Westminster Place and the Blight of Lacking An Economic Development Plan

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We’ll try to make this as clear as possible: the designation of “blight” is meant to incentivize a project, which in the opinion of neighbors and the developer, fits in the neighborhood. Whether that should be an economic development tool used by the city is a political question.

As there is no proactive comprehensive planning in or by the city, such questions roll downhill to the lowest political denominator. The city defers, the alderperson almost always defers. If a neighborhood association doesn’t object, voila!, blight and subsidize.

Still, there is an economic argument to be made for tax abatement, and it’s to the city’s and residents’ detriment (and that of proponents) that proponents have not been made to make it. It could be simple math, devoid of hyberbole. Let’s look at the proposal for five new townhomes on Westminster in the city’s Central West End, which has received significant attention of late.

That project is requesting 50% property tax abatement for five years and 25% for an additional five years. The property currently pays $0 in property tax as it has been owned by a non-profit. The townhomes would reportedly be on the market for close to $700,000. Similar townhomes on the 5200 block of Waterman Boulevard show an annual property tax payment of $7,000, per city records. One is currently on the market for $455,000.

Let’s assume that the tax abatement allows the developer to build and a homebuyer to purchase a rowhome at $700,000. Let’s assume $7,000 in annual property taxes. Each new townhome would generate $43,750 in property taxes over 10 years, then $7,000 each year afterward. With five townhomes, the 10-year total is $218,750.

IF without abatement, townhomes would still be developed, but at a lower sale price, let’s say $500,000, they might generate $5,000 in annual property taxes, and thus $50,000 over 10 years, and then $5,000 each year afterward. This comparison assumes the abatement allows for a more expensive development.

But let’s consider the other possibilities. Maybe without abatement nothing is built. Maybe this is because neighbors won’t support $500,000 townhomes, maybe it’s because the economics don’t work for some reason, maybe it’s because the developer just doesn’t want to build something else. The private owner could let the lot sit.

The city could also negotiate with the developer to lessen the abatement. In that case, perhaps the abatement is reduced, though it’s worth noting, every year of delay deprives the city of $17,500. The other possibility is that abatement isn’t offered, and the development happens anyway. In that case, the 10-year property tax total would be $350,000.

With the requested tax abatement, the $700,000 townhomes out-produce the $500,000 unsubsidized townhomes in year 12, with the spread increasing each year thereafter.

You can work the math different ways, to be sure, and I won’t proclaim to fully understand the psychological impact of tax abatement on a homebuyer’s decision, but the argument should be about whether an incentive allows for a larger investment, which produces more economic impact, and ultimately whether this is an economic development goal of the city.

This is ridiculously rudimentary math, not even economic analysis. Still, even an elementary count of dollars is too often absent from the debate surrounding an incentive such as this. Consider this more of a call for a real economic analysis than expertise offered.

In addition to the tax abatement issue, it’s important to note the value of this type of development to the city. The townhome referenced on 5200 Waterman has a frontage of 27 feet. A large, historic single-family home on the same block occupies 50 feet of street front and pays $8,700 annually in property tax. Townhomes are a housing type the city would be wise to incentivize simply based on property tax, but when one considers added density to support retail, and the earnings tax, they are even better.

The burgeoning debate about economic incentives in the City of St. Louis is good and necessary. However, it’s not very mature at this point. The well-earned pushback against TIF, CIDs, abatement, and other incentives risks painting each and every instance as an arbitrary and unnecessary giveaway. A good argument needs two good sides. Citing median household income, or home values is lazy analysis (slightly lazier than our analysis above!) that could be applied to just about any city expenditure.

Proponents should be made to defend proposed economic development incentives. When you’re not challenged on why you do something, you forget why you do it. The pro argument devolves quickly into “this is how we do it, it wouldn’t be fair to stop with this developer.”

But aldermen are forced to wing it. The city doesn’t provide them with economic development guidance, or insight, or analysis, or a plan. Perhaps townhomes could even be a specific economic development aim of the City of St. Louis. Perhaps an analysis of housing options and property tax revenue would point to the need for more high-end housing in the city.

We’ve made fun of the statutory language of “blight” as much as anyone, but the reality is that blighting is an economic development tool, the same as a building’s listing on the National Register of Historic Places. Should more resources and planning be dedicated to parts of our city with less wealth? Yes. Does blighting a property on Westminster Place prevent doing just that? The answer is more than unclear.

And to be clear, we can confidently say that any and all properties in the oft-cited severely distressed neighborhoods in north St. Louis would easily receive a “blight” designation. The key, however, is that to generate “blighting” legislation, there must be an interested developer, a plan to build, and financing.

An economic development plan would answer the questions posed above. There may not be a right or wrong answer, but there should be a judgment as to whether a particular incentive serves to achieve a recognized development goal. Again, our city’s problem? We have no specific, measurable development goals.

