7/27/2019 The Use Of Tax Increment Financing In The City Of Saint Louis (Downtown)

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TESTIMONY 

 ADVANCING LIBERTY WITH RESPONSIBILITY 

BY PROMOTING MARKET SOLUTIONS

FOR MISSOURI PUBLIC POLICY 

THE USE OF

TAX INCREMENT

FINANCING IN THE

CITY OF SAINT LOUISBy David Stokes 

Testimony Before the Tax Increment Financing Commission of the City of Saint Louis 

October 30, 2013

Tere is nothing 

about this project that 

should involve public 

assistance. Te project is 

 proposed for a desirable 

location in a central 

 part of an economically 

vibrant area.

To the Honorable Members

of the Commission

Tank you or the opportunity totestiy today. My name is DavidStokes and I am a policy analyst or

the Show-Me Institute, a nonprot,nonpartisan Missouri-based think tank that supports ree-marketsolutions or state policy. Te ideaspresented here are my own. Tistestimony is intended to summarizeresearch that the Show-Me Institutehas reviewed and conducted regarding ax Increment Financing (IF).

Te redevelopment o the General

 American building in downtownSaint Louis is exciting, but thenow standard assumption o public subsidies or these projectsis unortunate. According to theIF application or this project, thedeveloper is asking or more than

$16 million in public assistance(which includes more than just this$8,148,000 IF request). Saint Louiscrossed the Rubicon o authorizing IF ar too requently many yearsago. (Tere are currently 125 IFs

 within the city.1) However, even by Saint Louis’ generous IF standards,$8 million in ax IncrementFinancing to help a company movetwo blocks is eye-opening.

Tis is another excellent opportunity or this commission to reconsider theconstant subsidy approach. Nothing about this project should involve publicassistance. Te project is proposed or

a desirable location in a central part o an economically vibrant area. Te idea that a new development right next tothe Cardinals ballpark and Ballpark Village (also, unortunately, subsidized)needs urther public subsidy is sadly misguided. Redevelopment can go

David Stokes is a 

policy analyst at the 

Show-Me Institute,

which promotes 

market solutions for 

Missouri public policy.

7/27/2019 The Use Of Tax Increment Financing In The City Of Saint Louis (Downtown)

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SHOW-ME INSTITUTE I TESTIMONY 

2

orward in this area without subsidies. Teact that other developments in downtownSaint Louis may have a subsidy is a testament to the ease o getting them, notthe necessity o them.

The TIF ProcessIn theory, establishing a IF districtinvolves serious and impartial deliberationand calculus. A city intends to revitalize a part o its community, but rst it must gothrough a complicated process designedto test whether certain tax incentives areallowed. Te city contracts with urbanplanners who “independently” determinei the proposal could happen “but or”

the taxpayer assistance, and also i thearea meets the eligibility standards ora designation o “blight” or anotherappropriate designation. A developer isthen brought into the process and, withthe assistance o the government andthe taxpayers, produces an economicgrowth engine that provides jobs, a revitalized community, and (eventually)an expanded tax base.

In reality, the process alls ar short o reasonable standards or policy debate. Te“but or,” “blighting,” and other tests thatare supposed to be subject to independentanalysis have become a biased process.How else to explain why I cannot nd oneproject in the state o Missouri that ailedthese tests and urban planners ound to beinappropriate or taxpayer assistance? Notone. axpayer dollars pay back the lawyersand planners who work arm-in-arm with

the cities, shielding the process rom harddecisions and risk. Everyone involved inthe process (planners, architects, lawyers,and developers) makes money i theproject goes orward. Who among themis going to jeopardize the entire deal by saying — or something close to it — thedevelopment would likely happen even without taxpayer assistance?

Effects of TIF in Saint Louis

ax Increment Financing has had theollowing efects on the Saint Louis region:

1) It has increased governmentmanagement o the economy,urther empowering plannersand bureaucrats to decide wherebusinesses locate instead o economic best practices andmarket actors.

2) It has sparked the abuse o eminentdomain or private purposes.

3) It has made subsidies a permanentxture o development in

our community. Tis issue isparticularly evident in this proposal

4) It has transerred the cost and therisk o prot-making enterprisesrom the business and its lenders tothe taxpayers.

5) It has ailed at one o its mainpurposes: economic growth.Te East-West Gateway Council

o Governments (EWGCOG)concluded that IFs andransportation DevelopmentDistricts (DDs) have created jobs in our community at therate o one retail job or every $370,000 in taxpayer subsidies.2 Tat is not a road to growth — itis a road to poverty.

6) It has authorized local leaders

to make tax decisions that may benet their immediate city at theexpense o everyone else. In thisIF decision, the city o Saint Louisis making tax choices that willnegatively impact entities such as thecommunity college and zoo-museumdistricts, which serve everyone inSaint Louis City and County.

 Another study in

Illinois found that 

economic growth was 

stronger in cities that 

did NO use IF 

than in cities that did use IF.

