Retail tax incentives don't always provide "enough bang for (the) buck"

Cabela's in Buda, Texas. Photos by Larry Kolvoord for the Austin American-Statesman.

In "Not enough bang for buck: Megastore offers to come and bring jobs, but wants big tax breaks, grants," Boston Globe columnist Steve Bailey comments on the plans of Cabela's and the Bass Pro Store, megastores focusing on outdoors-products, to come to the Boston area. Bass Pro is doing it without government incentives while Cabela's is asking for about $26 million in tax incentives from the local and state governments.

I think I've written about these companies before. If I haven't, well the Wall Street Journal and other newspapers have. It is claimed that these megastores are huge destination draws. These claims are used to justify the tax incentives.

Bailey went to the Cabela's Store in Hamburg, Pennsylvania, and checked it out. Among his findings were that 3/4 of the cars in the parking lot had Pennsylvania plates.

He opined further that the store, all by itself, did little to build critical mass, spillover benefits if you will, for the community's business district, which is not even two miles away.

This is an important point.

I keep making the point that a city concerned with urban revitalization should ensure that every decision, especially those involving tax incentives and other subsidies, accomplish multiple objectives simultaneously. Incentives should be used to promote "economic development" in terms of "building a local economy."

Department stores were considered "anchors" for so long because they attracted customers who then shopped other stores in the area of the anchor. Is a destination store that doesn't provide customers and connections to other stores really an anchor? Certainly Wal-Mart doesn't want its customers to shop anywhere else.

What's the point of providing big incentives to a store like Cabela's if it doesn't add value to your extant businesses?

While I think there are some advantages to providing incentives to stores like Home Depot or Costco to locate in the city, if only to capture the sales tax revenues that would go to other jurisdictions, this needs to be thought through very carefully in order to ensure a true and worthwhile "Return on Investment." (Note a problem with providing tax incentives to Costco is that most of its transactions are for groceries, which in DC aren't taxed. And Costco is likely duplicative of the current supermarket offerings in the city. Even though Costco, unlike Walmart, is unionized, and pays decent wages and health insurance benefits.)

From the article:

Why does one retailer say it needs tax incentives to move here and the other does not? Because it thinks it can get them. The two retailers have been playing this shakedown game all over the country as they expand out of their heartland base. Cabela's has received more than $350 million of government subsidies as it expands, according to one of its smaller competitors, Gander Mountain. That is the equivalent of giving Cabela's seven million free fishing rods at an average cost of $50 per rod for resale to its customers.

Cabela's and Bass Pro have sold themselves as not just another retailer, but as destination locations that can draw tourists and spur economic development. (Bass Pro, for instance, claims its flagship store is Missouri's number one tourist attraction.) And communities, desperate for jobs, have responded. Massachusetts, with one of the nation's slowest-growing economies, is hungry for jobs, too -- and ready to play...

Hamburg's huge Cabela's -- the biggest in the chain -- is an impressive store, but that is what it is: a store. You can get a wild boar target for $189.99 and a used Smith & Wesson .38-caliber handgun for $249.99. But you can get many of the same brands of jeans and jackets and shirts anywhere. On Wednesday I randomly checked the license plates on 200 cars; 152 of them -- or three-quarters -- were from Pennsylvania. The out-of-state tourists from Maryland, New Jersey, and Delaware largely stayed home that day. Meanwhile, Hamburg (pop: 4,100), just 1 1/2 miles away, might as well be 50 miles away for all the good it appears to have done the sad downtown. And Bass Pro and Gander Mountain have stores in Harrisburg, just an hour away.

Communities have been paying big money to bring in low-paying retail jobs. Buda, Texas, for instance, gave Cabela's subsidies worth $61 million, or about $271,000 for every full-time job, according to an estimate by Gander Mountain. Reno, Nev., spent $52 million, or $208,000 for every job.

At $25 million, Massachusetts would be getting a relative bargain: $111,000 for each of the 225 full-time jobs. Then the jobs are expected to pay about $10.60 an hour. Massachusetts needs jobs. But it also needs to be smart how it spends its scarce resources. Money used to build a retail store can't be used for something else.

The point is to get the most bang for your buck. If backing up the truck for a retailer that will pay $10 an hour is the best we can do, then we are in more trouble than we know.

Bass Pro and Cabela's Stores in the U.S. Boston Globe graphic.