ECONOMIC DEVELOPMENT NEEDS

For most of its history, the City of St. Louis was the center of regional employment activity. Businesses located close to the river and rail shipment facilities, and to the place where the vast majority of people lived. All this has changed in the last 40 years. Chapter III has described the population migration, highway and bridge construction, competition by suburban communities for tax base, development costs and related factors that have all hindered business investment in the City.

It is harder to attract business investment within the City today, but no less important than it ever was. Jobs are central to a community's survival. They allow individual and family prosperity and hence stability. They reduce the likelihood of crime, vandalism, mobility, disinvestment and other familiar urban conditions. They provide the tax base that pays for municipal services, and with it a decent quality of life.

Creating an environment that attracts private business investment is of central importance to the survival of St. Louis and the health of the region. Specific economic development needs are examined below in terms of four categories: Commercial Industrial Rehabilitation; Commercial - Industrial Land; Business Finance, and Technical Assistance.

COMMERCIAL INDUSTRIAL REHABILITATION

The City of St. Louis is characterized by miles of arterial streets that contain commercial land uses developed for a different age. Many of these establishments have a size limitation, undesirable location, unattractive appearance or some other combination of factors that make it hard for them to compete, especially with high volume retailers. Many commercial buildings are underutilized or empty.

St. Louis has addressed this problem in recent years with an active Neighborhood Commercial Revitalization Program that provides various services:

• Awnings, sign replacement, and other facade improvements are encouraged with a joint private owner - City of St. Louis support program that typically provides up to $2500 per establishment, with the costs shared 50%-50% with the business or building owner.
• Business Associations are assisted with a Commercial Managers Program that provides organizational support, planning and design services, marketing ideas, and help in solving parking, traffic, and related retail and wholesale business problems.
• Street trees, sidewalk improvements, street furniture replacement, and similar upgrades to the public right of way are provided.

This assistance is provided with the recognition that while public support is critical, ultimately businesses must help themselves. There is also recognition that in a City that has less than half the population that it had in 1950, some commercial areas can not be renovated in a similar manner. For these areas what were once commercial retail uses need to be transformed to a combination of other kinds of business, residential and open space/landscaped uses.

Collectively the commercial revitalization needs are huge. The current inventory of vacant buildings in the City lists hundreds that are commercial or industrial. A significant percentage of these will have to be demolished. Additional commercial buildings can be expected to become vacant in the coming years. A reasonable estimate of the unmet need per district is about $100,000 for facade improvements and $500,000 for sidewalk, street tree and related public improvements. The District Managers are currently working in 40 districts throughout the City.

If refurbishing or replacing currently derelict commercial buildings is one way to think about the cost of meeting the need for commercial and industrial rehabilitation, another is to think about the unmet need on the part of St. Louis residents. Chapter III points out that on a net basis the ratio of sales in the City to the region is about the same as the ratio of population - City to region. However, on a neighborhood basis, the situation is very different. Large sections of the City are seriously underserved in terms of basic goods and services necessary for day to day life. This results in the loss of sales tax revenue because many St. Louis residents shop in St. Louis County. More importantly, it means severe hardships for neighborhood residents, especially those without access to automobiles.

Commercial reinvestment is a continual economic dynamic. Thus there is no future time at which it will no longer be necessary. Nevertheless, in order to make a minimally acceptable reversal of the disinvestment that has occurred in much of the City will take several hundred million dollars in public and private funds.

St. Louis should continue an energetic program to upgrade and/or transform its older commercial strips and to induce new national and metropolitan wide retail uses to invest in the City.

To continue a meaningful level of support will require sustained, multi-year support for a number of initiatives.

a) Continue the Neighborhood Commercial Manager Program that provides assistance to Business Associations.

