This Week in Urbanism Season 2 Premier: Development Incentives

Thank you for joining us for a second season! This Week in Urbanism returns with improved audio quality and production along with topics that are intended to foster nuance and excitement along the way.

In the time since the ending of the last season, a budding, 200+ group of St. Louis Urbanists has begun to find community and organize together. The group, the St. Louis Urbanist’s Confluence, can be found on Discord at the link below and is beginning to do great work on transit advocacy, housing, and collective action.

https://discord.com/invite/AvQsVs7B

ROUGH TRANSCRIPT BELOW:

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Could it be? Could it finally be?

The time’s finally here. You’re listening to This Week in Urbanism, and yes, Season 2 is finally here.

I’m your host, Brian Adler. Before I get started, why don’t you subscribe and check out my Patreon supporter page at Patreon.com/BrianAdler. Why check out my Patreon? Well, I want to buy more stuff and the benefit to you is that you can listen to this podcast a little early. Heck, it doesn’t hurt to boost my ego a little bit either and my brilliant, self-inflating writing doesn’t generate via AI just yet.

Anyway, it’s time. And I’m sure you’re ready.

And before we get started, I want to do a special shout out to a new group that I’m a moderator of, but, did not create. I’m talking about the St. Louis Urbanist Confluence group, and it’s a collection of urbanists, almost 200 strong, across the St. Louis area. We talk transit, density, affordability, neighborhoods, and more. Some of our incredible members are planning collective action to enhance walkability, bike-ability, and more. I will post a link to join on our Anchor.fm channel and everywhere else I can.

Today is June 22nd, 2022, and St. Louis, I think I have myself something just controversial and important enough to boost my listener base here. Don’t believe me? Well guess what today’s topic is: public development incentives.

See? What did I tell you. This is some real juicy stuff and by sheer virtue of listening to this niche, urban planning podcast, I’d be willing to bet you’re not somewhere in the middle on this. You’re probably gripping the steering wheel or bike handles a little bit harder, and baby, this is gonna make your hands sweat.

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But you know what? Life’s complicated. Tax incentives are nothing different. They’re probably one of the more complicated things in life, even more than basic human interactions with one another. Heck, especially during and after COVID. Yesterday I was in the elevator with someone for the first time in a long time, and my god, what even are you supposed to say?

Anyway suffice it to say that if you feel strongly about this issue, my goal is for you to loosen up a bit because as many good arguments as you have, there’s probably plenty that even your mortal urbanist enemies have too. And, even though there’s nothing sweeter in life than winning a petty argument on the internet, I’ve learned that us urbanists have to try to find some common ground if we want to make some progress.

Okay I’m going to dig in here a bit. This is an inherently thorny conversation. Let’s start with a definition. So, what I mean by the term “development incentive” is a distinct set of public goodies offered by a given municipality or development authority to either lure a project to their region or to ensure that a project is actually financially feasible and thus built. Of course, anything that a city gives away is essentially publicly generated, so you enter a realm of tricky and important politics too.

Still with me? I’ll try my best to keep this podcast episode accessible. Let’s briefly go over the main types of incentives that developers usually seek or are given here in St. Louis. I’ll probably miss some, but that’s where you can enjoy roasting me in the comments. Come at me, folks! I just got a haircut, so my ego has room to fall.

  1. TIFs
    1. TIF stands for ‘Tax Incremented Financing’, which is essentially a capital improvement bond that cities can issue on the behalf of developers. It is a financing tool that captures a rise in economic and property values and the connected increase in tax revenues to invest in the required infrastructure upfront. You’ll often see TIFs go toward infrastructure like roads, lighting, sidewalks, sewer and water, etc. Anyway, usually you’ll see these over a period of say 10 to 20 years.
  2. Tax Abatement
    1. Tax abatement is a tool that we see used relatively frequently in the St. Louis area as well. You’ll see this often as a percentage when applied, and the idea is that you pay property taxes on pre-improved values for a given amount of time. You’ll rarely see 100% abatements, but often somewhere between 50 and 75%. Although the developer will pay increased property taxes, they’ll not be paying that full amount, rather they’ll be paying the abated amount, for perhaps 5-15 years.
  3. CIDs
    1. CIDs, or Community Improvement Districts. Many CIDs are not related to particular developments, but sometimes they can be created primarily for a development too. These are a set of boundaries that create a special taxing district to offset costs for public improvements and services. For example, a hotel development could create a CID covering the boundaries of just the hotel, which I believe occurred at the Le Meridian in Downtown Clayton, where it then collects taxes from those boundaries.
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On the surface, this is a pretty benign topic, right? It gets a little complicated, though, and pretty incendiary too.

