Fifteen years after Jefferson City's first tax increment financing (TIF) proposal was approved by the Jefferson City Council, the project is finally bearing fruit.
In 2002, Juanita Donehue decided to open a restaurant in a dilapidated part of town at 900 E. High St. While Donehue died five years ago, her legacy continues in the blocks around the restaurant. City leaders said its earliest TIF projects are the perfect example of what can happen when the tool is used properly.
But as larger developers have sought recently to use the program to redevelop blighted areas, they've encountered more resistance from a skeptical public.
The City Council approved Donehue's plans in 2002, and O'Donoghue's Steaks and Sea Food opened about a year later. General Manager Robert Craig said Donehue ended up spending about $1.2 million fixing the building, but the restaurant is valued at about $600,000 today.
"She had to have a clear vision, because I would've burned it," Craig said. "It was so dilapidated."
Craig admitted it was a terrible investment for Donehue, but it's paid off in other ways.
"Community-wise, look around us because of how many businesses (are there now)," Craig said.
Public money for the project replaced sidewalks, curbs and gutters and made other public improvements along High Street. To date, the project has received $112,435.52 from the city, and state officials estimate the public ultimately will pay $154,906.59, according to the project's most recent status report filed with the state.
Changes around the restaurant happened slowly. Prison Brews opened adjacent to O'Donoghue's in 2008. Later, other businesses like Shrunken Head Tropic Lounge, JC Consignment & More and Stained Glass Theatre opened.
"Changes weren't drastic within a year," Craig said. "We still have the stigma that this is the bad part of town, but we're 14 years into the TIF and it's creating this entertainment district that would not be here if not for the TIF."
Another small-scale TIF followed in 2009. That November, the city created the Southside Redevelopment Area and adopted the Southside Tax Increment Financing Plan to redevelop and eliminate blight in the Old Munichburg area. To date, this project has received $158,673.49 and ultimately will cost taxpayers $530,000, according to the state auditor.
Kolb Properties owner Larry Kolb owns one of two small, local companies that used the funds to renovate buildings in the 100 block of Dunklin Street. Nine storefronts and six loft apartments were renovated. The companies spent about $2 million on the project. All were vacant before Kolb and partner Steve Rollins bought the properties.
Kolb and Rollins used the funds to fix public infrastructure in front the buildings like curbs, gutters, sidewalks, streetlights and landscaping, and repair storm drains.
The Southside Barber Shop was at 114 E. Dunklin St. when Kolb first thought about buying the properties two years before he sent a TIF proposal to the city. Other than that, he said, the area was deserted.
"You could've shot a cannon from Jefferson Street to Madison street and not hit a person," Kolb said.
Mayor Carrie Tergin said both projects show what a TIF can do.
Tergin said she thinks the Southside TIF worked like it was supposed to and now is being followed up by an even bigger redevelopment plan by Capital Region Medical Center, the city and a St. Louis design firm. That effort wants to create a 20-year plan to revamp the entire Southside and Old Munichburg Historic District.
"That's the whole point," Tergin said. "TIF is a valuable tool when used correctly."
Now, a few years after securing TIF support for a separate project at Capital Mall, Jefferson City-based Farmer Holding Company (FHC) wants to turn the 112-year-old former St. Mary's Hospital site into retail, restaurant and office space using TIF.
FHC laid out two plans to redevelop the property at a May 18 Jefferson City TIF Commission meeting. One involves Lincoln University, and the other involves a commercial-only development.
Under the Lincoln project, the original hospital building would be renovated and used for office space. Most of its additions would house programs for LU in more than 100,000 square feet of space. Four commercial pads with 21,000 square feet of space would be constructed.
Under the commercial plan, the hospital building would be renovated for office space. Its additions would be demolished to make room for retail and parking spaces. Six commercial pads with 30,200 square feet of space would be constructed.
Two of three parking garages would remain standing, but the one nearest the hospital would be demolished because it is not structurally sound. A medical office building would also be renovated for office use.
FHC estimates the Lincoln project will cost $44.6 million and asked for $7.3 million in TIF funding for the project. The company estimated the cost of the commercial project at $30.9 million and asked for $6.7 million in TIF funding.
Part of the public investment will help save a cherished piece of Jefferson City's history, Tergin said. She was born at the old St. Mary's Hospital. So was her father. Pam Murray, a former nurse and Jefferson City Public Schools Board of Education member, is a staunch opponent of the proposed St. Mary's TIF and was the sole community member to speak at the May 18 meeting. Even she said the hospital is an important landmark in Jefferson City.
