The legislature is currently wrestling with an issue that many folks might view as a fairly mundane tax issue; the appropriate property valuation for big box stores. Folk wisdom is right—tax policy is mundane, but it is a serious worry for some municipalities. The issue also contains an important lesson on tax and economic development policy.

Big box stores like Walmart or Target own both active stores and quite a few empty locations, often referred to as ‘ghost boxes’ or ‘dark boxes.’ The property values of these active stores are assessed on their revenue potential and the cost of the building and structures. The empty stores are judged as worth much less. This has prompted tax courts to force the reassessment of all those open big box stores, equalizing them to the value of the ‘ghost boxes.’ This will profoundly reduce assessed value and property tax collections in many places.

I don't know enough about the issue to hold a strong position on which measure of assessed value is correct. I’m not sure anyone else does either. However, I know much about the local impact of big box stores.

The big box phenomenon is a half-century old, and the economics that doomed the local downtown stores are a century old. Big box stores didn't kill the mom and pop stores, which were already slowly disappearing. What big box stores do is kill other big box stores. This is not only the conclusion of several dozen high-quality economic studies, but it is painfully obvious to anyone who held stock in K-Mart or Sears over the past couple decades.

 However, the proliferation of large big box stores, especially the supercenter format, is not merely the outcome of favorable economic conditions. Local governments aided and abetted the explosion of new supercenter stores all around Indiana. The data is incomplete, but I'd wager that most new big box supercenter locations benefitted from local economic development incentives. These were either direct property tax abatements, or more commonly tax increment financing (TIF) that supported construction of a new retail center.

The irony is that in the mistaken name of economic development local governments incentivized the construction of these new super centers. In so doing, they left in their wake vacant big box stores that dot the Hoosier landscape. This didn’t boost the economy, but simply shifted the geography of retail, typically by a few thousand yards. For anyone who doubts the damage done to schools by TIF districts, here is the smoking gun. Today a significant number of new big box stores lie in TIF districts around the state. New, lower property re-assessments threaten many TIF bond payments across the state and have many local governments crying to the legislature. I imagine the many school corporations who have suffered mightily from TIF will chuckle at this comeuppance.

The underlying problem here isn’t some arcane tax loophole the legislature can fix, but knuckleheaded economic development policies that are far more common than empty big box stores across our state.