April 16, 2008 Local Economic Development
The debate over sales tax driving economic decisions (or the “zoning for dollars”) has been an important discussion for local officials for years. Despite the years of debate it isn’t exactly clear how much sales tax revenue dictates local land use decisions and more importantly to what extent the economic development incentives of the state are different than the economic development incentives of cities and towns. We know that cities have a large dependency on sales tax. However, the state frequently pursues higher paying jobs than retail (which does not provide immediate financial incentives to cities). However, the puzzle of economic development is complicated…sales tax is also important to the state (generating nearly $2 billion and over 34% of the GF budget) and high paying jobs are key to the quality of life of cities and towns. In my opinion the economic development decisions are not singularly dictated by tax revenue incentives. Not to mention other factors such as demographics, infrustructure, and quality of life factors that may play a more important role than tax structure on business decisions.
Anyhow Utah Foundation explores these questions in an interesting recent report: local-economic-development-utah-foundation
The sales tax may actually be a more balanced economic incentive than it seems at first glance. Many retailers prefer locating in a city with good jobs and well-to-do residents, creating an incentive for cities to pursue balanced development to foster strong retail sales.