Incentives are the new normal for cities
Employees of GT Software, a global information technology company with its headquarters in Sandy Springs, meet in the conference room. Left to right, Heather Frogge, director of accounting, Tim Sacklyn, financial analyst, Deborah Reed, accounting clerk, and Ellie Soleymani, marketing manager. GT Software received $6,284 in economic incentives to locate in the city of Sandy Springs.
GT Software in Sandy Springs buzzes with the chatter of people the city wants to attract.
The employees are young, well-paid professionals working at high-tech jobs in an office with rows of cubicles. The office building is close to a MARTA station.
Getting the company to locate in Sandy Springs required more than a nice lunch and a memorable elevator speech. The city gave the company a tax break, called “economic incentives.” GT Software received $6,284 in incentives, a minor amount compared with the hundreds of thousands other companies received from Sandy Springs.
A company official with GT Software said Sandy Springs was the right fit overall.
“Our Sandy Springs headquarters allows us to take advantage of the best IT talent found in the Atlanta area,” GT Software President Eric Nelson said in a statement emailed to Reporter Newspapers. “We offer innovative solutions for complex IT challenges to businesses all over the world, and our Sandy Springs headquarters provides the perfect environment for our employees.”
Incentives are becoming a permanent reality for cities looking to land jobs to boost their local economies. The New York Times in December 2012 investigated incentives programs nationwide, and found that governments in the U.S. give $80 billion annually to private companies.
According to records provided by the cities of Dunwoody and Sandy Springs, Dunwoody has awarded $8.4 million in incentives and Sandy Springs has awarded $1.8 million.
The city of Brookhaven, which incorporated last year, is still in the process of determining how or if it would grant incentives, spokeswoman Dana Johnson said.
At its Aug. 6 meeting, Sandy Springs City Council members revived the debate over the city’s incentives program. Mayor Eva Galambos has been an outspoken critic.
Sandy Springs City Council imposed a 30-day moratorium on new incentives while the city reworks its current policies. The moratorium came shortly after City Council awarded $120,000 in incentives to CH2M Hill. CH2M Hill is a contractor that used to handle most of the city’s basic services. In 2011, the city split that contract apart in order to save money.
Incentives programs are typically justified by the amount of jobs created, the wages companies pay, and the money owners invest in capital improvements.
Incentives to invest
City governments often try to convince companies to invest in their cities by offering tax breaks.
Incentives approved by Sandy Springs:
- Cox Enterprises – $1.4 million
- Graphic Packaging – $187,000
- Matrix Resources – $151,201
- Americold – $8,000
- GT Software – $6,284
Incentives approved by Dunwoody:
- RBC 64 and 66 Perimeter Center East – $8.2 million
- CHEP – $130,000
- AFC Enterprises – $77,000
Sources: cities of Dunwoody and Sandy Springs
Though the City Council approved the CH2M Hill incentives, it prompted the council to rethink its practices. Before the moratorium was in effect, companies used the amounts invested in rented space when providing city officials with estimates of capital expenses.
Galambos said that was a mistake.
“I made a big point of saying I don’t want this to become some kind of contest between brokers in Dunwoody and Sandy Springs over who can get the best terms in filling out a building,” Galambos said.
According to recommendations provided to City Council during its Aug. 6 work session, the city’s Economic Development Advisory Committee will “work with the City Attorney to clarify its policy to define capital investments as permanent, lien-free investments built into tenant’s premises, which cannot be removed from the space to remain after tenant’s expiration.”
Sandy Springs Director of Economic Development Andrea Hall declined comment, saying it would be premature to discuss policy changes before the council has an opportunity to review them.
Sandy Springs’ policy already imposes a certain threshold companies have to meet before becoming eligible for these tax breaks. The city requires companies to create a minimum of 15 jobs.
The economic incentives policy of Sandy Springs differs greatly from Dunwoody’s. Sandy Springs has a policy. Dunwoody doesn’t.
Dunwoody Economic Development Director Michael Starling said he likes it that way.
“We decided early on after I was hired that we would prefer not to have an ordinance, that we would look at each project, each company, on a case-by-case basis,” Starling said. “We felt like that gave us more flexibility and opportunity really to look at a bunch of different issues when a company came to us.”
Dunwoody’s largest incentives award went to the developers of Perimeter Center East, a tax break valued at $8.2 million over 10 years. In exchange, the development provided $60 million in new capital investment and 580,000 square feet of office space.
Sandy Springs largest incentive award was $1.4 million in tax breaks for Cox Enterprises. In exchange, Cox promised to create 1,500 jobs and make a $100 million capital investment.
Starling said the tax breaks are an essential part of landing the next big company.
“We are probably less aggressive than other communities, but at the same time we need to understand we’re all competing over the same types of companies,” Starling said.
He said he disagreed with Galambos’ view that physical improvements, as opposed to improving rental space, should be given more weight when deciding whether a company should receive incentives.
“Obviously, Eva is an economist. She’s got a deep understanding of this,” Starling said.
“I think the impact to Dunwoody whether a company is leasing or buying would probably be the same.”
Starling said the city has benefited from the tax breaks city leaders offered companies.
“Oh, absolutely,” he said. “I don’t doubt that one bit.”