Despite years of diverting massive amounts of public revenue to private development throughout the St. Louis region, a new study by the East-West Gateway Council of Governments finds these tax expenditures have done little more than redistribute retail sales and low-wage jobs around the region. Over the last 15 years, local governments have doled out more than $2 billion to developers through tax increment financing (TIF) and special tax districts. Knowledge of the full impact of tax expenditures is limited by poor data reporting. From what is known, these expenditures result in a zero-sum competition between neighboring communities. The study concludes: “Focusing development incentives on expanding retail sales is a losing economic development strategy for the region.”
East-West Gateway has been designated by state and federal agencies as the metro planning organization for the region. This latest report is aa work in progress, commissioned in early 2008 by the East-West Gateway Board of Directors, a group made up of local elected officials. The Board authorized the study to examine the effectiveness of local development incentives, out of concern for the long-term economic health of the region and the fiscal well-being of local governments.
The authors of the report said their ability to analyze trends was limited by a lack of transparency and accountability in the reporting of revenues, expenditures, and outcomes in all tax incentive programs. Tax abatement data was so incomplete that it was not included in this report. Given more information, the report estimates that tax abatement totals “could easily double” the $2 billion attributed to TIF and special tax districts. In most cases, the authors observed weak penalties for failing to report expenditures and economic outcomes, thereby providing little incentive to improve record keeping. The report recommends immediate legislation to require uniform full disclosure.
The report found that 80% of TIF and special tax district incentives were used to build new shopping centers. However, retail jobs have increased only slightly, and taxable retail sales have remained stagnant for years. A mere 5,400 new retail jobs were created in the region between 1990 and 2007. This translates to local governments spending $370,370 in tax incentives per retail job created. This number is staggering, the report notes, considering annual wages for retail jobs in the area average just $18,000.
The overall message of the report is that the principle effect of diverting tax revenues to expand retail operations has been a losing strategy for the region, resulting merely in the redistribution of retail sales and jobs, rather than expansion.