St. Louis County Needs a Land Bank Like I Need a Hole in My Head

Posted on by David Stokes

In truly unwelcome news for people who care about good government, a coalition has been put together to create a land bank for St. Louis County as well as any other county in the state. It’s often said that, in government, nothing succeeds like failure, and that is exactly true about land banks. Why anyone would try to expand a model that has failed in St. Louis and Kansas City and expand it statewide is beyond me.

Every county in Missouri has a land trust that takes ownership of property that comes into ownership by local government; this almost always happens because of property tax delinquency. A municipal land bank is different from a county land trust. Land banks have much more authority to proactively acquire, market, and package for sale city-owned land and buildings. In theory, land banks seem like a positive thing. But the fact is they do not work.

Three cities in Missouri have land banks: St. Louis, Kansas City, and St. Joseph. In St. Louis and Kansas City, the land banks have proved much better at acquiring property (where it is off the tax rolls) than at selling it and returning it to the private sector. Research by the Show-Me Institute and investigations by the Kansas City Star and the Kansas City Beacon have documented numerous problems with the land banks in Missouri, including political corruption, cronyism, failures to accept legitimate offers, preferences for large developments (which often never materialize) over small buyers, and much more. In St. Joseph, the land bank is very small and new, so conclusions are hard to draw, but the early indications are not promising.

As the story in the Star explains it:

“This is not an agency that is interested in selling properties, it’s more interested in regulating who gets them and under what circumstances,” development lawyer and former city councilman Mark Bryant told The Star after an offer from him and his partners at Onyx Development Corp. was rejected at a recent Land Bank meeting.

The state legislature has previously proposed bills to dramatically expand the authority to institute land banks to many more municipalities (the state legislature must approve all new land banks in Missouri). Now, there is this organized effort to expand land banks to St. Louis County. The exact wording of the newest proposal for St. Louis and other counties is unknown. It is possible it could be better organized than the other banks, but I doubt that.

The state legislature should reject future land bank legislation. If such legislation is enacted, counties and municipalities should reject the establishment of land banks. Land banks may sound good in theory, but in political and practical reality they have been a major failure.

Special Session Recap, KC’s Westside and Food Truck News

Posted on by Avery Frank

David Stokes, Patrick Ishmael and Avery Frank join Zach Lawhorn to discuss the special session, a property tax scheme in KC, the latest on food truck restrictions in Ladue and a new TIF in Chesterfield.

Listen on Apple Podcasts 

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Listen on SoundCloud

Produced by Show-Me Opportunity

Laclede County Should Reduce Its Commercial Property Tax Surcharge

Posted on by David Stokes

A version of this commentary appeared in the Laclede County Record.

This November, Laclede County residents will vote on reducing an obscure tax that places the county at a competitive disadvantage compared to its neighboring communities.

In 1985 the State of Missouri changed the way local governments tax commercial and industrial property. It eliminated the tax on business merchandise and inventory and replaced it with a surtax on the value of commercial real estate. Every county that year calculated the new surtax (also known as the commercial surcharge) at a revenue-neutral replacement level for the lost business inventory taxes. The change, made by an amendment to the state’s constitution, was explicit that the replacement levy calculated by the counties could be lowered only by voters, not elected officials, and that the surtax would not adjust downward as assessed valuations increased. This provision puts the commercial surtax at odds with most other property taxes in Missouri, for which the tax rate is supposed to go down as assessed valuations go up.

When the rates were established in 1985, Missouri’s economy looked very different than it does today. Kansas City and the City of St. Louis played larger roles than they do today (especially St. Louis). But Laclede County, likely because of inventory taxes generated by its role as a regional manufacturing hub, bucked the trend toward low surtax rates in most counties. It set its surtax rate at $1.03 per $100 of assessed valuation. That is the 14th-highest rate among Missouri’s 115 counties, and much higher than those of its neighboring counties. By comparison, Texas County has a commercial surtax rate of $0.68, Wright’s is $0.66, Pulaski’s is $0.49, Webster’s is $0.37, Dallas’s is $0.31, and Camden’s surtax is a miniscule $0.03.

