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Columbia's blight debate: EEZs' value as job-creation tool unclear

Sunday, May 20, 2012 | 6:00 a.m. CDT; updated 9:50 a.m. CDT, Monday, May 21, 2012
A vacant building at 1391 Boone Industrial Drive is within the proposed boundaries of an enhanced enterprise zone for Columbia.

COLUMBIA — Vacant factory buildings blemish the roadsides of Route Z, Prathersville Road and Vandiver Drive, towering over parking lots that span concrete flats the size of several football fields. "For sale" signs — symbols of the manufacturing sector’s eight-year decline in Columbia and Boone County — mark the barren, industrial landscape.

Boone County has lost 1,920 manufacturing jobs since 2004, according to a report Regional Economic Development Inc. delivered to the Columbia City Council on Jan. 17.

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"There’s a significant number of people who were in manufacturing ... who are now working part time at Walmart and part time at Hy-Vee," REDI Chairman Dave Griggs said. "I’d hate to guess at the number of qualified electricians and carpenters who have moved from our community to follow the work."

REDI officials say the enhanced enterprise zone program has the potential to bring those factory jobs back to Boone County. EEZ tax incentives would provide job opportunities for the unemployed and underemployed by encouraging manufacturers to expand or locate in the county.

In fact, REDI President Mike Brooks said there’s a company waiting in the wings right now, but its move to Columbia depends heavily on available incentives.

"We’re trying to figure out if we can make the deal work," Brooks said. "It’s an early-stage company, so the (tax incentives) would be very meaningful to them."

Brooks hopes an enhanced enterprise zone will provide those incentives. The City Council’s recent rescission of a February resolution that established an Enhanced Enterprise Zone Board and declared much of the city blighted or near blighted, however, has stalled the city’s application for an EEZ.

REDI’s pursuit of an EEZ has faced harsh criticism. Opponents caution against reduced property values, an erosion of city and county tax bases and the prospect of government abuse of eminent domain. It’s doubtful, they say, that an EEZ would create enough jobs to justify the incentives or that it would do anything to benefit the people who need jobs most.

Areas and industries best-suited to Columbia’s needs

Before the rescission of the EEZ resolution, REDI identified targeted areas zoned for industrial development within the proposed zone boundaries. Several of those areas are considered “certified sites.”

Certified sites, REDI Vice President Bernie Andrews explained at the April 11 meeting of the EEZ board, are shovel-ready sites with infrastructure in place. Columbia’s Ewing Industrial Site — complete with sewer systems, gas and electricity — is one such tract.

"This is an advantage because the businesses looking to relocate to these sites would save six or seven months on construction," Griggs said.

The EEZ also would target specific industries. North American Industry Classification System codes — six-digit figures that categorize companies for the purpose of data collection — allow cities and counties to customize EEZs to suit their needs by designating who is eligible for tax benefits.

MU graduate student and former REDI intern Maurice Harris did most of the research on the EEZ application process in the summer of 2011. He said the program’s malleability is part of its appeal.

Griggs told the EEZ board at a Feb. 23 meeting that a REDI subcommittee emphasized manufacturing when listing eligible codes. State statutes make religious organizations, educational services, public administration, retail, gambling and food-and-drink establishments ineligible for EEZ benefits.

Brooks cited food manufacturers and data centers as likely areas for expansion.

The strings attached to EEZs, Griggs said, are "less onerous" than those tied to other incentive programs such as Chapter 100 bonds, which have associated legal fees alone that can exceed the minimum investment required by an EEZ.

"An enhanced enterprise zone allows us to provide access to state tax credit programs that (are) not available through any other means to many, many companies in Columbia," Griggs said.

Brooks said he’s attracted to EEZs because of the number of high-quality jobs Columbia has lost over the past decade. While many manufacturing jobs have disappeared, the city has gained 4,000 new jobs in the food and retail sectors. Still, the average annual wage in those sectors was about $19,000 in 2009, less than half the manufacturing average of $39,000.

"This isn’t a damning discussion about those jobs" in food and retail, Brooks said. "It is rather an acknowledgement that if we as a community don’t do something different, we’re not going to change that trend line for the manufacturing jobs."

