Opinion

Missouri Policymakers Sending Gas Tax Increase Prop to Nov. Ballot

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By Kerry Smith, Editor – St. Louis Construction News & Review Magazine

Despite a session wrought with issues related to the state’s former chief executive, Missouri legislators concluded the regular session with a measure asking for a 2.5-cent increase in Missouri’s portion of the motor fuels tax.

Missouri Chamber of Commerce and Industry President Dan Mehan said transportation infrastructure funding policy jelled in the final days of the 2018 state legislative session.

“With two weeks left, nobody thought it was going to happen. With two days left, nobody thought it was going to happen,” said Mehan. “We ended up sending to the voters for this November a proposition that will ask for a 2.5-cent gas tax increase for each year over the next four years. Missouri currently pays 17 cents, so we’ll add 2.5 cents to that every year beginning in 2019 if voters approve it on November 6th. We’re very pleased with the outcome.”

The state has not seen a motor fuels tax increase since the 1990s, Mehan said, and it is sorely needed to maintain Missouri’s transportation infrastructure. Since that timeframe, 39 states have elected to raise their own state motor fuels user fees. If November’s proposition passes muster with Missouri voters, the state is projected to generate $240 million annually for the next four years to help fund roads, bridges and more.

“We’ve got the second- and third-largest rail terminals in the U.S. and the seventh-longest highway system in the U.S.,” Mehan said, “yet we’re 47th in the U.S. when it comes to transportation funding. That doesn’t make sense. For Missouri businesses, we view infrastructure as an asset that we need to invest in and continually make better.”

Mehan and others – including the U.S. Chamber of Commerce and the Associated General Contractors of America – agree that the motor fuels funding mechanism has to change in order for federal dollars, which comprise the bulk of the fuel tax, to keep pace with the need for new and improved roads, bridges, rail and mass transit nationwide.

In January, the U.S. Chamber proposed a 25-cent increase to the federal portion of the motor fuels tax. President Donald Trump endorsed the proposal a month later.

According to the U.S. Chamber, inflation has eroded nearly 40 percent of the value of the user fee since it was last raised in 1993. Continual improvement in fuel efficiency equates to more drivers driving vehicles more on less fuel. The federal Highway Trust Fund, the fund fed by 18.4 cents per gallon of gas and 24.4 cents per gallon of diesel fuel, is in the red and projected to become insolvent within the next two years. Fixing America’s Surface Transportation Act (known as the FAST Act), a four-year transportation infrastructure-funding program, will expire in 2020; a portion of that act has been propping up the long-ailing Highway Trust Fund.

Sean O’Neill, vice president of congressional relations for the Associated General Contractors of America, said the AGC and its fellow stakeholders stand in support of the U.S. Chamber’s proposed 25-cent increase.

“We see an increase in the motor fuels tax to be the answer, at least in the short term, to address the long-term solvency of the Highway Trust Fund,” O’Neill said. “We understand that it has some political hurdles to get over, but we see a gas tax to be the most efficient way to do what we need to do to invest in our aging transportation infrastructure. Since 2013, at least 26 states have increased taxes or fees dedicated to funding infrastructure. States – Missouri among them – are doing what they can do, but it’s up to the federal government to make sure the funding mechanisms are relevant as fuel efficiency continues to increase.”

In Illinois, a proposal is afoot to more than double that state’s portion of the motor fuels tax. The Illinois Economic Policy Institute is recommending a hefty increase from the current 34 cents to 85 cents. The measure has met with fierce resistance from organizations including the national Tax Foundation.

Construction Industry Awaits Passage of Prevailing Wage Compromise

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By Kerry Smith, Editor – St. Louis Construction News & Review Magazine

The Missouri Senate and House have passed legislation to modify the state’s prevailing wage law. Unless vetoed by a sitting Missouri governor, HB 1729 will become law and take effect in August, changing and simplifying the way wages are calculated for public works projects – and putting increased onus on contractors and subs to report their hours to the state.

