Economy
Economic Development Subsidies
THE PROBLEM
Excessive use of economic development subsidies enriches developers and special interests at the expense of taxpayers, schools, and other public services.
THE SOLUTION
Eliminate or substantially reduce the use of economic development subsidies by local governments, including tax-increment financing (TIF), community improvement districts (CIDs), transportation development districts (TDDs), and the use of subsidies for professional sports franchises.
An Abysmal Track Record
Subsidies like TIF rarely deliver the promised economic benefits. Research shows that 84% of firms deciding where to locate or relocate would choose the same state no matter what subsidies and incentives were offered by other states. In other words, incentives were offered to influence just 16% of businesses. The same is true at the local level. Studies from across the country indicate that in most circumstances these subsidies fail to live up to their promises of job creation and economic growth.
For a project to qualify for some subsidies, the city must declare a parcel of land “blighted,” but the standards for doing so are so low that successful shopping malls have qualified for subsidies. Some owners even intentionally neglect their properties so that they become blighted and thereby qualify for the subsidy.
The Border War
In 2019, Missouri passed Senate Bill 182, which renewed the agreement with Kansas limiting the use of tax subsidies by both states in the Kansas City metropolitan area. The agreement expired in 2025. The use of tax subsidies to lure businesses across state lines had been shrinking the tax base of the region without leading to any economic growth. The truce, which first passed in 2014 and was renewed in 2019, had been a success. Despite the ill-advised decision by Kansas lawmakers to use subsidies to lure the Chiefs across the state line, Missouri should still renew the truce legislation. (Missouri’s renewal would not kick in unless and until Kansas also renewed the agreement.)
Missouri should clarify that other professional sports teams are included in the border war truce legislation as part of this renewal.
Change the Decision-Making Process
A major flaw in the process for TIF and other tax subsidies is that in most cases, cities decide on tax subsidies that affect other taxing districts. Cities can approve a TIF project or property tax abatement that may benefit the city but would be harmful to other taxing districts such as schools. One way to address this problem is to continue the trend of moving such decisions to county TIF commissions, where the county appoints most of the members. County officials are responsible to all the residents in their county, and they are more likely to weigh the costs and benefits of the proposed subsidy for the entire region. Currently there are county TIF commissions in five counties: St. Louis, St. Charles, Jefferson, Clay, and Cass.
It is too easy to create a new TDD or CID. Currently, property owners (often just one) can vote by signature to create a district or can create one through a simple court filing. The public can be excluded from the entire process by drawing CID or TDD districts that have no residents. With so little oversight and public involvement, poor financial management (e.g., no-bid contracts) can run amok in these taxing districts, as numerous state and local audits have found.
POLICY RECOMMENDATIONS
- Missouri should renew RSMo §135.1670 (the border war truce legislation), which expired in 2025.
- Move TIF decision making to the county level in more counties around Missouri.
- Require public votes by the entire city or county when new TDDs or CIDs are proposed.
- Refrain from using state or local tax dollars for sports stadiums.
