The Tangle of Distributing Community Benefits

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Buildings often reveal information beyond what their designers were intending. Extra height, high-end finishes in bathrooms, exterior cladding – they show us what building codes allowed, how historic preservation rules were interpreted and what public financing (through tax abatement and tax increment financing) allows.

If a COR-TEN steel apartment building ever rises at 4172 Morganford Road in St. Louis, we’ll have a record of what is a very smart design by JEMA. The basic urban form – a mixed-use platform with retail and parking below apartments – will tip the hand of architects and developers who chose to do more than what the market would have rewarded.

The building may also record the vagaries of an early 21st century debate over public finance, and the limits of spot community benefits agreements – or maybe this will become a chapter not evident in steel and glass. So far it seems like the building will be just fine without this.

Last week, the Housing, Urban Development and Zoning Committee of the Board of Aldermen decided to push this building away from an experiment in leveraging public finance for community benefit – a wise choice ripe in contradiction. For months, members of that Board have talked about various versions of community benefits agreements attached to subsidized projects. There are now two bills for such, one sponsored by Alderwoman Megan Green (D-15), who supports both the subsidy and benefits agreement on Morganford, and Aldermanic President Lewis Reed (D). Green’s is specific, and Reed’s is admittedly a vague vessel awaiting some consensus. The action last week suggests that the Board is far from being up to the tasks of defining the policy or building consensus around it.

Green’s support for incentives for the Morganford project was conditional on the developer agreeing to enter into a separate, extra-legislative agreement with a community organization. The developer would pay $60,000 to that entity. This method of delivering “benefits” is suspect, to say the least. While Green’s motives may be noble, and she lacks a financial relationship with the developer, there is muck down the road. The possibility that the benefits payment could land with a community development corporation dependent on city government (and partially on alderpersons) for its federal block grants payment opens the door for abuse. Also, the way in which an agreement is not truly enacted by or subject to legislation sets up a scenario in which extra-legal promises are used to secure public financing, in a process where most of the public – the taxpayers whose city government’s revenues are affected – are not able to either enjoy supposed benefits or block them.

Under the current means of the Board of Aldermen, projects in one elected official’s ward usually sail through with full support from others. This parochial divvying up of lost revenues on development deals has been challenged by Team TIF and other housing activists as grossly shortsighted. Tax abatements deprive the school district, and other tax financing deprives the city’s general revenue. As revenues decline, the schools and city services pay the price of “local” development – with no consequence to the political fortunes of the alderpersons who can just claim they were doing things the old way.

The Morganford community benefits proposal would be of no concern to the city if it were not being used to leverage our revenues – without our consent. The bill rests of the cynical assumption that changing the broken system of aldermanic courtesy cannot happen, and reproduces the status quo. A fairly stable, affluent area gets double benefits – a new building and a payment to its local community. The rest of the city gets nothing. This is the problem with the current incentive and aldermanic courtesy system in a nutshell. Green’s efforts to bend the old way to a new aim merits a quiet nod and a dead end. This way of doing things will not cease geographic inequity or clarify existing incentive policies.

The members of the committee who railed on Green’s proposal deserve few points for their actions, though. There were personal political at play, and a good measure of deflected contradiction. At the November 3 meeting of the Board of Aldermen, all 31 bills passed 23-0, and 24 established blighting instruments enabling public finance. Where were the hawks of the Housing, Urban Development and Zoning Committee? Where was the spirit of pushing incentive reform? Green’s idea is at least a reform of the stale consensus, however flawed.

Green ended up removing her bill from consideration, with a return committee hearing. Hopefully the next hearing debates the merit of the public financing the project at all, without the mystification of a benefits agreement. The “community” for every one of the projects being incentivized by the Board of Aldermen is the entire taxpaying body of the city – these bills join us all to pay for them. Why should the benefits be localized, and absolve beneficiaries from trading subsidy for placing more revenue into streams that are publicly-controlled with full citywide benefit?

Many people want a full, robust debate on development incentives – where consideration of how to require community benefits for projects is on the table. Even the establishment is voicing support. That debate really should question the dominant perpetual narrative of “but for,” which assumes that the city does not benefit without granting financing for projects big and small. The city has been tossing its money at private real estate development since the 1950s, and since then, the city has only seen loss of revenue, population, job pool and all measures of success. There still is a real possibility that the city will have to declare bankruptcy in this decade, because of a lugubrious refusal of its elected officials to examine the consequences of public investment in private real estate activity.