The managers should divide their time between those organizations that have made a commitment to improve their situation, and those groups that are still getting organized. The successful manager will be one who can serve as an intermediary between a given business organization and municipal departments from whom services are needed; one who can work directly with individual businesses, encouraging them to participate in facade renovation and related programs; and will be one who knows where to find other community resources able to help with planning, marketing, market research, and all the other ingredients of small business success.

b) Accelerate the facade improvement program thereby creating a more attractive environment in which to do business.

Dramatic improvements in the look and feel of older commercial strips has been accomplished by this program which splits the cost for awnings, signage, and other exterior facade improvements. The program should be expanded, with priority given to those establishments situated in an area where the business association has an active improvement program in place.

c) Continue public right of way improvements along commercial strips where there is a prospect of serious business investment.

Street trees, banners, landscaping, sidewalk replacement, benches, newspaper boxes and street signs and lighting together create an environment in which business can prosper. The problem is that such improvement programs can be expensive, especially if undertaken at a large scale. Public right of way programs should be targeted to those areas where the business community is serious about upgrading individual businesses as well as the overall environment. The program may also be appropriate along heavily traveled arterials where the image of the City is at risk.

d) Attract new commercial retail investment by providing the necessary level of subsidy.

Today, large numbers of City residents do their routine shopping in suburban locations. The sales tax revenues, and increased property tax contribution does not return to the City. This suburban shopping occurs at considerable inconvenience to City residents because there are not enough large, state of the art shopping centers, especially on the City's northside. Attracting major commercial investment in an inner City location typically requires a subsidy at some level. The City is providing such a subsidy today for the proposed facility at Natural Bridge and Union. Additional contributions should be made over the next five years to attract at least two more major northside complexes.

e) Identify those areas where renewed retail development activity is unlikely and begin a program to assemble sites for new development activity.

Not every commercial district can prosper given current demographic realities. Some commercial strips will be better served by undertaking a redevelopment process that results in new economic activity.

This program has been carried out in recent years with CDBG and 108 funds that have been allocated to the St. Louis Development Corporation. Personnel costs vary with the number of commercial managers. The amount available for facade improvements has varied from year to year. A commitment of $2500 per establishment in public funds is typically combined with a like investment by the company. Thus an allocation of $100,000 can result in the upgrading of about 40 businesses.

Public right of way costs vary with the specific project. A typical block face can require a substantial investment just to cut tree wells and plant new trees of a decent size. In general, these funds should be forthcoming as part of the City's capital improvement program.

Calculating the size of assistance for major new retail facilities is complicated. It depends upon many factors such as the availability of the land, the adequacy of the street and utility support, the feasibility of tax increment financing, and, of course, the estimated market strength associated with the location. Inducing large scale new retail commercial investment into the City's most impoverished neighborhoods will continue to require large amounts of public support in the coming years.

COMMERCIAL-INDUSTRIAL LAND.

The City of St. Louis lacks sufficient developable land. In a city with more than 11,000 vacant parcels, this may seem surprising; however, the reality is that very few commercial/industrial sites of reasonable size are currently available for consideration by potential investors.

Most land transactions are conducted within the private sector. However, given the special challenges that characterize the St. Louis market, the City gets involved in a number of important ways.

• Land Acquisition. Property acquisition occurs in a number of situations:
  1. when the site is forfeited to the Land Redevelopment Agency because no the owner has not paid taxes for three years, and no one has been willing to purchase the property for the amount of back taxes.
  2. when property is given to the city, because the owner has no prospect for sale or investment in the site. Often the alternative to accepting such property is to wait for three years and receive it through the tax sale process.
  3. when a conclusion is made that private property will only receive substantial reinvestment if it is purchased, improved and resold to private owners. That is the rationale behind traditional urban renewal programs.
  4. when property already owned can only be upgraded and sold, if adjacent private property is acquired so that it can become part of the total package.
• Maintenance. This entails security, utilities, insurance and all the other normal management functions associated with property ownership. Given the large number of derelict buildings that are owned, board up and demolition requirements are constant concerns.
• Site Preparation. Before most commercial or industrial parcels can be sold for private development, some improvements are typically necessary. These may include hazardous waste mitigation, removal of foundations and other rubble, and street, sidewalk and utility upgrades.
• Land Disposition. Development sites are offered for sale to developers that commit to invest in job intensive businesses.

