Callaway County Does Not Need An EEZ

Posted on by David Stokes

Let the citizens of Callaway County beware: You may think that a nice little sprinkling of government subsidies — done through something called an Enhanced Enterprise Zone (EEZ) — will be a painless and effective way of promoting economic growth and prosperity in your county. However, EEZs and other similar mechanisms have a long and sorry history of producing poor results. This lack of success has not discouraged the Missouri Department of Economic Development (DED) from actively promoting them around the state. The DED’s goal is starting programs; whether it works is not important. Marshall McLuhan famously said that the medium is the message. With the DED, the program is the purpose.

The dirty little secret that the DED and the Callaway County EEZ proponents do not want you to know is that EEZ, Tax Increment Financing (TIF), Community Improvement Districts (CID), and other subsidies do not work. They do not succeed in growing the local economy. All this myriad of subsidies does is shrink the local tax base, encourage more government planning of the economy, and increase the chances of eminent domain abuse. As a famous Swedish economist once said, “It is not by planting trees or subsidizing tree planting in a desert created by politicians that the government can promote . . . industry, but by refraining from measures that create a desert environment.”

If you ask a DED official how effective EEZs are, they will tell you how much investment has occurred within EEZs over the past decade. Their hope is that you will assume all the investment is because of the EEZ. Their lie-by-omission is that they have no idea how much the EEZ aided that investment and how much would have occurred anyway. The consensus among economists is that special tax incentives such as EEZs matter little, and only a very small portion, if any, of investments within a zone can be credited to the subsidies. (This should not be a surprise unless you believe politicians have the ability to see the future and know exactly what business to invest taxpayer dollars in 25 years from now.) Yet the DED will happily let people assume the incentive makes all the difference while hoping nobody asks any follow-up questions.

Most people would claim to oppose corporate welfare, but that is exactly what is being hoisted upon us in Missouri; one special taxing district at a time. This is all being done under the cover of fixing blight, without any real definition of what that means. But the word “blight” is not empty talk. It means many things. One thing it means is that Callaway County is taking a major step toward much heavier use of taxpayer subsidies for all types of commercial activity. Once you have blighted a major portion of the county, it is but a short walk to the point where almost every development in Callaway has some type of subsidy. That is not a “maybe.” That is the current reality in Saint Louis and Kansas City.

The Callaway supporters of the EEZ say that other cities have used these tools with great success (see the KRCG Channel 13 news story on Nov. 29, 2012, for one example). In this, they are completely wrong. The can say it works elsewhere all they want, but they might as well be staring you in the face and telling you the sun rises in the north. The City of Saint Louis has been using urban redevelopment tools such as Enterprise Zones and many others for half a century. How has it worked out? “Mapping Decline,” by Colin Gordon, is a 2008 book that documents the decline of the city of Saint Louis. The book’s research is exhaustive. The dominant theme is the use of urban renewal tools and tax subsidies (including EEZ) — and their absolute, total failure. From the conclusion:

The overarching irony, in Saint Louis and elsewhere, is that efforts to save the city from such practices and patterns almost always made things worse. In setting after setting, both the diagnosis (blight) and its prescription (urban renewal) were shaped by — and compromised by — the same assumptions and expectations and prejudices that had created the condition in the first place.

I can already visualize Callaway residents saying, “But we’re not Saint Louis.” You are correct, you are not; so do not follow a path that will make your city repeat Saint Louis’ mistakes. It is one thing for Saint Louis to try these projects and have them fail. It would be even worse for a place such as Callaway to follow that example already knowing that the entire process has failed. At least the trailblazer who takes the wrong path has an excuse.
Tools such as EEZs fail because politicians cannot see the future better than markets can. Callaway County should focus on low taxes for all businesses, not special incentives for a few. It does not need an EEZ.

David Stokes is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy.

Exercising Can Be Taxing

Posted on by Kacie Barnes (Galbraith)

You know all those excuses you give about why you do not get to the gym? Not enough time, you are too tired, you are having too good of a hair day — I have heard them all. But like it or not, this year you could have one less (actually valid) excuse.

Missouri Rep. Eric Burlison (R-Dist. 133) wants to make personal training and fitness classes less expensive for Missourians. Last week, he filed a bill to exempt fitness and yoga from a state entertainment tax.

At first I thought, gee, this is great news for all those gym-goers and yogis out there (myself included). But there is actually a fundamental drawback to this bill.

Let’s start with the good. The positive aspect is that Burlison is trying to un-do the damage caused by too widely interpreting an entertainment tax to include fitness and yoga classes, which if you have ever attended a boot camp class, you know it is far from entertaining.

The negative aspect is that the bill encourages tax exemptions for certain types of businesses. This gives an advantage to some types of businesses over others. Just because the tax is removed, it does not necessarily mean gym memberships will be less expensive. Gyms and yoga studios could very well just keep the extra profits, and patrons will not receive any of the benefit. Missourians would benefit more from tax reform that seeks to lower taxes on all and broaden the base.

