I publish an article about our Birmingham region every week, but this piece affects me more directly since I live in Vestavia Hills.

It also impacts my wallet since I spend a lot of money in my community and Vestavia raised our sales taxes from 9 to 10% last year.

Last month Sprouts on Highway 31 closed its doors after only two years in business.

According to ABC33/40, Vestavia Hills recruited Sprouts in 2014 with “a $1.4 million cash up front incentive to the developer to make the project happen.”

Vestavia maintains the decision was beneficial saying, “The site had topographical issues and it was hard to recruit developers. It was a site that had no activity on it and had been dark for many years, generating no tax revenue and being an eye sore for the corridor.”

“To date, $1.1 million in taxes and fees have been collected…we haven’t had 100% return on the investment, but within another 2 or 3 years, we should break even and then after that, pay dividends to us…”

There are two other Birmingham area Sprouts locations—one on Highway 150 in Hoover and one on Highway 280 in Birmingham. Both of those cities told ABC 33/40 there were no incentives offered for those store openings.

Four types of incentives

Local municipalities offer four types of incentives to businesses.

1. Incentives to help developers tackle projects that might not be possible without government financial aid. The Vestavia Sprouts development may fall into this category. The Highway 31 site had “topographical issues and it was hard to recruit developers.”
2. Incentives to help successful local businesses grow. A good example may be Birmingham’s decision to give incentives to Shipt to add 881 additional jobs.
3. Incentives to steal businesses from neighboring municipalities or to pay a business not to leave town. This is the most insidious type of incentive. Our Birmingham municipalities have spent in excess of $200 million pilfering businesses from neighbors or paying them not to move. These cash outlays create no new businesses or jobs for our region.
4. Incentives to recruit businesses from out-of-state. These may or may not make financial sense, but we must be prudent even with these incentives also.

According to Verge.com, “Every year, American cities and states spend up to $90 billion in tax breaks and cash grants to urge companies to move among states. That’s more than the federal government spends on housing, education, or infrastructure. And since cities and states can’t print money or run steep deficits, these deals take scarce resources from everything local governments would otherwise pay for, such as schools, roads, police, and prisons.”

A better option

I’m not saying all incentives are bad–some seem to work. But I’m not shrewd enough to know which will be successful–and obviously neither are our government officials.

Vestavia Hills is not alone. This is just how we do things here. We allow businesses to extort money from us and call it economic development.

My gut says if we had taken that $200 million of incentive money and invested it in ourselves, we would have more businesses, more jobs, and a better quality of life.

We could have put that money into education, public transportation, roads, crime reduction, or to not raise taxes.

Then out-of-state businesses might select Birmingham because we are their first choice—not because we are the biggest patsies.

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David Sher is Co-Founder of AmSher Compassionate Collections.  He’s past Chairman of the Birmingham Regional Chamber of Commerce (BBA), Operation New Birmingham (REV Birmingham), and the City Action Partnership (CAP).

Invite David to speak to your group about a more prosperous Birmingham. dsher@amsher.com