From eminent domain abuse to subsidies and tax breaks for the powerful and well-connected, government officials often try to pick winners and losers in the market. The Show-Me Institute develops policy recommendations to protect property rights and promote economic growth without caving in to demands for corporate welfare. Secure property rights encourage investment and entrepreneurship. Trying to create economic success through government intervention is a formula for failure.
In late December 2009, pressed to award nearly $20 million in tax credits to a single development company, the Missouri Department of Economic Development (DED) managed to review the company’s formal application within the month, awarding the company, NorthSide Regeneration LLC, $19.6 million just a day before the end of the year. In its rush, it seems that the department failed to catch more than 100 discrepancies nestled within the tax credit application, which appear to have cost the state hundreds of thousands of dollars.
Which level of government should be making decisions about tax increment financing or other types of tax incentives? Counties are local in many of the same ways as cities, but also have a broader perspective. This is important, because tax exemptions and incentives generally have an economic effect that radiates much farther than just the cities involved.
Fehlig Brothers Box & Lumber has been in business since 1873, and located in Saint Louis' north side for 55 years. Company president Jack O'Leary said that while some area residents and businessmen are skeptical of the $8.1 billion plan put forward by developer Paul McKee and NorthSide Regeneration LLC, he’s generally for it. However, according to NorthSide’s redevelopment plan, a good portion of Fehlig Brothers is slated for “open space.”
Three houses fall squarely within the boundaries of the recently approved $8.1 billion development of the city of Saint Louis' north side. Of course, about 4,600 other properties also fall within those boundaries, but in the case of the 2200 block of Madison, NorthSide Regeneration LLC, the company behind the development, may be endangering one of its most frequently invoked promises. That promise concerns the use of eminent domain.
Lawrence W. Reed, president of the Foundation for Economic Education, explains the causes of the Great Depression of 1929–1941 and outlines the clear lessons that historical episode provides for modern economic crises.
A much-debated $8 billion development in the city of Saint Louis' north side has been awarded $19.6 million in state tax credits. Those are in addition to city tax incentives, which could total up to $398 million.
A chapter of the American Civil Liberties Union (ACLU) filed a lawsuit today claiming that a city ordinance banning people from putting pamphlets on car windshields violates the constitutional right to free speech.
A circuit court judge ruled on Thursday that a contested 1,500-acre development of the city's north side can move forward. Critics had claimed in court that the city ordinance authorizing the development was invalid because the city hadn't thoroughly vetted the development company's funding before granting it up to $390.6 million in tax increment financing (TIF). However, Judge Robert Dierker wrote in his ruling that it isn't the job of the courts to second-guess the city's decision to approve the project.
A petition drive to put a recently approved large-scale development of the city's north side up for city vote to failed to gather enough signatures. The backers of the petition, critics of the 1,500-acre development put forward by NorthSide Regeneration LLC and developer Paul McKee, had gathered more than 3,000 signatures, said Jim Roos, an anti–eminent domain activist.
Another plaintiff (and set of attorneys) has joined the lawsuit filed against the development company that the city of Saint Louis recently approved for $390.6 million in tax increment financing (TIF) to redevelop 1,500 acres in the city's north side and in northern portions of downtown.
On Thursday, a circuit court judge heard arguments that the city of Saint Louis' Tax Increment Finance (TIF) Commission had not thoroughly investigated the financial backing of a proposed redevelopment of 1,500 acres in the city's north side before approving it. The lawsuit, by no means a certain bet, could halt the recently approved project put forward by developer Paul McKee and his company NorthSide Regeneration LLC.
The lawyer for a recently approved redevelopment of 1,500 acres in the city of Saint Louis' north side says that the development company, NorthSide Regeneration LLC, will likely need eminent domain to acquire about 20 properties in the redevelopment area. The project, put forward by developer Paul McKee, has been contentious in the past because of the perceived threat of eminent domain, and because it calls for nearly $400 million in tax increment financing (TIF) from the city.
With revenues down by about $1 million, the Saint Charles County Council met to debate the merits of granting $80,000 to market an airport expansion project that doesn't fall within the county. The project is a proposed expansion of the Lambert–Saint Louis International Airport that would create a China hub in the hopes of increased international trade.
Although some are celebrating signals of economic recovery, a more cautionary approach may be warranted. The government stimulus has had an effect on short-term economic growth, but it remains to be seen whether these effects will last over time as the level of intervention tapers off. Relying on central economic policy will have long-term adverse effects.
The Saint Louis Board of Aldermen voted to perfect and approve an $8.1 billion development of the city's north side, along with $198.6 million in tax increment financing (TIF) for the first half of project, for the next 23 years.
A not-yet-approved $8.1 billion development of the city of Saint Louis' north side is already facing legal action. Critics of the development have been very vocal about their concerns of blighting, the use of eminent domain, and whether the project has any financial backers. The development company, NorthSide Regeneration LLC, has asked the city for $390.6 million in tax increment financing (TIF).
