In an effort to ensure the city is getting its money’s worth, the St. Louis Development Corporation is slowly rolling out a new system to evaluate developments that require public subsidies.
Development projects will be scored on how much they are expected to contribute to future city revenue, helping to fund the city’s substantial infrastructure needs. Just to catch up on backlogged maintenance, St. Louis currently needs roughly $75 million more annually, according to a budget expert at SLDC. Under the new criteria, projects proposed in stronger neighborhoods will be expected to contribute more revenue; those located in poorer areas will face a lower threshold for approval.
The SLDC’s effort to begin scoring developer tax incentive requests follows a city-commissioned report that found between 2000 and 2014, .
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In a city once desperate for investment, the initiative signals a changing mindset among some officials and a recognition that too much subsidy could hamper St. Louis’ ability to fund infrastructure and services long term. Credit rating agency Fitch has already indicated as much, citing St. Louis’ prolific use of incentives as one of the reasons behind .
Still, outgoing Mayor Francis Slay defended the city’s use of subsidies intended to lure development during his 15 years as mayor.
“Value-capture incentives like () or tax abatement do not reduce the city’s tax base,†Slay told business and political leaders during his final Business Celebration Luncheon last week. “It increases it. … These subsidized projects would not happen, generally, without these incentives.â€
However, he said the city is “raising the bar†for developers to win incentives in stabilized neighborhoods while making it easier to qualify in less vibrant ones.
How the city determines where that bar is largely is in the hands of Jonathan Ferry, a financial analyst in the city’s development office who has been on the job for a year.
Ferry is building a scorecard to grade development projects based on their financial return to the city, while also considering architectural style and urban design. So far, the SLDC is taking an “incremental approach,†Ferry said, applying the new scoring to only a few large projects and presenting its findings to members of the St. Louis Board of Aldermen, which ultimately decides what projects get public help.
Already, some aldermen are beginning to take Ferry’s system into account, said Will Winter, a professor at the University of Missouri-St. Louis who assisted with the city’s incentive report.
“The more vocal voices on the Board of Aldermen are starting to talk about the use of incentives and the scores,†Winter said.
A new measure
Central to Ferry’s methodology is whether the project will generate more money than the city gives up in future revenue. Those that don’t automatically receive a failing grade.
Ferry also runs his own numbers to double-check the assumptions provided by developers. Before, the city relied heavily on numbers provided by developers and its analysis often came up with profit projections based on the lowest annual revenue figures.
Ferry has set a city budget target based on what he dubs the “sustainable budget.†It’s derived from the amount of funding he estimates is needed to maintain city roads and other infrastructure over the next 25 years, a shortfall estimated at roughly $75 million more per year. Another $68.5 million is added in to account for estimated funding shortfalls in police and other services.
Affluent areas are expected to meet or exceed the “sustainable budget†threshold in order to win a passing grade from SLDC. Poorer areas have a lower bar to hit.
“It becomes a negotiation tool,†Ferry said. “We’ve negotiated incentives down by several million dollars using this tool.â€
As property is reassessed in the city every couple of years, the formula readjusts, raising the bar for neighborhoods that are seeing rising values.
“As the neighborhoods get stronger and stronger, that line gets higher and higher,†Ferry said.
Rising property values in the new formula is one of the reasons SLDC plans to discuss ratcheting down incentives in the Forest Park Southeast neighborhood with the Park Central Development Corporation, the nonprofit entity that vets development there.
“Right now, they’re authorizing 10 years (property tax abatement) for pretty much everything in the area,†SLDC staffer Michael Griffin last month told members of the city’s Land Clearance for Redevelopment Authority, which designates properties eligible for tax abatement.
Park Central director Brooks Goedeker said it will be harder to qualify for incentives going forward.
“We have already started to cut back in Forest Park Southeast and I’m sure we will continue to do so,†he said in an interview.
Concerns remain
While those who follow the process say the city is moving in the right direction, they say there’s more to consider than just the financial return.
Whether developers would build absent the incentives isn’t really answered, Winter, the UMSL professor said.
“There’s not a clear quantifiable metric in determining whether developers really need the incentives,†he said.
And if the city is serious about viewing everything through a racial lens post-Ferguson, development policy should try and mitigate some of the adverse effects of gentrification, said Molly Metzger, a professor of social work at Washington University.
“If TIF or tax abatement is being proposed for multiunit housing development, can we set aside a certain percentage of those units for low-income households?†Metzger said. “Particularly if they’re being proposed for the central corridor to prevent displacement of people and to preserve some diversity and affordability.â€
Alderman Joe Roddy, who heads the Board of Aldermen committee that deals with development and incentives, said there’s more at play than financial considerations.
“If it’s all about making money for the city, then you might very well end up with bad design and bad urban planning,†he said.
While Roddy thinks it’s a good step forward and plans to follow the SLDC scoring recommendations, he recently distributed a letter to his colleagues to try and gauge their support. A time-honored tradition in St. Louis is to stay out of the way of other aldermen if they support a development and public incentives in their ward.
“It’s certainly going to require some buy-in from some of the aldermen,†Roddy said.
