“It Actually Works” Depends on Your Perspective

Chesterfield Councilman Tom DeCampi says “it actually works.” He’s referring to his city’s strategy to fund itself with sales tax receipts, much of it coming from non-residents. Whether it’s working depends on your perspective.

Related: Chesterfield Tries to Pee in the Tax Pool

A few weeks ago on Twitter:

{Many municipalities are even more dependent on sales taxes. Slow Death by Sales Tax: How Overreliance Threatens St. Louis Municipalities}

The earnings tax has been more reliable than sales and property taxes for the city of St. Louis (and many other municipalities).

{Source data from St. Louis City budget documents then adjusted for inflation.}

While those who live or work in the city are “forced” to pay the earnings tax, consumers have more latitude what (services vs goods), where (which store, in which shopping area, in which city, or online) and how much and how fancy they buy. The recession and the growth of internet purchasing have taken their toll on St. Louis County.
{Taxable sales and use are down over 15% in St. Louis County 2000-15. See How’s Your Tax Base St. Louis? for more.}

Below are taxable sales and use for selected cities in St. Louis County 2000-15. The decline among these dozen cities mirrors that of the entire county. Note some of the taxes collected off these sales were/are used to pay off TIFs.

{Source data from Missouri Department of Revenue. The second column is adjusted for inflation so the amounts from 2000 are in 2015 dollars.}

Interesting, though largely coincidental, that the drop for Crestwood is about as much as the increase in Chesterfield. The dead malls have been devastating to Crestwood and St. Ann. St. Ann had turned to traffic tickets to fill the gap, and massive taxpayer subsidies have been put into redeveloping Northwest Plaza. Crestwood has approved a TIF to redevelop Crestwood Mall. It used to work for them- shoppers from outside would go there much like Chesterfield today.

Moving retail sales around the region has come via considerable government intervention and taxpayer subsidy- hardly a free market outcome. The Chesterfield Valley TIF (and many others) took government intervention, and the roads, levies, and pipes to serve it are paid, in part or nearly in whole, by tax and ratepayers elsewhere. All the while the county has spread out for over 40 years without population growth, burdening households with more to take care of.
{State-maintained roads are numbered, County-maintained roads highlighted in purple.}

Is it working? East-West Gateway, the regions’ metropolitan planning organization (MPO), take a different perspective than the councilman’s. They couldn’t have been more clear in its study on incentives that it isn’t:

“Focusing development incentives on expanding retail sales is a losing economic development strategy for the region. The future of sales taxes as a principal source of revenue for local governments should come into question for several reasons: its inherent volatility; the likelihood of a long-term restructuring of retail trade; increasing level of sales taxes discourages spending and local sales in favor of non-taxed internet sales; and, the motivation this tax source provides to focus scarce tax dollars on incentivizing a type of development that appears to yield very limited regional economic benefit. As local governments come under increasing fiscal stress, the impacts of billions of dollars in forgone revenue will become increasingly apparent.”

Be sure to read all the conclusions at the very least – An Assessment of the Effectiveness and Fiscal Impacts of theUse of Development Incentives in the St. Louis Region