ST. LOUIS — The city’s economic development arm, the ÃÛÑ¿´«Ã½ Development Corp., is one of the most powerful public bodies in the region, managing state-created agencies that regularly buy and sell real estate, grant developers tax breaks and finance some of the biggest projects in the metro area.
But unlike most city agencies, it doesn’t get a dime of general revenue from City Hall.
Instead, it’s largely funded via federal grants, plus fees charged on the tax credits and development incentives it offers. And as debate continues over tax breaks regularly doled out to developers, some question whether the SLDC’s funding structure is giving the right incentives to the agency in charge of them.
“We really should be funding economic development with general funds as a matter of good business for the city of ÃÛÑ¿´«Ã½ instead of having the organization be self-funded through the fees associated with issuing tax incentives,†said Alderwoman Cara Spencer.
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She raised the issue during an aldermanic committee hearing last summer, when the panel was reviewing tax abatement for a proposed $50 million rehab of a downtown building. Spencer suggested the more than $70,000 fee SLDC stood to recoup for offering the developer the tax abatement package gave the organization an incentive to offer the break.
The city agency responsible for reviewing tax break requests is recommending fewer, but some aldermen have ignored them.Â
“Wait, alderwoman, I reject that,†SLDC Director Otis Williams interjected. “This body does not fund SLDC, and for us to do work we have to be funded somehow. For you to be quibbling over $70,000, I take offense to that. You have put commitment after commitment on us to do inclusion review, incentive review and we get not a single penny from the city of ÃÛÑ¿´«Ã½.â€
But the fees for big projects can be significant. The 100 Kingshighway skyscraper nearing completion in the Central West End yielded a $236,000 fee — 0.2% of the project cost — for the bonds the SLDC-staffed Land Clearance for Redevelopment Authority issued to exempt the developer from paying sales tax on construction materials. That was on top of a 0.1% fee worth over $100,000 for the real estate property tax abatement LCRA offered the project.
For projects that receive tax increment financing, known as TIFs, the SLDC charges 1.4% of the value of the incentive. That is meant to pay for staff to monitor compliance with ÃÛÑ¿´«Ã½â€™ minority hiring requirements on TIF projects. It also charges an administrative fee of 0.3% of the value of the TIF, as does ÃÛÑ¿´«Ã½ Comptroller Darlene Green’s office.
At the nearly complete City Foundry project in Midtown, which received a $19.4 million TIF, those fees amount to nearly $330,000 for SLDC. The comptroller’s office is in line for another $58,000.
In an interview earlier this year, Williams reiterated that SLDC does not “do deals to collect a fee.†The fees are appropriate to recoup the staff time spent analyzing requests and negotiating with developers, he said. Since Mayor Lyda Krewson’s administration took over in 2017, SLDC has started offering smaller property tax abatements, though SLDC collects the same fee regardless of the size of the abatement.
“We don’t have a target on the wall that says we need to do ‘X’ number of deals to help our budget,†he said.
Nor is charging fees to developers that use incentives unique to SLDC. The Kansas City Economic Development Corporation charges a 0.3% fee for tax abatement, more than the highest SLDC fee of 0.15% for mixed-use projects. But while ÃÛÑ¿´«Ã½ routinely approves dozens of incentive packages — mostly tax abatement — per year, Kansas City approves fewer. In 2017, it approved 23 total incentive projects, according to a report on Kansas City’s incentive use. SLDC approved 55 incentive packages last year.
A key difference is that Kansas City also funds its economic development office with general revenue — in recent years to the tune of nearly $4 million. The ÃÛÑ¿´«Ã½ County-centric Economic Development Partnership likewise charges fees, but it offers far fewer real estate incentives than the city and also gets about $4 million per year from the county.
In the fiscal year that ends June 30, SLDC expected to generate about 25% of its $9.4 million budget from development fees via tax increment financing, abatement and bond issues, according to budget breakdowns provided by SLDC.
As developers embarked on more city projects in recent years, SLDC’s budget has grown to its most recent $9.7 million request for the upcoming year — a 40% increase since 2013. That’s even as the federal grants that have helped shore it up have fallen by over 20% in that time, to just more than $1.5 million next year.
Much of SLDC’s budget goes to staff, many of whom have been hired in recent years to review incentives and better negotiate with developers. But with the economy in recession and the outlook for new development uncertain, a major source of SLDC’s funding stream could be in store for a hit at the same time the city struggles to balance its own books. That’s likely to make it even more difficult to convince City Hall to direct some general revenue to SLDC in the next few budget cycles.
Alderman Joe Roddy, who sits on SLDC’s board and chairs the committee that oversees the federal community development block grants that account for roughly 20% of SLDC’s budget, agreed general funding would help SLDC become less reliant on developer fees and allow it to be more proactive. But even before the pandemic began decimating tax revenues, he wasn’t sure how the city could afford it.
“It’d be nice if we could,†he said earlier this year. “It’s just, where do we get the money?â€
Williams this week said the SLDC’s budget is fine for now. It weathered the Great Recession a decade ago, and it now generates about 20% of its revenue from administering federal New Markets Tax Credits, a tool it has proven adept at winning from the feds. But if the city wants to see more programs in disinvested areas and support for neighborhood associations or local business groups, the money will have to come from somewhere.
“At some point the city of ÃÛÑ¿´«Ã½ will have to step up and decide that they will support the redevelopment function through general revenue,†Williams said. “But at this point, there are other concerns with the budget.â€
