Will Boonville Repeat the Mistakes of St. Louis and Kansas City?

Posted on by David Stokes

A version of this commentary was published in the Columbia Tribune.

Tax-increment financing (TIF) is Missouri’s bad idea that refuses to die. Now it is Boonville’s turn to face off against the TIF zombie. Developers have proposed a new, 400-home subdivision in Boonville. Great news, right? Well, there is a catch. The developers want a massive TIF subsidy to fund the project. Residents and taxpayers in Boonville should reject this horror show of a proposal.

TIF is a type of tax subsidy that allows developers to keep the taxes they would otherwise pay to fund some of a project’s costs. With TIF, if a property generated $100 in property taxes before it was developed but generates $200 after improvements are made, the developer gets to keep the $100 difference.

Of course, the actual numbers in this proposal for Boonville will dwarf our little example. As best we can tell, the current property pays $1,176 per year in taxes based on its current appraised value (as farmland) of $116,300. The new subdivision, based on stated goals of 400 homes at an average of $200,000 each, would, if not for the TIF, pay $1,026,912 in property taxes, based on an assessment of $15.2 million at the current area tax rate. With TIF, that would result in an annual subsidy—once the project is fully built—of approximately $1,025,736. For the life of the TIF (23 years is standard), that would be an estimated $23,591,930 maximum subsidy. That is outrageous. Even if the city council were to consider a smaller subsidy, any tax incentive would be a needless giveaway to the developer.

While the people of Boonville may want more housing opportunities for the area, using TIF for residential projects would benefit only the developer. If the city’s population grows as the TIF proposal assumes, and people currently living in Columbia or elsewhere move in to fill the 400 new homes, it is certain that at least some of them will have school-aged children. Boonville will have hundreds of new children in the school district without the expanded tax base to pay for them. Of course, a likely scenario is that some of the home purchasers will come from other parts of Boonville. Local families will move from houses where their property taxes fund the schools to new homes where they do not. How do you think the Boonville R-1 school district is going to pay to educate the children in this subdivision with 400 homes not paying taxes to the schools? There is only one answer: they are going to raise taxes on everyone else.

TIF has had numerous negative economic effects in Missouri. It has increased government involvement in the economy, subsidized politically connected developers, sparked abuse of eminent domain, shrunk the tax base, and made corporate welfare a permanent fixture of development. Furthermore, TIF has failed at its main purpose: economic growth. An Iowa study of TIF usage concluded that, “On net (…) there is no evidence of economy-wide benefits, fiscal benefits, or population gains.” Other studies across the country have found similar results.

The dirty little secret that economic development officials in Boonville and around the state don’t want you to know is that subsidies like TIFs and Enterprise Zones do not work. They do not succeed in growing the local economy. St. Louis and Kansas City have tried using generous taxpayer subsidies to revive their local economies for decades. It has not worked. I can already hear readers in Boonville saying, “But we’re not Saint Louis or Kansas City.” That’s absolutely right—you are not. And there is no reason for you to imitate their mistakes. It is one thing for Saint Louis or Kansas City to try these projects and have them fail. It would be even worse for a city like Boonville to follow that example with the knowledge that the entire process has consistently failed. At least the trailblazer who takes the wrong path has an excuse.

Do Boonville and Cooper County Need $40 Million?

Posted on by David Stokes

Developers have asked the City of Boonville for a tax-increment financing (TIF) subsidy to “help” them build a new subdivision for 400 homes in Boonville. (Well, in Boonville if the annexation request is also approved.) There are many reasons why this is outrageous, starting with the obscenity that one developer gets a $40 million tax break while everyone else has to keep paying the same tax levels.

One of the many serious flaws with the TIF process is that it empowers cities to make financial decisions that impact other taxing districts far more than the city itself. Boonville is happy to surrender decades worth of property taxes to the developer because Boonville is substantially funded by sales and gaming taxes. It is the school district, the county, and other taxing districts which are funded at a much higher percentage by property taxes that take the real hit here.

Boonville itself may be well-funded by the gaming taxes, but are other taxing districts in the region awash in tax revenues? Based on comments from the Cooper County Health Department administrator, I would imagine not. As she described funding in her office during the pandemic:

Melanie Hutton, administrator for the Cooper County Public Health Center in rural Missouri, pointed out the local ambulance department got $18,000, and the fire and police departments got masks to fight COVID-19.

“For us, not a nickel, not a face mask,” she said. “We got (5) gallons of homemade hand sanitizer made by the prisoners.”

To be clear, she was referring specifically to funding from the state and federal governments, but I think it is clear that her own department is lacking the proper resources to deal with the pandemic. The Cooper County Health Department is primarily funded by property taxes, the very taxes that the Boonville City Council (which has no authority over the Cooper County Health Department) will impact with the TIF vote.

