Arizona Chain Reaction (AZCR), a coalition of nearly 600 independent businesses, has launched a campaign of phone calls and emails to urge state lawmakers to enact legislation that would curtail cities’ ability to offer tax breaks and subsidies to chain retail developments.
“We’ve got bidding wars going on among cities out here,” said Kimber Lanning, owner of Stinkweeds, a music store in Tempe, and founding member of AZCR. “The chains are having a feeding frenzy.”
In Arizona, municipal budgets depend in part on local sales taxes. Eager to boost revenue, cities have been trying to lure shopping malls and big-box stores with ever larger tax breaks and subsidy deals. The problem is particularly pronounced in the Phoenix metro, where neighboring communities compete with one another to attract retail developers.
Recent examples include a $42 million taxpayer subsidy used to build the Chandler Fashion Center, home to chains like Barnes & Noble, Pottery Barn, and The Limited in Chandler; a $50 million subsidy for a new shopping mall in Tempe; a $28 million subsidy provided to Nordstrom by the city of Scottsdale; and a $17 million giveaway for the upscale Towne Center mall in Glendale.
Subsidizing retail development is poor economic and fiscal policy. Building new stores does not create new retail spending (only an increase in population or incomes can do that), but simply re-divides the existing pie. As a result, new malls and big-box stores almost invariably force existing businesses to close and eliminate about as many jobs as they create. This leads to vacancies, blight, and lost tax revenue, even as the new shopping centers require substantial outlays in terms of road maintenance and other public infrastructure.
“Our city leadership is hooked on drawing in these chains, but it doesn’t work long-term,” Lanning said.
Even cities that appear to be winners in this game—those that land the latest and greatest shopping draws—invariably become losers as even newer and bigger retail projects are built in neighboring towns.
State lawmakers are considering several bills that would limit or penalize cities for providing subsidies and tax breaks to retail development. The measure with the most traction so far is SB 1201, which has passed two Senate committees. Sponsored by two Democrats and a Republican, all from Phoenix, the legislation would bar cities from providing incentives to attract a retail development. The state would penalize any cities that do by reducing their share of state revenue by an amount equal to the subsidy.
Amendments under consideration would weaken the law by limiting it only to cities in counties with a population of at least one million and allowing incentives to be used for retail in designated redevelopment areas.
Members of AZCR are urging legislators to support the bill and other measures that would curtail or end subsidies for chain retail development. They’re arguing that such subsidies create an uneven playing field. They believe that the state would be better served by focusing on growing small businesses that would create higher-wage jobs and keep more money in the local economy.
Many city officials oppose the legislation. Phoenix Mayor Phil Gordon, who has described retail subsidies as “destructive” and “short-sighted,” contends that the state should not interfere with local economic development strategies and that cities in the metro are working on solutions to reduce giveaways. But state lawmakers sponsoring the legislation say that the cities have promised to workout solutions before, but have failed to deliver on those promises.
AZCR is only about two years old, but the group already has nearly 600 member businesses, most in the Phoenix metro. This past year AZCR formally incorporated as a nonprofit membership organization. Its primary goal is to build awareness of the value of locally owned businesses, both among citizens and policymakers.
Member businesses display the AZCR decal (“Think Independently, Buy Locally”) and other educational materials in their stores. The group has also established an on-line directory of independent businesses, many of which offer discounts to customers who reference the site.