Ballwin TIF Ends; Clear Failure Lauded as “Great Success” by Municipal Apparatchiks

Posted on by David Stokes

In the great film “The Death of Stalin,” there are many fantastic scenes of a dark-comic nature where the members of the Soviet Politburo try to figure out the best way to turn hard truths into lies in the service of the state.

In West St. Louis County, we get to see the City of Ballwin doing the same thing regarding a tax-increment financing (TIF) package that is about to end. Of course, it’s not exactly the same thing. Ballwin doesn’t have gulags or torture and has never invaded Hungary, and I give proper credit to Ballwin for all of that.

The Olde Towne Plaza TIF is ending; not because it uses too many unnecessary “e”s in its name (although it does), but because it has hit the Missouri TIF time limit of 23 years. According to a story in West Newsmagazine, the project and TIF have been a large success (emphasis added throughout):

“It really served to fill two goals: One was to stimulate economic development. The other was to improve the infrastructure. Overall, it was a success,” long-time City Attorney Robert Jones recalled.

Further down, we read:

Finance Officer Denise Keller told West Newsmagazine by email, “The Redevelopment Plan itself was very successful in that an attractive and quality development of retail and service commercial uses has been constructed and maintained, enhancing the tax base and the resulting tax revenues for the city and all other taxing districts within the Redevelopment Area.”

Got it. This tax subsidy has been a big success. God only knows how a rapidly growing suburban region could experience growth without the Kreskin-like ability of city officials to predict the future. But wait, if you keep reading further down the article:

Incremental taxes captured for repayment of the bonds, however, (fell) short of expectations and by the time the bonds mature, there will not be sufficient funds to repay the full amount of the principal due.

So, the project and subsidy were a great success, even though the TIF district didn’t actually pay off the bonds. That’s ok, at least general city funds are not involved here, just the TIF district funds:

Keller added that the bonds have never been an obligation of the city and do not reflect on the financial health of the city.

Thank goodness for that. But wait, if you read further, you see that even though the bonds weren’t an “obligation” of the city:

The city was required by the bond indentures to make an annual contribution toward the repayment of the bonds. The cumulative amount of this contribution to date has been $2.7 million.

I don’t know how you define words like “obligation,” “success,” and “sufficient,” but if you read the full article carefully, this wonderful, amazing, tax-subsidized project experienced high turnover, generated far less revenue than expected, had the city step in to pay shortfalls out of other tax revenues (even if it was not “obligated” to), and the development now has to use an ongoing special sales tax ostensibly targeted for transportation to fully pay off the TIF bonds. All of this while any drive down Manchester Road shows a litany of empty storefronts, brought about in part by numerous municipal tax subsidies used to lure businesses from one place to the other based on chasing the subsidy, not where the best location for their business really would be.

TIF doesn’t work. Politicians, urban planners, and city managers can’t predict the future. To quote P.J. O’Rourke, giving the power of tax subsidies to local politicians is like giving whiskey and car keys to teenage boys.

All of the road improvements Ballwin brags about with the TIF project could have been funded by normal taxes collected over the period of the TIF project, from whatever developed here or elsewhere in the area. Why? Because capitalism works. Frequently, municipal officials throughout Missouri forget that and think that somehow they have the special knowledge to plan their economies in a better way. It’s ridiculous, and in the end it usually fails and you find yourself denying reality to the press.

Stalin would have been proud.

Turning Teachers into Entrepreneurs

Posted on by James V. Shuls

Being an entrepreneur is hard work. Or so I’m told. I’ve never actually been an entrepreneur. From what I gather, to become one you must have an idea of a product or service that other people want. And you must be able to produce that good or service for a price that other people are willing to pay. Those two things are key. Without an idea, you’ve got nothing. Without customers, your business will flop.

We rarely use this sort of entrepreneurial thinking in education. For one, the vast majority of students—roughly 90%—attend a public school. Charter public schools are growing in this sector, but traditional public schools still enroll, by far, the most students of any school type. Of the roughly 10% of students who attend private schools, most attend some sort of religious school. Catholics have historically served the lion’s share of private school students.

With public and church-sponsored schools dominating the landscape, there has never been much room for entrepreneurs. Even if someone had a great idea, they would struggle to compete with free public schools or church-supported private schools.

