It Takes a Village to Raise a Subsidy

Posted on by Graham Renz

The Cardinals recently announced plans to move forward with a second phase of development at Ballpark Village, an entertainment district directly adjacent to Busch Stadium. This phase of development is seeking, just like the first phase sought and received, tens of millions of dollars in public subsidies.

The team is asking city officials to impose an additional 1% sales tax on Ballpark Village to help fund the second phase of development. This tax is estimated to generate $16 million. But why does a project like Ballpark Village, which by many accounts is doing quite well—albeit at the expense of other businesses—need yet another subsidy? Is there a good reason why ordinary Saint Louisans should cough up more of their cash just so a successful business can expand?

In short, no—there is no good reason. All the subsidy does is increase the profits of a hugely wealthy corporation. One of the biggest proponents of the subsidy, 7th Ward Alderman Jack Coatar, even admits the project would move forward (albeit on a “scaled-down” scale) without the subsidy. So why are city officials trying to put taxpayers on the hook for yet another development?

Proponents of the subsidy might object that the additional sales tax is self-imposed, and so only Ballpark Village costumers will actually pay the tax. While that’s true, we should ask ourselves why there should be an extra tax in the first place. That is, if the project is so great, why don’t the Cardinals just increase their prices by 1% instead of securing revenue via taxation?

And while the Cardinals promise the project will create 2,500 jobs, we shouldn’t get our hopes up (as the Business Journal cautions). Many of those jobs are temporary construction jobs, and the definition of a “new job” is somewhat slippery. New jobs could be jobs that moved in from just outside city limits, or jobs that a tenant at Ballpark Village claims would have left the city if not for the subsidies the project could receive. But moving jobs from, say, Clayton to downtown Saint Louis doesn’t help our regional economy, and there is so way to prove what a business tenant would have done if not for the subsidy. In short, the “Net New Jobs” clause touted by city officials as a way to protect taxpayers appears to be just a fig leaf that will not ensure that taxpayers actually get a return on their investment.

This project offers no real guarantees to the city or to taxpayers. The only guaranteed winner is a billion-dollar corporation. Does that sound fair to you?

Which Came First: the Investment Chicken or the Incentive Egg?

Posted on by Graham Renz

Saint Louis Mayor Francis Slay recently touted the amount of money—more than one billion dollars—that has been invested in the city this year. This investment, up 12% from last year, is good news. But here’s something the mayor isn’t touting: Nearly 80% of the investment has occurred in just 5 of the city’s 28 wards.

Comparing the two maps below shows that significant investments (top map) are clustered in areas where subsidies like tax increment financing (TIF—bottom map) are being granted to developers (primarily the central corridor).

Saint Louis City Investment by Wards_Chart.jpg

Active TIF Projects in STL City.jpg

(Note: The active TIF project map reflects only subsidy dollars that have been awarded to date, not the total amount of subsidy authorized. For example, the Northside Regeneration TIF, on which work has not yet begun, is not included in the map.)

So one might ask: Are development subsidies like TIF responsible for these investments? Initially, it might look that way. After all, TIF is designed to spur development.

But although it may sound counterintuitive, overall real-estate investment has likely driven the use of TIF and other incentives in the central corridor. That is, TIF and other taxpayer handouts tend to follow investments, not the other way around.

A recent report on incentives in St. Louis suggests that TIFs get doled out in neighborhoods that are already doing well or are on the rise. If there is a cause–effect relationship between TIF and development, then strong markets appear to attract TIFs.

But for the sake of argument, let’s assume that I and other researchers are wrong, and that TIFs cause strong real estate markets. If that were the case, the city’s current incentive practices would be open to serious questioning. So few incentives are being used in genuinely depressed and blighted neighborhoods, and so many are being handed out in neighborhoods that are already thriving, that it’s hard to imagine any result other than a widening of the gap between wealthy and struggling areas. That is, the city’s current practices would go exactly against the original intent of development subsidies. Can this possibly be the intent of city leaders? I certainly hope not.
 

Hair Braiders Continue Missouri Licensing Fight

Posted on by Patrick Ishmael

Last month we published a paper on medical licensing and reforms that could make care more available to Missouri patients, but the lessons from that essay—unshackling supply to meet customer demand—are not exclusive to the medical profession. Indeed, licensing laws can act as unnecessary barriers not only to customers seeking medical services, but also to professionals in other fields who are ready and able to offer services to customers who need them.

