To many, an increase to the minimum wage sounds like a good idea, but in reality it would cost businesses and jobs. Show-Me Institute’s John Wright talks to several members of the Dutchtown community about the impact of a minimum wage increase on their efforts to revitalize the neighborhood.
The Minimum Wage and Revitalization in Dutchtown
Dutchtown is a neighborhood in South St. Louis with a rich history and a vibrant community. The oldest standing Ted Drewes location still operates in the neighborhood, and a Dutchtown bakery served the very first gooey butter cake. Although it has struggled in recent years, several small businesses are working hard to rejuvenate the neighborhood.
· Iron Barley – Tom and Gen Coghill started Iron Barley in 2003 and were the first business to start Dutchtown’s contemporary revitalization. Several Food Network television shows have featured their food. They also put on an annual Tomato Fest; proceeds from the festival go to help local charities.
· Urban Eats –Caya Aufiero and John Chen started Urban Eats 7 years ago with the express purpose of helping revitalize Dutchtown. Urban Eats shares space with an art collective and hosts community events such as a regular board game meet-up.
· Sister Cities – Pam Melton and Travis Parfait started Sister Cities in 2013. The restaurant serves Cajun food and barbeque. A local Bitcoin group meets in the restaurant once a month and, as with Urban Eats, art from locals decorates the walls.
I spoke with the owners of all three of these restaurants about the minimum wage hike (parts of my interviews can be seen here). The bottom line: the mandated wage increase will harm this community. Increasing the minimum wage from $7.65 to $11 will force these restaurants to restructure in order to remain profitable. This could mean laying off employees, moving to the county, or perhaps even shutting down.
Travis Parfait, co-owner of Sister Cities, told me that with an $11 minimum wage, he might have to cut out much of his staff completely and work the front of the house himself. “Restaurants are a very low profitability business, and if you increase one of the many costs by almost 50 percent . . . it can’t hold it. It won’t bear that.”
It’s a similar story at Urban Eats, where John Chen says that poverty is a wider social problem that cannot be fixed by mandating minimum wages for employers. John calls the city’s minimum wage law the “sink or swim” approach: “Here’s the minimum wage increase, and you figure out how to cope with this. . . . That’s irresponsible. I argue that it’s unethical.”
The minimum wage hike is an another government-made obstacle to urban renewal—one that threatens to undermine the efforts of local business owners who have spent years working to help bring economic life back to their neighborhood. Without the jobs and community spaces provided by the people I spoke with, the revitalization of Dutchtown might be stopped in its tracks.
Let’s Talk about the ACT
At first glance, this year’s ACT results in Missouri might give cause for optimism, but a little more digging shows that Missouri high schools could do much more to prepare students for college.
Last week, the Jefferson City News Tribune reported on Missouri’s recently released ACT scores. The 2014–2015 school year was the first year in which every 11th-grader in Missouri was required to take the test, which in theory predicts how well a student will do in college. The Tribune reported that Missouri increased its average score from 21.6 to 21.7, and that Missouri students outscored national averages in every subject area.
But before we pop the champagne bottle, let’s talk about the ACT.
The ACT is an imperfect tool for comparing students from different states. The test is more popular in some states than in others, so participation rates vary. Only thirteen states had 100 percent participation, and 59 percent of students participated nationally. Where participation is voluntary, we might expect scores to be higher on average, as only students interested in taking the test actually take it.
The participation rate in Massachusetts, for example, was 28 percent. The small number of Massachusetts students who took the ACT in 2015 scored a 24.4 on average. Is that because Massachusetts has a superior education system, or because the composition of students is different? New Hampshire, Maine, New York, and Connecticut were also among the top performing states on this year’s ACT, but participation in those states ranged from only 10 to 28 percent.
Scores on the ACT should be paired with other data to determine how well schools, districts, and states are preparing students for college. Let’s take a look at another measure—remediation rates. The map below shows the percentage of students by county who enrolled in remedial coursework in college (coursework they already should have completed in high school) in 2014. Red indicates higher percentages and green indicates lower percentages of enrollment in remedial courses. In the lower half of the state, there is a whole lot of red—63.3 percent of graduates from Ash Grove High School in Ash Grove, Missouri, for example, enrolled in remedial coursework in 2014.
