City Property Tax Breaks Mean Sweetheart Deals For A Select Few

A system that lets one business get special treatment in a city with 3,000 businesses

Blair Bowman is the owner of Suburban Collection Showplace, a convention center located in Novi. He is also the registered agent listed for Boco Enterprises, which is the exclusive contractor for event services at the convention center.

Both companies received generous property tax breaks, offered by the city of Novi, known as “abatements.” The two companies affiliated with Bowman have received four of the 11 tax abatements Novi has approved since 1986, according to information received in response to a Freedom of Information Act request. Those four abatements span the years 2001 to 2016.

A number of state laws authorize local property tax abatements for different kinds of property. They generally cut an owner’s property tax bills in half for a specified number of years, which can mean hundreds of thousands of dollars over time. It’s a benefit that just a handful of the estimated 3,000 businesses in Novi enjoy.

While local tax abatements rarely receive much publicity, they are a form of corporate welfare that let politicians on local governing bodies choose which business owners will receive preferential treatment.

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Some tax abatements are big news. In 2001, Ann Arbor approved a 12-year abatement on a Pfizer drug company expansion in which the pharmaceutical giant was going to invest up to $800 million. In January 2007, Pfizer announced it was closing its Ann Arbor facilities. The millions in additional tax revenues the city envisioned never materialized.

According to city documents, Suburban Collection Showcase warranted the abatement because of the impact it would have on tax revenues. City staffers estimated that a 2016 expansion by the convention center would net an additional $65,000 in tax revenues in the first year $129,000 in the 13th year. The city collected $33 million in property taxes in 2016.

It’s not unusual for business owners who have large property investments to have cordial relationships with the elected local officials who have authority over many phases of a project. For example, the process of getting city approval on a zoning matter can take months or even years and entail many meetings between government officials and a development company’s managers and owners.

It is also not unusual for business owners to make political contributions to elected officials who under state law have the power to approve or deny local tax abatements.

Bowman has regularly contributed the re-election campaigns of Novi Mayor Bob Gatt. Campaign finance records show that Bowman gave a total of $1,900 to four of Gatt’s election campaigns from 2010 to 2015. These are considered modest sums in this area.

And Gatt awarded Bowman the “Mayor’s Business Ambassador Award” in a 2013 Novi Chamber of Commerce event. That award was described as a special award personally selected by Gatt.

Bowman and Gatt didn’t respond to emails seeking comment.

It is not illegal for developers to contribute to the political campaigns of politicians who vote on their tax deals.

Michael LaFaive, a fiscal policy analyst for the Mackinac Center for Public Policy, said an appearance of a conflict of interest is one of the problems with local tax abatements.

LaFaive pointed out that while companies say they won’t locate within a city without a tax abatement, that is sometimes a bluff.

Novi’s policy on abatements states that a business must prove that it can provide “exceptional economic benefits” as a result of the abatement. And, the policy adds, “The company must demonstrate it would not locate or expand in the city if tax abatement was not available.”

Owens-Corning Automotive said in 2001 it would locate a new divisional headquarters in Novi. Economic development officials with the state of Michigan offered state tax incentives but made them contingent on Novi also granting special treatment, reflecting a common pattern of requiring local government action. Novi’s leaders refused and the state assistance fell through. Owens-Corning Automotive still made its headquarters in Novi, however, and it is still located there.

LaFaive said tax abatements are also not effective at growing the economy or creating jobs.

“They don’t create new wealth so much as transfer it. Lost revenues must be replaced somehow. That can mean higher taxes for everyone else, or fewer public services,” LaFaive said.

LaFaive said government officials do not have a special gift that enables them to know which businesses will thrive.

“There is the politics of it all,” LaFaive added. “It does not strain credulity to suggest that some of these abatement transactions are driven as much by a public relations opportunity as a wise economic development investment.”


Related Articles:

City Manager: ‘It might be nice if there was a utopia where everyone played with the same rule book’

Chamber: Concern Lansing Abatement Proposal Could Have 'Unintended Consequences'

Subsidies Bad For Taxpayers

Wayne County 'Jail Fail' Site Moves Closer To Subsidized Redevelopment

Targeted Business Subsidies vs. Broad Tax Relief

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