Mayor develops tax abatement guidelines

Navigating the city's complicated tax abatement policies can be tricky, even for experts. So Mayor Bart Peterson is giving business owners and economic development officials a map.

On Aug. 15, the Metropolitan Development Commission approved the mayor's comprehensive property tax abatement policy

"Our goal has always been to use the people's money very, very wisely," Peterson said. "Tax abatement is the equivalent of spending money. This will give the process more precision and tell people the way we look at things, which we haven't done in a comprehensive way in the past."

Economic development is an inexact science. Each business has different requirements for growth, and it isn't always in the city's best interest to grant tax abatements.

In Peterson's administration, firms in the information technology, advanced manufacturing and life sciences industries will receive the most attention. The mayor also wants to concentrate on companies owned by women or minorities, those in disadvantaged neighborhoods, or those related to motorsports.

"It is intended to deliver a message that these are the kinds of deals that we are most interested in," Peterson said. "It definitely does not mean these are the only deals we will look at."

The city can grant tax abatements yearly, lasting up to a decade. Calculating a ratio that will benefit businesses but not fleece taxpayers requires balancing many factors. Some of the most important include apital investment, job creation, environmental impact, headquarters location and the scale of the project's economic return for the city. The new guidelines should provide business owners a better idea of what they must give to receive abatements.

"Our purpose is to really try to be more clear in what policy factors we look at," said Melina Maniatis Kennedy, the mayor's director of economic development. "This is a guidance. This is not an automatic formula."

The policy also shores up some details.

For example, when abatement deals are brokered, the city wants any new jobs to bring the highest salaries possible. In the past, it had used average wages in the affected township to set the pay bar for incentives. As the new guidelines were developed, the mayor's staff found the average wage across the entire county was a better minimum guideline.

But even such minimums are subject to case-by-case discretion. For instance, when abatement proposals come from businesses in disadvantaged neighborhoods, Peterson said, factors such as minority ownership and neighborhood revitalization will be weighed more heavily than promised average wages.

A clearer policy won't necessarily create a flood of new incentivebased deals, city officials warned.

"Tax abatement is an important economic development tool, and we want to use it," Kennedy said. "But we want to use it judiciously and in a strategic way."

The Indianapolis Regional Economic Development Partnership will be one of the primary beneficiaries of the new policy. IREDP does much of the legwork on the city's incentive deals.

"It's going to be real helpful for us, because it's going to allow us to ask the right kinds of questions and advance the right kinds of policies," said Jeb Conrad, IREDP vice president for Marion County economic development. "I think it's good government. It's good for us, and it's good for the end user."

Conrad said the real estate community also will put the policy to good use. Clear guidelines will simplify the work of consultants and site locators who consider Indianapolis for company relocations, so IREDP hopes to distill the guidelines into a brochure, he said. The easier the process, the more deals that will result, he said.

"Believe me, when site consultants are out there looking for sites in the Midwest, they're going to do not only what's best for the company, but what's easier for them," Conrad said.

Michael Rhodes, president of the locally based Economic Development Group Inc., helps companies broker incentive deals. He said the policy's best feature is its uniform approach.

"What we like to see is consistency and a level of certainty," Rhodes said. "Private-sector officials don't like surprises, and this policy spells out what a reasonable public investment in their project is supposed to be. There's nothing worse than having a growing company have an expectation for a certain level of incentives and not be rewarded."

Also important, Rhodes noted, is the policy's attention to procedural details. It tells when various documents and statistics must be filed, and in what order. It explains what can be eligible for abatement and what cannot.

"Private-sector officials can live with any public policy as long as they understand it is being consistently enforced," he said.

eSkye Solutions Inc. recently brokered a $600,000 tax abatement from the city as part of a $2.7 million deal to retain its headquarters. Sue Lasater, eSkye director of finance, said guidelines like the ones in the new policy would have made the process easier to understand.

"We worked with a consultant to help us, so I relied on her as my expert. But it would have been nice to have that at your fingertips," she said. "For people who don't use consultants, it would be an overwhelming process. Unless you've done this before, its difficult to know what your options are and what you should be going for."