The Mandan City Commission has tightened its property tax break policy to better fit new limits set during this year's legislative session. At its meeting last week, it decided to use a more targeted approach to incentives given to new and growing businesses. The changes are a temporary step until it can ask voters in a November 2014 general election if they want to restore retail property tax breaks struck in the law — a 16-month wait for the city.
Commissioners decided to allow non-primary sector businesses to seek property tax breaks through at least Dec. 31 if their buildings can be completed by then. City officials are asking state tax officials to clarify whether the state deadline for allowing tax breaks for retail and service business is Dec. 31, 2013, or Feb. 1, 2014.
Commissioners approved the brief deadline instead of a moratorium on non-primary business tax breaks until they can better plan incentives to meet the new state law.
Mandan's revised incentive policy favors:
* Retail and services where market demand exceeds supply or services missing from the community — hardware/home improvement, clothing, shoe store, department store, full service car wash, restaurants and hotels.
* If a business is the first to build in each of the three general business districts — Main Street/Downtown, Memorial Highway/southeast Mandan and the Interstate 94 corridor.
The city policy won't allow speculative businesses tax breaks unless it is a major benefit to the city like a large retail center. Speculative businesses are those that do not identify business tenants.
The city policy requires that projects applying for property tax breaks must enter into a performance or business incentive agreement with the city before the exemption takes effect. If the business doesn't meet the benefits promised the city (new workers, wages, sales tax revenue etc.) the city can revoke the tax break or incentive.
Mandan officials are still discussing five-year payments instead of taxes for new and expanded businesses not allowed under the law. A project using this incentive may be required to pay a smaller percentage of taxes that would be due.
The legislation was driven partly by Mandan's decision to allow Wal-Mart $403,000 in property tax breaks over five years in 2012 for a new Mandan store. "It got labeled 'the Wal-Mart bill,'" said Sen. Dwight Cook, R-Mandan. It takes effect Aug. 1.
Cities throughout the state use property tax breaks to draw new businesses for economic growth. Yet citizen groups have criticized giving the tax breaks to larger companies because citizens cannot waive their property taxes. "It's an issue that taxpayers are debating all over the state," Cook said.
"Mandan is by no means the first city to have assisted retail," said Ellen Huber, business development director for Mandan. "The property tax tool has been a favored tool because it is very transparent and very easy to understand how it works. It's very low risk. You are not digging into a bank account and writing out a check."
State law will only allow certified primary sector businesses property tax breaks unless voters decide otherwise. Primary sector businesses include new wealth businesses — manufacturing, information technology and tourism.
Under the state law, retail businesses can have property tax breaks in cities/counties of 40,000 or less if voters approve them during a general election vote. The next general election will be held in November 2014.
New restaurants are classified as retail and also would need voter approval for tax breaks. However, Huber said the city does have a subsidy set aside for new retail and restaurants that fill major gaps in the business community. That subsidy is paid for by sales tax money set aside for economic development.
If the retail tax break goes to a vote in November, the entity must set criteria — addressing negative impact on existing businesses, effects on other property taxpayers, written performance requirements from the business that allows the tax break to be dropped if the requirements are not met and a study of whether the project operator would come to the entity without the tax break.
Service sector businesses that do not manufacture new equipment do not qualify for property tax breaks under the new law. These are businesses that support primary sector businesses, but do not manufacture new items. However, service businesses might qualify for payments in lieu of property tax breaks, said Huber.
The new state law classifies information technology as a primary sector business and would qualify for the tax breaks, she said.
Commissioners said they wanted to comply with the state law, but also want to develop new businesses for Mandan.
"I don't want us to go into moratorium because it sends a mixed signal," said Mayor Arlyn Van Beek.
In 2012, before the new law, Mandan officials spent several months revising the new and expanding business property tax break policy after complaints that the city had been too generous in its incentives. The amount of tax breaks was divided into different levels — based on how much a new business brings job growth, increased sales taxes, business diversification, larger salaries, filling business gaps, increasing the property tax base and benefit to the city. The new state law changes what can qualify for tax breaks.
Huber said last week's decision was the fourth overhaul of the city's business incentive policy in two years. She said the commission decision on non-primary businesses "puts policy on record to indicate this is the commission"s stance and what people might expect," she said.
Huber said the new restraints could limit Mandan's ability to attract new businesses if it can't offer the tax incentives to non-primary businesses. The new law may go in Bismarck's favor, she said. "If they are not in either community yet, we could talk about traffic counts, and number of households in a given area depending upon the product they could sell, many would gravitate towards Bismarck," she said. "This could hinder our opportunity to get some of those types of businesses to more seriously consider Mandan."
She said there are still non-tax break options to help bring a new business to Mandan. "I think they will want to have further discussion about criteria and tools and incentives — be it Flex Pace (buy-down of interest rates from the Bank of North Dakota) or other types of assistance," she said.
"The legislation lets the voters weigh in on it and decide," Cook said. "It is a good bill."
"It still allows for the possibility for something to occur in that time," Huber said of Mandan's decision to allow new retail applicants. "Meanwhile, we'll continue to study (the law) further with the requirements."
"If there is a service sector business that provides significant public benefit, it can be done through payment in lieu of taxes or other means outside the property tax exemption," Huber said.
The state Tax Department indicated that a project must be operational in calendar year 2013 to not be subject to the restrictions of the law. It affects property tax exemptions granted by a municipality in 2014 because property taxes collected in 2015 are based on 2014 tax values.
"We have tightened the policy on property tax exemptions, but we also have to operate under the confines of (the law)," Huber said.