TIF proposal for Watson Plaza discussed by Crestwood panel

By Mike Anthony

Members of the Crestwood Tax Increment Financing Commission later this month will discuss whether to recommend incremental property tax revenue generated by the proposed redevelopment of the Watson Plaza shopping center be excluded from retiring any TIF obligations.

If such a proposal was recommended and later incorporated as part of a redevelopment agreement approved by the Crestwood Board of Aldermen, taxing entities such as the Lindbergh School District would receive the incremental property tax revenue immediately and not have to wait until any TIF obligations are retired — currently estimated at seven years.

The TIF Commission is scheduled to meet at 7 p.m. Monday, June 21, in the Aldermanic Chambers at City Hall, 1 Detjen Drive.

Watson Plaza is adjacent to the city’s Watson/Sappington Road Redevelopment Area where a Kohl’s Department Store opened last fall. In its plan, G.J. Grewe Inc. is proposing a PETCO and a new Walgreens on the site of the vacant Tippin’s restaurant as well as retaining the shopping center’s existing tenants. The company owns the entire shopping center with the exception of the former Service Merchandise building, which it has under contract to purchase.

The cost of the proposal is estimated at $11,226,305, excluding funding generated by a Transportation Development District that would be used to pay for improvements to Watson Road that would enhance the flow of traffic.

Besides TDD funds to offset transportation-related expenses, G.J. Grewe Inc. is seeking $2 million in tax-increment financing to facilitate land-acquisition costs. In a TIF district, tax receipts for school districts, fire districts and other taxing entities are frozen at existing levels for the length of the TIF — up to 23 years. As land within the TIF district increases in value, the incremental tax revenue — 100 percent of property taxes and 50 percent of sales and utility taxes — is used to retire the TIF obligations. The incremental property tax revenue, also called payments in lieu of taxes, or PILOTs, are deposited into a special allocation fund that is used to retire the TIF obligations.

At the May 26 TIF Commission meeting, Pat Lanane, Lindbergh School District assistant superintendent for finance and the district’s chief financial officer, noted that if the redevelopment is completed as proposed, the market value of the Watson Plaza shopping center would increase by roughly $536,000.

“… It appears all it really does is increase the market value of this place by about $536,000,” said Lanane, who is serving as vice chairman of the TIF Commission, “The assessed value after you finish this is only about $171,000 more than before. Is it worth sinking $11 million-plus to see a value increase of $500,000? Does that make sense?”

Gary Grewe of G.J. Grewe replied, “It makes sense to us, otherwise we wouldn’t be here.”

One one point, John Brancaglione of Peckham Guyton Albers & Viets Inc., who serves as the city’s planner, said, “… From a property tax standpoint at the end of the day, after you get through tearing down what now is in effect on the books and replacing it with the new stuff, again it’s going to be assessed on an income-approach basis and go on the books at the lower numbers we’re seeing — at the end of the day (the) property tax increment associated with this is really small.”

Lanane later asked, “Yeah, and because of that, I guess this is a question to the city: Have you considered passing through the property taxes to the taxing districts?”

Matt Conley, who serves as assistant to City Administrator Don Greer, replied, “Yes we have discussed that.”

Lanane said, “And is that a yes, we’re willing to do it or a yes, we discussed it and ain’t no way?”

Conley said, “It depends on several other factors — what the final package of redevelopment encompasses. The city believes that once the site is developed, redeveloped, everybody, all taxing jurisdictions, will benefit from that and we believe that based on that, everyone should in some way, shape or form participate to some extent.”

Lanane interjected, “Well, we’re not going to benefit very much, just based on what John B (Brancaglione) said.”

Conley agreed, “No, you’re not …”’

Brancaglione noted, “… If we’re assuming in these numbers it’s a pay-as-you-go TIF — in other words, the developer takes a back a note — it is a seven-year debt retirement. That assumes TIF and TDD because part of the TDD numbers get captured by the TIF. And, again, that was the way it was shown to you in the cost-benefit analysis. And it’s a seven-year TIF with the property tax included and it’s a seven-year TIF without the property tax.”

Lanane said, “Well, I know what I would recommend.”

Brancaglione also noted his projections assume a 6 percent interest rate.

Lanane said, “The other concern I had when I looked at these, these numbers are tight …”

Brancaglione said, “Well, I can only tell you what assumptions we made. We know who some of the tenants are. We don’t know who will occupy the Service Merchandise building, but we are operating from a standpoint we think this is, continues to be a reasonably desirable location and particularly because Kohl’s is now sitting next door. When you create a connection between Kohl’s, a direct connection between Kohl’s and this property, in my opinion … I believe that the ability to attract a reasonably good tenant is very good and so what our number reflects is a reasonably good tenant. In other words, what we’re telling you is that we used a number that tries to be not so pessimistic that it could be unrealistic on that end, yet not optimistic … We tried to use a figure that represented what was in our mind a reasonable and a safe number …”

Tom Curran, a TIF Commission member who is representing St. Louis County, later said, “… The compelling thing that was said tonight to me was when John (Brancaglione) said it’s a projected seven-year payoff whether we include the PILOTs or the payments in lieu of taxes or not. Then looking at the numbers, I mean they start at about $17,000 a year in real property tax increment that would be captured … The increment of sales taxes is $400,000 to $500,000 per year. That is really an extraordinary amount of sales tax. I mean it’s — cumulatively the sales tax that’s eligible for TIF capture is over 4 percent …

“It seems to me that given those facts, it’s probably premature to suggest this, but at some point the TIF Commission probably wants to look into doing exactly what John (Brancaglione) said, not that you’re suggesting, but pointing out that if the PILOTs are the real issue with the taxing districts and they are an insignificant amount of this project, that the TIF Commission, at least as we go along, I think we should start thinking about making a recommendation that the PILOTs be excluded. It’s not going to make even a year’s worth of difference and if that is an issue to the school district, in particular, I think we should start thinking about it, at least its potential. And like I said, it’s unusual to have, I don’t know that I’ve been in a city TIF yet that had all of those sales taxes, including the local fire sales tax. So the city would really be contributing a whole lot of the sales tax increment and I just think it’s something we should consider,” he added.

Noting that the PILOTs are minimal, Conley later said, “… The city of Crestwood, we rely heavily on sales tax and I can see questions asked that maybe (TIF Commission member) Alderman (Tom) Fagan might have a little more comment on at the board level about if there is any type of TIF assistance, why is the proportion being so heavily relied on the city’s back? And I think one of the things that plays into the factor of the PILOT pass through, Pat (Lanane), and you can speak to this because we’re prepared for what the Lindbergh School District has done on other TIFs is ask the city to contribute a portion of its bottom 50 percent. I think from the city’s standpoint, it’s going to be very difficult for staff to recommend that the Board of Aldermen consider that and pass through the PILOTs. We’re no different than the school district, the city of Crestwood. We need the sales tax revenue. So I think that, as I commented earlier, I think that debate takes place in context of a larger package of issues …”

TIF Commission members agreed to discuss the issue of excluding the PILOTs at their June 21 meeting.