This article is about how communities subsidize businesses. Corporate welfare it's called....
The article is from the St. Louis Post-Dispatch.
Find it here: http://www.stltoday.com/business/local/article_644ee8ee-d6da-57fc-9714-a7fb95619fa1.html
--Kim
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Area stunts growth by feeding on itself
Area stunts growth by feeding on itselfBY TIM LOGAN • tlogan@post-dispatch.com > 314-340-8291 and David Nicklaus • dnicklaus@post-dispatch.com > 314-340-8213 www.STLtoday.com | Loading… | Posted: Monday, November 15, 2010 4:00 am
LAURIE SKRIVAN NOVEMBER 4 2010, -- The former home of Wal-Mart in a Town and Country Mall strip mall. Wal-Mart opened the store in the 1980s, but chose to reopen a larger store about a mile westward in the new Manchester Shopping Center due to the tax increment financing incentives (TIF) offered by the City of Manchester. (Laurie Skrivan | lskrivan@post-dispatch.com) 
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When Wal-Mart moves two miles west to a new store in Bridgeton, the once-thriving Cypress Village shopping center will shrivel into just another dying strip mall.
The anchor tenant now occupies more than half of the space, and leasing agent Jeff Eisenberg fears that the remaining stores won't survive without the traffic Walmart brings. "That space could be dark for the next four to 10 years," he worries.
It's a familiar pattern across metropolitan St. Louis, where the inventory of retail space has grown more than twice as fast as the population over the last decade. The difference shows up in "for lease" signs dotting corridors like St. Charles Rock Road, where Cypress Village straddles the border between Bridgeton and St. Ann.
This isn't merely a case of capitalism at work, with dowdy old stores closing to make way for glitzy new ones. The free market's invisible hand is being guided by local governments, which compete with one another to dole out tax incentives to companies dangling the prospect of jobs and more important to local politicians sales tax revenue. Like Bridgeton, most area municipalities eagerly hand taxpayer money to private businesses through a tool called tax increment financing, or TIF, which allows developers to use new tax revenue the stores generate to help finance their construction. Another increasingly popular tactic: special taxing districts, which allow the shopping centers to charge an extra sales tax to finance infrastructure such as roads or decorative fountains.
In a slow-growth region like St. Louis, these government giveaways amount to a zero-sum game. Dozens of municipalities pilfer business from one another mostly retail outlets, with their low-wage jobs while the metropolitan area at large gains little in the way of employment or wealth. Rather than luring new investment, the economic ecosystem essentially feeds on itself.
"For the most part, it's just stealing from the next guy," says Kenneth Thomas, an associate professor of political science at the University of Missouri-St. Louis.
On St. Charles Rock Road, the new Walmart is getting $7.2 million in incentives from Bridgeton to move up the street. In the long run, both Wal-Mart and Bridgeton will emerge winners in the deal. Wal-Mart wins for obvious reasons the company spends far less on real estate, thanks to taxpayer money. Bridgeton benefits from increased sales tax revenue, even considering the sizable cut it must hand over to the Walmart developer.
Yet for every winner in the incentive game, there's a loser, in this case St. Ann, which will lose an estimated $100,000 a year in revenue. Eisenberg's client, an investor from Chicago, also will suffer a big financial loss.
Eisenberg understands why Wal-Mart wants to move. Its new site is larger and closer to Interstates 70 and 270. "Wal-Mart's job is to generate sales and generate profits for the stockholders," Eisenberg said. "It's not Wal-Mart's job to improve the community."
ADDING IT UP
The big picture on tax incentives can be elusive, emerging from hundreds of separate local decisions, each focused narrowly on a certain neighborhood or strip mall. But it adds up.
Since 2000, according to state records, local governments in our region have authorized $1.7 billion in tax increment financing. Of that, $1.3 billion has been in Missouri, and nearly half of that has paid for suburban shopping centers. Through transportation development districts, local governments also have approved $340 million in new sales taxes to pay for roads and parking, mostly at retail centers.
