Business Parks & Economic Development

[Jim Frame]

Where I live, there seems to be acceptance by just about everyone that cities seeking additional tax revenues are best served by the development of business parks, particularly high-tech light industrial parks. What's not clear to me is why this might be so. My efforts to find some kind of economic development primer either locally or on the web in general have turned up nothing useful, so I thought I'd bring the matter up here to see if someone can enlighten me.

Some of the questions and comments that have occurred to me:

Is the per-acre assessed value of the improvements associated with business parks substantially higher than for residential development? I wouldn't think so. Despite the need for heavier street sections to accommodate truck traffic, the buildings themselves tend to be tilt-up boxes with little in the way of architectural adornment, and surrounded by basic landscaping and parking lots.

Even with high-tech industrial tenants, wouldn't most of the expensive equipment be taxed as personal property? Do cities get any of that back from the counties?

With industrial development there wouldn't be any significant sales tax revenue, because sales would be almost exclusively wholesale.

The business park employees would generate some sales tax revenue when they shop in town, but enough to make a big difference?

Demand for housing would increase as a result of the employment bump, but I've been told repeatedly that residential development is a break-even deal at best from a city's viewpoint, at least in California.

Thoughts, anyone?

Thanks!

P.S. I posted the same thread on SurveyorConnect, so if it looks similar, that's because it is.

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[dmi]

They get taxes deals, tax breaks and incentives to move into the business park and to bring in hordes of employees. The theory is that all these jobs will spur growth in the community. I doubt this loss leader actually works. One has to consider that the infrastructure, construction and maintenance that would be bought and paid for as a normal part of of the business transaction,born by those who benefit most the business, are now left unfunded and or passed along to everyone else in the community. So now what happens when business has a better deal someplace else, they leave town, and the unpaid debt to the city and crumbling infrastructure....

[Steve Martin]

What if the business park were to be an Auto mall with serveral new car dealerships.

Think about all of the sales tax revenue the City would rake in from the sale of big ticket items like cars, trucks , motorhomes, etc.

[Jim Frame]

Auto malls I understand, because they generate sales taxes. It's the quest for high-tech industrial that I'm having trouble making sense of. There may be a clear reason they're desirable from a tax perspective, but so far no one has been able to articulate it for me.

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[pls7809]

Maybe it's a prestige thing to have high-tech jobs in your city?

[Steve Martin]

The City of Richmond recently was ecstatic when Lawrence Livermore National Laboratory announced the opening of a new facility there. I think it is the fact that there will be high paying jobs now in Richmond and all of the economic development to support the people who work there. Employees will want to live somewhere close and some will find homes in Richmond, thus a higher demand for housing and development. Employees will go to lunch near there and shop close by, thus supporting local businesses and so on.

When I go over to Menlo Park, Palo Alto and Mountain View, a little old house similar to one in my old neighborhood in San Diego sells for about $1.5mil. From where I come from that house would worth about $450,000. The Tech hub in the Silicon Valley would be a good study area for comparison. A lot of Cities want to duplicate that kind of economic development.

[Jim Frame]

A lot of Cities want to duplicate that kind of economic development.

If this sort of "economic development" means more houses, more traffic, impaired air quality, and reduced city service levels due to inadequate tax levels, I don't think it's something I want to encourage.

What I have yet to find (and I've been looking again today) is a quantitative analysis of business park development from the tax revenue perspective. I've been assuming that cities chase high-tech light industrial because it improves the overall vitality of the community, but the dearth of numbers attesting to that notion is starting to concern me.

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[MikeTurnrose]

I think there is somewhat of a trickle down or multiplier effect to those business parks. There are ton of those around here. There are quite a few empty units but they have been gradually filling up. Those businesses may hire a person or two or ten which can contribute to the local economy via restaurants and retail which adds to sales tax revenue. Also the businesses may purchase supplies locally which contributes to the local sales tax. Also maybe new employees may buy a house/apartment locally or rent, etc. I think if people can get a decent job locally, especially where housing is extremely cheap like in the Central Valley, they may be more apt to live locally too. Also, people would tend to want to keep commuting down due to the sky high cost of gas.

[land butcher]

Business' are taxed differently. plus cities have different rates for business licenses many are based on a percent of total sales/revenue. In CA the prop 13 on houses irritates the heck out of govt, but big corps buy and sell other companies and buildings and there is a loophole where their tax base has not changed in decades even though the building has changed ownership multiple times.
Small business' get hit the worse. All business' in City of Los Angeles pay a parking tax except for insurance companies. Go figure.
And they figure high paid employees buy lunch in these overpriced trendy restaurants and shop nearby and hopefully live nearby.
In small cities outside CA most do live and work in the same city, no so much out here since CA is one big city.

[Jim Frame]

different rates for business licenses many are based on a percent of total sales/revenue

I forgot about the business license tax, and thought maybe it'd amount to something substantial. But when I calculated it for a manufacturer doing $50M (a WAG) in annual sales, it only came to $150K in BL tax. That's chump change compared to the kind of structural deficit we're looking at here.

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[Jim Frame]

I finally asked our assistant city manager. He explained that they're currently evaluating all the variables in order to determine a long-term business park strategy, noting that the issues are many and few of them are simple. However, he was quickly able to answer some of my more significant questions:

1. Certain type of businesses have real-property assessments that are higher than those of residential property.

2. Cities do, in fact, get a share of the unsecured property tax revenue. For a high-tech facility, this can be substantial.

3. Cost of city services to businesses is typically lower than for residential.

4. Sales and use taxes are complicated, with some types of businesses returning much higher volumes than others.

5. The jobs matter comes into play in mostly in the form of age demographics, i.e. the predominant age range of employees of high-value businesses is also the one that spends the most, thus returning more dollars to the local economy in both purchase amounts and sales taxes. (This may be partially countered by the higher cost of servicing the new residential required to accommodate the new workers. However, the actual number depends on the deal the city works out with the county when new residential comes on line.)

6. New residential brings with it subsidized low-cost housing requirements. These units often get built on land owned by non-profits, which wholly or partially removes the land from the tax rolls. Business park developments aren't subject to these requirements, so all the land remains fully taxable.

The overarching theme of his response will sound very familiar to land surveyors: "it depends." However, I now have a much better understanding of the factors involved, and greatly appreciate his taking the time to respond.

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[pls7809]

Jim,

This was a very interesting thread. Thanks for bringing it up.

Ryan.