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  • CWE1959

    Any word on the status of this project?

  • Alex, are you proposing that part of a citywide development plan would be removing the Board of Aldermen from the process of granting tax abatement and tax increment financing? Because if not, then the Board of Aldermen would have the same responsibility for its decisions as it does now. Several alderpersons have called for more planning, which is great, but that does not really impact responsibility for deciding these matters — or necessarily mean that “a plan” would preclude the Board from voting any way it wants, or from continuing to follow the tradition of aldermanic courtesy.

    • Alex Ihnen

      That’s an option that should be considered – probably a few forms this could take. But I believe having a plan would help direct an alderman’s decision, the public input, and the criticism of a project. It would/could set standards, goals, and outcomes against which to judge a project. Then, at least, when something like this comes up it isn’t (as much) a debate about personal ethics than it is about whether the project fits the city’s plan and achieves a stated, desired outcome.

      • matty_fred

        This is a debate about personal ethics? I would not get that from your essay here, Alex. The closest that we get to an acknowledgment that personal ethics is an issue here is the passage in which you write that aldermen are “forced to wing it” when facilitating this type of transaction. I would argue that the CFO of a firm whose business includes putting together a great deal of blight studies for real estate developments is not “winging it.” (At least we should hope that Krewson is not “winging it.”)

  • Mike H.

    Getting a property back on the tax rolls – especially a nice property which will be attractive to people and will draw residents back to the city – seems like a no-brainer to me. This story has been somewhat misrepresented in our local dispatch. Not all of the relevant facts have been reported about this particular piece of property. Alex at least demonstrates that the proposed development of this property would result in increased revenue, certainly in the long term.

    This is being used as a racial wedge by political players. Is it any big surprise that there aren’t more developers interested in tax abatement for projects in The Ville? News flash: more people and more money in the city will increase revenue and enable city government to provide better services on the North Side. And yet, somehow the very successful Central Corridor has become a punching bag for all of the unfair attention it receives. It receives attention because developers see promise there.

    • matty_fred

      Jim Dwyer is an old friend of Lyda’s and a campaign contributor. That’s the story. This was an attempt at a sweetheart deal for a friend of Lyda not unlike Lyda’s brokering the sale of a city-owned Central West End parcel for $15,000 that’s valued at $75,000. It’s good to be a friend of Lyda when it comes to Central West End real estate transactions. You get that Friend-of-Lyda discount.

      Also, you gotta love Lyda offering the same lame and total bullshit “no overall plan” excuse in this P-D article that Ihnen offers in this NextSTL article. Way to stay on message, you two! It’s really too bad to see Ihnen carrying water for the local aristocrats like this. But, hey, I guess they’re expecting something in return for that advertising money that they throw NextSTL’s way.

      http://www.stltoday.com/news/local/columns/tony-messenger/messenger-tax-abatement-takes-st-louis-mayoral-candidates-to-class/article_e6f9c825-a20b-5328-9301-a8dd5e89609e.html

      • Mike H.

        I think the campaign contribution was, what, a couple hundred dollars? Alex has also posed the question on twitter: if the property is so “prime,” then why has it sat vacant so many years? (Someone else has mentioned possible problems with underground River Des Peres.) I think our local dispatch simply needs to present a more complete version of the story. Messenger does have that tendency to shoot before he aims.

        • Riggle

          This site claims all kind of property as “prime”, this lot is far more prime than many many of the buildings and lots this site uses the term for

          • Alex Ihnen

            Can’t remember calling many, if any properties “prime”, but maybe. Definitely should be used sparingly in a city with so much long term vacancy.

          • Mike H.

            “Prime” was not the word used by Alex. My mistake. “High market value” were the words used. As in: “why have these city owned lots been vacant for decades if they have high market value?”

          • Alex Ihnen

            I think you cited it right – my response was to Riggle. But there is a point here – that is seems each time a vacant lot is built upon or sold, it’s lamented that such a “prime” or “high value” lot is being used for something less than spectacular. But if these are so desirable, why have they remained vacant for decades some times?

          • Riggle

            Pretty disingenuous response given the nature of this blog. But then again you say st louis needs to change, then move to the County, then support the status quo and someone you can’t even vote for. Sounds like st louis changed you…

          • Alex Ihnen

            For the record, I also say that University City needs to change, and St. Louis County, and the state of Missouri. I also work in the city and work directly with issues affecting some of the most challenged parts of our city. So there’s that?

            And I get that some read this post and think it’s support of the status quo. It’s not. It’s a call for change. It’s also not an endorsement of anyone, but rather a policy discussion. I’m not supporting anyone in the mayor’s race, or any of the aldermanic races. I do get that some see any conversation like this to be for or against an individual. That doesn’t make it true.

