Economic Development Policies Still Failing

Posted on by Patrick Tuohey

Steve Rose may not care what the research tells us, but the research is mounting. Studies by UNC-Chapel Hill, the St. Louis Development Corporation and now the Upjohn Institute for Employment Research all confirm that economic development subsidies just don’t work.

Using data from 47 cities in 33 states over the course of 26 years (1990 to 2015) the Upjohn study confirmed what Show-Me Institute analysts have been arguing for years: economic development incentives do not grow the economy, create jobs, or boost tax revenue. In his 2017 paper, Upjohn author Tim Bartik concludes (page 116),

The existing research on incentives is that in some cases they can affect business location decisions, but that in many cases they are excessively costly and may not have the promised effects. The new research suggests that much of this consensus is justified.

None of this will surprise frequent readers of this blog. Politicians may like attend ribbon-cuttings and crow about creating jobs, but little of this actually pans out. Instead, cities and states end up hollowing out their tax base, collecting ever less for important services such as public schools, libraries and mental health funds. Simply taxing money out of the economy and then turning around and spending it doesn’t grow the economic pie! The new study confirmed as much:

Incentives are still far too broadly provided to many firms that do not pay high wages, do not provide many jobs, and are unlikely to have research spinoffs. Too many incentives excessively sacrifice the long-term tax base of state and local economies. Too many incentives are refundable and without real budget limits.

The 33 states that Upjohn considered account for 92 percent of the U.S. gross domestic product, and the 45 industries it analyzed account for 91 percent of U.S. labor compensation. Kansas City has undertaken its own analysis, of sorts, of its economic development policies, but has hired a trade group of development financiers to do the work. Seriously.

Politicians and those aligned with wealthy developers may not like or care about the research—but it’s becoming increasingly difficult to wave it off and pretend it doesn’t exist.

U.S. Supreme Court to Weigh In on Playground Dispute

Posted on by Michael Q. McShane

Trinity Lutheran v. Comer is a court case with humble origins. It started with officials at Trinity Lutheran School in Columbia, Missouri, who wanted to replace the gravel surface of the school’s playground with something more forgiving. Accordingly, Trinity applied to a state-run program whereby organizations can be reimbursed for the purchase of recycled tires that can be used to make a softer playground surface. If you think this story sounds simple, think again. On April 19, the U.S. Supreme Court will hear arguments in a case that involves the separation of church and state as well as the ways in which the government and groups with a religious affiliation can cooperate for the public good. This surprisingly complicated and potentially far-reaching case is the topic of a new essay by Show-Me Institute Director of Education Policy Michael McShane, which you can read here. 

Attacking Charter Schools with “Alternative Facts”

Posted on by James V. Shuls

In a recent letter to the editor of the Joplin Globe, Caroline Tubbs, a public high school teacher, makes a series of inaccurate claims about charter schools. As someone who has studied the issue of school choice closely for many years, I suspect the statements from Tubbs are the product of the misinformation she and many others have received. As is often the case with thorny public policy issues, the debate around school choice is often clouded with what we might now call “fake news.”

For instance, Tubbs suggests charter schools in Missouri do not have to administer state tests. This is simply not true. Charters administer the same exams to students as the traditional public schools do. You can view exam data on the Missouri Department of Elementary and Secondary Education’s website. They show that 70 percent of students at City Garden Montessori in Saint Louis scored proficient or advanced on the third grade English Language Arts Assessment in 2014, while just 64.9 percent did so at Joplin’s highest-scoring elementary school, Kelsey Norman. If you look at all the data, you’ll see charter schools in Saint Louis and Kansas City outperforming many Joplin schools.

Of course, not all charter schools are models of success; but neither are all district schools. Contrary to the claim of Tubbs, however, we do have reliable data and the effectiveness of charter schools has been measured. A 2013 study by the Center for Research on Education Outcomes (CREDO) at Stanford University showed that Missouri charter school students learned significantly more than their peers in nearby public schools in both reading and math.