The fact that the city council gets to reduce funds for the county health department is absurd. But that is how the tax subsidy, abatement, and credit game works. How does a local community win that game? Well, as the wily computer told a young Mr. Carrie Bradshaw in “War Games” many years ago, the only winning move is not to play.  

Capping LIHTC Isn’t Enough

Posted on by Elias Tsapelas

Missouri’s low-income housing tax credit (LIHTC) is a classic example of throwing good money after bad. The program—which provides $1-for-$1 in matching funds to supplement the federal LIHTC created in 1986—awards credits to developers to offset construction costs in exchange for agreeing to reserve a fraction of units for low-income tenants.

Despite having some of the most affordable housing costs in the country, historically Missouri spent the second most of any state on LIHTC, which is consistent with research finding that the LIHTC program is poorly targeted. What’s worse, multiple state audits in Missouri have found that less than $0.42 cents of each dollar are spent on actual construction. It wasn’t until 2017 that Missouri finally faced up to the failures of its LIHTC program and suspended it. But no longer.

After a three-year shutdown, Missouri is now reviving its LIHTC program with grand promises of reform. Specifically, the Missouri Housing Development Commission (MHDC) stated that it will cap the state’s yearly LIHTC awards at 70 percent of the annual federal allotment, and the legislature is considering enshrining the cap into law. The benefit of the cap is that instead of state taxpayers being on the hook for $180 million per year, they might only be out $135 million. However, a smaller loss is still a loss, and good stewardship of taxpayer funds means insisting that programs deliver value and achieve results.

Given the structure of the LIHTC program, even the aforementioned savings are likely to take years to materialize, if ever, assuming that legislators don’t backtrack on reforms. In particular, the LIHTC awards credits not all at once but rather in equal allotments over ten years. As a result, the savings from any reduction in credits will also take a decade to gradually phase-in.

The tendency of the federal allotment to rise each year and the creation of a new MHDC pilot program that increases the payout rate for some state projects both may lead to further backloading of savings. Specifically, the pilot program will allow 20 percent of projects awarded credits to redeem the awards on an accelerated schedule that matches the federal yearly allotment at the full 100 percent in the first five years before evenly spreading out the remaining funds over the final five years.

The table below gives a concrete illustration. Before 2017, a project that was eligible for $1 million in federal credits would also have been eligible for $1 million in state credits with awards distributed over ten years. Under the new cap, the total state credit falls to $700,000, which amounts to $70,000 each year. However, under the pilot, the project could receive $500,000 of the $700,000 in just the first five years—matching the $100,000 per year that it would have received before 2017—and then claim the final $200,000 in the last five years. In short, taxpayers would not see any savings from the cap until after five years, which gives vested interests more time to reverse reforms before they ever take hold. Though the idea behind the pilot program may have some merit, the bottom line for taxpayers is still delayed and potentially uncertain savings.

Spending less on an inefficient LIHTC program is better than spending more, but it will do taxpayers a disservice if lawmakers use this superficial change as an excuse to declare success, move on, and not undertake more fundamental reforms.

New TIF is a Bad Deal for Boonville

Posted on by David Stokes

A new tax-increment financing (TIF) package is being proposed to subsidize a new, 400-home development in Boonville. As best we can tell, there has only been one TIF previously in Boonville, and it was relatively small. So the people of Boonville may understandably have questions about TIF The pro-developer propaganda being promulgated about town by some doesn’t help clarify matters.

TIF, like other tax incentive and subsidy plans, is at its most basic point just corporate welfare. Why this development would deserve special tax breaks that other businesses, residents, and developments in Boonville don’t get is beyond us. But that is for the city council of Boonville to decide, not us.

Perhaps more importantly, TIF has failed throughout Missouri. Other parts of Missouri have used it extensively; it has not led to economic or population growth. You can’t spend yourself rich and you can’t subsidize your way to growth.

We will have much more to come on this over the next several weeks. For now, if you are interested in this issue, please check out just some of the substantial work we have done on TIF here at the Show-Me Institute:

Our study on whether TIF has worked for economic growth in Missouri (hint: it hasn’t).

Our essay on the connections between political donations and TIF awards.

Our testimony on the importance of TIF reform at the state level.

A commentary on the risk of TIF for Columbia.

Finally, a study on how exactly TIF works in Missouri and elsewhere.

What Would Daniel Boone (or His Sons) Think of TIF?

Posted on by David Stokes

A new tax-increment financing (TIF) package is being proposed to subsidize a new, 400-home development in Boonville. As best we can tell, there has only been one TIF previously in Boonville, and it was relatively small. So the people of Boonville may understandably have questions about TIF The pro-developer propaganda being promulgated about town by some doesn’t help clarify matters.

