The Risks to the City of the Convention Hotel Gamble

Posted on by Patrick Tuohey

At the City Council's recent business session on the proposed convention hotel, proponents kept repeating that there was no risk to the city. The risk is being shouldered by investors, supposedly. And so, really, this project is just another riskless freebie. It wasn't so long ago that City leaders were telling Kansas Citians that in a few years we'd be calling them geniuses over the Power & Light District. Even the most ardent fan of spending gobs of taxpayer money on downtown, The Kansas City Star (which received its own subsidy), isn't calling them geniuses now.

City Manager Troy Schulte says the city learned lessons from that deal; the new project makes none of those same errors. Perhaps. But the City might be making a whole new round of mistakes. 

The St. Louis convention hotel project of the early 2000s was so bad that is changed the way Wall Street investors look at convention hotel investments. In a piece to The Kansas City Star, convention hotel expert Heywood Sanders put it thusly:

With an expanded convention center and domed stadium, consultants told St. Louis city officials they needed a big, new hotel. The 1,081-room Renaissance Grand Hotel and Suites was supposed to be filled by a wave of new convention attendees as the number of major conventions grew from 33 to 56, almost doubling the city’s convention business. But by 2008, the city garnered only 24 major conventions and fewer hotel room nights than in 1999 and 2000—before the Renaissance hotel opened. Without new convention attendees, the hotel couldn’t pay its annual debt service and the bondholders foreclosed in 2009. They finally were able to sell the hotel, at a serious loss, in May 2014.

Regarding that sale, The St. Louis Post-Dispatch reports that the new owners will invest millions in renovation and re-open them. The piece offered this observation:

“We had a shuttered building next to our convention center, and it will be alive with activity,” said David Richardson, a lawyer with law firm Husch Blackwell who advises the city on development issues.

This underscores the risk to Kansas City; will we build a huge hotel just to have it shuttered? It isn't just an idle thought experiment; we've been here before. After all, the last time Kansas City built a convention hotel—The Vista in 1985—the owners were considering bankruptcy within 18 months. A decade later, the city subsidized the Muehlebach hotel and took a loss because business was so soft. Why are these things unthinkable now? Hotel occupancy rates in downtown Kansas City have been averaging at an abysmal 50% to 55%, yet hotel proponents predict the new hotel will have a much better 68% occupancy. Are those reasonable expectations? We don't know—the reports don't explain how they reach those conclusions. But betting on them to be correct is certainly risky.

These same consultants have predicted that Kansas City convention business would almost double if we just built a hotel. Just build it and people will come, apparently. But the consultants again fail to explain how they reach these conclusions. As a result, we don't know if the predictions are reasonable.

The city may have learned its lesson from the awful plan to build the Power and Light District, but we cannot know what lessons we may have yet to learn. What is clear, however, is that projections of wild business growth seem unreasonable, and that should be enough of an alarm to those elected to protect city resources.

325 System Dead

Posted on by Joseph Miller

Last week, we questioned the future of MoDOT’s “325 System,” or how the department would have prioritized spending in the event of a revenue shortfall. While MoDOT has not yet announced an official change in policy, the link to “Tough Choices Ahead,” which outlined the system, is now dead. It will live on in our hearts.

For those interested, the pages taken down can be viewed in part below:

[[{“fid”:”2444″,”view_mode”:”default”,”fields”:{“format”:”default”,”field_folder[und]”:”157″},”type”:”media”,”link_text”:”Missouri’s 325 System Fact Sheet.pdf”,”attributes”:{“class”:”file media-element file-default”}}]]

ToughChoicesAheadExecutiveSummary.pdf

Difference Between Primary Highway System.pdf

index.pdf

The Low Cost of Labor Reform

Posted on by John Wright

SMI’s newest study shows how government union elections don’t have to cost taxpayers an arm and a leg.

