In March, voters in Scottsdale, Arizona, overwhelmingly rejected a plan to provide a massive public subsidy for a 42-acre big box development anchored by a Wal-Mart supercenter and a Lowe’s Home Improvement store.
The plan, which was approved by the city council last year, allowed the developer to keep 49 percent of all the sales taxes generated by the shopping center over the next 40 years. Accounting for interest and inflation, the total value of the subsidy is estimated at $183 million.
Opponents of the plan, including hundreds of business owners, residents, and union members, formed the Scottsdale Coalition and gathered petition signatures to force a public referendum. They won by a landslide, with 83 percent of voters opposing the subsidy.
Meanwhile, a bill aimed at stopping cities from handing out tax breaks and subsidies to retail developers narrowly failed in the Arizona legislature. Initially the bill had broad support among lawmakers, according to its sponsor, Republican Senator Jack Harper, but many switched sides under pressure from Westcor, a major retail developer, Wal-Mart, and other industry lobbyists.
Harper, who owns a pizza franchise restaurant, contends the state’s small businesses are at a significant disadvantage due to the hundreds of millions of dollars in subsidies that have flowed to their big chain competitors.
As is common in those states where local governments are heavily dependent on sales taxes (as opposed to other revenue streams such as property taxes), Arizona cities compete fiercely with one another to attract auto dealerships, shopping centers, and other sales tax generators. 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; 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.
Retail spending is entirely a function of population and incomes. Building new stores does not create new spending; it simply re-divides the existing pie. Subsidizing retail creates no net gain in economic activity or jobs on a regional basis.
Citizens and lawmakers in several states have been working to enact legislation that would prohibit the use of subsidies and tax incentives for retail projects (see links below), but have yet to overcome the campaign contributions and lobbying muscle of developers and retailers.
In addition to barring subsidies for retail, other long-term solutions include shifting dependence on sales taxes to other revenue streams and requiring regional revenue sharing (whereby taxes generated by new stores and businesses are shared among neighboring municipalities, eliminating competition for development).
