Addition by Subtraction

REVIEW SUMMARY
What. Economic development property tax exemption movement.
Issue. Criteria for the exemptions may be too restrictive for smaller firms.
Impact. More jobs sooner, higher taxable property values later.

As a young Democratic State Senator in 1980, Manatee County's Pat Neal led the Legislature in passing a resolution calling for an amendment to the state constitution designed to attract businesses and jobs.

“I thought it was a good idea,” says Neal, now a Republican, and one of the Gulf Coast's biggest successful homebuilders. “We did it because the Siemens-Allis company [a spin-off of Siemens Corp.] in Frankfurt, Germany said they were going to bring a turbine manufacturing plant to Palmetto.”

State voters passed that amendment that year, which required voters in counties and cities to approve the property tax exemptions. And though its been approved in about a quarter of the 67 counties around the state, it never took hold in Manatee County or elsewhere along the Gulf Coast from Pasco to Collier counties.

But with state and local unemployment at or near record levels, that is changing rapidly.

It can't happen soon enough the way Neal sees it. “We need to do something or it's going to be the end of the line of jobs,” says Neal. We're going to have a slow growth economy for years, and it won't be supported as in the past by construction and development.”

The tax exemption is applied to improvements a business makes to its property, such as a new building or new equipment bought in connection with relocating or expanding. It does not affect school property taxes or property taxes pledged to pay off bonds.

The exemption can be granted at the local government's discretion for up to 100% of the value of the improvements and for up to 10 years.

The way the property tax system is set up, companies that need equipment effectively pay rent on it forever because they must pay the tangible personal property tax on machinery and equipment. That's money that could instead be spent on hiring employees or purchasing more or better equipment.

'Hip deep' in Hillsborough

For the Aug. 24 primary, Sarasota County voters — together with those in the cities of Sarasota, Venice and North Port — get a chance to approve the tax exemption. So too will Charlotte County voters, who will see the identical ballot language, which is set in state law.

Punta Gorda voters may see it on a future ballot says City Manager Howard Kunik. “If it's approved, the city council will address it and put together a future referendum. We will consider it,” says Kunik, emphasizing “will.”

Hillsborough County commissioners were scheduled to discuss it at its Aug. 4 meeting, according to Gene Gray, the county's economic development director. “We are hip deep, if not deeper, to see if we're going to place it on the [November] ballot.”

Manatee County officials are also discussing adding the tax exemption to their toolbox of economic development incentives, but Commissioner Gwen Brown says she's uncertain if they can act soon enough get it on the Nov. 2 ballot.

Bob Sweat, Manatee's supervisor of elections, says he can be a little flexible with the commission — after all, they determine his budget — but normally he'd like to have the November ballot set by Aug. 3. If Manatee can't get it done this year, they may find themselves surrounded by at least three counties offering the exemption.

Hardee County has had the exemption at least since January 1999 and renewed it for another decade a couple years ago. DeSoto County offered the exemption for 10 years, but let it sunset, and now it too will have it on the ballot in November. Brooksville just voted to put it on the August ballot, also.

Big issue: jobs

So why all the renewed excitement for a tax exemption that's been on the books for 30 years? In three words: jobs, jobs, jobs.

In June, Sarasota and Hillsborough's unemployment rate stood at 11.8%, with the state's at 11.4%. Manatee's is 11.9% and Charlotte is now at 12.4%.

“This has become one of the biggest issues in this community and that is jobs,” says Kerry Kirschner, executive director of the Argus Foundation based in Sarasota. He was speaking July 28 at a rainy day rally for the tax exemption attended by only about 60 business people, but also four very supportive county commissioners.

“If we pass this we'll be the only coastal community on the west coast of Florida that's going to have the ability to attract businesses with this tax exemption,” Kirschner told the gathering.

Well, not exactly. But with the momentum for the tax exemption accelerating around the region lately, it's become hard for anyone to keep up. An Enterprise Florida map being shown around by Sarasota County staff and others, which displays counties having the exemption, shows DeSoto County still offering it.

Although supporters were unaware that Charlotte, Hillsborough, Manatee and DeSoto were moving on it too, they knew about the success St. Lucie and Palm Beach counties have had with it.

