A Summit County, Ohio, decision to reduce a tax abatement given to a plastics company in 1989 because it failed to create the number of jobs it agreed to as part of a relocation incentive package may have broader implications. It could be a sign that such inducements are beginning to lose their luster with public officials. If so, the message is overdue.
When Texler Inc. moved 115 jobs to a new 65,000-square-foot facility in a designated urban jobs and enterprise zone in 1990, it agreed to maintain those jobs and to create 20 more, plus generate between $1.5 million and $1.6 million each year in payroll in return for a 100 percent tax abatement. Four years later, it reported a payroll of $2.2 million but only 110 employees. Last month, acting on the recommendation of the county's tax review council, the firm's tax abatement was cut by 25 percent, retroactive to Jan. 1, 1995.
Ironically, a spokeswoman said the business wasn't able to meet its 135-job goal because of low unemployment in the county and ``severe competition for entry-level employees.'' The firm is located in Macedonia, a Cleveland suburb where some fast-food restaurants offer bonuses and $7-an-hour wages to attract workers.
Perhaps not incidental to the county's decision is growing public concern over tax abatements, which place some communities in the position of the farmer who eats his seed corn. Ohio, for example, has reduced its corporate personal tax rate 10 percent during the past decade in an effort to retain and attract firms. During the same period, it has experienced a sharp reduction in federal revenue. In turn, Ohio's financial support for community programs and schools has declined. As a result, many Ohio schools have funding problems and nowhere to turn for relief but to residents. The tax abatements and other costly inducements state and local officials feel they must use to attract businesses have long been a questionable fiscal issue. Supporters argue such sweetheart deals are necessary for economic development and serve to return long-term dividends through employee wages, sales taxes and expansion of the property tax base.
Opponents label the inducements ``corporate welfare,'' and argue they aren't fair to existing businesses or property owners be-cause they subsidize one taxpayer at the expense of many others. The more fundamental problem with such incentives is they ad-dress the symptoms rather than the cause of many problems related to education, productivity and competition. They require ever-increasing applications of public aid and government involvement to meet corporate relocation demands - typically at the expense of local schools. Ironically, at the March 27 National Education Summit at IBM Corp. in Palisades, N.Y., the nation's governors met to again hear corporate leaders demand a better-educated work force. The executives, some representing firms that have moved plants to countries where the majority of the population is less-educated than in America, complained that they get high school graduates in the United States who can barely read their diploma.
Tax abatements contribute directly or indirectly to that problem and others in struggling communities anxious to make themselves more desirable to companies. While it is an imperative for development officials, whose jobs depend on fostering growth, to rationalize that a community gets more in return than it gives out when buying entry-level jobs with long-term tax breaks and other incentives, the claim often is dubious.
Some practices are little more than bad habits. Tax abatement has become one of them.