On October 11, National Review Institute Senior Fellow David French was at Washington University in Saint Louis to deliver a lecture titled “War of Words: Free Speech versus Tyranny on Campus.” French discussed the growing threat to First-Amendment rights that is currently most visible on university campuses, but is spreading to all corners of public life.
One More Lap around the Ice Rink
As our readers might remember, the Chesterfield Hockey Association (CHA) wants to raise $7 million from the Chesterfield Valley Transportation Development District (CVTDD) to help fund the construction costs of its proposed new ice rink. Researchers at the Show-Me Institute have rejected the arguments of proponents of this and similar initiatives, but as the project has now been presented to residents of the CVTDD for consideration, I’d like to reiterate some facts about transportation development districts (TDD) in general, and the CVTDD specifically.
First, if the district is extended, the district and its taxes can continue up to an additional 15 years beyond its originally scheduled termination. Put more simply, that means up to 15 more years of collecting taxes that would not otherwise have been levied. To say that’s not a new tax is like a bank adding over a decade’s worth of payments to your home mortgage and telling you there’s nothing to worry about because the payments aren’t “new.”
Second, TDDs were meant to raise funds for critical infrastructure projects; what they actually raise funds for is often anything but that. A recent report by the Missouri State Auditor exposed TDDs in Missouri as routinely “engaging in questionable practices with little oversight or transparency.” One example has been the CVTDD itself, which used over $500,000 taxpayer dollars to construct a “beautification wall”—a project whose questionable use of tax dollars has been documented before.
Third, the ballot initiative language for extending the CVTDD is hardly reassuring to those interested in good government. The language provides an extensive laundry list of items that revenue from the CVTDD may be used to fund. While a casual reader might assume the list is exhaustive, such an assumption would be incorrect. The list of permissible expenses is preceded with the words, “including without limitation.” The scope of spending could exceed even the problematic spending priorities that are explicitly spelled out to voters. The items articulated on the ballot aren’t limits; they’re examples.
Fourth, if this ballot initiative passes, then anyone who shops in the CVTDD—not only the well-to-do, but also single mothers, poor families, and those of meager means—will be subsidizing the recreation of the CHA through the sales tax that they pay at Walmart and other stores in the district.
Setting aside the deficiencies of the ballot language and even assuming that taxpayers’ money is efficiently used within the explicit scope of the project, the proposal itself remains troubling. It would commit an entire community, through the vote of only a few, to subsidizing significant amenities for members of a narrowly tailored special interest organization—not to mention that there has been no showing of need that cannot be met without a tax that is inherently regressive. That a private group may end up with a public windfall, thanks to the state’s broken TDD laws, should bother us all.
Are Kansas City and Saint Louis Getting Taken?
The deadline for submissions to Amazon to host their new headquarters building has come and gone, and both Kansas City and Saint Louis tendered proposals. Unfortunately, neither city is releasing its proposal to the public, citing a non-disclosure agreement with Amazon.
The Kansas City Star editorial board has been critical of the secrecy, noting in an October 6 column that the agreement is
aimed at keeping a lid on Amazon’s proprietary information — not the cities’ best arguments about why they would be perfect for HQ2. Other contender cities that are playing by the same Amazon-imposed rules have managed to make more information public.
The state of Missouri, without favoring either Kansas City or Saint Louis, issued what can best be called a brochure for doing business in the Cave State. (It’s been called a proposal, but that is a generous description of the 13-page slide show.)
Until we know the details, we’ll just have to sit and wait to see what commitments municipal leaders have made on behalf of taxpayers. If the past is any indication, they will include generous taxpayer subsidies in the form of abatements, tax credits, and tax-exempt freebies wherever possible. Philadelphia is offering ten years of property tax abatement. New Jersey’s bid included $7 billion in tax incentives.
The question for taxpayers will be whether the benefit is worth the investment. Research suggests this is rarely the case. One economist from Mizzou, Saku Aura, put it bluntly:
As a Missouri taxpayer, I really hope Amazon doesn’t come here. The place that most grossly overestimates the benefits from a large company moving is going to be the one who’s going to get it. If they choose to come to Missouri, to me that would almost imply that we ended up being the biggest sucker among the 50 states.
Is Missouri being played for a sucker? Richard Florida, an urban studies theorist focusing on social and economic theory seems to think so. According to the St. Louis Post-Dispatch, Florida said, “the cities I talked (to) all know they are being taken and resent it.” Among those cities would be Kansas City, as Florida was a paid consultant to its effort
Show-Me Forum: David Steelman Discusses Mizzou Two Years after the 2015 Protests
David Steelman discusses the fate of Missouri’s flagship state university two years after the disruptive protests of 2015.
Is the Fate of Kansas City’s Airport Terminal In Its Star?
