It’s not without its critics. The tax abatement program that Yellowstone County and the City of Billings use to incentivize business growth, expansion and recruitment is often viewed as a “free pass” for some businesses, but it is anything but that according to city and county officials.
“It’s an incentive to succeed,” described County Commissioner Denis Pitman.
The program has served Yellowstone County well, according to County Commissioner John Ostlund. “Yellowstone County has more new business growth than anyone,” said Ostlund, who attributes much of that growth to the impact of the program, which has been used by the county as its primary economic development incentive for more years than anyone can remember.
It helps the county “throw out the welcome mat for business,” said Ostlund, proud of the county’s positive business attitude.
The fact that the tax incentive has always been granted to all qualifying applicants speaks clearly about the value that local public officials see in the program.
It’s a tool to attract businesses and to incentivize projects that increase tax revenues,” explains Patrick Klugman, Community Development Project Manager at Big Sky Economic Development (BSED), the agency that administers the program on behalf of the city and the county. The dollars that are saved by the businesses is not profit that is pocketed, explains Klugman, “It is used to cover operational costs, to help hire new employees, or other costs of running the business.”
In 2014, businesses applying for the tax incentive invested $772,753,926 in capital improvements in Yellowstone County, for which taxes were abated a total of $1,432,146, while they increased payrolls a total of $172,569,795. Those same businesses, in 2015, continued with payrolls that totaled $177,798,799, while their abated taxes totaled $993,959.
From year to year the number of applicants for the program have remained steady, according to Klugman, who concedes that there are negative perceptions about what the program does.
Without the tax abatements, after investing hundreds of thousands of dollars which increases their taxable property values, the very next thing a business typically has to do, within the space of just one year, is muster up several tens of thousands of dollars in taxes for having made that investment.
Pitman said the incentive is certainly a better approach than what he experienced as a business owner. He compared the encouragement inherent in the tax incentive to his own business experience, some years ago. Following a news article that announced his plans to expand his business, said Pitman, “the first person through the door was someone from the Department of Revenue.”
“It gives an opportunity to people who want to be better,” said Pitman. Without the property tax relief a business might not expand to generate the tax base from which taxes are paid. “Half of nothing is still nothing,” said Pitman.
Whether a local governmental entity uses the tax incentive is entirely discretionary, said County Commissioner Robyn Driscoll. County commissioners or city councils are free to establish their own criteria regarding qualifications for the incentive, beyond those set by the state.
The governing bodies may even withdraw the incentive, in some cases, if they decide there is a need to do so.
County Commissioners have loosely held to some general expectations of businesses in granting the tax abatement, in the past, but a recent application posed some new thoughts about that eligibility, and it illuminated the fact that they have had no written policy in place and that they probably should. The commissioners are revisiting ideas about what the criteria should be, and have asked Deputy County Attorney Dan Schwarz to write a policy for formal adoption, at some point in the near future.
In the past, the commissioners have wanted to see applications from business developments that would generate new jobs which pay wages equal to the state average if not higher, as well as meeting the investment and exporting requirements set in state law. That criteria prompted them to reject, out-of-hand, applications from hotels and motels, since most of the jobs created paid only minimum wages. But a recent application brought to them by Klugman, for Home 2 Suites, a new motel at 2611 7th Avenue North in Billings, not only involved the creation of higher paying jobs, but its development improved a blighted portion of the city, which commissioners recognized as a community benefit they had not considered in the past.
Throughout the years that Yellowstone County has awarded tax incentives, they have only had two instances in which the businesses did not meet expectations — and the verdict is still out on one of those.
One was a Laurel business that went bankrupt, and the other, over which a question mark currently hovers, is the property GE is leasing from Big Sky Economic Development. GE announced plans to withdraw from Billings when it sold its commercial lending and leasing business in October of 2015. While they remain committed to honoring lease payments, much is being done to successfully transition the building for use by another enterprise.
Not a bad track record considering how long the program has been in place and how many businesses have taken advantage of it. At the same time, said Schwarz, he is aware of a few incentivized businesses who suffered severe declines because of economic downturns. As narrow a margin as it is, the tax abatement was enough to help them survive. That they were able to survive and grow makes the program worthwhile to the community, believes Schwarz.
A few years ago the County Commissioners decided they wanted to monitor more closely that the tax incentive recipients adhered to their commitments, so they directed the EDA to do a follow-up report each year for each incentive recipient. Klugman said that he is currently in the process of doing that survey for 2016.
There are two parts to the tax incentive that the state has made available to local governments. A bill in the state legislature, House Bill 226, would increase incentive levels for each.
Under both programs the specific taxes that are abated are those assessed for school districts or the general fund of the county or the city. Special levies for specific purposes or agencies or state mandated taxes continue to be collected. And, it is important to emphasize, said Klugman, that the rebate only pertains to the increase in property value created by the project.
A five-year program is applicable to projects that involve remodeling or expansion that increases the taxable value by at least 2.5 percent and in which construction costs are $500,000 or more. Under the abatement no taxes are required for the first five years after construction and they are then levied at 100 percent. A recent example of that program’s application would be the incentive granted to Heights Eye Care, said Klugman.
The ten year program is for industries in manufacturing, processing, chemical transformation and distribution/warehousing and/or for businesses where 50 percent of their gross revenues are generated from out- of -state sales. The program is oriented towards ‘new build’ only on real property and the business must demonstrate direct job creation as a result of project. It also allows tax reduction on real property (improvements on real estate) and allows tax reduction on personal property (business equipment) for certain thresholds of investment.
The abatement is for 50 percent reduction on the new taxable valuation created by the project, over the first five years. The tax is then incrementally increased by 10 percent for each of the remaining five years until it is at 100 percent.
A good example of the application of the ten year program is incentive recently granted for Billings Flying Service, which generates almost 80 percent of their sales from out- of –state.
The tax incentives do not lower taxes revenues from previous levels. “It is a delay in taxes,” said Klugman. The incentive program installs a simple formula that governs an increase in taxes incrementally.
It is Klugman’s role to help businesses apply for the tax incentive. He assesses whether they meet the basic qualifications of the program and assists them in making the application and serves as a liaison between the company and the governing bodies to whom they are applying. Each application is heard before a formal hearing, at which Klugman presents the request.
Klugman urges business people anticipating a project and wondering if it would apply to contact him as soon as possible in the process. Klugman may be reached at 406 869-8418.

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