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Missouri State Auditor Nicole Galloway — who is also running for governor — recently released an audit of St. Louis’ use of tax increment financing districts, which are usually referred to by the acronym TIF (thus leading to my lame headline). The audit shows how policies meant to help cities economically develop actually end up reinforcing already existing inequalities.
As readers of this newsletter hopefully know, TIF districts involve some amount of taxes collected within the district being plowed back into the district itself. Tax money raised is spent, for example, on paying off city bonds for projects in the TIF’s boundaries or to cover debt for developers, instead of going into the city’s general coffers, to be spent on city-wide programs.
Most states allow for their use in one way or another. And when they go sideways and don’t generate enough new revenue, TIFs can cost cities a lot, forcing them to cover bond payments or other obligations with revenue raised elsewhere.
The audit, in the technical language these sorts of reports use, is devastating. St. Louis lawmakers, it said, have no strategic plan for using TIFs to actually develop the city. Cost controls that supposedly exist aren’t honored, evaluation of projects is haphazard, and, as has been noted before, the way in which St. Louis’ economic development office raises money is a huge conflict of interest, as it receives bigger fees for approving bigger projects.
I want to hone in on one part of the audit, in particular, because it speaks to more than just St. Louis’ particular failings.
Out of the 28 wards in the city, 52 percent of the projects are located in the 4 wards with the largest AV. These 4 wards account for 42 percent of the assessed value (AV) of the city. By contrast, 6 percent of projects are located in the 14 wards with the smallest AV. These 14 wards account for 21 percent of the AV of the city.
So projects that benefited from tax subsidies were in the parts of the city that were already the most valuable. A scant fraction of the approved projects were in the areas that needed them most.
What this likely means is that some healthy percentage of those projects didn’t need to be incentivized at all: Developers would have undertaken them because they would have been profitable due to the already existing economy of the neighborhood.
TIFs, then, likely reinforced and exacerbated existing inequalities, with already gentrifying neighborhoods seeing the lion’s share of new dollars, while truly struggling areas continued to struggle.
These are problems endemic to corporate subsidy programs: Developers receive money for projects they admit they don’t need any incentive to undertake, because they were riding existing development trends.
St. Louis would know more about whether it was incentivizing new economic activity or just providing a windfall to developers if it monitored what the projected profits and sales price of a particular project were versus what it actually earned. But as the audit notes, nobody bothers to do that.
“We were unable to compare the projected developer profit to actual developer profit because the city was unable to explain how the developer's profit was calculated in the application and because the city did not document the actual sales price of the project when sold by the developer,” Galloway’s office wrote.
Academic work that looks specifically at TIF districts reinforces my points. A study of Chicago, for example, “shows no evidence of increasing tangible economic development benefits for local residents” as a result of using TIFs.
What TIF districts definitely do, though, is undermine local small businesses that don’t receive help from the city, and then have to compete against the larger, national businesses that tend to hoover up the bulk of the benefits. Just like subsidizing Amazon undermines local small outlets, so does building economic development policies around the businesses least likely to actually need the help and most likely to turn your neighborhood into a soulless strip mall.
Why then, do cities continue to use them? Part of the answer is that developers have a lot of political sway in large cities, whereas the residents of struggling neighborhoods simply don’t.
Per the polls, Galloway is not super likely to be the next governor of Missouri, but win or lose that particular race, hopefully she stays on this case, and makes that power imbalance just a little bit less awful.
Update: A few weeks ago I wrote about Ohio’s effort to claw back $60 million in tax credits from General Motors due to the car company closing its plant in Lordstown. The two parties this week struck a deal: GM will pay back $28 million in tax credits and spend $12 million in the Lordstown community on workforce development, education, and infrastructure.
I wish the numbers were higher, and the community investments probably aren’t worth as much as the headline number, but the overarching point remains: Without putting a clawback provision in its original contract with GM and then moving to enforce it, Ohio would have been left with nothing but a shuttered factory. Instead, it received something when GM reneged on its promises. More states should do this, and do it better.
One more thing: The Anaheim City Council voted this week on a ridiculously sweetheart deal for the owner of the Los Angeles Angels, enabling him to purchase the Angels’ stadium and surrounding land — which is likely worth $500-600 million — for just $150 million. Council Members Jose Moreno and Denise Barnes and former Mayor Tom Tait wrote a good op-ed explaining why this thing stinks here.
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— Pat Garofalo