That unnecessary inteference by government is the basis for a lawsuit filed in 2014 by the Institute for Justice against Missouri's Board of Cosmetology and Barber Examiners and on behalf of two St. Louis-based hair braiders. As IJ explains on its website,

If you want to braid hair for a living in Missouri, you must spend thousands of dollars on at least 1,500 hours of cosmetology training that teaches you nothing about African-style hair braiding. That’s far more time and money than it takes to become a licensed EMT in the state.
 
Joba Niang and Tameka Stigers have been braiding hair for much of their lives and each woman owns a successful hair braiding business. African hair braiding is a centuries-old natural hair care technique that uses no dyes or chemicals; it is safe for the braider to perform and does not hurt the person getting their hair braided. But Missouri wants to turn the two women into criminals.
 
First, the bad news. In September a federal judge ruled against the hair braiders, saying that the Board's licensing regime was acceptable "despite claims from braiders that the process is irrelevant to what they do, unnecessary and expensive." IJ plans to appeal.
 
But the good news is that along with the potential for relief on appeal, newly-minted Missouri state legislators could always simply revisit the issue of licensing in the next legislative session and, just reform the law for braiders and other professionals. Certainly there have been attempts at reforming licensure in the past, with some positive results, but as a general matter it's been slow going in this policy area.
 
That needs to change. It's clear that Missouri's licensing system is in need of a significant overhaul—for medical professionals, hair braiders, and other professionals. And regardless of what happens in the courts, I hope we see progress in licensure reform in the legislature in 2017. It would be good for workers, and for consumers.

Subsidies in St. Louis, Part 2: Economic Development Blunders

Posted on by Graham Renz

City officials, developers, and corporate welfare proponents have touted the benefits of development incentives like tax-increment financing (TIF) to taxpayers for years. These subsidies make investments like the construction of office towers and entertainment districts possible, helping to create jobs and rejuvenate neighborhoods. Or so we’ve been told.

The recently released St. Louis Development Corporation (SLDC) incentive report casts doubt on those claims. Incentives, the report concludes, provide little or no economic development benefits. They may help put up shiny new buildings, but they don’t genuinely boost Saint Louis’s economic health.

This is what the research tells us:

There is little or no connection between the use of incentives and job growth. Although proponents claim TIF will help bring jobs to the area, there is almost no connection between increased employment and TIF. For every $1 million of TIF invested, there are only seven associated jobs (p. 95). And the few construction-related jobs created by TIF have huge costs. In 2015, each job created by TIF in St. Louis cost taxpayers more than $53,000.

But it gets more disturbing. According to Missouri’s annual TIF report, even when controlling for developments less than 5 years old, less than 35% of projected jobs listed in developers’ proposals have actually been created or retained by TIF projects in St. Louis. And because TIF job creation figures are self-reported and unaudited—it’s possible that even the 35% number is overstated.

TIF does not help rejuvenate neighborhoods or spark further investment. When researchers looked at neighborhoods with incentive-driven development, they found that only the parcels that receive incentives increase in value. The SLDC report found zero evidence that a statistically significant increase in property values can be attributed to the effect of TIF-spurred development. The neighborhoods surrounding TIF projects are no more likely than unincentivized areas to see other large investments without incentives. In short, so-called “anchor developments” provide no real benefit to their neighborhoods.

The researchers concluded that, “[w]hile there may be disagreement about the value of some packages, it is clear that the City gains no net benefit from an extremely costly program with no real economic development impact” (p. 6, my emphasis). Along the most important measures of success—job creation and neighborhood revitalization—incentives appear to fail, making it hard to justify continuing to spend tens of millions of dollars each year subsidizing development projects.

(Read part 1 in the series here)

Entrepreneurship in Missouri, Part 3: The Startup Environment

Posted on by Michael Austin

This series on entrepreneurship has highlighted the fact that the percentage of workers  in startups is at its lowest level in Missouri in 20 years. In fact, job growth from startups has been floundering throughout the seven years since the recession ended.  In this last blog in the series, we will review two partial but significant explanations of declining startup growth in Missouri, Kansas City, and Saint Louis: net population flows and business consolidations. The research on the relationship between these two factors and entrepreneurship comes from Ian Hathaway from Ennsyte Economics and Robert E. Litan from the Brookings Institution.

