CID Dies

Posted on by David Stokes

I don’t know what the City of Chesterfield is thinking by rejecting the recent community improvement district (CID) proposal for the Wildhorse Village Development. Look, people, when Ruth’s Chris Steak House can’t get a tax subsidy, something is deeply wrong with America. Without a tax subsidy, the steak there might get expensive . . .

Joking aside, the developer of Wildhorse Village (which includes Ruth’s Chris) is seriously angry that he did not get his tax subsidy from the Chesterfield City Council. That is how bad Missouri has become with the constant corporate welfare giveaways. The developer is actually mad that elected officials did not give him other people’s tax dollars to help him make more money from his development. He assumed (and past history in our area justifies his assumption, unfortunately) that those tax dollars were his for the taking. All he had to do was fill out some forms, make the required official statements, and Chesterfield would give him his tax subsidy.

But a funny thing happened on the way to the finance meeting. The city council finance subcommittee voted the subsidy down. Four votes against, zero in favor. As one councilmember said:

We don’t need to subsidize developers to come into Chesterfield and build. It’s some of the most desirable real estate with the best demographics in the area. We don’t need to bribe people to come in.

He is completely right about this. The same thing can be said about many other parts of the state where tax incentives and subsidies are ubiquitous. In the Central West End of St. Louis, for example, the tax incentives are so unnecessary that they are simply capitalized into a higher price for the property since it is just a given that the new owner will get tax subsidies. More money for the entity that makes the sale, less money for public services, all caused by an unnecessary government market distortion in the first place (the final part is the key point here).

There are very few cities in Missouri that typically take a hard look a tax subsidy requests. Most say yes to the proposals faster than a contestant on The Bachelorette. There are rumors the developers will come back and request money again—hopefully Chesterfield sticks to its gun here. If Chesterfield were to take the lead in turning down at least some of these requests, that would be a big step forward for municipal policy in Missouri.

Objections to Tolling Only Tell Half the Story

Posted on by Jakob Puckett

In his recent State of the State address, the governor mentioned the need to keep Missouri’s roads in good shape. Show-Me Institute analysts have written about ways to generate adequate funding for quality roads, such as highway tolling or raising the fuel tax.

These policies have been implemented successfully in many states, but in this post I’ll address some objections to these policies and see if they hold water.

Objection: We shouldn’t toll commercial trucks because the trucking companies will pass those costs along to the people buying their products.

Part of the price of a product is the cost it takes to transport the product somewhere. If trucks carrying products are causing more damage than they’re paying to repair, then underpaying for the products’ transport is in effect subsidizing it. Any tolling costs passed on to customers would be less overcharging for a product and more reflecting its true price.

Objection: Tolling is unfair to local communities near interstates that depend on highway traffic for their customers.

As my colleague Graham Renz has said before, this is another way of saying that communities near toll roads will not be subsidized. Not paying the true cost of driving means that some businesses benefit from more drivers due to an artificially low cost of driving.

Tolling may mean that traffic on these routes decreases, but adequately charging drivers for the damage they do to the roads can hardly be described as unfair. Moreover, the current situation of Missourians who do not live near interstates subsidizing the travel that benefits communities near interstates hardly seems like a fair proposition.

Ultimately, while these two objections may initially seem like they raise serious problems for tolling proposals, they only tell half the story. The benefits of tolling still outweigh the costs, so tolling should be on the table as an option for funding road maintenance needs.

Town Hall – Make it Permanent: COVID-responsive Reforms After the Pandemic

Posted on by Show-Me Institute Staff

In response to the COVID-19 pandemic, Missouri took important steps in 2020 to increase the supply of health care across the state. Reforms include removing licensing barriers that prevented out-of-state licensed professionals of all kinds, and health care professionals in particular, from readily providing services to Missourians and the relaxation of the state’s telemedicine and scope-of-practice regulations.

During this virtual town hall, you will hear from a panel of experts on why these supply-boosting measures should be made permanent in 2021, and how they could be the starting point for other necessary reforms. Join us on Thursday, February 25 at 11:00 AM CT.

Register Here 

Panelists

Patrick Ishmael– Director of Government Accountability at the Show-Me Institute

Rea S. Hederman Jr. – Executive Director of the Economic Research Center and Vice President of Policy at The Buckeye Institute

Naomi Lopez –  Director of Healthcare Policy for the Goldwater Institute

Josh Archambault – Senior Fellow at the Foundation for Government Accountability

Questions may be submitted prior to the event by emailing them to [email protected] and during the event via the Q&A feature on your Zoom screen.

This event is sponsored by Show-Me Institute and Show-Me Opportunity

Don’t Forget the Basics of Occupational Licensing

Posted on by Corianna Baier

There are several occupational licensing bills being considered in the legislature right now. In general, occupational licensing is red tape that makes it harder for workers to get jobs and unnecessarily involves the government in the market. Putting aside the specifics of the legislation for now, there are some basic points on occupational licensing that policymakers should keep in mind.

  • Attempts to license certain occupations are almost always initiated by the current practitioners of that field. Whether framed as a safety measure or a benefit to consumers, don’t be fooled. Practitioners personally benefit from limited competition and higher prices brought about by licensing. It is the classic case of concentrated benefits versus dispersed costs.
  • Promises about what occupational licensing will achieve often fall short. Instead of improving service quality, we often see unintended consequences like do-it-yourself accidents and stifled innovation. Much of this can be explained by the fact that licensing increases costs. For example, higher costs lead to more do-it-yourself work, and that leads to more accidents.
  • In the absence of licensing, people are not regularly subject to fraud and abuse as proponents of licensing would have you believe. Many Missourians hire from particular professions via recommendation from a trusted third party, like a friend or review website. If the worker does a poor job, he will stop being recommended and will receive poor reviews. As my colleague David Stokes said in his testimony (who was himself paraphrasing economist Adam Smith), in a competitive market, job performance and reputation put bread on a worker’s table, not a state license.

Ultimately, occupational licensing increases costs to consumers, limits competition, and hinders Missouri’s economy. Missouri has lost thousands of jobs and millions of dollars in output due to licensing requirements. During pandemic-related shutdowns, it is especially important to encourage entrepreneurship and remove regulatory barriers to work. Last year, Missouri took a huge step forward by allowing occupational licensing reciprocity and temporarily waiving some occupational licensing requirements. Let’s make sure that policymakers continue to move Missouri in the right direction.

Kansas City and St. Louis Receive D’s in Fiscal Health

Posted on by Corianna Baier

Kansas City and St. Louis City ranked poorly in Truth in Accounting’s Financial State of the Cities 2021 report, meaning they are in bad fiscal shape and have high amounts of debt. While this might not be surprising, we should certainly be concerned about these poor scores. The fiscal health of our cities can have real negative impacts on taxpayers.

Truth in Accounting’s report ranks the country’s 75 most populous cities by their taxpayer burden (or surplus for a few cities), a number calculated by dividing the money needed to pay the city’s bills by the estimated number of city taxpayers. A larger taxpayer burden means a larger rank number.

According to the report, Kansas City went into the pandemic in poor fiscal health, with a $1.7 billion debt burden. This equates to a taxpayer burden of $11,300 per person and lands Kansas City at 57th in the country. St. Louis City is in even worse shape. Financial decisions have left St. Louis with a debt burden of $1.3 billion and a taxpayer burden of $14,600 per person. St. Louis ranks 63rd out of the 75 cities in the report. Missouri’s two largest cities both received a D grade for fiscal health.

All the cities on this list, including Kansas City and St. Louis, have balanced budget requirements, meant to “prevent elected officials from shifting the burden of paying for current-year services to future-year taxpayers.” As explained in the report, “if a city has a balanced budget requirement, then spending should not exceed earned revenue brought in during a specific year. Unfortunately, in the world of government accounting, things are often not as they appear.” Cities can do things such as keeping pension and other employment compensation costs out of the budget to give the illusion of a balanced budget. For example, Kansas City has $870 million and St. Louis has $380 million in underfunded pension benefits for city employees, so they each clearly need to be contributing more each year to the city pension funds to achieve true financial stability (as well as moving forward, not backward, with pension reforms).

