Ms. Sheila Rendom, President of the New North Side Community Benefits Alliance
Disclaimer:
The OPINIONS of Ms. Rendom do not necessarily reflect the views of RiverCity Publications, its staff or its Board of Directors.
This month I'm very appreciative that the Northside Community Benefits Alliance (NSCBA) treasurer, Keith Marquard, CPA wrote this month's NSCBA update. He is also a plaintiff in the suit challenging the constitutionality of the state Distressed Areas Land Assemblage Tax Credit...
Economic Development in St Louis
By Keith Marquard, CPA
Within the last few months, we've seen one set of redevelopment ordinances struck down by the courts as defective, and one well know developer indicted for bank fraud. Within the economic literature and the press there has also been an increasing awareness that the economic recovery isn't a recovery for the vast majority of Americans. You might wonder how a certain set of redevelopment ordinances, one developer indicted for bank fraud, and stagnating economy are related. Once you get down into the nitty-gritty of each topic, you'll wonder how you ever didn't think they were related.
Northside Ordinances Struck Down
Considering my past statements people might think that I am of the opinion that the judicial ruling striking down the ordinances for the Northside project is a wonderful thing. That is not so. The city ordinances authorizing the perks considered necessary to make this development economically feasible were defectively written. Thus the suit was only really won on a technicality. The outlandish and unrealistic economic projections put forth by the developer didn't invalidate the ordinances. The lack of due diligence by the city in looking into the developer's shaky finances didn't do it. The rubber-stamping of the TIF application by the TIF commission didn't do it either. None of these obvious defects in the developer's proposal and city procedures mattered in the end to the court.
If the government wishes to subsidize some economic activity of one sort or another it should have to prove that the benefits outweigh the costs. Otherwise what is the point of the subsidy other than to waste public funds? So if you start with an obviously false and greatly inflated set of economic projections justifying the project how can you accurately judge the benefits vs. the costs? Any judgment based on invalid economic projections must be invalid. Computer programmers have a well-known phrase for this. It's "garbage in, garbage out."
What about the resources of the person or business seeking this subsidy? Shouldn't they have the capacity both financial and experiential to get the job done? That is a key concern to any governmental body granting such subsidies. If you give this person or business the subsidy and they can't perform as advertised you are again just wasting public funds. The city never asked Northside, McEagle, Paul McKee, Jr, or any other party involved for any financial information to prove they were financially capable. They actively ignored evidence suggesting that Northside wasn't current on its bills and that other McEagle projects were in financial distress. In addition, after the city approved the ordinances for Northside we have learned that Paul McKee is being personally sued by at least one bank over a failed development and has lost a building to another bank. Research I have done at various recorder of deeds offices around the St. Louis region suggest that he's so under water on his other projects that he may never recover.
The TIF commission members testimony in court indicated there was no real investigation into the development proposal by them as there should be in their capacity as appointed city officials. They just did was the St Louis Development Corporation staff told them they should do. So the TIF commission applies no real judgment to its actions, it just does what the Mayor's staff at SLDC tell them to. In fact many of the TIF commission members hadn't ever read the state statute which created their offices and which they must follow in their procedures and decisions. The same was true of the members of the Board of Aldermen.
Now given this stunning cluster of total incompetence, why oh why are any redevelopment ordinances the city of St. Louis passes valid? The reason is that the state statute authorizing such legislation also allows cities, counties, and even the state of Missouri to be utterly incompetent in their decisions and still enact enormous tax breaks for real estate development that also often force one set of private citizens to sell land to other private citizens. Most of the time the people forced to sell out for these projects aren't big money businesses or investors, they are people like you and me who own their own homes or small businesses. In a system like this, lack of political power is the determinant as to who gets abused. Those without political power or who are small in number get the shaft while those with political clout get the gold-mine.
John Steffen's Very Special Deal
Speaking of political clout, John Steffen must have had quite a bit to get the city to finance the settlement for his civil suit brought by the bank he is accused of defrauding. Just how does a bankrupt developer get very smart people running a large city government to bail him out? And just why is it a good idea for the city to be an unsecured creditor of a bankrupt businessman who now looks like he'll be going to jail?
