A case for why businesses should use Missouri’s incentive programs more often

Larry Chapman | Sep 30, 2021

Seneca Commercial Real Estate

article originally appeared

When I compare the St. Louis metropolitan area, and even the state of Missouri, to other places around the country that are flourishing, the simple difference is growth.

Population growth, growth in investment, growth in jobs and multi-cultural attractiveness. But in our region and state, the growth needed to create and sustain a vibrant economy just is not happening organically.

I also know the state of Missouri has a robust set of economic development tools to incentivize new investment, job growth, and market expansion. This should be good news, but, unfortunately, too few people understand these tools, so do not use them.

Whether it’s Missouri Works, tax abatement, tax increment financing (TIF), or any number of acronyms contained in the alphabet soup of incentive programs, each and every one of these programs is based on the requirement that the benefit to the state and local communities must outweigh the assistance given. With that being true, you would think until desired growth goals are met, state and local governments would be going out of their way to teach people, business and local municipalities how and when to use these programs, since they all create a net benefit for taxpayers and the public overall.

As a real estate developer, I have been able to educate myself on the value and how to use these programs. On the other hand, most business people I know have no idea how to use these programs. I personally would like to see an education process to help both public and private sector actors to understand the programs available and how to best use them. It’s clear that in this area, as inso many others, our region lags behind.

For example, during some recent work in Spartanburg County,South Carolina, I was introduced to the Economic Futures Group.The name itself tells you Spartanburg County knew promoting investment and development and job creation was a huge factor in their future, so they set up a team to help teach and use the available economic development tools to bring new businesses and growth to Spartanburg.

Their zest to teach us how to use these tools to create a more vibrant future is contrasted with our state and local municipalities, many of which seem to consider Missouri’s job creation and investment tools as something to be hidden away and used only on a rainy day. But it is raining. It’s raining today and has been raining for quite some time.

Of course, there has been some abuse of these tools in the past, but legislative fixes have largely addressed these problems. For the most part, any project that uses assistance must pass the “But For”test. “But For” means that but for the use of TIF (or whatever the economic assistance tool in question is), the contemplated project would not go forward on its own. If one project that uses TIF creates added investment and jobs and growth – jobs and growth that otherwise would not exist – and we use it 10 times, we get 10times more jobs and growth. It makes sense to incentivize this activity. Once the St. Louis region, or a distinct market area within it, is growing consistently at 3% per year or more, the use of these tools are generally not needed. But until we reach that level of sustained growth, I would argue we don’t use them often enough and we are hurting ourselves because of it.

It’s also important to remember that these tools are incentives, and people respond to incentives in a positive way. They also create public/private partnerships where local and state government work with a person or business in a collaborative way so that all parties get their desired outcomes and benefits. Importantly, the recipient of any public incentives must perform, or the incentives go away.The recipient only receives benefits if they are successful.

Can incentivized projects be successful?
I have had the good fortune of working on programs like this beyond the 20 years or so that incentive packages sometimes last.In each of those circumstances, new development not only paid off any incentives and contributed to the community, but usually did so early. Once paid off, cities, school districts, and other taxing jurisdictions now have additional revenues that would have not existed but for the incentive being used.

Without the incentive, those improved revenues would not exist.What is even better is the community receives new investments and improvements, realizes job creation, and more important than anything, starts to build growth. Through all this, communities see robust, developments, investing in the future, creating jobs and improving communities. Using these tools wisely can create big improvements, rather than small changes that don’t move the growth needle.

I have heard people say this is corporate welfare and that corporations should just write a bigger check for what they do.Unfortunately, if you are running a company, that’s simply irresponsible. While there may be occasions from time to time where a little philanthropy or similar investment is warranted or corporations are big enough to absorb some added cost, but for the most part, businesses must focus on the bottom line.

I also believe the biggest need is generally not the giant corporations. It is my personal belief that we should be teaching smaller, new and emerging businesses how to use these programs, since it’s those businesses that are the backbone of our economy and those businesses that have the biggest opportunity to grow and become the greatest contributors to our community. They are also the least capable of having the resources to use these tools.

This is why organizations like the Economic Futures Group inSpartanburg are so important. In our state, we have the MissouriDepartment of Economic Development (DED). In my vision of how things should work, DED would create a task force to teach and implement Missouri incentive programs. DED should be aggressive and not be afraid to use the powerful programs it has in hand, even in the face of criticism.

The economic development tools we have in this state can do so much good if we just let them, and spur so much growth, if we would just use them. Once we get to 3% growth each year and the economy is robust, criticism will fade and justified appreciation will grow for the leadership that got us there.

My place in the market is commercial real estate development. I have been doing it for 42 years. I have used tools like this more times than I can count and have added value and growth to many communities. I am proud of the contributions my projects have made and the improved revenues affected tax jurisdictions now receive.

My own experience tells me that with a little bit of education, we can help many more business owners, investors, community organizers and municipal development agencies do the very same things and achieve really great results. The best thing about it is that the state and municipal governments do not write a check but puts the private investors’ money to work in exchange for a share of a better future together.

Through smart use of the tools we already have, school districts could improve their budgets by supporting growth of the tax base, rather than raising tax rates. Cities, fire districts, and other taxing jurisdictions can support projects using incentives or not and set the stage for improved revenues in the future and economic growth now. I am happy to say I have been part of such processes and improved the budgets, and economic outlook, of many communities.

Clear examples
A few small examples demonstrate the potential for positive impacts on the community, which if multiplied by 10, would have significant impacts on the whole region.

First, the 170 Business Center, which stands today on what was landlocked ground in Bel-Ridge with no utilities. Through the use ofTIF, about 15 acres of otherwise unusable land was converted and is now occupied by six businesses, the TIF is paid off and the school district enjoys $1 million in revenue every year that it would otherwise have not realized, without adding any additional students.

Second, Affton Plaza Shopping Center and 9 Mile Garden used TIF to convert a nearly vacant, deteriorated center into a refurbished gemstone in the Affton area, with 9 Mile Garden at its center as the heart of the community. These developments are turning the tide in this area from a downward trend to an upward one, and with much more to come.