St. Louis officials seem to be seeking a replay of the November 2016 vote on community benefits policies in Detroit. Detroit voters had the chance to vote on two different policies, and chose the least radical. The failed Proposal A, pushed by activists and the City Council president, would have required projects with costs of $15 million or more or $300,000 or more in incentives or abatements to enter into legally binding benefits agreements with “representative residents, businesses and nonprofit organizations.”

Winner Proposal B, supported by Mayor Mike Duggan and Detroit City Council Member Scott Benson requires community benefits agreements for developments $75 million or more and receiving $1 million or more in public incentives, or on property with a cumulative market value of $1 million or more that was sold or transferred to a developer. The City Council can throw the requirements out the window if it rules an agreement “impractical or infeasible.”

Detroit is an interesting example where the political establishment has transformed in recent years, especially after bankruptcy restructuring. The new guard espouses market liberalism, along the lines of the St. Louis establishment. The agenda posits real estate capital as the public good, provident of derivative benefits for the greatest number of people. City policies must support development, or the city will face an even more precipitous decline.

The terminal narrative in Detroit government betrays the fact that incentivized development so far has only reinscribed historic red lines, supporting increases in downtown and Cass-Woodward corridor land values, and not distributing values across the city. Besides, real estate capitalization was underway even when the city was “in decline,” and investors even profited from the depressed market without government incentives for speculation. Incentives are tracking to areas that already were seeing higher valuation before the post-bankruptcy regime and its purported renaissance began.

The high thresholds of Detroit’s new community benefits policy mean that most projects will elude it. Rashida Tlaib, a stalwart supporter of community benefits agreements in Detroit, told Next City recently: “We know it’s not going to result in any kind of accountability.” Perhaps there will be a large project where benefits will accrue, but the policy does seem like a lacuna.

For St. Louis to do better than Detroit, it may need to follow suit and throw the policy to a popular referendum. Last week’s hearing is a reminder that the way that the Board of Aldermen operates today presents too much conflict of interest for the Board to decide what community benefits agreements should look like. In fact, given the way in which alderpersons steer incentive legislation, the community probably needs a benefits agreement with the Board of Aldermen. The alderpersons practically are partners in the development deals, and put their names on project signs alongside lenders – as if they helped “finance” the deal.

Community benefits agreements need to have inclusiveness, enforceability and accountability. Connecting agreements to incentives legislation dilutes all three. Communities ought to be able to negotiate agreements that aren’t contingent on incentives horse-trading. Developers who have their negotiations with a community mediated by an elected official who can withhold legislation will end up avoiding benefits agreements, and sticking to the easier track of just giving in to what that elected official wants. In the end, the Board of Aldermen could end up with even more power over development deals – while still avoiding any policy reform on real estate incentives and any effort to return more revenue to the schools and the city coffers.

St. Louis needs community benefits agreements, incentive reform and a reduction in aldermanic power over economic development. The current system, even with spot agreements like the one proposed for Morganford, has no accountability for the ultimate fiscal health of the city, and engenders no willingness among elected officials to make meaningful changes. A popular referendum may be the only way real change will ever occur. Otherwise, perhaps continued austerity measures like this year’s $17 million budget cuts will foment revolution.

Maybe some day, we’ll see a new building on Morganford, dazzling with a fresh architectural energy and full of new residents, and see all of ourselves. We’ll know that everyone in St. Louis benefitted from its construction.

 

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  • matty_fred

    Green’s deal was the typical Roddy or Conway deal but with exponentially more bullshit. The “community benefits agreement” was a smokescreen to help push an irresponsible tax abatement through. HUDZ needs to kill this bill. It looks too much like a play-to-pay scheme and the developer must think so as he’s lawyered-up with Dave Sweeney.

  • Robert Barquero

    Generally a good notion, but needs a lot of work, such as who decides which entity gets the kick-back? Perhaps a 10-15% of units set aside for 20 yrs for low-moderate income dwellers would have been reasonable in exchange for tax incentives… works in London to Chicago…

  • Matthew W. Hall

    This makes me wonder whether we should have municipalities at all. Wouldn’t a system of independent public bodies providing services paid for by individual users be better than the wack-a-mole this article describes?