Hathaway and Litan found that the more population growth an area experiences, the more likely the area is to see startup activity. Tax migration flows show that Missouri has seen a net outflow of people since 2011, driven by larger outflows from Kansas City and Saint Louis. While it is still possible for Missouri, Kansas City, and Saint Louis to grow in entrepreneurial activity despite a net migration loss, Hathaway and Litan find that those areas with fast and positive migration have more entrepreneurial activity. Unfortunately, that migration isn't really happening in the Show-Me State.

The business consolidation rate that Hathaway and Litan use is calculated by dividing the number of firms (e.g., Home Depot) by the number of establishments (individual Home Depot stores) within an area. Business consolidation can be a good indicator of business cost pressures, because as the costs of maintaining a firm’s establishments increase, business owners may decide to close or consolidate establishments. Therefore, a falling business consolidation ratio (i.e., each firm operates more establishments) indicates that overall, firms are expanding. On the other hand, a rising ratio indicates that firms are contracting their business operations.

The business consolidation ratio for older firms in Missouri seems to be declining over time, which may suggest that, on aggregate, these businesses are able to manage their costs of doing business and are expanding. For startups, however, business consolidation has remained flat, suggesting cost pressures may continue to be a problem for these new or relatively new companies. The chart below captures these trends.

Remember: the downward slope of a line is a good thing, and reflects better conditions for a firm’s expansion. Policymakers should take a closer look into the startup environment, because review of Missouri, Kansas City, and Saint Louis shows that startups aren’t doing nearly as well as older and more established firms in terms of expansion. Over the last 10 years or so, the gap between established firms and startups has grown without pause.

How can Missouri policy help foster an environment in which entrepreneurs not only want to operate here, but also enjoy enough success that they are able to expand their operations? My first post in this series outlined how Kansas City businesses are enticed to move to lower-tax environments, indicating that tax policy might be a good place for policymakers to start. In addition, with Missouri ranked 29th in least-burdensome regulations for startups, (see page 49)., regulatory reform is another area where improvement would be welcome. 

Creating a Field of Dreams for the American Royal

Posted on by Michael Austin

With the World Series in full swing, I’m reminded of a quote from one of my favorite sports movies, Field of Dreams: “If you build it, he will come.” I wouldn’t be surprised if these same words were in the minds of Kansas economic development officials when they successfully recruited the 117-year old American Royal from Missouri to Kansas earlier this week. But the Royal’s move isn’t just bad news for Missourians; it’s also terrible policy for Kansans.

The Royal is a Kansas City institution, one whose fall catalog of rodeos, barbeque, and livestock competitions herald the start of winter and the region’s holiday season. Thanks to tens of millions in sales tax revenue STAR Bonds, those traditions will soon move away from the Royal’s current digs in Kansas City, Missouri, to nearby Kansas City, Kansas. Kansas’s $80 million contribution to the project is about double what American Royal was publicly trying to get out of Kansas City, Missouri, officials just two years ago to keep the Royal in the city’s West Bottoms.

But did Kansas even have to “build it” with taxpayer money to entice the American Royal to move? The Royal’s brand is defined by its history in the Kansas City area—even Kansas City’s baseball team is named after the organization—so it’s safe to say that American Royal wasn’t going to move its operations to Texas or Florida.

But setting aside for now the important question of whether this is an appropriate role of government (it isn’t), Wyandotte County has been seeing significant economic growth that would have made it an attractive landing spot for the Royal anyway. More families are moving there today than were coming 10 years ago. In 2004, 1,871 tax filers—bringing more than $57.6 million dollars of income—moved to Wyandotte; fast-forward to 2014, and tax filers were pouring in 25% faster, bringing in around $74 million with them.

Wyandotte County was “building it”—a functioning economy that has, in contrast to its basket-case reputation, attracted investments from Google, Amazon and others in recent years—before Kansas’s $80 million incentive was ever put on the table.

But Wyandotte’s recent successes don’t justify Kansas’s decision to subsidize the American Royal move. Indeed, the state’s $80 million giveaway has all the hallmarks of bad policy and poor judgement from Kansas’s political class. The American Royal was already getting cheaper land and a prime location close to its support bases in Johnson County, Kansas, and Kansas City, Missouri. The tens of millions in taxpayer support is just the KC Strip on top of this gravy train sundae.