Assessed valuations have grown enormously since the tax was introduced. For example, the commercial assessments in Laclede County have gone up almost 400 percent between 1985 and 2021, from $23 million to $108 million, yet the surtax rate has never been reduced to offset that increase. The combination of a high tax rate and the difficulty of reducing it puts Laclede County at a competitive disadvantage compared to other counties in its area.

To address this problem, the Laclede County Commission decided in August to propose lowering Laclede County’s surtax rate from $1.03 to $0.51. If passed by voters, this notable reduction in the commercial surtax rate would both spur economic activity in Laclede County and reduce the perceived need for tax subsidies. In general, Laclede County and its municipalities have been hesitant to use tax subsidies to selectively benefit a small number of businesses. That is to be commended. If this surtax cut passes, the county and its cities can remain focused on setting good policies and low tax rates for everyone, not special deals for a few.

The Lebanon R-3 school district has come out in opposition to this tax reduction, projecting a loss of $275,000 from the tax cut out of total revenues of $58 million. That is just $60 per student in a district that spends over $12,500 per student and one that received over $4 million in federal stimulus funds for a now-past economic emergency. Beyond that, personal property taxes for the school district (e.g., car and boat taxes) are expected to come in significantly higher than ever before due to the dramatic increase in used car values. In short, Lebanon R-3, like many taxing districts around Missouri, has more money than it knows what to do with, yet the district is opposing a tax cut to help grow business and jobs in Laclede County.

As Laclede County continues to grow and commercial assessed valuations continue to increase, actual revenue reductions for local governments that receive the tax money will be small. That’s not voodoo economics; it simply reflects expected growth in population, business, and assessed valuation.

Laclede County leaders deserve credit for placing this surtax reduction proposal on the ballot this November so voters can have a say in making their community more economically competitive. If approved, this reasonable and beneficial tax cut will help grow Laclede County’s economy, and everyone benefits from that.

Clay County Should Reduce Its Commercial Property Tax Surcharge

Posted on by David Stokes

A version of this commentary appeared in the Clay County Courier-Tribune.

 

This November, Clay County residents will vote on reducing an obscure tax that places the county at a competitive disadvantage compared to its neighboring communities.

In 1985 the State of Missouri changed the way local governments tax commercial and industrial property. It eliminated the tax on business merchandise and inventory and replaced it with a surtax on the value of commercial real estate. Every county that year calculated the new surtax at a revenue-neutral replacement level for the lost business inventory taxes. Among the reasons for the change was a desire to base the tax on the value of real estate, which is more consistent than the ever-changing values of inventories. The change, made by an amendment to the state’s constitution, was explicit that the replacement levy calculated by the counties could be lowered only by voters, not elected officials, and that the surtax would not adjust downward as assessed valuations increased. This puts the commercial surtax at odds with most other property taxes in Missouri, for which the tax rate is supposed to go down as assessed valuations go up.

When the rates were established in 1985, most of the collar counties around Kansas City and St. Louis were much smaller than they are today, with fewer businesses. Consequently, these collar counties set their commercial surtaxes at a low rate. But Clay County, likely because of inventory taxes generated by its massive Claycomo Ford Plant, bucked that trend. It set its surtax rate at $1.59 per $100 of assessed valuation. That is the third-highest rate in the state, and the highest in Western Missouri. By comparison, Jackson County has a commercial surtax of $1.44, while Cass’s rate is much lower at $0.54 and Platte’s surtax is a mere $0.36.

Assessed valuations have grown enormously since the tax was introduced. For example, the commercial assessments in Clay County have gone up 287 percent between 1985 and 2021, from $302 million to $1.17 billion, yet the surtax rate has never been reduced to offset that increase. The combination of a high tax rate and the difficulty of reducing it puts Clay County at a competitive disadvantage compared to other counties in its area, especially its Northland neighbor and competitor, Platte County.

