Performance standards added to tax incentives

PALMER -- Earlier this summer, the Mat-Su Borough Assembly passed an economic development ordinance meant to impose performance standards on tax deferrals, cash incentives and real estate deals that the borough assembly is allowed to make with private sector investors. The power to make such deals is nothing new -- although it's not often used -- but specific standards for creating jobs and making timely investments are, according to Borough Manager John Duffy.

"We always had the ability to sell land at less than fair market value or to defer property taxes, but we never had any standards as to when you can do these things -- we were doing things on a case-by-case basis," Duffy said.

Mat-Su isn't alone in offering tax deferrals or moving land at fire sale prices in the name of new jobs. A memo from Duffy to the assembly cited a survey by the National Association of State Development Agencies that counted 940 incentive programs nationwide. About 40 percent of the programs were tax incentives and 60 percent were non-tax incentives, such as direct financial assistance, land deals and the like.

Naturally, one of the perennial problems with local government incentives is local politics. There is a current example of public grief happening right now in Girdwood where a less than fair market land deal has been proposed by the Municipality of Anchorage in order to create a golf course and condominium development.

The new borough rules won't necessarily stop hand-wringing and charges of corporate welfare, but Duffy hopes they will strengthen the integrity of the process in Mat-Su.

"When you do these things case-by-case, it always looks like a back-room deal," Duffy said.

Under the new rules, borough land can't be sold at less than market value for residential development. Some incentives require a third party evaluation to keep borough administrators and the assembly in check, according to Duffy. Another feature is that annual reports from the private developer to the borough will be required and shared with the assembly. And there are penalties for businesses that cut incentive deals and don't perform to standards.

"There ought to be standards in place, because it's the public's money," Duffy said. "And they ought to be penalized if they don't perform. You've got to do what you said you'd do, which is create the additional jobs and make the additional investments."

The assembly is still required to pass each deal case-by-case, but standards such as a property tax deferral schedules and a minimum number of new jobs have been written into the ordinance. That means the assembly won't have to discuss those standards with each individual case in the future. The schedule sets property tax deferrals at a maximum of 50 percent during the first year of operation, 25 percent the second year, and 10 percent the third year for businesses that provide 15 full-time jobs at the average borough wage rate. The wage rate is taken from statistics compiled by the Alaska Department of Labor.

Pete Leathard, president of VECO Corporation and chair-elect of the Alaska State Chamber of Commerce said the business community is interested in what the Mat-Su Borough is doing.

"What we see, in general, is that places that are willing to provide incentives and make it easier to do development projects and get a return on your investment are the places that are doing well economically," Leathard said.

Leathard cited Alberta and Northwest Territories as two places that successfully offered incentives in the 1990s. He also pointed to Seattle as an example of a city that lost downtown tenants and has recently started economic development incentives to bring back office buildings in the city.

"[The borough's plan is] a pretty good example of doing some proactive work, instead of just sitting on your hands," Leathard said.

VECO is one company that has been paying attention to the borough's economic development plans. Besides the incentive rules, the company is interested in the investments the borough has made in Port MacKenzie. VECO is currently one of a group of companies involved in a construction yard at the Port of Anchorage where oil field production modules are constructed and shipped to oil fields.

Leathard is bullish on Port MacKenzie's future because it has more land than the Port of Anchorage and the potential for larger construction yards. But Leathard said VECO's interest is strictly long term. Like much of Southcentral Alaska's economy, development at Port MacKenzie depends on the regional, statewide and even global developments.

"The Anchorage yard is adequate for what we have going on now. But any major project such as the gas pipeline would require a lot more space," Leathard said. "But to be honest with you, there really aren't any large projects in the immediate future … It's kind of hard for us to go over there and set up a module fabrication yard if there's no modules to be fabricated."