In Missouri, once a union becomes the “exclusive representative” for a group of public employees, that union remains in power indefinitely. Some have suggested fixing this system by allowing unionized public employees the ability to vote to maintain or replace their union every few years. A regular secret-ballot election sounds like a good check on the potential abuses that can occur when a representative body isn’t held accountable to its constituents. But aren’t elections expensive?

This study shows how our state can provide regular elections for its unionized government employees at a low cost to incumbent unions and at no cost to taxpayers. In The Low Cost of Labor Reform, I examine some of the ways the cost of these elections can be greatly reduced or shifted away from taxpayers entirely. 

Riverfront Stadium Unlikely to Increase Construction Jobs in Saint Louis

Posted on by Joseph Miller

This week, members of the Saint Louis City Board of Alderman announced that they support a public vote on the proposal to spend over $100 million on a new football stadium downtown. An ordinance requiring such a vote already existed, but was ruled invalid earlier this year. The mayor’s office criticized the effort, saying there is not enough time for such a vote, and that the delay could cost the city the Rams and “3,000 new construction jobs,” among other benefits.

This post will not discuss the timing of the proposed ordinance. We can only note that the city could have scheduled a vote on public funding for a new stadium months ago. If the city had actually sought public approval, instead of trying to make an end run around democracy, timing would not be an issue.

However, in its effort to justify opposition to a public vote, the mayor’s representatives have again made claims about the stadium’s impact that fly in the face of economic evidence. According to city representatives, the stadium project will create an amazing 3,000 new construction jobs. But academic economists have studied the impact of stadium projects on the construction industry, and found that they have little or no positive effect.

In fact, a paper from an economist at the University of Missouri studied the impact of the Edwards Jones Dome and the Kiel Center (now the Scottrade Center) in Saint Louis specifically. The author found:

“By econometrically modeling construction employment during the 1970’s, 1980’s and 1990’s, it was found that there was no more nor no less construction employment within the St. Louis MSA during the time the Kiel Center and the Trans World Dome [Edward Jones Dome] were being constructed…”

This perhaps counter-intuitive result happened because:

“…instead of creating new construction jobs, jobs were shifted from projects that would otherwise have been undertaken, resulting in no net new job creation in the construction industry.”

The author concluded:

“These results, coupled with the more extensive analysis given in the article on construction employment, suggest that the net impact of stadium construction on construction employment and worker incomes is zero.”

This finding is in line with the bulk of the economic literature: stadiums do not boost economic growth, greatly increase tax revenue, or spur revitalization. A new football stadium is an expensive want, not a need, in Saint Louis City. With its lack of economic merits, civic leaders should reject the public funding for the stadium. If they cannot bring themselves to do so, they should at least allow residents to accept or reject a plan to use public funds for football.     

Taxpayers Shouldn’t Have to Subsidize Parking in Upscale Central West End Redevelopment

Posted on by Nathan Coursey

Last week the Tax Increment Financing (TIF) Commission voted to approve Koman Group’s $4.5 million TIF proposal for 32 N. Euclid in the heart of the Central West End. The application will now go before the Board of Alderman for additional approval. David Stokes, director of development at the Show-Me Institute, spoke in April of 2014 to the Missouri House of Representatives on some of the problems with using TIF as a redevelopment strategy. Policy analyst Joseph Miller recently wrote about how the current building, which houses a successful neighborhood bar and dry cleaner, is by no means a “blight” to the community.

Why is it necessary to use TIF in a prosperous city neighborhood to finance two floors of underground parking in a walkable, urban neighborhood? 32 North Euclid is located in a thriving city neighborhood within close proximity to a 160-unit public garage, metered parking, and the Central West End Metrolink station. The program plan presented to the TIF Commission is a six-floor, mixed-use building with ground floor retail, second floor office space, and four upper floors of luxury apartments. The building will ultimately contain between 52 and 68 market-rate units with a very high price point. Koman is estimating it will construct between 70 and 80 subterranean parking spaces at a cost of $45,000 to $60,000 per space. Given these cost estimates, over 70%—and up to 100%—of taxpayer money funding the project will go to pay for parking.

