1998 sales tax for economic development paid off several times

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Dr. John Martinez, Professor of Economics, MSU Texas Dr. Robert Forrester, Professor of Finance, MSU Texas

In 1998, Wichita Falls voters approved a 1/2 cent sales tax to fund economic development projects.

Since 1998, the Wichita Falls Economic Development Corporation (WFEDC or 4A Board) has approved $ 69 million for 81 projects. Among the public expenditure programs, it would be difficult to find another more effective public initiative in terms of promoting local economic development.

Higher personal earnings thanks to WFEDC projects

Personal income in the Wichita Falls MSA is on average more than $ 100 million per year higher due to projects funded by the Local Economic Development Tax of 1998 (EDT). On an annual basis, this increase represents a 1.5% increase in the region’s total personal income.

However, the most important aspect of EDT’s success is not so much its annual impact as its cumulative nature. In the 24 years since its inception in 1998, personal income has grown by more than $ 2.4 billion due to various projects funded by EDT’s income.

Overview of type A, B developments

In 1979, the Texas Legislature passed Act 1979 Development Corporation, giving cities the opportunity to finance new businesses and expanded in their local communities through economic development corporations (EDC). The legislation allows cities to adopt a sales tax to fund type A and type B REE. It also defines the type of projects that REE are permitted to perform.

Type A CPSE

Type A EDCs are typically created to fund industrial development projects such as business infrastructure, manufacturing, and research and development. Type A EDCs can also fund the realignment of military bases, vocational training courses and public transport.

Type B endocrine disruptors

Type B can fund CPSE all eligible projects for Type A, as well as parks, museums, sports facilities and affordable housing. However, Type B are CPSE subject to more administrative restrictions than Type A.

Requirement of “main” or “export” jobs

In 2003, the legislature voted to require that certain projects create or maintain primary jobs. A primary job is that of a company that exports the majority of its products or services to markets outside the local region, injecting new dollars into the local economy. “Primary” or “export” type jobs are further limited to specific industrial sectors such as agriculture, mining, manufacturing, and scientific research and development.

Economic basis theory and the requirement of primary jobs

The key concept of economic base theory is that export activity is the engine of growth. Goods sold outside the region are called “basic” or “primary” or “export”, while those sold within the region are defined as “non-basic” or “service”.

Any sale of locally produced goods or services that results in an influx of income from outside sources is called an export activity. For example, the production of flat glass in the Wichita Falls area is an obvious example. Most of the locally produced flat glass is sold outside the area, although some is consumed locally through the indirect purchase of new vehicles.

Ten community leaders and business Wichita Falls, Burkburnett, Wichita County and Vitro Architectural Glass help announce the expansion of the plant which includes a building and a giant glass coater 55 million.  Vitro was formerly PPG.

While manufacturing production is generally regarded as the best example of an export operation, any business activity financed almost exclusively by external dollars is just as much a form of “export” activity.

How do primary or export jobs promote economic development?

The production of the export sector is determined by external demand and closely linked to the national and international economy. For example: In the North Texas region, petroleum activities and natural gas and production are more closely linked to conditions of demand and supply in the world and much less compared to the energy consumption local.

Dan Triggs, left, supervisor coatings, and Clifford Blue, sander, discussing in 2015, a work order on a tank car at Eagle Railcar Services.  The company repairs, maintains and paints railcars of all types and has expanded its business three times to Wichita Falls.

Export demand is linked to the income and employment levels of local residents through a multiplier effect. The income originally earned by the export sector is passed and re-passed at the local level, creating additional income by the multiplier. Export industries generate money that flows into the city or region. Part of the export workers of the export revenue is spent at the local level, creating local service jobs. Employees serving the local economy, in turn, spend much of their income locally, supporting additional jobs.

VAR model used to estimate the economic impact

Tracking the precise impact of EDT is an extremely difficult undertaking. Undoubtedly, EDT has resulted in new businesses as well as expansions in existing facilities. However, it is important to ask what new businesses or planned expansions of existing facilities would have taken place had there not been a TDA?

Such counterfactuals are difficult to estimate. Nonetheless, using an advanced econometric technique – such as an autoregressive vector model (VAR) – it is possible to make reasonable estimates of the economic benefits to the local economy of EDT.

Summary and conclusions

The return on investment for local taxpayers in 1998 EDT was considerable. Although there have been some bad investments, they were more than offset by successful projects. Using an econometric model VAR, we believe that the 81 projects funded EDT resulted in 2.4 billion additional profits in the Wichita MSA over the period of its existence of 24 years.

On an annual basis, this increase represents a 1.5% increase in the region’s total personal income. This huge economic stimulus also generates tax revenue through increased sales while simultaneously improving the property tax base.

When voters approved the Wichita 1/2 cent sales tax to fund economic development projects, most would not have realized how the WFEDC become successful in promoting local economic development.

Without a doubt, the North Texas region has seen greater economic prosperity from WFEDC initiatives.

In a post-COVID environment, such resources should allay any lingering doubts about the effectiveness of the 1998 sales tax for local economic development.

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