The path to prosperity doesn't include giveaways to big industry that then starve a community of needed tax dollars

EDITOR'S NOTE: The following is a letter-to-the editor Herb Pritchett, chair of the Henderson County Democratic party and friend of organized labor, has submitted to the Henderson Gleaner. Here is an excerpt from the article he refers to: "...Henderson County Fiscal Court helped Hansens...by approving the first step in granting the company an industrial revenue bond, or IRB, in the amount of $21.2 million payable during the next 30 years. The panel also approved the first phase of PILOT, or payments in lieu of taxes." 

The recent article regarding Henderson County and Hansen Aluminum did not address several basic questions.  Let me suggest a minimal list of questions that elected officials and economic development professionals need to publicly address about this and future economic development projects.

First, how much future tax revenue will the government give up?  On this deal, if $21.2 million in bonds are being sold, one can reasonably assume that some $21.2 million in assets are being purchased.  (The article did quote Judge-Executive Schneider as saying that there was no risk to the bond investors because the assets behind the bonds are land, buildings, and equipment.)  At a property tax rate $15.317 per $1,000 of assessed value, that equates to $324,719 of property tax revenue per year that is being forgiven.    

Second, what can the community expect to receive in other tax revenues?   This is often based on some assumptions like the number of people employed and the average wage.  Taking the published projection job creation of 90 jobs paying an average of $20.21 per hour, and a 2% combined city and county payroll tax rate, the payroll taxes that will be collected amount to $75,600 +/- per year.

Third, what is the rate of return?  If we are forgoing property taxes of some $325,000, in order to collect only $75,600 in payroll taxes - that’s $249,000 in net lost tax revenue - should we go forward with this deal that costs us $249,000 per year?

Fourth was the agreement reduced to writing?  The agreement should be posted on the Henderson County website so that the citizens who paid for the project should be able to review its terms.

Fifth, who is going to monitor Hansen’s compliance with the agreement?  What if the job projections do not pan out?  If only 45 jobs are created and the payroll taxes created are only $37,800, does the industry still get to keep from paying all these property taxes?  Shouldn’t their property tax forgiveness be reduced as the benefit to the community is reduced?

Sixth, what is the effect of this tax forgiveness on other local taxing districts.  Our schools, health department, and library are all sustained in part by property tax revenues. All provide badly needed services and some are under severe financial pressure.  How will this impact them and their ability to provide service to the community?

Based upon the preceding, one can see the reason for my skepticism about this and other ED “deals”.  The press release and Judge Schneider’s comments were long on the praises of this “deal”, but woefully short on the particulars and details – details that should be made available to the public.  Economic development deals are ways that politicians look good to the public, garner votes, and campaign contributions. But do those same deals translate into increased wealth for the communities where they locate?  Are the politicians spending our money to make them look good?

Research by the highly respected Kentucky Center for Economic Policy strongly suggests that the best way to a community’s economic prosperity is not a path of tax giveaways to big industry that then starve the community of needed tax dollars,  but rather a concerted effort to provide targeted education that leads to a quality workforce, continually investing in the community’s infrastructure and its quality of life (thereby making the community more attractive to business), and working hard (by among other things supporting the right of the working man and woman to bargain collectively) to insure that the jobs created pay a living wage – not just a slightly above minimum wage.  Then the consumers in the community have the money to spend to support the businesses of the community, which brings overall community prosperity.   

Seventh, is this “fair”?  What about the person who starts a smaller business - borrowing some $2 million from a bank, and hiring15 employees.  That person too is contributing to the community and its employment base.  But that person has to pay everything – nothing is forgiven.  He or she has to not only pay back the bank on their loan but, unlike Hansen, also pay property taxes.  One should also note Hansen IRB bonds, because they are “endorsed” by the county, carry a lower interest rate than a traditional bank loan, which is yet another subsidy - and puts our local banks at a competitive disadvantage.  Oh to be a big business and have access to all these taxpayer subsidized “deals”.  Sometimes it just doesn’t pay to be a little guy. As a Democrat, I am getting a little tired of being told we have to subsidize the rich (through tax breaks) and big business (through public tax forgiveness) and then see the working person have to work 2 jobs to support their family because of the low wages many of these businesses pay.   

 

I believe it is high time for the community to begin asking its elected officials serious questions on economic development, its costs, and its benefits.  As Chair of the Henderson Democratic party, I hope the 2018 campaigns will provide the perfect forum.