As state officials worry about tax breaks eroding government income, the Wichita City Council will decide Tuesday whether to grant a $22,000-a-year property tax abatement to an accounting-outsourcing firm that is expanding its west-side office.
A proposal before the council would grant a 75 percent property tax abatement to Michelle Becker Inc., the real-estate holding company for Profit Builders Inc. Profit Builders is run by former Pizza Hut executives Becker and Sam Oglesby.
The company specializes in providing outsource accounting services to restaurants, construction companies and small businesses.
A staff report says the city would issue industrial revenue bonds for as much as $1 million to aid Profit Builders' expansion of its office at 7325 W. 33rd St. North.
The expansion is projected to add 29 jobs at an average wage of $45,000 a year.
The package would also include a sales tax exemption on building materials and equipment purchased with bond proceeds, the report said.
Becker said the tax breaks will free money for her business to market itself more on the national level, bringing new money into Wichita.
The district's City Council member, Jeff Longwell, said he strongly supports the plan.
He acknowledged that success in outsourcing relies on job losses elsewhere, but said that's OK if the outsourced jobs come to Wichita and the layoffs are in another state.
The council meeting begins at 9 a.m. Tuesday at City Hall, 455 N. Main.
The proposed tax break comes a week after Gov. Mark Parkinson sliced $259 million from schools, health care, roads and other departments to balance the state budget for the next seven months.
The state Department of Revenue has calculated that tax breaks for business and nonprofits have cost state coffers $10.9 billion since 1995 — including $1 billion this year.
In a recent speech at Wichita State University, Revenue Secretary Joan Wagnon said the state would likely not be facing the service cuts and layoffs if it had been less generous in giving tax breaks.
Wagnon said the current $1 billion a year includes $602 million from property tax cuts and exemptions, $289.7 million in income tax cuts and $116 million in sales tax exemptions.
Value to community
Wichita State University economist John Wong, who serves on the committee that makes the revenue projections used in the state budget, said the value of an outsourcing firm to a community depends on how much of its revenue comes from outside the local economy.
To the extent that the outsourcing firm does business locally, "you're probably substituting lower-paying jobs for higher-paying jobs," Wong said.
On the other hand, if the business is providing outsourced services nationally, "it could be bringing money into the local economy," he said.
Profit Builders reported to the city that its revenue split is about 70 percent out-of-state and 30 percent in-state, city officials said.
The Maize school district would lose the most money from property tax breaks for Profit Builders, about $10,000 a year starting in 2008, a city analysis shows.
In addition, Wichita will forgo about $6,000 a year in potential property taxes, Sedgwick County $5,700 and the state $280.
The tax abatements would run for five years and be renewable for an additional five.
The value of the sales tax exemption the council will consider Tuesday is unknown.
Usually, tax-exempt materials and equipment make up about half the cost of business expansions done with revenue bonds, city economic development director Allen Bell said.
But in the Becker case, construction has begun and taxes can't be exempted on materials that have already been purchased, officials said.
Industrial revenue bond financing is usually used as an incentive to prompt manufacturing businesses to locate or expand in the city.
Wichita policy allows incentive packages for service businesses, as long as most of their income comes from out-of-state transactions.
Granting bonds for facilities under construction is unusual, but not unprecedented, city officials said.
Becker said she would have applied earlier but wasn't aware that industrial revenue bonds were available for a businesses the size of hers, which now has about 20 employees.
"I feel that small business is the one that needs the help," she said. "I spend 80 percent of my day trying to help local businesses or businesses that are struggling."
Wong said many businesses that apply for industrial revenue bonds know from the start that they're going to expand in Wichita, but make a show out of threatening to leave.
"Everybody knows they're not going to move, but (as a city official) you act like you're scared," Wong said.
He said it's a ritual that benefits both sides — the business gets its tax breaks and officials can claim credit for creating and/or retaining jobs.
Giving the incentives after expansion has already begun "is probably more honest than what they usually do," he said.