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?

Congratulations, Neil Gorsuch

Posted on by Patrick Ishmael
Earlier today the U.S. Senate confirmed the Supreme Court nomination of Judge Neil Gorsuch. Gorsuch’s impeccable credentials and sterling jurisprudence serve as an unambiguous example of the sort of judges we want to have on the highest court in the land, and the lowest courts. That Gorsuch was only approved after the Senate majority had to break a filibuster of his nomination should disturb every member of the legal profession and every believer in good governance. Indeed, the political litmus test advanced in the U.S. Supreme Court confirmation process of recent decades has done much to undermine the public’s sense that our courts are fair and impartial. The use of the “nuclear option” to break the most recent political impasse was the logical and necessary last act of that unfortunate trajectory.
 
Legislative tradition is important and ought to be asserted symmetrically. But legislators should not allow “tradition” to be used asymmetrically as an excuse either for interminable legislative inaction, or as a pretense to subvert the will of a supermajority, as is being done, for example, in the Missouri Senate. Justice Gorsuch’s nomination should have proceeded without the threat of a filibuster and consistent with substantive Senate tradition, and his seat on the Court merited a breaking of the filibuster that had been undertaken against it. Likewise, the pursuit of the People’s business in Missouri should not be stopped for “tradition’s sake” by lax acceptance of the legislative priorities of a superminority. It was a mistake for senators in the U.S. Senate to abuse the filibuster to try to stop Gorsuch; that same mistake is now being made in the Missouri Senate — and it should not be sustained.

Charter Schools: A Mother’s Plea for Her Son

Posted on by Michael Q. McShane

Carmen Ward’s son, Paul, has Asperger’s Syndrome. The Saint Louis public school system was unable to meet Paul’s needs and his academic progress was suffering, so Carmen turned to a charter school—KIPP Inspire Academy. It’s made all the difference.

Special thanks to:

http://www.kippstl.org/

https://www.ceamteam.org/

http://www.mocharterschools.org/

The Mandatory Bar Goes to Court

Posted on by Patrick Ishmael

To practice law, prospective attorneys typically have to pass a Bar exam and, after passage, maintain a membership in what’s often called a statewide mandatory bar. Local Bar organizations are also common, but membership in say a St. Louis bar association is not required to practice law in St. Louis. Membership in the Missouri Bar, on the other hand, almost always is required to practice law in Missouri. If this kind of sounds like forced unionization, you wouldn’t be completely off base; after all, while the Missouri Bar doesn’t negotiate salaries and benefits for each of its members, it certainly isn’t averse to political interventions that put its institutional interests above the sensibilities of individual members.

But that could change if a lawsuit challenging the North Dakota mandatory bar and filed in the Eighth Circuit — of which Missouri is a part — is successful.

A lawsuit filed by a Bismarck attorney will appear before the 8th Circuit Court of Appeals in St. Louis on Tuesday, April 4, claiming the North Dakota State Bar Association spent his dues to oppose a ballot measure he supported.

Arnold Fleck, 59, a self-employed attorney and member of the association, is being represented by the Goldwater Institute, an Arizona-based public policy think tank, in his lawsuit that argues the association contributed nearly $50,000 to a PAC opposing a shared parenting time and responsibility bill in 2014. An amended version of that bill — though shot down by voters twice in the past decade — just passed the Senate last week and before the state bar opposed the legislation, it took a neutral stance on the measure….

The case is addressing two additional issues: requiring the bar to adopt an “opt-in” for political spending, rather than an opt-out, and challenging mandatory bar membership as a violation of the First Amendment.

We have long talked about the Constitutional attractiveness of opt-in arrangements especially when political speech is involved, but the ability of mandatory bars to command dues payments creates substantive fungibility problems if only an “opt-in” reform is adopted. If the Show-Me Institute could force every educator in the state to pay us for the right to educate, that would be an enormous benefit to our day-to-day operations that would help make fundraising for other Show-Me projects much easier. In reality, SMI has no such power, and the supporters we have are supporters of their own accord rather than through compulsion. We wouldn’t have it any other way.

But that freedom to associate and support an organization, or not, should apply as much to Bar membership as it does to other policy spaces. I don’t have a problem with the idea of a Bar exam to ensure prospective lawyers are versed in local law and jurisprudence, but once that hurdle’s been cleared, further interaction with a state Bar should be optional. In states where the statewide bar isn’t mandatory, the state still polices the legal profession effectively; there’s no reason to believe North Dakota, Missouri and other mandatory bar states wouldn’t be able to, as well.

Plenty of local bars continue to exist not because lawyers have to be members, but because they want to be members. The state Bar should adopt the same model.