That's the biggest chunk of the $3.5 billion in public money the region has spent to fuel private real estate projects in the last decade. It's also a prime example, critics say, of how development incentives have run amok in St. Louis, gobbling up money we could have used to help the region compete in an increasingly complex and knowledge-based global economy.
"We're subsidizing consumption. We don't subsidize production," said Todd Swanstrom, a professor of public policy at the University of Missouri-St. Louis.
TIF and similar incentives can be used to build office buildings and factories, which arguably would bring new and better jobs to the community. Academic research, Thomas said, has found that 90 percent to 95 percent of jobs in TIF-financed retail centers are not new to the metro area, but moved from somewhere nearby.
"The whole idea of subsidized retail is nuts," says Greg LeRoy, executive director of Good Jobs First, a research and advocacy group in Washington. "Retail is what happens when people have disposable income. It's not an economic-development strategy."
SPRAWLING DEFINITION
TIF has drifted from its original intent, critics say. When the Missouri Legislature authorized it in 1982, the point was to draw investment to so-called "blighted" areas: rundown urban neighborhoods; struggling shopping districts; places the free market won't fix. It lets a developer borrow or issue bonds against a project's future tax revenue, then use a portion of that tax money to pay down the debt.
In some cases, TIF has helped to draw investment to vacant office buildings downtown, tired inner suburban malls and industrial parks around the region. But the definition of "blighted" has steadily sprawled it has been used to describe the West County Center in affluent Des Peres, open fields in St. Peters and prime land by highway intersections. All so those sites would qualify for TIF and other incentives.
Such programs invariably start small and grow as special interests find special ways to tap them, said David Stokes, policy analyst at the Show-Me Institute, a St. Louis-based libertarian think tank. "When you have lobbyists and accountants and lawyers who can help you interpret the rules, of course they'll do that," Stokes said.
Attributes of the program here contribute to TIFs' popularity in St. Louis. While the tax incentive tool exists nationwide, Missouri is one of just 14 states that allow TIF districts to capture sales taxes, according to the Community Development Finance Agency. And that, experts say, is what drives its use to build so many shopping centers.
Factor in the hunger of the 91 municipalities in St. Louis County for revenue and the reality that every politician loves a ribbon-cutting and you have an environment where developers and retailers can play one city off against another. And cities don't have much leverage.
"Once TIF starts, every developer feels he needs it," said longtime Maplewood City Manager Marty Corcoran. "If (we) say no, they'll just go down the street and use it somewhere else."
SELLING OUT CHEAP
In his 25 years running Maplewood's affairs, Corcoran has seen the good and the bad of TIF. In 1992, the city lost a Kmart, its second-biggest sales taxpayer, to a TIF-financed shopping center in St. Louis. Seven years later, Maplewood filled the hole that Kmart left behind, with a Shop 'N Save paid for in part by TIF.
The municipality saw growth as unsubsidized restaurants and the Schlafly Bottleworks moved in along its main drag of Manchester Road. It finally healed a long-ailing city budget with a controversial Walmart project on Hanley Road which didn't use TIF but did claim 153 homes through eminent domain and required a $16.3 million, city-financed transportation development district.
The costly series of events stemmed almost entirely from the need for sales tax revenue to finance city services but did little to boost the health of the regional economy or to provide well-paying jobs. "Retail is not a place where the majority of jobs pay a livable wage," Corcoran said.
That's the trouble with TIF: It includes no incentive to create good jobs. Think about it from a municipality's perspective, said Bob Lewis, president of Development Strategies, a local economic development consulting firm. To most municipalities, economic development means growing the tax base to provide services to residents the bread and butter of local politics. Aside from the city of St. Louis, local municipalities cannot tax earnings, so creating high-paying jobs has no direct impact on their tax base.
"So they focus on retail," Lewis said. "Mayors and city managers know this. And they know it's semi-wrong. But they don't have a choice."
GAP FINANCING
Developers say they don't have a choice, either. Their tenants national retailers like Wal-Mart and Home Depot and Best Buy operate on tight margins, and they won't pay a penny more for land than they have to. But once landowners hear a national retailer is interested in their property, they demand top dollar.