Where typical firms previously were satisfied with 3 or 4 acres, the demand is more likely today to be for 10 -12 acres. This reflects the prevalence of horizontal rather than vertical configuration of manufacturing, warehousing and office procedures. It also reflects standard requirements for set backs, off-street parking, loading, circulation and landscaping.

Assembling larger parcels presents a major challenge. City blocks often need to be combined, a process that requires streets to be removed, and utilities to be relocated. The fact that the blocks already are served by electrical, gas, water and sewer utilities would ordinarily be a competitive advantage in comparison with suburban or exurban development. The need to relocate or resize these utilities off-sets that advantage.

Much of the land acquired by the city has been renovated and put back into a productive use. However, many sites are still owned by the city, reflecting the lack of demand in the absence of a clean site with up to date utilities. The unfortunate reality is that acquisition by cities will need to continue if land is to be brought back into productive use. Many former industrial plants (e.g. Krey Packing, Bussman Fuse, Carter Carberator, etc.) will only be reused in a significant, as opposed to marginal, way if the sites are purchased, demolition paid for, and the utility relocation/clean up process undertaken. These are tasks for which few private businesses have the time or resources. Government must intervene.

An added element of uncertainty has to do with those residential neighborhoods that are in the process of being abandoned. While the goal is to attract residential reinvestment where possible, most observers agree that not all residential neighborhoods can be redeveloped in a sustainable critical mass. For some of these areas it will make sense to convert the area to job intensive uses that are environmentally and anesthetically acceptable.

A reasonable estimate is that the City will need to acquire 5-10 acres a year for the foreseeable future. This will be over and above land that is given through the LRA process. The acquisition costs will vary widely, even discounting the hazardous waste situation. For example, vacant land or a dilapidated warehouse would typically cost $1-2 per square foot. A typical vacant boarded building could cost $5000, whereas an occupied building could cost $15,000 to $40,000. Depending upon the land use, assembling an ordinary 2.5 acre (109,000 sf) block would usually range between $5 and $25 per square foot or $545,000 to $2,725,000. Again, these calculations are absent environmental considerations.

A second overwhelming challenge has to do with Environmental clean-up laws and regulations. Most sites that have been occupied by 2 or 3 generations of industrial or commercial use have some contamination. Often some oil, chemical or other liquid has leached into the earth. Phase I and Phase II environmental testing is expensive, and even then, specific problems may not be fully discovered until actual redevelopment occurs.

In recent years the Land Reutilization Authority has received title to gas stations, dry cleaners, industrial sites (including a 40 acre goal gasification plant), plating companies, asbestos filled office buildings, and sites containing lead paint. The inventory is currently 31,000,000 square feet and growing.

Table 48 illustrates the dimension of this problem in St. Louis. It is evident that the city currently owns 116 acres of industrial and/or commercial ground. Phase I testing has been conducted at only a very small percent of this ground. No Phase II testing has been possible. While not known, the size of the clean- up costs are anticipated to be significant.

It is extremely difficult to generalize about the costs of environmental cleanup. Testing typically costs several thousand dollars for the Phase I tests, but can get into the tens, or even hundreds of thousands, of dollars for the Phase II analysis, depending upon the size and history of the site.

The actual remediation can be extremely expensive. Cleanup costs in the $50,000 to $80,000 range are not uncommon, especially where a gas station, dry cleaners or similar establishment once occupied the site. The general rule of thumb for commercial/industrial property in older cities is that, under current rules, one can expect to spend as much for cleanup as everything else. Thus, if the costs of purchasing, clearing and preparing a site are in the $5-$25 per square foot range, then the same activities plus environmental cleanup are likely to cost in the $10 - $50 range.

