FARGO - City commissioners agreed to some slight changes to the city's policy on tax breaks Monday, Feb. 13, after months of committee discussion and lengthy debates at commission meetings.
Though the policy has come under greater scrutiny as more breaks have been given out, most commissioners agreed this economic development tool is a good thing for the city and wholesale reform is not needed.
"We're in competition all day every day so if we weren't doing this, if we decide to stop doing this, it would have catastrophic economic impact on our city," said Commissioner Dave PIepkorn, who chairs the Tax Exempt Review Committee. "If you think a lot of businesses come here just because we're nice, that's not how it is. That's naive."
Commissioner Tony Gehrig, long an opponent of tax incentives, said as he has before that the city should just lower taxes for all instead of giving breaks to a few.
Commissioner John Strand expressed misgivings about "corporate handouts" in general but said he was reluctant to make too many changes to a program that appears to be working.
The reforms largely affect just one of five kinds of tax incentives the city has discretion over. Piepkorn's committee oversees three and, of those, only payments in lieu of taxes, or PILOTs, saw much change. Breaks for new homes were little changed and there were no changes to exemptions for remodeling. Tax increment financing and Renaissance Zone are the province of two other committees, which have not reviewed their policies.
One of the impetus for changes to the PILOTs was major projects such as the Block 9 highrise scheduled for construction downtown in a few months.
As the name suggests, they allow businesses to avoid paying property taxes or pay amounts less than the full tax for as many as 25 years. Under the old policy, they had been aimed primarily at manufacturers and tech firms. Block 9, which includes retail and office space, a hotel, and condos, wouldn't qualify.
But the unprecedented $98 million in investments promised for downtown was too appealing to commissioners, who agreed to ignore the policy and revise it after the fact.
According to City Planner Jim Gilmour, the updated policy provides two tracks for businesses to qualify for PILOTs. They can be scored on a point system that emphasizes manufacturers and tech firms, with greater emphasis given to the number of jobs they create and how much they pay. Or the business can make an investment of more than $8 million downtown or build apartments in the district.
Gehrig, who tried and failed to add several amendments to the policy, did succeed in eliminating preference for applicants with downtown projects compared to projects elsewhere in the city.
More talks ahead
Jason Flohrs, state director for Americans for Prosperity and the only member of the public to offer comments, said he saw the changes made as merely "a rubber-stamping of current practice" not real reform. He complained that cities were just stealing business for each other with their incentives and not creating new jobs.
That brought a rebuke from Piepkorn, who argued that being competitive is a pretty big reason to have tax breaks.
Prompted by Piepkorn, James Gartin, executive director of the Greater Fargo-Moorhead Economic Development Corp., said every state surrounding North Dakota has incentives. Even states that seem to be poor prospects - he mentioned one with a bad education system - manage to attract businesses with generous incentives, he said.
Commissioner Tony Grindberg, who has warned that state lawmakers are scrutinizing tax breaks they allow based on how local governments use them, said he expects more discussion down the road. "I'm quite confident this debate is not over," he said, and the city might have to change its policy again to respond to new state laws.