On Thursday, July 6, the Show-Me Institute’s Patrick Tuohey joined KCPT’s Ruckus to discuss the Kansas City Star‘s endorsement of a new airport, Kansas Secretary of State Kobach’s efforts to collect voter records and information, and other state and local issues.
Saint Louis, the Sales Tax Monster
As Cookie Monster is to cookies, Saint Louis is to sales taxes.
Back in April, voters in the City of Saint Louis approved a half-cent “economic development” sales tax hike. The increase, which brings the city’s base sales tax rate to 9.179%, is slated to fund a north–south MetroLink expansion, public safety, workforce development, and other programs. It also makes Saint Louis home to one of the highest sales taxes in the nation. In fact, Saint Louis now has a higher sales tax than New York City and San Francisco.
But policymakers aren’t finished yet.
There are two new sales tax proposals coming down the pipeline. One would raise sales taxes by one-eighth of one percent (0.125%) to help fund infrastructure improvements and conservation efforts at the Saint Louis Zoo, which is already funded with tax dollars. The other would raise the rate by one-half of one percent (0.5%) to bolster public safety spending. If both hikes were approved, the base sales tax rate in the city would be 9.804%, the 6th-highest in the nation. In areas with overlapping special taxing districts (of which there are dozens in the city), the rate would be nearly 12%.
There is neither a formula to determine the proper sales tax rate, nor a proven sales tax “ceiling,” but policymakers should carefully consider the implications of these proposals and whether there are alternatives to raising taxes.
For instance, if these sales taxes are approved, will voters have an appetite for other, more pressing proposals? That is, will these proposals exhaust Saint Louis’s sales-tax capacity? Also, will the proposed hikes disproportionately affect the poor? Is it fair for the city’s poor to subsidize the zoo for visitors from surrounding counties? Moreover, are sales taxes an appropriate source of funding for public safety? Police and firefighters are essentially security guards for taxpayers’ persons and property, so shouldn’t they be paid from property taxes?
Sales taxes can generate significant revenue and are easy to collect, but that doesn’t mean rates should be hiked every time a public need comes around. Perhaps if officials weren’t so eager to hand out taxpayer dollars for corporate welfare, Saint Louis wouldn’t need such high taxes for basic services. So, before asking taxpayers for more, perhaps city officials can reflect and ask themselves, “Can we do more with what we’ve already got?”
Stadium Subsidies: Not Just for the Big Leagues Anymore
Show-Me Institute analysts have opposed spending taxpayer money on sports stadiums in Kansas City, Saint Louis, or anywhere. These subsidies are usually targeted for major league teams that are privately owned and wildly profitable. But in a cautionary tale for Missouri, across the border in cash-strapped Kansas, the Unified Government of Wyandotte County and Kansas City, Kansas (UG) is spending taxpayer dollars to prop up a failing semi-professional baseball team, the T-Bones, in a struggling independent league.
According to the Wyandotte Daily, the T-Bones aren’t faring well lately.
Jon Stephens, UG interim director of economic development, said the direct and indirect economic impact of the T-Bones is $4.2 million a year. However, attendance at the T-Bones games has declined in recent years.
“We view it as an integral part of the Village West development, as part of the No. 1 tourist attraction in the state of Kansas,” Stephens said.
Stephens’ remarks are odd. The team is seen as integral and successful by government officials, but apparently not by sports fans, whose attendance is declining—down 25% since 2010. Also, the team has failed to pay its utility bills and owes $314,000 for electricity and water. Jeff Bryant, vice president of the Board of Public Utilities, which denied the T-Bones’ request to simply waive $172,000 of their utility bill debt, testified against the UG action:
“We enjoy the baseball game,” he said. “Like any other business, it needs to stand on its own.”
He doubted if the UG would help out many other businesses that may be having trouble.
The new agreement shows the UG is paying 55 percent of the utility bill. “The UG is not paying 55 percent, the residents of Wyandotte County are paying 55 percent,” he said.
Taxes already are high, and this helps support a for-profit business, he said.