School districts, cities and other governmental entities currently pay more than the state’s minimum wage for maintenance and construction work. As it now stands, the specific amount is determined by the type of work being done as well as the geographical location of the construction project, and there is no minimum threshold for the amount/size of project to which prevailing wage applies.

The bill also signifies a compromise in how prevailing wage will be calculated in rural areas of Missouri. HB 1729 also raises the construction cost threshold that construction projects must reach in order for contractors to be paid prevailing wage.

A consolidation of job classifications in the construction industry is yet another component of the proposed law, according to Associated General Contractors of Missouri (AGCMO) President Len Toenjes.

“This was a real team effort that included members from across our industry,” Toenjes said. “We had been preparing this compromise with the hope that when those (repeal) bills got to the floor, our legislation would be seen as a substitute for the repeal of prevailing wage law in Missouri. We have every reason to expect that the governor will sign it. The feedback that I’m hearing is that we stopped repeal of prevailing wage, which was our overall goal. This is a situation, as with any piece of legislation, where everyone is a little bit unhappy. But we were able to reach a point where we stopped the repeal and we did not negotiate against ourselves. We were realistic and honest in reaching this compromise.”

A key provision of HB 1729 is that it establishes $75,000 as the threshold or minimum project amount that is subject to prevailing wage rates. According to Toenjes, earlier bills advocated for a threshold as high as $500,000. “Under the current prevailing wage law, prevailing wage rates apply to projects from the first dollar on up,” he said. “There was a lot of back and forth debate on what this number should be. Particularly for construction projects occurring in rural areas – such as painting a classroom ceiling or installing a suspended ceiling in a firehouse – that project total is going to total less than $75,000. This threshold is not making rural areas happy, but we knew that ultimately we weren’t going to be able to keep it at zero.”

Increased responsibility for contractors and subcontractors to report their hours to the appropriate departments with the Missouri Dept. of Labor is a provision of the legislation. “Prevailing wage calculations under the new bill will be done solely on the basis of the hours reported to the state by these parties,” Toenjes said. “It’s critical that contractors report their work hours to the state because by law these hours cannot be reported by the unions or associations. The onus is definitely on the contractors and subs.”

In a related component of HB 1729, the number of occupational titles has been reduced to simplify calculating and tallying prevailing wage rates by position within employment sectors. “One of the things the House and Senate wanted to accomplish was to co-simplify the reporting system,” Toenjes said. “We went from 43 occupational titles down to 20.”

For example, where there had been three or four different related occupational classifications for jobs specific to millwrights and carpenters, and multiple categories for laborers, HB 1729 combines several related job classifications for simplicity and fairness.

“Prevailing wage calculations for each county and each occupational classification are going to be based on an average of all the hours that are reported for that occupational classification within the county,” Toenjes said. “If there are fewer than 1,000 hours reported (for a classification and/or a county, there will be a minimum construction wage that represents the average of all the wages reported in that county. The rationale of those who designed this provision is that it establishes construction wages that are consistent with a level of activity occurring in that county.” Prior to the new legislation, Toenjes said it had been a negotiated rate and that wages paid weren’t always reflective of the construction activity that was occurring.

The AGCMO’s next objective is to ensure that the new prevailing wage law, assuming it passes, succeeds in being implemented. “We want to see that it hopefully results in the promulgation of a system that is as fair as possible for everyone concerned, particularly for those who work in construction in rural areas of Missouri,” said Toenjes.

 

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Missouri Legislators Reduce Cap on Historic Tax Credits for Developers

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By KERRY SMITH, Editor, St. Louis Construction News & Review Magazine 

The Missouri General Assembly ended May 18 with passage of legislation that reduces the state’s historic tax credit program’s annual cap, requires developers to go through more hoops and arguably opens the process up to some arbitrary judgment as to which projects receive these incentives.

