notmymayor

Loughborough Commons, November 2008

TIFs are an abomination, and any entity that accepts a TIF does so at the expense our common good. From a municipal budgeting perspective, monies allocated for a TIF are no different than monies allocated for combating HIV (or, in the case of the St. Louis Health Department, monies that support the operations of the Archdiocese of St. Louis). From a libertarian’s perspective, TIFs distort the marketplace for real estate development, creating vast economic inefficiencies as local governments sanction winners and losers. If you are a Republican, you should give pause when considering that TIFs in St. Louis City function as economic patronage to those who support the Democratic Party’s machine. If you are a good governance Democrat like our phenomenal United States Senator Claire McCaskill, then you should find fault with TIFs, because they are earmarks. But did you know that even Missouri’s environmentalists, persons who may eschew standard labels for political ideology, also have reason to support an overhaul of our state’s TIF statutes?

Before I address the tragic reality that any project receiving a TIF represents a threat to our environment, I need to offer some background about how Missouri law defines a TIF.

For this, I will turn to a helpful document produced by our community’s nemesis, the RCGA.

On its surface, Tax Increment Financing may appear to be an important and even necessary tool for encouraging and enabling redevelopment to occur in areas that desperately need jobs and investment. In practice, however, a TIF represents nothing more than a special budgetary allocation that assigns our tax dollars to a private interest without providing a public benefit.

As Senator McCaskill so eloquently stated in a July 8, 2009 speech on the floor of the U.S. Senate:

“One of the fantasies around here…is this fantasy that the money for earmarks is created out of nothing; that somehow the money for earmarks just lands on everyone’s desk and no programs are hurt by the earmarking process… Truth be known, I can give example after example in the budget that, over the years, good competitive programs have been cut while earmarking has skyrocketed.” – press release, Senator McCaskill’s office

Replace the word “earmarks” with the word “TIFs” to understand the budgetary implications of a TIF allocation; replace the words “around here” with “among St. Louis City’s elected officials” to see how this practice hits home. When I question whether public support for Paul McKee is a greater spending priority than combating our City’s status as the least healthy community in the State of Missouri, I do so with good reason–any dollar spent on a TIF is a dollar that does not fund public services.

Okay, back to the question at hand: What is a TIF, and how does it work in Missouri?

Let’s say that I’m a real estate developer and I am putting together a finance proposal for a new development. I can only invest a certain amount of capital directly and bank loans will only go so far toward realizing the full costs of my vision. Federal and state tax credits may also provide additional support for the project, but I still cannot seem to wring enough efficiencies out of the project to allow it a level of profitability such that private lenders will give me a bank loan. If I seek the support of local elected officials and receive a “blighting” designation for the parcel that I seek to develop, though, then I can access the flexible and innovative development tool known as a TIF to fill the gap between monies available and the project’s total costs.

According to the RCGA’s handy “Program Detail” about the State of Missouri’s Tax Increment Finance Program, the only restrictions on the amount of money available to developers in the form of a TIF are these:

Local TIF provides for the use of local property tax up to 100% of the incremental value up to 23 years and 50% of the incremental value derived from economic activity taxes (includes sales, utility and earnings taxes) for a period of 23 years.

Therefore, a real estate developer whose project project features a large gap between available funds and required funds has an incentive to design the project such that it will produce as much in “economic activity taxes” as possible. More taxable economic activity related to the project, in other words, guarantees that the project may receive a larger TIF than would a project with fewer related economic activities. As Alderman Phyllis Young says, “When we look at Ballpark Village and other TIFs, without these developments, we would be getting no tax revenues…Without economic development, we cannot meet the payrolls that our citizens need in order for our city to be a safe and pleasant place to live.“

Because monies supporting a TIF come from “…economic activities within a redevelopment area over the amount of such taxes generated by economic activities within such redevelopment area in the calendar year prior to the adoption of the ordinance designating such a redevelopment area, while tax increment financing remains in effect, but excluding personal property taxes, taxes imposed on sales or charges for sleeping rooms paid by transient guests of hotels and motels, licenses, fees or special assessments,” TIF supporters like Alderman Young fervently believe that TIFs are not only revenue-neutral but revenue-enhancing. Notwithstanding the fact that DESCO’s Loughborough Commons includes a replacement Schnucks for the site’s old Schnucks, the Loughborough Commons development likely does generate more in economic activity taxes for the City of St. Louis than did the site’s previous uses as a grocery, owner-occupied single family homes, and shuttered manufacturing facility. As developers and members of the St. Louis City Democratic Party like to say, TIFs are win-win propositions: developers win when the public makes their projects feasible and the public wins when these projects generate additional economic activities.

So, let’s consider the mechanics of a TIF in St. Louis City:

1. A developer submits an application to the TIF Commission of the City of St. Louis that demonstrates difficulty securing necessary financing for a project through private sources.
2. The TIF Commission, after a public hearing about the application, will make a “but-for” determination: for example, finding that in the absence of the TIF, the project would not move forward. (Hilariously enough, developers must submit an affidavit as a form of “evidence” to the Commission that private financing for the project is unavailable in the absence of the TIF, meaning that the project will move forward only with the TIF.)
3. The TIF Commission then makes a recommendation to the Board of Aldermen about whether our legislative body should support the TIF.
4. The Board of Aldermen then has the discretion to pass an Ordinance establishing the TIF and its sources of financing; approved ordinances often direct the Comptroller to issue bonds in the amount of the TIF.
5. The Ordinance will earmark incremental tax revenues from the project receiving a TIF to retire the bonds that the City issued to fund the development.

If you ask me, this seems like a really convoluted way to promote community development. In my ideal world, I would live in a community that deployed its limited public resources directly in the furtherance of its identified development priorities. Since we desperately need jobs, we should create jobs. If we want stores, then we should build stores. If we need to replace an existing Schnucks with a new Schnucks, then we should leave that to the Schnuck family to address. Our government should never interfere with the marketplace for real estate development in ways that favor powerful political interests over hardworking local businesses. Very importantly, as well, our government ought not create such a perverse incentive structure for development as to encourage the excessive use of fossil fuels.

But that’s the kicker; Missouri’s TIF statues do precisely this: promote the destruction of our planet.

As Missouri’s municipalities have discretion under state law to use “economic activity taxes” to finance a TIF, developers and cities have an incentive to approve development projects that use considerably more energy than the site’s previous uses. With higher energy usage, a project generates higher utility taxes; higher utility taxes, then, increase the increment available to developers to finance the TIF.

According to the Missouri Coalition for the Environment:

85% of Missouri’s electricity comes from coal while only 0.01% comes from renewable sources.

Coal burning power plants are the largest contributor to global warming, and mercury from coal plants has led to consumption warnings on fish in every water body in the state. Emissions from coal plants intensify asthma and heart disease.

The next time that you drive by Loughborough Commons, see if the lights are on after hours. Consider that DESCO has a very good reason to increase its energy consumption (and related utility tax bill) during months when other “economic activity taxes” do not meet levels established by the Board of Aldermen’s TIF Ordinance: more energy used means more money for DESCO.

Hopefully now you can see why Missouri’s TIF statutes are not my TIF statutes and why Matt Villa and Francis Slay are no friends to the environment.