For each 10 acres that is developed commercially or industrially, St. Louis can expect 50 to 250 jobs. If the typical job pays $18,000 annually, it contributes $180 ( one percent) in earning tax and perhaps another $300 in sales tax during the course of a year. Thus, disregarding the property tax, business licenses and other contributions, a developed acre of ground can contribute $12,000 to the financial resources of the city. Much harder to determine is the neighborhood stability that comes with employment, and the associated reduction in direct municipal costs (police, fire, code enforcement, etc.) and in- direct municipal costs (abandonment, bankruptcy, loss of property values, etc.).

An aggressive program by the City of St. Louis must continue if marginal, often abandoned, land is to be put back into productive use that contributes to the job and tax base.

a) Continue to acquire selected parcels of land.

Purchasing land, and accepting donations, must be done judiciously. It doesn't make sense to buy land in situations where commercial investment might occur in any event, nor to accept property where there may be serious environmental liabilities, especially if that allows the previous owners to avoid their legal responsibilities. Nevertheless, the reality is that private business reinvestment in much of St. Louis will occur only if the City can assemble land that is ready for development.

b) Initiate a pro-active environmental testing program

There is insufficient money to support in-depth testing of all city owned property. However, conducting stage one testing for priority sites, and, more detailed stage two testing for key sites is important. Most potential investors do not have the time or interest in conducting initial testing themselves. The ability of the City to undertake this work will make an important difference in the success of our economic redevelopment process.

c) Promote realistic clean-up incentives at the State and Federal Level.

Regulatory and legislative change could help create an environment that increased the likelihood of hazard remediation. Businesses need to understand that they cannot avoid their responsibilities by simply abandoning unwanted property. At the same time, additional direct superfund support, and indirect tax relief inducements, must be increased. Current clean-up mandates are beyond the ability of local governments to address by themselves.

d) Explore alternatives to full scale cleanup of commercial/industrial property that will remain in the same use.

Increasingly people are beginning to recognize that some current environmental cleanup regulations amount to overkill in situations where the land will continue in a commercial/industrial use. Alternatives need to be explored where by deed restrictions would insure that contaminated property not be reused for residential or institutional purposes, but that certain business uses would be acceptable. Solutions will require good faith collaboration between federal, state and local government officials and various environmental and business interest groups. However, if compromise is not possible, many of the city's "brown fields" are likely to remain empty.

e) Find ways to develop key infrastructure improvements

Improved street access, rail linkage, utility support are all examples of improvements that can make the difference between a private business decision to purchase and invest in a city property or look elsewhere. Continued efforts need to be made to identify the key improvements necessary for development sites, and to find the financial mechanisms that allow them to happen.

Expanding the amount of funds to allow an aggressive land purchase, demolition, clean-up, and resale program is a particular challenge. CDBG support is difficult to justify in cases where there are not immediate prospects for job-intensive business investment. Tax Increment financing can work, but again only when there is certainty that a new business will be in place able to generate the "increment" that will retire the debt. New tax sources that have been sought from the voters for this purpose have to date been rejected. The best opportunity for increased financial support may be additional help from the state or federal government.

BUSINESS FINANCE.

Access to capital is fundamental for any business. In its absence new business formation cannot occur and existing businesses cannot grow. It is clearly very much in the City's interest to help businesses secure the financial assistance that they need to succeed.

