A new report prepared for the Mid-Ohio Regional Planning Commission concludes that retail development costs cities more in public services than it generates in revenue.
The report, produced by Randall Gross of Development Economics in Washington, D.C., reviews and summarizes the findings of fiscal impact studies conducted in eight central Ohio communities between 1997 and 2003. (Fiscal impact studies compare the tax revenue generated by development with the cost of providing services, such as road maintenance and police protection, required by that development.)
In seven of the eight communities, retail development created a drain on municipal budgets. On average, retail produced a net annual loss of $0.44 per square foot (or $44,000 per year for a 100,000-square-foot big-box store). “Retail does not generate sufficient income or property taxes to overcome the substantial traffic-related costs that result from the higher number of road trips generated,” the report states.
“The concept that growth is always good for a community does not seem to correlate with the findings from various fiscal analyses conducted throughout central Ohio,” the report concludes. It cautions cities not to be taken in by the promise of high tax revenue from a new development without also considering the additional costs of providing services.
While retail created a net tax loss, office and industrial development, as well as some types of residential, produced a net benefit. Industrial uses generated an average net tax gain of $0.62 per square foot and office buildings a net gain of $1.34 per square foot.
Part of the reason office and industrial uses come out so far ahead of retail has to do with lower costs for public services. Another factor is that Ohio cities collect both property and income taxes. (In most states, there is no local income tax. In Ohio, income taxes account for about 20 percent of local government revenue.) Because office and industrial uses create higher-paying jobs than retail stores, they generate more income tax revenue.
The report notes that the negative fiscal impact of retail could be reduced or eliminated by building traditional neighborhoods that include a mix of homes and small stores. This would enable people to walk or take shorter car trips for basic errands, rather than traveling longer distances to access large-scale shopping centers.
A similar study conducted two years ago in Barnstable, Massachusetts (which does not have a local income tax), found that big-box retail costs $0.47 per square foot more in services than it generates in revenue.
— Both the Ohio report (“Understanding the Fiscal Impacts of Land Use”) and the Barnstable study can be downloaded from the Economic Impact Studies page on our web site.