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Tax abatement strategy used by Mount Pleasant to foster community growth

Automotive parts manufacturer Dayco is the latest business to enjoy tax incentives from the city of Mount Pleasant, a tactic used as an effective means of fostering growth in the local economy.

According a 2013 report, the city of Mount Pleasant had eight companies under tax abatement agreements for expansion projects worth $15.5 million in tax cuts over the duration of the agreements.

This is done to make Mount Pleasant a competitive marketplace for new and expanding business, while also bolstering the local community through job growth and opportunity, said Bill Mrdeza, director of community planning.

“If you’re not offering any incentives and your neighbors are offering to cut (a company’s) tax burden, when looking for a location they will pick that community,” Mrdeza said. “One of the reasons to do it is to stay competitive.”

The current tax value of these projects in 2013 was $5.7 million. An estimated 21 jobs were created by the expansion of these businesses, which ranged from new facilities to new equipment.

All of the expansion projects for the companies was completed in previous years, but some will experience the tax breaks until 2022.

Big refunds

The city’s policy is a cut equal to 50 percent of the cost of improvement for 12 years. Personal property, basically machinery and other equipment or technology, is given a 50 percent cut over six years because its value depreciates faster than real estate.

Mount Pleasant doesn’t target one specific industry over another. The city considers all applications based on the merits of their eligibility.

“It’s really about a company coming in and creating new investment in the community and employing people,” Mrdeza said.

New jobs are not simply created within the business but also in the community at-large, which grows to compensate for a larger consumer base. To accurately asses the impact of job growth in the community, Montgomery Consulting releases a list of “job multipliers” each year to the counties.

The impact of new employment on a community is calculated by a multiplying factor that is based on historical relationships between consumers the community.

For example, Isabella county has a multiplier of 1.72, meaning if a company in the county added 100 jobs, 72 would also be added in the community, be it more grocers, banking clerks, or whatever is needed to accommodate those 100 new jobs.

“Even though we are giving something up in the short term, we’re getting jobs into the community,” Mrdeza said. “These are spinoffs. Each job creates others in the community.”

Companies applying for tax incentives estimate the impact of their expansion. Most err on the side of caution, making conservative estimates so they don’t get stuck over promising to the city.

Mrdeza said if a business doesn’t meet their benchmark goals, the city could decide to have them pay back their share of the abatement, but this hasn’t been a problem during his tenure with the city.

The taxman cometh

Mrdeza said municipalities can determine how long their abatements last for personal property, but the state sets a limit on real estate for 50 percent of the value over 12 years.

Personal property incentive rates vary from city to city, however they are generally set around six years because afterward this period the equipment become more disposable. Because of potential changes in personal property tax laws, Mrdeza said Mount Pleasant is hesitant to grant abatements that go past 2015, the date such legislation would take effect.

Scott Smith, Mount Pleasant’s city attorney, said the bill would relieve particularly small taxpayers with personal property worth $80,000 or less from the burden of paying personal property tax. It is estimated that this group comprises about 70 percent of the personal property taxpayers, but only about 10 percent of the revenue.

Manufacturers and those in related supporting businesses will also be relieved of the obligation as well. They will instead pay a small tax for a state essential services assessment, which will be about 80 percent cheaper for the average business.

Smith said local governments that rely heavily on personal property taxes will be reimbursed through a reallocation of the state use tax.

The assessor community is receptive to reform of personal property tax laws, Mrdeza added, as it is exhaustive to verify numbers from companies and in many cases.

Mount Pleasant receives around $600,000 in personal property tax revenue, money that would need to be recovered if the state handles personal property taxes in the future.

Mrdeza said this won’t impact next year’s budget or cause a revenue problems.

“We will see additional revenue, but it won’t be as much as if there wasn’t abatement,” Mrdeza said. “So we’re not cutting into what we already have; it’s still an addition, but not as much.”

 

 

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