But let’s do our very best to examine some different arguments here. Let’s say I’m a developer and I want to develop market-rate apartments on a vacant lot in the Central West End. Let’s lay out some facts:

  1. First, I said market-rate, not affordable housing.
  2. This project would ask for a 50% tax abatement over 10 years.
  3. Let’s go crazy here and say we’re going to pick the most high-profile parking lot in the Central West End at Lindell and Kingshighway, where a new tower is actually slated to go. That parking lot generates about $64,000 annually in property tax revenue.
  4. Let’s say we’re going to have a building just like The Orion, the building that has the Whole Foods. That building generates about $700,000 in property taxes annually. We’ll do the same number of units and just estimate the same.

Okay so we’ve got some workable stuff here. Let’s say I’m anti-development incentive here. What would I probably argue?

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First, I’d be sure to point out that we’re using future public revenue to subsidize a project that does not, on the surface, necessarily represent public benefits.

Second, I would extend that argument credibily to discuss equity and schools. Schools in St. Louis City are perpetually underfunded, and a good portion of property tax revenue goes to schools. So, you would argue that you’re potentially taking 50% of the difference in property tax revenues between old and new, so about $318,000 each year for 10 years from schools that would, theoretically, be there if the building were developed without incentives.

Third, I’d probably talk a bit about the neighborhood itself and how it commands top-market rents in St. Louis and point to the fact that the building only serves an upper-market clientele, and point out how that subsidy isn’t going elsewhere. And, I’d talk about the precedent of subsidizing a well-developed, wealthy neighborhood rather than elsewhere.

There are certain to be other arguments too, but let’s let this serve as an introductory, good-faith argument from a fellow urbanist who simply doesn’t love the idea of incentives here for those above reasons.

Let’s flip the table and be in support of the incentives. What would I argue?

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I would point to a range of public benefits that are way too often forgotten in these conversations. It helps that I’m debating myself here, but I know from empirical research that there are inherently positive environmental benefits to dense residential buildings. I’d speak to the benefit of potentially having wealthy clientele move from Ladue to a Transit-Oriented development, and a location where they can replace many of their vehicle trips with walking or transit. I’d speak to the public benefits that would still occur from the other tax revenue being generated.

I’d also take a pragmatic approach and highlight that you would still have over $300,000 in new annual revenue, much of that going to children that otherwise wouldn’t have if we simply kept it a parking lot. Though they’re being shafted that amount each year from the incentive, they’re still getting that much more than they had before.

I’d mention that it’s been a parking lot for years, and that despite the success of the Central West End, St. Louis is still a difficult market to get financing for in some cases and it is still low-growth. There are inherent risks to development and there are huge inflationary pressures affecting labor and supply costs substantially. I don’t think people often realize just how expensive these buildings are.

So let’s be honest here, neither argument is wrong and both are well-rooted in positive values. But, if you can’t tell, I’m in favor of an incentive in the situation like the above.

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But, of course, that’s literally just an example that I made up. What if we bumped up the incentive to 95% abatement for 15 years? Well, we’d essentially erase all of the gain in property tax revenue. Schools wouldn’t gain a thing practically and it would be really lopsided. You would still get all the benefits described regarding density and built environment, but it could set a very bad precedent for other developers and reflect an unstable development environment.

Anyway, this is all to say that these conversations are complicated and it’s usually worth it to look at the numbers and to play things out before outright expressing approval or disapproval. The reason that I began developing this script is because development incentives are falling into a category of reactionary urban politics.

There have been discussions among neighborhood groups like my own and others who seek to reject any development incentive seemingly rooted in an unfounded confidence in our development environment and a genuine value for equity. But, having admirable values is different from actually supporting actions that meet your stated goals.

When you add new units to a market, you increase affordability. Let’s say you do that and you, a developer, seek a development incentive that’s a middle-ground and still financially beneficial to the city like the example that I described, and then a neighborhood immediately declines it and your project isn’t otherwise possible, then what?

Then it’s clear that the neighborhood may have fallen into its own trap, rejecting benefits even when the numbers showcase a genuine benefit, even if it isn’t as good as we would like.

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I think St. Louis is incredible. I think my neighbors are smart, empathetic, compassionate, and just wonderful people. But, as great as our communities are, we continue to need investment in a city that still sees its population declining. I don’t think we’re in the place to reject things in a reactionary manner even if we don’t on the face of it think the package is as good as it likes.

Now let’s be abundantly clear here. There are plenty of development incentives that we should decline. I don’t think you can credibly at this point request hefty incentives in the Central West End market, and we’re seeing those decline. But, every project is different. New construction is different than historic rehab.

My appeal here is for patience and for good-faith review and for mutual respect. Our mission is so great here as an urbanist collective, so let’s lead the way in our communities and strive to advocate for projects that are reasonable and beneficial.

So how’s that, huh? What do you think? Drop me some interactions, maybe even like Missouri Metro on the insta. My wife doesn’t think I’m cool enough for the tik tok but you can fax me some gif reactions instead.

Stay tuned for our next podcast, folks. Until then, enjoy the outro vibes.

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