Policy Research

Implementing Tax Abatements in Michigan: A Study of Best Practices

Gary Sands, Laura Reese, Heather Khan

Summary

Through the lens of implementation of industrial property tax abatements, the authors explore if it is possible to allocate tax abatements in a way that will increase the likelihood of tangible resulting benefits. Not many municipalities place requirements or conditions for abatements. Necessary conditions for increased probable success could include granting abatements based on a careful assessment of costs and benefits of bringing a firm to a municipality. There were mixed results in their evaluations. A survey was conducted by the authors to study the tax abatement process in Michigan. These surveys were mailed to chief executive officers in all villages and cities in the state.

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Policy Implications

Abatements appear to be successful in certain circumstances, such as cities with high fiscal stress, critically high marginal costs of doing business, and when approaching a set geographic area. Communities need to evaluate the outcomes of these abatements. Additionally, it should be noted that few local officials want to risk being perceived as indifferent to their communities economic well-being by turning down abatement requests. It is also necessary to target property tax abatements in communities that have had trouble retaining and attracting jobs.