Call a financial specialist with a development query before the Great Recession and the most likely prescription was to generously apply incentives, federal earmarks or cavalier investment strategies. Today, a strict regimen of abstinence from both the public and private sectors threatens to stifle an expeditious recovery.
The answer most assuredly lies somewhere in between. Three recent examples demonstrate the merits of moderation.
Tax abatement
Bryan Magers recently proposed to invest $2 million in a private student housing and retail development immediately west of the Missouri State University campus. His build-out plan includes 175 beds and 400 parking spaces at a $20 million price tag. It is projected to create 660 temporary construction jobs at the heart of an area designated by the city of Springfield as blighted five times since 1964.
No federal stimulus dollars or congressional earmarks are in the pro forma. He simply requested the opportunity for tax abatement for the improvements during the next 10 years, a standard incentive suggested to him by city staff. Schools and taxing jurisdictions would continue to receive the same property tax revenues and then reap the benefits of higher assessments beginning in year 11.
How was Magers rewarded for his willingness to invest millions of dollars on the heels of a recession in this blighted off-campus student housing area? He was publicly taken to the third-floor City Hall woodshed by a member of City Council. Rather than criticize Magers for taking too long to assemble and renovate his properties, he should be thanked for his willingness to assume risk and utilize a proven and reasonable economic development tool such as tax abatement.
Historic tax credits
Missouri is the top state in the country in the utilization of historic tax credits.
According to data provided by the Missouri Department of Economic Development in a 2010 report issued by the Missouri Growth Association, there were 1,726 applications for which credits were issued under the Historic Preservation Tax Credit Program between 2000 and 2009. More than $832 million in tax credits issued on those projects leveraged $2.9 billion in private investment and helped create or retain 43,150 jobs with an average salary of $42,732. Historic tax credits generated $670 million in new sales/use tax and income tax revenues for state and local governments.
Historic tax credits, along with MSU’s downtown expansion, were the two main catalysts in center city’s $400 million in revitalization investments during the past decade. The program’s successes can be seen on virtually any center city street with large and small renovations in all three historic business districts.
It is possible, however, to have too much of a good thing. At a time when the state budget shortfall is roughly $500 million, initial priorities must be set for primary health and educational services. Gov. Jay Nixon’s 27-member Tax Credit Review Commission recommended several changes last fall to the historic tax credit program including a $75 million annual cap and subjecting it to periodic review by the General Assembly.
This spirit of compromise, if enacted in the fiscal 2012 budget, will allow the successful historic tax credit program to continue in a more constrained and predictable framework.
Revenue enhancements
When households look at budgets, they scrutinize and whittle expenses whenever practical. But that is just one side of the ledger. Those who have the ability to earn additional revenue should explore those options as well.
The city of Springfield’s Legislative Policy for 2011 includes two provisions that would generate additional revenues for the state.
The first would be to eliminate the tax-free status for Internet sales. The Missouri Budget Project notes this step alone would produce $210 million in state and local revenues in 2012, according to estimates in a University of Tennessee study.
The second provision is to increase the state tobacco tax to provide funding for county health programs, local schools and higher education. Missouri has the lowest cigarette tax in the nation at 17 cents per pack. The national average tobacco tax rate is $1.43 per pack and the average of the states bordering Missouri is $1.07. If the Missouri rate increased to the average of its border states, it would generate nearly $500 million in new revenue.
The General Assembly and governor are currently rejecting revenue enhancement options such as these. Phasing in one or more of these sources during the next several years could reduce the severity of cuts to health and education while saving taxpayers the indirect tax hikes of higher college tuition rates and health insurance premiums.
There is no silver bullet in these challenging economic times. Working collaboratively on a series of moderate budget and tax strategies can preserve limited public resources and stimulate private investment to position Missouri for a stronger future.
Rusty Worley, executive director of Urban Districts Alliance, can be reached at rusty@itsalldowntown.com.[[In-content Ad]]
