A Field of Subsidies

If at first you don’t succeed, get more government help. That seems to be the mantra of Missouri developers and city officials these days.

Last month, the Hazelwood City Council passed a resolution approving the redevelopment of the failing and deeply indebted St. Louis Outlet Mall. After failing to secure financing for the same project in Chesterfield, the developer, Big Sports Properties (BSP), now plans to convert the mostly vacant mall into a 138-acre youth sports complex called POWERplex, with the help of taxpayer money.

The deal includes nine sources of public financing, which can be divided into four types of incentives:

• The first type of incentive used is special taxing districts, including a community improvement district (CID) and transportation development district (TDD), and they would together levy a 2% sales tax.
• Second, the existing tax-increment financing (TIF) district (from the original mall development in 2003) would also collect half of all economic activity taxes paid at the sports complex, and the agreement includes tentative approval of a new TIF, slated to go into effect next January if the project is on schedule.
• The third type of incentive used involves Hazelwood assisting the developer with debt financing, using economic development loans, Chapter 100 property tax abatement, and property assessed clean energy (PACE) financing.
• Finally, the fourth source of incentives comes directly from the City of Hazelwood and St. Louis County in the form of $3.6 million to revitalize infrastructure.

If this all sounds too complicated, it’s because it is.

There’s plenty of reason to doubt this project will be a good investment. When the mall was first built in 2003, it received public funds totaling $52.5 million from a TIF and TDD. However, the mall sold for $6 million in 2015, just 6% of its original cost. Earlier this year, it was announced that the mall would be closing, and the TDD was mired in debt. In fact, the TDD’s bondholders agreed to settle the debt for $10.5 million, a reportedly substantial discount, which will be paid by the newly formed CID.

The mall was a taxpayer-subsidized failure, and the city is asking for us to trust them again. Even if BSP manages to see the project through this time (part of the reason the development in Chesterfield failed last year was that BSP missed an important deadline) and the first few years are successful, the long-term risk is substantial. Hazelwood might find itself in a similar situation another 16 years from now.

Besides the risk to taxpayers, government should not be picking winners and losers. Hazelwood pulled out nearly every subsidy in the book to help build a private business with no guarantee of success, and taxpayers got to bear the cost. It’s hard to imagine a time when businesses relied on market forces to decide where to build. Instead, it has become a competition between cities to see who can give away the most taxpayer money, and Hazelwood has done an exemplary job showing us where that leads.