On October 8, The Kansas City Star editorial board urged readers to vote for a new airport terminal in the November 7 election. It wrote:
To us, one of the main selling points of the proposed new terminal is the expectation that airlines would add more direct flights out of here, and maybe even some international flights.
Two days later, Star reporter Steve Vockrodt authored a piece that made clear there was no guarantee of new flights should voters approve a new terminal. Vockrodt clarified:
A new terminal, by itself, won’t lead to more direct flights to more destinations.
“That’s probably fair,” said Steve Sisneros, senior director of airport affairs for Southwest Airlines, the dominant airline flying in and out of KCI.
The editorial board did eventually correct their error, stating on October 15 that, “There are no guarantees that more flights will be added by the airlines if voters agree to construct a new single terminal.” The next day, Vockrodt caught pro-terminal mailers making the same mistake.
In that October 15, the Star editorial board again endorsed a new terminal vote, but seems to have made a second error, stating that, “if nothing is done, the number of flights out of KCI will continue to dwindle.”
Dwindle? According to the Aviation Department’s own statistics, enplaned passengers (those boarding an airplane) are up 4.5% over last year. Likewise, air carrier operations showed an increase in flights of 5%. Southwest Airlines—the biggest carrier at MCI—saw an increase of enplaned passengers of 5.6% over last year. Passengers and flights are increasing, not dwindling.
Two emails obtained by the Show-Me Institute (see links at the bottom of this post) and sent by Mark Nevins of the Dover Strategy Group—the company running the yes vote campaign on the airport—indicate that members of the Star editorial board are apparently committed to supporting the effort with regular editorials. In an October 8 email, Nevins links to a supportive op-ed and writes that single-terminal backers “can expect to see more of these kinds of generally supportive editorials in the weeks ahead.” Then in an October 15 email Nevins reiterates that the Star “will continue to publish editorials supportive [sic] Question 1 on a regular basis through Nov 7.” I hope the editorial board is not simply working as a mouthpiece for the yes campaign. Of course, that could explain why the latter’s misleading claim about increasing the number of direct flights also appeared in a Star editorial. It might also explain why the Star is running editorials pushing the new terminal regularly—so as to make them more a part of the campaign than an expression of editorial board views.
This same editorial board has decried the airport bidding process as “marked by distrust, misinformation, unnecessary secrecy and conflict.” It would be a shame to learn that in its zeal to promote a single terminal, the Star editorial board has contributed to the very atmosphere of distrust that it decries by helping spread misinformation about the airport.
Subsidies Are Cleared for Takeoff as Wow Air Comes to Saint Louis
In August, many Saint Louisans (myself included) were excited to hear that Iceland’s budget airline Wow Air will begin operating flights to and from Lambert Airport next May. By chance, I happened to be in Europe and had recently flown with Wow Airlines when the news was announced. While I was initially thrilled by the thought of low-cost, transatlantic flights emanating from Saint Louis, it turns out that there was more to the story than initially met the eye.
Wow’s expansion into St. Louis could be more of a curse than a blessing because of the cost to the city’s tax base from taxpayer-funded subsidies. The largest of these will come from the Saint Louis County Port Authority, which will provide $600,000 to advertise Wow’s services over the next two years. However, the fun doesn’t stop there; Lambert Airport (a public entity) will contribute another $200,000, and Wow’s landing fees will be waived for 18 months (a subsidy of nearly $400,000).
Unfortunately, corporate welfare seems to have become standard operating procedure for cities, usually to their own detriment. And while the example of Wow Airlines is not the most dramatic, it does show the pervasiveness of corporate welfare in Missouri. It’s great that a European airline wants to enter the Saint Louis market, but should taxpayers really be subsidizing their neighbors’ travel expenses?
Beware the Perils of Corporate Welfare: An Open Letter to Jeff Bezos
Amazon is amazing. Just amazing.
In just 20 years as a public company, it has experienced a thousand-fold growth in sales – going from $148 million in 1997 to $138 billion in 2016 and a projected $160 billion in the current year. Adjusted for splits, the price of the stock has gone up 200-fold – from a high of $5 a share in 1997 to $1004 a share today.
To paraphrase the bard, Amazon doth bestride the narrow world of retailing like a colossus. Others quake at its every movement. Back in June, when the company announced the acquisition of Whole Foods, the stocks of other grocery chains plummeted – with Kroger falling 26 percent in the two days following the announcement and SuperValu down 16 percent. Wal-Mart fell 5 percent. Within days, Amazon’s market cap went up nearly as much as the $13.7 billion it agreed to pay for Whole Foods.
In many years of writing about business and economics, I can think of no other enterprise that has come so far so fast. Even so, waxing biblical in your 2016 letter to shareholders, you said it is still “Day 1” (the first day of creation) in the company’s evolution. When someone asked you at a recent “all-hands meeting” what Day 2 would look like, you answered:
Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.