Getting students to college is important, but it’s only half the battle. Missouri should not lose sight of the goal of true college readiness. It is great to see that as more students are taking the test, scores are going up. But with remediation rates like those in Missouri, it’s clear that much work remains to be done.
A Greater Gravois May Be a Local Gravois
In recent years, the Missouri Department of Transportation (MoDOT) has faced growing criticism about the maintenance of Gravois Road (Missouri Route 30) in St. Louis City. Complaints range from traffic speeds to road quality to bicycle facilities. A citizen group called Greater Gravois Initiative would like to transform the highway altogether, adding traffic circles, bike lanes, and better transit, in a bid to create more urban development in the area. However, given MoDOT’s differing priorities and limited means, if the city truly wants to transform the area it might consider taking back control of Gravois.
Until 2004, Saint Louis City, and not MoDOT, controlled Gravois Road. The city declined to turn Gravois and other arterial roads over to the state in the 1950s, but by the early 2000s city leaders argued it was unfair that Saint Louis City was the only county that did not receive state support for non-interstate highways. Turning Gravois (along with five other highways) over to the state was billed as a matter of fairness and cost savings for the city.
But MoDOT doesn’t have significant resources to spend on Gravois. And what money it does have is usually restricted, by law, to highway improvements (meaning that bike lanes, public transit upgrades, and other street beautification are excluded). Furthermore, MoDOT has to consider congestion and roadway quality, not just the aesthetic appeal of areas along Gravois. After all, it is the state transportation department, not an urban development office. And as things stand, Gravois Road is one of the busiest non-interstate roads in Saint Louis, with poor pavement conditions along much of the roadway, as shown in the maps below. (AADT refers to average annual daily traffic in the map on the left; in the map on the right, IRI refers to the International Roughness Index, a measure of road quality.)
Instead of criticizing MoDOT for failing to spend money it does not have on slowing down a state highway, Saint Louis City should consider taking Gravois back from state control. That would give residents the freedom to transform the road as they see fit, if the city or citizens along Gravois are willing to pay for such improvements. It would also reduce MoDOT’s responsibilities, a useful precedent for a department in control of many highways (which it can’t afford to maintain) that would be local or county roads in other states.
Opportunity and Mobility in Missouri
Earlier this year, researchers from Harvard released a blockbuster study on economic mobility in the United States. The conclusion: neighborhoods matter. Where (and around whom) you grow up has long-term effects on your earnings and your quality of life.
The researchers partnered with The New York Times to create a searchable data visualization of every county in America and its neighborhood effect on lifetime earnings. Missouri is shown below (on the map, blue is good and red is bad.)
The three best counties to grow up in, paired with the extra money a child from a poor family will expect to make by age 26 for having grown up there, are:
- Osage County +$5,260
- Chariton County +$4,660
- Perry County $4,460
The three worst counties, paired with the negative financial repercussion of growing up there, are:
- St. Louis City –$3,780
- Boone County –$1,470
- Mississippi County –$1,320
The authors point to five factors driving better rates of upward mobility: less segregation by income and race, lower levels of economic inequality, better schools, lower rates of violent crime, and a larger share of two-parent households.
Each of those factors is important, but here I’d like to focus on the role that educational attainment plays in increasing economic mobility. Take a look at this graph from the Pew Research Center:
The gap between the wages of high school graduates and college graduates is widening. Helping more students successfully complete high school and then get a meaningful postsecondary credential (it doesn’t have to be a four-year degree, but it’s critical to choose one’s field of study wisely) can be a huge boost to upward mobility. Consider the following graph from the Brookings Institution’s Hamilton Project:
Visually, what jumps out are the dark bars, which show how difficult it is to progress to a better economic situation without a college degree. But the light bars tell a much more hopeful (and frankly amazing) story. At the far right edge of the graph we see that with a college degree, even someone born into a poor family has a 19% chance of making it into the top quintile of income distribution. By definition, only 20% of the entire population is in that top quintile at any given time, so this finding suggests that those who earn a college degree in spite of the formidable challenges of poverty really do achieve economic mobility.
