Over the objection of a school system that insisted children would pay the price, economic development officials last year granted tax breaks worth more than $250 million to a company that wants to transform an old General Motors site in Doraville into a mix of offices, retail and housing.
In Atlanta, UPS, the world’s largest package delivery company, also was negotiating $28 million in tax breaks for a new logistics facility that will employ 1,000 low-paid workers.
And in Gwinnett County, NCR, the technology company known for making ATMs, was collecting at least $125 million in state and local tax incentives for first moving its headquarters from Ohio to Duluth, then agreeing just six years later to relocate to Midtown Atlanta.
Unelected economic development boards in metro Atlanta are giving huge tax breaks for everything from the construction of new apartment complexes to expansions by Fortune 500 companies, forfeiting public money that would otherwise go to school, city and county governments.
Over the past three years, about $500 million in property tax breaks have been awarded to businesses in DeKalb, Fulton, Gwinnett and Cobb counties and the city of Atlanta, according to an analysis by The Atlanta Journal-Constitution. The boards hold vast power to cut property taxes in the name of economic growth, with no approval required from city councils or county commissions.
Critics say the inducements handed out are often unnecessary and wasteful. They also question whether such incentives are fair to everyone else who has to pay a full tax bill.
No agency keeps track of the overall number of deals made or the total value of the tax benefits. There usually are no guarantees that companies will follow through with their plans — or deliver as many jobs as promised.
“When we’re giving away taxes as an incentive and it’s not necessary, we’re simply shooting ourselves in the foot,” said Mattie Williams, a Hapeville resident who opposed subsidizing a hotel project there. “We’re giving up taxes and benefiting private investors who might not need the incentives.”
A tangled system
Government programs to recruit industry, especially manufacturing plants to the South, started up before the 1970s and later expanded.
While tax incentives have always been a powerful business recruitment tool, they’ve been used more in the wake of the 2008 recession. Businesses sought assistance from governments that were eager to add jobs to their communities.
Meanwhile, competitive pressures mounted. When one company received a tax break from a development authority, others demanded the same benefit.
You don’t have to look far to see cranes and mixed-use developments sprouting up as a result.
Supporters of the system say bringing in more businesses boosts the tax base in the long run, which compensates for tax breaks up-front.
“Developers have choices, and sometimes the incentives are what really makes the difference,” said Al Nash, the executive director and CEO for the Fulton Development Authority. “We’re competing globally” to attract business growth.
Local development authorities — 475 across Georgia — allow local governments to work around the state Constitution’s restrictions on special tax breaks for businesses. They use their nonprofit status to abate taxes by taking ownership of properties awarded tax breaks for whatever period of time the incentives are in place.
“This gimmick of fake ownership for purposes of avoiding property taxes is dishonest,” said Greg LeRoy, executive director for Good Jobs First, which advocates for corporate and government accountability. “It’s a sign of weakness, a deficit of accountability, when you have appointed officials making these financial decisions.”
By comparison, many other states empower local governments to cut business’ property taxes, rather than outsourcing the job to quasi-governmental economic development boards appointed by mayors, city councils and county commissions.
Money diverted from education
In Doraville, developers will receive a 35 percent tax break for 30 years to pay for infrastructure and revive the site of the GM auto factory.
DeKalb schools Superintendent Steve Green argued against the deal, but couldn’t stop it. While schools are the largest recipient of property tax money, they rarely have any say-so over tax breaks.
“I have real concerns about it running out of control,” Green said. “It forces the school district to say, ‘If you keep abating and abating, then I’ve got to raise my millage [tax] rate to provide the same quality of service.’”
Developers insist the school district will come out ahead on the deal.
Even though taxes generated from that site will be reduced, the school system will profit from increased property values if hoped-for businesses locate there, said Egbert Perry, CEO of The Integral Group, which is developing the site.
“When somebody says, ‘I don’t want to take money away from the education of children to fund some privately run outfit or to line a developer’s pocket or to support a project,’ it’s actually disingenuous,” Perry said during an interview with The Atlanta Journal-Constitution’s editorial board. “The fact is, those dollars aren’t on the table, and they won’t be on the table without the project.”
Atlanta school board member Nancy Meister said incentives attract businesses and grow the city’s tax base.
“You have to look at the long-term benefit,” said Meister, a member of Atlanta’s development authority board, after voting in November for the tax break for UPS. “We weren’t getting anything from that property, and now we will be.”
When UPS went casting about for a place to build its $400 million logistics hub, company officials were specific in what they wanted.
Land to grow. An available workforce. And government help — to the tune of $28 million, $22 million in property tax discounts and another $6 million in state grants and tax breaks to encourage new jobs.
That wish list was fulfilled by the city of Atlanta. But critics of the deal are quick to point out all but 250 of the promised 1,250 will be part-time positions with a median pay of $12 an hour, hardly an economic boon.
“Tell me again how the public benefits from this use of public resources?” said Julian Bene, a member of Atlanta’s development authority, and frequently its only dissenting voice. “There’s always an opportunity cost. If you get a tax abatement, that money isn’t flowing into the coffers to benefit the city, the schools and the county.”
Officials at UPS, which is headquartered in Sandy Springs, said they were also considering locations in other states. There’s no way of knowing how big of a role the incentives played in the company’s decision.
“I wish I had a crystal ball,” said Eloisa Klementich, president and CEO for Invest Atlanta. “Would they [UPS] have done it today without the incentive? I can’t tell you. I can tell you we were in a competitive process.”
Incentives were part of the equation, but the global shipping company also considered its business needs, availability of workforce and the site, said UPS spokeswoman Susan Rosenberg.