            So you criticize this site for claiming “all kind of property as ‘prime’ “. I note that your statement isn’t true. And if I’ve used “prime” in that way, I probably shouldn’t have. Then you reply with a personal attack?

        • matty_fred

          On the Dwyer deal? I’m not sure, I’d have to check MEC. But Dwyer is definitely an old friend of Lyda’s and a longtime contributor.

          http://bergersbeat.com/name-dropping/

        • CWE1959

          There were a few offers to purchase the Westminster property over the years. Neighbors were not in favor of the plans previously proposed. The property was originally listed for $600k over many years and ultimately sold to Jim for $300k.

      • Luftmentsch

        I happen to support Tishaura. But I think the attacks on Lyda are sleazy and simple-minded. Anyone who has explored development in Skinker-Debaliviere knows that the underground river is a huge obstacle to developing the Pershing/Des Peres site. The claim that the parcel is “valued” at $75,000 comes from where exactly? Tony Messenger? His source is Zillow! (And if you think that’s a reliable website, well….)

        Lyda is trying to build up neighborhood density. She’s trying to get parcels back (eventually) on the taxrolls. She’s trying to attract more residents – especially those who will contribute significantly to the earnings tax. She may not be the best candidate for Mayor, but she’s definitely the candidate who has made the biggest, most consequential contributions to the city.

        • STLrainbow

          That’s arguable… Lyda is the alderperson for our city’s wealthiest area that is also adjacent to a number of our region’s crown jewels (Forest Park, WashU, etc.) She benefits greatly from that firepower and not sure how much she should be credited for it. Now if she had fostered significant affordable housing developments in the 28th, or pioneered innovative development funding mechanisms, etc. that were beginning to be implemented in other wards, that would be more persuasive.

          • Luftmentsch

            So, she just happened to be in the right place at the right time? Because development in the city is easy-peezy, and people are just tripping over each other to compete for city parcels? Sorry, no. Talk to anyone who has worked with Lyda on major projects. She deserves a lot of credit for the positive transformations in this ward. More affordable housing in the 28th would be nice, but it happens that adjoining wards have an abundance of cheap rental units and houses under $150k. Do you think that every block in the city has to have affordable housing?

          • STLrainbow

            “So, she just happened to be in the right place at the right time? ” There’s no question she has benefited from being in place at the right time … eds & meds corridors across the nation have been booming and significant development in such a well-situated area was pretty much assured. That’s not to say she hasn’t been helpful and capable in her role as alderperson, but it’s not like there wouldn’t have been significant growth in her absence.

            As for the issue of affordable housing, etc. it is important to discuss what type of city we want and whether that is being attained in the 28th Ward. Opinions may vary! I have one but I’ve gotta run for now.

          • stldoc

            A few years back I attempted to start a neighborhood pool for the CWE neighborhood. Lyda was extremely helpful and knowledgeable. In the end, I couldn’t find a lot for a cost that would be financially viable, but I have nothing but positive things to say about Lyda from the experience.

  • Jake Banton

    I agree with the argument that using tax incentives and “blighting” properties are useful economic development tools for a city to have. The problem is that when St. Louis uses these tools, if often only benefits those more well off that can afford the expensive products the developers are building. This project is a poster child for this type of abuse/oversight. In a city that is one of the most segregated in the nation and has neighborhoods that are literally crumbling, the city needs to use these tools in a more responsible way to encourage more equitable development. The argument to use tax incentives just to put property back on the tax roles is missing this important social equity component. Hopefully this old way of doing business will follow our current mayor out the door.

    • Eddie in NorCal

      Jake,
      Last August, the City just gave $5 million in tax credits for a grocery store and gas station near the new NGA facility on the near North side. The City has expressed a willingness to provide similar tax relief for other developments around the NGA site — this was a condition to keeping the facility in St. Louis.

      The City is limited in where it can offer such incentives by developers’ desire to pursue projects. CWE residential is a market that developers wish to pursue; the absence of such interest 5 blocks north of Delmar is not due to prejudice on the City’s part.

      • Jake Banton

        Yes, but it can work both ways. If the city starts limiting the amount of incentives developers can get in certain areas and make it ridiculously easy to get them in others, that might induce more development in the areas that most need it. At the end of the day, a city should be looking after all of its citizens in the best way possible and if one of its practices is only benefiting a select few, it’s needs to retool that practice.

    • LessGood

      Agree with you that most of the new development benefits people with deep pockets and not low income folks. I actually thought that most of the new development in central corridor was targeted for outsiders to the region who may come here for new jobs. I don’t really think there was much thought or consideration in the development plan to benefit current residents and what they would want. It’s like all the new stuff is geared towards outsiders rather than insiders. We’ve built the city for somebody else but nobody knows who that somebody is. We think it is “young professional” from somewhere else.

