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Tuesday, December 1, 2009

A City Guarantee for Northside Regeneration

At the November 13 ceremonial signing of the first ordinances related to the Northside Regeneration redevelopment concept, Mayor Francis Slay made statements to St. Louis Post-Dispatch reporter Tim Logan that indicated his former hard line against a public guarantee of any of the $390 million in tax increment financing bonds authorized by one of the ordinances. Northside Regeneration's developer, Paul J. McKee, Jr., has told the press on numerous occasions that the project won't work without a public guarantee of some kind. Slay and Deputy Mayor Barbara Geisman have assured the public that City Hall was not eager to support such a guarantee.

Yet on November 13, Slay told Logan that there "may be some limited participation" from city government. He followed that statement up with an ambiguous one: "To what extent, if any, the city is going to do that hasn't been determined."

It should be determined in one word: No.

At least, the City of St. Louis should not pledge its full faith and credit to cover any of the bonds for the Northside Regeneration TIF. For one thing, the city simply cannot afford the liability. In the last two weeks, the press has reported several stories about a $20 million city budget shortfall and mandatory city employee furloughs. It's not fair to ask city employees to take a hit and then be open to handing a private developer the right to bankrupt the city. Even a $1 million guarantee is too much risk for a city government trying to avoid a giant deficit.

Precedent for city guarantee shows high risk and poor development outcomes. Our first foray was backing the bonds for Midland Group's $53 million St. Louis Marketplace on Manchester Road, completed in 1991. The developers sold the city on the promise that reclaiming the old Scullin Steel site -- a true brownfield -- for the sort of retail center found all over St. Louis County would lead to a sales tax boon. That promise rang hollow, and revenue fell short of the projection used to sell the TIF. The city has paid $3 million toward the TIF for the Marketplace, and will pay another $1,3 million before the TIF expires in 2011. The St. Louis Marketplace has high vacancy and low demand for its spaces.

Next, in 2003 the city backed bonds issued for the Renaissance Grand Hotel & Suites on Washington Avenue downtown. This time, developers Historic Restoration, Inc. and a subsidiary of Kimberly-Clark Corporation didn't sell the vision to the city, but capitalized on the mythic promise that St. Louis desperately needed a giant convention hotel to compete for major conventions. The hotel has never met revenue and occupancy projections, and $13.6 million from federal block grants to St. Louis have been used to cover shortfalls.

Most recent and most irresponsible was the city's decision to guarantee bonds for Pyramid's $26 million purchase of One City Centre in 2006. Time will tell how bad the damage to city coffers will be. Currently, the city is trying to work out a plan to keep the office tower profitable by converting the surrounding St. Louis Centre mall into parking to serve tenants. With the prospect of being on the hook for the bonds, the city has no time to wait to consider more creative ideas for reusing the old mall.

Some might argue that Northside Regeneration is too different from past city-guaranteed projects to be compared. However, fundamentally, the project shares a lot in common with the three other projects: the "last great hope" myth surrounding the project, the unrealistic revenue projections and the developer using public process to lure private capital to the project. The truth is that the Northside Regeneration project is so malleable and undefined that any revenue projections created right now are just fancy guesstimates. I write this with some hope, because the malleability of the project makes it more possible to reconcile McKee's vision with community needs.

The reconciliation of McKee's private aims and the civic life of north St. Louis is exactly where some help from city government would come in handy. If City Hall and the Board of Aldermen want to commit resources to speed along redevelopment, there are appropriate ways of doing so that are fairly noncontroversial: roads, streets, sidewalks and parks. There are service needs in the footprint of McKee's Northside project that should be addressed now -- especially in those parts of the project McKee has phased as the last areas to get development.

One project that the city could try to fund early on are stabilization and marketing of Land Reutilization Authority buildings in the project area, so that historic buildings are preserved and ready-to-rehab buildings are available for microdevelopers and rehabbers. Another project that would be of great benefit to all citizens is restoration and enhancement of St. Louis Place Park. DeSoto Park and others need improvements as well. And the area's sidewalk network is badly damaged. These are all improvements that have been needed for a long time, and are promised in the Northside Regeneration presentation. Why not start them now?

Public sector expenditure can be used to make the near north side a better place for current residents. McKee will realize benefits too, of course, but not at the expense of the people his plan is supposed to help. The city guarantee that needs to be on the table is a guarantee that residents of the near north side will benefit from the redevelopment project, enjoy an improved quality of life and have their tax dollars used for true public benefit.


samizdat said...

The crazy thing about the St. Louis Marketplace fiasco is that it was a WORKING STEEL MILL at the time. New owners, a business plan, and plans to hire more workers if things went well. Workers, I might add, who probably would have been paid $18-20/hr. Dog d#&%, our City leaders are S-T-U-P-I-D. I remember taking the Manchester bus in freshman yr. of HS (ca. '78-79), and smelling the sulfur from the manufacturing process. I smell sulfur, and I ALWAYS think of that Mill.

Daron said...

That last part is an excellent point. McKee made a statement on St. Louis on the Air about how all the TIF money would go into sidewalks, roads, and utilities construction. At the time, I did think... If we had the money, we'd fix the sidewalks now. Clearly since we are defering sidewalk repairs, we have bigger budget items to concern ourselves with (ie pensions).

Slay's blog entry a week or two back about the city's budget crisis was clearly written and it seemed like he had a good idea of fiscal reality.

You may be interested in hearing a podcast talk from the Tuesdays at APA series. http://www.planning.org/tuesdaysatapa/2007/oct.htm
In the talk of Illinois TIFs there is a regular reference to Chicago making smarter TIFs than other municipalities. It is similar to the clause in the Cardinals TIF where they would be required to pay fines for failing to build the Ballpark Village. Too bad we dissolved that part.

Anonymous said...

TIF usage in Illinois is radically different than in Missouri. This is a part of the authorizing legislation as well as the practice. In the vast majority of Missouri cases, TIFs are used as predevelopment funds as a part of a negotiated agreement between the local government and a developer for a specified project.

Rarely do Missouri municipalities use the pay-as-you go approach that is typical of most of the TIF districts on the other side of the river. These pay as you go districts operate essentially as publicly run development funds that can be spent on a variety of purposes. The Missouri system, IMHO, is a better deal.

City authorizing legislation for TIFs are relatively clear cut, with clear processes of how developers can access TIF funds to pay approved construction costs. The comptroller runs this process fairly effectively.

Of course, none of this means that the project makes financial sense or will perform as expected. Although the cases of failed TIF projects is relatively small, there may be more of them as the retail sector continues to tank as people stop purchasing crap made in China.

I would bet that push comes to shove the city will take a limited position on the bonds. There is no way they will sell without it, and Slay has invested too much political capital in this thing to let it hang out and dry.

Doug Duckworth said...

Yeah well the timeline puts demo way before actual investment occurs in the NORTHSIDE project.

It's funny that while community development efforts are going on right now in North St. Louis, McKee starts downtown first. If he was committed to North St. Louis then this would look completely different.

But this is about converting the ghetto, as he said, not investment in existing neighborhoods.