Warren Bolton

April 23, 2014

Bolton: Is Columbia paying too much to grow its tax base?

It’s hard to argue with Columbia Mayor Steve Benjamin’s strong push to grow the city’s tax base. But is Columbia offering too much in incentives in its efforts to draw businesses and new development downtown? It appears so.

YOU CAN’T ARGUE with Columbia Mayor Steve Benjamin’s strong push to grow the city’s tax base. It’s sorely needed.

For years, Columbia officials have lamented that 50 percent or more of the property in the city isn’t on the tax rolls; that’s the hand you’re dealt in a capital city where there is so much federal, state and local government property, not to mention a sprawling publicly owned flagship university. And don’t forget nonprofits and churches.

With so much prime real estate in the city not generating property taxes, business owners and homeowners have had to take on a larger burden to fund city government. But those folks can carry only so much of the load, meaning services could suffer. Or, as Columbia has done, the city begins to lean on revenue streams such as water and sewer and other fees to help carry the load. For years, City Council has transferred millions of dollars from the water and sewer fund annually to keep property tax rates down.

But even before he took office, Mayor Benjamin had zeroed in on the need to grow the city’s tax base to offset the large amount of property that doesn’t yield taxes. From the outset, he’s vowed to draw more businesses and residents into the city to increase the amount of property tax collections.

While there’s some debate over just how successful he’s been to date, during his campaign for a second term in office, he claimed “about $300 million” in investment during his first term.

And during his State of the City address in January, he pledged to push even harder. An excerpt from his printed remarks read: “If we want to truly become the city we can be we must grow our capital investment tax base. We’ve begun that process already by increasing annexation efforts and bringing over 180 acres of state owned property back on the tax roll with the Bull Street Development.”

But the mayor said the city must explore still more ideas, such as luring more high-rise development. He set a $1 billion goal for private investment in high-rise buildings by the end of his second term in 2017.

I don’t think that’s realistic. Columbia would be fortunate to draw one — maybe two — such new buildings to town.

Good idea

That said, Mr. Benjamin has the right thought. It’s not enough to complain about the lack of taxable property. It’s not enough to do the easy — and wrong — thing of taking money from the water and sewer fund that really should be spent to help maintain the dilapidated system. Columbia has to be intentional about drawing more development to town to generate the funds needed to help move the city toward becoming the world-class municipality Mr. Benjamin always talks about.

While I and many others don’t agree with how City Council has handled agreements involving a large mixed-use development as well as a minor league baseball stadium proposed for the old State Hospital site on Bull Street, Mr. Benjamin and the three fellow council members who have supported the projects are right about the need to bolster the city’s tax base.

That is also part of the reason City Council recently agreed to extend property tax breaks to three student housing complexes planned for downtown. The developers will receive a 50 percent tax break and save about $2.1 million in taxes annually for 10 years.

Richland County created the unprecedented incentive at Mr. Benjamin’s request. The mayor has complained that Columbia missed out on the tax revenue from a student housing boom along Bluff and Shop roads, which are outside the city’s limits.

But while it’s critical to grow the city’s tax base, the tactics being used also raise critical questions:

Is Columbia cutting off its nose to spite its face by offering the kinds of incentives and tax cuts it has to the Bull Street development and the apartment complexes? Is it creating an environment in which every business or developer recruited or looking to locate in Columbia will expect a handout? And how do city officials maintain a good relationship with long-time businesses and developers as well as others who pay full freight and bristle at the notion of subsidizing their competition?

Bad execution

Considering that property taxes are the major revenue source for local governments and that the Legislature has limited the degree to which cities and counties can raise tax rates, it’s unwise to give away any portion of that revenue without sound justification.

I’m not opposed to local governments using incentives in some instances to spur development in blighted areas or to improve locations that are generating little or no property taxes. Bull Street is such a place.

But there is such a thing as giving up too much, which the city is on the cusp of doing with its deals at Bull Street and with the extension of property tax breaks for student housing complexes.

Typically, a developer would have to provide many of the amenities the city is pledging to construct at Bull Street. The city has committed to paying at least $31.25 million for all infrastructure — and that doesn’t include two parking garages that could cost a combined $26 million. That’s too much.

Also, the city has pledged $29 million toward the construction of a $35 million minor league ballpark. Local governments shouldn’t be the primary backer of ballparks for pro ball teams. The payoff from minor league ball is modest at best.

And there is little justification for providing the long-term tax breaks being offered for student housing — much of which would be built regardless.

Historically, counties have used tax breaks to lure corporate headquarters and manufacturers that create large numbers of new jobs. But it makes no sense to redirect millions in taxes needed to support city and county services and schools to extend tax breaks to apartment complexes that don’t create jobs.

As I’ve noted before, there are times when it’s to the city’s advantage to offer targeted but limited incentives. It’s something Columbia has experience at. Take for example when it gave a developer $1.6 million to help transform the Confederate Printing Plant into a Publix, to help boost the once-blighted Congaree Vista.

But what’s being offered at Bull Street and with these apartment complexes is in a different league, and it’s not nearly as clear that the city will get the success it seeks.

Some people might say that it’s better to get something than nothing. That’s one way to look at it.

But chances are that the city could have gotten the same investments at much cheaper prices. In the case of the apartment complexes, projected tax collections would be higher. Isn’t that what this is all about?

Reach Mr. Bolton at (803) 771-8631 or wbolton@thestate.com.

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