Therefore, we understand if many people in Boonville feel a bit like Daniel Boone himself when he said: “I have never been lost, but I will admit to being confused for several weeks.”

TIF, like other tax incentive and subsidy plans, is at its most basic point just corporate welfare. Why this development would deserve special tax breaks that other businesses, residents, and developments in Boonville don’t get is beyond us. But that is for the city council of Boonville to decide, not us.

Perhaps more importantly, TIF has failed throughout Missouri. Other parts of Missouri have used it extensively; it has not led to economic or population growth. You can’t spend yourself rich and you can’t subsidize your way to growth.

We will have much more to come on this over the next several weeks. For now, if you are interested in this issue, please check out just some of the substantial work we have done on TIF here at the Show-Me Institute:

Our study on whether TIF has worked for economic growth in Missouri (hint: it hasn’t).

Our essay on the connections between political donations and TIF awards.

Our testimony on the importance of TIF reform at the state level.

A commentary on the risk of TIF for Columbia.

Finally, a study on how exactly TIF works in Missouri and elsewhere.

There is much more on our website about this issue, and much more to come from us over the next several weeks (during which I’m sure the developers will tell us we are just as confused as Daniel Boone.)

A New “License Compact”? Why?

Posted on by Patrick Ishmael

Last year, the Missouri Legislature passed a watershed law that established one of the first true interstate license reciprocity reforms in the country. Missouri’s law recognizes out-of-state licenses for a host of jobs to make it easier not only for trained professionals to offer services in the state, but to ensure Missourians have a robust supply of workers to meet their needs. Now for most licensed professions, Missouri consumers have practical access to workers who could be licensed (and in good standing) in any of the 50 states, not just Missouri.

It’s why I don’t quite understand the logic of a handful of proposals being floated in the legislature this year that would adopt “compact” licensing legislation for doctors. A compact is an agreement between and among states that facilitates cooperation on a given issue and is often overseen by a third-party regulatory group. For instance, the Interstate Medical Licensure Compact (IMLC)—launched by the Federation of State Medical Boards to oversee interstate physician licensing—has been adopted in about half the states in the union.

If a state has no license reciprocity statute at all, it might make sense to join a compact. After all, access to two states’ resources is greater than access to one, and in the case of the IMLC, about half of the states is certainly greater than one state alone.

But if you’ve already opened the door to your residents accessing doctors from all FIFTY states, what incentive is there exactly for a state like Missouri to delegate any authority to an association of other states’ medical boards?

We touched on the idea of medical compacts in our 2016 paper on health care licensure reform “Demand Supply: Why Licensing Reform Matters to Improving American Health Care,” and we noted our concern about reinforcing a licensing system that is overly fixated on protecting the prerogatives of state-based medical boards. As Cato Institute adjunct scholar Shirley Svorny wrote about a similar proposal in Mississippi in 2016:

The [IMLC] compact may seem like a positive step to those who don’t have the time to look at it very closely. Surely, respected representatives of physician groups and the Federation of State Medical Boards will encourage Mississippi legislators to adopt the model legislation and join the compact. These groups are overselling the contribution the compact can make to improving access to telemedicine because they do not want federal licensing. (At the same time, the Mississippi State Board of Medical Licensure is seeking to squash private telemedicine providers, thus diminishing health care access even further.) [Emphasis mine]

Therein lies the issue. Compacts like the IMLC market that it makes it easier for doctors to go through the arduous process of licensing in multiple states, but the point of interstate license reciprocity is that it shouldn’t be an arduous process to begin with, and barely a “process” at all for doctors already licensed and in good standing in their home states. Throw in the self-interest of the Federation of State Medical Boards of establishing its own national umbrella organization to protect its turf from federal regulation, and you have all the reason in the world to question why Missouri would adopt the IMLC at all.

The future of licensure is fewer licenses, and to the extent a proposal works in the opposite direction and supports the status quo, policymakers and the public should be highly skeptical of whether such proposals are more useful to the public—or whether they’re more useful to the interest groups that would control the proposed system.

Tax Incentive Reform Getting a Fresh Look from Legislators, Too

Posted on by Patrick Ishmael

My colleague David Stokes wrote recently in the The Star about Kansas City’s pivot toward local incentive reform, a move that the Institute has called for over a decade. Specifically, the city ordinance considered by the Kansas City Council:

. . . would tighten limits on the amount of tax subsidies included in the many types of economic development incentives used by Kansas City. The proposal would cap the maximum subsidy at 70 percent of the tax otherwise owed. This would guarantee that, at a minimum, the person or entity who received the incentive would pay at least 30 percent of their taxes

As David often reiterates, there are many reforms that cities across the state could and should implement to rein in their tax incentive programs, which divert money from critical public services. Indeed, tax incentives help to create the illusion that there “isn’t enough” tax revenue for government services, perversely (albeit quietly) acting as a pretense for even more tax incentives and, eventually, tax increases on the taxpayers left holding the bag.