“I don’t believe that is fair to all the citizens of our county,” Bryant said. Many license plates in their parking lot are not from Wyandotte County; therefore, Wyandotte County is subsidizing the entertainment for other counties, he added.
Unfortunately, this is not the first time government has stepped in to help. Back in 2013, the UG gave the team $174,000 so they could pay their mortgage. The same year the UG purchased the ballpark itself of $8 million. (Note that in 2013 the team was said to generate $5.5 million per year for the local economy; now the number is $4.2 million.) But the franchise is still failing.
Subsidies for sports teams are a bad idea even in good times—but using taxpayer funds to subsidize and then purchase a failing sports team is even worse.
Policy, Not Politics, Should Drive Airport Decision
A few weeks ago, when engineering firm Burns & McDonnell announced its proposal to finance and build a new billion dollar single terminal at the Kansas City International Airport, it was doing so alone. But on Friday the firm announced the addition of, “Some of the most recognized Kansas City firms in architectural design for airport terminals and aviation facilities” to their team. Why?
When the original story broke on May 11, we learned that Burns & Mac has offered their own airport solution:
One key to the proposal for Burns & McDonnell is that it would get an exclusive arrangement with the city to provide the design and come up with a guaranteed maximum price.
Other firms would not have access to make their own offer, nor would the city request bids. James said the city would waive bidding requirements in accepting this plan and that it is legal for the city to do that.
That last part was called into question and the city rescinded the plan shortly thereafter. But Burns & Mac remained the sole provider and they were strident in going it alone. The CEO of architectural firm BNIM was caught off-guard and wondered why they—and other Kansas City firms—were not included. This could not have been mere oversight; we’re told that Burns & Mac developed the plan over several months with 25 employees working on the project full time. Perhaps they thought at the time that their long-standing relationship with the Mayor was all they needed.
That changed quickly. The no-bid contract fell apart, as did the poorly considered right-of-first refusal option, along with the short window for considering proposals. Now that the deadline has been extended and other international companies are considering making proposals, Burns & Mac is teaming up with those KC firms they once thought unnecessary. Previously, Burns & Mac added general contractors JE Dunn and McCownGordon to their team. At the same time, the firm is publicizing data from a poll they themselves commissioned, raising concerns that I described in a previous post.
The question for Council members and voters ought to be: Does any of this yield a better, more cost-effective product for the people of Kansas City? The companies involved should not drive the decision-making. After all, if Burns & Mac didn’t think they needed BNIM et al. before, why do they think they need them now?
After the Supreme Court Decision, What’s Next for School Choice?
With the U.S. Supreme Court’s decision in Trinity Lutheran v. Comer, there’s reason to be optimistic about school choice; however, another Supreme Court case is probably needed to advance educational opportunity.
New Study Documents (Again) the Harmful Effects of Raising Minimum Wages
The results are in, and they are hardly surprising: A new study has found that the increase in Seattle’s minimum wage has had detrimental effects on exactly those groups such market interventions are supposed to help. This result should give pause to other cities that are considering such a pestilential policy path.
Some background: In January 2014 the Mayor of Seattle formed an advisory committee charged with raising the city’s minimum wage. After deliberation, the committee’s plan was forwarded by the Mayor to the Seattle City Council, which approved the proposed changes. The minimum wage thus far has been increased in two phases: from $9.47/hour to as much as $11/hour on April 1, 2015, and from that level to as much as $13/hour on January 1, 2016. Future increases are on tap to eventually increase it to $15/hour.
To evaluate the impact of the minimum wage hike, the city contracted with researchers at the University of Washington’s Evans School of Public Policy & Governance, who used this policy change to test for three effects:
- Do such wage increases affect the number of low-wage jobs?
- Do workers in low-wage jobs face cut backs in hours worked?
- Do workers in low-wage jobs suffer reductions in total earnings?
Using data from across the state, the researchers formed a control or comparison group to which changes in employment conditions in Seattle could be compared. Their control group covered all low-wage jobs—not just jobs in one or two industries (such as the restaurant sector), as is sometimes the case in such studies. So what did they find?
