. The full text of the resolution is posted at the end. On a 4-3 vote, the board voted to defer the resolution until its next full meeting in two weeks.

I am receptive to using tax breaks to spur economic development, so long as it fulfills two conditions. First, the public investment is meant to generate new jobs and wealth that would not otherwise come to DeKalb County. Second, the investment serves as a needed incentive to tip the scales to make the project a reality. Neither condition is fulfilled in the case of the Town Brookhaven project.

In this case, the jobs generated are not new jobs. Because the project is predominantly retail and will be patronized by existing residents in surrounding neighborhoods, the people that may work at Town Brookhaven are the same people already providing retail labor elsewhere in DeKalb, and perhaps across the county line in Fulton.

Moreover, Town Brookhaven is already under development, and will have to be completed by someone in order to recoup the sunk investment, so any public investment would not be an incentive to start the project. Rather, it would simply offset the risk already assumed by the developer -- it can't undo its previous decision to build without losing its entire private investment.

The use of a tax abatement, as mentioned earlier, is a complex issue, one that requires expertise in the economics of business locations. Or rather, should require expertise to ensure that tax abatements provide the desired economic benefit for the county.

The difficult decision on tax abatements is the sole, exclusive domain of the Development Authority of DeKalb County. The development authority is a seven-person board of private citizens, appointed by the CEO, who serve in their spare time. Currently, there are no formal qualifications required to serve on the board, contrary to best practices that dictate hiring the best-qualified people for specific jobs.

The development authority does have access to full-time professionals with relevant training and experience, namely the county's Office of Economic Development. However, there is no formal, mandatory process under which the economic development office provides consultation and recommendations to the development authority. This contrasts zoning and planning applications, which are required to be reviewed by a community council and the county's planning department before coming to a final vote by the Board of Commissioners.

If the development authority elects to award a tax abatement, that has immediate financial consequences for the operating revenue of the county government and school system, yet the authority is not required to consult with either governing body. Again, best practices dictate the more qualified people involved in a decision-making process, the better informed the final decision.

Perhaps the most troubling aspect of the development authority is that it has minimal accountability. If an abatement ultimately fails to deliver on its promised economic growth, the county government and school system have to deal with the financial fallout, not the development authority. The authority's decisions have implications for each citizen's tax bill, just like those of the county government and school system. Members of the latter two governing bodies are accountable to the citizens through the ballot box, but members of the authority are not.

The development authority is another area where county government should find new ways of conducting its business. Specifically, developing a formal process that enhances the ability to arrive at well-informed decisions that benefit the citizens. In previous commentaries, I've discussed the need to reform the budget process and to engage in long-term planning.

Reforming the development authority would be another step towards boosting the county's long-term economic fortunes.

Below is the full text of a resolution introduced at the June 9, 2009, Board of Commissioners meeting:

Whereas, the Development Authority of DeKalb County (DADC) is currently considering the award of economic development incentives for the Town Brookhaven development project (the Project) that if implemented would reduce property tax collections in DeKalb County by $52 million over 20 years, and

Whereas, the Project's estimate of those benefits are based substantially on sales taxes collected on consumption that would certainly occur regardless o the Project, with the only benefit to DeKalb being derived from consumption diverted here from outside DeKalb's borders, and

Whereas, the Georgia General Assembly has recently passed legislation requiring the approval of Taxing Authorities, including in this case DeKalb County and the DeKalb County School System, before such incentives may be conferred by DADC, and

Whereas, public budgets dependent on property taxes in DeKalb County are badly strained due to falling property values and State action to change the method of property value assessment.

Now be it therefore resolved, the DeKalb County Board of Commissioners opposes the proposed economic development incentives for the Project at this time, and

The DeKalb County Board of Commissioners resolves to challenge the validation of said incentives approved without its endorsement.