Well, At Least It’s Not a Check
In a perfect world, municipalities would not need to offer tax incentives to attract investment. That was the consensus on November 15 at the Clayton Board of Aldermen’s meeting concerning Centene’s proposal for $75.6 million in tax abatement over the next 20 years. Unfortunately, policymakers don’t see us as living in a perfect world. They argue that if the city needs to forego a few million in revenues that would otherwise help pay for municipal services, so be it.
Before the board voted unanimously in favor of subsidization, each member gave a brief speech explaining his or her decision. The majority opinion was that tax incentives are not ideal, but that Missouri’s current economic environment demands them. Tax incentives for large projects like Centene’s have become the norm, so withholding the expected tax breaks means running the risk of losing investment to other regions.
But “we’ve always done it that way” is a dangerous line of reasoning when past decisions have negatively impacted cities, and the research shows that economic development subsidies are often used unnecessarily. They have little positive impact on the region’s economy, perhaps because they divert revenues away from crucial municipal services like schools. This is hardly a pattern we should aim to continue.
Clayton’s office vacancy rate is half that of St. Louis City, and Clayton is hardly lacking investors. This, along with the fact that last year Centene placed 4th on Fortune’s list of the nation’s fastest-growing companies, calls the need for subsidies for Centene into question.
Clayton officials justified the use of incentives by saying that no physical checks are written to Centene. If the city doesn’t give any money to the development, then they are not losing out. This reasoning fails to account for the millions of dollars in lost revenue from taxes that will go to the developer instead of into the city’s tax base.
It’s disappointing that the board felt, despite their distaste for tax incentives, that today’ market environment demands subsidization. Cases like this remind us of the need for reforms that can help create a more growth-friendly environment in the Saint Louis region and across Missouri.