Montgomery County Judge Alan Sadler has tasked Tax Assessor-Collector J.R. Moore with heading a commission that will review and update the county's tax abatement policy before his term as judge expires at the end of the year.
"One thing I want to do before I leave office is reassemble the committee to basically update the basic numbers on the tax abatement agreements," Sadler said. "Our tax abatement agreements are anywhere from five years to 10 years and anywhere from 50 percent to 100 percent abated based on jobs and added value. We need to update those to bring them to 2013-14 numbers."
A tax abatement is an exemption of property taxes on improvements to a parcel of land, Sadler said. For instance, if a business buys property in the county and applies for a tax abatement, the company would still pay property taxes based on the assessed valuation of the land, but if it were to build a structure on the land, that would be abated, meaning the company would not pay taxes on the improvements for a set amount of time. The company would only pay a percentage of property taxes on the property for the agreed-upon amount of time.
Although the tax abatement policy in Montgomery County was renewed last year, the county has not adjusted or updated the criteria to the policy since 2008, Moore said. He is conducting research to determine how the criteria should be updated and what recommendations to make to the county court.
"I am looking at five other counties who we consider competitors to see if they have updated their numbers," Moore said. "I have looked at three of those so far, and it does not look like they have updated their numbers."
Tax abatement policy
Montgomery County established its tax abatement policy in May 1988, and in that time, it has granted 93 tax abatements. The county has 27 active abatements, which have created 6,974 new jobs with a total estimated annual salary of $592.4 million. Since 1988, as a result of tax abatements given, the county has added or retained 15,989 jobs and added $53.8 million in tax revenue, Moore said.
The county's tax abatement policy starts at more than $1 million , meaning any new and eligible improvements to the property must add more than $1 million to the value of the land, Moore said. The percentages and length of the abatements are based on the number of jobs that will be created and the value of the improvements to the property. For most abatements, the percentages decrease over the life of the abatement, which does not exceed 10 years, and the county will receive all property tax revenue on the property once the agreement expires, he said.
The tax revenue for the county prior to the 27 abatements being counted was $875,597, Moore said. The tax revenue for 2013's tax levy is $2,362,135 and the tax revenue once the abatements expire will jump to $4,223,098.
Since 1988, the county has denied 21 applications for abatements for various reasons since 1988 and has also canceled 17 abatement agreements as a result of withdrawal or default, Moore said.
The Woodlands abatements
The Woodlands Township uses a combination of tax abatements, sales tax rebates and other incentives to compete for companies considering relocation, township chairman Bruce Tough said.
The township mirrors the county tax abatement program requirements as to the number of jobs created, the economic dollars generated or property value created on a given site, but it allows for variances in specific circumstances, Tough said.
The Woodlands used abatements to draw national and international energy companies to the community, such as Anadarko, ExxonMobil and Repsol, along with retailers, such as Costco, to the area. The township currently has 11 active abatements, according to county documents.
"We are in competition with every other community in the United States," Tough said. "[Businesses] provide jobs, they provide the people that buy the houses, the people who shop in the stores so there is sales tax revenue generated, there is property tax revenue generated. It can build a town, and it can take a town down."
Gil Staley, CEO of The Woodlands Economic Development Partnership, said because companies develop land that would not otherwise generate substantial tax revenue, revenue generated despite the abatements is more than without them.
"A great example, Anadarko's first tower was just a parcel of land, less than an acre," Staley said. "It was generating very little property tax. But once it's completed and it matures, now you have a taxable value of close to $190 million."
Anadarko recently completed its 10-year abatement period on its first tower and now generates an estimated $1 million in additional property tax revenue annually, Tough said.
"Now they are building a second tower and we gave them another tax abatement," Tough said. "That is an example of retaining a business that has relocated here. It could have been in Houston, it could have been in Dallas, it could have been in Austin, but they chose The Woodlands because we were aggressive in our tax abatement."
While there are provisions to keep companies from abandoning unfulfilled abatement agreements without repayment, Staley said The Woodlands has not seen major companies leave the area after the conclusion of the agreed period.
"It's what we call business retention," he said. "We started almost 17 years ago as an organization spun out of the chamber to pay attention to companies [whose] incentives were up. Thankfully, we have such a fantastic business environment that hasn't happened. We have been very fortunate that once it expires the community continues to benefit from that abatement."
Local officials largely agreed on the effectiveness of tax abatements as business recruitment tools, citing relocations by ExxonMobil and Anadarko.
"Bringing corporate relocations to Montgomery County does three things for us," said Craig Doyal, Montgomery County Precinct 2 Commissioner. "It broadens the tax base to lessen the burden on residential taxpayers, it provides quality job opportunities to the people that live here, and it works as a traffic mitigation tool. When people can work here in the county, they don't have to use the freeways to get into Houston, which lessens the need for mobility that is already congested."
The Woodlands Township has used tax abatements to attract and retain businesses since its establishment, Tough said.
"From my perspective, tax abatements have been a very effective tool," Tough said. "What irritates me is when people say, 'we are not going to give tax abatements, and businesses will come here anyway.' They are very naive. Those people are very naive, unsophisticated, and they don't understand the complex nature of international and national businesses."
Mark Bosma, candidate for Montgomery County judge and the county's director of infrastructure, does not oppose tax abatements, but he said they should not be awarded automatically to companies that meet the criteria. Bosma said every application should be researched thoroughly to make sure it is the right fit for the county. He also said abatements often are used to attract larger businesses to the area, but that small business is the driving force of the economy and the county should look at ways to further incentivize small business.
Texas Patriots PAC president Julie Turner said she agreed that tax abatements should not be given automatically to companies that meet the set criteria. The Greater Houston area is a competitive market and a number of counties are trying to lure in businesses, and tax abatements are a powerful incentive to bring them in, she said. However, no rules or guidelines are in place to determine what businesses the abatements should apply to outside of the number of jobs and added value they will bring to the county.
She said the county should also investigate other forms of incentives.
"There needs to be more robust debate on the [Commissioners] Court to determine what these guidelines should be," she said. "The county gives very favorable deals to large companies who are willing to take them, but the government should not have total control of what is coming here. There needs to be more discussion and a more thoughtful approach to who receives tax abatements."