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EYE ON THE PIE Morton Marcus: Time for a tax strategy to boost retail

February 14, 2005

It is time to recognize the role of retail trade in economic development. Too often, we follow the notion that a community grows only because it exports. That which we mine, grow, harvest or manufacture is an acknowledged part of the economic base. It brings in dollars from outside. In some communities, we recognize tourism, medical and other specialized services as part of that export base.

Just a few places see retail trade as a means of economic development. Yes, services along the interstate might be understood in that sense. And certainly, a massive shopping mall is a boon to the local economy (although harmful to the neighboring communities from which it draws dollars). But often retail is rejected as part of an economic-development strategy.

Let's set the record straight. Retail development is not a zero-sum game. A new retailer may drive out an existing business. There are just so many dollars to go around and new competitors must necessarily take money away from others.

Yet, if the new store offers goods at a lower price, the consumer has more money for other purchases. The consumer gets everything he had before and more. Consider this: Previously, I spent all my money on beer. Now, with "Beer Is Us" in town, I can buy the same volume of beer and have money left over to buy that jewelry she-who-glitters has been wanting.

There are many other benefits of retail developments. They can reduce travel time for shoppers, increase accessibility for transportation-disadvantaged populations, revitalize decayed areas and stimulate residential rejuvenation. The Indiana General Assembly is being asked to consider allowing local governments to encourage retail trade developments through sales tax increment financing (STIF). It's a bold plan.

Correctly written, legislation will give localities the authority to decide what will be financed and how the deal will be structured. No more getting approval from a paternalistic state government that historically has rejected the concept of local competence and accountability.

Increases in sales-tax receipts in specific parts of a community would pay for infrastructure, environmental remediation and other improvements that encourage retail development. That could mean turning a prime, but vacant, corner lot that once housed a gas station from an eyesore into a community resource. It might be a tool to help pay for the Colts' stadium.

Note: There is no increase in sales-tax rates. We are talking about the increase in revenue brought about by the increase in business activity. But today no one knows what tax revenue is in any given area because the state does not record it by location. Even the county of receipt is questionable. To measure the increment, we would have to know the existing revenue level.

Sales-tax increment financing (STIF) would be another useful tool for our communities to enhance their attractiveness as places to live. People want to live close to good shopping. In addition, we can help keep Hoosier dollars within the state and bring in more money from elsewhere with better retail trade opportunities.

Many Hoosiers in northwest Indiana go to the Chicago area to shop. Louisville and Cincinnati attract thousands of Hoosiers from southern and southeastern Indiana. Evansville, Fort Wayne, Richmond, South Bend and Terre Haute could be interstate beneficiaries of a STIF program. But don't count out the gains that might accrue to Goshen, Warsaw, Plymouth, Crawfordsville and Huntington. What would such a program mean for Frankfort, Logansport or the dozens of other towns where improved retail trade could strengthen economies that are leached daily by larger neighboring communities?

Does the Legislature have the imagination to pass a STIF bill or will they wilt before the idea?



Marcus taught economics more than 30 years at Indiana University and is the former director of IU's Business Research Center. His column appears weekly. To comment on this column, go to IBJ Forum at www.ibj.comor send e-mail to mmarcus@ibj.com.
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