Jeff Benedict, author of "Little Pink House: A True Story of Defiance and Courage," speaks at a Sept. 15 event cosponsored by the Show-Me Institute and the Kansas City Public Library, to tell the story of Susette Kelo's infamous eminent domain case. Hear how Kelo's heroic fight to save her New London, Conn., home turned into the landmark Supreme Court case that outraged homeowners and sparked a legislative backlash across the nation.
The Constitution of Missouri includes more provisions addressing the property rights of citizens than that of any other state. The careful restrictions it places on the use of eminent domain show that, in ratifying the Constitution, the people of the Show-Me State intended to prevent the abuse of eminent domain to benefit private parties. Despite these protections, however, few states today have so dismal a record of eminent domain abuse as Missouri. And, in 2008, despite the constitutional and statutory restrictions on the government’s ability to take one person’s home, business, or house of worship and give it to another private owner, the Missouri Supreme Court chose to expand the power even further, placing the property rights of all Missourians in even greater jeopardy.
Show-Me Institute Policy Analyst Dave Roland speaks about eminent domain abuse in Missouri to the Saint Louis County Pachyderm Club on Friday, April 17, 2009.
Senate Bill 11 proposes rescinding Missouri's ethanol mandate. This entire subject is a perfect example of Thomas Sowell’s famed statement about public policy, “There are no solutions, only trade-offs.” Corn farmers gain from ethanol production, as do investors in ethanol plants. Missouri has a large number of corn farmers, as you well know. The argument has been made that ethanol has resulted in lower visible gas prices at the pump. In immediate terms, that seems to benefit Missouri drivers.
The urge to help people who have experienced devastation from floods and other disasters is never misguided. However, the expectation of relief spurs more marginal home and business owners to locate in risky areas in the first place. Ultimately, government-subsidized reconstruction sets people up for more long-run damage.
Now that Bombardier has decided to build in Canada rather than Missouri, it’s worth examining whether tax incentives are a worthwhile strategy for economic growth. While legislators certainly had Missouri's best interests at heart, both economic theory and hard data show us that real growth stems from lower tax rates across the board.
The property rights of ordinary Missourians have eroded over the years. The founding principles that established our nation held that individual rights must be protected against the majority. This ideal once guided Missouri’s Supreme Court, as well. Missouri needs to cultivate a renewed respect for the freedoms of all.
Missouri is one of only three states that require a 10-percent minimum ethanol blend (E-10) for retail gasoline sold within the state. The Missouri Corn Merchandising Council (MCMC) recently released a study purporting to demonstrate the positive economic benefits of the state's ethanol mandate for Missouri consumers. The study claimed that Missourians will save more than $285 million through ethanol-induced fuel cost reductions in 2008 and nearly $2 billion in present value during the following decade. The MCMC study ignores important effects of the E-10 mandate, however, most notably the documented decrease in fuel efficiency of E-10 blended fuel and the taxpayer cost of ethanol subsidies. We find that accounting for these costs significantly impacts the MCMC savings projections and would result in a net loss to Missouri consumers of almost $1 billion during the next decade. If one were to consider the additional impact of the E-10 mandate on higher food prices and CO2 gas emissions, these costs would be even higher.
Some municipalities in Saint Louis County have filed suit to overturn a state law granting counties more tax increment financing (TIF) authority. However, counties are better positioned than municipalities to make good decisions about the use of TIF, and have a history of using these and other tax incentives more selectively.
Although the economic growth benefits of tax credits are easy to see, it’s harder to see their drawbacks. Looking more carefully at the evidence and applying basic economics shows that lowering tax rates across the board is much more efficient at encouraging growth than singling out a few credit recipients at the expense of everybody else.
Tax credits may seem like a great idea to encourage growth by enticing firms to relocate to Missouri, but the reasoning used to support this type of development is almost certainly wrong. The higher marginal tax rates created by targeted credits actually eliminate more jobs than are created by the tax credit beneficiaries.
Officials who use tax credits as a plan to spur economic development tend to rely on discredited economic models. SB 1234 is one such bill, designed to attract “mega-projects” and spur related job creation. Such tax credits will cost taxpayers millions of dollars, without any reliable way of predicting relevant economic growth.
Arnold v. Tourkakis was a rare opportunity for Missouri to protect its citizens property rights, but the state’s Supreme Court ruled in favor of eminent domain for private development — letting that chance sail by. Other property owners throughout the state must now face the sad reality that everybody’s homes and businesses are at risk.
Local governments often try to lure favored businesses with tax breaks or TIFs. But Saint Charles County rejects these incentives, and has been Missouri’s fastest-growing county in Missouri for three decades. It’s more important to create a favorable tax and regulatory climate across the board, attracting a wide base of business and development.
On January 17, the Missouri Supreme Court will hear arguments in City of Arnold v. Tourkakis. This case will decide whether the Missouri Constitution still offers property owners any meaningful protection against municipalities seeking to give their homes, businesses, or houses of worship to commercial developers.
