February 15, 2007 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.