Baltimore may be touting its new-found ability to lure in big business for nothing according to a panel of experts who recently analyzed local policies. Using tax payer money to lure businesses into the community is an often ill conceived and poorly implemented strategy to grow the economy: such was the predominate theme in yesterday’s luncheon for the local chapter of Lamda Alpha International (LAI), a society composed of developers, lawyers, academics, and bureaucrats with active interests in the local and state economies.
Once the several dozen guests finished their macadamia nut cookies, Josef Nathan, president of the local LAI chapter, introduced three speakers: Jim Brady, a consultant who was formerly the secretary of the Maryland Department of Business and Economic Development; Jeffrey Finkle, President and CEO of the Council For Urban Economic Development; and John Murphy, of the Baltimore Waterfront Coalition.
Murphy spoke briefly against the PILOT (Payment In Lieu Of Taxes) program which was recently adopted for Baltimore City. PILOT allows the city government to waive property taxes, one of the city’s greatest means of income, for businesses coming into the city.
Calling PILOTs “anti-constitutional” and “disastrous”, Murphy said that the program would allow property-tax exemptions for most developments in downtown Baltimore. He noted that city home-owners pay twice as much property tax as anywhere else in Maryland, and that 15% of all property taxes come from downtown businesses. A hotel being built downtown was recently awarded a PILOT, and does not have to pay taxes on its land for 25 years. The revenue lost, he said, equaled 3 million dollars a year.
The other two speakers did not address PILOTs specifically, rather the underlying problems with the state economy. They labeled tax incentives as quick-fixes for deeply rooted problems in regulatory statutes. They said that incentives were not as important to draw businesses to Maryland as politicians might think.
A well-trained, available, work force and location are the principal assets that draw in businesses, Brady said, not incentives. What the businesses needed, he continued, was a revamping of the state’s tax laws and environmental regulations. He said that the state was over-regulated. Businesses needed a “fair environment” to “feel this is a place they can grow.”
The business community was not an organized force in Maryland, Brady said, and that public policy was driven by environmental, consumer, and labor groups. The business community needs to “put its money where its mouth is, if you get my drift.”
Brady defended his giving out such incentives to businesses in the 1980’s—he was a state bureaucrat— as necessary at that time. He admitted it had been hard to keep the process non-political.
Finkle spoke to the underlying problems of tax incentives. They were unfair to existing companies, he said, which may be competitors to the incoming business. Businesses also played games by forcing two communities into a bidding war. Companies also expect the communities to be inept, Finkle said, and sign poor contracts with loopholes. He pointed out that the process can lead to one community poaching a business from another.
The incentives were rarely used appropriately, Finkle continued, because they were largely used in suburbia, rather than large cities. When incentives are used in cities they are often for low-income jobs, such as hotel work and food service. The funds should be used for expansions of existing businesses, he said, not relocations, and in limited areas where “they are invested deep enough to matter.” Finkle dismissed Baltimore’s Empowerment Zones as being too thinly spread to be effective.
Originally an economics fraternity during the 1930’s at Northwestern Unjversity in Illinois, LAI is now a non-political organization for professionals dealing in land use with 26 chapters. Its not-for-profit wing, the Land Economics Foundation, provides scholarships and research grants in the field of land economics.
The luncheon was held at the Baltimore Metropolitan Council building.