Tubbs’s letter also misrepresents how school funding for charter schools works. She states that charter school students will take funds away from the district schools, and that part is true. Anytime a student leaves a district, the district will lose money. If a student moves from Joplin to Carthage, the Joplin School District would lose the same amount of money. Tubbs then goes on to say, “However, that public school district must continue to maintain facilities (pay the utility bills, fix the plumbing) and provide support services (bus transportation) for the remaining students.” But she does not mention that all of the funds used for facilities, maintenance, and debt service remain in the school district. Charters do not have access to these funds.

Tubbs also states that “non-public charter schools are not required to take all applicants.” First off, there is no such thing as a “non-public charter school.” Charter schools are public schools. They are free and open to anyone who lives within the attendance boundaries. They must take all students who apply, unless they are oversubscribed. Then they must hold a lottery.

Tubbs’s letter is filled with inaccuracies that are constantly repeated as if they were true. It’s time to put a stop to arguing with these “alternative facts.” We can have a debate as to whether charter schools are right for Joplin, Missouri, or the rest of the state, but we should do it with the truth in mind.

The Supreme Court Can Put a Nail in the Anti-Catholic Coffin

Posted on by Michael Q. McShane

This week, the United States Supreme Court will hear a case out of our own backyard that wrestles with a vestige of our anti-Catholic past. In Trinity Lutheran v. Comer, the State of Missouri denied a Columbia preschool access to its scrap tire recycling program to resurface its playground because of Trinity’s religious affiliation. Missouri has a constitutional provision known as a “Blaine amendment,” which bars public “aid” to religious institutions.

James G. Blaine was the Speaker of the U.S. House of Representatives, a Senator from Maine, and the Republican party’s nominee for president in 1884. While historical accounts differ about his personal attitudes toward Catholics, there is no question that he tried to leverage anti-Catholic sentiment to make his way into the White House. He attempted to amend the U.S. Constitution to bar aid to the burgeoning Catholic school system that was cropping up around the country in response to the public schools’ emphasis on teaching Protestantism. (Many might be unaware that for a long time, students in public schools would read from the King James Bible and sing Christian hymns). 

While Blaine was unsuccessful in amending the U.S. Constitution, 38 states have so called “anti-aid” provisions in their Constitutions, including Missouri.

Lawyers for Trinity, and for numerous faith groups filing amicus briefs, argue that the application of such provisions violates the First and Fourteenth amendment rights of individuals and organizations. As lawyers for the Institute for Justice put it, “the Religion Clauses of the First Amendment, as well as the Equal Protection Clause of the Fourteenth Amendment, demand neutrality—not hostility—toward religion.” The State of Missouri singled out Trinity, whose application otherwise would have been approved, solely because it is a religious organization even though the “aid” does not advance its religion.

Understandably, many folks reading this might not care about a school resurfacing its playground. But it is important to note that religious organizations provide important social services to members of our community—and to poor and marginalized communities around the nation—with government support. Soldiers use the GI Bill to attend Saint Louis University, and low-income families use Medicaid dollars at Cardinal Glennon hospital. If providing used tires to Trinity Lutheran is unlawfully providing aid to a religion, wouldn’t these other examples of cooperation between government and religious organizations amount to the same thing? 

A decision in favor of Trinity would reinforce a commitment to treat religious organizations neutrally (neither privileging them nor discriminating against them) and would help close the door on a sad time in American history.

Despite Subsidies, Joplin Rebuilt Itself

Posted on by Patrick Tuohey

On May 22, 2011, a tornado ripped through Joplin, Missouri killing 166 people and damaging or destroying 7,500 structures. In the aftermath of the devastation, the people there were determined to rebuild.

