Feeling At Home In The Dome

Posted on by Michael Rathbone

I recently attended a St. Louis Rams football game at the Edward Jones Dome. The Rams were playing the Green Bay Packers and much to my dismay, the visiting Packers fans seemed to outnumber the Rams fans (if the Packers fans in attendance were not a majority of the crowd, they were at least a significant minority). This fact was distressing in and of itself, but after watching the Rams get shellacked, I remembered something worse. The Rams want the public to help finance upgrades to the Edward Jones Dome.

The Rams want to massively upgrade their stadium, and have the taxpayers pay for a large part of it. Yet the Rams struggle to even fill more than half the stadium on game day with their own fans. I oppose public subsidies for sports stadiums on principle and it makes even less sense to give public subsidies to a team that struggles to fill the stands.

There is no economically compelling reason that the public should subsidize sports stadium construction, whether or not the team sells out every home game. It is also hard to see, with the Rams at least, that there is a quality of life case to be made. If the Rams want to risk their own money to renovate their stadium, they should be free to do so, but the only way I am willing to help Stan Kroenke, the Rams’ owner, foot the bill is to shop at Wal-Mart.

Dominoes In Columbia

Posted on by Kacie Barnes (Galbraith)

Yesterday, I wrote about Columbia’s generous offer to American Airlines. City officials offered a $3 million revenue guarantee over the next two years if the airline agreed to provide service to Columbia Regional Airport. Today, we learned that Columbia City Council members approved this offer at a meeting yesterday.

I know Columbia Mayor Bob McDavid has a catchy-sounding goal of “40 in 2020” — meaning, to have 40 percent of mid-Missouri airline passengers using Columbia’s airport by 2020. But doling out subsidies is not the best way to strive for this goal.

The revenue guarantee enables American Airlines to break even on each flight. But what about Delta, which already services Columbia without subsidies? Let’s look at an example. Airlines have a minimum amount they can charge for each ticket before they start losing money — say it is $200. But because Columbia is helping American, that airline now can provide fares at $150. Delta, on the other hand, does not have this extra help and cannot lower its prices below $200. Which flight will passengers choose? Unless they have an unwavering love of the Delta Biscoff cookies, they will choose the cheaper American flight; and this is how Delta now will be at a disadvantage in the marketplace.

Delta officials know this, and already warned the city that they will expect a similar subsidy if the American deal goes through. I expect that we will now see a domino effect.  Chances are, Columbia will have to spend taxpayer money to keep Delta from leaving the airport, even though they were already providing service there for four years. There is also a third player. Frontier Airlines is scheduled to begin service to Columbia in a few weeks. They will have good reason to ask the city for a revenue guarantee as well.

The city created an artificial need for other companies to now require subsidies that previously they did not expect or request. Thank you, Columbia, for giving us an example of how subsidies can cause harm to a city.

Kansas Rolls Out the Red Carpet to Missouri Companies

Posted on by Brenda Talent

For as long as anyone can remember, Kansas and Missouri have been rivals. It may have started in the Civil War era, but the Border War has never really gone away, particularly on the battlefield of economic growth. