Last night the Fargo City Commission met and voted to approve a property tax exemption worth $660,000 over ten years for FedEx which is building a facility in the city after announcing that they’d be leaving Grand Forks.
The move was already somewhat controversial – Grand Forks city leaders are wondering if this was an example of Fargo engaging in some intrastate competition for jobs and businesses – and it seems all the more problematic given what happened at the meeting last night.
During discussion about the incentives Commissioner Tony Gehrig – who is no fan of tax exemptions – asked FedEx if the company would still move into the city if they didn’t receive the $660,000 incentives package.
“Mr. Wilson, if you don’t get this incentive will you still move to Fargo?” Gehrig asks.
“Yes sir, we will,” the FedEx representative answered.
You can watch the video of the entire discussion below. The relevant exchange happens just after the 2:30 mark:
“Grindberg, a former state lawmaker who generally favors incentives, said it’s wrong to offer an incentive that encourages a company to leave another North Dakota city to come to Fargo,” Tu-Uyen Tran reported. “He warned that lawmakers are scrutinizing incentives given out by cities.”
Grindberg makes a fair point. I don’t think poaching companies from other North Dakota cities is a valid use of this policy (whether or not that happened in this instance is a topic for another post). The larger issue here is that FedEx is on the record saying they would move to Fargo without the incentives and the city commission gave them the incentives anyway.
To what end? What good is done for the taxpayers in giving a tax exemption that isn’t necessary? What purpose does this serve?
Answers those voting for these incentives should answer, I think.
[mks_pullquote align=”right” width=”300″ size=”24″ bg_color=”#ffffff” txt_color=”#000000″]Tax exemptions as economic development are a dubious sort of policy to begin with. But this, I’m afraid, is downright frivolous.[/mks_pullquote]
Those in favor of these sort of tax exemptions argue that they have no cost to the communities which give them because, absent the incentives, there would be no development to produce the tax revenue anyway. Except that’s not true in this case. FedEx said they’d come to Fargo without the incentives.
And beyond that, when a company like FedEx builds in a community, they still use all the services paid for by the taxes they’re exempt from. That creates additional costs which must be born by all of the property owners who are paying taxes, thus putting upward pressure on tax rates.
Plus, in case you haven’t noticed, North Dakota is doing some belt tightening of late. If FedEx says they don’t need the exemption, couldn’t Fargo probably use the revenue?
Tax exemptions as economic development are a dubious sort of policy to begin with. But this, I’m afraid, is downright frivolous. It’s almost like these politicians are afraid to let development happen without incentives lest people get the idea that these incentives aren’t terribly useful to begin with.
At least in terms of spurring developments. As leverage for politicians to feel important they’re great, I guess.
This sort of thing isn’t an isolated incident, by the way. Back in 2012 the City of Mandan gave Walmart a property tax exemption a $403,000 tax break despite the company saying the incentive wasn’t needed for them to build the store.
From the Mandan City Council’s meeting minutes when the exemption was approved: “In addressing the comment that Wal-Mart does not need the exemption so why should
they be given the exemption? In response, need, is not one of the identified criteria in the policy.”