Just six weeks after the tornado struck, Rush Limbaugh spoke to the people of Joplin on July 4 and said:

It’s going to be rebuilt. It’s going to be better than it ever was. You are going to show the rest of the country how it’s done because you represent the best of what this country has to offer. You understand the principle of hard work and self-reliance. You understand the difference between self-interest and selfishness.

Joplin was rebuilt. As part of the reconstruction effort, the city leaders adopted a tax increment financing (TIF) subsidy program and created the Joplin Redevelopment Corporation (JRC) to manage it. What happened next is an excellent lesson in TIF and developer subsidies for all Missourians.

The developers, Wallace Bajjali Development Partners, made all the usual claims about the need for government subsidies. In most cases a developer who gets TIF claims credit for every bit of construction that happens afterward. But in Joplin’s case, the developer went under before building anything. The JRC still issued the bonds and continues to collect the TIF taxes that would otherwise go to funding libraries and schools. But it has only bought and sold properties and paid professional fees (and even that earned it a rebuke from the state auditor). According to the JRC’s own reports, it has not built any infrastructure, developed any sites, or rehabbed any buildings.

Instead, the real reconstruction of Joplin was done by its private citizens—exactly as Limbaugh said it would be. Within four short years, Joplin recaptured the $34 million in assessed land value destroyed by the tornado—despite being saddled with a do-nothing TIF and redevelopment corporation for at least another decade, maybe until 2035.

The Show-Me Institute’s study of the TIF project (available here) is a lesson for all of Missouri. While studies of development subsidies in Saint Louis and Chicago show little lasting benefit from redirecting property tax revenue to developers, the circumstances in Joplin make this lesson exceedingly clear. No tax-subsidized developer rebuilt Joplin; The people did it themselves .

Auditor’s Report Sheds Light on Special Taxing Districts

Posted on by Graham Renz

The truth is out: low-profile micro-governments have been receiving billions of public dollars under the taxpayers’ radar for decades.

The number of special taxing districts, such as transportation development districts (TDDs) and community improvement districts (CIDs), has grown over the past 20 years at a rate rabbits would envy. These districts are formed through petition processes and levy a tax or fee (often sales and/or property taxes) to fund various improvements, ranging from roadway interchanges to streetcars to “great suburban walls.” As I’ve written before, the governance structures of these districts predictably lead to accountability and transparency issues.

But a report on TDDs recently released by the Missouri State Auditor’s office shows just how severe a problem these districts have become.

TDDs were intended to help fund public improvements through a tax similar to a user fee in order to avoid burdening the general public with the costs of these projects. For example, if a development required a new intersection with a traffic light, a tax could be levied on just that development to help pay for construction of the intersection. But TDDs have now morphed into a mechanism for private developers to tax the public for private gain.

The law that originally authorized the creation of TDDs (RSMO 238.200-238.275) allows for them to be established by residents or property owners. If a proposed district has no residents within its boundaries, property owners alone decide whether a tax is to be levied, and if so, how its revenues are spent. Often, TDDs are established by a single retail developer. This means that a single developer can (1) form a district, (2) impose a tax in that district, and (3) spend tax revenues nearly any way it sees fit. Unsurprisingly, TDD revenues often go right back to the developer in the form of a direct subsidy, and taxpayers are forced to the sidelines with no say in how their money is spent.  

So how bad is the problem? In 2014 and 2015 alone, TDDs in Missouri collected more than $176 million in tax revenue—yet, only 6% of those TDDs had residents within their boundaries. According to the Auditor’s report, $125 million of that revenue was collected without residential voter approval. Given that TDDs have been operating this way for nearly 20 years, their collective public impact is in the billions.

The Auditor’s report has shed much needed light on the abuse of special taxing districts. Now that we have a diagnosis, Missouri needs to develop a cure. Show-Me Institute researchers have proposed several special taxing district reforms, including requiring a minimum number of residents in a district and tightening reporting standards. Taking advantage of unsuspecting taxpayers is wrong, so why do Missouri’s laws allow it?

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