Tax Incentives for Development?
Thanks to the Utah Bloghive I've recently read a couple of interesting blog posts, especially y-intercept's post on how sales tax creates self-destructive behavior by cities. The post and following comments are interesting, I agree in part, but also disagree. First, I don't think cities are providing the incentives (or "subsidies") for retail development like y-intercept or others might think. For one reason the use of sales tax incentives for retail development has been prohibited for cities and counties since 2004 (SB 124). And recent RDA legislation has decreased the use of RDA money for retail development projects.
Of course, some large retail still receive municipal incentives. But these projects amount to a simple cost benefit analysis. It is the same reason why the State of Utah recently offered nearly $2 million to try and lure a toilet paper manufacturing company to Washington County or a $1.3 million rebate to Backcountry.com, read the article here. Not all retail occurs on its own (as suggested by y-intercept and the Utah Taxpayers Assoc.). Projects like Cabela's or IKEA, are often choosing a location between a number of regional jurisdictions, and don't just develop in Lehi or Draper on their own. Governments, state and local, are always going to compete regionally in attempts to stimulate the economy. I don't think I would call this process creating a false economy.
There are two key questions here: 1) How do we get state and local government economic development on the same page? There isn't an easy answer...maybe the state and cities should begin sharing income tax revenue (just an idea). 2) How do we maintain our locally owned unique stores while also allowing larger regional development projects? There is a lot we can do here, which is why we (ULCT) recently co-sponsored a training session/forum with Local First Utah to address this very question. Read the article here.
Anyhow, I'm not a planner...but I do understand the finance side of municipal government and the financial pressures cities face to provide the services we all enjoy. Sales tax revenue, for good or bad, is a very large piece of the municipal revenue pie.
2 comments:
Neil,
The Utah Taxpayers Association has always made a distinction between locally-driven retail and other retail. Overstock.com is retail, but its customer base is largely not local. Therefore, we would not consider incentives for companies like Overstock to necessarily be inappropriate even though Overstock is definitely retail.
Nevertheless, NEARLY ALL retail is locally driven, and exceptions are rare. Practically all of the retail subsidies over the years in Utah have been for local customers. The "exceptions" you bring up are just that, exceptions, and they may not even be exceptions in reality.
As far as IKEA and Cabela's are concerned, in the long run these will also be primarily locally driven as well, if they are not there already (or will be in IKEA's case since it hasn't opened yet). IKEA and Cabela's are building facilities all over the country. Utah is just happens to have received one of the early outlets. A couple of years ago, IKEA announced it will build 50 stores in the U.S. in the next ten years, in addition to the 20 or so stores it already had. Eventually, every major metropolitan area will have an IKEA.
The same is true for Cabela's. According to wikipedia, Cabela's opened four stores in 2005, five stores in 2006, and plans on opening eight stores in 2007.
While Evanston and Malad may never get a Cabela's or an IKEA, we can't count on a lot of Utah retail activity from such small population centers.
Bottom line: in the very near future, most IKEA and Cabela's customers will be Utahns.
Regarding the recent RDA reform, we'll see how effective that ends up being.
Mike, thanks for the comment. I think IKEA and Cabela's are still awhile off from becoming primarily local. I remember seeing the article last summer that 5 million people visited Cabela's in Lehi last year (next to only Temple Square as a tourist destination). There is no question these 5 million contributed to the statewide economy (we'll wait and see how much those numbers drop in 2007 now that Boise has a Cabela's).
You do make a valid point about the growing number of IKEAs and Cabelas being built decreasing the regional impact...and these examples being primarily exceptions. Yet, my point is there are excpetions when local incentives make sense. And hopefully the focus is to use incentives for projects that really matter, not in border wars with neighboring jurisdictions. But that is another discussion.
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