While suburban sprawl has taken place in metropolitan areas throughout the country, Springfield has seen a recent influx of development activity in and around the downtown area. Local and regional real estate developers are utilizing federal and state tax incentives to help finance a revitalization of the area.
An increased number of people will choose to reside downtown when the city is redeveloped, which benefits the greater community in a number of ways. An increase in population means less traffic congestion and more pedestrian activity. The reduction of vehicle transportation is beneficial to the environment and the area’s infrastructure. Without an enhanced urban core, more people would relocate outside of center city limits to the suburbs, decreasing the city’s tax base while increasing the demand on its public infrastructure. Urban revitalization means more taxpayers residing within the city limits, enabling Springfield to become a vibrant and sustainable city for years to come.
There is a reason for the population explosion of the communities that border Springfield. Knowing the detrimental impact of urban sprawl to communities, our federal and state governments enacted legislation to combat sprawl and encourage urban revitalization. The historic tax credit and real property tax abatement are the tools used by most urban developers to level the playing field with new construction.
The redevelopment of the Heer’s building is a prime example of a building that would have remained a vacant eyesore in the heart of downtown without the use of tax credits and abatements. After sitting vacant for years, this century-old former department store currently is being transformed into a mixed-use development, which will bring more jobs and households to center city. With the use of incentives, this long vacant building will be placed back in service in 2015.
Brick City is another shining example of urban revitalization transforming a once downtrodden group of buildings. While Brick City was once a group of inoperable refrigerated warehouse buildings, it is now the home of Missouri State University’s art department. The buildings now contain classroom and gallery space. While this redevelopment has been beneficial for the developer and MSU, downtown has benefitted greatly from the students and faculty who frequent the shops and restaurants because of their proximity to the campus.
Tax abatement also is used by local government to encourage private redevelopment of old and potentially hazardous areas. Real property taxes are still owed after abatement is approved; however, tax abatements freeze the assessed value of the property at the pre-development value for a number of years. The property owner does not pay real property taxes on the increased value of the project. This allows a landlord to charge market rate rent to potential tenants, placing them on a level playing field with suburban developers.
Chapters 99 and 353 of Missouri’s revised statutes offer two types of tax abatements. The Chapter 99 tax abatement is a 10-year abatement for the full value of the improvements.
The Chapter 353 tax abatement is for 25 years, but requires a more extensive application process. In addition to showing that the redevelopment area is blighted, the applicant must show that the project is not financially viable without the abatement – referred to as the “but-for” test, and requires in-depth financial analysis. The owner must also submit a tax impact analysis with the application showing the impact to the tax district as caused by the abatement. If approved, the property owner receives a full abatement for the first 10 years and up to a 50 percent abatement for the final 15 years.
A recently completed project, known as The U, utilized the historic tax credit and a Chapter 99 abatement to facilitate the redevelopment of the former McDaniel Building located at 316-318 Park Central East in Springfield. Because of the tax credits and abatement, the developer turned a once obsolete building into 4,000 square feet of ground floor commercial space and 39 residential units above. The U development is completed and currently renting to primarily college and graduate students. Each of these students will become customers of downtown businesses, increasing revenues for both the private and public sector.
Another prime example of historic redevelopment changing the landscape of downtown Springfield is the rehabilitation of the old Springfield Tire Exchange building located at 211 S. Market Ave. Now known as the Union Biscuit Warehouse, the property consists of a classic bicycle and coffee shop on the ground level with luxury loft-style apartments above.
Incentives are a common way in which the public and private sector work together to revitalize a community. Without these incentives, communities would lose out on many of the benefits that come with a revitalized downtown, including increased diversity and greater ability to frequent locally owned businesses.
Shawn Whitney is a lawyer with the Springfield office of Spencer Fane Britt & Browne LLP. He can be reached at swhitney@spencerfane.com.
