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Local Economic Development: Importance of the Sales Tax and Other Factors
Executive Summary
by David Newell, Utah Foundation and Jennifer Robinson, CPPA
Introduction
Economic development implies the
general growth of an economy, in terms of how much it produces and consumes.
One role of state and local governments is to facilitate a high standard of
living for their residents by promoting economic growth. In addition to
attracting jobs and industries, local governments must provide services to
their residents such as roads, water and sewer infrastructure, and fire and
police protection.
While the long-term community
impacts of a vibrant local economy and providing necessary services and
infrastructure are both important to municipalities, the immediacy and
necessity of funding city-specific service and infrastructure needs can
overshadow the more strategic concerns of securing high-paying jobs and
attracting growing industries.
The Utah Foundation and the Center
for Public Policy and Administration recently completed a joint research
project examining the factors that affect local economic development in
Utah. We conducted multiple focus
groups with local government officials, and interviewed local officials, state
officials, and individuals from the private development sector. These findings
were complemented with a review of research on local economic development
issues.
Factors that affect local economic development
One of the primary findings in this report is
that while the tax structure or “zoning for dollars” definitely exerts some
influence on some city decisions, it is by no means the only or even the
dominant variable in the economic development decisions of local officials. The
focus group participants often did not even identify the tax structure as an
influence until asked specifically about it. Upon being questioned about the
role of sales and property taxes, the local government officials who
participated in the focus groups did recognize the important role they play
from a revenue standpoint, but emphasized that other, sometimes more
influential, factors are also part of their zoning calculations.
Local government officials noted that there are four types
of factors that affect decision-making: 1) market factors; 2) state policies;
3) local policies; and 4) local characteristics. Market factors include the supply of land in a local community,
demand for land, and the decisions of businesses. State policies and institutions also have an impact upon local
economic development. One of the policies
that has already been mentioned is the role of the tax system. In addition, the state can affect economic
development at the local level through recruitment of certain types of
businesses. For example, the Governor’s
Office of Economic Development is focusing on certain “clusters,” or industries
in which Utah has some comparative economic advantage. These clusters include
aerospace, high-tech, life science/biotech, financial services/industrial
banks, energy/natural resources, and the outdoor industry. Local policies such as city’s master plan, the incentives offered
to businesses, as well as the costs associated with development (such as sewer,
water, and roads) affect development as well.
Finally, the characteristics of a city affect economic development. These characteristics include such things as
the economic conditions, social characteristics, geography, and political
culture.
Conclusion
What factors influence economic development at the local
level? The data from the focus groups
and interviews with local government officials reveals that the tax structure
is only one of a multitude of factors that come into play. The development of local economies is a very
complex and dynamic sphere that is subject to market factors, state policies, local
policies, and local characteristics.
See the full report.
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