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Corporate Welfare / Subsidies

Which Came First: the Investment Chicken or the Incentive Egg?

By Graham Renz on Nov 1, 2016

Saint Louis Mayor Francis Slay recently touted the amount of money—more than one billion dollars—that has been invested in the city this year. This investment, up 12% from last year, is good news. But here’s something the mayor isn’t touting: Nearly 80% of the investment has occurred in just 5 of the city’s 28 wards.

Comparing the two maps below shows that significant investments (top map) are clustered in areas where subsidies like tax increment financing (TIF—bottom map) are being granted to developers (primarily the central corridor).

Saint Louis City Investment by Wards_Chart.jpg

Active TIF Projects in STL City.jpg

(Note: The active TIF project map reflects only subsidy dollars that have been awarded to date, not the total amount of subsidy authorized. For example, the Northside Regeneration TIF, on which work has not yet begun, is not included in the map.)

So one might ask: Are development subsidies like TIF responsible for these investments? Initially, it might look that way. After all, TIF is designed to spur development.

But although it may sound counterintuitive, overall real-estate investment has likely driven the use of TIF and other incentives in the central corridor. That is, TIF and other taxpayer handouts tend to follow investments, not the other way around.

A recent report on incentives in St. Louis suggests that TIFs get doled out in neighborhoods that are already doing well or are on the rise. If there is a cause–effect relationship between TIF and development, then strong markets appear to attract TIFs.

But for the sake of argument, let’s assume that I and other researchers are wrong, and that TIFs cause strong real estate markets. If that were the case, the city’s current incentive practices would be open to serious questioning. So few incentives are being used in genuinely depressed and blighted neighborhoods, and so many are being handed out in neighborhoods that are already thriving, that it’s hard to imagine any result other than a widening of the gap between wealthy and struggling areas. That is, the city’s current practices would go exactly against the original intent of development subsidies. Can this possibly be the intent of city leaders? I certainly hope not.
 

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About the author

Graham Renz

Policy Analyst

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