What’s Happening with the Gas Tax?

Posted on by Elias Tsapelas

As many Missourians have heard by now, a bill to raise the state’s gas tax for the first time in 25 years (SB 262) passed the House and Senate and is waiting on the governor’s desk. The governor indicated that he expects to sign the bill once his office finishes reviewing the bill’s language. But there are reasons to believe this review will unearth some concerns regarding its constitutionality.

Six members of the House recently sent a letter to the governor stating their belief that the bill will violate Missouri’s constitution, specifically the Hancock Amendment. The provision in question limits the amount the general assembly can raise taxes in a given year without first being approved by a public vote. (See here for more information about the amendment).

If signed into law, SB 262 would raise the state’s gas tax by 2.5 cents per gallon for each of the next five years, for a total increase of 12.5 cents by 2027. But there’s a catch: residents can get a refund for the additional gas taxes paid due to this bill. The fiscal note for the bill estimates that once fully implemented in FY 2027, it could exceed the Hancock Amendment cap, which for this year is $111.8 million. Depending on how the bill’s fiscal impact is calculated and the number of refunds claimed, it is possible that in the years prior to 2027, the tax collected could also exceed the Hancock limits.

While there’s certainly more to the story regarding whether the legislature violated the Hancock Amendment, the gas tax bill becoming law certainly opens the door for a variety of questions and potential court challenges. The Hancock concerns are explained in more detail here, but here are a few of the major questions at hand:

  • How much revenue will the gas tax hike raise?
  • How many Missourians will take advantage of the available refund option?
  • How will Hancock Amendment compliance be determined?
  • How will the other bills signed into law by Governor Parson impact this calculation?

One way to avoid all this potential mess is to send the gas tax question to voters. In fact, a referendum petition has been filed that would accomplish just this, but it has yet to receive approval for circulation by the secretary of state. If the petition were to succeed, the Hancock Amendment concerns would be avoided because taxes approved by voters are not subject to the amendment.

Missouri may soon be raising the state’s gas tax, but there are a lot of questions to be answered before we know for sure. In the meantime, keep enjoying the second-lowest gas tax in the country.

Online Sales Taxes Bill Finalized

Posted on by Elias Tsapelas

Earlier this week, Governor Parson signed the so-called Wayfair bill, and it’s a big deal for Missouri. Named for the Supreme Court case South Dakota v. Wayfair, the legislation makes our state the 50th in the nation to begin collecting online sales taxes from out-of-state retailers.

My colleagues and I have been writing about the online sales tax issue for years and have submitted testimony on the topic five times this year alone. The purpose of the tax is help level the playing field between online retailers and brick and mortar stores, but as Institute researchers have repeatedly emphasized, any effort to expand the state’s sales tax base should be done in such a way that it doesn’t raise the cumulative tax burden on Missourians. In other words, the bill should be revenue neutral. This legislation delivers in that regard.

SBs 153 & 97 offset the tax increases that will come with collecting online sales taxes from out-of-state retailers with future income tax reductions. Once fully implemented, after hitting various revenue targets over a period of years, Missouri’s top income tax rate will fall incrementally from 5.4 percent to 4.8 percent. This is a good move. It shifts the state government’s revenue reliance away from the economically destructive income tax and is paid for without raising other tax rates.

Additionally, SBs 153 & 97 include a host of other positive tax-related reforms that go beyond Wayfair. A few highlights include tax-increment financing reform, special taxing district reform, and a non-refundable earned-income tax credit. Components of each of these major reforms have been included in the Show-Me Institute’s Blueprint for Missouri over the past few years and represent significant improvements over our state’s status quo.

The bill signing represents just the beginning of what will be a long road toward Wayfair implementation. Online sales taxes aren’t slated to begin being collected until Jan. 1, 2023, while the other parts of the more than 200-page bill will go into effect later this summer. In the coming months, I’ll cover the many questions our state and local governments are facing regarding the online sales tax topic. But for today, I’m glad that after years of talk and no action, the governor and legislature finally delivered on this front for Missouri taxpayers.

Podcast: Wayfair is Signed, More Sunshine and Nearly $2 Billion for Education

Posted on by Elias Tsapelas

David Stokes, Elias Tsapelas, Patrick Ishamel and Susan Pendergrass join Zach Lawhorn to discuss the recently signed online sales tax bills, the Missouri Supreme Court ruling on the state’s sunshine law and DESE’s application for $2 billion in federal relief money.

Listen on Apple Podcasts 

Listen on Sticher 

Is the City Foundry Just Moving Vegetables Around the Plate?

Posted on by Corianna Baier

When you were a kid, did you ever push your vegetables around your plate hoping that the different placement would convince your parents that you’d eaten something? Often, we see a similar thing happen with large commercial developments funded by taxpayer dollars: Nothing new is created; already existing restaurants and stores shift to new developments in the guise of adding value to a region. A St. Louis Post Dispatch report highlights a perfect example of this: Kalbi Taco Shack is closing its original location to move into the City Foundry.

