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What's in an abatement?

By ALLISON MILES
June 23, 2012 at 1:23 a.m.


What they say:

"The general philosophy, I believe, is that we can keep our young people here if we create jobs and opportunities. And that's what economic development is all about. It's making this a place where young people can live meaningful lives."

- Victoria County Mayor Will Armstrong

"Abatements are powerful tools but, at the same time, they're only part of it. Other incentives join the process, too. Without them, we could not compete."

- Victoria County Judge Don Pozzi

"Businesses in the retail and service sector don't qualify for abatements, but it isn't that we don't want them. We feel they can benefit from the other industries coming in, with employees buying homes, eating at restaurants and shopping in stores."

- Dale Fowler, president of the Victoria Economic Development Corp.

Here is a by-the-numbers look at Victoria's tax abatements in the past 10 years:

• 15: The number of total companies receiving abatements, including two in May

• 8: The number of abatements granted for expansions of existing companies that were already here

• 7: Abatements given to new companies coming to the community

• 3: Abated companies that renovated old facilities in Victoria

• 2: Number of companies that have defaulted on their abatement contracts

Source: Dale Fowler, president of the Victoria Economic Development Corp.

It's a phrase tossed around often when new industry comes to town, especially when working out the finer financial details. Still, it's something many people don't understand.

It's the tax abatement.

And here is a guide to help people better understand the abstract financial tool.



What is an abatement?

A tax abatement is the full or partial exemption from ad valorem taxes on certain property, according to Victoria's city and county guidelines. Those companies receiving abatements still pay taxes on things such as inventories and personal properties and pay full taxes to entities such as the school district and port.



Did you know ... ?

The agencies involved refer to these incentives by the legal term, "tax abatements," but Victoria operates more on a "phase-in" program. That's because as time progresses, the businesses' taxes gradually increase. "Phase in" also indicates the community receives something right away, while "abatement" sounds as if something is being taken away.



Who is eligible?

Abatements are available to companies in authorized industries, including manufacturing facilities, research facilities, distribution centers, regional service facilities and other basic industries. The companies must create at least 10 new jobs and increase the property's appraised value by at least $500,000.



Victoria County abatements: a 10-year snapshot

Sonoco Products, 2003: $2,916,000 investment

South Texas Electric Cooperative, 2003: $126,000,000 investment

Elder Distributing, 2006: $1,700,000 investment

Gemco, 2006: $2,500,000 investment

KDT Partnership (Frost Insurance), 2006: $1,200,000 investment

Berry Plastics (Tyco Plastics), 2007: $6,330,026 investment

Exterran (Hanover), 2007: $3,400,000 investment

South Texas Steel Service, 2008: $785,000 investment

Sparkman Industries, 2008: $2,315,573 investment

StarTek/Dolphin Associates/Whisper Capital, 2008: $5,139,450 investment

Renu (Victoria WLE - Nucoastal), 2009: $60,000,000 investment

Performance Food Group, 2011: $1,086,000 investment

Caterpillar, 2012: $172,725,000 investment

Keen*, 2013: $15,000,000 investment

Hlavinka*, 2013: $2,500,000 investment

*Abatements do not go through until next year



What if the company defaults?

If a company receiving an abatement does not meet the guidelines set forth in the agreement, such as number of employees and so on, it loses the abatement. The company must then pay back taxes. This has happened twice in Victoria's history, with StarTek and Berry Plastics.



How does the application process work?

To receive abatements, companies must file written requests to the affected jurisdictions. Applications must include details such as maps, written descriptions, assessed values and more. If the business plans to locate within city limits, the company must submit the initial application to the mayor. If out in the county, however, the county judge receives the application.

The Victoria Economic Development Corp. works as a screening agent through the process and provides a feasibility study, which includes estimates on both the economic impact and abatement. It then goes to a public hearing and eventually to a vote. If approved, the company is open to facility inspections during the phase-in to make sure it meets its contract, and will also undergo annual evaluations.

Sources: Victoria Mayor Will Armstrong, Dale Fowler, president of the Victoria Economic Development Corp., Sherry Holm, operations director for the Victoria Economic Development Corp., Victoria County Judge Don Pozzi and city and county tax abatement guidelines

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