Category: DALATC

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DALATC Eminent Domain North St. Louis Northside Regeneration Uncategorized

Eminent Domain, Northside Regeneration and the St. Louis American

by Michael R. Allen

The most recent edition of the St. Louis American‘s lively Political Eye editorial column deals with the Missouri Supreme Court consideration of the Northside Regeneration redevelopment agreement and tax increment financing bills, invalidated by Circuit Court ruling in July 2010. The Supreme Court took the case under advisement after a November 28 hearing and will issue a ruling early next year.

As a longtime observer of the Northside Regeneration project concerned with both its historic preservation and cultural impacts on north St. Louis, I was struk by one of the Political Eye’s statements:

The EYE is certain McKee would have taken the right to eminent domain had he been able to finagle it, but he was not. Both the Land Assemblage Tax Credit legislation that lavishly benefitted his project and the Northside redevelopment agreement with the city expressly forbid the use of eminent domain.

Actually the use of eminent domain has never been forbidden for Northside Regeneration by state or local statute — although Mayor Francis Slay has stated several times that he would not support the use of eminent domain on owner-occupied housing for the project.

Continue reading “Eminent Domain, Northside Regeneration and the St. Louis American”
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DALATC Historic Preservation Missouri Public Policy

Changes to Missouri Historic Tax Credit Pass Senate Committee

by Michael R. Allen

Yesterday the Missouri Senate’s Ways and Means Committee passed by a 5-0 vote a committee substitute to Senate Bill 280 (now SCS SB 280), which would implement many of the Tax Credit Reform Commission’s recommendations. The new version of the bill takes the bill from 109 to 254 pages, and tacks the Compete Missouri legislation (SB 279) onto the bill.

Included among SCS SB 280’s numerous policy changes are several that would change the state historic tax credit for the worse. Here is a summary of the changes:

  • Caps all annual issuance of historic tax credits at $75 million;
  • Sunsets Missouri’s historic tax credit after August 28, 2015 unless the legislature re-authorizes the program;
  • Prohibits “stacking” of historic tax credits with Low Income Housing Tax Credits and Neighborhood Preservation Act tax credits;
  • Authorizes the Department of Economic Development to define an “applicant” for the credits;
  • Permits only qualified rehabilitation expenditures (QREs) incurred prior to issuance of the tax credits;
  • Establishes a limit of $50,000 in tax credit issuance for an owner-occupied property, and prohibits applications from owner-occupied properties purchased for $150,000 or more.

    • The most pernicious change is the new cap formula, which does not separate small and large projects as the 2009 cap did. The result will be a system that throws homeowners, small business people and neighborhood groups in the same mix as developers with stronger political connections. This new version of the Missouri historic rehabilitation tax credit would be highly politicized, and would allow the Department of Economic Development to pick winners and losers.

    Among other sections of SCS SB 280 is the bizarre recommendation that no applications be taken for the Distressed Areas Land Assemblage Tax Credit (DALATC) after August 28, 2011. Looks like the “tax credit for one man” — a charge that Department of Economic Development officials refuted at a public forum in St. Louis in September 2007 — will become exactly that. Why not simply end the program altogether? The DAATC has a sunset in August 2013. Under SCS SB 280, applications would end this year but the program would continue to exist for another two years. I cannot pretend to understand that logic.

    Readers, what do you think? Don’t tell me — tell your state senator and Governor Jay Nixon!

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    DALATC James Clemens House North St. Louis Northside Regeneration

    McKee’s Open Letter on the Future of Northside Regeneration

    by Michael R. Allen

    Before the end of 2010, the Missouri Department of Economic Development awarded $8 million in Distressed Areas Land Assemblage Tax Credits (DALATC) to Paul J. McKee, Jr.’s Northside Regeneration LLC. Because of a St. Louis Circuit Court ruling, Northside Regeneration’s redevelopment ordinances currently are invalid pending either refinement addressing the ruling or successful appeal.

    DED included the first-ever clawback for the DALATC that requires Northside Regeneration LLC to return the full amount within 30 days of a final court judgment upholding the circuit court ruling. DALATC has no clawback provision, a flaw noticed by many observers when the credits were considered by the Missouri General Assembly in 2007.

    In May 2009 at a public meeting, McEagle showed this rendering of the Northside Regeneration project looking southwest toward downtown from Cass Avenue and 13th Street.

    With the fate of Northside Regeneration questioned, this Wednesday McKee himself published an open letter to “the people of St. Louis” entitled “A Perspective for the Year 2011.” The St. Louis Business Journal posted that letter here.

