Dividing the pie evenly
Tax dollars continue to be in scarce supply, and infrastructure costs remain high, leading many cities and counties to enter into tax-sharing arrangements that allow them to share both the benefits and costs of development. However, proponents of the plans may find some political resistance from those who feel they stand to profit more on their own.
In 2005, Franklin, Granville, Vance and Warren counties in North Carolina entered into an interlocal agreement to jointly develop and share tax revenue from their Triangle North industrial park. The capital costs associated with the park will be easier to bear because they will be sharing in the revenues and the tax base, says Danny Wright, chairman of Triangle North and of the Vance County Board of Commissioners.
Under legislation passed to allow the arrangement, certain state economic development incentives to low-income counties, such as Vance and Warren, also can be offered by the higher income partners that otherwise would not qualify. Wright says the idea of tax sharing agreements fits into the recession-born fiscal conservatism in local government. “The state of North Carolina, among other states, can no longer afford to fund economic development on a county-by-county basis,” he says. “It’s going to have to look at regional approaches and regional economies of scale.”
Seven counties in the Minneapolis metropolitan area have had a tax-sharing agreement since 1971, says Tom Weaver, regional administrator for the Metropolitan Council. The point of the programs is to discourage competition for the tax base created by shared infrastructure. “All this public infrastructure is paid for by all of us, so you shouldn’t have one particular community where this infrastructure just happens to be located that gets all the tax benefits from that infrastructure,” Weaver says.
Some communities gain from the agreements, Weaver says, and some lose. It is the latter point that may slow the spread of tax sharing to other communities. “I think the need is certainly there [for tax-sharing programs]. I think the justification is certainly there,” he says. “I think the thing that gets trickier sometimes is the political will to do it.”
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Share and share alike
Hackensack Meadowlands, N. J., has a tax-sharing program that was created to protect the area’s wetlands. It includes 14 municipalities and two counties.
Rochester, N.Y., uses tax base sharing to collect more funds from a local option sales tax than it would collect if it charged the tax only within its borders.
Source: NAIOP, Commercial Real Estate Development Association, “Regional Tax-Base or Revenue Sharing,” www.naiop.org/governmentaffairs/growth/rtbrs.cfm.