MEMORANDUM TO: Mayor Lyda Krewson CC: Joe Roddy, HUDZ Chairman Tim O?Connell, Mayor?s Chief of Staff Linda Martinez, Mayor?s Deputy of Economic Development FROM: Otis Williams, Executive Director, St. Louis Development Corp. (SLDC) DATE: May 11, 2017 SUBJECT: Economic Development Incentive Reform ":tegy? in recent years we have witnessed the emergence of city?wide anversation around incentives. SLDC has participated in discussions with electedfiloffidals, city departments, developers, and the community at large revolving around the purposei'la'nd effectiveness of i'hicelntives, best practices for their allocation, and efforts to quantify our review These continue, and i am committed to implementing a City-Wide Economic driven by input. There is also, however, a need for immediateg?changes, both to Ep?l?iblic concerns, and?si?n order to meet new GASB reporting requirements. details my ughts on the way forward as we work to reform the City?s economic The City of St. Louis and its. economic development and Commissions utilize a number of developmentti?incentivEsto spur realiie'state development in the City and encourage the relocation, and deveilop'ifrient of to the City. I believe that a core mission of any development incentiverprogram be to evaluate projects and facilitate those which strengthen our city, either'ibyixexpanding[our tax employment, strengthening distressed neighborhoods, Q?ln. myriad; a'iziezsupported by institutions, community groups, and citizenfd_riV?n "planning documents. As we work to institute reforms, it is important to emphasize that we are not starting from scratch. In 2015, the commissioned "an incentiveistudy to review policies and procedures and provide recommendations-that could improve the effective operation and administration of incentive programs. The results of that study prompted-a reconsideration and reformation of City policies and procedures and the establishmentpf a comprehensive review process to analyze projects and incentives. This process includes an estimate of afproject?s return on investment with and without incentives (the "but for? test) and estimates the prol?eCt?s return to the city, accounting for both the project?s substitution effect and the city's costs of servicing the project site. Cognizant of the reality that we need to move forward simultaneously on multiple fronts, I propose that SLDC focus on the following efforts: A 1) Establish Interim Incentive Guidelines: Effective immediately upon approval of resolutions by the appropriate development authority/commission at their May/June 2017 meeting and until such time as an updated incentive policy is created based on a City? Wide Economic Development Plan 2) GASB Compliance - Create Tracking Database Monitoring System: Upon securing funding, implementation should be complete by the end of 2017 3) City-Wide Economic Development Plan: Upon securing funding, an process will be undertaken to select a consultant team to conduct the study and create an economic development plan for the entire City. The plan is expected to take up to 18 months to complete. 4) Incentive Policy Reform: Based on recommendations from the completed City-Wide Economic Development Plan, revised incentive policies will be created and submitted for approval to the appropriate development authorities/commissions This approach ensures that developments already in the pipeline can proceed forward according to the interim guidelines, ensures we remain ingornpliance with new GASB reporting requirements, and helps prepare us for the future through-a" planning process driven by community engagement. By instituting interim guidelines to address public concerns and continuing, to develop the review and tracking/monitoring system with precision, we can utilize the city?Wider economic development planning process to create a responsible updated?incentive policy that reflects-community input. I propose that the St. Louis Development Corporation i?nstitute..thie1 following for all applications for tax abatement and taxiricrement 1) Comprehensive Project Review: 'Any'vfproject with development costs over one million ($1,000,000) dollars will go through} a comprehensive project review. This will involve a more detailed review architecture, urban-[design and??nancial characteristics of the project, and applicants to schedule aispre'4application' meeting to be held a minimum of fifteen days :V'ahead of applying for the. incentive, a full application and all materials necessary to complete the full review a minimum of thirty (30) days prior to the applicable board or commission meeting. I 2) generaHund appropriation backing or- bottom half contributions: Having only used concept sparinglyin the'p'ast, the City will'not approve any appropriation from the general fundior bottom half contributions. until an updated incentive policy is complete. 3) NO new hotel sales tax rebate: City-Will no longer agree contractually to contribute sales tax from hotel room sales to ars'lg'lF project. 4) NO sales tax generated; by'Proposition 1 will be captured by TIF: City will encourage the new Economic Development Sales Tax Board NOT to recommend capture of these sales taxes. 5) N0 new tax increases will be captured by TIF: Per state statute, the City will not approve any after August 28, 2014 which captures a new tax increase. 6) Sales and earnings taxes to be returned to City?s General Revenue Fund: A to-be-determined percentage of property taxes are to be passed back to the City?s General Revenue Fund to account for the substitution effect and/or jobs and sales relocated from within the City. 7) Property taxes to be returned to the taxing districts: A to?be-determined percentage of property taxes are to be passed back to the taxing districts to account for the substitution effect and/orjobs and sales relocated from within the City. 8) will be encouraged to reduce TIF and Tax Abatement: City will encourage as alternatives; but, only approve projects that include public improvements parks, shared parking facilities, streetscape improvements, etc. - TBD) 9) TIF assistance will be guided by the City?s Market Value Analysis (MVA): Except for exceptional projects, the City will cap TIF lower 10% of Total Development Cast) in MVA categories and higher 20% of TDC) in MVA categories ?Gilli?, This ties the project?s maximum incentive to the health of the market where they are building. it is strong, the project should be able to command high rents and require less incentive. - 10) Tax abatement length and percentage will be baSed on'the MVA: Except for exceptional projects, the City will cap tax abatement in categories with a maximum length of 5 years and maximum amount of 75%. 11) Implementation of Community Benefits Agreements on all catalytic projects: Projects with developmentcosts will be encouraged to execute a CBA. A comprehensive CBA palicy will be developed in callaboration with community stakeholders. These interim guidelines will ensure we?re-making: smart, data?driven decisions above), help refine our development tools above), and?encourage-Equitable development across the city (#8-11 above) Moving forward, also have, to undergo'certain. Changesin?order to remain in compliance with new GASB reporting reqtlirements.3"Specifically, will continue to work with the Comptroller, Assessor, and City Counselor's offices, as well as the Department to develop a tracking database and fur projects moving through the inVCentive pipeline. Once the database is complete and information from 2017. has beenlentered, we willalso input and backlog project information for the previous-?years into that database, as well as develop language for redevelopment agreements which require the'provision of yea rly?st?atistics for monitoring purposes for all future agreements. With respect toithe City Wide Economic Development Plan, I believe that a consensus?driven approach to incentives city-Wide is absolutely. ?critical to our future and the application of incentives. Through a community and stakeholder input process and close work with leadership and institutions, we can develop an overall plan that prioritizes projects and areas for redevelopment and reinvestment, while also seeking to support affordable housing, sustainability practices, and transit-oriented development. In effect, we believe that a comprehensive, place-based approach to economic development is the best way to promote equity and improve the quality of life in the City of St. Louis. We will immediately work with your office and our local and state contacts to secure funding for this process. in conclusion, I know that an updated incentive policy is one of your top priorities for the City of St. Louis. believe this approach balances some necessary short term reforms, with an inclusive long?term planning process which can help us create an equitable and data driven economic development strategy for the City of St. Louis. Please feel free to contact me at any time with further questions or concerns. We look forward to working with you on these efforts!