While I understand the financial reason for wanting ground floor retail along Euclid and the aesthetic reason for wanting to hide parking, these simply don’t justify diverting millions of dollars of future tax revenues to finance parking for a luxury development in a neighborhood with a Walkscore in the low 80s. Classifying the current building as a blight to the community is dubious at best. This TIF proposal demonstrates how a subsidy intended to spark redevelopment on sites where development would not occur “but-for” the subsidy is being abused to finance luxury residential developments in wealthy, high-growth neighborhoods at the taxpayer’s expense. 

Is MoDOT’s “325 System” Dead or Alive?

Posted on by Joseph Miller

In July, we wrote about how higher-than-expected revenues for the Missouri Department of Transportation (MoDOT) meant the state would be able to match federal dollars for next year. As we have pointed out many times before, the inability to match federal dollars is the main threat to MoDOT’s financial ability to maintain the state highway system. Before that improvement, the state had threatened to implement the “325 System,” which would have allowed most of Missouri’s highways, including some heavily trafficked ones, to fall into a state of disrepair. So Missourians are left asking whether the “funding crisis” is still a crisis and whether the 325 System is dead or alive.

And there seems to be some confusion coming out of MoDOT and the State Highway Commission on this very point. In September, Steve Miller, chairman of the Missouri Highways and Transportation Commission, told the Post-Dispatch that “The state is no longer using the ‘Missouri’s 325 System,’ ” but that the system’s priorities remain the same. He has also stated publically that without increased funding, Missouri’s highways still faced a funding crisis. What’s more, MoDOT still has not altered or taken down the “Tough Choices Ahead,” section of its website, which outlines the 325 System.

However, other MoDOT statements point to a more permanent postponement of the “325 System.” At a meeting held by the Show-Me Institute, MoDOT’s interim director stated that the department no longer talks of the “325 System,” and that the state is no longer in danger of losing federal dollars. Aside from the welcome boost in state income, MoDOT has also worked with the federal government to expand federal funding for preventative maintenance and operations on highways. With MoDOT now able to claim a federal match for “striping, sign maintenance, pavement repair where full width patching or overlays are placed, pavement surface treatments or surface seals, bridge maintenance, and drainage maintenance,” the state has more money to spend on highway projects and will be able to maintain state highways in the near term.

The bottom line is that MoDOT now possibly has the funds necessary to maintain the entire state highway system, without an increase in revenue. While the “325 System” still exists on paper, its implementation is increasingly unlikely. If that’s the case, MoDOT officials should come out and say that, rather than continue to talk of imminent budgetary disaster.

Of course, a reprieve from a funding crisis does not mean all of MoDOT’s problems are solved; there are necessary major highway projects MoDOT does not have the money to take on. But if MoDOT and Missouri have the breathing space necessary to discuss sustainable funding reforms for MoDOT without cries that the sky is falling, that’s for the better.

Taxicab Commission Inappropriately Refused Sunshine Request

Posted on by Joseph Miller

As readers of this blog may remember, a couple of months ago we made an official sunshine request to the Saint Louis Metropolitan Taxicab Commission (MTC). What we were looking for was a copy of proposed regulatory alterations from the MTC’s July meeting. The MTC’s custodian of record, the MTC’s Chairman, and even the MTC’s lawyer refused our request. They argued that they proposed changes, despite the fact that they were very nearly voted upon, were not public records.

We found the idea that a government body could withhold documents by simply not giving them to a custodian of records troubling at best, and so we filed a complaint with the Missouri Attorney General’s office. They got back to us last week, and thankfully found the MTC to be in the wrong. As the office put it:

“Generally information retained by the commissioners and presented at a public meeting would be considered a public record. If the information had not been previously provided to the custodian of record, we are not aware of any impediment which would have prohibited the custodian from asking the commissioners to provide them with a copy of the information presented during the meeting…”

The Attorney General’s office sent the MTC a letter explaining these facts, along with eight booklets on the sunshine law. While the response of the Attorney General’s office is to be commended, the MTC was able to effectively withhold documents from the public for months. For this circumvention of the sunshine law, the body has received only a slight remonstrance. We can only hope that the Attorney General’s office, among other state policy makers, will pay closer attention and give closer scrutiny to the MTC’s actions in future.