So, on the one hand, yes, it would be great for fitness to be a little more affordable for Missourians. But we cannot ignore the fact that this unfairly favors some types of businesses over others, and does not guarantee cheaper fitness for anyone.

Dr. King And School Choice

Posted on by James V. Shuls

When I was a teacher, every year around Martin Luther King Jr.’s birthday, I would show a portion of Dr. King’s “I have a dream” speech to my class. Dr. King’s powerful oratory skills are to be admired, but more important than his orations is the idea that “all men are created equal.” An idea we find so eloquently written in our Declaration of Independence.

Dr. King was a tireless advocate of civil rights and I am happy to say that most of my students could not even grasp the concept of discrimination based on race.

In recent years, many have begun to call school choice the civil rights issue of our time. This has led many to ask whether Dr. King would have been a supporter of school choice. In a 1997 article, his niece, Alveda King, remarked, “I can’t presume to know exactly what my uncle would say about the current debate over school vouchers and choice. But I know what principles he taught . . .”

Those principles have led her to become an ardent supporter of school choice, including private school vouchers. She writes, “Is it moral to tax families, compel their children’s attendance at schools, and then give them no choice between teaching methods, religious or secular education, and other matters? Is it consistent to proclaim, meanwhile, that America is a nation that prides itself on competition, consumer choice, freedom of religion, and parental responsibility?”

I agree with Alveda that we cannot presume to know what Dr. King would have thought about school choice. Nor can I say whether school choice is indeed the civil rights issue of our time. I can say that school choice works because it gives options and hope to individuals who otherwise might not have them, and opportunity and hope certainly are worthy of our support.

Not Nebraska, Too

Posted on by Michael Rathbone

When thinking of Nebraska, what immediately comes to mind? Some people would say football and some would say corn(husking). Cardinals fans would say it is the birthplace of Bob Gibson. But for policy-focused people such as me, it is an ambitious tax cut proposal.

Recently, Nebraska Gov. Dave Heineman proposed eliminating Nebraska’s individual and corporate income taxes. He also proposed eliminating $2.4 billion in sales tax exemptions (hat tip: Hot Air). This follows on the heels of Gov. Bobby Jindal’s proposal to eliminate Louisiana’s personal and corporate income taxes.

Not all proposals actually become law (case in point: Aerotropolis, thank heaven), but can Missouri really afford to sit back and hope these states, along with Wisconsin and Oklahoma, do not join Kansas in gaining a competitive advantage over us? Last year, my colleague Patrick Ishmael and I released an essay proposing that the state eliminate its corporate income tax. Considering the plethora of states looking at not only axing the corporate income tax, but the personal income tax as well, eliminating the corporate income tax might not be just desirable. It might be necessary.

Missouri is in a border war. It might not have chosen this fight, but it is in it nonetheless. It can respond by doing what it has been doing, issuing development tax credits and hoping for the best, or it can engage in serious reform to help make the state more competitive with its neighbors. The gauntlet(s) has been thrown down, how will Missouri respond?

Kansas City’s Financial Plan: There Is No Plan

Posted on by Patrick Tuohey

Since 2003, Kansas City’s spending has increased by 42 percent, raising the city’s debt to a whopping $1.6 billion (from $517 million in 2003). The city’s population has grown just 4.2 percent in that same time. But there appears to be no plan to halt the spending.

Instead, it appears officials are willing to consider spending even more of the citizens’ taxpayer dollars, not on necessary services, but on items such as sidewalks, bike lanes, and light rail.

Kansas City’s Citizens’ Association, self-described as the city’s oldest non-partisan community organization, presented the astonishing numbers and an analysis of the city’s long-term financial future at a forum on Thursday. Association Chairman Dan Cofran developed a daunting, two-page primer on city finances.

The Association reported that Fitch Ratings downgraded its outlook on Kansas City’s credit to negative. That downgrade does not include the recent Kansas City taxes or the impending 15 percent annual water rate increase to cover a mandated sewer renovation.

Something needs to be done but officials do not appear to know how or where to start, and did not present any concrete plans to address the situation.

Panelists such as Kansas City Councilwoman Jan Marcason and City Manager Troy Schulte only agreed that the city must make the tough decisions that it has failed to do in the past, such as revamping the sewers. However, what those tough decisions might be were barely discussed. Marcason also declined to cite examples of spending that the City Council has rejected.

Even worse, Kansas City seems to have no serious plan for responding to Kansas’ recent tax reductions and eliminations. In fact, Schulte said Kansas City should not “race to the bottom” on taxation and suspected that Kansans would grow to regret the cuts. Again, no plan was introduced to counter Kansas’ recent business-friendly actions.

Panelists did share the view that limits voters have placed on them — such as term limits and requiring approval of the earnings tax every five years — are burdensome. The panel failed to recognize that taxpayers took those steps to try to rein in spending and approvals for every project seeking tax incentives.