EEZs’ effectiveness unclear

It’s difficult to tell whether EEZs work well in Missouri because the program is relatively young and because thorough oversight has been lacking. In 2010, the State Auditor’s Office panned the Missouri Department of Economic Development’s management of the program.

State auditors analyzed data from all 58 EEZs and visited four around the state in 2007 and 2008. They produced a 20-page report titled “Enterprise Zone and Enhanced Enterprise Zone Tax Credit Programs.”

The Department of Economic Development, the report said, had done too little to verify information provided by businesses that applied for credits and therefore fell short in determining whether the businesses were meeting expectations for economic benefits.

"As of March 30, 2010, only 15 of the 51 businesses that had been issued enhanced enterprise zone tax credits since the inception of the program in 2006 had been visited" by the Department of Economic Development, the audit report said.

Auditors also found that "the business investment and jobs assumptions used to create the economic forecasts provided to the General Assembly" were overly ambitious. Tax incentives contributed to 6.1 percent fewer jobs and 29.5 percent less investment than businesses projected.

One business, for example, forecast an investment of $40 million in its first year but only spent $2.9 million during that time period. That’s a nearly 93 percent difference.

The department also gave false economic benefit information to the General Assembly in a tax credit analysis form, the audit said. Auditors selected 40 businesses that submitted information to the Department of Economic Development in 2008. The department provided inaccurate investment assumptions for 17 of them. That’s an error rate of 43 percent.

"One business submitted an estimate to (the department) indicating it would invest $11,388,848; however (the department) used an assumption of $49,358,848 (333 percent more) in the economic forecast," the report detailed. "Another business’s notice of intent to (the department) estimated it would invest $5,697,000, but (the department) used an assumption of $87,600,000 (1,438 percent more) in the economic forecast."

The audit report drew two main conclusions about the EEZ program:

  1. The Department of Economic Development does not adequately monitor businesses receiving credits.
  2. The economic benefits of the program as reported to the legislature are overstated.

These weaknesses, the report said, "make it difficult to determine whether the programs are an effective use of state resources."

The Missourian provided Griggs and Brooks a copy of the audit report. After reviewing it, Brooks said one has to consider lapses between the time a project is proposed, the time tax credits are administered and the time jobs are created.

"It would appear there are more announcements of awards each year, which would indicate that communities are able to use this program to create jobs and investments with these tools," Brooks said in an email.

When public ire about the EEZ application piqued her interest, neighborhood activist Traci Wilson-Kleekamp submitted a request under the Missouri Sunshine Law for all email correspondence among REDI and city officials regarding the EEZ. What she found in the emails dissatisfied her.

Wilson-Kleekamp expressed frustration with the apparent lack of empirical evidence that EEZs work.

"In all the records, you will not find any substantive or deliberative conversation that shows that (REDI) did any research to prove that this is the most viable, productive tool that they have in their chest to resolve the economic development issue we have," Wilson-Kleekamp said.

In terms of "process, policy and professionalism," she contended, both REDI and the city have missed the mark.

The emails Wilson-Kleekamp obtained, which she shared with the Missourian, indicate REDI tried to get some data. On Feb. 13, Andrews from REDI asked Carol Shoemaker, an incentive specialist with the Missouri Department of Economic Development, whether she could provide fiscal year-end reports for other EEZs so that REDI could gauge their effectiveness.

Shoemaker said no.

"That would be in the form of a Sunshine Request," she replied. "You could request any of the existing zones to send you their annual report, and that would be their choice to do so or not."

Shoemaker did provide "general information." She said 198 companies had been approved for EEZ credits and 49 more were in the process. Approved companies proposed a total of 11,620 jobs and $2.33 billion in investment, most over a five-year period.

Shoemaker offered other numbers during a March 6 forum. There, she said EEZ projects have generated 5,115 jobs and $1.6 billion worth of new investment in Missouri. She also reported that the state's annual cap on EEZ tax credits has increased from $4 million to $24 million over the past three years.

