Columbia must rethink exemption-friendly mindset

By Moe Baddourah
Columbia City Council

We all hope the Bull Street development lives up to its billing as a shopping and dining hub generating thousands of jobs and $20 million annually in taxes. But five years in, it’s clear that the grand promises remain largely unfulfilled. Most notably, the November 2014 announcement that more than 40 tenants were lined up simply never materialized.

What’s also clear — or should be clear — is that city residents shouldn’t be expected to foot any more of the bill for costs related to the project. Frankly, council’s approval last month of a 50 percent, 15-year tax break for a planned apartment complex at the site was ill-considered. Additional tax exemptions should be off the table.

Now’s not the time to walk away from revenue, especially Bull Street revenue. The contract between the city and the developer sticks Columbians with a $71 million tab – a sum likely to be felt by all of us – for what’s essentially a private business venture. That is to say, it shifted onto city residents an enormous financial risk typically assumed by private investors. And given the pace of progress, many are uneasy about how we’ll come out in all this.

Our focus now must be on mitigating those risks – i.e., prioritizing tax collections over tax exemptions – and realizing a return on the millions poured into the project.

Recall that the main selling point for the Bull Street deal was adding 180 acres to the tax rolls. We were led to believe tenants would be taxed at full value. “No tax breaks, no sweetheart deals,” proclaimed an official city memo. That hardly squares with the newly-offered apartment tax exemption.

If the project is indeed on track to meet expectations – as we’re repeatedly assured it is – it won’t be a problem landing tenants willing to pay the same rates as everyone else.

It’s worth mentioning that such exemptions are anti-competitive. At least one other residential complex in the city has raised objections to the Bull Street apartment exemption, pointing out that it would be forced to subsidize a tax break for a competitor.

But there’s a stronger argument for exercising caution on such incentives: With an abundance of government property, public universities and tax-exempt hospitals, Columbia suffers from a uniquely narrow tax base. According to some estimates, less than 40 percent of real property in the city is currently taxed. It’s our most fundamental problem, straining funding for services and placing a substantial burden on those who bear the cost of those services. Columbia’s numerous tax exemptions, abatements and incentives only make the problem worse.

It’s time to get serious about expanding the city’s revenue base, which means rethinking our exemption-friendly mindset.

Certainly, there times when incentives are justified as an economic recruitment tool. I’ve supported them in the past when I believed them to be reasonable. But their real value is difficult to size up; without a crystal ball, it’s impossible to know whether incentives are truly necessary to attract a given business.  And the drawbacks – including lost revenue, which the rest of us must make up – are considerable.

Fewer exemptions would mean a fairer, more stable revenue system. (Accordingly, I’ve previously pushed to eliminate the exemption which allows tax-exempt businesses such as hospitals to avoid business license fees.)

A few weeks ago, as we made our resolutions for the coming year, many of us resolved to kick a bad habit. Those of us in city leadership should use this opportunity to examine some of our own habits – including our affection for doling out costly tax exemptions.

Maybe it’s time to pump the brakes on special tax breaks. At the very least, we must be more judicious when writing off badly-needed revenue. And exemptions already on the books should be subject to regular review to assess whether the benefits are worth the cost.

Whether the Bull Street payoff measures up to the cost remains to be seen. In the meantime, there are steps we can take to expand the tax base and lighten the load on the general public, and we owe it to them to do so.