"St. Mary's touched the life of everyone in the area," Murray said.
After St. Mary's closed the hospital in late 2014, Tergin said, residents began asking her what the city could do to save the hospital.
State and city leaders thought they had that plan in 2014, when LU planned a satellite campus on the site, but then-Gov. Jay Nixon vetoed state budget appropriations that would have renovated part of the hospital for use by Lincoln and State Technical College of Missouri. Tergin said the FHC plan still uses a public investment to save the hospital.
FHC Principal Rob Kingsbury said his company feels the history of the hospital.
"People were let down (when Nixon vetoed the money) because it sits right in the heart of our community," Kingsbury said. "But nothing seemed to be happening. So we saw it as an opportunity to work with all of those who have shown interest in having the property redeveloped."
Last year FHC paid $17,592.32 on the main parcel at a rate of 5.49 percent on property with an assessed value of $320,000, according tax filings with the Cole County Collector's Office.
Kingsbury said FHC currently pays $23,051 in property taxes on four parcels it owns on both sides of Missouri Boulevard. If the TIF passes, the company will continue to pay that amount during the 23-year life of the TIF. When the TIF expires in 2039, Kingsbury said, property taxes at the site will increase to $743,202 under the Lincoln project and to $1.3 million per year under the commercial project.
A "but-for test" required before awarding TIF funding shows the St. Mary's site likely would not be redeveloped without some form of public investment. The report, written by the city's auditor Springsted, also said the level of risk demands a return on investment of 6-13 percent.
A May 11 staff report to the TIF Commission recommended the commission recommend the project for approval to the City Council.
Projections FHC is giving potential tenants include TIF funding for the project. If the council does not approve the project, Kingsbury doesn't know its future.
"We'd have to start over," he said. "The indication is nothing would happen."
Capital Mall
In 2012, FHC purchased Capital Mall and began creating plans to renovate the shopping complex. In July 2013, the City Council approved a plan to reimburse FHC for infrastructure costs associated with the renovation. The proposal laid out an ambitious plan to repave and add landscaping to the parking lot, update store facades, add new signs and possibly pay for part of a roof replacement.
The state expects TIF funding to pay for $15.6 million of the $36 million renovation. In just over three years since the mall's TIF went into effect, FHC has received $697,940.54 in reimbursements, according to the latest project status report filed with the office of Missouri State Auditor Nicole Galloway.
Last year, FHC paid property taxes of $147,064.55 on the mall property, according to the Cole County Collector's Office, at a rate of 5.49 percent on property with an assessed value of $2.7 million. Kingsbury said FHC owns several more parcels at the site on both sides of Country Club Drive.
The mall's but-for report said the project required a return on investment of 5.5-12 percent for any developer to take it on. Construction started in January 2015 on signage and an entrance for a new Ross Dress for Less store, which opened in November 2015.
Since then, a handful of smaller stores have come and gone. Notably, the Senior Center at the Mall closed in early May to make room for a 48,000-square-foot Dunham's Sporting Goods.
"We've been pleased with the progress we've made," Kingsbury said. "We take on projects because we believe there's potential for them to be successful. With the mall and with the St. Mary's property, we believe there's an opportunity for redevelopment that can really benefit the community."
Many in the community believe the mall may have closed without the TIF to support FHC's investments in renovations. This could explain why the Capital Mall TIF breezed through with little opposition. The TIF Commission voted unanimously to approve the plan, and both school district representatives on the commission voted for the plan.
"Those improvements probably would not have happened at all, and had they been done, probably would've happened over the better part of a decade or more to see the growth you're seeing," Kingsbury said.
Truman Hotel
For decades, the Truman Hotel was a gathering place in Jefferson City. Opened in 1964 as a Ramada Inn, the hotel dropped its Ramada affiliation in 2006.
In 2013, Columbia-based Puri Group of Enterprises (PGE) purchased the hotel for $1 million. The Puris own several hotels in Columbia and Jefferson City and asked the TIF Commission for $8.89 million toward a $56.8 million plan to build two hotels and a restaurant on the site.
PGE proposed balancing the taxpayers' share by having the city annex two Puri-owned hotels just outside city limits. Then Jefferson City attorney Drew Hilpert said 60 percent of TIF funding would come from lodging taxes and 40 percent would come from property taxes, with the net benefit to the city at $30.1 million over 25 years.
The plan was killed in September 2016, when the council voted 5-5 at a four-hour meeting. Because the TIF Commission voted against the project's approval, it did not clear the two-thirds majority needed to pass.
Murray, like others, said the main difference between both FHC proposals and the Puri proposal is the tone at TIF meetings.