Private sources of capital is the traditional approach to business growth. The City of St. Louis works with state and federal government programs to provide help to those businesses who may need additional assistance. Business finance programs include:

• 504 Loan Program where up to 40 percent of the project may be supported with federal Small Business Administration funds where a bank is willing to lend 50 percent of the project and other criteria are met.
• Revolving Loan Fund program that has been established to provide direct loans at below market rates when there is at least a 2 to 1 private equity ratio, and real full time jobs will be created
• EDA Revolving Loan Fund that has been created to assist companies that are striving to adjust from reliance on the defense industry to opportunities in the civilian economy
• Micro Business Loan programs which provide small direct loans to start up minority and women owned companies that can demonstrate a cogent business plan
• Tax Exempt Revenue Bonds which can be issued at less than prime rate to cover the costs of land and building acquisition, machinery and equipment and construction or renovation.
• Contractor Loan Guarantee Program which partially guarantees working capital loans from banks to small and minority contractors in cases where a conventional loan is not possible

Small and medium sized businesses that want to invest in the city of St. Louis have a special challenge in securing capital. Some financial institutions are hesitant because of past problem loans or simply lack of knowledge about the city as a place to do business. Some are hesitant because of perceived business disinvestment or the special challenges of hazardous waste.

The relative absence of venture capital firms in the metropolitan area and the generally conservative reputation of financial institutions in St. Louis also contribute to the challenge of securing capital. This is a particular problem for would be entrepreneurs that cannot raise equity from family and friends as easily as their counterparts in more prosperous communities.

In the coming years the St. Louis Development Corporation will cooperate with other development organizations in order to improve the business climate. Specific recommendations include:

a) Explore diverse sources of small business capital

Federal funds made available through the auspices of HUD's CDBG program or the Department of Commerce's Economic Development Administration programs are necessary, but not sufficient. Efforts need to be made to explore other sources of non-traditional capital from sources such as Pension Funds, Financial institutions concerned with their Community Reinvestment Act responsibilities, Foundations and other groups

b) Cooperate in the development of a financial clearinghouse

A variety of mechanisms exist to help private companies find investment capital. This is primarily a private sector function, but there is a role for local government. A computer-based clearinghouse of financial sources has been proposed as a regional resource to be developed in conjunction with the Economic Adjustment and Defense Conversion project.

c) Expand micro loan programs based upon an evaluation of on-going progress.

The concept of micro loans in order to start businesses has achieved a growing following in this country, building upon the success of programs in certain third world settings. In St. Louis such loans are made by the St. Louis Development Corporation, Mustard Seed Partnership, Human Development Corporation, and the Residents Assistance Corporation that works with Public Housing Authority tenants. These small loans are made without traditional collateral requirements, where there is a reasonable prospect for business success.

d) Recruit additional sources of Venture Capital.

St. Louis has relatively little venture capital in comparison with many communities on the east and west coast. The state has experimented with some initiatives. This should continue as should efforts to free up a small portion of local government pension funds that could be used for this purpose, within a framework of careful risk management. A variety of support mechanisms -forums, business fairs, clearinghouses, etc. can also provide valuable help to worthwhile businesses that need start-up or later stage capital.

An expanded base of business capital must come from many public and private sources. EDA, CDBG and other federal programs have been helpful in capitalizing revolving funds. Continued efforts should be made to find a workable approach whereby local financial institutions could contribute to business development fund.

TECHNICAL ASSISTANCE.

An additional critically important business support function is the provision of technical assistance. In St. Louis it may be obtained from diverse public and publicly assisted sources.

No comprehensive listing of services is possible in this document. Some of the more important services provided by the City of St. Louis include:

• The Business Assistance Center which serves as a one-stop center to assist businesses in obtaining building and occupancy permits, inspections, licenses and taxes.
• The Small Business Incubator that provides inexpensive office and manufacturing space, computer and other support services and managerial and consulting advice.
• Real Estate Locational Services that advises businesses concerning the acquisition or lease of potential land and building sites, relocation, marketing and related real estate issues.
• Real Estate Tax Abatement Programs which can enable property taxes to be frozen for 10 years and subsequent valuations to be set at only 50 percent of ordinary assessed value for up to an additional 15 years.
• Minority and Women Business Development Programs that are designed to build opportunities for participation in City sponsored projects.
• World Trade Center Network Access which assists businesses in establishing contacts with buyers and suppliers in the international marketplace.

