McEagle Properties is about to ask for the largest tax financing in the City of St. Louis’ history to redevelop the North Side.
Yet, critical pieces of this immense vision are blurry, including: Who’s going to be responsible for the debt?
On Wednesday, Sept. 23, Paul McKee Jr., McEagle chairman, will present the City’s TIF Commission with his tax-increment-financing proposal of $398 million, a small piece of his $8 billion budget for the 1,492-acre project.
McKee’s plan is broken into four stages of mixed-use development, including offices, retail, housing and parks, over the next 20 years.
Comparatively, the next largest TIF district on the books is the Convention Center Hotel at $80.1 million. Ballpark Village would technically be in second place with $115 million, but no development has begun yet.
TIF is a tool for developing blighted areas, which involves capturing the revenue from taxes when they increase rather than actually raising property or sales taxes.
The City’s previous TIF disasters make McKee’s deal hard to seal. The formula for a successful TIF district is good sales and increased property value. So when projects like St. Louis Centre and St. Louis Marketplace go bust, the City’s boasting opportunity for redevelopment becomes a scorching hole in the general fund.
St. Louis Marketplace on Manchester Road was a $15 million note that was supposed to be paid, like all developments in TIF districts, when the assessed property value and the sales taxes increased. But that has not happened because the plaza is practically empty.
Now the City has a $3.2 million outstanding balance, according to the Comptroller’s Office, which is expected to get retired in 2011 using the debt service reserve.
The City has already paid almost $6 million. Since 2000, $3.8 million in general fund revenue and more than $2 million in taxpayer dollars from various other funds were used to cover the loss. The desolate St. Louis Centre in the middle of Downtown was a $17 million bond, which has not been paid on yet. But if no economic activity sparks by 2011, then $1 million from the general fund will go towards paying the debt.
These two are special TIF cases, because the City guaranteed the note. In other words, out of the 130 TIF districts in St. Louis city, the City chose to back the two districts, rather than letting the developers and banks pay for the bills when the developments went sour.
Now McKee is asking for the same deal. He wants the City to guarantee 50 percent of TIF bonds, but did not state that in his redevelopment plan. He is waiting to formalize that in the agreement process, he said.
McKee also insists the scale of his project and its transformative potential make comparisons to the smaller, failed City-backed TIF bonds beside the point.
“This is the kind of project TIF was originally designed for,” McKee said.
Comptroller Darlene Green wants development without taking a huge risk.
“I remain a strong proponent of responsible development that will create jobs and bring economic activity to our residents,” said Green, “but I will not support any development plan that puts the City’s general fund and the taxpayers at risk.”
Deal table
A big team of City officials has spent months gathering around a table to discuss the plan, said Rodney Crim, executive director of the St. Louis Development Corporation.
“It’s by far the largest TIF we’d have,” Crim said. “It’s also the most transforming because is has a number of components to it.”
McKee said for months all those working on the deal would come to the table and “bang it out block by block.”
Those people have included Barbara Geisman, deputy director of economic development for Mayor Francis G. Slay; representatives from Comptroller Green’s office and the office of President of the Board of Aldermen Lewis Reed; and aldermen April Ford-Griffin, Marlene Davis and Kacie Starr Triplett.
McKee said of the 4,400 parcels of land included in the redevelopment area, more than 80 percent fall within Ford-Griffin’s 5th Ward.
Ford-Griffin was out of town and did not return a call about the deal process and the TIF hearing.
Crim said the City is not planning on backing the note. “With all our TIFs except for two, the projects do support themselves,” he said.
In any development plan, there may be changes, Crim said.
“I don’t know of any changes of the City backing the TIF,” he said.
“After the TIF Commission makes its decision, the whole thing moves to the Board of Aldermen. It could be decided in the process with the Board of Aldermen that the City back the note.”
McEagle points out that, since much of the proposed investment will go to improve infrastructure that is publicly owned, there should be significant public investment and risk.
“The City should have some skin in the game,” said Bill Laskowsky, chief development officer for McEagle.
“Alternately, we could say to the City, ‘You fix this [before we develop the property]. Instead, we are taking the initiative.”
Unanswered questions
“Everyone [on the TIF Commission] seems to be in support of the plan but there’s so many unanswered questions,” said David Jackson, member of the commission and of St. Louis Public Schools elected board.
