There were some fireworks at a meeting of Fargo’s city commission tonight.
The genesis for the controversy was an application made by a company called Aldevron for a $4.6 million payment in lieu of tax (or PILOT) subsidy for an expansion they’re building.
According to the commission’s posted agenda, the subsidy would have the company paying no property taxes for five years, and then 50 percent of their property taxes for five more years after that (full agenda embedded below):
That adds up to a more than $4.6 million subsidy over a decade.
When the commission got a chance to discuss the proposal, Commissioner Tony Gehrig asked the company’s representative point-blank: “If you didn’t get the incentive would you still expand?”
The representative then says a lot of words, which all added up to yes they would. “We would on without that incentive,” he said.
And then things got interesting. Here’s video of the exchange (full video of the meeting here):
After that answer a clearly perturbed Commissioner Dave Piepkorn accused Gehrig of “bitching” about the subsidies.
“It really bothers me when he puts words in people’s mouths,” Piepkorn said, referring to Gehrig. He then said Fargo was in “competition” and asked the Aldevron representative if they went to another city if they’d be offered the same “preferential” treatment Fargo was giving them.
The representative, visibly uncomfortable with the exchange, answered in the affirmative.
Gehrig then praised the company, and said they were attracted to Fargo because of a “low” and “predictable” tax code. But he added that these sort of tax breaks are the “exact opposite of that” because they can be unpredictable.
Gehrig said he wouldn’t blame the company for taking the subsidy. “This is a government problem, not a business problem,” he said.
“One of the things is we’re in competition to get these companies to come here and stay here,” Piepkorn shot back. “To bitch about that, it’s a little bit disingenuous. It sounds really politically, you know, it’s easy to make it sound good but we’re in competition. If you don’t want to do this then we’ll lose businesses.”
This exchange demonstrates the confounding reality of local economic development policy. On one hand, Commissioner Gehrig is absolutely right in venting his frustration over giving millions and millions of dollars in tax breaks to a very large and well-established company which is on the record saying they don’t really need them. But then, Commissioner Piepkorn is right when he says that if Fargo doesn’t offer companies like this big tax breaks, some other community will.
Policies like PILOT gained political support because the public perception is that they’re helping get new businesses started, or helping established businesses expand, and thus benefiting their communities. The reality has become something very different.
The subsidies occur because they’re expected, not because they’re needed.
As long as the politicians have the authority to carve out tax exemptions for favored businesses, this nonsense isn’t going away.