The state has issued $22.2 million in EEZ tax credits since the program's inception in 2004, Department of Economic Development spokesman John Fougere said in an email. Spread out over an eight-year period, that's less than the current cap for one year.

Per Shoemaker’s advice, REDI obtained annual EEZ reports from Springfield, where four zones are in place. Figures from 2010 show those Springfield zones produced 89 jobs and $8.4 million worth of investment.

Still, data on the 7-year-old EEZ program are mixed. Shoemaker also said March 6 that the average zone that month held four businesses that invested a total of $3.1 million and collectively created 97 jobs. In Columbia, that would account for a little more than 5 percent of the nearly 2,000 manufacturing jobs the city has lost over the past decade.

Wilson-Kleekamp said an EEZ might be but a single instrument in an economic policy toolbox that should involve a range of strategies and a detailed plan of attack.

"To me, that is the meat and potatoes of what we should be talking about," she said. Before officials can decide on a strategy to combat unemployment, "they need to have a very robust conversation about what ails our unemployed."

Wilson-Kleekamp said leveraging existing resources, such as the Columbia Area Career Center and MU research, could be a way to create more and better jobs "without putting so many people as collateral."

During public comment at the May 7 City Council meeting, Second Ward resident Khesha Duncan said it is important to provide opportunities to people who live within an EEZ.

"I just don’t think it’s ethically and morally OK to use people for their poverty or unemployment, then turn around and not be able to guarantee that they will be the first in line when living-wage jobs are brought in the community," Duncan said.

Creating a comprehensive plan to offer that assurance would be a "giant step" toward building a bridge of trust, she said.

Although the former Enhanced Enterprise Zone Board discussed whether to offer extra incentives to companies that employ zone residents, Brooks said that’s unlikely given the difficulty of documenting those hires.

"I don’t think there’s any question that we’ll do what we can to encourage (that), but, you know, it’s going to be limited," Brooks said. "The fact is, you offer jobs, and you hope that people will take the opportunity."

Hope is not enough if REDI wants to remedy unemployment by rejuvenating a depressed sector of the city’s economy, Wilson-Kleekamp said. She’d like to see REDI and the council develop a firm rubric for attracting specific businesses and holding them accountable for job creation, as other communities have tried to do.

REDI already employs the Synchronist Business Information System to weed out companies that might come to town and capitalize on incentives, only to leave when they expire. Synchronist is a survey that gauges several variables, such as a company’s value, potential for growth and likelihood of downsizing or leaving a community.

The system also measures a company’s needs, such as available workforce. Brooks identified the training of said workforce as one of REDI’s primary concerns.

With the proper skills and work ethic, Griggs said, residents of affected areas will have the opportunity to take advantage of entry-level manufacturing jobs and potentially advance to higher positions.

"This program and how we are targeting manufacturing jobs with it truly can be a tremendous benefit to the lower socioeconomic class, who doesn’t have the bachelor’s degree, who doesn’t have four or six years of college," he said.

The need for change

Subdued celebration resonated through the City Council chambers May 7, when the resolution that established blight and the EEZ board was rescinded. Amid the quiet victors, others rose to speak about the need for jobs to alleviate poverty.

Tim Rich, executive director at Heart of Missouri United Way, pointed to unemployment as the "real crisis" in Columbia. Jobs, he said, are key to the United Way’s efforts to help people escape poverty.

Rich said he knows this because his parents worked hard to rise from poverty.

"They had to change the way they lived. They had to move out of the community they were in to find jobs. We don’t want that to happen here. We want the jobs to remain here."

Despite "mind-boggling" statistics — 43 percent of children in Columbia public schools are eligible for free or reduced-price lunches — Rich thinks many Columbia residents don’t understand the problem because they’ve never driven through an impoverished neighborhood nor met a person who lives in poverty.

"That is a critical issue because if you can’t see the face of poverty then you do not believe that it exists," he said.

Peggy Kirkpatrick, executive director of the Central Missouri Food Bank, has seen that hunger translate to home life, too. She told the council that the food pantry distributed food to 20,596 people in 2010. In 2011, that number climbed to 22,638, a 10 percent increase.

Kirkpatrick believes situational poverty — or poverty caused by circumstances such as job loss — is driving that trend.

