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March 15th, 2013 - Vol. 18 No. 11

Retail centers big contributors to municipal tax coffers

Retail centers make a huge impact on local economies, according to new research from ICSC. In 2010, the most recent data available, shopping centers were responsible for generating some $35.6 billion in local sales taxes, according to ICSC Research. This is on top of the $127.1 billion in state sales taxes the industry generated that year. "These are not incidental sums and go toward myriad services at the local level," said Christopher Gerlach, ICSC's director of public-policy research. In 2010 combined state and local shopping center sales taxes accounted for 12.8 percent of total state and local tax revenues in general, nationwide. "This is impressive, given that there are five states with no state sales tax, and 18 states, including Washington, D.C., with no local sales tax," said Gerlach. "Of course this percentage varies, depending on states." Arizona, Nevada and Tennessee, for instance, are heavily reliant on sales taxes to fund government operations (upwards of 20 percent of total revenues), whereas Alaska, Wyoming and the District of Columbia are much less so (less than 5 percent).

Cities hungrier than ever for retail development

Hundreds of municipalities are emerging from the economic meltdown only to struggle with slimmer budgets in the face of closed stores and spending-shy residents. Little wonder that economic development officials are in pursuit of new retail blood to compensate, flocking to ICSC meetings and other deal-making venues in record numbers. "Municipalities are putting more emphasis on retail recruitment today because they know they need quality of place to make their communities more vibrant," said Lacy Beasley, a municipalities consultant in the Nashville, Tenn., office of retail-advisory firm The Shopping Center Group. "They see it not only as a very necessary tax generator, but as a foundation for community growth."

The municipalities section at RECon 2013 — titled the Cities of the World Pavilion — will play host to a record number of exhibitors this year, coming to hold a sort of international retailer "casting call." This is the kind of thing that cities need to be doing, says Beasley. "Especially with retail being the fastest-changing and most dynamic of the sectors," she said. She would know, having worked with 42 towns across four states, helping to enhance their retail rosters — and their tax rolls. Rural areas have been hit particularly hard by store closures and online retail, she says, and they need brick-and-mortar retail to help recover tax revenue.

Successful retail recruitment spurs other community improvements, argues Keith Sellars, CEO of the Washington, D.C. Economic Partnership. "With the job market hit so heavily, cities are also looking to retail as a source of job creation," Sellars said. "Retail positions are great entry-level jobs for citizens who may not have acquired other skill sets yet." The D.C. Partnership has become an annual fixture at RECon and is looking this year to build on the momentum of February's ICSC Mid-Atlantic Idea Exchange, where its representatives juggled 45 meetings. Competition for retail has grown acute, Sellars says. Recruiters "have definitely upped their game, so we really need to be prepared when we meet brokers and developers to give them value for their time," he said.

Cities have seen a marked increase in the formation of public-private partnerships to grease deals in recent years. "Retailers' margins have been squeezed, and they're looking to municipalities to help them out," said Beasley. But cities that want to grow their retail tax base need to create a business-friendly environment first, she says. "They need to understand the demand versus the constraints they have put on retailers," said Beasley. If restrictions are too difficult, retailers may decide to relocate down the road in some other municipality, she says. "Cities that show a progressive effort toward planning development will ultimately increase their sales tax and their property values as part of a strong, overall gain in revenue," she said. "It's a delicate balance."