Spencer Fane Partner and Tax Credit Group Chairman Shawn Whitney said last Friday’s vote to cut the cap from $140 million to $90 million was somewhat predictable, despite ardent lobbying from the law firm, real estate investors, developers and Historic Revitalization, the nonprofit organization dedicated to revitalizing urban areas including downtown St. Louis. Whitney said the details of SB 590 remain to be discovered. The law takes effect July 1.

State historic tax credits are a valuable economic stimulus tool, according to Whitney, because they require four dollars in private equity before any one dollar’s worth of credit is awarded. HTCs spur economic activity, jobs and overall investment in restoring and redeveloping long-neglected urban areas, he said.

“We’d spent a lot of time hoping to get enough no votes so that Senate Bill 590 wouldn’t pass and that the historic tax credit program in Missouri wouldn’t be modified,” said Whitney, “but toward the close of regular session, it became a mitigation issue. The devil’s in the details, for sure. We’re working with our state legislators to really define what the law means,” he added.

Prior to last week’s passage of SB 590, Missouri’s total annual allotment of historic tax credit dollars was $140 million. While for many years that was ample, Whitney said, in 2017 Missouri exceeded the cap.

“SB 590 reduces the annual cap to $90 million,” he said. “The law does allocate an additional $30 million for high-poverty urban areas, those which qualify under the U.S. Census Bureau’s definition of qualified census tracts wherein at least 20 percent of residents are at the poverty level. That’s a really good provision. But in terms of the annual cap, we feel like we’re going to hit that $120 million number annually.”

More troublesome than the increased annual cap on Missouri’s historic tax credit incentives is the increased degree of subjective input SB 590 allows, according to Whitney. The Missouri Department of Economic Development now has heightened authority over who receives the incentive, as do elected officials whose districts and towns are applying for the state-funded credits.

“Getting through the cost certification process at the end of the development project is already difficult,” he said. “We’ve had projects in Missouri where the respective economic development departments approved our structure at the start of the venture but later changed their minds during the approval process. The entire process is pretty arbitrary, when what a historic preservation and development project really needs is reliability and consistency.”

Each project applying for Missouri historic tax credits is required to go through a net fiscal benefit review, according to Spencer Fane – one that is not yet defined within the new law. “We think that’s troublesome,” said Whitney. “There is a lot of ambiguity in the term ‘quality’ as it pertains to project development,” he said. “Quality truly is in the eye of the beholder. Another section of the new law that concerns us greatly is that input by local officials as to the importance of their proposed project – in whose district the proposed project is located – will now be afforded greater influence. Prior to the passage of SB 590, historic tax credits were by right, meaning that if your project was on the National Register of Historic Places and you rehabbed the building in accordance with the Secretary of the (U.S. Department of the) Interior’s standards for redevelopment, the historic tax credits were guaranteed. The type of language contained in this new law lends itself to what we dealt with in the affordable housing issues years ago,” he added.

Another new requirement in SB 590 is that developers must submit evidence of the capacity of the development to finance costs for rehabilitating the property. “Especially when you’re dealing with a reduced (HTC) cap, it’s difficult for the (development) industry as a whole,” Whitney said. “Due to the increased cost and risk level of historic redevelopment projects, often more projects are attempted than succeed. A couple of current (St. Louis-area) projects that received HTCs have not been able to move forward, yet those historic tax credits aren’t able to be allocated to other rehab efforts in a timely manner. It can truly be a chicken-and-egg issue.”

SB 590 also requires qualifying development projects to commence within nine months of being awarded historic tax credits, rather than over a two-year period as had been in existence prior. “What you’re likely going to see are more shovel-ready projects,” Whitney said. “Developers are going to have to spend a little more money preparing their project to obtain commitments from lenders and tax credit investors, but we think we can work through it. We’ll see as the marketplace plays out. SB 590 doesn’t contain any provisions that should impact the pricing.”

In contrast, he added, the federal tax credit provision – which now allocates a 20 percent credit over five years – may impact pricing, with investors often lowering their investments in qualifying rehab projects by 10 cents to 12 cents on the dollar.