In previous meetings, Jackson said that McKee mentioned he is in negotiations with 20 financial institutions, but he didn’t give the commissioners any names. He mentioned that schools in the redevelopment area would require upgrades and renovations. When Jackson asked if that funding was coming from the school district or redevelopment, he said McKee didn’t specify.
Jackson said, “I am in support of a better St. Louis. This looks good on paper, but we are waiting for the meat and potatoes.”
Jackson also sees a lack of interest in getting public input. The hearing time for Sept. 23 was first set at 8 a.m., but Jackson asked to have the time moved to 6 p.m. so more of the public could attend.
“This is the largest TIF project, and I don’t know how you can proceed without public input,” he said.
Jackson was also concerned with eminent domain. “I know the new plan says they don’t have the right to eminent domain, but I don’t see how that can happen,” he said. “He has $1 billion in the budget for relocation.”
McKee is insistent that for the project to move forward, limited right to eminent domain will need to be written into the agreement. McKee said he would not attempt to use eminent domain to buy residential property for residential development, and he would not use it to acquire any owner-occupied residential property.
But he said eminent domain would be needed in case a small number of properties that were not owner-occupied stood in the way of developing one of the proposed corporate developments, or “job centers.”
This week, Jackson said he was asked to resign from the TIF Commission by a member of the Special Administrative Board of the St. Louis Public School District.
Jackson said he was told “the district is looking at going in a different direction,” but he had a feeling it had more to do with his request to change the hearing time.
Rick Sullivan, executive director of the SAB, said the SAB never asked Jackson to resign. “He’s doing his job by asking questions about the TIF,” Sullivan said.
The schools
According to a report by East-West Gateway Council of Governments, the City has committed $524.8 million to 96 TIF projects, and has paid off $81.5 million of those commitments. That leaves $443.3 million in future taxes from those TIF projects that must be used to pay off the TIF notes before the taxes can be used to pay for schools, police or firefighters.
Technically, school districts don’t lose anything, but they don’t gain anything either – at least not for the 23 years that the developers have to pay the bond.
“School districts’ receipts stay the same,” said Mark Fogal, public policy research manager at East-West Gateway. “We’re using tomorrow’s tax dollars.”
So say a person owns a $20,000 house and about 60 percent of the owner’s property taxes go toward the school district. If a redeveloper comes in and rehabs the neighborhood and that property value goes up to $100,000, then schools will still only receive the amount of taxes on a $20,000 house. The other taxes go towards paying the development debt.
For up to 23 years, school districts won’t get any additional funding from property taxes. For retail developments, this is a bad deal for schools, Fogal said, because retail developments rarely last 25 years or they move away to a new location.
“The school district loses years of property tax dollars,” Fogal said. “The promise is always that property tax will be higher, but schools won’t see that benefit for a long time.”
So from the school district’s perspective, it’s a tough sell.
In most TIF deals, 100 percent of the property tax increments goes to the developer. Sometimes in TIF deals, the proposal will create a side payment to schools, especially if it’s a residential area. If a residential area grows, that means more kids and more money needed. It would make sense that a TIF compensate for that, Fogal said. But he did not see mention of that in McKee’s proposal.
“There has to be some language in the redevelopment agreement that talks about releasing the funds,” Jackson said. “This is one reason the school district is suffering.”
‘But for’
With the disappointing precedents, McKee said the TIF process has been like “fighting an uphill battle because the people before had abused it.”
The TIF law has two requirements, and those lines have been stretched in past projects. First, the area needs to be blighted. Second, it has to pass the “but for” test. Here a developer can say that this project won’t go forward “but for” a TIF.
“It’s a game of poker or chicken and how much you’re willing to bluff,” Fogal said.
The Northside Regeneration sniff tests fall closer to the requirements than many projects in the past.
“Nothing is going to happen in North St. Louis without subsidies,” Fogal said. “But Chesterfield, did it need $100 million to build a mall? I’m more likely to buy the ‘but for’ test in the North Side.”
McKee said that this project is exactly what the law is designed for – and City development officials agree.
“The TIF proposal is the key to new infrastructure in North St. Louis,” Crim said. “Most of the infrastructure in North St. Louis has been deteriorating for many years. This provides great opportunity for new streets, storm water management, green space and all the advantageous, energy-efficient technology.”
In its study, East-West Gateway concluded that the massive tax expenditures to promote development have not resulted in real growth.
“At what point do we stop subsidizing all this stuff?” Fogal said. “Instead of spending money on schools or research, we’re spending it on real estate development. Those are important political questions to be asked.”