TIF bridges the gap between what the tenant will pay and what the property owner will accept, said Mark Sedgewick, managing director of Pace Properties, a leading retail developer in the region. It makes the site attractive to the retailer and satisfies property owner's demands.
Most big projects wouldn't have worked without TIF, Sedgewick said. The developer's "cost structure is too high," he said, "and the retailer's cost structure is too high. It just won't happen."
Increasingly, local governments are layering TIF and other subsidies on top of one another, sweetening the pot further. Chief among the enticements are transportation development districts and community improvement districts, which levy an additional sales tax on shoppers in a given area to finance roadwork, parking lots or other improvements. In Rock Hill, for instance, the new $38 million Market at McKnight shopping plaza, developed by Novus, has both an $11.6 million TIF and a $2.2 million transportation development district Manchester Highlands, developed by Pace Properties at Highway 141 and Manchester, tapped both programs to the tune of $55 million combined.
As TIF has grown more controversial, local officials have turned to the special districts. A decade ago, the St. Louis region had one transportation development district; today it has 75. Community improvement districts have proliferated, too. Five years ago, the region had just a handful. By last year, there were 44.
Supporters say these programs are a fairer way to finance development. The taxes, after all, are only paid by people who shop there, and who presumably benefit from the project. They don't rob funds from school districts or other local governments that rely on property taxes.
But critics say transportation development districts and community improvement districts effectively raise the price of everything sold at those stores, with little public accountability. The boards that run them are elected by property owners in the district often the developers themselves. Besides a line on a receipt, consumers often get no notice they are shopping in one of these districts.
"In many cases, people are unknowingly paying higher taxes," said Tom Duda, a Show-Me Institute researcher who tracks these districts.
All this money to finance retail saps other efforts to grow our economy, said St. Charles County Executive Steve Ehlmann. He's been a vocal critic of this system for years, and says we need to focus more on regional efforts to create real jobs.
"You can't just call anything economic development and justify it," he said. "This is just one city at the expense of another, or St. Charles County at the expense of St. Louis County."
THE BLUFF
But that's the way our system works, TIFs defenders say.
Railing against TIF misses the point, said Greg Smith, a lawyer with Husch Blackwell in Clayton who has represented cities and developers in incentive deals. It's not designed to create jobs but rather to help St. Louis-area cities patch holes in their budget.
"The real issue is why don't we plan or deliver services regionally," Smith said. "That's the crux of it, not which tools we use."
Still, the high costs of TIF are clear, and all the sales tax money it attracts is just shifting around.
Consider Gravois Bluffs in Fenton, which got incentives totaling $80 million. Its success helped empty out Crestwood Plaza, just six miles away. St. Louis Mills, built in Hazelwood with a $18.5 million TIF and a $34 million transportation development district, helped finish off St. Ann's Northwest Plaza.
If incentives are available, said LeRoy, from Good Jobs First, they should be focused on older, low-income areas, where residents lack access to basic amenities.
"Start where people otherwise would have to take a long bus ride to buy dinner," he said.
But pouring public money into shopping plazas in places where the average household income tops $110,000 a year as it does in the West County neighborhoods around Manchester Highlands makes little sense. Wal-Mart, Target and Best Buy will find a way to tap the spending power of 2.8 million St. Louisans, said Les Sterman, a vocal TIF critic in the years he led the East-West Gateway Council of Governments. And maybe they won't leave so many empty shells and dying strip malls like Cypress Village behind.
"There's no reason you should ever subsidize a Walmart," he said. "Their customers are here. They have to serve their customers."
Copyright 2010 www.STLtoday.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Posted in Local, Metro, Compete on Monday, November 15, 2010 4:00 am Updated: 8:56 pm. | Tags: Can St. Louis Compete?, Real Estate, Development, Economy, Retail, Tax Increment Financing, Incentives, Tim Logan, David Nicklaus, Transportation Development District, Tax Credits,
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