The problem is that so few among the economically disadvantaged are able to earn that college degree. Several factors—broken families, lackluster schools, and unsafe streets, to name a few—contribute to opportunity inequality that is too often overlooked by those who consider income inequality to be the primary (or even the only) concern. But rather than hold out for a single solution to all of these interconnected problems, why not see if serious educational reform (as Show-Me Institute writers have suggested here and here and here, for example) can help give students the opportunities they need to improve their lives?
Saint Louis Property Taxes, Part 3: The Tax Breaks
In my previous two posts on Saint Louis City’s real property tax base, I discussed how various government bodies and nonprofits own a significant portion of the city’s land (by area and value). In most cases, these entities pay little or no real property tax to the city, which is likely a contributing factor to the city’s reliance on other forms of taxation to run municipal government.
However, even many private businesses and residences that are not tax exempt in any legal manner receive reduced property taxes from the city or state government. The most common of these tax breaks are tax increment financing (TIF) and tax abatements. TIF allows businesses to use the increase in taxes created by their development to help pay for that development. Tax abatement allows a city to reduce or eliminate property taxes for a development. In some cases the property owner agrees to a negotiated level of payments in lieu of taxes (PILOTs) to offset part of the property tax loss (as the Cardinals have), but this is the exception to the rule. TIFs and tax abatements are often used in tandem, as is the case with the Chase Park Plaza.
The vast majority of these selective property tax breaks were designed to encourage development in economically depressed areas; many (including most TIF) require an area to be designated as “blighted” before property there can receive a tax break. However, over time these incentives have become just another tool city officials use to attract the businesses they want wherever they want, regardless of whether the project is in one of the poorest or wealthiest sections of the city. Blight has been so loosely defined that parcels within Saint Louis City’s most prosperous neighborhoods are regularly deemed “blighted.”
A review of the city’s parcel data shows how pervasive the use of property tax breaks has become. In total, over 9% of the city’s property either receives tax abatements or is in a TIF district (not including government buildings and non-profits that fall within TIF districts). The map below shows all abatements and TIF districts:
Much of the TIF’d area is part of Paul McKee’s Northside Regeneration project, which (whatever the merits of this TIF) does contain many economically depressed properties. However, many valuable properties also receive significant tax breaks, including the Chase Park Plaza, Cortex (which includes IKEA), Ballpark Village, the Renaissance Center, and even a Mercedes dealership on Hampton. Altogether, around 18% of the city’s total assessed value is either in a TIF district or receives tax abatement. Properties in the these areas often pay much less in real property taxes than the city’s official rates would require.
Look for my next post on this issue, which will show the combined effects of government ownership, nonprofits, and tax breaks on Saint Louis City’s real property tax base.
Income and Money Flee Missouri
Earlier this year, Michael Rathbone and I published an essay examining migration trends for Missouri. We reported that over the past few years, more of Missouri’s income and residents have moved out of the state than have moved in.
The Statistics of Income Division (SOI) of the Internal Revenue Service publishes data that allow researchers to track migration patterns between states and Washington, D.C. The data just released by the IRS indicate that for the tax year 2012–2013, Missouri continued to lose income and residents to other states.
Missouri experienced a net outflow of adjusted gross income (AGI) based on individual tax forms filed. On net, over $61 million in income left the state in 2012–2013.Which states where the major recipients of our income? The left-hand panel of the table below provides the answer. (A complete ranking using all 50 states can be downloaded from the IRS website.)
Kansas, ninth on the list of where Missouri residents have (on net) relocated, is the number one destination state to which Missouri income fled. In 2012–2013, over $165 million in AGI found a new home in Kansas. Is it possible that tax cuts in Kansas had a bigger initial effect than many thought? This question is a clearly a worthy subject for future research.
