TIF subsidy tilts the retail playing field

The developer bought an office building in one of the city’s best neighborhoods, tore it down and now argues that the resulting vacant lot is blighted.

That sounds a little like the old joke about a man who kills his parents and asks for mercy because he’s an orphan.

In plain, commonsense English, “blighted” means that a property is an eyesore or a nuisance. In real estate law, it simply means that a property is eligible for a subsidy.

Every developer, of course, wants a subsidy, so one can’t fault Mills for seeking a TIF. That’s short for tax-increment financing, a form of public assistance that diverts future property tax payments to subsidize a project.

Nor can one be surprised that the city of St. Louis really wants Mills to build new apartments and a Whole Foods supermarket on his vacant lot. The city’s TIF commission unanimously approved Mills’ request last week.

One can, however, fault a system in which cities hand out subsidies like Halloween candy.

The problem with subsidies is that they create winners and losers. Because Mills’ tenants won’t bear the full cost of the new construction, his project will have an unfair advantage over other supermarkets and other apartment buildings in the neighborhood.

Consider the Straub’s a few blocks away. Tim Hollenbach, Straub’s general manager, says his chain isn’t afraid of competing with Whole Foods. “They obviously recognize that the Central West End is an up-and-coming area,” he says.

Hollenbach does, however, raise his eyebrows when he hears that his big, national competitor may get $10 million in government help. He appeared before the TIF commission to share his concerns.

“We’re a small business, and we’re coming out of the toughest economy ever,” Hollenbach told me. “We just want a level playing field.”

He acknowledges that the Straub’s on Kingshighway is a bit dated and needs some remodeling. It never occurred to Straub’s to ask for taxpayer help with such a project, he said.

Maybe Straub’s should apply. If a vacant lot can be declared blighted, then an upscale grocery store shouldn’t be too much of a stretch. (Straub’s already lies within a TIF district, but the tax revenue goes to pay for a nearby parking garage and doesn’t directly benefit the store.)

The ubiquity of subsidies is the worst aspect of the system. Suburban Walmarts, entertainment districts such as Ballpark Village and upscale malls such as West County Center all get TIFs. The subsidies move sales tax dollars from one municipality to another but don’t, in aggregate, help the St. Louis area grow.

The East-West Gateway Council of Governments, in a 2011 report, calculated that the region spent $370,000 for each retail job that TIFs and other subsidies generated.

“That is not a road to growth, it is a road to poverty,” said David Stokes, a policy analyst at the Show-Me Institute, in testimony about the Central West End TIF request.

Indeed. It’s up to the Missouri Legislature to rein in the use of TIF. Lawmakers should at least revive a modest reform proposal that would give more power to county TIF review commisions. Even better would be to ban the use of TIFs for retail projects.

Shifting shoppers’ dollars around the region is not real economic development. If lawmakers would listen to small businesses such as Straub’s instead of real estate magnates such as Mills, they’d understand that.