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What you need to know for 07/21/2017

Op-ed column: Ensure development success before giving tax abatement

Op-ed column: Ensure development success before giving tax abatement

It is ultimately the public — the taxpayer — that is being asked to forgo tax revenue and thereby in

In 2006, DCG Development, a local company best known at the time for running large apartment complexes, bought Clifton Country Mall, a floundering 52-acre indoor shopping mall in Clifton Park, for $11 million.

Six years later, and after further millions of dollars invested, it is now known as Clifton Park Center, a combination traditional and open-air mall that includes a new 104-room Hilton Garden Inn and Conference Center with a Prime bistro, a state-of-the-art 10-screen Regal Cinema, a just-christened Olive Garden restaurant and a variety of new shops, cafes, eating establishments and boutiques.

To say that the project has transformed “downtown” Clifton Park would be an understatement, but there is another aspect of this effort that is even more noteworthy. It has been done entirely with private-sector investment by a local business that has gradually built a reputation for turning around distressed properties.

This summer, another local developer proposed construction of an 11-screen movie theater complex with office space at the site of the former Price Chopper supermarket at Railroad Place and Church Street in Saratoga Springs. As part of this $18 million proposal, RR Depot LLC applied to the Saratoga County Industrial Development Agency for tax breaks totaling nearly $1 million, and other benefits. They include exemptions from sales tax on construction materials, the mortgage recording tax and a five-year moratorium on the property tax that would otherwise be paid by the theater. That last one is worth just under $70,000 a year.

Industrial development authorities were created initially for the purpose their name implies — to publicly incentivize private economic development projects in distressed areas as a means of holding on to or creating industrial jobs, most of which pay well and serve to stabilize neighborhoods.

However, with time, IDAs — which have rather broad authority — have stretched their mandate to include projects like this one, not necessarily in an economically challenged area, providing temporary employment for construction workers and lower-paying service industry jobs for the longer term.

The developer here claimed that, absent the tax forgiveness, the project could not go forward. Such a statement, to some, might sound intended to coerce. Nonetheless, no one can compel a developer to undertake any project, nor are its motives or justifications in making such a decision open to anything other than idle speculation.

Public Investment

Justification for the tax abatements centered around a claim that the costs of development in a downtown area are greater than those in a suburban environment. On the surface, that argument sounds plausible and presumably the IDA could have evaluated it when deciding on the application.

Somewhat lost in the process, however, is that it is ultimately the public — the taxpayer — that is being asked to forgo tax revenue and thereby invest in a private project. In so doing, it would seem to have every right to ensure that its investment works to its advantage while assisting a private interest.

As desirable as a project may be, the fact that it may not go forward without public investment would not appear to be, by itself, ample justification for the public to make the investment. If a million is being requested, is it not a reasonable expectation that at least a million will be realized in return? That’s what a private investor would expect. Accepting less makes the IDA process a corporate welfare program. From a public policy perspective, is that what we want?

And therein lies the problem. The history of tax abatements has not been a promising one. The academic studies that have been done over the years almost universally demonstrate that most such investments do not meet the results promised. The IDA may make its decisions based on projections, but all too often those projections don’t pan out and rarely is provision made for compensation to the public.

In truth, the record shows that insufficient effort is made, both before and after the fact, to both ensure and demonstrate that these investments actually produce a net gain or break-even for the public. Blind faith is not a good basis for sound public policy.

Unfortunate position

Today, many localities in many states have IDA programs, which places them in the unenviable position of competing with one another. This fortuitous circumstance for developers is a recurring nightmare for public officials. The latter face pressure to approve a given application or face the prospect of either losing it outright or to another, perhaps neighboring, community — an outcome that can be politically risky, to say the least.

In the end, what that means is that all too often the private developer realizes a more secure profit while the public is left holding the proverbial bag. Heads they win; tails we lose.

Contrasting the project in Clifton Park with the one proposed for Saratoga Springs is not intended to imply that one is necessarily more worthy than the other. However, the Clifton Park model at least has a cost-benefit ratio that is more beneficial to the public purse and more in line with the risk-reward equation characteristic of a capitalist-based economy.

John A. Figliozzi lives in Halfmoon and is a regular contributor to the Sunday Opinion section.

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