That is beginning to change.

In places such as Florida, where school choice programs allow students to attend private or micro schools with publicly supported scholarships, we are seeing the start of something interesting—teachers becoming entrepreneurs.

I recently had the pleasure to serve as an advisor on a report conducted by Step Up for Students. Step Up for Students is “a state-approved nonprofit scholarship funding organization that helps administer four scholarships for Florida schoolchildren.”

Step Up conducted focus groups with former public school educators who left the public school system to start their own schools. These teachers thought they had a great idea to serve students and, thanks to the scholarship program, families had the means to pay tuition at the schools.

Check out the terrific slide deck or the video below to learn more about these teachers turned entrepreneurs.

A Letter to the Editor: Roll Back Personal Property Tax Rates

Posted on by David Stokes

Used car values have risen dramatically in Missouri. Prices for used cars increased 25 percent in 2021 alone. Because Missouri is one of the only states with a personal property tax on cars, that increase is going to hit taxpayers hard come December.

The personal property tax is exempt from our Hancock Amendment rules on rolling back property tax rates as values increase. As car values have typically declined over time, this has not been a problem in the past. But with used car values increasing and no tax rollback required, local governments around Missouri will see an unexpected windfall in property tax payments this year. That is not how the tax system is supposed to operate.

There is a solution here. Local elected officials, including county, city, and school district representatives, should voluntarily roll their tax rates back once property valuations are finalized. St. Charles County government has taken the lead on this, and other local governments around the state should do the same for their residents. The personal property tax rate is unconnected to the real property tax rate, and rolling it back to a revenue-neutral level is simple, allowable, and—most importantly—good public policy.

Local governments in Missouri are awash in federal stimulus and COVID-relief funds, while ordinary citizens are getting hammered by inflation. Cities, counties, and school districts don’t need another bonanza on the backs of Missouri taxpayers. Rolling personal property tax rates back is the right thing to do.

Link to the letter on the EMissourian site here.

Agricultural Tax Credits Are Still a Bad Deal

Posted on by Elias Tsapelas

Last week, Governor Parson called a special session of the Missouri Legislature to pass the “largest tax cut in state history.” In addition, the governor called for the extension and creation of eleven agricultural tax credit programs. While my colleagues and I have written a lot about the benefits of lowering the state’s income tax, we’ve also written about how bad of a deal these agricultural tax credits—like almost all tax subsidies—have historically been for Missourians.

Missouri’s already one of the national leaders in sacrificing state tax dollars for private economic development interests. Over the past decade, our state has devoted nearly $6 billion to tax credits with little to show for it. That’s also why my colleague David cheered when four of the tax credits listed below were allowed to expire last year. But now that the state has a surplus of revenue as a result of a better-than-expected economy (in the year these tax credits were not active), it’s apparently time to bring them back.

I’m not disputing that rural parts of the state would benefit from greater investment. But state tax credit programs are clearly not the way to do it. Government officials cannot predict the future, nor should they be in the business of picking winners and losers, which is something I thought Governor Parson agreed with. When the governor vetoed the tax rebate bill that spurred this special session call, he criticized the legislature’s decision to approve one-time tax benefits for some, instead of favoring permanent tax relief for all Missourians. The governor was correct then. So why is he now supporting tax credits paid for by so many to benefit so few? Here is a list of the tax credit programs being considered in the special session, and how many (actually, how few) entities used each program in the last year credits were issued:

  • Wood Energy Tax Credit – 8
  • Meat Processing Facility Investment Tax Credit – 13
  • Ethanol Tax Credit – NEW
  • Biodiesel Retail Sellers Tax Credit – NEW
  • Biodiesel Producer Tax Credit – NEW (6 producers)
  • Urban Farm Tax Credit – NEW
  • Rolling Stock Tax Credit – 0
  • Agricultural Product Utilization Contributor Tax Credit – 31
  • New Generation Cooperative Incentive Tax Credit – 4
  • Specialty Agriculture Crops Act Tax Credit – NEW
  • Family Farm Breeding Livestock Tax Credit – 15

As you can see, in total, only 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.

Affordable Housing and Kansas City: Further Thoughts

Posted on by Elias Tsapelas

(You can read part one, part two, part three, part four, part five, part six, part seven, and part eight in this series here.)

