Monday editorial: Clayton caves
For decades, Clayton held firm against the grand fleecing of taxpayers that is the business-incentives game. Now even Clayton has thrown in the towel. Clayton officials say they had no choice, that Centene Corp. is too big to lose.
The game goes like this: A company decides to expand operations, perhaps build a new headquarters or open a new plant. Government officials come calling, checkbooks in hand, eager for the new jobs in their city, county or state.
The corporate CEO then turns to officials in his company’s hometown (from which he really doesn’t want to move), and says, “Pay up, or we’ll put our jobs somewhere else.”
And the cities pay up. In St. Louis in recent years, local and state officials have doled out incentive packages to Pfizer in Chesterfield, Express Scripts in North County, Smurfit-Stone in Creve Coeur, KV Pharmaceuticals of Brentwood and Chrysler in Fenton, to say nothing of the St. Louis Cardinals.
St. Louis County officials still are smarting over the loss of MasterCard’s technology operation, which left for St. Charles County in 1999, lured by an incentive package.
The incentives game is unfair to older, established companies that end up paying more in taxes than their growing competitors. Local governments end up with millions of dollars less to pay for the services — schools, roads, public safety — their residents need and expect. To keep up, the bill may get passed on to companies and homeowners through higher sales taxes and property taxes.
The latest such game is playing out in Clayton. Centene Corp., a Medicaid management company, wants to build a 24-story headquarters building next to the building where it now is. The company hopes to add 800 new jobs at the site if its business grows as expected. A second 14-story office building is planned for later.
When Centene first proposed the project in 2005, the firm asked for incentives and for Clayton’s help in acquiring some of the property it wanted on the south side of Forsyth just west of Hanley Road. The city council declared the properties “blighted” and gave Centene the right to acquire them through eminent domain.
In June 2007, the Missouri Supreme Court said Clayton had erred in granting the use of eminent domain, so Centene began looking around. And, lo, it discovered just how much its new project was worth. It signed a deal to move to Ballpark Village in downtown St. Louis, lured by a $78 million incentives package of tax deferrals and exemptions and other goodies from the city.
Curiously enough, Centene pulled out of that deal just as the Clayton property Centene had coveted appeared on the market.
So Centene turned again to Clayton officials, again with its hand out. Clayton offered to abate 50 percent of the property taxes on the new project and construction sales taxes on the new building. The county would fix nearby roads, and the state would kick in up to $27 million.
Mayor Linda Goldstein notes that, even at a 50 percent discount, Clayton would collect more in taxes than if Centene moves elsewhere.
Still, for decades Clayton, the county seat, said no to incentives. It relied on its richly deserved reputation for safety, good municipal services, a prime location in mid-county and an abundance of the upscale neighborhoods in which top executives like to live. High-rises have sprouted like bean stalks as Clayton added 800,000 square feet of offices early in this decade.
Then Clayton lost a big Borders bookstore to a subsidized shopping center in Brentwood and Smurfit-Stone’s corporate headquarters to Creve Coeur. And Centene appeared, at least, to be prepared to to leave Clayton for downtown St. Louis.
So now even Clayton pays up. In December, the town granted tax breaks to a retail-hotel-condo development near the Ritz-Carlton Hotel. “Is it a wonderful situation? No. But we have to compete,” Ms. Goldstein said.
That may be true, but tax breaks and similar incentives rarely are the decisive factor in where companies choose to locate. Land costs, the availability of well-trained workers and access to customers count more.
The only real solution to this city-vs.-city fleecing would be regional, and that seems unlikely. Still, it would be great if companies located where it made the most business sense, not where they found the most freebies.
Here… in this one editorial lies buried two truths:
One is that no one on the Editorial Board knows a thing about business:
“Still, it would be great if companies located where it made the most business sense, not where they found the most freebies.”
That is WHERE it makes the most business sense! Could it be that this basic lack on understanding is why the Post continues to lose money? Or is it the socialism present in the Ed Board? No matter… the second truth is:
This Ed Board will never stop carrying water for Mayor Slay no matter how badly he messes up. Centene was Slay’s to lose and he did. They were gift wrapped and delivered, and still he lost them. All that time spent… likely over some family business issue like which cousin got to skim or some such.
Just once, after an editorial like this one, I’d like to see the company flayed to just come out and say; ‘well it seems we are not wanted, so we won’t locate out building and jobs there… we’ll go elsewhere!’
Oh wait… the worlds largest phone company did just that. Sorry I forgot.
I am as opposed to the “business incentives game” as any of you lefties on the Editorial Board, though for entirely different reasons. Among the flaws in your reasoning:
* Companies don’t just go for the incentives apart from “business sense” but rather, they consider them as one part of the equation. Other factors include not only land cost and labor force, but also the local tax and regulatory situation, as well as crime rate and infrastructure. In the city of St. Louis, a substantial “subsidy” may be required to offset their disadvantage in these areas.
* Incentives aren’t “unfair to older, established companies” so much as they are to smaller businesses, new and old, who never get a break.
* Even a regional solution is useless. Companies can just as well move to Alabama or Arizona as Illinois or Arkansas. Nothing short of an act of Congress can stop this sort of thing.
In an ideal world, local governments WOULD compete for businesses based upon tax rates, quality of public services and infrastructure, labor force, customer base, and other factors. But in an ideal world, the same conditions would be available to any business, and governments would not be allowed to roll out the red carpet for some while sticking it to others. That would be fair to everyone.
