How would you like to pay no sales taxes for 18 months and no utility bills for four years? Sounds like a sweetheart deal, doesn’t it? Well, it is for Costco in Spanish Fork. The city has offered Costco, a multibillion-dollar corporation, these special privileges and more for building a store within city limits (see here and here).[pullquote]Favoring one company over another…is bad public policy.[/pullquote]
I wonder what Costco’s competitors in Spanish Fork think about this deal, especially the smaller, home-grown companies that have operated there for years or decades without receiving any special treatment.
As a retailer, Costco sells nearly every basic product a family could need, which means it will compete with smaller local companies like Macey’s, Monkey Bunky and Furniture, and Rocky’s Tire Pros. A deal like Costco’s, worth as much as $2.2 million, would obviously be a huge boon to these smaller companies – and yet, for some reason, retail giant Costco gets the deal and they get nothing. What gives?
City officials assert the city will eventually recover the costs of the deal (they estimate within three years) and that Costco will attract consumers from neighboring cities to help boost overall tax revenue. But the city’s deal, and this general strategy called “economic hunting,” is more of a gamble than a guarantee. Many studies have shown that economic development incentives often fail to perform as promised.
Additionally, economic hunting is not a free market policy. The free market would dictate that if enough people in the Spanish Fork area demanded the products and services Costco provides, then Costco would open a store in the area to fulfill those needs.
That Costco is accepting these government subsidies is evidence of one of two scenarios – either demand is too low for Costco to make adequate profit in Spanish Fork on its own merits, which would mean that Costco competitors will suffer from lower sales as customers go to Costco; or that Costco can earn enough profit but is trying to milk taxpayers for all it can.
Sadly, special deals like these happen in Utah all the time. For instance, just this week Draper approved a deal to provide $11.7 million in subsidies to The Living Planet Aquarium to help it expand, along with $2 million from the state.
Favoring one company over another, despite government planners’ good intentions or the economic activity that might result, is bad public policy. Government should treat all companies alike so the playing field is level for any legitimate company that chooses to do business in the state.