“Chokepoints” Demonstrate Need for New Charter Schools

Posted on by Emily Stahly

I grew up in a small town where several elementary and middle schools funneled into a single high school. While this arrangement was great for fostering a sense of community, it was not without its downsides. The community had put all of its eggs in one basket. If that high school hadn’t worked for students, families would have been stuck without any other options.

Unfortunately, this situation faces 17 school districts in Missouri. According to state accreditation standards, not every school in a district has to perform above 70 percent on the annual performance review to keep accreditation—just the district as a whole. This system has left kids in failing schools while keeping alternatives like charter schools out of the area. Recent proposals in the Missouri legislature could help solve this problem.

A few weeks ago, the Missouri House of Representatives passed HB634. A similar bill is now in the Senate. While HB634 does not allow charter schools to open everywhere in the state, it would increase the number of districts where charter schools could open. One section of the law targets districts with underperforming schools, and would allow charter schools:

In any school district in which at least one school building has received a score of sixty percent or less on its annual performance report for two of the three most recent annual performance reports available as of the date on which a charter school applies to open a charter school in the district under this subdivision.

Based on the 2014, 2015, and 2016 Annual Performance Reports, 97 schools in 29 school districts would fit this criterion, including Kansas City and Saint Louis (where charter schools already operate) and the Normandy Schools Collaborative (which is unaccredited but does not have a charter school yet). Thus, this rule would add 26 new school districts to those where charter schools can operate currently:

School Districts with at Least One “Failing” School*
Calhoun Hazelwood Poplar Bluff Slater
Cape Girardeau Hickman Mills Purdy Southland
Carthage Independence Raytown Springfield
Columbia Jefferson City Ritenour Saint Joseph
Ferguson-Florissant Jennings Riverview Gardens Wright City
Hannibal Kennett Senath-Hornersville  
Hayti New Madrid Sikeston  
*A failing school is defined in HB 634 as scoring 60% or less on its Annual Performance Report for 2 of the 3 most recent years.

Certainly, it is a cause for concern that Missouri has so many districts with chronically underperforming schools. There is another problem, however, with failing schools being the only option in some of these districts.

Out of these 29 districts, 17 have “chokepoints”—schools that every student in the district will have to attend—that have been rated as failing in two of the last three years. Normandy is one such district; the others are the districts in bold in the table above. Most of the chokepoint schools are middle schools and junior high schools.

Children in these communities have no choice but to spend some part of their education career in a school that the state deems failing. Families in these districts and across Missouri deserve better options for their kids. 

Wisconsin Passes Project Labor Agreement Reform

Posted on by Patrick Ishmael

Back in February I noted that Missouri would not be alone in its pursuit of pro-growth construction labor reforms this year. Specifically, reform-minded Wisconsin declared early this year its intent to pass a bevy of such proposals, in particular significant rewrites of its prevailing wage and project labor agreement (PLA) laws. (You can find more information about each of these reform ideas here.) Those legislative priorities put Wisconsin and Missouri in direct, albeit friendly, competition to see who would be the first to advance taxpayer interests in these policy spaces.

Well, Missouri is falling behind in that race. Like Missouri, Wisconsin’s prevailing wage reforms are still being debated today, but earlier this March PLA reforms passed out of the Wisconsin assembly and on to Governor Scott Walker. Our think tank colleague in Wisconsin, the MacIver Institute, has a video account of the debate.

For those familiar with the discussion so far in Missouri, the terms of Wisconsin’s PLA debate will sound familiar.

The bill’s supporters say it will encourage more construction firms to bid on projects, leading to taxpayer savings. Opponents say it is part of a continued effort to weaken labor unions and would put worker safety and wages at risk.

“We’re saying let the market decide, let employers decide,” [Rep. Rob] Hutton told reporters before the vote. “This is really just to clarify and get the government out of the business of determining whether a project labor agreement is necessary.”

The benefit of moving away from PLAs is twofold. The first is the benefit to taxpayers being able to spend less and get more for their money, as PLAs tend to push up the cost of public construction. But the second is nearly as important: to ensure that contractors, union and not, are treated on equal footing when they bid these public projects.

Fortunately and in furtherance of both ends, a version of PLA reform is moving its way through the Missouri House after passage in the state Senate. Chances seem very good that PLA reform will happen this year, and paired with a prevailing wage reform that just passed out of the House, reform in construction labor appears to be on the way in our state. Missouri may not beat Wisconsin to the post on these reforms, but so long as the state gets there by session’s end, it’s all the same to us. Nonetheless, vigilance remains necessary, especially given the legislative drag being experienced in the upper chamber; we’ll keep you updated.