Missouri also experienced a net outflow of total exemptions (i.e., tax filers and dependents) to other states in 2012–2013.Where did these 3,232 individuals go? The right-hand panel of the table below shows the top five destination states. (Again, a complete ranking using all 50 states is available at the IRS website.) Of the states to which Missouri has lost net population, Texas and Florida (both zero income tax states) are the top destination states, just as they were in 2010–2011.
|
Top 5 Destination Sites, Tax Year 2012–2013 Net Inflow* |
|||
|
Adjusted Gross Income |
Total Exemptions |
||
|
Kansas |
–165,240 |
Texas |
–2,742 |
|
Texas |
–64,006 |
Florida |
–1,773 |
|
Colorado |
–52,473 |
Colorado |
–901 |
|
Arizona |
–20,683 |
Oklahoma |
–654 |
|
Washington |
–20,495 |
Arizona |
–514 |
Saint Louis Property Taxes, Part 2: The Nonprofits
In my first post on property taxes in Saint Louis City, I discussed how the city’s property tax collections are limited, necessitating a reliance on other forms of taxation to run government. That post also detailed how various government bodies own much of the city’s land (by area and by value), reducing the real property tax base.
However, government bodies are not the only institutions that pay little or no real property tax in the city. Nonprofit groups such as hospitals, schools, and religious institutions are exempt from property taxation by state law. In Saint Louis City, nonprofit groups own almost 15% of the city’s total property and account for more than 7% of the city’s total land valuation, as the map below shows:
The largest parcels owned by nonprofits are cemeteries. However, some of the most valuable nonprofit properties are in the center of the city, where Washington University, BJC Healthcare, and Saint Louis University have campuses. These hospitals and schools (or eds and meds) are some of the largest employers in Saint Louis and have combined property assessments of over $150 million (3.3% of the city’s total). Aside from well-known hospitals and schools, Saint Louis City is also dotted with thousands of nonprofit (and partially government) organizations that are exempt from property taxes. These include arts foundations, museums, clinics, business associations, and even Amtrak. Altogether, property-owning nonprofits, both large and small, remove a sizable and valuable portion of the city’s property tax base.
Look for my next post on this issue, which will explore the effects of tax breaks on Saint Louis City’s real property tax base.
Note: The Show-Me Institute is also a nonprofit based in Saint Louis City. However, the Institute does not own real property, and therefore it does not receive real property tax exemptions.
Saint Louis Property Taxes, Part 1: This Land is Their Land
For cities across the country, property taxes make up a large—sometimes the largest—source of tax revenue. For instance, more than 90% of Portland’s revenue comes from property taxes. Many cities collect less, such as Denver, where property taxes make up only 25% of general revenue. But in Saint Louis City, property taxes are an abnormally small portion of city revenue. In fact, less than 15% of the city’s general revenue comes from property taxes. This makes the city reliant on earnings taxes, which make up more than 30% of the city’s tax revenue, despite the negative effects that the earnings tax has on the city’s growth.
The problem with the city’s property tax collections is not the rate (around $7.5850 per $100 assessed value), but the fact that most of Saint Louis City is not actually paying the posted property tax rate. As this and future blog posts will detail, most of the city’s land area and much of the city’s properties either enjoy special property tax breaks or are exempt from property tax altogether.
One type of entity that pays little or no property tax is government. This includes city, county, state, and federal government, but does not end there. In Saint Louis City, many properties are owned by other quasi-governmental bodies, including: the Bi-State Development Agency, the Metropolitan St. Louis Sewer District, Great River Greenways, the Land Reutilization Authority (LRA), the Saint Louis Convention and Visitors Commission (CVC), the Saint Louis Housing Authority, the St Louis Municipal Finance Corporation, and others. Altogether, government-owned properties make up almost 30% of all properties (by area) in the city, as the map below illustrates:
Large city parks are one reason governments own so much of Saint Louis City. But even if we take parks out of the equation, governments still own more than 23% of the city by land area and 12% of land by value. For instance, the city’s land bank, the LRA, owns more than 11,000 parcels of land, including the land on which Busch Stadium stands. Busch Stadium’s public connection is not an outlier. Many large entertainment venues in the city, including the Scott Trade Center and the Edward Jones Dome, are on public land. Different government organizations own housing complexes, office buildings, theatres, parking lots, and wharfs. Setting aside the question of whether or not all of this government ownership is justified, little if any property tax money can come from these parcels.
Check back for our next post on this issue, which will explore the prevalence of tax-exempt properties in Saint Louis City.