    Of special interest to readers of this blog is this passage about the James Clemens, Jr. House:

    Now in 2011, the structure has been stabilized and our Team along with MHDC will revisit our
    original request and restart the renovation. McEagle made a commitment to the people of the
    Northside and to the historic preservationists that we will renovate, and reuse the historic and
    reinvent salvageable structures in the Northside area. We will stand tall and meet our commitments
    even when unforeseen problems occur.

    The delay in starting The Clemens House has nothing to do with the approval process for the balance
    of the Northside Regeneration. The Northside Regeneration approval process will be finalized in
    specific redevelopment agreements with the City, currently under consideration.

    In an itemized list of projects underway is the “demolition and environmental cleanup of over 187 buildings” as well as recycling of demolition materials suggesting interest in deconstruction. Other projects mentioned are historic rehabilitation of an unnamed school building for a charter school and rehabilitation of another unnamed historic building for biotech companies.

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    DALATC Missouri Missouri Legislature Public Policy

    Tax Credit Accountability

    by Michael R. Allen

    The Show-Me Institute’s research on the Missouri Distressed Areas Land Assemblage Tax Credit raises questions about the Department of Economic Development (DED) rules for usage of that credit. One immediate contrast is the state Historic Rehabilitation Tax Credit, which has increased reporting requirements in recent years to maximize accountability and state regulation. DED ensures that users of the historic rehab tax credit have to account for every dollar claimed.

    For one thing, projects using the historic rehab tax credit have to receive preliminary approval from DED before work can commence. This requires listing of buildings in the National Register of Historic Places before an application can be made. Then it requires submission of a detailed scope of work that is reviewed by DED as well as State Historic Preservation Office (SHPO) staff. This review must include itemized estimated costs of all aspects of work.

    After preliminary approval, work can start. During work, SHPO review staff will usually be involved in making final decisions that impact the historic character of a building. When work is completed, an applicant has to submit a fully itemized account of all project expenses, with receipts proving money was spent as claimed. Homeowners that use the credit can learn the hard way that they needed to save every receipt. Without proof that they bought that $2.39 tube of caulk, it cannot be claimed as an eligible expense. DED’s rules will not allow any wiggle room — not even on a $50,000 project.

    There is a lot of concern about the impact of tax credit programs on Missouri’s revenue. One can argue whether the historic rehab tax credit should exist, but one cannot claim that the program’s rules allow for unverified claims. The state gets exactly what it pays for, and gets to decide up front whether to pay at all. All other tax credit programs — especially programs that allow single applicants to claim $20 million in one application — should play by the same rules.

    Categories
    DALATC Missouri Public Policy

    Nixon’s Tax Credit Explanation

    by Michael R. Allen

    This morning in the St. Louis Post-Dispatch I read the worst-ever explanation of how the Missouri historic rehabilitation tax credit works:

    “Right now, if a building is old and somebody in essence wants to develop that, they automatically get certain amounts of these credits,” [Governor Jay] Nixon said. “We want to have an ability to cap that.”

    Does that sort of knowing oversimplification even play well out-state any more?

    This is no the correct way to describe a program that:

    1. Requires buildings to be listed in the National Register of Historic Places — either individually or in historic districts — before a tax credit application can be approved. The National Register has strict criteria for listing and many buildings do not make the cut;

    2. Requires owners to submit up-front through preliminary application itemized expenditures and detailed work descriptions, and then subjects the developers to review by design professionals working for the State Historic Preservation Office;

    3. Has rules that reimburse only for “qualified rehabilitation expenses”;

    4. That last year was capped at $140 million for projects of $1.1 million or more in qualified rehabilitation expenditures (a cap that Nixon supported without stating that he wanted a more drastic cut);

    5. Governor Nixon has supported in previous years, including the year he ran for governor.

    Nixon also does not mention that last year he signed the economic development bill that increased Missouri’s annual obligation in Distressed Areas Land Assemblage tax credits from $10 to $20 million to allow developer Paul J. McKee, Jr. to receive over $19 million in those credits before the end of 2009. Nixon remains silent on the merits of that particular program while attacking a program used mostly for small-scale neighborhood redevelopment.

    Nixon’s push to make tax credits available for the most politically connected is problematic, because that’s a continuation of the worst aspects of Missouri’s tax credit policy. There are other ideas for reform that have merit, such as placing caps on existing programs — including the special-interest programs — or independent study of the economic impact of all existing programs and the courage to eliminate the bad programs.

