Economic development incentives like tax increment financing (TIF) and tax abatement have been grossly misused in Missouri’s two major cities for decades. The City of Saint Louis has, from 2000 to 2014, given away more than 700 million in taxpayer dollars through these corporate welfare programs. Facing mounting public pressure and decades of research indicating these programs have “no real economic development impact,” officials are considering reforms to Saint Louis’s incentive policies. This is very welcome news.
Unfortunately, many of the reforms proposed by officials (which local activist and TIF critic Glenn Burleigh rightly notes are nonbinding) are unlikely to have much effect on the use of incentives or their detrimental effects. Two reforms—the reduction in the percentage of projects’ costs and the shortening of the terms of TIFs and abatements in economically better-off parts of the city—sound like significant steps in the right direction. However, similar reforms enacted in Kansas City last year have proved ineffective.
So, what reforms could genuinely curb incentive abuse? The surest and most effective reform is repeal—the legislature should completely eliminate these misguided programs from state law. California, the state that created TIF, repealed TIF nearly a decade ago.
But, short of repeal, what can be done? Here, and in a series of blogs in the coming weeks, I’ll discuss a cabinet of reforms policymakers should consider to make real progress in reforming incentives. Some policies will be austere, others more mild, but all, I believe, will offer creative and meaningful alternatives to Saint Louis’s misguided incentive policies.
1. Adopt an Incentive Budget
I live on a budget. You live on a budget. Policymakers in City Hall pass and ‘live’ on a budget. If we can do it, so can economic development agencies, developers, and their investors.
Policymakers could adopt a hard cap regarding how much they award annually through TIF and abatement. Think of this as an “Incentive Budget.” Just as the City budgets a certain amount for a program or service, it would allocate a certain dollar amount for TIF and abatement. The only difference would be that City officials couldn’t go beyond a certain amount—say $50 million annually. (For context, the TIF Commission awarded nearly $51 million in TIF subsidies in a single meeting earlier this year.) Many state tax credit programs have annual or cumulative caps like this.
This reform has several strengths. For one, it strictly limits how much revenue the city can give away. Policymakers have little political or financial incentive to tell developers “no,” but a strict cap could force them to do so. This could control the bleeding of city revenues and force development officials to think harder about which projects should get the limited number of subsidies available.
Second, it could help the City avoid budget gaps and manage future revenue losses. If policymakers and development officials are kept on a budget, the long-term financial impacts from incentive programs could be accounted for in advance. This would make the lives of folks in the Budget Division much easier, and help schools, libraries, and other jurisdictions deal with future lost revenue.
Urban planners, policymakers, and development officials may claim that such a reform would restrict their powers unduly, and show the world that Saint Louis is “closed for business.” (One might argue that the regulatory and tax environments are bigger problems than a scarcity of development subsidies, but those are topics for another day.) We have seen what happens without restrictions on the awarding of TIF, and it isn’t pretty. A hard cap may be the only way, short of repealing TIF and abatement, to stop the abuse. And if some game-changing project comes along that would bust the City’s incentive budget, place the decision-making power in the voters’ hands, like some state representatives have proposed. That way those affected by incentives—ordinary taxpayers receiving fewer and fewer city services—have more say in how they’re used.
An incentive budget is just one of many reforms that officials could explore. Others—about which I’ll be writing soon—include:
- Eliminating TIF and abatement for projects that already receive other state/local incentives: Prevent a single project from receiving every incentive on the books.
- Tying incentives to land uses: Ensure that incentives go to projects with real public benefits.
- Form a City-County incentive pact: Stop the race to the bottom.