"I have been begging many of you, I have been standing on desks, asking to please put these people back to work," she said.

One hundred potential jobs at Veterans United Home Loans escaped to Overland Park, Kan., CEO Greg Steinhoff told the council.

Founded in Columbia, Veterans United employs close to 900 people, Steinhoff said. Yet a favorable incentive package led the company to open a new office in a neighboring state. Overland Park put out a "welcome mat" that made the business environment more conducive to growth and expansion, he said.

Incentives "matter to companies," Steinhoff said. "They are real decisions that company executives make every day, and they certainly impact where those jobs are placed and ultimately how the people in those areas are benefited."

Steinhoff is also a former director of the Missouri Department of Economic Development. He said that during his time in Jefferson City he personally approved several EEZ applications. Although he acknowledged the importance of correct public process when applying for the program, he lauded EEZs as a tool to "recruit core jobs."

"Core jobs are those jobs that bring net new economic impact to an area," Steinhoff said. "These are the kinds of jobs that are not in the community currently, the impact being that they support the creation of other jobs, bring new money to the community and provide employment to the areas that need those jobs."

Kirkpatrick said she intended to remain impartial about whether to establish an EEZ, but she added that the program’s potential might be too great to ignore.

"If you put off the enhanced enterprise zone initiative and go back to the drawing board, I don’t know what that costs," she said. "But it’s just that much further away from getting people back to work. Let’s get them training, but let’s get the people who already have the life skills back to work."

Supervising editor is Scott Swafford.


Columbia's blight debate

Main article | Columbia residents worry about property values and eminent domain in neighborhoods designated as blighted. Proponents of an enhanced enterprise zone insist the worries are unfounded and that the city needs to offer incentives to attract manufacturing jobs.

Chart | How enhanced enterprise zones benefit businesses

Timeline | Enhanced enterprise zone debate

Map | Poverty rates, population change in Boone County


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Comments

Mike Martin May 20, 2012 | 12:10 p.m.

Another excellent piece about the Blight/EEZ debate that dissects it rather than taking at face value what its proponents say.

The over-arching theme seems to be that there's simply no reason to trust that Mo DED or proponents of Blight/EEZ intend fairness because there's ample evidence they have not been fair in the presentation of this program, even to the State Legislature itself.

All the talking out two sides of the mouth also outrages me. The REDI push for manufacturing jobs is especially outrageous given how their boy, Assessor Schauwecker, has attacked such large manufacturers as Square D and 3M in the recent past. Where was REDI then?

The assessor skyrockets manufacturers' property taxes -- and now we need to offer property tax abatements to attract them or entice them to expand?

This is the very definition of absurd!

The sudden support for Blight/EEZ by local non-profits has also drawn a lot of fire, including a missive noting that newly-elected Councilman Michael Trapp -- a 5-year employee of non-profit Phoenix Programs -- has a group of REDI investors -- the Phoenix Program's board of directors -- signing his paychecks!

He mysteriously came out in support of Blight/EEZ toward the end of his campaign, after leading many supporters to believe he did not support it. Sorry, but I don't like the sound of that.

When are this community's leaders going to GET REAL and stop all the phoney baloney BS?

RELATED:

http://www.michaeltrapp.net/biography

http://www.phoenixprogramsinc.org/about/...

https://www.columbiaredi.com/membershipi...

http://www.columbiaheartbeat.com/index.p...

http://www.columbiaheartbeat.com/index.p...

(Report Comment)
linda green May 20, 2012 | 1:31 p.m.

Columbians should learn from the mistakes of other cities and refuse to play the EEZ/"Blight" game. Come to the City Council meeting this coming Monday, May 21st, 7pm in City Hall, 701 E. Broadway when EEZ/"Blight" will be on the agenda. Many citizens will be there telling them NO to having an EEZ/Blight Board, NO to EEZ/Blight zones. Now is the time to contact your city council members and tell them to stop, before they sell out our city. You can support this view by your presence at the city council meeting Monday, May 21st, 7:00 pm.