    Categories
    DALATC Kansas City Missouri Legislature North St. Louis Northside Regeneration Public Policy

    Kansas City Seeks Change to Distressed Areas Land Assemblage Tax Credit

    by Michael R. Allen

    Once again, state Senator Yvonne Wilson (D-Kansas City) has offered a bill to reduce the acreage ownership requirement of the Distressed Areas Land Assemblage Tax Credit Act from 50 to 30 acres. This bill is SB 682 and was first read on January 6. Wilson’s past attempts to pass this bill have gone nowhere.

    However, the bill certainly has merit. If the courts uphold the Distressed Areas Land Assemblage Tax Credit, and the legislature lacks the will to kill it, the credit should be reformed. Wilson and Kansas City lawmakers would like to use the credit to aid in a Kansas City redevelopment project. Why shouldn’t they be able to get the credit changed, if it is truly a public benefit law under the Missouri Constitution?

    Of course, the premise of the tax credit remains as dangerous as it was when first proposed in 2007, and the effect of the type of real estate activity it encourages is terrible for struggling neighborhoods. The tax credit’s main beneficiary has spawned copycat buying across north St. Louis. All we have to show are lost buildings, vacant buildings and neighborhoods caught up in a broadly-drawn development project that may not ultimately include them. It’s bad public policy, plain and simple. It could be a little better, though.

    Categories
    DALATC Historic Preservation Missouri Public Policy

    New Federal Bills Would Help Neighborhood Preservation Efforts

    by Michael R. Allen

    Public policy has a tremendous impact on the chance that historic buildings have for survival. St. Louisans know well how many buildings are still standing, gloriously rehabilitated, because of the Missouri historic rehabilitation tax credit adopted in 1998. Many remember what happened to rehab efforts here when the 1986 federal tax act removed the major federal rehabilitation tax credit. Some of us have concerns about the impact of the Distressed Areas Land Assemblage Tax Credit Act, which was passed in 2007 to encourage large-scale urban development without any preservation safeguards.

    Two bills recently introduced in the U.S. Congress offer smart policy changes that could help us save thousands of historic buildings in St. Louis and communities across the nation. In Missouri, we have had an inverted policy situation where our state’s laws are more helpful to preservation efforts than the federal laws. In most states, however, it’s the other way around — and the federal laws are very restrictive, with no practical use to homeowners and small developers. That could change if we work to pass these bills.

    Historic Homeowners Revitalization Act (HR 3670)

    U.S. Representative Russ Carnahan (D-MO) has long been a supporter of changing federal laws to adopt preservation policies that benefit homeowners instead of just developers. On September 29, our hometown Congressman introduced the Historic Homeowners Revitalization Act (HR 3670), which has already gained 28 co-sponsors. Here’s a run-down of the changes it would make to the existing federal historic rehabilitation tax credit:

  • The bill would create a 20% tax credit — capped at $60,000 — for qualified expenses rehabbing primary residences that are certified historic buildings; currently, only income-producing properties are eligible for this credit.
  • The bill would allow buyers of rehabilitated homes to capture the credits for which sellers are eligible, thus creating a useful form of transfer.
  • The bill would allow federal historic rehabilitation tax credits to be transferable for homeowners. Without this feature, homeowners would have a tough time trying to use the new credits. Many small developers can’t use the existing federal historic rehabilitation credits because they cannot be transferred.
  • The bill changes the existing tax credit to allow issuance of credits totaling 130% of eligible rehabilitation costs on residential rental buildings in distressed census tracts. Thus, the bill widens the incentive for retention and enhancement of rental housing where it is needed. If an owner can get 100% for a condo conversion or 130% for retaining rental units, that owner just might go with the higher credit amount — and help neighborhoods retain quality affordable housing.

    Representatives William Clay (D-MO) and Ike Skelton (D-MO) are among the co-sponsors, which include a few Republicans. We need to get all of Missouri and Illinois’ representatives on board!

    Community Restoration and Revitalization Act (H.R. 3715 and S. 1743)

    On October 1, Senators Blanche Lincoln (D-AR) and Olympia Snow (R-ME) introduced the Senate version of the Community Restoration and Revitalization Act (S. 1743) and Representative Allyson Schwartz (D-PA) and Pat Tiberi (R-OH) introduced the House companion (H.R. 3715). This bill provides a nice companion to Carnahan’s measure.