Note: We did not receive the document, but are no longer seeking it because the draft ordinance has been superseded. 

Read the full letter from the Attorney General by clicking on the link below.

AG_Oct14_2015.pdf

The Battle of Common Core Is Over. The Battle of Parental Control Is About to Begin

Posted on by James V. Shuls

Attention opponents of Common Core in Missouri: We won. You petitioned the state legislature and were successful in gaining the passage of HB 1490, a bill that established work groups to write new learning standards. Committees of Missouri parents, educators, and professors were  appointed by legislators and state education organizations, convened, and have completed their task. Those new standards have been submitted to the Department of Elementary and Secondary Education for a hearing on Monday, October 26, and will be vetted by Missourians. You also were successful in getting the legislature to defund standardized tests aligned with Common Core. You engaged the political machinery through the democratic process and have successfully won the battle against Common Core. This was no small feat.

Unfortunately, it seems that many Common Core critics have failed to see just how successful they’ve been. Instead of celebrating the new standards, developed by Missourians, they’ve lambasted them because of their similarity to Common Core. Rather than cheer the change of standardized tests, they continue to criticize the old. Opposition to the Common Core has led to opposition to anything that the state might have its hands in, even charter schools and school vouchers.

Some have been wrapped up in anti–Common Core sentiment for so long that it is difficult to see the forest for the trees. It is time to stop fighting against Common Core and start fighting for the principle that led you into battle in the first place—parental control.

Did you oppose Common Core because the standards were not rigorous enough or were not developmentally appropriate? What you’re saying is that you believe children are unique and deserve an education tailored to their needs.

Did you oppose Common Core because it eroded local control? Then start fighting for true local control: school choice. School choice is the only way to put the power of education back into the hands of parents.

You have been incredibly successful in opposing something. Great. But it takes a lot more effort to promote a new idea than it does to stop a bad one. The battle of Common Core is over. I hope the battle for parental control is about to begin. If we are successful in liberating Missouri’s children to pursue the education of their choosing, posterity will look back on this and say, “This was Missouri education’s finest hour.” 

It Must Be Nice to Own a House in Edmundson

Posted on by Michael Rathbone

The fact that Edmundson (a small town in North Saint Louis County) doesn’t levy a property tax on residential property might be compensation to its residents for dealing with screaming jet engines every day. However, businesses facing higher property taxes would probably want city homeowners to chip in, jets or no.

You see, ever since Senate Bill 5 became law, the city has had to find new ways to fund city government other than fining motorists. Thus the city zeroed in on raising property taxes.

Raising property taxes is sometimes a necessary evil, but when a city decides to raise property taxes on only one kind of property, it just seems, if not exactly evil, definitely unfair, and what’s especially galling is that (1) commercial properties in Edmundson—and the rest of Missouri for that matter—are already assessed at a higher rate (32 percent) than residential property (19 percent); and (2) commercial properties already pay a much higher property tax rate than residential properties (who pay zero property taxes) in Edmundson.

This commercial property tax hike goes up for a vote on November 3, and I won’t be surprised if city residents vote for a tax that someone else has to pay. But that doesn’t make this proposal good policy. Businesses in Edmundson could be facing tens of thousands of dollars in additional property taxes. Some businesses might even leave if this property tax increase is enacted. Property tax rates should be uniform (or very close to it) and low for everybody. If cities don’t have the self-discipline to have uniform rates, then the state should step in and make it so.

It’s readily apparent that the passage of Senate Bill 5 has caused some municipalities to scramble for new ways to raise revenue. A general property tax increase may or may not be the right way to go. However, singling out a specific type of property for a tax increase is bad policy.

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