Comments on: Cash Incentives for Revitalizing Main Street

By: Tyler Mulligan

Tyler Mulligan — Wed, 20 Jan 2010 14:41:34 +0000

Thanks for the comment, Bob. To the extent you are talking about general economic development expenditures—as opposed to cash incentives for the benefit of a private company—I would be inclined to agree with you. However, I have difficulty reconciling a cash incentive to a private company for the sole purpose of enlarging the tax base with (1) a statute that prohibits tax rebates, (2) a constitutional prohibition on the classification of property for taxation by any entity other than the General Assembly, (3) the role of jobs in an “economic development agreement” with a “private enterprise” under G.S. 158-7.1(h), and (4) the court’s statement in Maready (quoted in the post) that economic development incentives to a private company serve a public purpose when they obtain a “net public benefit” by accomplishing several purposes, only one of which is enlarging the tax base. I would be concerned about my chances in court if the only public purpose on which my incentive was contingent was growing the tax base in year six. The best we can say is that no case law specifically addresses the issue—the only incentives litigated to date have required jobs—so no one can be certain how a court would treat such an incentive. However, we can be confident that incentives to private companies for jobs serve a public purpose, and Maready clearly supports that position. There is more than I can say in this reply, so perhaps I’ll devote a post (or a law bulletin) to this topic on some future date.

By: Tyler Mulligan

Tyler Mulligan — Tue, 19 Jan 2010 19:57:19 +0000

Kevin, I think your suggestion works. Your proposal is strengthened by requiring that a preservation easement be granted in exchange for the grant. It provides legal consideration for the grant and bolsters the argument that the grant serves a public purpose. I don’t think the law requires the grant to be amortized over the expected life of the restoration. It could be paid out in a shorter period of time.

By: Bob Jessup

Bob Jessup — Tue, 19 Jan 2010 13:54:12 +0000

I don’t agree that 158-7.1, esp. if you look at part (a), necessarily requires new jobs. That’s not in the statute at all, and I don’t think Maready stands for any proposition that “jobs” is a necessary requirement to find that an economic development expenditure serves a public purpose. In addition, I’d point out that if the program in your example requires additions to the tax base, but the returned incentive is only for five years, then you’re increasing revenues starting in year six. That seems good enough to me.

By: Kevin O'Grady

Kevin O'Grady — Sun, 17 Jan 2010 19:10:13 +0000

How might this be applied to a preservation ordinance in a historic downtown? Value a restoration project and grant of a preservation easement then amortize a grant over the expected life of the restoration?

KOG

By: Tyler Mulligan

Tyler Mulligan — Tue, 12 Jan 2010 20:32:11 +0000

Fred, you raise a great point that deserves some explanation, if not a separate post altogether. In short, I think there must always be some additional overriding public purpose other than mere capital investment/enlargement of the tax base. Otherwise, it is just a tax rebate.

In the case of incentives offered under G.S. 158-7.1, the North Carolina Supreme Court spoke (in the quote mentioned in the post) of a “net public benefit” resulting from several factors, half of them related to employment opportunities. The importance of job creation also appears in the statute in subsection (h), which directs that incentive agreements “shall” require recapture of the incentive in certain circumstances, and events that “would require” the recapture of funds “include the creation of fewer jobs than specified in the agreement.” The language is not artfully drawn, but it seems to indicate that job creation is centrally important, if not required. If enlarging the tax base was sufficient by itself under G.S. 158-7.1, then local governments could conceivably create an incentive program to provide grants for any and all commercial capital investments that enlarge the tax base, regardless of where the investments occur in the jurisdiction. Such a policy would run the risk of being viewed as a county- or city-wide tax rebate or an impermissible property tax classification.

Contrast that with providing an incentive under the community development statute (G.S. 160A-456) as described in the post. Here again, a public purpose other than mere enlargement of the tax base is being pursued: in the example provided in the post, the purpose is the revitalization or, to use the statutory terms, the “restoration or preservation” of historic Main Street. The authority seems broad, raising the specter of an impermissible tax classification, but its application is limited to a specific geographic area with special public value: the historic business district. The focus is different. In this case, it is not about jobs, and maybe not even about tax base (at least not in the short term)—it is about developing a public space.

To sum up the distinction in my mind, in each case something more than tax base is being pursued. Under G.S. 158-7.1, an incentive must obtain more than just tax base; typically it requires jobs, too. Under G.S. 160A-456, an incentive must also do more than merely increase the tax base; it must advance the restoration or preservation of an older or low-income neighborhood that is identified by ordinance as important to the public.

By: fred baggett

fred baggett — Tue, 12 Jan 2010 14:18:35 +0000

tyler

Interesting article. Why is not the increased property value sufficient to make it also defensible under 158? Maready mentions tax base, and the program you describe requires it.

fred