Cheerleading Won’t Make the MLS Stadium a Good Deal for Taxpayers

Posted on by Graham Renz

This past week I’ve been discussing plans to write a $60 million taxpayer check to potential owners of a Major League Soccer (MLS) team in Saint Louis. Proponents of the subsidy claim an MLS stadium will breathe new life into downtown, attract millennials, and grow the economy. I’ve written about why I believe these claims are misguided (see here and here). But there are smart, reasonable people who disagree with me, and they’ve made their cases recently as well.

Dr. Patrick Rishe of Washington University in Saint Louis argues the current MLS stadium deal is one of the best he’s ever seen, as it includes numerous safeguards for the city and taxpayers and doesn’t use sales taxes to fund construction. Moreover, only 39% of stadium costs will be paid for by the public, compared to the usual 65% to 70%. Therefore, it’s a good public investment—and it certainly isn’t “corporate welfare.”

While his premises are true, the conclusions Dr. Rishe draws are not.

  • Rishe states that this deal protects taxpayers in ways previous stadium deals did not. For instance, the ownership group must pay for cost overruns from construction, and the team has to stay in Saint Louis for 30 years (if the MLS doesn’t fold before then). These are reasonable provisions, but they don’t have anything to do with whether a stadium will grow the economy or redevelop downtown. The contractual safeguards simply manage the city’s risk; they don’t guarantee any of the glitz and glam proponents are promising. The stipulation that taxpayers won’t cover cost overruns doesn’t mean the benefits used on to justify the public expense, like economic growth, will be realized.
  • Rishe points out that use taxes, which are paid by businesses, will go toward funding the stadium—not sales taxes paid by all city residents. Supposedly, it follows that residents won’t pay for the stadium unless they own a business or buy tickets. But while sales taxes won’t go directly to the stadium, city residents must increase their sales tax rate to get the stadium. That’s because use tax revenue can only be diverted to the stadium if voters first approve a sales tax hike for the MetroLink expansion. So while your sales taxes won’t pay for the stadium, you have to pay extra sales taxes for the stadium.
  • If 39% is a breathtakingly low public contribution for a private venture, I’m in the wrong business. Cities across the country have been scammed by sports teams for decades, and the fact that other cities have agreed to worse deals than this one is hardly reason to celebrate. If $60 million is such a negligible contribution, why doesn’t the ownership team simply pay it themselves? Only cash-addicted millionaires would look at an offer to pay 61% of the cost for their own pleasure-dome as a selling point. (As for the $150 million expansion fee the ownership group is coughing up, recall that when the MLS announced the fee would be $50 million less than originally announced, stadium boosters didn’t reduce their ask for public assistance.)
  • Rishe contends that giving away $60 million in handouts isn’t corporate welfare because MLS teams don’t turn a good profit. First, the profitability of an enterprise doesn’t bear on whether or not its receipt of subsidies counts as welfare. And second, if the teams currently in the league aren’t turning a profit, what does that say about the long-term prospects of a franchise in Saint Louis? We already have one stadium without a team downtown—do we want to risk adding another?

Joe Reagan, head of the Saint Louis Chamber of Commerce, notes (along with others) that the ownership group will invest $5 million over 20 years in youth sports programs. Moreover, an economic analysis shows the stadium will generate $77.9 million in taxes for the city over the next 30 years. Mr. Reagan presents these factors as evidence that the stadium deal is worthwhile. But here too some perspective is in order:

  • The ownership group’s commitment to youth sports is commendable, but this is still a $5 million commitment in the context of a $60 million subsidy.
  • The analysis stadium boosters rely on makes rosy assumptions and must (at the very least) be taken with a grain of salt. For instance, it assumes every man, woman, and child will spend roughly $50 on tickets, concessions, and food each time they attend a game, and that spending will increase faster than inflation for 30 years.
  • More importantly, most of the economic activity at the hypothetical stadium won’t be “new,” but simply redirected from elsewhere in the city and region. This isn’t money that people were planning to keep hidden under the mattress—much if not most of it would be spent on other entertainment options if there were no soccer games to attend. And let’s not forget the $60 million that businesses are losing because of the use tax. But even assuming proponents’ analysis is correct, the stadium would only bring the city an average of $2.4 million annually—less than a quarter of a percent of the city’s $1 billion annual budget!

The history of stadium deals in Saint Louis and across the country shows these projects fail to make good on the promises made by their promoters. If sports stadiums were such lucrative investments, private investors would be flocking to Saint Louis to get their cut. Despite its supposed virtues, the facts and history indicate that the MLS deal is a bad one for taxpayers. 

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