St. Lucie has had the exemption since 1992. “We had another voter approval in November of 2002,” says Michael Brillhart, the county's economic development director. “And they approved it fairly substantially.”

Brillhart points to Liberty Medical, which deals with treatments for diabetics, and their more than 1,000 employees. QVC's call center is another he credits the incentive for bringing to the county.

“This is one of the incentives that is critical here in discussing job creation,” says Brillhart, pointing to 16 companies that have taken advantage of it, and seven or eight more they're in discussions with currently. From annual reports required of the companies, he says they know 3,552 jobs have been created, and that's down from 4,500 to 5,000 jobs when business peaked.

Brillhart's boss, County Administrator Faye Outlaw, was scheduled to speak about her county's experience with the exemption at an Argus luncheon Aug. 5 in Sarasota. St. Lucie County exempted $29.4 million in tangible personal property and real property in 2009, about half of the $57.4 million exempted in 2006. Roughly 80% of the total those years was for tangible property, i.e. machinery and equipment.

Criteria favors big firms

One person ready to jump at the tax exemption, if it passes, is Ron Van Ostenbridge, chief operating officer of Super-Sensitive Musical String Co. in Sarasota. The company would like to expand in the Eastern Industrial Park.

“We definitely would take advantage of it and we've lost a lot of money by not having it already,” says the COO, who is also the immediate past president of the Sarasota-Manatee Manufacturers Association, the group that spearheaded getting the referendum on the ballot.

The company spent nearly $5 million over the last four to five years on equipment, says a frustrated Van Ostenbridge, explaining they just couldn't wait any longer to automate their plant. “In order for U.S. manufacturers to compete you have to automate,” he says

But that costs him money every year on the intangible property tax, money that could be reinvested in the company and employees.

Local governments now starting to see the connection between business growth and their own fiscal deficits see the exemption as another economic development tool and a good way to cut the unemployment rolls.

“It's going to be something we've needed,” says Sarasota County Commissioner Shannon Staub, who attended the rally. “In the next two years, particularly, this is going to be our main job to facilitate this to happen.”

Already, Sarasota and Charlotte counties have adopted nearly identical ordinances to go into effect the day after the Aug. 24 referenda. The ordinances set out guidelines for policymakers to consider in determining the duration and percentage of the exemption.

Sarasota County also adopted a resolution restating the guidelines and laying out a scoring system for evaluating the 10-page application companies must file to have a shot at the exemptions.

That's where things might get tricky.

Curiously, the scoring system favors large companies. To receive an “excellent score,” an applying company must show they would create at least 51 full-time positions as the result of relocating or expanding in Sarasota County. And capital investment must exceed $10 million to get an “excellent score.”

Other criteria, such as high average wages or exporting percentage might also tend to favor bigger firms. But criteria such as “innovative business” including “type of business,” “commitment to local procurement,” or “net positive contribution to the local economy,” offer politicians worried about big box stores like Home Depot or drugstore chains plenty of subjective wiggle room.

Commissioner Staub agrees it favors larger companies, saying, “I think the tax abatement is more likely for the medium size, not the small business that is trying to add.”

That's not what Van Ostenbridge and his associates at the manufacturers association had in mind when they first began talking to county staff and commissioners about the property tax exemption a couple years ago.

But it doesn't surprise him much that the county has tinkered with it to the apparent detriment of small companies like his own. “We're not a real manufacturing friendly community,” he says.

Thirty years after Neal and his colleagues in the Legislature thought it was a good idea, Van Ostenbridge still agrees, “We need this. It will help us create jobs.” Maybe even jobs making turbines for nuclear power plants now that they're back in vogue.

The Rules

What the Sarasota County Commission will consider when looking at applications for economic development property tax exemptions:

• Number of current and projected employees;

• Average wage of employees;

• Amount of capital investment;

• Innovative business;

• Commitment to local procurement;

• Net positive contribution to the local economy;

• Sales factor as applied to enterprise zones;

In addition to the above factors, the commission may consider any other activity or factor that promotes economic development.
Source: Sarasota County Ordinance No. 2010-034 as amended by Ordinance No. 2010-50.