Ramon Puri, CFO of the Puri Group, told the News Tribune after the council meeting he was disappointed in the council's vote because it was discriminatory.
"The (Capital) Mall TIF was approved, and this (hotel project) was a better project, with more money to the community," Puri said at the time.
Murray, and others reached by the News Tribune who wanted their comments to remain off the record, said community members felt like the Puris created the blighted area around the hotel when they partially closed the hotel and restaurant then completely closed and boarded up the hotel's windows in November 2015.
"That was the plan; to create blight is very self-serving," Murray said.
Murray opposes most TIF projects, but she said, she has a good working relationship with Kingsbury and respects him.
The Puri family resides in Columbia, and Murray said it felt like PGE wasn't invested in the community throughout the TIF application process. FHC employees at least seem invested in Jefferson City, she said.
"They reside locally, so that's a major difference," Murray said.
Like the proposed St. Mary's, Capital Mall, High Street and Southside TIFs, PGE proposed a "pay-as-you-go" plan that reimburses developers as improvements are made. Kingsbury said this allows the developer to take on the financial risk so the city reimburses developers only if a project is successful.
A but-for report prepared by Springsted said the Truman Hotel redevelopment would not be profitable for the developer without TIF assistance. A city staff report prepared for the TIF Commission, however, recommended the commission vote against the project because PGE and city officials could not agree on redevelopment terms.
Jefferson City Board of Education President Steve Bruce said the school board was always skeptical PGE needed taxpayer assistance to make the Truman Hotel project profitable. So both of the school board's TIF commission members voted against the TIF. In the end, Bruce said, it was a business decision.
"The primary concern was the Puri Group barely passed the but-for test," Bruce said. "Hoteliers questioned the need for more hotels in the market. These are first and foremost financial decisions we have to make."
Vivek Puri told the News Tribune in March 2016, "If there is no TIF, there is no project." In the end, though, a 131-room Holiday Inn and a 125-room hotel yet to be named will be built on the site. A restaurant and a 20,000-square-foot conference center are also being built.
Construction started last month after the City Council approved an urban renewal contract with PGE that provides 10 years of property tax abatement at the site.
At the May 18 TIF Commission meeting, members delayed the vote on the St. Mary's TIF site to give the school board time to review the but-for report.
Bruce said it's important to realize every TIF is different.
"It's a complex request to review," Bruce said. "It's not an easy process."
How does TIF work?
Tax increment financing (TIF) dates back to a 1952 California state law.
Municipalities liked using TIF because they could fund urban renewal projects using taxpayer money without raising taxes for the whole municipality, according to a 2012 study funded by Missouri non-partisan think-tank The Show-Me Institute and written by Washburn University Economics Professor Paul Byrne.
"Policymakers find fewer obstacles to funding improvements through TIF because they can make the case that the municipality would still have access to the same taxes the property currently generates," according to the report. "Furthermore, they argue that the municipality does not bear the financial risk of the development failing to generate adequate tax increment."
The Legislature created Missouri's TIF law in 1982. Missouri developers wanting to use TIF submit proposals to local TIF commissions, which then vote to recommend or deny approval to city governments.
If a TIF commission, such as the Jefferson City TIF Commission, votes to recommend approval of a project, a city council usually needs a simple majority to approve TIF funding. In most areas, if a TIF commission denies a project, a city council needs two-thirds of the council to vote for approval.
TIFs can generally be used in two ways, according to Byrne. In the first, TIF funds improve infrastructure in areas around economic development, like an alternative way of funding local public spending. This is how Jefferson City's High Street and Dunklin Street TIF developers used their funding.
In the second, a TIF reimburses a developer for development costs, which effectively lowers the tax rate for private developers. The latter is the type of TIF financing used Jefferson City's Capital Mall, and proposed for the Truman Hotel and historic St. Mary's Hospital TIF proposals.
A project qualifies for TIF funding if it is in a blighted area, a conservation area or an economic development area that has not been subject to growth and development through private investment and would not be expected to do so.
Projects must be completed within 23 years of the TIF's approval.
Statewide, there are 474 ongoing TIF projects in 114 municipalities, according to the Missouri Department of Revenue. Of those, 340 fall under blight designation. Another 76 fall under the conservation area designation, and 37 more fall under the blight and economic development designation. Only 16 projects statewide fall under the economic development area designation.
All three active TIF projects in Jefferson City fall under the blight designation. Additionally, the Truman Hotel and old St. Mary's Hospital redevelopments both applied for TIF funding under the blight designation.