Esslie-Frenia Law June 2023 Leaderboard

Will we learn from the Kohl’s deal?

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START WITH A SIMPLE PREMISE: Everybody would like a tax break. Rich, poor or somewhere in between, all of us feel the bite and would welcome a little relief.

In theory this country has a progressive tax system–the more a person or a company earns, the more the person or company pays in taxes, up to a point; and while some get rich, money should move up and down the economic ladder. But over the last few decades, people who already had a lot of money have accumulated an even bigger slice of the pie, so that 20% of the population now controls 85% of the nation’s wealth.

Making things worse for the 80% of us who share only 15% of the wealth is the property tax system. Property values, even those that have tumbled in this recession, don’t necessarily reflect the wealth of the property owner. But in this state, property taxes must pay for a major portion of local services like highway maintenance, police and biggest of all, public education. So when one taxpayer wants a huge break in his property taxes, the other taxpayers, who have to pick up the slack, pay attention.

The Kohl’s Department Store chain says it won’t open a new store in the new Greenport Commons  plaza on Route 9 unless it gets a tax break. Working through the plaza developer, the Widewaters Group, Kohl’s has demanded what’s called a pilot agreement from the county Industrial Development Agency (“pilot” is an acronym for payment in lieu of taxes). How much of a break? It would have amounted to 72% a year for the next 20 years. Wisely, the IDA turned down that idea, but IDA members are still willing to negotiate.

The IDA had misgivings about the length of the pilot agreement. No surprise there. Over two decades, the town, county and Hudson City School District would have lost $1.8 million in property tax revenue. The company said this would be more than offset by a big jump in sales tax revenue from the store.

Unlike some of the high-end department stores, Kohl’s, a discount chain, has done relatively well in this rotten economy. Its earnings were up in the last quarter, and its debt going into the recession was low.  Kohl’s recently announced that that it would become the first large retailer to join a program of the federal Environmental Protection Agency to achieve a “net zero” greenhouse gas emissions. The company, headquartered in Wisconsin, has over 1,000 stores nationwide. By way of comparison, that’s about a quarter of the number of stores Walmart operates in just the U.S.

Kohl’s said it expected to employ 125 people in Greenport; 70% of those jobs will be part-time, but that still means work for lots of people in a county that lost over 600 non-farm jobs in the last year.

At face value, the Kohl’s proposal sounds like a greedy company hoping to prey on an economically distressed community. It was only a good deal for taxpayers if sales tax revenues met company predictions. But if you don’t have a job and have to scrape by on the unemployment benefits paid by New York, one of the stingiest programs in the nation, you’d wonder what the IDA was thinking when it turned down the Kohl’s plan.

There’s a lesson here in how the IDA had to fend for itself in assessing the benefits and risks associated with the proposed pilot agreement. In good faith, all sides came up with different numbers without any sort of benchmark or standard to determine the most likely scenario. Kohl’s and Widewaters have the resources to produce rosy statistics and projections that make their offer look nearly irresistible. But the county IDA doesn’t have the same kind of money to do research of its own.

We hope Kohl’s will come back to the table with a more reasonable plan, but even if that happens, the IDA will still have to base its decision largely on guesswork and hope. And while no amount of research can eliminate uncertainty about what the economy will look in the future, here’s a question worth answering: Why can’t municipalities do their own detailed economic modeling when a big business asks for a jaw-dropping tax break?

Most municipalities already require developers to set aside funds to pay for environmental review s of new projects. The Kohl’s situation cries out for local governments to require money be set aside as well for assessing the economic impact of proposals like pilot deals. Without those funds, all we have to go on is one big company after another telling taxpayers: Don’t worry, you can trust us.

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