Wednesday, April 22, 2015

Is the incentives game about to change? New disclosure rules could radically alter how we think about tax breaks.

By Matt DeVeau, Project Manager

If you travel in community and economic development circles, you’re going to end up talking about tax incentives. It’s kind of our Godwin’s Law – if a discussion about economic development goes on for long enough, eventually someone is going to bring up the role of financial incentives to attract and retain corporate investment. These conversations typically take on a normative bent: incentives exist and you must have them to “remain in the game” but should this be the case? Who benefits

These are good discussions to have, but to this point, they’ve been built on limited data. At present, state and local governments have a wide range of reporting and transparency requirements related to how they distribute tax incentives. Putting together anything close to a comprehensive overview of the topic requires a laborious research effort. Getting information about even a single local project that received incentives may be difficult for an average citizen in some jurisdictions. 

But all of this may be changing soon. The Governmental Accounting Standards Board, an independent entity that sets financial reporting standards for most state and local governments, this past fall proposed a new rule that will essentially require governments to report the incentives they give to businesses in a uniform fashion. According to a recent analysis from the Pew Charitable Trusts, the new standards would require state and local governments to provide “descriptive information about tax abatement programs as part of their annual financial reports” for “as long as a tax abatement agreement remains in effect.” This descriptive information would include: 

· Purpose of the incentive. 

· Amount of revenue forgone during the financial reporting period. 

· Total number of incentives in effect and awarded during the financial reporting period. 

· Total commitments made by incentive recipients (such as job creation or capital investment). 

· Eligibility criteria. 

· Provisions for recapturing abated taxes, known as clawbacks (if any). 

· Statutory (or other) authority for reducing taxes and determining the incentive amount. 

· Other commitments made by the state or locality as part of the agreement. 

Note that the rule would not require local governments to identify individual recipients of incentives, and some popular incentive mechanisms such as tax increment financing (TIF) would not meet disclosure requirements. 

There is obviously a lot to unpack here, and the change is not yet final. According to the GASB, the rule still has a few hurdles to clear this summer, and proposed GASB rule changes have been known to come under attack in the past. If adopted, the rule would not take effect until 2017. But this could eventually lead to a radical shift in the way incentives are discussed and, more importantly, it could change who is involved in the discussion in the first place. 

Uniform reporting requirements would be a research goldmine. I’m envisioning better information about the effective tax rates in various jurisdictions and full-scale studies about the overall efficacy of tax incentives, to name two potentially exciting (well, to me) outcomes. But look again at that second bullet – “amount of revenue forgone during the disclosure period.” Presumably, this will allow policy makers and the general public to easily determine the value of incentives that their state or municipality has provided. More importantly, it will allow for easy comparisons across jurisdictions. It’s not hard to envision that leading to widespread discussions about the role of tax incentives and maybe even the broader corporate tax structure. In other words, economic developers could have a lot more company when discussing these issues in the future.

Monday, April 13, 2015

In Honor of April 15th: What the IRS can tell us about talent attraction and retention…

By Matthew Tarleton, Principal, Vice President

Whenever we are analyzing a community’s health and competitiveness, I am always drawn to some particular pieces of information that are provided by, of all places, the Internal Revenue Service (IRS). 

Surprise, surprise: the IRS knows a lot about you. When you file your taxes with residence in one county, then file taxes with residence in a different county the following year, the IRS deduces that you have likely moved. Not a great revelation. But this information is incredibly powerful. Not only can the IRS quantify how many households (estimated by the number of tax returns) and people (estimates by the number of exemptions) have moved into or out of a given county in a given year, they can also define where those people are coming from and where they are going. Once they scrub the data of all confidential information (you know, things like names, tax IDs, and social security numbers), we have the publicly-available IRS Migration Data Series that allows us to quantify the migration flows into and out of a county, region, or state on an annual basis. With the most recently-available data covering migration flows in 2011, the IRS data release schedule clearly lags a few years. Another surprise: the IRS has other priorities. 

We have used this data in many client communities to help understand their relative success in talent retention and attraction. There is no better measure of this success than the revealed preferences of actual people, and that is what the IRS data provides: an accurate measure of how people are “voting with their feet.” 

