In Missouri, a coalition of independent businesses and union members are backing a bill that would reform the state’s tax increment financing (TIF) law and put an end to subsidies for suburban big box stores, shopping malls, and other sprawling developments.
TIF allows a municipality to issue bonds to pay for part of the costs of a new development. Future tax revenue from the development is then diverted from the public coffers to pay off the bonds. TIF is a subsidy; it allows tax exempt and therefore low-interest capital to be used for private development.
The original intent behind TIF, which most states have adopted, was to level the playing field between economically distressed and more vital areas by providing developers with an incentive to build in ailing urban neighborhoods. In order to use TIF, municipalities must declare the site “blighted.” But the definition of blighted and the rules governing TIF are so loose that the program has more often been used to underwrite sprawling retail development in well-to-do suburbs.
The wealthy St. Louis suburb of Des Peres, for example, declared the West County Shopping Center “blighted” and provided $30 million in TIF incentives for the construction of a new mall. St. Peters, one of the fastest growing suburbs in the region, used TIF to subsidize the construction of retail stores on farmland. Richmond Heights provided $31 million in TIF to underwrite retail development across from a thriving shopping center.
Altogether, 57 percent of the total TIF-captured tax base in the St. Louis metropolitan area lies outside Interstate 270, the region’s main ring road.
Rather than lessening disparities, TIF has further tilted the playing field, according to the Missouri Grocers Association (MGA). It has favored outlying suburbs over central cities, affluent areas over low-income neighborhoods, greenfield construction over infill development, and national chains over locally owned businesses.
MGA is pushing for passage of a TIF reform bill (SB 172) sponsored by Senator Wayne Goode. Other supporters of the measure include the United Food and Commercial Workers (UFCW) union, which represents grocery store employees who have been undercut by the expansion of non-union food retailers such as Wal-Mart; the Hometown Merchants Association (HMA), a new statewide alliance of independent businesses; and the East-West Gateway Coordinating Council, a St. Louis metropolitan area planning organization.
SB 172 would limit the use of TIF to areas characterized by moderate income (less than 80 percent of the surrounding area’s median income), high unemployment (one-and-a-half times the rate of the surrounding area), or low fiscal capacity (assessed value per capita is at least 40 percent lower than the surrounding area).
It would require that municipalities conduct economic feasibility studies to determine that the development would not occur without the subsidy. It would prohibit the use of TIF on sites that are more than 25 percent undeveloped land or farmland, and projects that are primarily retail unless the development occurs in a federal enterprise or empowerment zone, or a “distressed community” as defined elsewhere in Missouri state law.
The bill would also reduce the impact of TIF on schools, libraries, and fire departments by stipulating that 25 percent of the tax revenue used to pay off the bonds be diverted to these other taxing districts. Currently, these districts have no say over the creation of TIF districts, but lose revenue every time a municipality establishes one. Some cities have threatened the provision of essential public services by converting much of their tax base to TIF districts.
The bill has passed one reading of the Way & Means committee, but faces an uphill fight in the legislature. Suburban city governments and developers are working hard to defeat it. “There’s a lot of money at stake,” notes Senator Goode.