Be Skeptical of Dome Convention Claims

Posted on by Joseph Miller

Recently, the Post-Dispatch published an article on the economic effects of the Edward Jones Dome’s conventions. The Convention and Visitors Commission (CVC) claims that convention goers generate $23 million in tax revenue for the city annually. The idea here is that even if the Rams do not generate much tax revenue for the city, the dome still pays for itself through conventions.

But there is ample reason to be skeptical of the CVC’s tax revenue claims. First, the estimate was generated using estimates of estimates, which could easily lead to miscalculation. Let’s assume that the numbers are correct, and convention goers who use the dome go out and add $23 million to city coffers. That still does not ensure that the dome generated $23 million.

Why not? Imagine you owned a passenger train that generated $5 million annually. You decide you can get more riders if you make the train bigger. Post investment, revenue increases to $6 million. Did the improvement generate $6 million or $1 million in new revenue? Obviously $1 million. You were already making $5 million before you spent a dime. Passengers are likely substituting their use of the old train for the improved train; the investment itself may be attracting few passengers. Even worse, you have to consider opportunity cost, or what you could have made had you invested the improvement dollars elsewhere. If you could have earned more putting your money in other projects, the train improvement was a bad investment.

When the CVC claims the dome makes $23 million annually, they ignore substitution effects, assuming much convention spending would disappear without a dome. They also ignore opportunity cost, or that convention center investment could have gone to other projects. In doing so, the CVC is not only coming up with questionable estimates, they are ignoring historical data.

According to the Brookings Institution, the opening of the dome in 1995 had little impact on hotel occupancy. In 1991, downtown hotels combined for 1.16 million room nights. In 1998, three years after the dome had opened, room nights were 1.15 million (10,000 fewer room nights). As the author put it:

In terms of filling more hotel rooms, the city’s investment in more and newer convention center space and a dome had done absolutely nothing to either fill existing downtown hotel rooms or to prompt the private development of more hotels.

And it’s not just hotel occupancy that remained stagnant. The city’s general tax revenue actually fell in the dome’s opening year:

 

general fund tax revenue

Revenue growth in the 1990s was faster before the dome opened rather than after. This is not to say the dome decreased revenue growth, just that there is no obvious evidence that the dome created significant revenue expansion.

To sum it up, there are many issues in calculating revenue impact of the dome today. In addition, historical data does not show that the dome significantly impacted the city’s hotels or tax revenue. For that reason, I’d take the CVC’s $23 million estimate with a football-sized grain of salt. 

When It Comes to a New Stadium, John Oliver Tells Saint Louis to “Make Them Pay!”

Posted on by Joseph Miller

Last week, comedian John Oliver took on the public funding of sports stadiums on his popular HBO show, Last Week Tonight. The segment echoed the conclusions of economists and our previous writings: Stadiums do not generate economic development and are unlikely to expand tax revenue for cities. With a great deal of humor (and some off-color language), Oliver argues billionaire owners should pay for their own stadiums, and that Saint Louis is much more than just the Rams. Watch the video here.

Land Taxes and Columbia

Posted on by Michael Rathbone

This past Saturday, the Boone County Chapter 100 Review Panel approved a property tax abatement for Kraft Heinz so that it can modify its plant in Columbia. As I mentioned previously, this would be bad policy. But beyond saying no to awarding subsidies, is there anything Boone County should be doing to make it more affordable for Kraft (and other businesses) to expand and/or modernize?

Boone County could cut its property tax rate. This not only would help Kraft, but all the other property owners in the county as well.

Even better, Boone County could shift away from property taxes and toward a land value tax. Land value taxes are taxes levied against the unimproved value of land and not the buildings, personal property, or other improvements on that land. A broad spectrum of economists support the land value tax versus other types of taxes because it is non-distortionary (i.e., it doesn’t alter behavior, unlike income and sales taxes).

If Boone County imposed a land value tax instead of a property tax, companies like Kraft would not face increased taxes after improving their plant. Unfortunately, only Kansas City is allowed to levy land value tax. There would need to be a change to the State Constitution in order for Boone County to levy a land tax.

Boone County (like other counties and cities) faces a difficult dilemma. It either can erode its property tax base with abatements to select businesses or risk having those companies being lured away to locations that offer subsidies. A land value tax won’t completely eliminate that problem (a jurisdiction could offer to not tax the land at all or provide that business some type of tax rebate), but it will make it more financially viable for businesses to expand facilities already present. If the State Constitution were changed, counties would have another policy option available to retain businesses other than having to resort to tax abatement.