The concerns people have over housing affordability raise a number of policy questions ranging from zoning to the fees Fannie Mae and Freddie Mac charge for new mortgages to the minimum wage, vouchers, and the low-income housing tax credit (LIHTC). In Missouri, the largest state-funded tax subsidy is the LIHTC program. The analysis in the previous two blog posts helps reveal why Missouri’s current LIHTC program is not designed to meaningfully improve housing affordability in Kansas City.

As I explained in the previous post in this series, Kansas City has a surplus of affordable housing for all income groups except those at the very bottom. But does the LIHTC program actually help those at the bottom of the income ladder?

There are numerous problems with the LIHTC program, such as the fact that it inflates construction costs. But arguably the biggest problem is that the criteria it imposes for developers to receive subsidies do nothing to promote additional housing at the cheapest rent levels. The most common arrangement for LIHTC developments is for 40% of the units to be reserved for those earning below 60% of the area median income (AMI). But the rents for the LIHTC units are not based on the income of the potential residents; rents are set based on the income in the surrounding area (the AMI). Because of this, even LIHTC-subsidized housing would likely not be affordable enough for the lowest-income families.

To use some numbers to illustrate this example: As explained above, rent needs to be no more than 30% of your income to be considered affordable, and LIHTC units considered “affordable” can be reserved for those making 60% of the AMI. So rent for that “affordable” unit in a LIHTC development will be 18% of the AMI (30% x 60% of AMI). Based on the $78,000 AMI in Kansas City, this means that the monthly rent for a family of 3 in that LIHTC unit is about $1,170 per month ($78,000 x 18% / 12). But as was described previously in this blog series, a family of three in Kansas City making 30% of the AMI needs rent to be about $585 per month to be considered affordable—and the cost of the LIHTC unit is nearly double that figure. Because of this, LIHTC tends to offer little to no help to the poorest residents.

In future work, the Show-Me Institute will provide more insights into not just the LIHTC program but the broader array of policies that have been discussed—or even new proposals that have not garnered as much attention—to promote a dynamic housing market that serves the needs of all Missourians.

 

 

 

 

 

Is There Actually a Teacher Shortage?

Posted on by Susan Pendergrass

Susan Pendergrass speaks with Dan Goldhaber .

Dan Goldhaber is an AIR vice president and director of Analysis of Longitudinal Data in Education Research at AIR. He is also an affiliate professor in the School of Social Work at the University of Washington, the director of the Center for Education Data & Research, and the co-editor of Education Finance and Policy.

Listen on Apple Podcasts 

Listen on Stitcher 

Listen on SoundCloud

Map of Commercial Property Tax Surcharges in Missouri

Posted on by David Stokes

I know, I know, if you are like most Missourians, you’ve been talking about the commercial property surtax (or surcharge) constantly over the past few months and you are probably tired of the subject. But stick with me for at least one more post on the subject. As you all undoubtedly know based on your many conversations on the topic with family, friends, co-workers, and if this is actually true, highly likely your therapist, the commercial surtax is a property tax levied at the county level on commercial property only. Unlike other property taxes, it does not adjust downward as assessment value increases and it cannot be lowered by elected officials. Per the Missouri Constitution, it cannot be raised, and only voters can lower it. To date, voters in Missouri have never lowered a surcharge tax rate, but in November, voters in Clay County will have the opportunity to be the first to do so. The modest reduction Clay County is proposing to equalize itself with Jackson County, in my opinion, is very good public policy, but more on that later.

The tax rate varies by county based on the amount of money the tax it replaced—a commercial inventory-based tax—raised in each county in 1985. If your county had many businesses that generated products subject to the inventory tax, such as Clay County with the Claycomo Ford Plant, you probably have a high replacement tax rate. If you are a county that had a lot of businesses that did not generate much taxable inventory, such as counties in the Lake of the Ozarks region with its tourism economy, you likely have a low commercial surtax rate. But the real issue is that because of the difficulty in adjusting the rate, counties still have the rate based on the economic conditions of 1985.

