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When Cities Go Too Far to Attract Business

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Mary Jander
Mary Jander  
1/15/2013 9:52:13 AM
User Rank Staff
Re: Tax and aid
This seems like a great idea, CitySolver, but in these trying economic times, any further tax pressure isn't likely to get the nod, in the US or anywhere else.

 

Mary Jander
Mary Jander  
1/15/2013 9:35:07 AM
User Rank Staff
Re: Attracting Business
Yes, surely the decision to provide tax cuts and other perks should be considered case by case. Still, there are some rules of common sense that appy -- such as taking out "insurance" against loss via clawback provisions.

Mary Jander
Mary Jander  
1/15/2013 9:31:36 AM
User Rank Staff
Re: Attracting Business
I can't answer specifically, but it seems that GM went to court over having pleaded for and gotten multiple tax abatements in return for promises of retaining jobs in the city. That appears to have happened in the early 1990s, however. So I think the city probably learned its lesson long ago, the hard way.

stotheco
stotheco  
1/15/2013 7:42:54 AM
User Rank Urban Legend
Re: Attracting Business
On the other hand, I think it is a huge balancing act where you weight the pros and cons of having these businesses in your city. It could bring in jobs, prestige, recognition, but obviously there are tradeoffs. I wouldn't say it is good to say no or yes at all times; it would depend on the company and on the agreed terms.

stotheco
stotheco  
1/15/2013 7:40:57 AM
User Rank Urban Legend
Re: Attracting Business
Was there a written agreement that GM was going to be moving to the town? Also, I would think that the city would safeguard their investments by making it into a sure deal. Maybe this has all been addressed by the 'clawback' clauses that you mention.

CitySolver
CitySolver  
1/11/2013 4:48:10 PM
User Rank Blogger
Tax and aid
Interesting article, thanks Mary.

I agree. maybe though getting buisinesses into a city is the key. Yes some will fail but thats to be expected. If there was insurance backed by government that covered the losses of a business venture in the city up to say 20% then carefully vetted businesses could help share the risk with local government. Surely gains would outweigh risks and a cap on the number of 'risk shared' ventures would stop debt becoming an issue. We need to be more inventive in how we attract business, and that may mean local government sharing the risk to promote growth in stagnant economic times? Any thoughts anybody?

Mary Jander
Mary Jander  
1/10/2013 5:56:41 PM
User Rank Staff
Re: Attracting Business
Well, it looks like Ypsilanti, Michigan, took GM to court when it backed away from moving to town, after the city had spent big to get it to stay. Apparently, that was before the days of the "clawback" clauses in such deals.

Davedgreat2000
Davedgreat2000  
1/10/2013 4:08:10 PM
User Rank Urban Legend
Re: Attracting Business
Thank you Mary,

I understand those types of issues (Budget cuts and the like), however, i was just wondering if you have any examples of a city where they got a large business in that didn't live up to the deal? if so what did the citizens of that city do? Besides voting the city councle out, what other things did the citizens do?   

Mary Jander
Mary Jander  
1/10/2013 3:46:00 PM
User Rank Staff
Re: Attracting Business
Guess it depends on your point of view, Davidgreat2000. If you're someone who doesn't welcome a Ford plant behind your business or housing development, perhaps you'd have quality of life issues. There is also a risk that without clawback provisions, cities can suffer if businesses don't live up to their expectations.

And I don't think you can minimize the impact of budget cuts in other areas like education that are used to fund incentives.

Davedgreat2000
Davedgreat2000  
1/10/2013 1:10:50 PM
User Rank Urban Legend
Attracting Business
This has probably been done for 100's of years, so Its probably nothing new. I see the positive side of bringing in new companies that have the potential to hire more people (who live in the area) and to also bring in new business to already established companies, and also new tax revenue in the form of sales taxes etc.

Do you know of any negitave results from the tax payers point of view into these investments into trying to attract business's to come to their cities, backlashwise (other than taking money out of their pockets)?

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