Friday, February 1, 2008
Craig Biesterfeld, a partner with Blackwell Sanders, said many attorneys believe the changes to local tax increment financing could be unconstitutional.
Jan. 1 brought new state tax increment financing (TIF) rules that could stall a real estate market that's already facing challenges, say legal and development professionals.
TIF involves the use of a portion of local sales and property taxes to help fund the redevelopment of blighted, conservation and economic development areas. The rationale is that property and sales taxes will increase in those areas following redevelopment, so a portion of that expected increase can be allocated to help developers.
TIFs can help fund building plans, surveys, land acquisition, demolition, renovation of existing buildings, new infrastructure such as parking, and other associated costs. TIFs can be used in urban areas as well as smaller communities -- wherever there is a need to create new jobs and boost tax revenue streams.
Craig Biesterfeld, a real estate attorney and partner with the Blackwell Sanders law firm in downtown St. Louis, said that new TIF language adopted for the St. Louis area in a recent special session of the Missouri Legislature raises conflicts with prior legislation set down about how TIF commissions must be formed.
There is a new state requirement for TIF districts being proposed for municipalities within the East-West Gateway Council of Governments' territory: the Missouri counties of Franklin, Jefferson, St. Charles and St. Louis; the city of St. Louis; and the Illinois counties of Madison, Monroe and St. Clair. They now must go through TIF commissions created at the county level, Biesterfeld said.
"Previously, when you had a TIF district being proposed, it would simply be submitted to a TIF commission created by the individual city, which would review it and make a recommendation," he said. "Then it would be passed on to the city council or board of aldermen for approval.
"Now, since they are requiring this only for East-West Gateway area cities -- making a distinction between those and other cities elsewhere in the state -- many attorneys feel it's unconstitutional, because it constitutes special legislation."
As a result, many attorneys who provide counsel regarding new TIF projects are reluctant to issue bond opinions on them until the legality of the new language is settled, Biesterfeld said -- and that could put some projects on hold in the coming months. A bond opinion is a legal opinion that a TIF bond is valid and in accordance with required procedures.
"Developers have come to rely heavily on TIF for retail and other developments," said Les Sterman, executive director of downtown St. Louis-based East-West Gateway Council of Governments, the bistate area's metro planning organization. "But bond attorneys tend to be conservative. They want to make sure everything is clear before proceeding with TIF proposals."
Sterman is of the opinion that a cooling-off period is in order, however. "Mostly, TIF has been used in suburban areas, for retail developments," instead of in truly distressed areas such as those in St. Louis' urban core, he said. "In my opinion, it's resulted in no real economic gain for the region yet. I don't think a chilling effect will be bad -- people will be able to take a breath and figure out what to do next."
Sterman said he believes the reasoning behind the new county TIF commission rules is to ensure there is a wider view of what areas need redevelopment and how TIF monies are used. He said St. Charles County and St. Louis County already are taking steps to form their respective county TIF commissions. Under the new rules, each 12-person commission must consist of six members appointed by the county executive or county commissioner; three appointed by cities within the county; two appointed by school districts in the county; and one representing all other taxing districts in the county.
One St. Louis-based real estate developer, who asked that his name not be used, said he believes the new county TIF commission requirements could have the effect of not playing one municipality against another when it comes to developing new properties. For example, if a grocery chain is considering developing a new store using TIF funding in either of two adjacent municipalities, having a county-based TIF commission would cause the developer to have to look at the demographics and shopping needs of the whole area, not just the interests of the two cities and their individual population subsets.
Some examples of local TIF projects in recent years include Saint Louis University's new $80.5 million Chaifetz Arena, which was granted $8 million in TIF, and Pyramid Cos.' renovation plan for the One City Centre office development in downtown St. Louis, which was awarded $14.5 million in TIF.
Sterman said Missouri Sen. Tim Green (D-Florissant), a strong proponent of TIF reform, likely will be involved in getting the statute language modified soon. That way, bond attorneys can continue issuing opinions and new redevelopment projects can move forward.
"I think the state legislature realizes there are problems with the new language," said Steve Ables, assistant director of the Clayton-based St. Louis County Municipal League, a nonpartisan association of area cities, villages and county government that works to shape municipal policy.
"Generally I have found that they (the legislature) want to try to work these kinds of things out," Ables said. "There are ongoing discussions among various parties on how to approach this. Cities and counties need to agree on new language to take to the legislature."
Ables said he expects a new bill likely will be introduced in the next couple of weeks to address the language in question. "It could be put on the fast track, with an 'emergency' clause," he said. "That would be ideal. They could put on it a date that's effective immediately following the governor's signature."
Julia M. Johnson is a St. Louis freelance writer.