This is a problem for Clay County. These differences may not have been a big deal in 1985, when the tax alteration was a neutral one for Missouri businesses and more of them were located in our central business districts. But it is a problem now. After much discussion and debate, the Clay County Commission decided in July to propose lowering Clay County’s surtax to $1.44, equal to Jackson County’s rate. If passed by voters, this modest reduction in the commercial surtax rate would both spur economic activity in Clay County and reduce the perceived need for tax incentives. As Clay County continues to grow and assessed valuations continue to increase, revenue reductions for local governments that receive the tax money will be miniscule or nonexistent. Even with the tax cut, revenues from the tax will almost certainly grow past current levels in the near future. That’s not voodoo economics; it simply reflects expected growth in population, business, and assessed valuation.

Clay County leaders deserve credit for placing this surtax reduction proposal on the ballot this November so voters can have a say in making their community more economically competitive. If approved, this reasonable and beneficial tax cut will help grow Clay County’s economy, and everyone benefits from that.

DESE’s Rulemaking Circumvents Intent of Virtual School Law

Posted on by James V. Shuls

In the fall of 2019, a student in the Independence (MO) School District applied to the Missouri Virtual Academy (MOVA). MOVA is an online school provided by the Grandview School District. Through Missouri’s virtual education law, students could apply to take a single course or their entire educational program online via MOVA. When the Independence high schooler sought to enroll in MOVA’s full-time program, she faced significant opposition from the school district. First, the district denied the application because MOVA was not in the student’s best “educational interest.” After the family successfully appealed to the Missouri Department of Elementary and Secondary Education (DESE) and the student was admitted to the virtual program, the district then put another roadblock in place—they wanted the student to complete the virtual school coursework while physically present at the local high school.

You read that right. The student was allowed to attend the virtual school program, so long as she completed the coursework while she sat in a district school building.

For obvious reasons, requiring in-person attendance in a school building for a student to attend a virtual school is a slight inconvenience.

The family took the district to court. And, like all things in 2020, the case was impacted by COVID. The district sent all students home in the spring and changed the requirement to only 5 hours each week of in-person attendance the following fall. Partially as a result, the court ruled in favor of the school district.

Those in favor of allowing parents to choose the best educational option for their child were dismayed by the Independence School District’s actions. Should a school district be able to circumvent the very intent of the virtual education law by requiring attendance?

In response, legislators included changes to the virtual education law in HB 1552 of 2022 which were intended to make it easier for a student to enroll in a full-time virtual program. Previously, a district had to approve a student’s application to enroll in a virtual program. The changes to the law were supposed to remove the home district’s oversight of this process. These changes, however, appear to have been circumvented by new rules put out by DESE.

State Rep. Phil Christofanelli explains this in a recent letter to the Commissioner of Education:

While there were many important improvements in that bill, the primary reform was a full rewrite of the enrollment procedures for full time virtual schools, removing the resident district “gatekeeper” role that had been written into the previous law. The enrollment process for virtual schools (as opposed to supplemental courses) was completely revised so that the parent and the virtual school itself were placed in the lead and decision-making roles, while preserving an input role for the district of residence, if so desired.

The intent of the law, as Rep. Christofanelli explains, was to allow students to enroll in a full-time virtual program without the approval of the district. DESE’s rules leave the district in a position to approve or deny the student and parent’s wishes for a virtual education.

Christofanelli went on to say that “the end result” of DESE’s rules “is an enrollment process for full-time schools that works in the exact reverse order of what the Legislature intended and specifically wrote into law.” He concludes his letter with this: “Please let me know as soon as possible if DESE intends to revise this guidance to bring it into conformity with the new law, or if other steps will be necessary to see that the new law is given the effect of both its intent and clear language.”