“Having represented developers for nearly 20 years, I can attest to the fact that they’re an adaptable bunch,” said Whitney. “So long as Missouri historic tax credit issuance doesn’t become a political and arbitrary process, developers in St. Louis and across Missouri should be able to adapt.”

 

 

Planning Firms to Redevelop Washington Avenue Garment District into ‘Modern Epicenter of the Creative Economy’

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By KERRY SMITH, Editor, St. Louis Construction News & Review Magazine

St. Louis’ Historic Garment District got a boost May 25 with city and nonprofit leaders announcing the next phase in this long-term, comprehensive redevelopment effort.

The east-west stretch along Washington Avenue from 18th Street to Tucker Boulevard was once among the largest U.S. clothing manufacturing hubs, second only to New York City. From the late 1800s to the early 1920s, revival-style buildings – designed by greats including Theodore Link and Albert Groves – bustled with activity in the manufacturing of domestic garments and related accessories. Post-World War II, a decline in garment production in St. Louis and elsewhere manifested in a series of vacant, multi-story, brick and stone buildings. Redevelopment so far in the district has included dining and entertainment venues as well as residential living options.

But thanks to 20 years of effort driven by what today is known as Downtown STL Inc., more than $6 million in public and private investment has been pumped into the Garment District and nearly all the buildings are occupied. The latest historic redevelopments include Paric Corp.’s restoration of the former CPI headquarters at 1706 Washington into Monogram – an urban living development – and Paric’s work-in-progress to repurpose the historic International Shoe Building at 1501 Washington into a shoe-themed boutique hotel known as Last Hotel. Together the two projects approach $100 million in development.

The State of Missouri’s adoption in 1998 of a tax credit for the redevelopment of historic buildings spurred the rehabilitation of large-scale renovation projects along the Washington Avenue corridor.

At Tuesday’s press conference, leaders from St. Louis City, Downtown STL and the Saint Louis Fashion Fund announced the city’s selection of New York-based Martinez+Johnson Architecture PC and development consultant BJH Advisors LLC as its choice to partner with St. Louis-based TAO + LEE Associates Inc. in leading efforts to continue rejuvenating the district in a plan that engages residents and businesses in the process. Downtown St. Louis Community Improvement District is funding $100,000 toward the planning and design work.

“Community engagement begins today,” said Missy Kelley, president of Downtown STL Inc. “Since 1998, more than 20 buildings here have been rehabbed, resulting in more than 700 new apartments and condominiums. And in terms of infrastructure, significant streetscape improvements along Washington Avenue have also been made.”

Once Monogram and Last Hotel are completed, Kelley added, all major buildings along Washington Avenue in the Garment District would tout redeveloped/occupied upper floors.

Linda Martínez, St. Louis deputy mayor for development, said the collaborative design venture is being propelled by a doable funding mechanism paired with a spirit of public involvement. “This is really about jobs and about the restoration of what was once a very vibrant area of downtown,” Martínez said. “This is not merely a plan. This is going to be a reality in the near future.”

Steven Stainbrook, associate principal and director of planning at Martinez+Johnson, said project partners are working to leverage the existing successes of the Garment District’s status within the Washington Avenue Historic District on the National Register of Historic Places to attract additional investment. “We want the Garment District to be a place where creative people want to be,” said Stainbrook. “We’re not here to start over. We’re here to continue the work that has already been done and to infuse fresh energy that coalesces around a vision. If we get this right in parallel with smart policy initiatives that build on the recent successes of the fashion incubator (Saint Louis Fashion Fund) and support development of a broader ecosystem of creative industries, we will have laid the groundwork for transforming this neighborhood.”

Martinez+Johnson was also part of the team that recently led the revitalization of New York’s garment district.

Peter Tao, principal of TAO + LEE commended the study that will gather public input for what the rehabilitated district will look like. “With so much construction activity and development in and around downtown, and with the near completion of the network of new and improved public parks, it is exciting to envision what the role of this district can be to enhance the area,” said Tao. “This placemaking planning study is very timely.”