Your words prompt me to warn you that Day 2 may be approaching much more quickly than you think. Surely you don’t want to turn Amazon into a subsidy junkie. If that happens, Day 1 will turn into Day 2 in the blink of an eye.
Right now, cities and states across the country are competing with one another to throw big money – taxpayer money – at Amazon in the hope of being chosen as the site for Amazon’s proposed second headquarters. With one hand, you dangle the promise of up to 50,000 jobs paying an annual average of more than $100,000 per employee. With the other, you rattle a tin cup, stating in your request for proposals:
Incentives offered by the state/province and local communities to offset the initial capital outlay and ongoing operational cost will be significant factors in the decision-making process . . . . Outline the type of incentive (i.e., land, site preparation, tax credits/exemptions, relocation grants, utility incentives/grants, permitting, and fee reductions) and the amount. The initial cost and ongoing cost of doing business are critical decision drivers (emphasis added).
A few years ago, Boeing Commercial Airplanes, your cross-town neighbor in Seattle, initiated a similar nationwide bidding war for production of its latest big new wide-body – the 777X. In the end, Boeing decided to keep production at its massive facility in Everett, Washington – but only after winning nearly $9 billion in tax breaks and subsidies from the state legislature. That worked out to more than $1 million per promised job, or about $50,000 per year per job over a 20-year period (the tax breaks do run out eventually).
Maybe that sounds great to you. From your perspective, it may seem like the equivalent of having local and state governments pick up half of the anticipated HQ 2 payroll for a long time.
But think of the downside of making Amazon and its people deeply dependent upon corporate welfare. Think of the gross unfairness of huge tax carve-outs for Amazon that are denied to other smaller businesses (which have to pay for their initial costs and ongoing costs out of their own hard-earned dollars). How do you want your company and its people to succeed – by winning in the marketplace . . . or by securing a fatter portion of government largesse?
Last but not least, think of the hypocrisy of preaching a gospel of “obsessive customer focus” as the key to maintaining “Day 1 vitality,” while gouging money out of taxpayers. According to Consumer Intelligence Research Partners, there are now about 85 million Amazon Prime members – that’s 68 percent of all U.S. households! As Amazon becomes increasingly ubiquitous, most of every dollar that Amazon takes out of taxpayer pockets will be money stolen (or lifted) from its own customers.
As one of your customers told me, “I am never in favor of using my tax money to build someone else’s business so that it can sell products to me and profit off me a second time.”
Like Google, Amazon Wants Good Government over Gimmickry
The imaginations of municipal governments across the country have been captured by the prospect of being chosen as the location of Amazon’s second headquarters. The project promises 50,000 jobs and an overall investment of $5 billion. How likely is Kansas City to win?
While the details of Kansas City’s pitch remain predictably secret, other cities have made offerings, both substantive and gimmicky. Tucson, Arizona, tried to send Amazon CEO Jeff Bezos a 21-foot cactus. Stonecrest, Georgia, recently offered to name part of the town Amazon if chosen.
Not to be outdone, Kansas City Mayor Sly James took to the internet in a “desperate” attempt to get attention by spamming Amazon’s website with hundreds of fake product reviews each extolling the town.
This is all reminiscent of Google’s contest to choose the first city to host their Google Fiber service back in 2010. Like Stonecrest, for example, Topeka, Kansas, actually did change its name to Google. In the end, Google Fiber selected Kansas City, Kansas—our neighbor to the west—to offer its service. In doing so, they told The Kansas City Star, “We wanted to find a location where we could build quickly and efficiently. Kansas City [Kansas] has great infrastructure and Kansas has a great business-friendly environment for us to deploy a service in.”
Similarly, Amazon’s request for proposals includes that Amazon has a preference for “A stable and business-friendly environment.” While Kansas City is genuinely world class, our government is definitely not business-friendly. Property taxes and sales taxes are high, and on top of that the city charges a 1 percent earnings tax. The head of the Economic Development Council said that the city uses tax subsidies to mask the full impact of Kansas City’s regulations. Let’s not forget an unaccredited school district and a years-long spike in the homicide rate. Even one of the prominent consultants working on our Amazon bid, Richard Florida, does not include Kansas City on his list of top-five prospects.
Regardless of the outcome of this process, Kansas City must do a better job demonstrating it is a good place to locate a business. Government must be small and responsible, taxes low, and services efficient. That is not the city we are now, and gimmickry will not get us there.
Patrick Tuohey on KCPT Ruckus discusses the possibility of moving Kansas City Royals to a downtown stadium. Is that a good idea?
Patrick Tuohey on KCPT Ruckus discusses the potential for moving Kauffman Stadium downtown and other local and state issues.