Mission: St. Louis Provides Summer Learning Opportunities

Posted on by Brittany Wagner

When Executive Director Josh Wilson founded Mission: St. Louis in 2006, he had a goal—eliminate poverty in Saint Louis City within six months. 

“I was just really stupid. I just thought that if we had enough money, people, resources, we would eradicate all poverty in St. Louis,” he said. Of course, poverty persists.

“I think it comes down to really this idea of dignity. . . . I think the biggest mistakes that can happen is to go like, ‘Hey I feel sorry for you,’ and when . . . we’re motivated out of feeling sorry . . . I think we do way more harm,” Josh reflected.

Now Josh has a different plan—“empower people to transform their neighborhoods.” The organization has been successful. Since it’s founding, Mission: St. Louis has helped men like Eddie find employment, provided after-school support for students and families, and facilitated home improvements.

Additionally, Beyond School, a division of Mission: St. Louis, has developed a summer program to combat the summer slide.

The summer slide (or summer learning loss) occurs when students in low-income communities lack learning opportunities during the summer. Many students from wealthier backgrounds have summers filled with trips to museums, camps, and other enriching activities. Low-income students do not. In fact, one study showed that more than half of the achievement gap between low-income and high-income students can be explained by students’ experiences in the summer.

While some have rallied around policy reforms such as year-round schooling to fix this problem, Mission: St. Louis demonstrates that the key to closing the gap between high- and low-income students is not only providing low-income students with learning opportunities, but also by providing a choice in what those opportunities are. This leads to more investment from the student and an all-around more positive experience.

I encourage you to check out our new video about the summer learning opportunities provided by Mission: St. Louis.

Rank Hypocrisy from the Kansas City Star?

Posted on by Patrick Tuohey

On July 10, 2015, the Kansas City Star editorial board bemoaned the state of mental health care in Kansas. Of the states system, they wrote:

Advocates argue convincingly that it is overburdened and underfunded at nearly all levels. A system that at one time was well regarded and innovative is staggering from high demand and too few resources.

The lack of options leaves families of mentally ill individuals in a fearful limbo. Police officers and jails end up dealing with people who should have access to doctors and hospitals.

Surprising no one, the city’s paper of record faulted inadequate funding:

But state funding for a network of outpatient community mental health centers—the first stop for many patients—has been cut in half since 2008. Patients often wait weeks for medications and a treatment plan.

We don’t take issue with the Star‘s conclusion. Tight budgets at every level mean that policymakers have to make difficult choices. What is unfortunate is the Star‘s request to be exempted from having to pay their own fair share of taxes—taxes that would go to support these programs. The Star is asking to extend for 15 years the tax abatement on its downtown printing press. As a result, the Community Mental Health Levy in Jackson County, Missouri, will be denied $245,000 over 15 years. That is a quarter-million tax dollars from the Star‘s single property.

This request comes after the Star had Jackson County reduce their assessment from $42 million in recent years to $22 million in 2015. The folks at the Star seem to have put a lot of effort into avoiding paying taxes on their downtown printing and distribution center. And it’s easy to see why; what the Star prefers not to pay toward mental health is small compared to what they would avoid paying toward Kansas City schools ($10 million), Kansas City ($2 million), and Jackson County ($1 million).

Certainly, corporations can and do make the case that county property assessments are too high. And many businesses in Kansas City benefit from corporate welfare and crony capitalism of some kind. But shouldn’t we expect better from our newspaper?

If the Star wants to call out local and state governments for cutting spending, giving tax breaks to the wealthy, or handing out sweetheart deals, shouldn’t they refrain from seeking the same for themselves? By advocating a kind of “taxes for thee, but not for me” position, the Star risks being accused of nothing less than rank hypocrisy,

Friedman’s Legacy

Posted on by Brittany Wagner

For years now, many Americans have acknowledged the shortcomings of the nation’s public school system. While the 1983 “A Nation at Risk” report is often referred to as the quintessential moment in education history when Americans realized the system was failing—one man had already realized the problem, and proposed a solution, decades before.

Milton Friedman first discussed the idea of educational vouchers in the 1950s, arguing that competition between schools would improve efficiency and drive down costs. The idea became popularized during the 1980 television series Free to Choose.