Cofran continuously asked how citizens might enforce any long-term strategic plan. Marcason suggested only “working together.” If past actions and this event are any indication, few city elected officials are willing to work together, develop a plan, or make any tough decisions.

Choice, Not Early Childhood Education, Is A ‘Smart Investment’

Posted on by James V. Shuls

What do Missouri Gov. Jay Nixon and Commissioner of Education Chris Nicastro have in common?

Regarding early childhood education, both are absolutely wrong. The governor has made early childhood education part of his platform. Nicastro has stated she is “very encouraged” about this because “the research is very clear” that early childhood education improves educational outcomes.

There is just one problem with that, the research is not very clear. In fact, as the Wall Street Journal just pointed out, “since its creation as part of the War on Poverty in 1965, nearly 30 million children have participated in Head Start at a taxpayer cost of more than $180 billion. The problem is that by the government’s own reckoning the program has never achieved what it promises.”

In the most recent, rigorous federally funded evaluation of Head Start, they found that any positive gains had disappeared by third grade.

If the governor and commissioner really want to follow the research and improve educational outcomes for students, I suggest they look at another federally funded evaluation. The Evaluation of the DC Opportunity Scholarship Program, a voucher program, found that students who used a voucher were significantly more likely to graduate from high school.

Other studies have found similar results. An evaluation of a New York City voucher program declared that “using a voucher to attend a private school increased the overall college enrollment rate among African Americans by 24%.”

Add these to a growing list of rigorous voucher evaluations that have shown positive results. Moreover, not a single study of vouchers has found significant negative effects.

Gov. Nixon called investing in early childhood education a “smart investment.” The real smart investment would be to provide families with more educational options, including private schools.

Part Two: ‘Responsible Bidder’ Does Not Mean ‘Union-Only’

Posted on by Patrick Ishmael

Yesterday, I wrote about St. Louis County’s new restrictions on who could be considered a “responsible bidder” for construction contracts. The county is imposing requirements on businesses that, in substance and practice, have nothing to do with the responsibility of the bidder and everything to do with benefiting organized labor. To do so, the county had to warp the intent of the existing law. “Responsible bidder” as a form of legal art is intended to restrict bidding on a government project to those who (1) can reliably perform the services needed, and (2) can do so at the price promised. In other words, the “responsible bidder” construction is intended to ensure that government needs are met promptly and at the best price, to save and maximize taxpayer money.

The county’s apprenticeship requirement, which I discussed yesterday, is onerous enough, but the “no independent contractors for on-site work” requirement makes the intent of the ordinance — to advantage union labor — all the more explicit. In fact, Saint Louis County’s new regulations may actually hurt many small Saint Louis businesses that are not unionized. Adolphus M. Pruitt, of the St. Louis American, offered this blistering response to the ordinance late last month (the whole thing is worth reading):

Additionally, the bill forbids independent contractors from County construction worksites, specifically those who are self-employed. Most African-American truckers who own their own trucks operate as “independent contractors” and thus are forbidden from working on County worksites.

The bidding process is intended to get taxpayers the best deal for their money, not guarantee a special interest seller special privileges over another interest. Union and non-union labor should have to compete on even terms with one another, and the St. Louis County Council was wrong to give unions this sort of preferential treatment in a process meant to protect the buyer’s interests, not a seller’s. Taxpayers deserve better than this.

Gotta Spend Money To Make Money?

Posted on by Kacie Barnes (Galbraith)

My mom and I went to Las Vegas not long after I turned 21. I cannot remember why we chose Vegas, as neither of us are the nonchalant, carefree type to throw money on a table without an intense fear that we may never see it again. In fact, I do not remember much of that trip. But the most common advice I heard leading up to it was that I needed to play big to win big. (What they do not tell you is that you also can play big and lose big.)

Apparently, in other circumstances, you can play big and always win big if you know the right people and have enough money. Especially if your name is Paul McKee.

I recently wrote about the lack of progress on McKee’s NorthSide Regeneration project in North Saint Louis, despite the $40 million he has already received in tax credits.

One specific state tax credit, that only McKee is eligible for, is set to expire in April. But not if he can help it. Seventeen lobbyists registered on Monday to represent the NorthSide project, which the St. Louis Post-Dispatch notes is the same amount that represents Ameren Corp. and Anheuser –Busch, combined.

When will McKee end his relentless pursuit of tax credits?

Unfortunately, priorities shift when business becomes intertwined with the government. Relying on the government often incentivizes companies to hire people with the ability to work with government, not the ability to complete projects.

Ludwig Von Mises discusses this problem in Bureaucracy (pages 76-77, if you are interested). He writes, “Why bother about bringing out better and cheaper products if one can rely on support on the part of the government? For them [corporate executives] government contracts … and other government favors [are] the main concern.”

This reliance on government favors is not necessarily McKee’s fault; he did not create the system. But this is not an excuse to let it continue. We need to change the system that encourages businesses to spend significant resources on government lobbying instead of investing efforts into their business. It is time for Missouri to cease “business as usual” and put an end to corporate welfare.

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