Getting a handle on tax incentives is as much a good governance issue as it is a tax issue, and eventually Kansas City’s reforms will need to go further in limiting how tax incentives are used if city services are going to be provided reliably and equitably. With that in mind, like any journey, the journey toward tax incentive reform must start with a step, and this is as good a step as any with which to lead.

If we’re lucky, Kansas City won’t be taking that journey alone this year. Several Missouri legislators have already filed bills that would address issues in a variety of tax incentive programs, including state tax credits that, for decades, have drained state coffers to the tune of hundreds of millions of dollars annually. There’s also renewed interest in getting a handle on the statutory definition of “blight.” Liberal definitions of what falls under the definition of blight can open the door to millions of dollars of taxpayer support for private development projects. Suffice it to say, it’s madness to consider a gated parking lot in a ritzy part of town “blighted,” but that’s a common story in the tale of tax incentive excess across the state.

But unlike incentives, talk is cheap. While the appetite for tax incentive reform does seem to grow stronger every year, we have yet to see substantial reform at either the state or local levels of government. Here’s to hoping these proposals are just the appetizer for a much larger reform meal; taxpayers are certainly hungry for it.

How Transportation Public–Private Partnerships Can Benefit Missourians

Posted on by Jakob Puckett

Interstate 70 and several important Missouri roads need to be replaced soon but the Missouri Department of Transportation claims it lacks the money to do so. Using public–private partnerships (P3s) to operate toll roads can help the state finance road repairs.

With fuel tax revenue in a years-long stagnation and transportation revenues uncertain in the COVID-19 work-from-home era, P3s can be useful for funding big transportation projects. P3s are arrangements between a government agency and a private company to partner on a project’s financing, construction, and operation, typically through a long-term agreement. A big advantage of P3s is that investors can finance large projects upfront, rather than waiting for state transportation budgets to get back to normal.

P3s have other benefits. Because a company is responsible for road maintenance for, say, 30 years, it has an incentive to minimize costs over the long run. In contrast, state governments often have an incentive to minimize initial payments or upfront costs in order to make tax hikes or bonds more politically palatable.

Many states have turned to P3s to finance and operate road infrastructure improvements.

Toll road P3s shift the risk of generating enough revenue from the state government to the private sector. Moreover, by relying on tolls rather than existing state revenue sources, toll road P3s open up a new funding stream for road improvements and maintenance. P3s enable the private sector to offer toll-financed solutions where there isn’t a tolling agency or the political will to establish one.

P3s also avoid adding new state debt or liabilities. The toll road company is on the hook for future maintenance obligations, and the state can terminate the contract if the company does not hold up its end of the bargain.

The benefits of using P3s for toll-financed road improvements should prompt Missouri policymakers to reexamine Missouri’s P3 laws. Currently, P3s can be used for a range of infrastructure projects, but not toll roads. Several bills have been introduced in recent years that would change this, but none have passed. Perhaps falling fuel tax revenues and uncertain transportation budgets will encourage policymakers to reconsider.

Local Government Transparency Bill Gets Resounding 149-2 Vote in the House

Posted on by Patrick Ishmael

If local governments can take your money, they should tell you how they’re spending it. And if they can’t or won’t? Well, that’s a problem, and it looks like the legislature might agree—and in a big way.

In a near-unanimous vote, the Missouri House of Representatives passed legislation that would establish the Missouri Local Government Expenditure Database. The move rebuffed attempts by local officials to halt the bill’s progress and sends the proposal to the Senate. As the St. Louis Post-Dispatch describes it:

The legislation sponsored by House Speaker Pro Tem John Wiemann, R-O’Fallon, is designed to boost transparency in local government. It would allow municipalities to post the information voluntarily, but also would give residents the ability to petition for the creation of a local database if local leaders are reluctant to participate.

The proposal advanced to the Senate on a 149-2 vote. The measure mirrors a similar bill that won House approval last year, but was not taken up in the Senate during the pandemic-shortened 2020 session.

The proposal would establish the Missouri Local Government Expenditure Database, to be maintained by the Missouri Office of Administration. It would go into effect in 2023 and would include information about a municipality’s or county’s expenditures and the vendors to whom payments were made.

As major proponents of transparency initiatives like this, I am obviously elated at the progress the bill has made relatively early in the session, and while I wish it went further by making reporting mandatory for all local governments, it’s a step in the right direction. I’ll be watching this bill closely and will keep you posted on its progress.

Support Us

The work of the Show-Me Institute would not be possible without the generous support of people who are inspired by the vision of liberty and free enterprise. We hope you will join our efforts and become a Show-Me Institute sponsor.

Donate
Man on Horse Charging