There has been a lot of coverage (here, here, here, etc.) in recent months about Atlanta potentially losing its edge in the competition for talent, particularly young, college-educated talent. Yet others claim that Atlanta has one of, if not the best value propositions to young college graduates. Although the IRS data does not provide information on the age and educational attainment of in-migrants and out-migrants, I wanted to see what the numbers had to say, and to see if I could detect any discernable change in migration patterns in the last couple of years of data – a time period (2009-2011) that aligns with the start of the nation’s economic recovery, and accordingly, renewed household mobility that is typically associated with job growth, enhanced financial security, a healthier housing market, and other factors. 

First, let’s provide some longer-term context. Between 2001 and 2011 (the most recently available ten-year period), net migration to the Atlanta metropolitan area (+453,377 net new residents) exceeded that of all other metropolitan areas in the country, except for the Riverside-San Bernardino-Ontario, CA metro area (+462,070). This level of net in-migration was considerably larger than what was experienced in many of other fast-growing Sun Belt metros like Phoenix (+355,367; #3), Dallas (+328,585; #4), Houston (+274,384; #5), Charlotte (+205,195; #8), and Austin (+182,667; #10). When expressed as a percentage of the region’s population in 2001, Metro Atlanta’s rate of net in-migration (10.3%) fell to 37th, surpassed by smaller, fast-growing communities that are common retiree destinations (think Florida, smaller metros in Arizona, etc.) but also significant competitors for young, educated talent like Raleigh. 

But I really wanted to see where these people were coming from, and of those that chose to leave, where they were going. And as mentioned, I also wanted to see if these trends had changed substantively in recent years. 

From 2001-2009, Metro Atlanta was a net attractor from the overwhelming majority of metro areas in the country (meaning that more people moved to Metro Atlanta from a given area than those moving from Metro Atlanta to that area). The region attracted tens of thousands of net new migrants from major metros such as New York (+69,138 net new residents; #1 in terms of most net new residents to Metro Atlanta) and Miami (41,110; #2). In other words, the region attracted over 110,000 more new residents from New York and Miami than it lost to these two regions in the eight year period. The region, like many others in the country, was a large net attractor of new residents the New Orleans metro as hundreds of thousands of residents were forced to flee the area in the wake of Hurricanes Katrina and Rita. The region was also a major net attractor of new residents from places that are commonly considered to be “talent rich” such as Boston (+6,595 net new residents; #7), Washington DC (+5,536; #10), the Bay Area of San Francisco (2,289; #25) and San Jose (+674; #72). Finally, the Metro Atlanta region was also successfully attracting more talent than it was losing from surrounding metro areas in Georgia and neighboring states; places like Columbus (GA), Augusta, Montgomery, Columbia, and Savannah. 

These are the places with which the Metro Atlanta region was winning the battle for talent during the early part of the new Millennium (2001-2009). What about the places to which we were losing the battle? Well, fortunately there were few. Out of the 34 metropolitan areas to which Metro Atlanta was a net loser of residents (net out-migration), nine were smaller metropolitan areas in Florida (again, retirees). Seven are metropolitan areas that we might typically consider to be places that we regularly compete with for either corporate investment or talent. Those seven metros in order of the level of net out-migration from Metro Atlanta are: Houston, Austin, Charlotte, Charleston, Denver, Phoenix, and Portland. Fortunately, net out-migration to these regions was relatively small (between -159 and -945 over the entire eight-year period). 

Not bad, Metro Atlanta. Not bad at all. 

But…always a but… 

Things changed in 2009. The economic recovery was more pronounced and rapid in many other parts of the country. Some great things happened (groundbreaking on the first trail segment of the BeltLine) and some not-so-great things happened (terrible flooding, the Atlanta Public Schools cheating scandal). There are countless other things we could add to these lists, and endless debate could be had regarding their impact on Metro Atlanta’s ability to attract and retain talent. But I just wanted to see what the numbers say. Did Atlanta lose its edge to some of these places with which we had recently been successfully competing for talent (both theirs and our own)? The short answer is yes. The long answer is yesssssssssssss. 

During 2010 and 2011, Metro Atlanta maintained its position as a net attractor of talent from numerous metros, but the size of that advantage shrank dramatically in many instances. From 2001-2009, the region attracted, on average, 8,642 more people from New York than the region lost to New York. Over the two year period spanning 2010 and 2011, that advantage fell to an annual average of 1,893 net new residents. Similar drops were observed in the flows from other major metros such as Miami and Chicago. In-migration from the Los Angeles, Boston, and San Diego metros dried up to nearly nothing (roughly net zero). 

