By Jim Schutze
By Rachel Watts
By Lauren Drewes Daniels
By Anna Merlan
By Lee Escobedo
By Eric Nicholson
They have given away half the growth.
It's not just Tom Hicks and Ross Perot Jr. who get freebies. They're giving away the company store to anybody who walks in. Do you have your own tax abatement yet from the city of Dallas? And if not, what's the matter with you? Too lazy to drive downtown?
You should get one. A tax abatement means that some percentage of the value of your property is deemed by the city to be tax-free. The amount abated ranges from 50 to 100 percent and is determined by the mayor and city council. The time frame ranges from five to 10 years. There are 107 abatements on the rolls this year, according to Ken Nolan of the Dallas Central Appraisal District.
The type of businesses that get abatements is also wide open.
"Basically the city of Dallas will give a tax break to just about any business that locates within the city limits," Weinstein says.
Is that good?
"There are certain types of businesses for which a tax break makes sense," Weinstein says. "Manufacturing, export, and so on. But there are types of businesses for which an abatement doesn't make sense."
That's a difficult call. Did the city need to give a tax abatement to Bud's Salads, a small vegetable processor that was allowed to shave about 20 percent off the cost of a renovated building in South Dallas five years ago? Proprietor Rosalie Budnoff says the abatement encouraged her to locate in South Dallas, where her company has grown from 14 to more than 100 employees.
How big a factor was the abatement? "It hasn't amounted to much in money," she says. "Maybe $100 a year. But every little bit helps."
Of course, Bud's Salads isn't the kind of business abatement that bites very deeply into the city's tax revenues. Texas Instruments, on the other hand, holds half a billion dollars' worth of property that is off the roles, some of it until 2007.
A year ago, a bitterly divided council voted to give a $3 million abatement to Hunt Realty Corp. for the expansion of the Hyatt Hotel downtown. Opponents of the tax break said it was an example of giving away the store to a rich company that had to stay where it was anyway. A Hunt spokesman declined to comment beyond saying the tax break was there and they took it.
The argument for the abatements is that they are not permanent and that they lure to the city businesses that will one day begin paying new taxes, thereby "growing the tax base." But Weinstein points out that there's nothing to stop a business from leaving Dallas after a 10-year abatement is used up. "In many businesses, 10 years is infinity. Ten years from now, they may no longer be here."
The other problem is that nearly 40 percent of the tax breaks dished out by City Hall this year alone are "freeport" exemptions, which are permanent. In 1999, the city of Dallas gave away $648 million worth of freeport exemptions. That tax base never comes back. It is permanently free of city taxation.
Some abatements have language attached to them requiring certain hiring quotas or investment in infrastructure. There are also abatements that require a business to stick around longer than the term of the abatement. But the city has no consistent mechanism for checking to see whether any of that gets done.
The city council voted recently to give the city staff more discretion in the future over granting tax breaks. The staff will be able to fine-tune the amounts given away, presumably making for smaller abatements. Mayor Kirk called the move "a subtle message to the staff that as the economy improves, let's not give incentives just for the sake of giving them."
Of course, the economy has been improving for the better part of a decade. Let's hope it's not done improving and that this isn't a subtle message to a horse already out of the barn.
City Auditor Robert Melton recently took it on himself to begin measuring compliance with the terms of abatement and freeport agreements. He hasn't started his audit yet, but says he expects to soon.
In whatever way the tax abatements and freeports and other give-aways are calculated, they represent a huge share of all the building, the work, the income, the getting-ahead Dallas taxpayers thought they had been banking since the recovery began in the early 1990s. When the downturn comes, that much of the nest egg will be missing.
But in terms of the mess the city is in financially, the problem of giving away tax abatements is probably only half the picture. The other bad news is debt.
Two years ago, when the U.S. Army Corps of Engineers was doing its draft environmental impact statement for the Trinity River project, one of the issues government analysts had to look at was whether Dallas could afford to pay for its share of the project. What they found in their initial study was a little financial nugget that never made the news at the time.
Dallas, according to the Corps' economists, owed $1,267 in debt for every man, woman, and child in the city -- a disturbingly high debt burden that earned the city a rating of "weak" in comparison with national averages.