Report: Communities may get more tax revenue from attracting people

Communities wanting to quickly increase tax revenues and support local school districts should not look to tax large breaks to attract manufacturing plants. Instead they should focus on new residential development or high capital firms such as health care providers, says a new report from Ball State University.

 Attracting Jobs or Attracting People: A miscrosimulation of the local tax revenue impact of new businesses and households on Hoosier communities,” an analysis by Ball State’s Center for Business and Economic Research (CBER), found that manufacturing operations pay significantly lower tax revenues for nearly a decade, thanks to various tax breaks.

 However, the local revenue impact of a new residential development with 160-180 households is larger than the abated value of a property of a $100 million business, and the largest local revenue providers are not typically manufacturing operations, but rather health care providers, which offer twice the local property tax impact.

 “Traditional economic development activities have focused on business attraction, particularly the location or expansion of footloose manufacturing plants, to create jobs,” says CBER director Michael Hicks. “These plants may receive a variety of state and local incentives that decrease the costs of doing business in a particular location and include reductions in state and local tax liability. In exchange for these tax and cost advantages, these plants create or maintain jobs.

 “These workers then pay state and local taxes that are expected, at least in part, to counteract the tax breaks provided to businesses. However, households are also footloose,” says Dagney Faulk, CBER’s research director and co-author of the report. “Many workers live in one community and commute to another for work. Local income tax revenue, school funding and wheel taxes accrue to the location where workers live, not where they work.  So, depending on the commuting patterns of workers, a community may receive only a portion of tax revenue associated with new jobs.”

 The report, which conducted a variety of simulations using Indiana data also found:

  • A health care provider would pay nearly 20 times the taxes over a five-year period than would a manufacturing firm enjoying tax abatements but with the same annual sales revenue.
  • Different types of local governments receive different distributions with the largest share going to schools under every scenario, except for tax increment financing (TIF) districts in which 100 percent of new tax revenues remains in the TIF.
  • Firms that receive tax abatements pay much lower tax rates.


 Hicks says the findings suggest local and state policy considerations, including the need for regions of the state to increase tax revenues, should look to lure residential developments or high capital firms such as health care providers.

 “This is even more starkly obvious when abatements are deployed in counties, where tax revenues are significantly muted for a decade,” he says. “Thus, close scrutiny of abatements is warranted for communities that desire additional tax revenues with new business development.

 “Finally, the role of economic development in boosting school funding is clear. This is a very important policy consideration because the quality of schools largely influences both population growth and the value of residential properties.”

 Contact information:

Hicks may be reached at 765-716-3625 or


Marc Ransford

Senior media strategist

Ball State University

Muncie, Ind. 47306


Twitter: @marcbsu