Do we really need Tax Abatements?

A tax abatement is a temporary reduction or phase-in of property taxes on new investment. Communities across the country use the tool on economic development projects to attract new jobs and capital investment to a community.

Abatements typically focus on manufacturing companies because of the large investments they make in real property and equipment. New investments drive assessed value growth, which means after the abatement period substantial tax revenue for government units. Manufacturing jobs are the target as they tend to be higher paying and more stable jobs. Manufacturers also have a multiplier effect, creating many jobs, but direct and indirect, such as suppliers, logistics, or maintenance.  

Almost every state offers some form of tax incentives for economic development. These incentives became popular after WWII, as communities competed for new jobs and investment. They were also popular during the urban revitalization days of the 1970s and 1980s.

Most communities would prefer not to issue them, but they also recognize they’re necessary to advance some key projects.

Elected officials in St. Joseph County have used the tool sparingly. St. Joseph County hasn’t issued one in over a year, and in a typical year, it only does a couple. Mishawaka does them at about the same frequency as the County, that is, rarely. South Bend does a few more, but in all three jurisdictions, most projects advance without an abatement.

Large projects like the Synergy Cells Project (GM/Samsung EV Battery Plant) and the AWS Project received abatements and have drawn the ire of some in the community who wonder why some of the world's largest companies need tax incentives. Truth is, neither of those projects would locate here without the incentive package.

Both projects were attracted to Indiana because of our great tax and regulatory climate. But abatements helped Indiana be more competitive with other states by lowering upfront costs and phasing in the taxes. Dozens of other communities wanted those same investments and were willing to provide incentives to attract them. St. Joseph County had to be competitive and was.

The result? Two of the most significant capital investments in the State’s history. More than 2,600 new permanent, full-time, good-paying jobs (when complete). Those jobs, on average, will pay 25% more than the county average wage, and their salaries will have an estimated annual economic impact of more than $1B. Also, thousands of construction jobs have been created, and more than 175,000 hotel room nights were generated by construction workers this calendar year. These companies will become two of our largest employers and biggest taxpayers.

The county played the long game and sacrificed some new tax revenue up front on those projects to secure the economic benefits over time from the new jobs, taxes, and investments. AWS, for example, will pay taxes from day one, in addition to the $140M they are investing in infrastructure and other community enhancements.  

So, you’re asking yourself if most jurisdictions don’t like issuing them and more projects advance without one than with one, then why have them? That’s a great question. Historically, tax incentives have helped tip the scales in favor of one community over another. They still do. Taxes remain one of the key factors companies consider when making investment decisions. If we want to be competitive with other communities, we need to have the tool available.

South Bend, Mishawaka, and St. Joseph County have used the tool wisely. Each has asked the hard questions of the developer, demanded higher standards of the company, and, in turn, has advanced some critical projects that otherwise would not have moved forward. Abatements will continue to be an easy target for the critics, but also a necessary tool to help advance some, not all, projects.