While the Missouri State Historic Preservation Tax Credit has been lauded as an unprecedented success, legislators and activists alike aim to further reduce funding available to commercial real estate developers.
Although the economies of cities like Los Angeles and New York City might seem like self-sufficient entities, these financial and industrial centers share one development tactic with emerging markets: tax incentives. These incentives, used to stimulate commercial real estate development by offering tax breaks and abatement to developers, are so universal that businesses are often able to play the offers of different cities against one another as if they were shopping for a car — if one city offers three years of tax abatement, businesses will go looking for another city that offers five years.
When it comes to economic development, the city of St. Louis is no different: new developers in the city are afforded an average of $123 million each year in total through the Missouri State Historic Tax Credit, among other economic incentives. In 2010, legislators voted to cap the tax credit at a maximum of $140 million each year — the highest cap among the 18 states with annual tax incentive limits.
Despite the credit’s recent limitation, there remains no shortage of debate surrounding these economic incentives — recently, several groups have stepped up their efforts to reduce or eliminate the historic preservation tax credit altogether.
Opposition On All Sides
Perhaps most prominently, brand-new Missouri State Senator Andrew Koenig (R) sponsored Senate Bill 226, legislation that would prohibit the sale, transfer, or assignment of state tax credits for historic preservation, affordable housing assistance, and brownfield remediation. Koenig was recently added to Missouri Gov. Eric Greitens’ Committee on Simple, Fair, and Low Taxes, which aims to steer Missouri toward increased fiscal responsibility and encourage job creation in the state. The committee will submit a report of its findings on June 30, 2017.
As for the reason behind the committee’s formation? Back in 2014, Missouri state auditors investigated the historic preservation tax credit and found that a large portion of state funding was being used inefficiently. For example, one Missouri homeowner renovated the top floor of their 35-story building for a bill of $1.2 million. The state of Missouri paid $250,000 of the total sum for luxury renovations, and the building’s previous owner had already received credits to renovate the building’s exterior in the past.
Still, Bill 226 has been met with staunch opposition from several groups, including the Landmarks Association of St. Louis. “[This bill] would eliminate the entire Missouri Historic Preservation Tax Credit Program,” the group said in a January statement. Jerry Schlichter, the lawyer who first assembled the existing tax credit law, noted that Koenig’s proposed bill is not the first attempt to cap tax credit funds: “Despite constant attacks, Missourians who care about revitalizing their communities have fought to maintain the Historic Tax Credit,” he said. “No other economic development program has come even close to this level of success.”
Republican lawmakers aren’t the only ones who disagree with Schlichter and the Landmarks Association, however. Local activists have published research that alleges that the distribution of these incentives has been inequitable, and furthermore, that these incentives have fueled rapid gentrification.
A Sustainable Path For Economic Development
Regardless of whether the St. Louis Historic Tax credit is ultimately eliminated or merely reduced, the debate over its effectiveness is an important one. Cities across the country should look critically at the way in which tax abatement resources are allocated and conduct the necessary research to determine the big-picture impact of new development.
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