ON A SUNNY FRIDAY MORNING RECENTLY, the Southtown Centre strip mall in St. Louis was a moderately busy place. Delivery trucks from FedEx and UPS rumbled through the parking lot as a van from a linen services company idled nearby. A single yellow OFO bicycle — a product of the city’s new bike-sharing program — stood in front of Foot Locker.
Inside OfficeMax, an enterprising sales clerk convinced a McPherson reporter to buy two packs of copier paper, not just one. At Starbucks, baristas passed coffee and pastries through the drive-thru window while patrons inside the store stared at their laptops. The only serious challenger to Starbucks in terms of foot traffic was PetSmart. Between the parking lot and PetSmart’s sliding doors, an unfortunate strip of vegetation served as a final spot of relaxation and relief for canine customers being led in to grooming and medical appointments.
Southtown Centre opened in 2004 on land formerly occupied by its namesake, the Southtown outpost of the Famous-Barr department store chain. The strip mall owes its existence in large part to $7.5 million in tax increment financing incentives the city granted to the developers 15 years ago. In the project’s early days, its backers estimated it would eventually create 200 new jobs and retain 30 existing ones, according to state filings. By 2007 the shopping center had created 45 new jobs.
Yet a report that the city’s development arm filed last year with the Missouri Department of Revenue suggests that nobody works at Southtown Centre. The report, which the city is required to file annually because the project received a TIF, says Southtown has neither helped create any new jobs, nor helped retain any existing ones.
It’s a similar story downtown at the Mercantile Exchange, a multi-building development that’s home to apartments, a hotel, a cinema and restaurants that replaced the failed St. Louis Centre mall. There are no new or retained jobs associated with these projects, according to the city’s 2017 TIF filings covering them. The same is true for the apartment building in the Central West End where Whole Foods occupies a large chunk of the ground floor.
Even Cortex, the 200-acre bioscience and technology district that is one of the city’s biggest projects to get a TIF, and where new offices and laboratories are springing up near an Ikea store that opened in 2015, has generated no new jobs. That’s according to a 2017 filing from the St. Louis Development Corp., the agency tasked with making annual disclosures covering more than 100 different TIFs authorized by St. Louis City’s Board of Aldermen. (By contrast, bond offering documents for Cortex in November mentioned 4,200 jobs generated so far, with 15,000 permanent jobs expected once the district is complete.)
Why do the city’s TIF filings — which the DOR requires for transparency and accountability, and for promoting TIFs as economic development tools — so blatantly contradict clear and compelling evidence of jobs?
The city isn’t saying; SLDC officials did not respond to requests for comment for this story. But the omissions and apparent errors in the reports are curious, particularly at a time when the city’s tenuous finances keep it under constant threat of downgrades by debt rating agencies, and when Missouri State Auditor Nicole Galloway is conducting a comprehensive audit of the city that includes a review of development incentives such as TIFs.
Patrick Tuohey, director of municipal policy at the Show-Me Institute, a free-market think tank highly critical of incentives, says he isn’t surprised that some of the city’s data appear bogus. He sums up the claims routinely made by backers of TIFs and other incentives in one word: garbage.
“The jobs numbers we have are not audited; we’re relying on the people (developers) who receive the incentive to report on how well the incentive is working,” said Tuohey.
A window into TIFs
St. Louis’s TIF reports, largely ignored by the developers, lawyers and city officials who work on redevelopment projects, offer a window into the inner workings of tax increment financing, an economic development tool often poorly understood despite a quarter century of its widespread use. The city’s most recent annual financial report shows it had $388 million of outstanding TIF bonds in 2017. That’s about $1,250 for each city resident. Over the past decade TIFs have been among the fastest-growing types of primary government debt in St. Louis.
In Missouri, TIFs began gaining popularity in the 1990s as a tool often used to revive blighted areas. A TIF measures the additional taxes (known as the “increment”) that a development project generates, and then diverts those taxes to pay off bonds used to finance the project’s costs. Missouri law allows 100% of incremental property tax revenue and 50% of other incremental revenue streams (sales, earnings and payroll taxes, for example) to be diverted. TIFs generally expire after 23 years.
Debates frequently erupt in St. Louis and elsewhere when city officials are deciding whether to grant a TIF, but once a project is finished and the bonds have been issued, most TIFs fade from view. Tax revenue begins flowing in. The bonds, meanwhile, are stowed away on the city’s balance sheet (even though, in a vast majority of cases, the city does not back TIFs with its own resources). The SLDC compiles its reports with input from the Comptroller’s office, and files updates with the DOR as the years pass by.
McPherson first contacted the SLDC on May 22 to ask for more details about the city’s TIF reports. On June 8, a reporter sent the SLDC a list of specific questions, some of them related to the figures on job creation. At the time this story was published, a spokesman for the SLDC had not responded to the questions.
The TIF reports that go to Jefferson City each year contain a range of information. Each includes a brief project description, its status (normally “under construction” or “fully operational”), the number of new and retained jobs to date, anticipated total project costs, and the amount of those costs covered by the TIF. In most cases TIFs account for less than 25% of the total.
Each report also includes a summary of the tax revenue that has been diverted to the TIF since its inception, as well as an estimate of the hoped-for taxes the project should be generating when the TIF expires. Once that happens, all the taxes go to the city’s schools, its libraries, museums, the city’s general revenue fund and other taxing districts.
The DOR says it received reports on 468 TIF projects across Missouri in 2017. The department’s website makes clear that the DOR does not alter any content submitted by the municipalities and that it does not endorse the accuracy of the information. The DOR shares the reports with Galloway’s office, which maintains a searchable database of TIFs. The auditor’s website notes that the data is unaudited.