The claim by Barbara Geisman, Deputy Director of Development for St Louis City, in the St Louis Post-Dispatch is that the city controlled Land Clearance for Redevelopment Authority (LCRA) had to put up this money so that the state would continue to provide tax credits for other city projects. Also according to the Post, Centrue bank now owns the building after foreclosing and the LCRA holds what is essentially an $850,000 second mortgage.
The follow up question that I don't see anyone else asking is this; how much does Ms. Geisman and the Mayor think they will get back from this sale?
They hold the second mortgage and not the first. If Centrue gets all of its money back, then the LCRA would normally get what's left over. So why again did the LCRA, which couldn't have lent these funds without Mayor Slay's approval, make this loan?
Did the city know before it allowed LCRA to make this loan that they wouldn't get full value back? Considering the situation, any lender taking a second position on such a deal would have to know that it was easily possible that they would only get some fraction of the loan amount back if anything at all. If this weren't the case, Steffen would have sold the building himself long ago to settle his debts and cash out any equity he had left in this project. Or he could have gone to a bank and borrowed against that equity. Considering how advantageous access to such credit would be, I think we all ought to march down to the LCRA offices and ask for an application for the John Steffen loan program.
This is Federal money that could have been lent on a worthwhile project and not tied up in limbo with a bankrupt who may go to jail. Why is the Mayor allowing valuable resources to be used to finance a potential jail-bird's bank fraud settlement? This hasn't been adequately explained. I don't think it can be short of assuming some sort of corrupt deal.
So What's With This Economy?
Here we are, mid-2010, six to nine months after the supposed bottom of the most recent recession. How's the unemployment situation where you live? Know anyone out of work? Know anyone out of work for a really long time? Know anyone who works part-time because they can't find full time work? The vast majority of us surely do, and most of us who are still employed are probably worried about losing our jobs too.
So what is city government doing about that? They are giving loans to bankrupt developers with bank fraud problems (John Steffen) and approving development projects that don't make economic sense to anyone (like Northside) but whose owners stand to get massive amounts of money from state tax credits (like Northside) with that approval. Do you think any of that is going to trickle down to you?
The situation in this country today is illustrated by the simple set of facts in this paragraph. In the United States of America the wealthiest 1% of income earners gathered two-thirds of the growth in income in the years 2002 through 2007. In fact, the top 400 income earners saw a 476% increase in their income in the 15 years from 1992 to 2007 while the median family income rose just 13.2% (see "The 400 Individual Income Tax Returns Reporting the Highest Adjusted Gross Incomes Each Year, 1992-2007" at http://www.irs. gov/pub/irs-soi/07intop400.pdf). Again, so how's that trickle-down economics been working for you? Not that well, huh?
Are you starting to feel like the deck is stacked against you more than it ever has before? If you do, you'd be right. This runs from the very top where big banks get big bailouts and the rich get massive tax breaks; down to the very local level of city politics where well connected developers get massive tax breaks and even get loans for their legal settlements when they defraud the very banks your taxes are going to bail out.
The whole set of problems that leads from John Steffen's loan, to the approval of the Northside Project, to the economic situation we all find ourselves in is part of one big whole. What has happened is the capture of all levels of government by the wealthy and the privileged for their own enrichment and use. The playing field is massively tilted and not in your or my favor.
My personal opinion is that the city would be much better off if the FBI came in and dropped a massive RICO indictment on the LCRA staff, the St Louis Development Corporation staff, and on every elected official in the City of St Louis. This is because the whole system is rotten to the core. And when the whole system is bad you have to clean house. You gotta' toss out all the bums, not just the ones who happen to be in elected office.
The current political establishment of this city has presided over its decline for as long as I can remember and now they are giving away the tax base through poorly thought out tax abatements, TIF districts, and poorly thought out redevelopment projects with little or no chance of success.
After putting forth all that, I just have one question for all of you. Why are the same thieves in government offices still getting re-elected by you the voting public? Why aren't some of you stepping up and running for office independent of the old-boy network and power structure? This is still a democracy you know. If you aren't working to make things right, you can't blame anyone but yourself.
The North Side Community Benefits Alliance meets the 2nd Monday of the Month at Vashon High School, 3035 Cass. You can read the monthly update of the North Side Community Benefits Alliance in the RIVER CITY EXAMINER NEWSPAPER. Check our website for contact information - NorthsideCBA.org and e-mail to information@northsidecba.org. We are also on Twitter and Facebook. For meeting times or other information you can call
(314) 398-5478.
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