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On The Horns of a Dilemma 7/29/15

At last week’s meeting, the City Council, on the recommendation of City Staff, voted unanimously (5:0, Franklin and Stier absent) to grant a tax abatement to Wolf Motors.  It’s worth pointing out that Wolf Motors has never before asked for, or been given aid from the City.  Wolf Motors is probably the most lucrative business in town, and draws most customers from outside Jordan, so there is no question that it’s a valuable asset.  And Wolf Motors pays significant property taxes to Jordan.

Tax abatements and Tax Increment Financing are typically given to draw a new business to town, or to encourage a business to expand in town, rather than move elsewhere.  The justification usually is that the business will create new jobs, which will enhance the town’s tax base, and that after the abatement is ended, the real property will be much more valuable than it currently is, thus enhancing the town’s tax base.  Jordan currently carries five tax abatements – 10-46-2002 for a retail showroom, 9-56-2006 for an office and vehicle storage facility, 9-23-2011 for an automatic transmission remanufacturing facility, 4-21-2013 for a warehouse for fireplace products, and 04-16-2014 for a hotel and restaurant facility.

The tax abatement granted to Wolf Motors doesn’t carry a clause for creation of new jobs.  Rather, it appears to bind Wolf Motors to maintain its’ current level of employment.

Apparently some people in town believe the tax abatement will apply only to the cost of meeting the state’s requirement to flood-proof the property. Of course that begs the question, how do we separate the cost of flood-proofing from the value of the new building, and how do we separate the value of the new building from the total value of the property?  The answer is, we can’t.

Though the tax abatement is capped at the approximate amount of flood plain remediation, it seems to apply to the total taxes paid to the City.  (And yes, I know it’s foolish to think we mere mortals can turn back the flood if God sends it.)

I read the execution copy of the tax abatement document for the Wolf Motors project, and could not find anything in it that limited the abatement to new construction only, or to cost of flood plain remediation only.  The only limiting factor I could find is that Jordan caps total tax abatements to all combined tax abatement recipients at $200,000.00 per year.  After reading the document, I had no idea how much money Wolf Motors might receive in tax abatements.  So I asked the City Administrator.

At the meeting last week, the impression I got was that Wolf Motors would continue to pay taxes on their existing property, and the abatement would be applied to the expansion.  I didn’t get the impression the abatement would be applied only to the cost associated with flood plain remediation.  The details, according to City Administrator Nikunen are that the tax abatement is capped at $234,000.00 or 15 years whichever comes first.  That works out to about $15,600.00 in abated taxes per year.  Wolf Motors tax bill for 2015 will be $7,223.84.  Mr. Nikunen says that when the project is complete, the County will assess the new value of Wolf Motors property at $3,000,000.00, and the City portion of Wolf Motors’ taxes before tax abatement, will be roughly triple what it is now.  That’s about $21,671.52 per year before abatement. 

If $15,600.00 in taxes is abated, Wolf Motors will pay the City about $6,071.00 per year to the City for 15 years.  By my simple math, for the next 15 or so years, Wolf Motors will be paying about a thousand dollars per year less that what they are paying now. 

If the property is reassessed in the future, and taxes are increased, the length of the tax abatement could be shortened.  If the unthinkable happens, and Jordan raises its, tax rate, the length of the tax abatement could be shortened.

A cynic might say the Council granted a tax abatement without a solid knowledge of how much money was involved.

A cynic might say tax abatements and TIFs in general are a form of socialism (From each according to his ability, to each according to his deeds – not needs).  Is every property owner in Jordan being asked to pay a dollar per year to assure the continued existence of a business in Jordan?

In the case of Wolf Motors, maybe it’s worth doing, which is the dilemma we face.

A cynic, upon hearing the City Administrator describe the Wolf Motors tax abatement application as the most honest one he’s seen, might wonder aloud if that means the other tax abatement applications were less honest.

A cynic might also ask if there are any trees in the plan for the proposed improvements

And, a cynic might say it seems like everyone is coming to the City looking for money.

Now, in keeping with the kinder, gentler JUG, I want to note that City Administrator Nikunen answered my questions thoroughly and quickly.  This has not always been the case in Jordan, and the change is refreshing.

The Quote:
The power of accurate observation is commonly called cynicism by those who have not got it.
George Bernard Shaw


I welcome public comment on this topic. Anyone willing to give his or her name is welcome to respond here. Thom.Boncher@gmail.com  No anonymous responses will be posted.  No obscene language will be permitted.  Threats, personal attacks, and spam will not be posted.  My house, my rules.  But if you have something to say, and if you are willing to put your name on it, I won’t refuse to let you be heard.