In cities across America’s Rust Belt, it’s common for governmental leaders to step in with money, new roads and sidewalks, cheap land and other incentives to encourage economic growth.
Sometimes that help includes buying old industrial sites, demolishing abandoned buildings, cleaning up the soil, then transferring the land to private developers.
Most residents favor steps to encourage business growth. But when it comes to using tax dollars to help private businesses and organizations, how much help is too much?
South Bend Mayor Stephen Luecke calls such assistance “pre-development,” and said it’s essential for an older industrial city in order to attract new business.
“It’s a positive tool for the city to promote and assist with development. And, in particular, to help direct the kind of development we’d like to see,” Luecke said.
Sometimes the high cost of buying and clearing blighted areas prevents private developers from getting involved, he said. When the market price of land and cleanup is added to business investment costs, it may be too expensive to be a viable project.
Most communities use such public-private partnerships to encourage new growth, Luecke said. “We’re probably above average in terms of the amount of use of this tactic,” he said.
South Bend is both blessed and cursed by its low housing costs, the mayor said. Sometimes the bargain rates makes it harder for new investment because the market value doesn’t always fully cover the cost of new construction, he said.
As an example, Luecke cited the city’s decision to buy the former Rink Riverside printing plant on Colfax Avenue east of the St. Joseph River, demolish the building and reach an agreement with developer David Matthews to build town homes on the property. Matthews brought in tons of fill dirt, built a new retaining wall and agreed not to seek tax abatement.
“We believe had the city not intervened and done the pre-development work, that site probably would still be an old industrial building waiting for a private investor,” the mayor said.
Matthews, a 29-year-old South Bend native who developed the Ivy Quad condominium project east of the University of Notre Dame, agrees. Although the Rink location next to the river made it valuable, the site sat vacant for years after the city cleared the land and put it up for sale, he said.
The city sold the land to him for $1, Matthews said, because his proposed development - now nearing completion - was to build six high-end condominiums with a spectacular view of the river. Under the deal, Matthews did not seek tax abatement on the property.
Already, five of the six homes are sold, Matthews said, because he’s able to offer luxury properties at a comparable rate to other luxury homes in the area. “If I would have had to pay a half-million for the property, it would have raised the prices of each home by $50,000 and would have made it hard to compete in our area,” he said.
The town homes could help usher in a new era of more people living downtown, which could lead to additional shops and restaurants opening to serve the new residents, he said.
“A lot of people just judge South Bend as a region based on their experience in the downtown area,” Matthews said, and improving that experience will improve people’s perception of the city.
Another benefit, Matthews said, is that city services become more efficient with a higher-density population.
In a town house development, Matthews said, an acre of land might have an appraised value of $4 million, generating more than enough taxes to pay for services such as police and snow removal. But in a suburban area with low-density housing, it could take 20 homes on half-acre lots to reach the same value - but the area is larger, making services more expensive to distribute.