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Study: Is St. Louis making the best use of economic tax incentives?

(From the Economic Development Incentives report from the PFM Group.)
The St. Louis Development Corporation commissioned the study of the city's use of economic development incentives.

Each month the commissioners of the Land Clearance for Redevelopment Authority of St. Louis hear request after request from developers and even residents for tax abatements that usually last five to 10 years. 

It's just one of the tools the city uses to spur economic development, but St. Louis officials are taking a look at how those tax incentives are distributed. 

"We wanted to evaluate whether [tax incentives] had a positive or negative impact and see what our peer cities were doing in terms of incentivizing development and whether we needed some improvement," said St. Louis Development Corporation executive director Otis Williams.

So SLDC commissioned a study last year looking at its use of economic development incentives and seeing what was done elsewhere. The Public Financial Management, Inc. out of Philadelphia, in partnership with the University of Missouri-St. Louis and Saint Louis University, released the study in May.

It found that over a 15-year period the city spent $709 million with its two major incentives, tax increment financing and tax abatement.

The big take-away was that two-thirds of those incentives were spent in a handful of neighborhoods.

"[T]here are a number of neighborhoods with weaker housing markets and some level of permit investment that have not received many incentives. This suggests the need for reviewing incentives to ensure that they are structured to be applicable to all neighborhoods that need them," the study said.

The recommendation for SLDC is to create a more zone-based approach and target specific incentives in certain areas. Saint  Louis University urban planning professor Sarah Coffin, who worked on the study, said it’s natural to want to keep development going in an area that’s gaining traction.

"This report really highlighted that, how much we were doing that," Coffin said. "This has given the city some data to develop tools to break out of that; not to end the investment in neighborhoods in areas that are doing well, but be more strategic."

For instance, Coffin said there could be different goals and objectives for a neighborhood like Central West End that might focus on particular jobs.

"If you, the developer, can meet those goals and objectives, we’ll incent that," she said.

Another recommendation is to require that all applicants be put through a sort of score card that will help decide whether they should get the incentives, or not. Williams said his office is currently developing a quantitative scorecard, but it still needs work.

"Because it is a numbers exercise, if you’re a numbers person you can easily understand it, but we need to simplify it a bit so when we take it to the Board of Aldermen it is a simple report that’s provided to them that’s backed by detailed numbers," Williams said.

The study also suggests the city should do a better job tracking the incentives it gives and require more reporting from recipients. As the study states:

"Given the magnitude of the tax incentives offered by the City, there can be a legitimate expectation that those receiving these benefits will provide the City with periodic reports related to the economic outcomes associated with these incentives."

Coffin said one benefit of requiring more information up front about jobs, for instance, and reporting later is that the city will have more leverage.

"Then you can start creating a mechanism that if the developer picks up and leaves ... if they haven’t met the outcomes that they state at the beginning, there can be some clawback provisions to require them to pay back the incentive they received," she said.

Williams said his office is still in the early stages of developing changes. 

"We're transitioning to a new process and the whole goal is not to injure, if you will, the revenues coming to the city but more likely to improve them," he said.

Follow Maria on Twitter: @radioaltman

Maria is the newscast, business and education editor for St. Louis Public Radio.