St. Louis Ties Racial Equity to Economic Development, Procurement

February 26, 2024

Good Jobs First is currently examining economic development subsidy programs in over 240 small and medium-sized cities. This blog is a part of a series examining these programs for provisions related to equity and transparency.

Recent efforts by St. Louis, Missouri, prove that cities have the power to structure economic development deals and public procurement in ways that promote equity and safeguard their community’s money.

In the past few years, St. Louis has exercised several clawbacks—including legal action and stop payments—to ensure that companies historically excluded from local economic development – Minority Business Enterprises (MBEs) – actually benefit from projects that receive public subsidies.

Local governments are responsible for ensuring companies deliver on their promises of capital investment, job creation and other community benefits when it comes to subsidies. But too often, cities fail to do this, or they don’t take the extra step of adding strings that would spread the benefits of subsidies to a wider group of companies.

In 2017, St. Louis created a workforce inclusion program which requires at least 25% of project hours to go to minority workers to qualify for tax increment financing funds. Four years prior, Mayor Harmon also implemented a 25% MBE participation requirement on all city contracts over $150,000.

Last year, the city’s economic agency, the St. Louis Development Corporation (SLDC), also implemented a Community Benefits Scorecard to grade projects asking for taxpayer subsidies. The scoring gives five extra points to applicants who are minority- or women-owned businesses (MWBEs).

Photo by Emmanuel Ikwuegbu on Unsplash

The city has also shown willingness to take action when companies fall short on inclusion of MBEs in subsidized projects.

Earlier this month, the SLDC announced that it would withhold a $6.4 million subsidy in part because it said the developer failed to submit proof they complied with the city’s MBE contracting rules for the construction of a new medical facility. SLDC Chief Executive Officer Neal Richardson said that his compliance team had been awaiting final verification for a year.

And last year, a local developer was sentenced to 18 months in federal prison and fined $100,000 for two counts of wire fraud on a project that received a 10-year tax abatement. His crimes included falsified payments valued at nearly $200,000 – he claimed he was paying an MBE for supplies and labor, but it came out he was actually giving the work to non-MBEs.

It’s nice to see St. Louis, which has a history of subsidies that negatively impacted racial minorities, be pro-active in ensuring projects don’t just agree to criteria – they execute on it.

City leaders and economic development officials will often say their hands are tied when it comes to using economic development subsidies – if others offer it, they say, they must too if they want to remain competitive. But there are ways to better structure these deals to ensure all businesses can benefit – and ways to hold companies to account to deliver on their promises if they want the public’s money. St. Louis is showing it can be done.