Corporate Welfare Leads to Diminished Returns

Back when I was covering land-use issues in the suburbs, we used to write the same story every week: A Jewel, or a Wal-Mart, or a Target, or somebody representing one of the many big-box stores in the area would propose a giant strip mall, and ask that taxes be reduced because this exciting new development — totally different from the other 40 CVS-dry cleaner-nail salon developments within driving distance — would EVENTUALLY provide incredible vitality and jobs to the town on which it so generously bestowed itself.

The town fathers would then fall all over themselves to argue that they MUST prove they loved said development more than the next craphole over, and give bigger tax breaks than they anticipated would be offered by said craphole.

(The school districts, natch, were silent on the matter.)

And all those promised benefits? 

Marquette has been hit hard by a tactic that the country’s biggest retailers are using to slash their property taxes. Known as the “dark store” method, it exemplifies the systematic way that these chains extract money from local governments. It’s also the latest example of the way that, even as local governments across the country continue to bend over backwards to attract and accommodate big-box development, these stores are consistently a terrible deal for the towns and cities where they locate.

Marquette is one of the countless places that has bought into big-box economic development. Over the years, the township in the Upper Peninsula of Michigan spent millions extending water mains, law enforcement, and other infrastructure and services to its big-box commercial corridor along U.S. 41. When the Lowe’s opened there in 2008, local officials including the mayor turned out for a “board-cutting” ceremony—the home improvement center version of a ribbon-cutting.

Then, less than two years later, Lowe’s flipped the script. The mega-retailer, which reports annual net sales of about $50 billion, went to tax court to appeal its property tax assessment. Marquette had pegged the taxable value of the store, which had just been built for $10 million, at $5.2 million. In front of the Michigan Tax Tribunal, an administrative court whose members are appointed by the state governor, Lowe’s won assessments that were, instead, $2.4 million in 2010, $2 million in 2011, and $1.5 million in 2012.

So less money goes to the schools, the libraries, the towns that shelled out infrastructure improvements and tax “incentives” and everybody just wonders how the whole world went broke all of a sudden. It must have just happened on its own!


5 thoughts on “Corporate Welfare Leads to Diminished Returns

  1. Once again, I am compelled to revive a snotty comment from a month or two ago: Hey, Lowe’s, “SHOW SOME GRATITUDE BITCH.”

  2. And there were probably other deals that weren’t advertised, such as returning some or all of the sales tax to the store (a very common demand of new Walmart stores), or reduced payments on services, etc., things that smaller established businesses do not get. And then the big box store uses its leverage to reduce prices, driving the smaller competition out, then brings the prices back up. Meanwhile, all the other businesses and residents end up paying more in taxes to cover the additional services required by the big box store and to make up for the taxes not paid by the big store.

    End result? Lower revenues and a net drop in jobs. The whole scam is thoroughly detailed in David Cay Johnston’s Free Lunch. It goes on in town after town, city after city, year after year, and you’d think city officials would finally wise up, but, they don’t. Either that or bribery is involved (small-town officials are bought off rather cheaply).

    Stupid or corrupt, the end result is the same.

  3. But the captains of industry, who engineered these deals, get real sweet bonuses and generous severance packages, so it’s not like everybody got skinned on these deals.

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