Times are tough for individuals, businesses, and governments, but we shouldn’t forget the importance of accountability and balancing the budget. Truth in Accounting has released this report in previous years, and St. Louis and Kansas City have continuously ranked in the bottom third of cities. Show-Me Institute researcher Patrick Tuohey wrote this years ago and it still holds true: Instead of chasing shiny new projects and schemes, policymakers “should focus on the less glamorous but more important task of regaining sound fiscal footing.”

Sleepless in Sedalia – Or Further Discussion of Online Sales Tax Issues

Posted on by David Stokes

Online sales taxes are one of those things where the more you study it the more questions you have. It’s like absurdist architecture, or the Green Bay Packer’s coaching decisions. This is the second in a series of posts that asks some important questions about how an online sales tax would be implemented in Missouri, which is very likely to happen. The important thing is to have it done right, and not just take our current, awful sales tax system and expand it significantly.

Expanding the sales tax base to include all online goods should not be done in a manner that would entice cities to depend even more on sales taxation and make rates higher. As part of expanding the tax base, Missouri should reform the system. The pertinent question is how to determine the tax rate. Does the location of the seller, shipper, or buyer matter most? There are arguments for and against all three possibilities. For in-state sellers, it would be fairly simple to just use the seller’s sales tax rate. But many sellers would be out of state, so participating in a multi-state agreement would be a requirement (and I could support that).

Setting the rate by the location (or nexus) of the in-state shipper may, overall, be the easiest, except for the fact that all of the harmful incentives we have had with shopping centers (tax subsidies, high rates, etc.) would be transferred over to logistics centers—a trend we are already seeing. A city with a large logistics park would simply set a very high sales tax rate in that area to make non-residents pay for as much of the city’s services as possible. That would be repeating the mistakes we have made under the present system.

Determining the rate by the address of the buyer would be preferable for fiscal discipline (voters would be approving the taxes they have to pay, like property taxes), but without a simplification of the rate system that could make for complicated collections. Our many cities, numerous city sales tax options, and many special taxing districts would make it very hard to determine a precise tax rate for everyone. There need not be only one answer to these questions. A hybrid decision is possible, and perhaps necessary.

Would additional taxes from obscure special taxing districts also be collected as a part of this? Are they technically use taxes or sales taxes? If it is a use tax (as I think a basic reading of the rules says it would be), then the special taxing district taxes might not have to be collected. If it is a use tax, does the typical $2,000 resident exemption (Missourians only file a use tax return if they accumulate $2,000 in taxable purchases on items that use taxes apply to in a given year) still apply? If that exemption applies—and, again, a basic reading of the law says it should—how could a seller possibly know where you stand on the exemption as a buyer? Do you need to apply for a refund from the state at the end of the year? That could be an enormous amount of paperwork for all involved to properly account for that exemption. Would it be better to eliminate that exemption and lower the rate to account for that?

The various bills that have been introduced attempt to cover some of these questions, but major bills like these are likely to be heavily amended if they are passed, so I think these questions are still fair. And the Packers should have gone for that touchdown . . .

SMI Podcast: School Choice Week Update with Dr. James Shuls

Posted on by Susan Pendergrass

In this episode, Dr. Susan Pendergrass and Dr. James Shuls celebrate National School Choice Week and provide an update on some key legislation.

James V. Shuls is an assistant professor of educational leadership and policy studies at the University of Missouri St. Louis and a Distinguished Fellow in Education Policy at the Show-Me Institute.

Local Government Is a Managerial Convenience to the State, Not a Blank Check

Posted on by Patrick Ishmael

With the Missouri Legislature back in session, important proposals are already on the move in both chambers. Educational choice appears to be on a fast track of sorts in the Senate, an urgent reminder that Missouri’s kids are suffering as many district schools remain shut down in the face of the coronavirus pandemic.

But education reform is just one iteration of a bigger idea: that the state has an obligation to step in to protect the rights of Missourians when local government bodies fail to do so. Yesterday the House Special Committee on Small Business held hearings on a wide array of COVID-related legislation. These bills would limit what local government could do in picking winners and losers among Missouri businesses, whether by shutting them down or dramatically limiting their operations for public health reasons. As we’ve said before, living in Chiefs Kingdom doesn’t make you Kansas City’s peasant, and having a small business in Missouri doesn’t make you a second-class citizen to big box stores and casinos.