The City Foundry, a mixed-use development in Midtown, was granted $19.4 million in subsidies for the first phase of the development years ago. The St. Louis Tax-Increment Financing (TIF) Commission recently voted in favor of an additional $18 million in TIF for phase two of the project. Economic development incentives are meant to create new economic development and activity in the region. Kalbi Taco Shack abandoning one location for another is not a win for the greater St. Louis region. . Shifting existing businesses from one location to another creates new abandoned storefronts, but little to any value for the region.

Unfortunately, this is the outcome we see from economic development incentives all too often. Take Kansas City for example, where the Kansas–Missouri border war saw hundreds of millions of tax dollars forgone and many businesses shift across the border, but hardly any net growth for either state.

Researchers have found that economic development incentives do not increase economic activity in the larger area. One reason for that: Retail relocation does not create substantial (if any) job opportunities or new economic activity. Do these large developments that become the new home for existing businesses give the appearance that something is happening in the region? Sure. But it’s just vegetables moving around the plate; nothing is getting eaten.

Missouri K-12 Enrollment Declined 3 Percent this Year

Posted on by Michael McShane

New data released by the National Center for Education Statistics (ably summarized here) show a substantial decline in K-12 student enrollment during the 2020–21 school year. Missouri was not immune to this trend, seeing a just over 3 percent drop in enrollment this past year. That decline represents thousands of Missouri students who decided to opt out of the public school system for reasons that we are still trying to understand.

There is good news and bad news here.

The good news is that for the first time, many of these families decided to take their children’s education into their own hands. They recognized the limitations of the traditional school system and opted for something better. According to the Census Bureau, homeschooling is up substantially, including in populations not traditionally thought of as homeschoolers. Some recent research on families who homeschooled and who personalized their children’s learning during the pandemic showed the benefits that they saw for their children and for themselves. Insofar as the pandemic helped spur people to rethink education and usher in the year of educational choice, the long-term effects will trend positive.

The bad news is that many traditional public schools are going to struggle in the short and medium term. As children filter back into schools this fall, they will have had vastly different experiences during the past year. Some will have accelerated, with more attention from their parents and creative out-of-school learning opportunities. Some will have declined, with low-quality remote learning stunting their development and disconnecting them from learning. Some will be a mixed bag. Teachers are going to have to figure out how to teach to all these different students at the same time.

As noted, the largest declines in enrollment came in kindergarten, where parents appear to simply be holding back their students for a year until school can return to normalcy. That is going to create a bubble of students that will work its way through the education system for the next two decades. Will schools have to operate extra classes each year as these students progress from grade to grade? How about college applications, with all these students applying at once? And what happens when they all hit the workforce when they graduate? The echoes of the pandemic will reverberate for multiple school years.

Judge Strikes Down Medicaid Expansion

Posted on by Elias Tsapelas

Last week, Cole County Circuit Judge Jon Beetem struck down Medicaid expansion, ruling that the initiative approved by voters last August violated Missouri’s constitution.

Beetem’s decision was in response to a lawsuit from the initiative’s supporters, which was filed after Missouri’s legislature decided against appropriating funding for Medicaid expansion. Governor Parson then halted all state implementation efforts.

As I explained last month, Missouri’s constitution gives the state legislature the responsibility of appropriating all state spending. It also provides that amendments cannot impose new costs without providing a mechanism to pay for them. Yesterday’s ruling holds that the expansion initiative failed to include a funding mechanism, and that growing the state’s Medicaid program by an estimated 275,000 enrollees will cost the state money. (The decision mentions that expansion would cost $1.8 million per year which is almost surely a typo; it should be $1.8 billion, as projections from Missouri’s Medicaid agency show.)

Prior to last August’s election, a different lawsuit challenged the constitutionality of the expansion petition on the same legal grounds. As Beetem’s decision explains, the courts at the time decided against removing the initiative from the ballot in part because the fiscal estimates showed a wide range of potential outcomes, from enormous savings to extraordinary costs. If the amendment did end up saving the state money, it wouldn’t need a funding mechanism. As I wrote repeatedly last year, the promise of savings was always illusory Once the true cost of expansion was presented to the legislature, legislators refused to appropriate funding citing their sole constitutional authority on the issue.

The plaintiffs certainly disagree with the circuit court’s ruling and have already filed their appeal. While it may be weeks or months until this issue is ultimately resolved, Judge Beetem’s decision is an important one with implications beyond this particular fight. If a petition to amend our state’s constitution violates the constitutionally defined rules for amending the constitution, it should not stand. It’s really that simple. Time will tell if the Missouri Supreme Court agrees as well.

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