A vote for economic progress in Rutland
In 1977 Rutland City voters gave the Board of Aldermen authority to enter into tax stabilization contracts “relating solely to industrial property.” On Aug. 28 we are seeking voter ratification to expand this tax stabilization policy to include commercial property as well.
The ballot item will read “Shall the Board of Aldermen be granted general authority, pursuant to 24 V.S.A. 2741, to enter into contracts for tax stabilization of commercial property?” I hope that the following will clearly explain why tax stabilization authority for commercial property is being sought, how this policy will be utilized, and why implementing commercial property tax stabilization is in the best interest of Rutland City residents.
First, a brief explanation of what the difference is between industrial and commercial property. The Vermont Department of Taxes employs the following definition in its Tax Lister Handbook “Commercial. Include properties whose highest and best use is in providing goods and services for sale. ...” This differs from their definition of industrial: “Industrial property is distinguished from commercial in that raw materials are used to produce a product, rather than a product or service simply being sold.”
Why is commercial property tax stabilization authorization currently being sought?
The economic landscape of Rutland in 1977 was very different from what we see today and what we are likely to see in the future. Due to its relatively high pay scales and the export-based nature of the sector, attracting and retaining industrial manufacturing has historically been a key strategy in economic development. While the Rutland region is fortunate to serve as home to several world-class manufacturing operations, the prevalence of large industrial plants has changed dramatically over the last 35 years, both locally and nationally. Knowledge-based and service-based businesses, commercial by our definition, are now regarded as important growth sectors within the economy.
Stabilizing real and personal property taxes is one of the most established and widely utilized economic development incentives. Authority for municipalities to enter into local tax stabilization agreements for both commercial and industrial property is provided in Vermont statute, and it is very uncommon for the two to be separated, as they were on the Rutland ballot in 1977. Following 2012 voter ratification, the city’s existing tax stabilization policy will immediately be combined into a single commercial and industrial policy, as is the norm.
Rutland City needs to do everything it can to attract and retain employers. The ability to offer commercial property tax stabilization as an incentive could be critical to a location decision and provide Rutland City a competitive advantage over a competing location.
How will this commercial property tax stabilization incentive be utilized?
The ability for the city to stabilize industrial property has existed for over three decades and has been employed on several instances, primarily on a case-by-case basis, and without an official policy and procedure. The motivation to formalize this process was spurred by the desire to better market the city for recruitment of new business and to encourage existing city employers to invest or re-invest in their facilities and equipment. To use an economic development cliché, property tax stabilization is a viable tool in the city’s toolbox. We want to have it available, and we want businesses to know it is available.
Space constraints preclude going into great detail on the specific policy language, but the highlights require that a business be looking at making a tangible new financial investment in real property and/or machinery and equipment which will create new jobs within the city. An interested business would complete an application in which the scope of the project, level of financial investment, and projected job creation numbers and associated payroll are defined. If, based on their application, the business is deemed qualifying for stabilization the Rutland Redevelopment Authority will make a recommendation to the Board of Aldermen in regards to the level of stabilization and its length of time. The board will have ultimate discretion as to the structure of the tax stabilization agreement that is entered into with the qualifying business.
Unlike some more formalized policies the terms have intentionally been left flexible in order to best serve the needs of the employer. The envisioned time frame for a stabilization period will be five years with a statutory maximum of 10. The city may stabilize a business’s real and/or personal property tax at the municipal level only. In the case of non-compliance there will be a recapture provision. The recapture language will ensure that the city realizes the benefits (financial investment and new jobs) that are the basis for granting tax stabilization.
Why is approving commercial property tax stabilization in the best interest of city residents?
First, it is important to understand that this policy will not forgo existing city taxes or create an additional burden on current taxpayers. The stabilization will be for new investment only — in other words, investment that has not yet occurred and which but for this stabilization incentive might not occur at all. The current assessed value on the existing real and personal property will remain and only the “new” investment moving forward will be eligible for stabilization.
With no tangible short-term detriment to current taxpayers the long-term benefit to the city’s grand list is evident. At the conclusion of the stabilization period the businesses assessed property values are fully realized. More importantly this incentive has served to create new jobs within the city. New jobs will create new payroll, enabling local goods and services to be purchased, and allowing future home ownership opportunities for local workers.
In what may be the overly simplified view of an economic developer, I believe many of the critical issues currently facing the city — drug abuse and dependency, related criminal activity, vacant and blighted properties, declining property values, and declining population — can be immediately improved with one thing: good, well-paying jobs within the community. These new jobs will not only create individual wealth but also the inherent self-respect that comes from an honest day’s work and a stable source of income.
I do not want to create unrealistic expectations as to the short-term effects that ratifying commercial property tax stabilization will have. It is not a magic bullet. However, I do strongly believe that this is a logical and important tool in stimulating new investment within the city and thus creating new jobs for the future.
Rutland is on the rise. By creating another competitive advantage for the city, we will be better positioned to capitalize on existing and future investment. I hope the city’s voters will agree and cast their vote in favor of allowing commercial property tax stabilization to be used as an economic development incentive.
Brennan Duffy is executive director of the Rutland Redevelopment Authority.