But what is most concerning is the number of metros where the trends were totally reversed. Areas that were once major sources of net new talent for the Metro Atlanta region became net destinations for talent from the Metro Atlanta region. Where we once held an advantage in being a net importer of new residents – “talent rich” places such as Washington DC and the Bay Area (San Jose and San Francisco) – the region began exporting talent. Individuals and families started relocating (or returning) to New Orleans at a faster rate than they were coming (net loss of -1,029 residents in 2010 and 2011). 

Perhaps most surprisingly, Metro Atlanta started exporting residents to surrounding metropolitan areas in Georgia and neighboring states that have long been a source of talent for the region. This includes places like Columbus, Montgomery, Columbia, Warner-Robins, Chattanooga, and Huntsville (combined net loss of more than 3,600 over the two-year period). We also started being a net exporter to places like Raleigh and Nashville that we regularly compete with for new corporate investment, and were previously net sources of new residents. And the pace of pre-existing net out-migration to places such as Austin, Denver, and Portland has accelerated. 

But as anyone that resides in Metro Atlanta can tell you, the reality is that what we see on the ground in 2015 is quite different than what we observed in 2011. Much has changed and it is hard to deny that the region seems to feel like it is getting some of its pre-recession mojo back. Nonetheless, the data always brings some surprises. It will be important for our region to monitor the next wave of releases from the IRS. When that happens is anyone’s guess. I hear they’re busy this time of year.

Thursday, April 9, 2015

Trees for A Better Economy

By Alexia Eanes, Operations Manager

As metropolitan areas continue to create places where people want to live, many are asking themselves: what are the selling points that will make someone relocate to their metro? Certainly jobs remain a critical factor, however, quality of life is increasingly important for highly mobile Millennials. We all generally understand the benefits a little greenery can have on a metro's quality of life. Almost everyone can enjoy green space: it allows us to break away from the daily grind of life. It's where people congregate, get healthy, have picnics, and socialize. But what is often overlooked, and arguably taken for granted, are the very things that green space is composed of: Trees. 

Trees are vital to a community’s wellbeing. Beyond beautifying and filtering our air, trees in urban areas have been shown to slow down traffic and strengthen public safety. One other beneficial gain that trees can produce is, surprisingly, increased economic activity. Studies have shown that shoppers respond positively to tree-lined shopping districts. Why? Well, one reason is that shoppers in tree-lined retail districts tend to have higher perceptions of the goods sold in those districts relative to other retail areas. You can just imagine a tree lined street in a quaint area with local boutiques selling artisan goods and clothes. It gives a certain aesthetic people are drawn to, and these areas become a retail focal point for the community and visitors alike. Both groups will go out of their way to get to the retail district and, while there, they spend money. Winter Park, FL, to me, is the quintessential tree lined street town where you want to shop and stay for dinner. While it does have a robust population, people from all over Florida and especially the city of Orlando travel there to experience what it has to offer. This doesn’t come naturally though. Their in-depth, award winning Parks and Recreation Department can be applauded for that. In 2014 the department received the Plant Operations Excellence Award from the Florida Department of Environmental Protection agency. Dually, they received the 2014 Achievement in Excellence in Procurement Award, which measures innovation, professionalism, e-procurement productivity, and leadership. The department successfully handles everything from trees on the street to farmers markets, event rentals in the area and much more.

Granted, there’s more to trees than their economic impact. Another benefit that may not be on your mind as an economic developer is the ability of trees to reduce the amount of heat being radiated from your city or town caused by man-made structures (typically referred to as the urban heat island). The temperatures that urban heat islands can generate cause major setbacks including hotter than normal temperatures, greenhouse gas emissions, and poor water and air quality. In a place with scorching summer temperatures, the city of Austin’s Community Tree Program is purposefully combatting this issue. The program chooses a neighborhood and has their volunteers plant up to 10 different native species of trees. The City has also partnered with TreeFolks in Central Texas to keep the initiative going. Their goal is to plant 350 15-gallon trees by March 2015. The increased tree canopy results in cooler temperatures (up to 10 degrees in some places) while also providing shade on the ground for people to enjoy. 

Other organizations throughout the nation are performing similar activities to reap the environmental and economic benefits for their own communities: Trees Atlanta, Keep Indianapolis Beautiful, and TreesCharlotte are just a few of these programs. While these metros are working toward their own goals, there’s no doubt that a little shrubbery can have an impact on their communities. 

Whether it’s boosting the economy, reducing your city’s heat island, or creating a community atmosphere, there’s a general consensus that green space and trees are not only a want but a necessity. There are programs and organizations all over the U.S. that are creating these features to benefit their hometowns. What is your program?