Tax abatement as a downtown investment incentive and the community benefits debate

Abstract

What is the role of local government in economic development? Should local government intervene in the development process and if so, when and for what reasons and, if intervention occurs, what quid pro quo benefits should the locality expect in return? The use of tax abatement is examined along with the issues that arise when abatement is applied as a tool for urban rejuvenation. Much of the historical debate over tax abatement revolves around job-based development. There is a second form of tax abatement — investment based — which offers a different set of opportunities and challenges. One important challenge is the community benefit debate around the obligation of abated projects to provide extra benefits for the community. This challenge is discussed in relationship to underlying economic development imperatives for using the tax abatement tool, with Ithaca, New York, as a case study.