    The Community Restoration and Revitalization Act would amend Section 47 of the U.S. Tax Code to do the following:

  • The bill would raise from 20% to 30% the percentage of qualified rehabilitation costs that can be returned in credits for projects of $5 million or less. These credits would become transferable under the bill.
  • The 10% rehabilitation tax credit for non-historic buildings — the federal rehab tax credit not often mentioned locally — would be able to be used for residential rental properties. This would allow for mixed-use and apartment buildings to use this credit, instead of only all-commercial buildings.
  • Very important among the bill’s changes is removing the 1986 tax law’s provision that set 1936 in place as the cut-off date for buildings eligible for that 10% federal credit. That year marks 50 years back from 1986, but the year itself is codified so now buildings must be 73 years old to use the credit Instead, this bill would change it to a floating 50-year mark.
  • Energy efficiency would be rewarded, with up to $5 per square foot in extra credits for projects that increase efficiency of historic buildings by 30% of more.
  • State historic rehabilitation tax credits would no longer be treated as income for federal tax purposes.
  • The bill would remove restrictions on “disqualified leases” that currently prevent user of the credit from leasing space in rehabilitated buildings to non-profit or civic organizations.

    The Community Restoration and Revitalization Act has only one Senate co-sponsor (Snowe, since only one senator can be a sponsor) but 44 House co-sponsors. The Missouri and Illinois delegations need to sign on to this one too — only Representative Carnahan and Illinois Representatives Jerry Costello (D) and Danny Davis (D) have signed on.

    Time to make calls and send letters to your representatives and our senators. Forget bailouts and giant projects. In this recession, the real economic stimulus we need is to widen the amount of money accessible to every citizen that stays at work renewing our homes, shops and communities.

    More information on both bills, including full text, is available on the Preservation Action website.

    • Categories
    DALATC North St. Louis Northside Regeneration Public Policy

    DALATC and the McEagle Project

    by Michael R. Allen

    Now that McEagle Properties has started to reveal its plan for north St. Louis and downtown, let’s review the Distressed Areas Land Assemblage Tax Credit Act. Last night at a meeting, Bill Laskowsky from McEagle and planner Mark Johnson from Civitas revealed that McEagle hopes to submit a financial proposal to the city of St. Louis’ Land Clearance for Redevelopment Authority by May 26. That proposal will accompany a request for redevelopment rights and tax increment financing. Various government entities will consider the proposal and make recommendations to the Board of Aldermen.

    According to Laskowsky and Johnson, a redevelopment ordinance ideally would be in place by the end of the year so that an application for the Distressed Areas Land Assemblage Tax Credit (DALATC) can be made. The DALATC will allow McEagle reimbursement for 50% of land acquisition costs and 100% of maintenance

    While the redevelopment agreement with the city will have its own rules, the DALATC brings its own rules.

    Here are a few key provisions to keep in mind:

    The DALATC will reimburse McEagle for 100% of demolition costs.

    Under DALTAC, “acquisition costs” are defined as the purchase price for the eligible parcel, costs of environmental assessments, closing costs, real estate brokerage fees, reasonable demolition costs of vacant structures, and reasonable maintenance costs incurred to maintain an acquired eligible parcel for a period of five years after the acquisition of such eligible parcel. Acquisition costs shall not include costs for title insurance and survey, attorney’s fees, relocation costs, fines, or bills from a municipality.

    The DALATC will reimburse McEagle for half of the cost of mowing lawns and boarding up windows.

    “Maintenance costs” are defined in DALATC as the costs of boarding up and securing vacant structures, costs of removing trash, and costs of cutting grass and weeds.

    The DALATC is authorized under Chapter 99 of Missouri law.

    Under Chapter 99, a redeveloper must follow a certain process to have an area declared blighted by municipal authority; that process is detailed online here. Eminent domain power will reside with the city’s Land Clearance for Redevelopment Authority, not McEagle.

    Less than five percent of the acreage within the boundaries of the eligible project area shall consist of owner-occupied residences which the applicant has identified for acquisition under the urban renewal plan or the redevelopment plan.

    Let’s make it clear: eminent domain can be used by McEagle in this project. There just happens to be a reasonable limit to its use, and parcels acquired by eminent domain can’t get the DALATC.

    No city-owned property is eligible for the DALATC.

    McEagle won’t be able to get DALATC for purchase of the hundreds of city-owned parcels it requires for this project. Does that mean that the city will convey the land for a token amount to help the deal move along? Or will the cash-strapped city hold McEagle to the same standards as anyone else who seeks to purchase city-owned land, and charge the typical “full price” for each parcel?

    No more than seventy-five percent of the urban renewal area identified in the urban renewal plan or the redevelopment area identified in the redevelopment plan may be redeveloped by the applicant. The remainder of the urban renewal area or the redevelopment area shall be redeveloped by co-redevelopers or redevelopers to whom the applicant has assigned its redevelopment rights and obligations under the urban renewal plan or the redevelopment plan.

