PRESS RELEASE
April 15, 2008

Contacts: David Newell, Research Analyst, Utah Foundation
(801) 355-1400, ext. 6

Jennifer Robinson, Policy Research Coordinator, CPPA, University of Utah
(801) 585-3048

LOCAL ECONOMIC DEVELOPMENT: IMPORTANCE OF THE SALES TAX AND OTHER FACTORS

Utah Foundation and the University of Utah’s Center for Public Policy & Administration (CPPA) today released a research report examining the factors that affect local economic development. The report, entitled "Local Economic Development: Importance of the Sales Tax and Other Factors," is available at www.utahfoundation.org. An executive summary is attached to this release and is also available on the website.

This report initially set out to examine the influence that the sales tax has on local economic development. However, data collected from focus groups and interviews made it apparent that while the local tax structure does bear on city officials’ economic development decisions, there are many more, sometimes more influential factors at work that affect local economic development. The initial focus on the sales tax was then shifted to a more general examination of what factors influence local economic development.

The following are the major findings from the report. 

• Cities rely heavily on the sales tax. Not including Salt Lake City, the sales tax makes up 46% of city tax revenues statewide. The property tax comprises 32% of tax revenues. This tax structure can create a preference for retail development rather than other commercial developments that may provide higher-paying jobs.
• Despite some evidence of a preference for retail development, local officials describe many other influences that affect their choices, including: supply and demand for land, business decisions on development feasibility, previously approved plans and zoning, costs imposed by developments, and local political culture and characteristics.
• The sales tax may actually be a more balanced economic incentive than it seems at first glance. Many retailers prefer locating in a city with good jobs and well-to-do residents, creating an incentive for cities to pursue balanced development to foster strong retail sales.
• Changing the tax structure could create more revenue-neutral city decisions. This could be done through modifying sales tax distribution formulas or rates; sharing income tax with cities; changing property tax exemptions, rates or distribution; or changing local fees, such as impact fees. However, each potential change could cause significant problems.

In regards to local economic development, Utah Foundation Research Analyst David Newell said, “We found that, while the sales tax does influence the decisions of local officials, it is not necessarily the only or even the predominant influence. Local economic development is the result of a wide range of factors. Some of these, such as market forces and business decisions, city officials have no control over. Cities can only react to these influences.”

The report is freely available to the public on the web at www.utahfoundation.org.

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The mission of Utah Foundation is to promote a thriving economy, a well-prepared workforce, and a high quality of life for Utahns by performing thorough, well-supported research that helps policymakers, business and community leaders, and citizens better understand complex issues and providing practical, well-reasoned recommendations for policy change.