ST. PETERSBURG — It's no secret that the main drag on the city's bottom line the past few years has been the collapse of the real estate market.
The city collects $35 million less in property taxes than it did five years ago, a falloff that almost single-handedly explains all the cuts in parks, police, fire and professional services.
"It's been huge," said Tim Finch, the city's director of budget and management. "The challenge is: What do you do?"
Whatever the city does, further slashing property tax revenue would seem unlikely, right?
Not quite. City Council Chairman Jim Kennedy is planning to propose just that.
He will ask the council today to consider a ballot measure that would ask voters to reduce property taxes for businesses that create jobs. The tax break might stimulate the economy enough to offset the lost revenue, he said.
He said he doesn't know whether it will work. The chief reason he's suggesting it, he said, is because similar proposals recently were approved by voters in Tampa and Hillsborough County. "We have to be competitive," Kennedy said.
In today's environment of slash-and-burn government spending, the popularity of this tax exemption is growing.
State law allows any county or city to grant property tax exemptions for up to 10 years for companies that move or expand there and create jobs. Voters must pass a referendum allowing the tax break, but then elected officials decide which companies qualify for the exemption.
It's now approved in 29 of Florida's 67 counties, and 17 cities, including Sarasota, Miami, and as of last month, Tampa.
In a Sunday St. Petersburg Times op-ed piece, former Florida Gov. Bob Graham questioned the premise that tax incentives create jobs. Graham said that statewide tax reductions for businesses that went into effect since 1999 have drained $4 billion from this year's state budget. Meanwhile, job growth between 2000 to 2010 lagged behind the prior two decades before the tax breaks were approved.
"The stunning truth is that on virtually all fronts — the Legislature, the executive budget office, academics — there has been a failure to subject these cuts to the basic question: Did they work?" Graham said.
Once incentives are awarded, they can be difficult to assess. Kennedy and council member Steve Kornell, who also is promoting the tax breaks, said they didn't know the status of an incentive the city approved two years ago for Jabil Circuit.
The electronics manufacturer was awarded more than $34 million in public subsidies to build a world headquarters in St. Petersburg. As the exemptions were set to expire last year, the City Council approved a new 15-year development agreement that allowed the company to save an additional $4 million in road improvements.
A new headquarters has not materialized. The company blamed the slumping economy. More recently, the company announced it was laying off 90 workers in St. Petersburg.
However, Jabil's latest financial numbers belie the notion that it has been crippled by the economy. In the fiscal year that ended in August, Jabil awarded its chief executive officer a $2.9 million bonus. The company reported an 86 percent increase in its net income in the last quarter and it has a robust outlook for the rest of 2011.
Jabil officials didn't return phone calls asking about its plans to expand in St. Petersburg. The company also hasn't notified the city of any plans, said Sophia Sorolis, the city's economic development manager. Given the lack of progress, why lobby for more incentives?
Kennedy and Kornell stressed that in the poor economic environment, cities must do whatever they can to lure businesses.
"I'm not saying I'm an expert in this," Kennedy said. "There's so many irons in the fire that you just have to put them out there and see if they will work."
Kornell, like Kennedy, is a Democrat who acknowledges the main reason he's considering the exemption is peer pressure.
"Why let (Hillsborough and Tampa) have an advantage over us?" Kornell said.
Pam Iorio, when she was Tampa's mayor, promoted the exemption for the same reason. If Hillsborough offered it, so must Tampa, she reasoned. Tampa's new mayor, Bob Buckhorn, concurs.
Citing the same rationale, Brian Shuford, a lobbyist for the Pinellas County Realtors Association, asked Kennedy to propose the exemption for St. Petersburg. Shuford said the tax break would make the city more competitive. He plans to ask Pinellas County to consider it as well.
It's hard to gauge the effectiveness of incentives because little is known about what truly compels corporations to expand or relocate, said Matt Murray, an economist at the University of Tennessee and an expert in state and local fiscal policy.
Companies rarely disclose all the locations they scout. Tax incentives can be a factor, but other variables, such as education, quality of life, and transportation, are just as important, if not more, Murray said.
Because so many cities and states offer the incentives, there's growing pressure to approve them, Murray said.
"I don't think any state or locality can swallow hard and say we're not going to play the incentive game," Murray said. "That means that the burden will shift even more to local businesses like barbers and restaurants, residents and workers to pay for services."
Times researcher John Martin contributed to this story. Michael Van Sickler can be reached at (727) 893-8037 or email@example.com.