Report Says Property Tax Breaks to Lure Businesses are Mostly Ineffective

States and towns across the country, including Connecticut municipalities, use property tax incentives to drive economic growth by encouraging businesses to locate and expand in their communities.  But a recent study by the Lincoln Land Institute suggests that there is little evidence that these incentives are effective economic development tools. 

Achieving development goals with incentives can be particularly difficult because property taxes are a small part of the total costs for most businesses.  As such, they are easily outweighed by factors such as differences in the wages and skills of local workers, proximity to suppliers and consumers, and transportation costs.  In addition, as the use of property tax incentives becomes widespread across a metropolitan area, the advantage gained by one municipality is often canceled out when matching incentives are adopted by others in the same region.

The study’s authors offer the following recommendations to increase the odds that property tax incentives will help communities reach their development goals:

1. Restrict the proliferation of property tax incentives by limiting their use in the communities where they are most needed.
2. Require that tax incentives be approved by all affected jurisdictions, including regional economic development organizations.
3. Penalize rather than subsidize localities that use property tax incentives.
4. Publish information on incentives and conduct assessments.