That is why we built this map. The map below shows the commercial surtax rate for every county in Missouri. The redder the county, the higher the rate. The rate varies from $1.70 per $100 of assessed commercial valuation in St. Louis County to $0.01 in Reynolds County. The unweighted average rate is $0.53; the median rate is $0.41. Please check out the map (there is also a download link at the bottom of the post) and see where your county fits.

Part 8: Does Kansas City Have and Affordable Housing Problem?

Posted on by Elias Tsapelas

(You can read part one, part two, part three, part four, part five, part six, and part seven in this series here.)

Our results in the previous blog post indicate that Kansas City may have an affordable housing problem, but one that doesn’t affect most residents. These findings don’t seem to match public perception on the issue. According to a recent national poll, approximately 90% of respondents stated they believe housing affordability to be a major issue where they live. According to the table below, using data from the same American Community Survey as used previously in this series, many households in Kansas City say they are spending more than 30% of their income on housing. Does that confirm there’s an affordability problem or is there more to the story?

Using household income as our primary measure for housing affordability may make the most sense based on the data our government collects, but it is not a perfect measure for gaining insight into what households find affordable, especially for those with lower incomes. For example, if you don’t have a car or another means of transportation, housing that’s miles away from your place of work that costs 30% of your income is likely not affordable once daily commute costs are taken into account.

In times with record-breaking inflation like we’re seeing now, and rising home prices, it’s easy to feel like there’s a housing affordability problem. Because for many people, the place they live or want to live has become more expensive to them. And as long as all Kansas Citians, regardless of income, are allowed to freely choose where they live and pay how much they feel they can afford to pay to live there, these same data will show some level of housing unaffordability that is not reflective of a need for government intervention, but a result of consumer choice.

That’s also why when discussing housing affordability and the public policies that are aimed at combatting the issue, we have to be careful and say specifically what we mean or the policies that follow will be sure to miss the mark. As I hope my posts have made clear, affordable housing policy is hard. Moreover, with house prices, rents, and interest rates rising more rapidly than incomes, the debate over housing affordability is likely to grow, and with it, the potential for misleading analysis and counterproductive policy solutions. In particular, any one-size-fits-all policy that aims to improve housing affordability in Kansas City by treating households with varying incomes the same would likely not be successful at achieving the desired results.

 

 

 

 

Part 7: Does Kansas City Have an Affordable Housing Problem?

Posted on by Elias Tsapelas

(You can read part one, part two, part three, part four, part five, and part six in this series here.)

In the last post in this series, I talked about how to estimate potential housing demand. Now it’s time to talk about the supply. Since the majority of households earning below the area median income (AMI) are renters (as the graph in the last post showed), we can use census data to determine the number of units rented in Kansas City and how much they cost, which should give us a pretty good estimate of the supply of rental housing.

As the figure below shows, there weren’t many rental units available for less than $500/month at the time the survey was conducted, but there are more than 123,000 available between $500–999 per month. Moreover, the data below are not broken down by the number of bedrooms. Undertaking an even more granular analysis of the balance between housing demand and supply through a decomposition by family and unit size is left for future analysis.

With that in mind, we can combine the data we’ve put together in the last two posts to strictly compare the estimates of affordable housing supply with demand. This allows us to establish a potential surplus or shortage for any income group. Using the table below, we can see for each income bracket the supply of affordable housing. Then, by subtracting the demand for units from the supply, we can determine whether there’s a surplus or shortage of housing at the 30%-of-income affordability threshold for households at each income level.

The table above shows that there is a shortage of housing under the 30%-of-income affordability threshold in the Kansas City area for those making less than approximately 30% of the AMI but a significant surplus for all remaining income groups

The results in the table above are similar to what I referenced in part 5 of this series about a supply and demand analysis of St. Louis City and County contained in a report commissioned by the Community Builders Network of Metro St. Louis for the Affordable Housing Trust Fund Coalition. It’s not that Kansas City clearly lacks rental housing, but it may lack sufficiently affordable rental housing for the city’s poorest residents. And when “affordable” in this instance means rents lower than $580/month for a family of three, it’s somewhat understandable that such places could be hard to come by.

It is important to remember that these estimates for the potential housing supply and demand in Kansas City are only as good as the assumptions made to create them. In the next post, I’ll dive a little deeper into how different examinations of the same data can lead to different results for what should be done in Kansas City.

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