During my time at the Show-Me Institute, I have regularly cited Wildwood as an example of a city that exercised fiscal discipline and admirably avoided giving away tax subsidies. Unfortunately, I can no longer do that. Wildwood, like many other municipalities, has gone down the road of passing harmful, unnecessary tax incentives in the name of “growth.” The idea that subsidies are necessary in a prosperous place like Wildwood (a suburb of St. Louis) is absurd. And yet, here we have one more city feeling that it is the role of the city to reject some projects and (now) subsidize others, as if city officials can predict the future and know which projects will be successful and which won’t. (Hint—they can’t.)
The especially galling aspect of this property tax abatement by Wildwood—and many other deals like it—is that Wildwood does not levy a property tax. There is nothing wrong with that, but a city that doesn’t levy a property tax deciding on abatements that affect the school district, county, and other taxing districts that do depend on the property tax is terrible policy. You need to have skin in the game, and cities rarely have much skin in the game when it comes to property taxes. Missouri municipalities depend primarily on sales taxes, not property taxes. Again, there is nothing automatically wrong with that, but we don’t let school districts give out exemptions on local sales taxes (which they don’t impose), so I don’t know why cities get to abate property taxes.
The evidence that local tax subsidies fail in their ostensible goal of economic growth is overwhelming. Among the myriad problems:
- Local officials can’t predict the future
- Local officials allow politics to influence their decisions
- Companies and developers rarely need the subsidy (they ask because the money is there for the taking)
- Greater use of subsidies leads to increased local economic planning
Please read these reports and articles if you would like a detailed summary of these arguments.
It’s frustrating to see Wildwood go down this path. History shows that once a city approves one of these subsidies, the dam usually breaks, and they become common. I hope that doesn’t happen in Wildwood.
