By Dr. John Urkevich, Executive Director
In a recent post (see Economic Development Incentives and The Impact on Public Schools), I provided information on a study commissioned by CSD of Greater St. Louis and other education organizations to gauge the impact of Economic Development Incentives on funding for public education.
CSD acknowledges the need for development incentives in some instances (e.g. to help rehabilitate truly distressed areas or to provide development incentives to assist in retention or attraction of jobs that might otherwise go to other states).
The reality, though, is that these tax incentives are being used for many other purposes with less overall community benefit.
As promised, the following are some suggestions offered by CSD to address the issues surrounding the use of Economic Development Incentives. These suggestions were shared with the Missouri Legislature’s Joint Committee on Tax Policy.
Suggestion Number 1
Differentiate between uses: Generally it is no more difficult to acquire tax incentives for a retail store or housing development than it is for a new manufacturing plant. Even though such uses generate increased economic activity for that local site and maybe even for a small geographic area, that economic activity may produce losses for nearby areas—such that the overall community benefit is nothing or negligible.
Consider making approval of some types of projects such as retail more difficult to approve than others such as industrial. Furthermore, the amount of tax incentive could be less for these marginal value projects than others.
Suggestion Number 2
Some projects generate new or improved public infrastructure, such as improved roads. Others divert almost all funds to private purposes. Some projects have high soft costs (attorney, accounting, bond counsel, consultants, architect, etc.) whereas others devote larger percentages of the funds to producing values that can ultimately produce revenue. Those that produce infrastructure of value beyond the immediate area of the site should be treated more positively than those which don’t.
Consider establishing a hierarchy of uses. In other words, reduce the percentage of property taxes/sales taxes, etc. for costs that go into soft costs and private use compared to what is available for costs of improved public infrastructure.
Suggestion Number 3
Generally a single political subdivision or its appointees (e.g. a municipality) can approve a project without the support of any other governmental entity, since they are assigned the majority of the votes. Of course, they are motivated to do what is best for the municipality, but without regard to the county, library, junior college, school, etc. and without regard to the neighboring municipality.
Consider changing the approval structure such that multiple parties must be convinced of the value in order to proceed, and the broader the area involved in the approval, the less parochial the decisions are likely to be.
Suggestion Number 4
These programs have no cap. The amount of tax dollars involved can grow without limit—and most are growing exponentially.
Consider that for many of the state’s tax incentives, the total benefits given are limited by statute or appropriation. This assures that the projects with marginal benefits are excluded. Consider adopting a similar oversight and limitation method for local tax incentives.
Suggestion Number 5
There is an imbalance of what incentives are provided. For many municipalities the property tax is a minor source of revenue, outpaced by sales taxes and utility taxes and sometimes even fees and fines. Therefore, when a city abates/diverts property tax revenue, the costs are felt by others.
Aside from being more selective and less parochial in the approval process, you might also consider requiring that a greater percentage of the benefits come from sales taxes and less from property taxes.
Cooperating School Districts of Greater St. Louis will continue to work with its member school districts to help educate the public about the impact Economic Development Incentives have on local schools.