BBMR Publishes Comprehensive Review of City Tax Credit Programs
Monday Aug 8th, 2022
One of the recommendations from the City’s 10-Year Financial Plan was to do a comprehensive review of the City’s tax credit portfolio to find areas of efficiency. The City has a large portfolio of tax credits that collectively cost $126.7 million in the Fiscal 2022 budget, which equates to nearly 14% of the City’s real property tax revenue. BBMR worked with Ernst & Young (EY) to analyze the City's property tax credit policy, assessing its aligned with the City's policy objectives.
In April 2022, EY published a report examining seven tax credit programs, which found that the value of total property tax credits for the City has been steadily growing from Fiscal 2016 to Fiscal 2020. EY classified the City credits into three categories--Homeowner Protection, Development Incentive, and City Workforce Incentive--and found that Development Incentive credits have the highest growth (107%) in total tax credits from Fiscal 2016 to Fiscal 2020.
BBMR worked with EY to conduct this research and has published a report, which found that the cost of tax credits has grown dramatically in the last decade. These incentives consumed 1.7% of property tax revenue in Fiscal 2010, but grew to 6.3% by Fiscal 2019. Those costs are projected to grow to 9% by Fiscal 2031 if the same pace continues.
More specifically, BBMR found that from Fiscal 2010 to Fiscal 2021, the cost of the City’s development tax credit programs grew rapidly from $13.6 million to $62.6 million. On a percentage basis, the tax credits grew from only 1.7% of gross property tax revenue to 6.8%. The key driver was the growing cost of the Brownfield, High Performance, and Enterprise Zone Tax Credits. In Fiscal 2013, these credits collectively cost $8.3 million, but by Fiscal 2020 these credits had grown to a cost of $62.1 million. In addition, the City's tax credits favor the stronger and more established neighborhoods, which receive the highest designation in the Department of Planning and Department of Housing and Community Development’s housing typology map ("A" or "B"). BBMR suggests that a better approach would be to focus more on middle neighborhoods where incentives stand a better chance of sustainably growing the City's tax base. Two specific targets for reform should be the Historic (CHAP) and Brownfields Tax Credits. BBMR found that these credits are far more generous than is required to spur development. The unusual structure of these programs ensures that the City receives no new tax revenue for five years on Brownfield projects and for ten years on CHAP projects.
Implementing even modest reforms to the City's tax credits would yield savings for the City's budget, which could be redirected to general property tax relief for residential property owners, reducing the effective tax rate for homeowners from $2.048 to $1.890, a nearly 8% rate reduction.