The UW study, which is available here, finds that the first increase, from $9.47 to $11, had relatively minor effects on low-wage job employees. There were small reductions in jobs available, and little change in the total payroll for low-wage jobs.
After the minimum wage was increased to $13/hour, however, things changed for the worse for existing low-wage workers in Seattle. While hourly wages rose slightly, many low-wage employees suffered a sizable reduction (9 percent, on average) in hours worked under the higher minimum wage. The study also found this wage hike reduced overall payroll for low-wage jobs. Following the 2016 increase in the minimum wage, the annual total payroll for low-wage jobs in Seattle declined by over $100 million. This amounts to about a $125 reduction per month for the average low-wage worker.
The loss of earnings among Seattle’s low-wage workers reflects one of the more nefarious (though usually ignored by politicians) aspects of raising minimum wages: Even though hourly wages rise, the decline in hours worked and/or jobs available can lead to a reduction in the total income of those on the lowest rung of the employment ladder. That outcome, which will only get worse as additional increases occur, is just another flaw in what really amounts to a misdirected welfare program.
Kansas City’s Economic Diversion
City leaders are still pointing to Kansas City’s downtown as an economic development success story. Taxpayers lose millions each year in subsidies for corporate headquarters, luxury apartment buildings, entertainment districts, and other projects. But is all of this spending working?
The research, if you care about research, says the spending is wasteful. Previous studies in Saint Louis and Kansas City say the same thing. And studies of other cities like Chicago and Indiana, and of the country as a whole, likewise cast doubt on the value of these development subsidies.
As we have written previously, the H&R Block headquarters building downtown, one of the first in the downtown spending spree of the Mayor Barnes administration, has failed to create jobs. At best, the company merely moved jobs that existed from elsewhere in Kansas City to this new location; no new jobs were created.
Consider one of the poster children for streetcar-created economic development, Centric. The company moved two blocks, but it is somehow considered by the city to have created jobs and economic development. It did not create anything; it merely moved locations.
And here is perhaps the most damning evidence: despite all the spending, the economic growth of Kansas City due to downtown subsidies is a myth. We all know that the Power & Light District is the result of taxpayer subsidies—that is undeniable. Where before downtown was decrepit and abandoned, now it appears new and vibrant. But has any new economic development taken place? Has society or the average Kansas City family grown more prosperous because of these subsidies?
According to the Regulated Industries Division of Kansas City, Missouri, the number of liquor licenses (a gauge of how many restaurants and bars are operating) and employee health cards (a proxy for the number of people employed at bars and in food service) has remained flat since before subsidies were awarded. So while there may be more economic activity in the downtown area, citywide there has been no growth. Our subsidies haven’t created anything—they’ve just diverted activity from elsewhere in the city to downtown.
This shouldn’t come as a surprise. Imagine a new shopping center is built right near your home. There are a few stores and restaurants you’ve never been to, as well as a few outlets familiar to you. If you shop at this new location, you won’t continue to spend the same amount at the previous locations. The new stores haven’t caused you to spend more, they just cause you to spend differently. Yet the politicians in your neighborhood point to the new buildings as evidence of economic growth.
In the smaller incorporated cities in Johnson County, Kansas, this tactic might actually work at a very local level. A store that was generating sales tax income for Prairie Village could be lured to Shawnee with subsidies. That might be a win for Shawnee, but regionally it’s a wash, if not a total waste of public capital. (Writ large, this is the story with the Kansas-Missouri border war—lots of subsidies spent by both side with no real regional growth.) But in a large metropolitan area like Kansas City, there is no benefit. Citywide, there has been no growth in the number of bars, liquor stores or waiters and bartenders as a result of the Power & Light District. We’ve just diverted the economic activity downtown.
Policymakers are free to argue that diverting economic activity from elsewhere in Kansas City to the downtown area is good policy. That would be a welcome policy debate worthy of consideration. But supporting policies that merely move activity around and then pretending something new has been created is not only disingenuous, it is unsustainable.