Also, an expert on the real results of EEZ/"Blight" will be speaking and answering questions by interactive big-screen webcam at the Friends Room, Public Library, 100 W. Broadway, Columbia, 7pm on May 31st. And he will be interviewed on the David Lile Show, KFRU Radio, 1400 AM at 8:30 a.m. on Thursday, April 24.

His name is Greg LeRoy. He's written a book called, "The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation". His book has been highly praised by Executive Director of the Sierra Club Carl Pope, by President of Common Cause, President of AFL-CIO, Citizens for Justice, and many others. You can read/download his book for free at : www.greatamericanjobsscam.com and find more information about Mr. LeRoy and the issue at www.goodjobsfirst.org/

Many thanks for your consideration on this issue.

(Report Comment)
Steve Baumann May 20, 2012 | 5:32 p.m.

Someone should make one of those buildings an indoor racing go-kart track.
Reference Sadlers Indoor Racing in Olathe. KS.
Just a thought.....

(Report Comment)
Scott Wilson May 21, 2012 | 11:49 a.m.

Great in-depth, fact-based series of stories! I love to read real investigative reporting on an important local topic! It will be interesting to see how the changes to the statutes will play into the overall perception of the use of the EEZ statues in Columbia. My inital thoughts were that the negative perception was based more on the poorly written statues than reality.

(Report Comment)
Dave Overfelt May 21, 2012 | 12:39 p.m.

I wish I could be there tonight but I had to move out of town to find a good job... One thing that seems to be missing from this debate so far is a connection to broader economic trends.

We can make speculative local arguments about what may or may happen with incentives and we can find some individual cases that would support an argument either way. Unfortunately, since the data isn't there and policy environments are so different from one place to the next, nobody can make much of a solid case.

But if we start to think about economic conditions and look to places that have successfully created jobs, it becomes much more difficult to make an argument to provide incentives for manufacturing jobs. We can fight for these jobs all we want but manufacturing jobs have constantly been fading away.

Here is a chart that makes my point for me:
http://www.slate.com/blogs/moneybox/2012...

The short story is that fighting for manufacturing jobs is a losing battle. Columbia needs to seek jobs of the future!

(Report Comment)
Ray Shapiro May 23, 2012 | 12:50 p.m.

Grabs for land and power via collusion between city officials and greedy developers are exactly why Columbia has the kind of pockets of poverty which they are citing as rationale for using the term blight to create Economic Enterprise Zone tax incentives with total disregard to the impact on citizen occupied home values.
If we shifted to the blight concept as to the "quality of life" in one's neighborhood in relationship to the amount and types of local crime instead of the degree of "financial poverty" then creating a better community becomes more clear.
Consider the areas where the bullets fly and fall as the most blighted areas of Columbia.
("On Monday KMIZ reported that since January there have been some 30 shots fired reports in the city, with more than half gang related.

According to the Columbia Police Department's Major Crimes Unit Detective Jon Logan, that included the bullets that pierced Chuck E. Cheese’s wall while there were children in the store. That included two deaths, a number of people wounded and an untold amount of property damage.")
http://www.columbiamissourian.com/storie...
The city council should be more concerned about that then creating an EEZ city where greedy developers suck the life out of Columbia and perpetuate "White Flight."
("Building Partnerships to Reduce Crime and Blight team report")
http://cityoftacoma.org/Page.aspx?hid=10...
("Reducing Urban Blight as a Crime Prevention Strategy")
http://yvpc.sph.umich.edu/2011/11/10/red...
("Neighborhood fights crime, blight")
http://news.cincinnati.com/article/20120...
On the other hand, elected city council members who truly represent all of Columbia's citizenry, and not just opportunistic greedy developers, could learn from the Denver model which has greatly transformed its Five Points neighborhood.
Here is one example of how it's done:
("Following 18 months of public outreach and input, Denver City Council is scheduled to approve the Northeast Downtown Neighborhoods Plan")
DURA is now in a position to move forward with the creation of an urban redevelopment area...")
http://www.renewdenver.org/news-and-info...
(Welton Corridor Property Owners Meeting")
https://docs.google.com/viewer?a=v&q...

(Report Comment)

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