Dying malls and the local tax base

It’s no secret that the retail industry is dying a slow (or maybe not-so-slow) death. As CNN Money notes:

Stores are closing at an epic pace. In fact, the retail industry could suffer far more store closures this year than ever.

Brokerage firm Credit Suisse said in a research report released earlier this month that it’s possible more than 8,600 brick-and-mortar stores will close their doors in 2017.

For comparison, the report says 2,056 stores closed down in 2016 and 5,077 were shuttered in 2015. The worst year on record is 2008, when 6,163 stores shut down.

“Barely a quarter into 2017, year-to-date retail store closings have already surpassed those of 2008,” the report says.

If stores do close at the rate Credit Suisse is projecting, it could mean America will lose more than 147 million square feet of retail space this year.

The reasons are many, from the increase in online sales to the decline in disposable income. But regardless of the causes, the effects are being felt in local and state government tax collection offices, which both rely heavily on sales taxes from these establishments.

 

According to The Atlantic’s Citylab, states rely on sales taxes for around a third of their income, while local governments depend on them for around 12% of their revenues. What happens when those funds stall or decline?

The closures raise the question of what state and local governments will do if retail continues to evaporate. Already, many local governments are attempting to raise taxes to make up for budget shortfalls. Springfield asked voters to approve an income tax in November; the measure failed. The sales-tax rate at both the local and state levels has been creeping up in Ohio as governments try to raise taxes to make up for declines, according to Jon Honeck, the acting director of the Greater Ohio Policy Center, a local think tank. Ohio has also cut back on revenue-sharing between states and local governments since the election of Governor John Kasich in 2010, making it more difficult for local governments to make ends meet. “Some have just cut services, since the state is not going to help them out,” Honeck said.

The decline of brick-and-mortar retail creates social challenges in addition to financial ones. When people aren’t going to stores to shop, and are instead shopping online, the vibrancy of local communities that once depended on foot traffic fades.

Online shopping is great: It offers easy access to a wide selection of goods, often at better prices than stores with physical locations. And it’s almost certainly going to continue increasing its share of the retail market, meaning state and local governments are going to see ongoing challenges in supporting their spending plans.

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