The Show-Me Institute has released a new policy study about the abuses of eminent domain in Missouri, "The Specter of Condemnation: The Case Against Eminent Domain for Private Profit in Missouri," by Timothy B. Lee and Shaida Dezfuli.
This study examines the abuses of eminent domain when used for private profit in Missouri. Although many government officials believe that eminent domain is necessary for comprehensive development projects that will help stimulate the economy, authors Timothy B. Lee and Shaida Dezfuli focus on how eminent domain often hurts economic development by creating economic uncertainty and harming small businesses. Furthermore, it exacerbates poverty in inner city communities by destroying affordable housing and undermining community reform efforts. The study documents numerous examples of the negative impact that eminent domain has brought to local communities. It argues that the abuses will only worsen, until the Legislature passes a constitutional amendment that strengthens property rights in Missouri.
Attempts by the state to pick and choose which industries deserve to prosper in the Missouri economy will choke off the real sources of economic development and impose costs on taxpayers by increasing marginal tax rates. Growth stems from wide-ranging market activity, not state command-and-control.
Imagine you sign a two-year lease with your landlord. After the first year, you decide you're tired of paying rent and would like to buy the property instead. You make him an offer, which he rejects as too low. In response, you go to the board of aldermen and ask them to declare the apartment blighted, condemn it, and turn it over to you for redevelopment. It might sound absurd, but something very similar is happening right now in Saint Louis. The story demonstrates just how ripe for abuse Missouri's eminent domain laws have become. And there's little reason to think the eminent domain bill the state legislature passed in May will prevent such abuses in the future, because the "blight" loophole being used by the city was not closed by the legislation.
Last November, Clayton business owner Dan Sheehan learned from the newspaper that his property suffered from "age, deteriorated condition, and outmoded design." That was a surprise to him because the property is located in one of the most prosperous neighborhoods in St. Louis and is home to four thriving small businesses, including his own. If the buildings were "deteriorated" and "outmoded," their customers didn't seem to notice. Yet the city of Clayton has begun making plans to seize Sheehan's property — and four others on the 7700 block of Forsyth — using eminent domain.
One year ago today, in the case of Kelo v. New London, the Supreme Court ruled that local governments have wide latitude to transfer property from one private party to another for purposes of "economic development." The public was outraged. In response, politicians across the nation pledged to enact state legislation to strengthen property rights. Last month, the legislature passed House Bill 1944 into law, which Governor Blunt touted as "protecting the rights of responsible property owners."
In January of 2004, the city of Arnold unveiled a plan to re-develop a large chunk of Arnold commonly referred to as the Arnold Triangle. The plan envisioned 250,000 square feet of retail space, a Dierbergs Market and a Lowe’s store. Unfortunately, there were 52 homes and businesses already occupying the area. They don’t pay as much in taxes as the city expects to get from the big box retailers, and the city has decided to remove them in favor of wealthier businesses. One of the property owners the city wants to displace is dentist Homer Tourkakis.
Last summer, Missouri’s elected officials promised to crack down on eminent domain abuse. Last week’s legislation falls far short of that promise. It makes some changes to the process of eminent domain takings, but it fails to curb “blight” takings, which are the primary justification for the abuse of eminent domain.
The summer of 2005 was not a good one for Sharon Fitzgerald. On Memorial Day, she learned she had inoperable lung cancer. Three days later, she got a knock on her door. It was Jonathan Browne, head of real estate developer Novus Equities. He wanted to buy her house. And he made it clear that this was an offer she couldn't refuse. "He told us that if we didn't sell, he'd just use eminent domain and take our home anyway," said Sharon, "What could we do? With my health and everything and the chance to lose our home anyway, we didn't really have a choice."
Missouri's asset forfeiture laws avoid a conflict of interest by prohibiting law enforcement officials from keeping forfeiture profits. Instead, the money is dedicated to a public education fund. And under Missouri law, seized property cannot be auctioned off until its owner has been convicted of a crime. But some law enforcement officials don't like those sensible safeguards for property rights.
It's true that the McRee Town was in distress. Some buildings had problems so serious that condemnation and demolition was the only option. But the use of eminent domain to seize and demolish entire city blocks was unfair, unnecessary, and wasteful. It destroyed badly needed affordable housing and uprooted dozens of poor people, most of whom were forced to start over in another bad neighborhood. A better renovation plan for McRee Town would have focused on helping those already living and working in the neighborhood by expanding the stock of affordable housing.
Tuesday's recall of St. Louis Alderman Thomas Bauer puts all Missouri public officials on notice: voters won't put up with politicians who abuse the power of eminent domain for the benefit of well-connected private developers. Voters in the 24th Ward were outraged after Bauer attempted to seize several homes and businesses at the corner of Manchester and McCausland in order to make room for a QuikTrip gas station.