    McEagle will be working with co-developers. Who are these partners? What area non-profit development organizations are likely to get on board?

    The redevelopment agreement shall include a time line for redevelopment of the eligible project area.

    The DALATC requires a redevelopment time line be submitted to the city. What is unclear is whether that time line is binding, and what enforcement mechanisms the city or state can implement to ensure completion of the project.

    The DALATC sunsets in 2013.

    Any attempt to receive all $95 million has to start soon to beat the sunset.

    Categories
    DALATC Historic Preservation Missouri Legislature Northside Regeneration Public Policy

    Tax Credit Action in the State Legislature

    by Michael R. Allen

    Yesterday the Missouri House of Representatives passed the House Committee Substitute (HCS) to Senate Bill 377. Now included in the bill is a $150 million cap on the historic tax credit with a $250,000 (in credits issued) exemption and a $250,000 (in credits issued) per-project cap on residential rehabs. The $150 million cap might not have much impact with healthy “micro” exemptions like these. The question: Is this a good enough micro exemption to keep present level of tax credit activity going?

    Meanwhile, Representative Tim Flook (R-Liberty) offered an amendment to the HCS for SB 377 that, among other things, changed the language of the Distressed Areas Land Assemblage Tax Credit (DALATC) to allow issuance of up to $20 million per year instead of the current $10 million. On the House floor, Rep. Flook stated that a group of representatives had met with developer Paul J. McKee, Jr. to see his plans for north St. Louis, and that those plans needed an extra boost during this session. Of course, McKee still has to be designated redeveloper by the St. Louis Board of Aldermen in order to apply for the DALATC. Since the DALATC credits must be spent on development within the project area, the higher issuance could mean more immediate development activity after McKee receives the credits.

    Flook’s amendment passed.

    Categories
    DALATC Missouri Legislature Public Policy

    Anti-Historic Tax Credit Gang Lacking Consistent Records

    by Michael R. Allen

    Here’s what some Missouri state senators are saying about the successful state historic rehabilitation tax credit that they are trying to destroy (the Senate will take up one proposal today):

    “Tall hogs don’t like to move off the trough. This process will move the tall hogs off the trough.” –Senator Matt Bartle (R) quoted in the Columbia Tribune (March 12, 2009)

    “Why is it that tax credits only benefit big businesses when most Missourians work for small businesses?” –Senator Jason Crowell (R) quoted in the Kansas City Star (March 24, 2009)

    Do they think we have short memories in Missouri?

    The economic development bill (SB1) passed during the special session of the Missouri General Assembly in August 2007 contained many provisions. One of the most publicized new tax credit programs created by that bill was the Distressed Areas Land Assemblage Tax Credit (DALATC), a $95 million program with annual appropriations of no more than $12.5 million. DALATC is available to developers in economically depressed areas of the state who are assembling projects of more than 75 acres — i.e., big developers. The credit can be issued before development has started, and in fact contains few provisions to guarantee development would occur. The DALATC idea isn’t bad but the version that passed is weak public policy.

    Senator Frank Barnitz (D) proposed an amendment to eliminate DALATC from HB1, and his amendment failed 8-25. Those supporting the amendment were Senators Barnitz, Maida Coleman (D), Joan Bray (D), Wes Shoemeyer (D), Chuck Purgason (R), Brad Lager (R), Matt Bartle (R) and Yvonne Wilson (D). All other Senators voted to retain the new program with an annual cost to the state of at least $12.5 million and provisions that all but state that the program would only benefit the city of St. Louis.

    Among those who voted against removing this section were Senator Luann Ridgeway (R) and Sen. Jason Crowell (R), who are leading the current charge against the state historic rehabilitation tax credit along with their more consistent colleagues Lager, Bartle and Purgason. When Ridgeway and Crowell lecture us on the historic tax credit costing too much, benefiting the big cities and not producing enough economic return they aren’t explaining why less than two years ago they voted to create a new development tax credit with no guarantee for job creation that probably will be used exclusively in St. Louis and Kansas City.

    When the final vote on HB 1 was taken, Bartle was the only member of the current gang pushing to cut the state historic rehab tax credit who voted “nay.” A lot of “tall hogs” were served up a big meal by HB 1, and Crowell, Purgason, Crowell, Ridgeway and Lager helped feed them. These senators voted in favor of a bill that dramatically increased the cost of tax credit programs to the state. Now they want us to forget that?