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Tax Breaks

November 28, 2010 - John Stack
When the term ‘tax breaks’ gets thrown around, what does that really mean? Right now, the biggie at the federal level is the income tax structure, or the so-called ‘Bush tax cuts’. The fight there is to extend the income tax cuts on the higher income earners or not. Then there are local and state sales tax breaks. There are also big electricity discounts, like the $58 million in electricity discounts for a Yahoo data center in Lockport, or the $ 96 million in electric subsidies for a Verizon data center in Niagara County over the next 15 years. And then there is the Mac Daddy of tax breaks, the real property tax breaks. Ostensibly, the tax breaks are to create jobs. And looked at in one way says that these two projects are ‘spending’ $2.1 million and $3.1 million for each job created.

Allison Duwe, executive director of the Coalition for Economic Justice, a nonprofit research and advocacy organization says these are "a colossal misuse of resources,"and "Any rational person should question if this is the right way to do economic development and bring about a shared recovery,"

Its true, these data centers are very low labor intensive jobs, and therefore don’t have the huge economic multiplier effects like a car factory might. But I would say the actual tax dollars ‘spent’ are misrepresented. Yes, the electric discounts are tangible, but its from low cost low polluting hydro plants which are currently begging for customers in western New York. I don’t know, but is the power company at least breaking even on the break? If so, to bring in a $3.4 billion dollar investment and the power is a wash, go for it.

But, I’m looking more at the real property taxes, which is my personal bailiwick. Estimates put the Yahoo and Verizon property tax deals $120 million in added property tax revenues over the next 20 years. But, opponents say they amount to the two companies paying only about 15 percent of what they would if fully taxable. In other words, they see that they are somehow losing out on the ‘lost’ $800 million in property tax dollars. I say bullpucky. Its not like the region is somehow special and the companies would come anyway. They could just as well relocate to Tennessee, Ohio or Virginia without blinking an eye. Now, if they were going to build here anyway, ‘No tax breaks for you!! Like a McDonalds. They would locate in Saranac Lake regardless of a tax break, or the fiasco a couple years ago when the Marriott Hotel was slated to get a huge tax break – after they had all ready started to build in Lake Placid! Tax breaks are there to help US, the taxpayers out, if it doesn’t why grant it? Anyway.

The two data centers would ostensibly skip out on $800 million in property taxes. What if they didn’t get these tax breaks. Then, the localities would be out of EVERYTHING the data centers would bring. All the jobs, all the investments, everything that comes along with the centers. Hundreds of millions in money spent on local labor in building these centers. Is it a overall plus for the region?

What do property taxes pay for? They pay for our schools, our roads, our police and fire. These data centers wouldn’t be bringing in a huge influx of people, so its not like the schools would be out anything, and some of the taxpayers would now have jobs, and good paying jobs. For the schools- a complete win over what they have now. Counties? One of their biggest expenses are on social programs. Seeing these places aren’t likely to cause more social programs to be needed, pretty much a complete win for the county. Towns? Well these places need roads and fire service. Other than some extra cost for the extra usage of roads around the plant, not much is spent there for roads. Fire? Police? These are places that probably have very high security as well as self contained fire systems. A win win for the towns too . Everyone wins. Why are people complaining then?

Because they equate what they are NOT getting as money they are actually losing. It not like the companies are getting $800 million dollars of services and only paying $120 million. In fact, even at only $120 million, the municipalities are milking these as cash cows, getting much more out of them than they put in.

I liken the detractors to what a local guy attempted back in my home town. He bought up a dilapidated mansion, and wanted to turn it into an old folks type of home. IF approved, he would have been able to make hundreds of thousands of dollars a year. The permits and OK for the project never came through. He was lamenting that he had lost hundreds of thousands of dollars. Actually, he had lost no money whatsoever; he had lost possible future income. Heck I lost millions yesterday, only because I didn’t pick the right numbers for Powerball.

My point being, be very careful when you see estimates on ‘lost property tax’ dollars. If a place was not going to build there, offering incentives that at least are a wash for the community is a good strategy. Offering tax breaks to those who would locate there anyway, that is losing tax dollars.


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