Now many local administrators are crying “local control!” to defend their policy decisions from last year and to push back on these proposals as they pick up steam. Yet, shouting that “local control” is important doesn’t change what state subdivisions really are: managerial conveniences to the state. And when managers fail, the boss—here, the state—has to step in.

Local government exists not because it is categorically more efficient and effective in carrying out state priorities. It exists because there is a reasonable expectation that on most issues it will be. After all, local knowledge often has benefits to administration, but sometimes that just means more bureaucracy as we’ve seen in the explosion of administrators in both health care and education. “More administrators” sometimes just means “more administrators” and not “better administration.”

And that’s what mayors, county commissions, and a host of other local government jobs are: administrators. Where the state hasn’t spoken clearly, their role is to execute policies that don’t undermine the rights provided to Missourians who happen to be within the borders they administrate.

To fail to uphold state rights and adequately manage local privileges isn’t just some opportunity for a natural experiment, with local administrators ruling as they will. When a failure of local administration is identified, the state is duty-bound to consider intervention, and perhaps even intervene, to protect the rights and interests of Missourians in those districts.

That’s why I have to smile when I read about big Missouri cities and counties that intermittently extol the virtues of “local government” as a defense against state reform.

When Kansas City mayor Quinton Lucas pumps up the importance of local control to defend his COVID shutdowns and then advocates not only for a statewide mask mandate but for a national one (!) too, his local control argument is actually about his preferred ends of “local control” in a specific instance, not the means of “local control” as a general rule. Legislators should learn this well in the months ahead because local officials will be using “local control” as an argument to fight reform.

One final note:

The relationship between local governments and the states is not the same as the relationship between the states and the national government. States create or enable the creation of local governments as subsidiaries to their control. States created the national government as a co-sovereign. “Local control” is not the same as a “state’s rights” argument, nor should anyone conflate the two.

I’m thankful that the legislature is already queueing up a round of legislation to curb the excesses and rights violations that happened last year in Missouri. I hope legislators ensure local government is properly restrained in the future.

More to Be Done on LIHTC

Posted on by Elias Tsapelas

2020 was a big year for Missouri’s low-income housing tax credit program (LIHTC). In September, the governor and Missouri Housing Development Commission (MHDC) revived the state’s program for subsidizing the construction and rehabilitation of low-income housing after a three-year hiatus (read more about the program and how it works here and here). And by the end of the year, more than $14 million in new LIHTCs had been awarded. We’re told the program has been reformed and will work better than ever before. But will it?

Prior to being halted in 2017, the state’s LIHTC program was plagued by several serious problems. As I’ve written many times before, Missouri’s program was one of the biggest in the country and was repeatedly shown to be ineffective, costly, and utterly lacking in accountability. Sufficiently addressing each of the program’s shortcomings has proven to be elusive for the state’s elected officials, with legislative attempts to reform the program failing over the past three years. Absent any legislative action, the governor and MHDC decided to bring the program back on their own terms by administratively implementing changes.

The MHDC’s changes include a yearly cap on state credits, a scoring rubric for project applications, and a new pilot program that allows more credits to be redeemed over the first five years (of ten total) of the project. At first glance, the changes seem to touch on each of the major issues with the program outlined above. But do they make the program worthy of taxpayer expense?

In theory, the yearly cap should make the program less costly because Missouri used to match each federal LIHTC on a dollar-for-dollar basis. A cap would mean that is no longer possible. The scoring rubric could add some accountability by showing how the chosen projects stack up against those that aren’t awarded funding. And the pilot program should make the credits more enticing to investors, and in turn, increase the value for which they can be sold.

After details of the revived program were made public, an optimistic real estate developer was quoted saying he expected the new state LIHTCs to sell for roughly sixty cents on the dollar. It is important to keep in mind what this means: Developers are happy to trade each taxpayer dollar they receive for a little more than half its value. How can LIHTC be a good investment for Missourians if the people who profit off the program believe what they’re receiving is worth much less than what state taxpayers are paying? It will be some time before there are enough data to determine the full effect of these changes, but even if this estimate of improved sale value is proven true, Missourians would still be receiving a very poor return on their investment.

The program’s revival is certainly a good deal for already-wealthy developers. But shouldn’t the governor and MHDC instead ensure that Missourians have an affordable housing policy that’s good for everyone?

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