Local business benefits from city services

Brasington, PhD, published a new study in Regional Science and Urban Economics called “Effect of local government taxes and spending on the redevelopment of commercial property.”

“What we’re doing is comparing otherwise similar communities, where some of them voted to cut taxes and services, and some voted to renew them,” he said. “And we see if there’s a difference in the amount of redevelopment of commercial property in subsequent years. And we did find a significant difference.”

The tax renewals his team looked at covered a broad range of city services, from bus drivers’ salaries to mulch for public parks. When a community votes to cut taxes, it causes a cut in these local services. 

Brasington explained that the results were straightforward. “If a community wants to preserve its commercial tax base, it’s better to renew public services,” he said, adding that the point holds true even for municipalities that are struggling financially. 

“A struggling city might be tempted to cut taxes either because of the short-term break or because people think lower taxes might draw business,” Brasington said. But the data shows the opposite: Businesses actually do better when they are in areas with good, solid public services.

“On average, if you want redevelopment in your community, it’s better to renew your local taxes,” Brasington said. He added that this goes against the preconceived notion that businesses and commercial properties have a greater chance of success when taxes are lower. 

There are a few nuances to these results. The redevelopment observed was mainly driven by service-oriented cities, not manufacturing ones. And the data only gives what Brasington calls a “glimmer of hope” to communities facing population decline, instead of hard evidence pointing toward the benefits of tax renewals. 

“For cities that are declining, the evidence is a bit more flimsy, but it at least is something that could spur some redevelopment,” Brasington said.