Kim Franks feels blessed that she and her family were able to move into a rehabbed home in the Shaw neighborhood in South St. Louis. Her home was not tax-abated. So when she opened up her new property assessment this May, she saw that her home was assessed at a higher value – meaning her property tax will be significantly higher as well.
This spring, she’s watched as rehabbed homes around her sold for $375,000 or more with tax abatements. That means for the next five to 10 years, these homeowners won’t have to pay a higher property tax like Franks and her family. Their homes will be assessed at the value it was before it was renovated.
The Shaw neighborhood is a highly sought-after real estate market, and rehabbed homes have no problem selling without any incentives. But despite this, rehabbed housing projects are getting five- to 10-year tax abatements as a standard practice.
“I want to make sure our schools are fully funded,” Franks told St. Louis aldermen at a recent community meeting about the budget. “We can’t tax people out of our homes. I’m concerned that’s what we’re going to do if we keep giving away unnecessary tax abatements on these rehabbed homes.”
Shaw is one of the neighborhoods that saw the highest rise in property assessments. In the neighborhoods around Tower Grove Park, single-family homes saw an average increase of close to 30 percent in assessed value. Some families saw their estimated property tax literally double.
This week, Team TIF, a group of residents who consider themselves watchdogs for tax abatements and other tax incentives, released a statement and an infographic illustrating how an abated new rehab in Shaw – or anywhere in the city – is raising the tax rate on the non-abated house next door.
“We are forcing non-abated homeowners to subsidize families that are wealthier than the average homeowner,” it stated.
The math to back up this equation is not that simple. Let’s start with the basics.
First, the Missouri Constitution’s Hancock Amendment limits the amount of tax revenue that a city can collect compared to the previous year. In terms of property taxes, this year the cap on the maximum additoinal revenue is about 2.1 percent. It’s set by the Consumer Price Index, which fluctuates with the state’s rate of inflation.
A majority of the property tax collected goes to the St. Louis Public Schools, as well at the Zoo-Museum District and the public library. But while St. Louis may have seen 12 percent growth in total assessed value on residential properties, the schools, museums and vital social services are only collecting 2.1 percent more revenue.
So how are property taxes calculated on a residential home? Homeowners take their assessed value – which is basically 19 percent of their appraised value. Divide that by 100 and then multiply it by the tax rate, which is $8.3818 for residential property.
How do abatements affect this formula? Team TIF argues that it’s in the tax rate.
Tax-abated assessed property value is frozen at pre-development costs. So, the luxury apartments and condos in the central corridor aren’t included in city’s overall assessed valued. And this messes with how the tax rate is calculated. If these fancy rehabs weren’t abated, Team TIF argues that the city’s overall assessed value would be higher, which would drive down the base tax rate.
How exactly? Well, think back to the Hancock Amendment. The tax rate is based on figuring out how to only collect 2.1 percent additional revenue from the previous year.
With fewer abatements, it would spread the burden of getting to this 2.1 percent additional maximum revenue more evenly. Let’s say you’re throwing a party for your parents, and there are 10 siblings to split the $1,000 cost. But two of those kids are exempt for being too young, so you and your seven siblings split the cost. Instead of paying $100, you pay $125.
The more people paying and the more they pay, the lower the rate would be.
Racism and redlining
St. Louis saw a total increase in reassessment growth of about seven percent for all real estate – and about 9 percent when new construction is included.
For residential property only, the total increase in reassessment value is approximately 12 percent on existing property and approximately 13 percent when new construction is included. About 17,000 properties saw an increase of 15 percent or more.
Commercial property has increased approximately 4 percent, mainly due to new construction.
But not all parts of the city saw the increase. While South City saw the highest increase, “many residents of the North Side are still seeing the effects of redlining continue to destroy housing values,” according to Team TIF’s statement.
“This pattern continues to devour black wealth and power, perpetuating the intergenerational cycle of poverty that traps so many St. Louisans,” it stated.
Allowing abatements to continue in largely white neighborhoods with strong real estate markets basically has the same effect as redlining. It reinforces continued market bias against majority black neighborhoods, the group said.
“This is an indirect form of wealth redistribution,” Team TIF stated. “As their properties are abated, they not only pay taxes on the lower value that the assessment was frozen at, but they also end up raising everybody else’s tax rate, due to the way the Hancock Amendment limits local revenue growth.”
The abatements are also inflating sales prices in the Central Corridor and near South Side, which makes North Side neighborhoods relatively less attractive for investment.
Team TIF stated, “But at the same time the black families in North St. Louis are locked out of credit access necessary for home improvements and neighborhood upkeep, due to the declining values of their homes.”
The group is urging the Board of Aldermen to reconsider their “habit” of just rubber-stamping every tax abatement that comes before them as form of aldermanic courtesy.
“If the board is serious about generating new revenues,” Team TIF stated, “incentive reform must be a key part of the equation.”