Kansas? Sure, it gets a talking point in the battle for the economic soul of the region, but it’s a point that is likely to be eclipsed by the next round of billion-dollar business-poaching that’s certain to come.

While the Royal’s decision could be seen as a slap in the face of its historical roots, Kansas City, Missouri isn’t exactly a victim in the matter, either. The city has a terrible track record of poaching Kansas businesses in precisely the same way and is an equally bad actor in the billion-dollar tax-incentive border war that has bedeviled the region, creating no strategic advantages on either side of the border.

To put it delicately, the bull manure is blowing onto taxpayers from both sides of State Line Road. It’s time to end this tax incentive rodeo and finally pursue a mature economic development policy—one that doesn’t force taxpayers to build the fields of their politicians’ dreams.

Maps: Average Insurance Exchange Rates in Missouri, By County

Posted on by Patrick Ishmael

Yesterday I published the full list of ACA monthly insurance rates by county in Missouri, as compiled by the federal government. Today I'm sharing a map of each type of plan for one demographic, 40-yearold individuals, since it pretty well reflects the geographic differences in prices that we're seeing across the state. A few quick notes on using the interactive features:

  • Mouse over individual counties to see their prices.
  • There are tabs in the upper left corner that let you scroll through the different plans—Gold, Silver, Bronze and Catastrophic—and their prices. I encourage you to cycle through them, because the maps for each plan level are different.
  • For easier viewing you'll also find in the lower right hand corner a "full screen mode."
  • Where counties are blue and have no prices, that means that, according to the data released, there will be no plan of that type available in that county in 2017. 

 

The NAACP’s Misguided Opposition to Charter Schools

Posted on by Emily Stahly

The National Association for the Advancement of Colored People (NAACP) passed a resolution on October 15 calling for a nationwide end to charter school expansion. This resolution has been controversial because many African-American parents have become strong advocates for charter schools after seeing their benefits.

In Missouri, Charter Schools overwhelmingly serve African-American students. According to DESE, the 72 charter schools in Kansas City and Saint Louis enrolled over 21,000 students in 2016, two-thirds of whom were African-American.

How well did these schools perform? Take a look below at the 2015 Annual Performance Report scores for charter schools compared to traditional public schools (for context, 70 percent is required for full accreditation):

Sources: DESE St. Louis Academic Performance Data, DESE Kansas City Academic Performance Data

On average, charter schools in Kansas City tend to be higher-performing options than the traditional public school district. In Saint Louis, the results are more varied, but there are several charter options that perform as well as any school in the state.

The following tables show demographic characteristics of students in the top 5 schools in Saint Louis and Kansas City.

Saint Louis's Top 5 Charter Schools

 % Asian % Black % Hispanic % Multiracial % White
City Garden Montessori 0 40.3 5 4.1 49.8
North Side Community School 0 98.6 0 0 0
St. Louis Language Immersion School 1 55.1 8 3 32.4
Premier Charter School 7.8 27.1 13.8 7 44
Grand Center Arts Academy 1 61.5 3.2 4.5 29.4
Kansas City's Top 5 Charter Schools % Asian % Black % Hispanic % Multiracial % White
Crossroads Academy 2 40.7 18.9 0 32.7
University Academy 0 97.4 0.7 0 0.8
Academie Lafayette 2.9 16.2 4.7 7.8 68.1
Frontier School of Innovation 1.4 15.8 74 0.5 8
Ewing Marion Kauffman 1.4 84 5.4 3 5.1

As you can see, several of the top-performing charter schools in the state (Northside Community School, Saint Louis Language Immersion, and Grand Center Arts Academy in Saint Louis and University Academy and the Ewing Marion Kauffman School in Kansas City) serve student populations that are more than 50% African-American. Does the NAACP really want to deny students the opportunity to attend schools like these?

Of course, charter schools should be monitored closely for their performance and closed if they are failing. Such was the case of Better Learning Community Academy, which had an APR score of 28%; it is now closed.

If new and better charter schools are not allowed to take its place, however, then parents are left with fewer quality alternatives to their neighborhood public schools. Instead of taking away future opportunities, isn’t it better to enhance the education of students, regardless of race, to give parents more choices and more control over their children’s education? The evidence would say so.

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