Other important sources of business information include the Regional Commerce and Growth Association, the St. Louis County Economic Council, the St. Louis Public Library, the St. Louis Procurement Center, the St. Louis Minority Purchasing Association, Missouri Small Business Assistance Centers, the Society of Retired Business Executives and many more.

Successful economic development requires accurate and timely information. From the perspective of the City, this implies helping businesses to understand their municipal requirements and to obtain satisfactory municipal service. It should be easy for a business to obtain routine licenses, permits, and when necessary police, fire or related services. It should also be easy for businesses to learn about available property within the city, investment incentives, job training opportunities, and even projects needing volunteer support. Businesses need on-going, automatic access to information about municipal programs and ordinances.

Beyond this, government has a role to play in providing information that can help a business compete more effectively. National and international competition increasingly influences the success or failure of local businesses. It is in local governments best interest to help local businesses, especially those that are small and minority, to learn about new market opportunities, management and production techniques, and all the other considerations that go into business success. To the extent that local businesses prosper, so does St. Louis. When they fail, the whole community suffers.

Improved technical assistance should build on the many mechanisms that are already in place. Specific initiatives include:

a) Cooperate with the Regional Commerce and Growth Association, St. Louis County Economic Council and other regional institutions committed to business assistance.

The new regional economic council, the re-energized Regional Commerce and Growth Association, and the St. Louis County Economic Council are examples of organizations with which the city must actively collaborate. The City's interests will not always intersect with these organizations. Competition within the region is inevitable. However, for the most part, a more prosperous region will help all jurisdictions. Combining energy and resources represents the best way to pursue that prosperity.

b) Prepare new informational material that explain business investment opportunities and incentives within the City of St. Louis.

As population and businesses have migrated to outlying areas of the region, proportionally fewer individuals are aware of the investment opportunities that exist in St. Louis. Additional material needs to be prepared and disseminated that explains the advantages of doing business in St. Louis, and specific retail, wholesaling, manufacturing, research and development and other opportunities. The potential for business success within the city is a message that must be continually promoted.

c) Design improved computer-based networks for conveying business oriented information and for facilitating communication between businesses.

Information networks are revolutionizing the ways that business is conducted. In the near term, improved systems for sharing information of use to business should be developed. These same networks could improve communication between economic development officials, both locally and through out the state. On a longer term basis, collaborative research between the universities and corporate community, especially those in telecommunications, holds forth the promise of greater business productivity and new market opportunities.

d) Expand state and federal government support for the St. Louis business community

The Missouri Department of Economic Development, Missouri Small Business Development Center, Missouri Department of Labor and other state offices have developed a new enthusiasm for supporting business support in urban areas. Ways need to be found to extend and strengthen this collaboration. Similarly, new ways need to be found to expand the effectiveness of the US Small Business Administration.

e) Collaborate in public-private partnerships that explore the applicability of critical technologies to St. Louis industry.

In the last several years a number of committees have been formed to explore ways by which new technologies being developed at local universities might be used to bolster St. Louis businesses. These kinds of initiatives have proved successful in other communities. Already some are promising with St. Louis. The City should participate where appropriate, with special emphasis on those technologies that contribute to health, telecommunications, bio-technology, and other industries where we already have competitive advantages.

The Procurement Center informs businesses about buying solicitations offered by the federal government. This service would be even stronger, if state and local governments, and even private corporations could use it to advertise for goods and services. The Minority Purchasing Council exists to explore opportunities whereby minority businesses might have a chance to do business with large businesses and institutions through out the region. This is a concept that needs to be expanded.

Resources

Funding for these initiatives must continue to come from many sources -private, public and philanthropic. Considerable success has been forthcoming in recent years in the funding of demonstration projects supported by the Defense Conversion Program, Advanced Research Projects Administration, Department of Labor, and other sources. Continuing alertness to state and federal grant opportunities will remain important. More importantly, local private companies, public institutions and non-profit groups must collaborate with their own resources.

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