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March 7, 2021
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Business Review Western MI
Business Review Western MI
Tax Incentives
(2007-04-25)
(wgvu) - Most tax-abated businesses in Holland have managed to boost their
employment, in spite of the city's having to tap a prominent former
corporate citizen for a refund.

Kraft Foods Inc. ponied up $411,129 when its Lifesavers plant moved to
Canada in 2003, having enjoyed a tax break awarded to maintain
employment. City staff now quiz each Industrial Facilities Tax exemption
grantee annually to determine the extent of their compliance with
employment promises.

Holland's initiative reflects a national trend toward more transparency
in the use of public economic-development incentives. Yet city officials
are careful to maintain a business-friendly image.

With the economic situation we're faced with here in Michigan, I think
communities want to do what they can to help their companies remain
competitive, assistant city manager Greg Robinson said.

Though so-called clawbacks for incentive agreement non-compliance are
gaining attention among state and local governments, many are unwilling
to go beyond recouping pro rated tax revenues when companies flout their
promises.

They should pay that back because that's an agreement, argued state
Rep. Michael Sak, Democrat of Grand Rapids. But they shouldn't face any
additional penalty, he added.

Increased use of appropriate clawbacks is a one preliminary
recommendation from an incentives task force formed by the Michigan
Economic Developers Association.

The key premise is that if the communities in the state are delivering
substantial value with tax incentives, we in turn should get substantial
performance from the companies in terms of investment, in terms of
employment, said Randy Thelen, president of Zeeland-based economic
development agency Lakeshore Advantage.

Thelen co-chairs the task force.

A Web survey conducted by Tax Advantage Group of Greenville, S.C., found
that 73 percent of corporate respondents felt clawback language in
incentive agreements is getting stronger. The International Economic
Development Council devoted a panel discussion to clawback trends at its
annual conference last September.

As the use of incentives mature over time, the triggering of clawbacks
for non-performance will likely become ubiquitous, wrote one
participant, Austin, Texas-based Intelligent Incentives principal Karin
Richmond. Clawbacks comprising repayment and penalties insert an
inherent cost of money to the private company receiving the incentives.

In Holland, biennial employment reports to the city called for in
abatement contracts were seldom submitted in prior years, assistant city
manager Robinson said. But what officials found this year was that about
70 percent of IFT holders had grown employment, while 10 percent cut jobs.

Boosting or maintaining employment was the chief criteria for tax
abatements in earlier years, but now officials are more cognizant of the
importance of productivity to business survival.

I think now it's employment plus competitiveness of a company,
Robinson said.

Of the city's 95 companies qualifying for an IFT abatement, Robinson
said, 70 currently hold such certificates. The city grants the
abatements, covering 50 percent of the value of capital investment for
new building or equipment purchases, for the full 12 years. Some local
units grant abatements for lesser periods, especially for personal
property investments given equipment depreciation.
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