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October 2013

Economic Research

Te East-West Gateway study is not theonly study that ound that IF ails at job creation and economic development. A study o the use o IF in Iowa 

concluded that, “On net (…) there isno evidence o economy-wide benets(trade, all non-arm jobs) scal benets,or population gains.”3 Another study inIllinois ound that economic growth wasstronger in cities that did NO use IFthan in cities that did. From the study (emphasis added):4 

I the use o tax increment nancing spurs economic development that

 would not have happened but orthe public expenditures, we wouldexpect (ater controlling or othergrowth determinants and or sel-selection) a positive relationshipbetween IF adoption and growth.I the use o tax increment nancing merely moves capital around within a municipality, relocating improvements rom non-IFareas o the town to within IF

district borders without changing the productivity o that capital, we would expect (ater appropriatecontrols) to nd a zero relationshipbetween IF adoption and growth. What we fnd, however, is a negative relationship betweenIF adoption and growth. Tis isconsistent with the hypothesis that government subsidies reallocate

property improvements in such a  way that capital is less productivein its new location.

Te one thing IF succeeds at doing is imposing new costs on other taxing districts without allowing them to grow their tax base to pay or those costs.Cities aggressively seek IF because cities

are the only entities with the incentivesto maximize their use, even whileharming other taxing districts. Citiescan easily recover any lost, or, moreaccurately, orgone property taxes via thesubstantial sales or earnings taxes that a 

new development garners.

Other types o taxing districts like thelocal school, community college, library,re, or museum district depend (inmost cases) entirely on property taxesand cannot replace the lost revenue.5  And, because any new development willincrease service requirements to at leastsome o those entities, expenses or theseentities will increase and create pressure

to raise taxes on those people andbusinesses not covered by IF.

Te research is also strong that localearnings taxes are more harmul thanlocal property taxes to economic growth.So, by hallowing out the property tax base in order to, presumably, keep theearnings taxes o companies that requestsubsidies, the city is moving in the wrong direction. In this particular IF

proposal, the city is weighing the gainsrom maintaining, and perhaps growing,uture earnings and payroll taxes againstthe uture loss o property taxes, eitherthrough oregone increases (General American Building) or potential realdeclines (Laclede Gas Building). Whilethat equation may seem correct or any one project, trading property or earningstaxes is not in the long-term interest o 

Saint Louis.Conclusion

 As the East-West Gateway Council hasdocumented, IF has ailed the SaintLouis region. It has harmed our economy and other taxing districts withoutachieving any o its ostensible goals.Despite enormous use o IF over the

Recently, both

Crestwood and

Florissant rejected

IF proposals in

their cities. Yet, in

Florissant at least,

the project is going

 forward without

a IF.

7/27/2019 The Use Of Tax Increment Financing In The City Of Saint Louis (Downtown)

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past ew decades, the population o Saint Louis is stillshrinking and the economy is not growing as ast ascomparable cities.6 It is time or the city to remove itsel rom its purported role in economic development andallow markets, entrepreneurs, and customers to makethose choices. Recently, both Crestwood and Florissant

rejected IF proposals in their cities. Yet, in Florissantat least, the project is going orward without a IF. 7  Walmart stores in Kansas City are also being developed without IF. Te City o Saint Louis should strongly consider joining that club.

Note on Transparency

 At a minimum, the city should greatly improve thetransparency and public openness o the IF process.It is incomprehensible that in 2013, the relevant

IF documents are not posted online or the publicto review and study. While some IF documentsrom other applications are now posted online, thisproposal is not. All IF applications should have allthe documentation available online well beore thepublic hearing, not ater. Te technology to do this isso cheap and simple that the lack o public availability o these documents could be viewed as a deliberateattempt to impede public involvement in thesedecisions. Tat has to change.

NOTES1 Source: Missouri State Auditor, 2012 TIF reports.

2 East-West Gateway Council o Governments. “An Assess-

ment o the Eectiveness and Fiscal Impact o the Use o 

Local Development Incentives in the St. Louis Region.” Final

Report, January 2011: 18. View online here: http://www.ew-gateway.org/dirr/datafles/2012update.xls .

3 Swenson, David, and Liesl Easthington. “Do Tax Increment

Finance Districts in Iowa Spur Regional Economic and De-

mographic Growth?” Department o Economics, Iowa State

University, April 2002: 11.

4 Dye, Richard, and David Merriman. “The Eects o Tax

Increment Financing on Economic Development.” Journal of 

Urban Economics , Volume 47, Issue 2, March 2000: 306-328.

5 The author is aware that not every one o these districts ap-

plies in the City o Saint Louis.

6 Research compiled by the Brookings Institute. View on-

line here: http://www.brookings.edu/research/interactives/ 

metromonitor#overall.

7 The developers in Florissant did receive a smaller subsidy

in the orm o a TDD rom the court.

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