Local development incentives are not producing economic growth in blighted areas, finds a study by the East-West Gateway Council of Governments.
Released Jan. 26, the study shows that the incentives are mainly going to fund retail development, but not in blighted areas which the state laws were written for.
The study showed that while incentives, such as tax increment financing and special districts, can be positive for a municipality, it has negative impacts on neighboring municipalities. For each $1 million in retail TIF investment in one municipality, there was a $25,000 average annual loss in taxable sales for others.
In a map detailing the retail gain and loss in the St. Louis area from 1998 to 2007, it shows that all parts of St. Louis City and North St. Louis County experienced loss while West St. Louis County experienced growth.
The study looked at all incentives including tax increment financing (TIF) and special districts, such as Transportation Development Districts (TDD), Community Improvement Districts (CID), Special Service Areas (SSA), Business Development Districts (BDD). It also includes tax abatements and other state exemptions and credits.
The study found:
• $5.8 billion in public money has been committed to supporting private development during the last 20 years
• 80% of TIF and TDD public investment supports retail development
• From 1990 to 2007, the retail sector grew from about 142,100 to 147,500, a gain of roughly 5,400 jobs
• This translates to $370,000 in public money per retail job created
The study found that reporting on incentives is inconsistent and incomplete. Although Missouri amended its TIF and TDD statutes to improve reporting in 2009, the council said the laws could be strengthened.
The report states, “There is a clear public purpose in addressing actual blight and providing services in underserved or historic areas.” However, the council found that most incentives are not used in areas of actual blight.
Over 15 years, growth in taxable sales revenue has been flat, the study shows.
• Two-thirds of local governments report that they are under fiscal stress.
• One-quarter of local governments do not view their city as fiscally sustainable in two to five years.
• One-third do not view their city as fiscally sustainable in 10 and 20 years.
• Over 90% of municipalities cut services or increased taxes/fees in response to fiscal pressure.
With these statistics, reliance on sales tax revenues is risky for the future of municipal finance, the report states. Higher sales tax rates will suppress local sales and drive higher untaxed internet sales.
“Providing incentives to grow retail sales is a redistributive strategy, not a strategy for growth,” the report reads.
The council recommends that the St. Louis area adopt an agenda for regional fiscal reform, beyond development incentives, and that East-West Gateway staff be directed to identify options for enhancing efficient delivery of public services by local governments.
To download the study, visit http://www.ewgateway.org/pdffiles/library/presentations/TIFRpt-012611.pdf
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