The Grinch who stole your taxes: Subsidized shopping malls

In Missouri and around the country, city mayors light festively decorated Christmas trees to announce the beginning of the Christmas season and all the economic activity that comes with it. But like the Grinch himself, the taxpayer-subsidized shopping centers where much of that activity will take place amount to a thief in the night dressed as jolly Saint Nick.

Consider Kansas City’s Country Club Plaza. It opened in 1923, making it the oldest pedestrian shopping mall in the United States. The plaza buildings shine warmly each Christmas. Even the act of turning on the lights for the first time on Thanksgiving evening draws crowds. 

{mosads}Despite its longstanding beauty and vibrancy — and thanks to overly broad statutory language — the plaza was determined to be blighted in 1997, which made it eligible for economic development subsidies. This means that for 23 years, 100 percent of the increase in property taxes paid and 50 percent of the increased economic activities taxes such as sales, use and income taxes, are returned to the developer to be used to offset costs associated with renovating and maintaining the plaza property. These are costs that would normally be borne by private enterprise, but in Kansas City and in many other cities they can be imposed on taxpayers.

Despite all the lights and the brightly colored shopping bags, only a scant amount of tax revenue generated by the plaza is actually going to support basic city services. In fact, it’s likely that such services are in greater demand because of the season — snow plows, infrastructure and police protection — yet those are the very services denied funding.

Another celebratory hotspot in Kansas City is our downtown Power and Light District. Managed by Cordish Companies — which operates similar entertainment districts such as Power Plant Live! in Baltimore, Ballpark Village in Saint Louis and Fourth Street Live! in Louisville. It demands millions of dollars from the municipal general fund each year to cover its bond payments over and above the subsidies it receives in the form of diverted property and sales tax. Local politicians proudly point to the glow of neon lights where once stood vacant warehouses, but rarely do they stop to consider the cost or the net benefit. 

Even the hustle and bustle of nationally known bars and restaurants and the jobs therein are little more than the fever dreams of Hans Christian Andersen’s Little Match Girl. Data provided by Kansas City’s Regulated Industries Division indicates that the number of liquor licenses and food-handler cards in circulation have remained flat citywide for a decade.

Despite the warm lights of Christmas commerce, the city has not created new economic activity by subsidizing Country Club Plaza or the Power and Light District; it has just relocated it from elsewhere, and at a considerable cost to taxpayers.

The cost to Kansas Citians over the years is unmistakable. Due to more and more development deals permitting builders to divert their taxes back into their projects, the aggregate value of the city’s land continues to grow, but the percentage of that value that the city collects in taxes is in decline. This forces cities to further behave like the Grinch by taking more in taxes from everyone else.

To add insult to injury, economic research on the practice of these subsidies suggests they do not add any real value. Researchers from the University of North Carolina and Ball State University have found that in the aggregate, subsidized areas grow at the same pace as unsubsidized areas.  In a study of Kansas City and Saint Louis, the UNC authors wrote that “there are no systematically positive impacts” of the policies that divert tax revenue back to developers.

As countless Christmas tales teach, the true value of the holiday is in charity, time with family and good will toward others. The glow of the brightly lit store fronts will pass and, if we are not careful, we will be made worse off than we were before. Cities that wish to grow economically must hew to policies that deliver services cheaply and efficiently rather than relying on shiny distractions and political pats on the head.

Patrick Tuohey is the director of municipal policy at the Show-Me Institute, a think tank promoting free markets and individual liberty. Follow him on Twitter @PatrickTuohey