“It Actually Works” Depends on Your Perspective

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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 (PDF)

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  • matimal

    How does online shopping affect this? The only in person purchases I make anymore are at supermarkets and restaurants.

  • John

    Mall owners often let their properties deteriorate, and the elected officials of the municipalities let it happen on their watch. Northwest Plaza was a premiere shopping destination until the decline in about the late ’90s or early 2000’s. Lack of upkeep, investment combined with negative perceptions due to crime lead to its demise. Crestwood Mall is a similar story. The malls did not evolve with changing times, demographics and consumer tastes.

    Northwest Plaza was also hurt by The Mills Outlet Mall in Hazelwood, which never should have been built. Chesterfield Mall is the next “victim” with the the two competing outlet malls in Chesterfield Valley as well as the seemingly never-ending, behemoth strip mall called Chesterfield Commons.

    Developer welfare handouts with TIFs, tax abatement and other incentives…need to be re-thought and curtailed.

    • HawkSTL

      Those are not the reasons Northwest Plaza, Crestwood Mall, and now Chesterfield Mall are gone or near gone. For instance, crime at Crestwood (or Chesterfield) are non-issues. Instead, it is location, location, location (and yes, new or complete renovation helps). Northwest and Crestwood malls are not along interstates. They were built at major intersections, but visibility by today’s standards is low when you’re not along an interstate (and preferably near a second interstate). Chesterfield has been cannibalized by the valley outlet centers that are adjacent to Hwy. 40 and closer to St. Charles County consumers (which allows those centers to draw from not only West County). The old locations are no longer desirable. Things change.

      • STLEnginerd

        Your’re not wrong that does play a huge part.

        However the rampant use of tax giveaways to subsidize new devlopment also is a major contributing factor. Municipalities actively undermining each other and in the case of chesterfield mall/outlets, undermining itself has to be part of any conversation about the demise of mall xyz.

        You also missed the rise of online sales as a contributing factor. Online sales is a mall killer.

        • John

          Agreed…hence the “consumer tastes” reference in my previous posts. It is not just crime, location or online shopping. It is a myriad of those factors, but the TIF and tax abatement corporate welfare needs to end.

        • JB

          I found the Chesterfield comments to be interesting since it’s the poster child of the unpredictability of sales tax model. They’re watching how volatile it is as Chesterfield Mall crumbles due to competition. If the Simon property had elected to build on the other side of the river, it would be a whole different story for Chesterfield.

          Depending on the sales tax model results in getting aggressive with incentives for the next big shopping center even if it cannibalizes businesses in your own city.

          Online sales are a contributor, but not as dramatically as some assume. It’s been ~20 years since the internet was entered into the shopping discussion and it currently accounts for less than 10% of all retail.

          • STLEnginerd

            I guess that is one way to look at the outlet mall development was going to be built one way or the other and the Chesterfield Mall would have been hammered either way.

            If it was built in St. Charles county it would have been a major gut punch to Chesterfield. That they built it in Chesterfield means they retained a lot of retail business they would have otherwise lost when the Chesterfield Mall was inevitably impacted.

            No shame in making a tough decision to maintain your tax base but the public face is always so obnoxiously self congratulatory. As if there was unlimited capacity for retail in the Chesterfield because they are just that desirable.

          • the 10% number is deceptive, because it includes food services, gas stations, and other sectors which will probably never move online, and are not really what we’re talking about here, since malls don’t have grocery stores. You can get closer by excluding food services (https://fred.stlouisfed.org/graph/?g=hKC) which puts online at about 25%. Electronics are above 30%, books are above 50%. There will always be some things that are sold in person, and it’s likely that luxury stores will always have human workers (rich people love a butler.) But physical retail is largely on the way out, and we need to make that adjustment.

    • Chesterfield is going down the tubes and major stores have been and are starting to pull out as the property the mall sits on would make a great corporate headquarters for a few companies….. Just wait and see

  • Adam

    It works if you view the region as warring fiefdoms, which he does.

  • Jakeb

    Nice reporting. Thanks. I’m very concerned about the over-reliance on sales tax.