The Tale of Two TIF Districts

Last month, I sat through another city council meeting where officials unveiled their latest Tax Increment Financing district with the same enthusiasm they might reserve for unveiling a new iPhone. The project? A strip mall anchored by a national chain restaurant, promising 47 jobs and increased property values. Sound familiar? It should, because variations of this exact scenario have played out in council chambers across the country for the past three decades.

What struck me wasn’t the project itself, but the complete absence of any discussion about whether this approach still works in 2024. While council members debated parking ratios and facade materials, no one asked the fundamental question: Are we using economic development tools designed for the 1990s to solve today’s problems?

The answer, based on my conversations with three economic development professionals and a review of local outcomes data, is a resounding yes. And that’s a problem.

The Retail Recruitment Trap

For decades, economic development in mid-sized cities followed the same playbook. Recruit big box retailers. Offer tax incentives to chain restaurants. Build strip malls and hope the sales tax revenue follows. This strategy made sense when consumer spending patterns were predictable and retail jobs offered decent, middle-class wages.

But the data tells a different story now. According to the Bureau of Labor Statistics, retail employment has dropped by 1.2 million jobs since 2017, even before the pandemic sped up the shift to online shopping. Meanwhile, the average retail worker earns $15.40 per hour, barely above the federal poverty line for a family of four. Yet cities continue pouring resources into recruiting businesses that offer neither long-term stability nor living wages.

Dr. Sarah Martinez, who studies municipal economic policy at the state university, puts it bluntly: “We’re subsidizing our own economic stagnation.” She points to research showing that communities with the highest concentrations of chain retailers actually experience slower wage growth and higher rates of business turnover. The promised multiplier effect never materializes because profits flow back to distant corporate headquarters rather than circulating locally.

This doesn’t mean retail development is inherently bad. Local retailers, restaurants owned by community members, and businesses that source locally can contribute meaningfully to economic vitality. The problem lies in chasing any retail development, regardless of its long-term impact on the community’s economic health.

The Infrastructure Investment Paradox

While cities chase retail tenants with tax breaks, they often neglect the infrastructure investments that actually drive sustainable economic growth. I’ve spent the last six months tracking infrastructure spending in our region, and the patterns are telling. Communities consistently underfund broadband expansion, workforce training programs, and small business incubators while finding millions for retail incentive packages.

Consider the contrast between two neighboring cities I’ve been covering. City A spent $2.3 million in incentives over five years to attract three chain restaurants and a big box store. City B invested the same amount in fiber optic infrastructure and a business accelerator program. Today, City A struggles with vacant storefronts as consumer habits shift, while City B has attracted a cluster of tech startups that employ 200 people at wages averaging $65,000 annually.

The difference isn’t just in outcomes but in approach. City B’s economic development director, Maria Santos, told me their strategy focuses on “creating conditions for businesses to succeed rather than picking winners and losers.” This means investing in the boring but essential infrastructure that modern businesses need: reliable internet, skilled workers, and flexible spaces where entrepreneurs can test new ideas.

Infrastructure investments also create what economists call “positive spillover effects.” A fiber network installed to attract one business benefits every resident and company in the coverage area. Workforce training programs create a skilled labor pool that attracts more employers. These investments compound over time in ways that retail incentives never do.

Small Business as Economic Engine

Perhaps the most overlooked aspect of modern economic development is the role of small business creation and expansion. While cities compete fiercely to attract branch locations of national chains, they often ignore the entrepreneurs already working in their communities. This is a massive missed opportunity.

Small Business Administration data shows that companies with fewer than 500 employees create two-thirds of new jobs in the United States. More importantly for local communities, small businesses are far more likely to source goods and services locally, creating the economic multiplier effect that large chains promise but rarely deliver.

I recently profiled Lisa Chen, who started a specialty manufacturing company in her garage three years ago. She now employs twelve people and generates $1.8 million in annual revenue. But when she approached the city about expanding her operation, she encountered a development office focused entirely on recruiting outside businesses. No one seemed interested in helping an existing business grow.

Progressive communities are beginning to recognize this gap. They’re creating small business loan funds, offering technical assistance programs, and streamlining permitting processes for local entrepreneurs. These initiatives require smaller upfront investments than traditional incentive packages but generate more sustainable long-term returns.

Building Economic Resilience for the Future

The pandemic exposed how fragile economic development strategies built around retail and hospitality really are. Communities that had diversified their economic base proved more resilient than those dependent on sales tax revenue from shopping centers. This lesson should reshape how cities approach economic development going forward.

Smart economic development focuses on building adaptive capacity rather than betting everything on specific industries or businesses. This means investing in education and workforce development that can respond to changing market demands. It means supporting diverse business ecosystems that include manufacturing, professional services, and technology companies alongside retail and hospitality.

It also means taking a longer view of success metrics. Instead of measuring progress only through job creation and tax revenue in the first year, cities need to track wage growth, business retention rates, and local economic multipliers over five and ten-year periods.

The good news is that effective economic development doesn’t require massive budgets or complex financing mechanisms. It requires strategic thinking, community engagement, and a willingness to measure success differently. Cities that make this transition position themselves for sustainable prosperity rather than boom-and-bust cycles tied to retail trends.

What economic development strategies have you observed in your community? I’d welcome your insights and experiences as we continue exploring how cities can build more resilient local economies.