It is not clear whether DESE will change their rules regarding the virtual education program or whether the legislature will once again have to take action to address this issue.

Boo: Agricultural Tax Credit Passage No Treat for Taxpayers

Posted on by Patrick Ishmael

Back in August, my colleague Elias Tsapelas wrote a succinct blog post about why the legislature’s intention to pass or extend a bevy of agricultural tax credits was a bad idea. To quote him:

[O]nly 71 entities used these tax credits in the last full year they were active. That’s right, just 71! Forgoing millions of state tax dollars in favor of so few entities seems like the opposite of the governor’s sentiment in the tax rebate discussion. I’d simply ask the same logic to be applied to agricultural tax credits. Research and experience have shown us that these programs do not work. Instead of using the special session to double down on bad policies, a better and fairer solution is to lower taxes for everyone.

Indeed, as Show-Me Institute analysts argued for with SBs 3 & 5, generally the best kind of investment government can make is in “the market.” Like investors, government certainly has the power to make big bets on small industries, but the prudent approach with taxpayer money is to let all Missourians keep and invest their money through tax cuts, rather than dole out more and more cash to rent-seeking special interests.

The good news is the legislature did pass a broad-based tax cut bill in the special session. Quite a treat for taxpayers! The bad news is it also passed the tax credits we warned about to benefit special interests in the agricultural industry. Quite a trick! Boo.

Show-Me Institute staff have noted the problems with “economic development” tax credits for years; those problems include their haphazard creation and the way in which they, in practice, serve to gild the coffers of a host of powerful special interests in the state. Those objections and criticisms are as applicable now as they’ve ever been. It doesn’t matter if tax credits such as these go to large-scale property developers in cities or large-scale farmers in the countryside—it’s bad policy, and wrong, to force the rest of the taxpaying population to underwrite the profits of these private actors.

Taxpayers shouldn’t have to have to endure the “tricks” of tax credits to get the “treats” of better tax policy through income tax cuts. At some point, legislators need to gather the courage and say no to this constant rent seeking, once and for all.

Special Session Tax Cut Passed—and Signed

Posted on by Patrick Ishmael

The tale of 2022’s legislative activities has been a bit of an odyssey. Hopes were high in January that reforms—from tax cuts to government transparency—were in the offing, but when the regular session ended in May with very little progress on these items, I made my frustrations known, and of course, I wasn’t alone in that.

Then as the summer began, rumors percolated that a special session would be called to reduce income taxes, and in July, Governor Parson declared his intention to bring the legislature back for that purpose. Show-Me Institute experts supported that move. The special session gaveled in September, and the governor signed that tax cut bill—SBs 3 & 5—into law yesterday.

The details of the tax cut bill accord with the original recommendations for reform from Institute analysts in July, so you may be unsurprised that I’m keen on the final product. Starting next year, the income tax will drop below 5% for the first time, to 4.95%, and then (subject to revenue triggers) will migrate toward 4.5% over a period of years. The bill also modestly cuts taxes from the bottom alongside these top-rate cuts, exempting the first $1,000 of a taxpayer’s income from taxation. All in all, a good strategy.

That said, I sure hope future legislators plan on accelerating the process sometime in the next few legislative sessions. At the current tax cut pace, the income tax would be due to be eliminated in roughly 50 years . . . assuming tenth-of-a-point cuts continue to be scheduled in the future and happen on time from the 4.5% rate. Knowing the way the legislature operates, the issue of income tax cuts may not be broached much in 2023, but the legislature should consider shortening the timeline for such cuts considerably, and soon.

That said, congratulations to the governor, the Senate, and the House for getting this across the finish line. While we look askance the agricultural tax credits that were passed alongside the tax cuts, the income tax cuts were needed and at least partially saved this year’s legislating cycle. Hopefully next year another special session won’t be required because the regular session ends up being very productive. Fingers crossed.

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