“We’re always looking at what’s available as far as incentives, but it is not the driving force,” she said. “If we’re evaluating multiple locations, obviously the total cost picture is a factor.”
Businesses play local governments against each other to get better incentive packages, said Wesley Tharpe, research director for the left-leaning Georgia Budget & Policy Institute.
Economic growth will happen without governments sweetening the pot with public funds, he said.
“It’s almost impossible for people to weigh the costs and benefits,” he said. “It’s unclear how much local governments are spending and what they’re getting in return.”
Money for something?
Development authorities distribute tax breaks based on the amount of investment a company is making. The more money a business spends on buildings and supplies, the higher discount it gets.
Authorities usually conduct an analysis to decide whether the tax incentives are worthwhile.
Those studies almost always give the project a green light. That’s because investing in a property, by definition, raises its value, even after accounting for a tax incentives.
“That’s a whole lot of power,” Sen. Elena Parent, D-Atlanta, said of development authorities. “You don’t want to be giving away more taxpayer money than is necessary.”
Parent is studying whether incentives should be standardized across governments.
DeKalb Commissioner Jeff Rader said he’d like to see development authorities conduct a stronger evaluation of the payoffs.
“I’d like to be able to say in a definitive fashion that these are jobs that would not be here but for the minimum amount needed to pay in order to get businesses to make that decision,” Rader said. “That’s not an analysis that’s presented to us.”
It’s a system built largely on faith — a tax break now could mean significant job growth later.
Tyrone Rachal, the chairman of DeKalb County’s development board, believes incentives are critical to economic growth. But he also wants to better track whether those investments are producing the promised results.
“We should concentrate more on whether or not the investment produces the return that we thought it would, as opposed to some sort of corporate giveaway,” said Rachal, the president of Urban Key Capital Partners, which provides financial services for urban real estate projects.
Some argue more transparency and clawbacks are needed.
“There’s no penalty for squandering taxpayer money,” said Peter Fisher, research director for the Iowa Policy Project, which studies tax and budget issues. Cities and counties “say they have to do it. There’s no incentive to be judicious.”
The Fulton outlier
No metro Atlanta development authority awards tax incentives more freely than Fulton County’s.
In the three-year period from 2014 to 2016, the Development Authority of Fulton County gave away more than $352 million in tax abatements for 90 projects, according to the AJC’s analysis. By comparison, Invest Atlanta distributed about $93 million during that same period.
Fulton subsidizes a wide variety of developments. They include manufacturers, luxury apartments, hotels, Wal-Mart, offices, mixed-use complexes, senior care homes, schools, hospitals and more.
Resistance is often futile when developments come to a vote. The Fulton authority’s votes are usually approved unanimously, or with one vote in opposition.
Those rare votes against incentives sometimes come from authority member Mike Bell, who’s also chief financial officer for DeKalb schools.
“These types of inducements really should be done when the project wouldn’t get done otherwise, or for blighted areas,” he said.
Many argue businesses should — and do — make decisions to move and expand based on market forces, rather than intervention from government.
But, even if local governments think incentives are necessary, there’s a smarter way to award them, according to Good Jobs First.
Tax breaks are more effective when development authorities agree to work together rather than compete to attract businesses, said Good Jobs First’s Kasia Tarczynska. That’s what happens in the Denver metropolitan area, where its economic development corporation has created uniform rules for participating jurisdictions in the region.
Backing away from tax incentives entirely might even the playing field in Georgia, but then companies would look to other, more lucrative states, politicians argue. Georgia would immediately go from one of the nation’s best places to do business to one of its worst, said Nash, the authority’s director.
“If we did away with our incentives, there would be a black hole,” agreed Sandy Zayac, an attorney for Fulton’s development authority.
NCR, which moved from Dayton, Ohio to Duluth, was preparing to cut its workforce and move jobs out of state, according to emails obtained by the AJC in 2015 from Georgia Tech President G.P. “Bud” Peterson to several officials.
But when Invest Atlanta dangled incentives worth at least $16 million, along with $45 million more in potential state tax credits, the company chose to move 5,400 jobs to Midtown.
NCR declined to comment for this article.
In another deal, Mercedes-Benz is receiving $27 million in incentives to move its U.S. headquarters from New Jersey to Sandy Springs. Fulton’s development authority awarded about $4.5 million of the tax breaks, with the rest coming from the state.
Cox Enterprises, the AJC’s parent company, also has received property tax breaks over the years. The Fulton Development Authority awarded incentives worth up to $24 million for Cox offices, including two recently built office towers. Decide DeKalb approved an estimated $6 million more for an office building for a Cox Automotive.
“The company is one of the area’s major employers and economic contributors with more than 8,500 employees in metro Atlanta,” said Cox spokeswoman Elizabeth Olmstead. “In recent years, Cox has invested significantly in Atlanta’s commercial real estate market through leased space and the construction of a 600,000-square-foot facility in 2012 and a 578,000 square-foot building in 2015.”
Activists say more transparency is needed — before incentives are awarded.
Right now, some boards, like Invest Atlanta, post incentives under consideration on their websites. Others do very little to keep the public informed.
Starting this year, audits of state and local governments nationwide will be required by the Governmental Accounting Standards Board to reveal the amount of tax money they’re giving up annually through incentives. The board, which is a private organization that sets accounting regulations for government financial reporting, created the rule so that the cost of tax breaks will be shown in annual audit reports.
“None of this information is out there. That’s why they’re working to get this information disclosed,” said Tommy Harp, director of the Professional Standards and Practices Division for the Georgia Department of Audits and Accounts. “It will definitely make things come to light that may have been a side deal that people didn’t know about, and that’s a good thing for the taxpayers.”