I have had to help relocate several manufacturing operations over the years. The purpose was not tax benefits (although they did impact the selection of new locations) but to leave the unions behind as a matter of survival. All moves were to the south. Most of the people remained here, and some never worked again. The State of Mississippi provided not only tax breaks, but assistance in training the new employees.
The St. Louis area has shuttered most of it smokestack industries. What we have left is offices. Look out. Desks are easier to move than 1000 ton power presses.
My property taxes went up 33%. I was wondering why you didn’t mention the Edward Jones additions in Des Peres and Maryland Heights. These CEO’s are multi-millionaires making more millions. Why do they get a break as my property taxes increase?
In essence two things stand out in all “incentive” packages as problems:
1. Will the business being granted such breaks actually stay in the town/city/county/state granting these breaks? In some instances, while the business assures the locale that they will stay the length of the granted breaks, they move long before the breaks are up, sticking the locale with the now unrecouped costs of the break. For smaller locales this can be a real problem.
2. Is the business willing to accept responsibility for the necessary upgrades to the physical infrastructure, or do they consider it “part of the breaks”? St Charles County, as well as other rural-suburban counties, have had the experience of developers putting up homes/strip malls without necessarily planning on the increased demands on sewer lines, etc. Over the past 10 - 15 years locales have gotten smarter about this, but infrastructure needs to be addressed.
RHarnack, it isn’t just St. Charles county. While Maryland Heights reaps the benefits of Edward Jones expansion, County Executive Dooley wants to spend $5 million to upgrade the Dorsett-270 interchange to handle the additional traffic. He also wants to drop $3 million to connect 141 to the Maryland Heights Expressway, so people in Chesterfield can get to Harrah’s more quickly. Maryland Heights is rolling in casino dough, and our taxes go up to subsidize their roads.
Dorsett/I-270 is not being upgraded because of Edward Jones expansion. The traffic is already there. The bridge over Dorsett is aging and needs repair. As long as the bridge is being replaced, why not do something about the congestion there? It’s easier to reconfigure an interchange at the same time the bridge is being replaced than by doing it separately.
While I’m sure Harrah’s will benefit from connecting 141 to Maryland Heights Expressway, do you seriously think that is the only benefit of a plan that has been on the books since at least 20 years before gambling was legalized in Missouri? Again, a connection would clear up existing traffic problems on Olive and on Fee Fee.
I agree that things have gotten out of hand with incentives given to some businesses, but not to others, with residents picking up the slack. I think these businesses should absolutely have to kick in to fund infrastructure improvements required for their developments. I think there has to be a more regional solution to help with this problem. Perhaps tax revenue from developments receiving tax breaks, TIFs, or other incentives should have to be shared with adjacent municipalities so they don’t all have to try to undercut each other. This competition is not the good kind of competition because it strains the resources of the “winning” municipality.
Say what you will, Spec, my basic point remains: Of the $15 million being spent, $8.1 million is in Maryland Heights, which has an obscene amount of money. With a population of around 27,000, they have a 2008 budget of $57.5 million, or $2,128 per resident. Compare this to Florissant, a city which is demographically similar and in the same area of the county - their 2008 budget is $30.3 million, for about 51,000 people, less than $600 per resident. Even Town and Country, one of the wealthiest cities in Missouri, spent just $14.2 million for a population of 11,000, or less than $1,300 per resident. And, Maryland Heights is one of the few municipalities in the region that has NO property tax.
So my point? It is absurd that more than half of these road funds are being spent in a community that is so wealthy to being with, to build roads to serve the very things which are making them wealthy. Maryland Heights already got the Page Extension, and the Maryland Heights Expressway. How about spending a few bucks in north county for a change?
The problem with any of these deals is that they give one person (corporate in this case) an advantage over others. That is the absolute opposite of what government should do. Governments sole role should be making certain no individual or group obtains advantage through force — which the corporations are doing in this case.
Frederic Bastiat said that as long as corporations rob the property of the individual owners of property (corporate welfare), the poor will have their excuse for robbing those same owners (individual welfare). This is what Pulitzer decried in his platform in speaking of predatory plutocracy and predatory poverty.
The answer to the question of everyone plundering everyone else using the force of government is to limit government to it’s role: Preventing robbery and protecting the life and liberty from which we obtain property.
If the PD editorial board held to their platform and spoke up when the poor robbed the wealthy more people might listen to them and take a stand against this perversion of government.
Nick,
There will always be a big ticket project somewhere other than where you think it should be. How many millions were spent on the I-170/I-270 interchange a few years back? I’m sure at that time, someone in south county could have made the same complaint you’re making now. There are plans for work in North County. Is there a specific project you’d like to see?
The Maryland Heights Expressway will aid people in getting from I-44 to I-370. That connection is extremely impractical now and creates all sorts of other problems. It’s also difficult to get to/from North County without taking I-270 over Dorsett. These are projects of regional significance that happen to be in Maryland Heights. Yes, Maryland Heights will benefit from them, but it’s all about location, location, location.
Again, I’m not defending corporate handouts. I understand that there may be times to work with businesses to improve quality of life for residents. But I still believe there needs to be a more regional approach. Every time a city government gives away to businesses, it hurts neighboring communities as well as it’s own ability to provide services.