Big tax revenues — but not many jobs
The city of St. Louis filed 124 TIF reports in 2017. McPherson examined each of these, using records from both the DOR and auditor’s office. (Thirteen of the city’s TIFs were labeled either “inactive” or “dissolved.”) McPherson’s review, based on the 2017 reports, revealed the following:
- Of the city’s 111 active TIFs, only 18 claim to have helped create or retain any jobs to date. This means that according to the city’s own data, fewer than one in six TIFs have had a direct impact on jobs.
- Active TIFs covered by the city’s reports have been authorized to collect over $1 billion in taxes from the projects they fund, but have created fewer than 2,500 new jobs since their inception. (For comparison, Kansas City’s reports suggest 63,000 new jobs there.)
- The city’s sloppy reporting means the auditor’s database contains information for some TIFs that is demonstrably false. This includes jobs data, as well as information on individual businesses that have opened in TIF districts.
Running a few calculations using these numbers, staying mindful that some of them are almost certainly fictitious, produces results that can only be described as breathtaking:
- St. Louis accounts for about 15% of Missouri’s TIFs, but just 2.1% of jobs created.
- The city appears to be pledging roughly $428,000 of paid and future tax revenue for each job that has been created so far by active TIFs.
- The figures for Missouri as a whole indicate that St. Louis is diverting more than six times the state average in TIF revenue (from all TIFs, not merely active ones) to create each job.
- St. Louis appears to be distorting the data for the entire state. The DOR’s figures show that it “costs” about $66,100 in paid and future tax revenue for each new job in Missouri. Strip out St. Louis, and this figure falls to about $57,600.
In fairness, more jobs will no doubt be generated during the remaining lifetime of these TIFs. And the jobs-to-TIF ratio for St. Louis is skewed by the inclusion of Northside Regeneration, the massive project by developer Paul McKee which is now the target of a state lawsuit. Northside’s $390 million TIF accounted for one-third of the city’s outstanding active TIF amount in 2017, yet it looks increasingly unlikely that the city will ever issue that amount of debt to support it. (Predictably, Northside has created zero jobs, according to the city’s TIF report. Meanwhile, SLDC’s website touts the 3,100 jobs that Northside will help the city retain, due to the planned move there of the National Geospatial-Intelligence Agency.)
Some job information has fallen out of the St. Louis TIF reports within the past three years, based on the reports in the auditor’s database. Southtown Centre, for example, reported 200 jobs created as recently as 2015, but has reported zero since then.
One developer in St. Louis, who asked for anonymity in order to maintain good relations with city officials, told McPherson that the SLDC has never asked him to provide ongoing jobs data, even for projects that received TIFs.
Whether TIFs actually create jobs, and whether job creation should even be a goal of TIFs to begin with, are aspects of the public debate around them. A 2016 report for the city on the impact of development incentives, including TIFs, found little relationship between incentive use and an increase in jobs within neighborhoods where the incentives were used. Some TIFs — such as those that have helped fund the renovation of apartment or condo buildings with no commercial space — are clearly not intended to create permanent jobs.
Yet that doesn’t stop some boosters from talking up the jobs aspect of TIFs. Will Winter, a local researcher who has studied TIFs and worked on the city’s 2016 report, says: “Job creation is something that a political leader can highlight and say, ‘Look what I’ve done.’”
Reasons for concern
In the end, does it really matter if St. Louis’s TIF reports contain incorrect information? In some respects, no. After all, hardly anyone reads them (smug journalists excepted). The information in the reports has no bearing on whether the project succeeds or delivers the increased tax revenue it promises. And the SLDC, which may be understaffed, has plenty of other tasks on its plate.
Yet there are at least four other reasons why the city and its residents should care. The TIF reports may be obscure, but that should not make them irrelevant.
First, the poor quality of the jobs data casts doubt on the integrity of the data elsewhere in the filings. If the figures for jobs are bad, what about the figures for the more important categories, such as tax revenue and projections for increases in property value? (McPherson’s review has uncovered several inconsistencies and omissions in these areas that will be addressed in further articles in this series.)
Second, the reports matter because of the sheer size of TIFs as an asset class. TIF bonds now comprise over 19 percent of St. Louis’s total primary government debt, up from 7.4 percent a decade earlier (see chart below). Most other types of debt decreased in both absolute and relative terms during that period.
Third, slipshod record-keeping means the city is shooting itself in the foot, just when a valid public debate is underway over the true benefits of TIFs and tax abatement. In the past couple of years the SLDC has introduced a new model that scores proposed projects based on their economic benefits; it has also proposed city-wide standards designed to direct more incentives to poorer neighborhoods. Erroneous TIF reports damage these efforts by providing easy ammunition for the city’s critics.
They could also serve as ammunition for state officials, who are the fourth and most immediate reason the city should be concerned. Galloway is up for re-election this fall. As part of her audit, she is taking dead aim at TIFs and other incentives; a press release from her office last month referred specifically to concerns about transparency and accountability. A spokeswoman for Galloway told McPherson that one of the goals of the audit is to ensure citizens have a better understanding of the monitoring and oversight of TIFs and other incentive programs.
There is no statutory obligation for St. Louis and other municipalities to include jobs data in their TIF reports, but there are specific requirements for reporting new taxes generated, as well as increases in a project’s assessed value. (McPherson hopes to speak with DOR officials for a future story in this series that will shed more light on this.) In the meantime, Missouri statutes allow the DOR, under certain conditions, to sanction municipalities that do not satisfy the reporting requirements by prohibiting them from approving any new TIFs for five years. This fact, along with Galloway’s audit, should keep minds at City Hall — and elsewhere in city government — highly focused. –McP–
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