In the spirit of Economic Development Secrets, I’m going to get real real right now. I’m going to give you some insight you might not expect to hear from me.
It’s okay if you don’t prepare a full impact analysis on every economic development project.
That’s right, you don’t have to get in to the spin-off jobs, you don’t have to think about the population consequences of every project, you don’t need to distill it down to net additional tax revenues for local governments. This might sound like a weird confession from a guy who licenses impact models and prepares individual studies for clients but I will point out that I’m not suggesting don’t do anything. You need to get your hands dirty a little but let me help you apply your effort strategically – CALCULATE PROPERTY TAX!
Property tax is likely the biggest source of tax revenue for your local government. Nationwide, property tax revenue accounts for 73% of taxes for local governments. In 13 states, this percentage is over 90%. In only three states does local property tax comprise less than 50% of tax revenue.
In a way, I just made your life easier by focusing your effort on property taxes but calculating property tax isn’t exactly easy. Sometimes clients try to confirm that our results align with their internal spreadsheet calculations for property tax. Below is a list of the most common property tax calculation issues encountered by economic developers.
- Determining the market or appraised value of a new construction project based solely on investment amount (in realty a $5.0 million construction project may only be valued at $4.0 million by the appraisal district).
- Focusing on a single-year snapshot.
- Ignoring property value dynamics when projecting over several years. Real property will probably appreciate and business personal property will probably depreciate.
- Failing to parse out the total tax rate and attribute property tax revenue to the city, county, school district, etc.
- Forgetting that some of the districts might abate or exempt some of the property taxes which reduces what the local governments will net.
- Disregarding tax increment financing zones that distort where the local property tax is directed.
Every now and then we run in to local government officials or economic developers who push back against the results in our detailed studies. I get it, our reports aren’t all science and when you’re projecting the impact of new businesses out over several years, the numbers start to feel kinda squishy. But a recent interaction has left me completely baffled. After dismissing nearly every aspect of our approach, I asked what type of analysis has the community done on economic development projects in the past or what approach do you prefer? His answer: None…
Property tax can tell a big part of the story about a new economic development project. Understanding the property tax dynamic can help you and your ED stakeholders make good decisions based on data. I implore you, even if you don’t want to use that “voodoo” impact model, please calculate property tax!
Banner Photo Credit: FreeImages.com/Andrzej Pobiedzinski