In voiced-over footage of high school-age children walking through metal detectors before entering an urban school, Friedman said:

Isn’t that awful? What a way for kids to have to go to school through metal detectors and to be searched. What can they conceivably learn under such circumstances? Nobody is happy with this kind of education. The taxpayers surely aren’t. This isn’t cheap education. . . . And what about the broken windows and the torn school books and the smashed school equipment? The teachers who teach here don’t like this situation. The students don’t like to come here to go to school. And most of all the parents. They are the ones with the worst deal. They pay taxes like the rest of us. They are just as concerned about the kind of education their kids get as the rest of us are. They know their kids are getting a bad education, but they feel trapped. Most of them see no alternative but to continue sending their kids to schools like this.

So while lawmakers have looked to improve education through top down policies like No Child Left Behind and Race to the Top, Milton Friedman was the first to acknowledge that parents should be in the driver’s seat of their child’s education.

Today, a majority of Americans support educational choice. The Friedman Foundation recently released the 2015 Schooling in America Survey, which found that 63 percent of school parents support educational vouchers. When asked to rank the actions a state government should take in intervening in low-performing schools, 41 percent ranked supply vouchers/scholarships as number one. Twenty-six percent ranked convert the failing schools to charter schools as the number two solution. Clearly, Americans favor options. Still, many do not know about the man behind the idea.  

This is why the Show-Me Institute is celebrating Friedman Legacy Day on July 31 (register now). Oklahoma State Senator Jabar Shumate will discuss the effects of school choice on urban issues. Unlike Missouri’s legislature, Oklahoma’s policymakers have helped establish two private educational choice programs—a voucher program for students with disabilities and a tax-credit scholarship for low-income students.

Please register for this event now.

Krafting a Bad Subsidy Package in Columbia

Posted on by Michael Rathbone

Good news everybody, Boone County is looking to give a tax break to Kraft Heinz so it can modernize! Specifically, it will award Kraft Heinz a 75 percent property tax abatement, which will save the company $4 million in property taxes. But wait, there’s more. Once Kraft Heinz finishes work on the plant, it will end up employing 150 fewer employees.

You read that right. There will be fewer people at this plant when all is said and done. Companies are free to employ as many people as they deem necessary. However, giving out a subsidy to a company so that it can employ fewer residents just doesn’t make sense. Even if the tax abatement led to higher employment at the plant, Boone County would be hard pressed to justify the subsidy since it does not lead to the kind of economic growth that would justify it being awarded.

If Boone County really wants to become a place where it makes sense to locate a business or expand a current one, it should rethink how it taxes property (more on this in another post). There are potential tax improvements that could help not only Kraft Heinz, but all the other businesses in Boone County as well.

Boone County is following the example of many other counties and municipalities by granting subsidies to a local business. That doesn’t mean it’s a good idea. These types of subsidies don’t, in the long run, provide a boost to the local economy. They just make it more likely that the county will hand out more subsidies in the future. 

Use This Money: To Build a New Stadium

Posted on by Michael Rathbone

There has been a lot of back and forth about building a new riverfront stadium in Saint Louis. Putting aside for a moment the merits (or lack thereof) of publicly financing a new football stadium, there hasn’t been much said (if anything) on what it would take to privately finance a new stadium. A new report from the NFL can give some idea of how much someone would have to pay.

The NFL report analyzes the market conditions in Saint Louis and its ability to support an NFL franchise. Despite the report finding that Saint Louis fares poorly compared to other cities when it comes to attendance and ability to generate additional support for the team, it still had the ability to generate significant revenues for the team through Personal Seat Licenses and ticket sales. In fact, the report estimates that the sale of Personal Seat Licenses can generate a little over $200 million in revenue.

That’s not nearly enough to finance construction of a new stadium, but it is a start. Whether private investors can receive returns to justify spending a further $700-$800 million is an open question. However, if no private individual or group can find a way to make a profit off a new stadium, why should policymakers think that a new stadium would generate a net gain for taxpayers? Likewise, if the stadium was such a great investment, why bother with any private investment? Let taxpayers reap the whirlwind (if it exists).

This new report from the NFL indicates that there is at least some private money available to build a new stadium. Instead of working on ways to spend even more taxpayer money on stadiums, maybe policymakers should work on convincing private individuals to build a new stadium with their own money.

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