Wednesday, 16 June 2010

Tracy gives $2.75 million in public money to Macy's

The city of Tracy continues to be an economic development “innovator.” They started last year by giving $500 publically funded gift cards to people who bought cars in Tracy to protect their local dealerships from the wave of closures. Elk Grove copied the idea, and I believe some other cities did as well.

Now they have taken the concept of subsidizing retail to the next level. Some quotes from the Tracy Press.

The West Valley Mall will soon welcome a Macy’s department store following a unanimous City Council vote earlier tonight.All five council members in a special session approved giving $2.75 million in city money to the department chain so it can renovate a 100,000-square-foot space vacated by Gottschalks in June 2009…

The plan put forward by city staff and approved at tonight’s meeting envisions that sales tax receipts from Macy’s will pay back Tracy’s investment within 20 years…

Council members were unanimous in their enthusiasm as well as their vote, and all praised the deal.“I think this is definitely something that needs to be done,” said Councilman Steve Abercrombie.Mayor Brent Ives said it’s a decision that shows the city is serious about economic development.“If the Central Valley’s going to recover, it’s going to start here in Tracy,” Ives said. “I just didn’t think it would happen during the worst economy in decades.”

Unanimous, enthusiastic support.

The insanity of California local government is that the proposal is rational. After all, city governments can receive sales tax but not income tax and are limited in property tax. Thus, they have a strong incentive to promote sprawling retail development which takes revenue from their neighbors, while encouraging people - described by many in local government as those undesirables who demand government services - to live somewhere else. Thus, in California, subsidizing a retail store could conceivably “pay for itself”, whereas investing in the quality of life for residents is just cost. The proposal also seems quite popular with the locals, who consider good shopping options part of “quality of life.”

I am increasingly convinced that it would be wise for California to take away the right to sales tax from local governments, perhaps in exchange for for locally generated income and property taxes.

From a regional economic development perspective, these kind of maneuvers are useless and self-destructive. Thus, I disagree with the Mayor’s comment that suggests this move is part of the Central Valley’s recovery. It does nothing to help the Valley, at best, it just helps Tracy at the expense of the neighbors.

Finally, I should add that I doubt that this will “pay for itself” as claimed. From another article, it looks like they are just applying 1% tax to the stores’ expected $20 million in annual sales. That’s $200,000 in sales tax per year which will add up to $2.75 million in 20 years if you assume some inflation. And if you assume that none of those sales are diverted from other retailers in town. And if you assume no other retailers (or Macy’s) would have ever filled this market void without the subsidy.

About the Author

Ethan Jacob

Author & Editor

I am Ethan Jacob Executive Director of the Center for Business and Policy Research at the University of the Pacific, where I have a joint faculty appointment in the Eberhardt School of Business and the Public Policy Program in the McGeorge School of Law..

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