At last Tuesday’s City Council meeting, Lexi Heidish, the Asst Director of Pickaway Progress Partnership (P3), briefly touched on the use of incentive policies such as tax abatements during her discussion of economic development.
But this important topic deserves a deeper exploration, as do the details of the Sofidel JEDD.
The subject of tax abatements often brings forth a strong reaction. It is widely understood that a “tax abatement” is a reduction or an exemption on the level of taxation — for a fixed period of time. It is also understood that these are great when they are for oneself, and not great otherwise.
Tax abatements are used by economic development managers to persuade a business or a housing developer to relocate or expand in their city. Many consider this approach to be “corporate welfare” or “giving away the farm.” Homeowners who are paying property taxes naturally complain, asking “Why am I paying taxes, and they are not?” These reactions are sincere and logical.
So why do communities agree to offer them? Tax abatements are introduced during negotiations when one community wants to make their option more appealing. Tax abatements expire after a predetermined number of years have passed, and then the community experiences the upside — the full and fair amount of tax revenue on that new tax base. It’s a medium-term loss for a long-term gain. Corporations looking to expand or relocate now regularly ask for them, and the idea has spread like wildfire.
An example of a city that has played the game well is Groveport. From 1998 to 2004, Groveport experienced nearly non-stop growth fueled by offering tax abatements. Fifteen years later, Groveport started receiving their full and fair share of tax revenue from that new tax base.
“Tax abatements are an incentive tool. We have leveraged that tool to great benefit,” said Michael Loges, the current Development Director at Groveport.
Over time, the City of Groveport has built a combined Senior/Rec Center that includes an indoor pool, and an Aquatic Center with an outdoor pool. Additionally, Groveport purchased the assets of a former country club and now owns and operates a municipal golf course. All of this has been done by a city whose population was 6,009 at the 2020 census.
There are many types of tax abatements, but one type is unique to Ohio — the Joint Economic Development District (JEDD). A JEDD is a contract between a city and a township to use township land for economic development. The benefit for the city is that they receive tax revenue on land outside their city boundaries. The benefit for the township is that they avoid seeing their land annexed to a larger city, while still keeping a large portion of the tax revenue generated by the new project.
JEDDs were authorized by the Ohio General Assembly in 1993. The idea was developed by Akron Mayor Don Plusquelic who wanted to once again expand the City of Akron’s tax base, and had tired of fighting the neighboring townships on the issue of annexation.
In Pickaway County, the Pickaway Progress Partnership (P3) is the economic development agency throughout the county. On October 3rd, 2018, the City of Circleville, Pickaway Township, and the Logan Elm School District created a JEDD to facilitate the construction of the Sofidel factory on Pickaway Township land. The project could not move forward without a $19 Million expansion of a natural gas pipeline to the location. If Sofidel had been required to pay for it themselves, the project would likely have been scrapped. This provides an additional rationale for tax abatement — to lower the initial investment required by a business desiring to expand and thus enabling more projects to be green-lighted.
If Columbia Gas were asked to pay for the entire $19 Million pipeline, they would need to determine if future sales would provide a positive return on investment. When a pipeline is extended, at a certain point the project is no longer viable.
The cost of the 12-mile-long pipeline was split three ways — a $4.6 Million investment by Sofidel, a $7.9 Million investment by Columbia Gas, and a $6.5 Million investment by P3. The funds used to make the monthly payments on the pipeline construction loan are made by the Sofidel employees who pay the 2.5% Circleville income tax. This is part of the contract — that Sofidel employees pay the Circleville income tax even though they work in Pickaway Township. The monies are collected and disbursed by RITA.
The contract also specifies that the City of Circleville must share the income tax revenue. The current split is as follows:
80% is used to pay the monthly debt service on the pipeline loan7% is paid to the City of Circleville8% is paid to Pickaway Township4% is paid to Logan Elm School District, and1% is paid to the JEDD Board to cover administrative costs
Across our country today, almost every community has an incentive policy that includes tax abatements for the purpose of economic development. At last Tuesday’s meeting, Councilman Tom Duvall asked for an analysis of the incentive policies being offered by nearby municipalities to determine if Circleville’s is competitive, or possibly too generous.
Without these incentives, Circleville would not be able to compete for the jobs, investment and tax revenue that economic development brings. Without this, the burden of funding the schools, maintaining streets, and creating quality of life offerings such as parks, pools and rec centers would be shouldered by Circlevulle residents.
The effort by municipalities to hold down spending is thwarted by the neverending stream of unfunded mandates imposed by state and federal agencies. Sadly, government spending grows each year and must be covered.
But economic development isn’t only about taxes — it’s also about our families. Too many of our students graduate high school and are forced to look elsewhere for jobs and affordable housing. For those students who want to stay, and for their friends, parents and grandparents who want them to stay, there aren’t enough jobs or housing. When a high school student graduates, the diploma they receive need not be a one-way ticket out of town.
Given its proximity to Rickenbacker International Airport, it is understandable that the City of Groveport saw its land developed early. However, the successful completion of the Sofidel JEDD shows that Circleville can play the game, too.
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