Crosby Kemper III Discusses Kansas City’s Convention Hotel on KCPT’s Ruckus
The Show-Me Institute’s Chairman Crosby Kemper III appeared on KCPT’s Ruckus on Thursday, June 29, to discuss Kansas City’s convention hotel as well as other local and state issues. Click above to watch the entire show.
Real Incentive Reforms for Saint Louis
Economic development incentives like tax increment financing (TIF) and tax abatement have been grossly misused in Missouri’s two major cities for decades. The City of Saint Louis has, from 2000 to 2014, given away more than 700 million in taxpayer dollars through these corporate welfare programs. Facing mounting public pressure and decades of research indicating these programs have “no real economic development impact,” officials are considering reforms to Saint Louis’s incentive policies. This is very welcome news.
Unfortunately, many of the reforms proposed by officials (which local activist and TIF critic Glenn Burleigh rightly notes are nonbinding) are unlikely to have much effect on the use of incentives or their detrimental effects. Two reforms—the reduction in the percentage of projects’ costs and the shortening of the terms of TIFs and abatements in economically better-off parts of the city—sound like significant steps in the right direction. However, similar reforms enacted in Kansas City last year have proved ineffective.
So, what reforms could genuinely curb incentive abuse? The surest and most effective reform is repeal—the legislature should completely eliminate these misguided programs from state law. California, the state that created TIF, repealed TIF nearly a decade ago.
But, short of repeal, what can be done? Here, and in a series of blogs in the coming weeks, I’ll discuss a cabinet of reforms policymakers should consider to make real progress in reforming incentives. Some policies will be austere, others more mild, but all, I believe, will offer creative and meaningful alternatives to Saint Louis’s misguided incentive policies.
1. Adopt an Incentive Budget
I live on a budget. You live on a budget. Policymakers in City Hall pass and ‘live’ on a budget. If we can do it, so can economic development agencies, developers, and their investors.
Policymakers could adopt a hard cap regarding how much they award annually through TIF and abatement. Think of this as an “Incentive Budget.” Just as the City budgets a certain amount for a program or service, it would allocate a certain dollar amount for TIF and abatement. The only difference would be that City officials couldn’t go beyond a certain amount—say $50 million annually. (For context, the TIF Commission awarded nearly $51 million in TIF subsidies in a single meeting earlier this year.) Many state tax credit programs have annual or cumulative caps like this.
This reform has several strengths. For one, it strictly limits how much revenue the city can give away. Policymakers have little political or financial incentive to tell developers “no,” but a strict cap could force them to do so. This could control the bleeding of city revenues and force development officials to think harder about which projects should get the limited number of subsidies available.
Second, it could help the City avoid budget gaps and manage future revenue losses. If policymakers and development officials are kept on a budget, the long-term financial impacts from incentive programs could be accounted for in advance. This would make the lives of folks in the Budget Division much easier, and help schools, libraries, and other jurisdictions deal with future lost revenue.
Urban planners, policymakers, and development officials may claim that such a reform would restrict their powers unduly, and show the world that Saint Louis is “closed for business.” (One might argue that the regulatory and tax environments are bigger problems than a scarcity of development subsidies, but those are topics for another day.) We have seen what happens without restrictions on the awarding of TIF, and it isn’t pretty. A hard cap may be the only way, short of repealing TIF and abatement, to stop the abuse. And if some game-changing project comes along that would bust the City’s incentive budget, place the decision-making power in the voters’ hands, like some state representatives have proposed. That way those affected by incentives—ordinary taxpayers receiving fewer and fewer city services—have more say in how they’re used.
An incentive budget is just one of many reforms that officials could explore. Others—about which I’ll be writing soon—include:
- Eliminating TIF and abatement for projects that already receive other state/local incentives: Prevent a single project from receiving every incentive on the books.
- Tying incentives to land uses: Ensure that incentives go to projects with real public benefits.
- Form a City-County incentive pact: Stop the race to the bottom.