      Still, there is some economic benefit to be had for the city overall without the social equity component given to racially isolated and economically deprived areas. If you don’t like segregation, then maybe relocate low-income folks from North City to downtown or central corridor to improve racial integration, though it will hollow out North City even more. You can create your own high density urban core with racial integration. If you can’t have it all, then accept less good. Less good is still good.

      • Jake Banton

        My point is that it really isn’t that hard to do both. After a while the new practice becomes the norm and now you’re getting the most good, not only the less good. St Louis has been settling for less good, heck, barely good, for a long time. I think we can do better.

  • Eddie in NorCal

    Let’s compare the net present value (NPV) of the two alternatives. I’m assuming a 5% discount rate and a 40 year term. The NPV of the stream of abated property tax payments for the $700K townhomes is $104,000 per home, roughly $525,000 for the entire project. If the lower priced townhomes are built instead, the NPV of the initially-higher-but-eventually lower property tax payments is $90,000 per townhome.

    The proposed abatement generates a NPV almost 16% higher than building less expensive townhomes without any tax abatement, which means the City’s interest is served by offering the abatement. If you think the 5% discount rate is too low, the tax abated proposal is still superior to the non-abated alternative even at a 7% discount rate, though the advantage drops to roughly 10%.

    As Alex pointed out, the timing of the project(s) is another important consideration. The proposal for the $700,000 townhomes that requests partial abatement over the first 10 years is on the table. If the alternative development of $500,000 townhomes were to occur just 2 years later, the NPV of their unabated $5,000 per year property tax payments would fall from approximately $90,000 per townhome to only $80,000 per townhome (at the 5% discount rate), making the current proposal even more attractive.

    This sort of calculation should be readily available to Aldermanic staff — if they can’t do this, they shouldn’t be in the job.

  • matty_fred

    Nice apologia for Lyda, Alex. On the one hand, we’re supposed to ooh and ahh over Krewson’s supposed “urban planning” cred. On the other hand, we’re supposed to excuse Lyda’s sweetheart deals for her friends because Lyda is suddenly too unsophisticated to strike a good deal for the city. Give me a break.

  • Nick

    “IF without abatement, townhomes would still be developed, but at a lower sale price, let’s say $500,000, they might generate $5,000 in annual property taxes, and thus $50,000 over 10 years, and then $5,000 each year afterward. This comparison assumes the abatement allows for a more expensive development.”

    Aren’t these abatements being passed on to the purchasers of the townhomes? If that’s the case, I don’t see how the abatement would affect the quality of the house itself. It might affect the sale price in that a buyer would be willing to pay a premium on a house that he doesn’t have to pay real estate taxes on for ten years (which is the real reason the developer wants them).

    • Alex Ihnen

      Yes, the abatement saves the homeowner money, allowing them to buy a more expensive home, and allowing the developer to build a more expensive home and sell it for more.

  • STLEnginerd

    It might be wise to make it a statutory requirement that all projects receiving incentives conform to the agreed upon form based code. Of course the IKEAs and Stadiums of the world might disagree.

  • Ihanaf

    For the sake of curbing further disparity between areas, perhaps there should be a moratorium on tax incentives once the median household income ( or another indicator of wealth) of a neighborhood passes a certain threshold. Maybe this would incentivize developers to look beyond the edges and ‘spread’ the wealth.

    • matty_fred

      But then how will Lyda’s friends in the CWE get their friend-of-Lyda discounts?

      • Imran

        Living in the 28th ward, I have gotten to know Lyda and Jim Dwyer and they are both passionate about the City. As 28th ward alderwoman Lyda used whatever resources/tax breaks she could control to leverage more investment in her ward. And Jim has a long history of investing in the ward where he resides. Rather than demonize individuals (though it serves a political purpose), I think it would be more productive to focus on an overall plan for the City that funnels more investment in the areas that need it desperately.

        • matty_fred

          Hey, I’m not demonizing anybody. If anything, I’d like to be as good friends with Lyda as JIm Dwyer, Michael Daniels and Ursula Thatch are. Are there any $75,000 city-owned parcels in the CWE that I can get friend-of-Lyda discounted to $15,000? I swear I’ll be Lyda’s friend forevermore and kick her some campaign dough every cycle. (Then again, perhaps I’m too “South Side hoosier” for the little Versailles that Lyda’s got going on in the 28th Ward.)

          • Adam

            Hey could you do that “friend-of-Lyda” bit again? Kills every time. 😉

          • Ihanaf

            To be fair though, aren’t there little Versailles in south city as well? Lafayette Square and St Louis Hills come to mind. They may not have caught the imagination of big money yet but probably the same aldermanic mechanics are at play. All the more reason to have a broader conversation.

          • Luftmentsch

            Can you provide any examples where Lyda refused to advocate for someone simply because he wasn’t her “friend?” Are there any cases where Lyda demanded a contribution in return for backing development? If not, then please stop with the libelous insinuations.