Tax incentives usually are designed to lure businesses to relocate or expand in a new home town.
For the new State Farm campus in Dunwoody, the insurance giant and developers are seeking $48.6 million in tax breaks for one office tower that’s already nearly finished and two more that are planned.
The site’s developer, Dallas-based KDC, says the money will help speed up the full project. In all, the State Farm project is expected to house about 7,500 employees on a 17-acre campus near Perimeter Mall.
Skeptics say the tax breaks sound like an after-the-fact handout.
“They’re asking for an incentive for something they’re already doing,” said Brent Lane, director of the University of North Carolina Center for Competitive Economies. “We’re doing away with the charade of doing something to incentivize behavior. It’s just giving away money.”
State Farm decided to grow its metro area offices in Dunwoody long before requesting public financial support, which would come from property taxes the company would otherwise pay to DeKalb’s school system, the county government and the city of government.
The insurer announced the plan in early 2014 and the first building, next to the Dunwoody MARTA station, is planned to open by the end of this year. The three State Farm buildings will provide about 1.8 million square feet of office space, and a fourth building could be added in the future.
KDC says the tax incentives are needed to justify moving ahead with the next two office buildings. In return, the company will commit to breaking ground on the next phase in 2017 instead of 2019 as previously planned, avoiding the possibility that State Farm would change its business plans.
The Dunwoody Development Authority will vote on the tax incentives, which would last for 17 years, as soon as next month.
Without the tax benefit, State Farm would lose money paying off its current leases in current offices while also renting the new office space, said Alex Chambers, regional vice president at KDC. The tax abatement is based on the value of both the existing tower and the next two buildings.
“The abatement request was to even the playing field between starting the project next year and waiting until the leases run off,” Chambers said. “It’s certainly not a financial windfall. If there’s a windfall, it’s probably for the city and the county” because the tax breaks will expire sooner.
Even after the $48.6 million in tax abatements, the State Farm project will generate $129 million in estimated property tax revenue over the next 17 years, according to a study by Georgia Tech’s Enterprise Innovation Institute for the Dunwoody Development Authority.
A gratuity for the developer?
DeKalb Commissioner Jeff Rader said governments should make sure that the investment of tax money is truly essential to making the development happen.
“If the investment is already made, why would you confer that gratuity upon the developer?” Rader asked. “Their whole business strategy here is to consolidate business on a single site.”
The county government and school system should have a say-so over abatement policy, especially since the city is the smallest of the three governments paying incentives, he said.
KDC approached Dunwoody earlier this year about tax breaks, said Michael Starling, the city’s economic development director.
Before moving forward, the Development Authority will evaluate whether the existing tower should be included, Starling said. The authority is made up of citizens appointed by the city’s council and mayor, and it has the power under state law to give tax abatements.
The incentives help ensure the project will get done in full, lessening the risk that a recession could force State Farm to call off its expansion plans, Starling said.
“One of the concerns about these long-term projects is that maybe these developments don’t get built at all,” Starling said. “The certainty that the project moves forward sooner and is definitely going to happen — I think there’s a benefit to that. Does the benefit outweigh the cost? That’s what the authority is looking at.”
Robert Miller, a member of the Development Authority, said the incentives are worth ensuring State Farm builds out the project faster.
‘You could have something worse’
“If this inducement helps them to make the decision to do it right now rather than wait four or five years, then I personally feel like that’s good for Dunwoody because it gets the project done,” Miller said. “You could have something worse. You could have (the property) declining and stagnant, and people not wanting to move here.”
The initial building is scheduled to open by the end of this year, with 13 stories of office space and eight levels of above-grade parking. Restaurants are planned for the ground floor. The tower will help the city of Dunwoody retain 1,815 employees and create 700 new jobs, according to the Georgia Tech study.
The next two buildings are estimated to retain 3,485 jobs and create 1,500 more, according to the study. In all, the project represents $595 million in real property investment over the next five years.
State Farm, based in Bloomington, Ill., posted a $6.2 billion profit in 2015, up nearly 50 percent from 2014, largely on gains in its investment portfolio. Revenue rose 6 percent to $75.7 billion.
Dunwoody resident Cheryl Majeste said she’s concerned about her government giving handouts that will affect the tax base for DeKalb’s public school system.
“Taxpayer money should not be spent to prop up organizations that are already very well off,” Majeste said. “I’m outraged, and I’d hope every adult in this community would say, ‘This is not fair to the children.’”
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