Over the last twenty years, cities and counties have provided massive public subsidies to finance the construction of big-box stores, shopping malls, and, most recently, Amazon.com warehouses.

These subsidies take different forms—property tax exemptions, sales tax rebates, job tax credits, tax increment financing (TIF), and so on.  While most states do not keep a central record of every municipal and county development incentive, Good Jobs First, a nonprofit research group that tracks these deals, estimates that large retailers have received at least several billion dollars since the late 1990s. Walmart alone has pocketed over $1 billion in municipal, county, and state giveaways to help fund its growth.

These subsidies distort competition and undermine locally owned businesses, which are rarely given any sort of tax break or special deal. Instead, they often see their tax dollars used to subsidize their biggest competitors.

Government officials often justify these deals on the basis of job creation and economic growth, but studies indicate that subsidizing retail development does more economic harm than good.

In 2011, for example, a consortium of local governments in the St. Louis metro area published a study in which they reported that cities and counties in the region had diverted more than $5.8 billion in public tax dollars to finance private development. More than 80 percent of these funds supported the construction of new chain stores and shopping centers. Yet the region saw virtually no economic growth. “The number of retail jobs has increased only slightly and, in real dollars, retail sales per capita have not increased in years,” the authors of the study wrote, noting that many of the region’s municipalities are now broke. According to the study, more than 600 small retailers have closed in the St. Louis metro area. The resulting job losses have offset the job gains from the new development.

Below, in the Rules section, we have included a policy example from Arizona, where a state law now prohibits the use of tax incentives to fund retail development projects in the greater Phoenix region, as well as detailed information on reforming tax increment financing (TIF), a very common way that cities subsidize sprawling retail development at the expense of older neighborhoods and independent businesses.

More:

• Don’t Subsidize Big Boxes at Local Shops Expense — ILSR op-ed in Business Week, Sept. 10, 2011
• An Assessment of the Effectiveness and Fiscal Impacts of the Use of Local Development Incentives in the St. Louis Region — East-West Gateway Council of Governments; January 2011 (see our summary here)

• Fishing for Taxpayer Cash: Bass Pro’s Record of Big-League Subsidies, Failed Promises, and Consequences for Cities Across America  — Report by the Public Accountability Initiative, May 2010.

• Good Jobs First — A national nonprofit organization that has produced extensive resources to help grassroots organizations and policymakers ensure that economic development subsidies are accountable and effective.

• Wal-Mart Subsidy Watch — A service of Good Jobs First, this site enables users to search a massive database of Wal-Mart subsidies. Find out how much public funding the retailer has picked up in your state.

• Big Tax Breaks for Big Boxes —  A  detailed article on how subsidies tilt the playing field against independent businesses, from the Syracuse Post-Standard, April 1, 2007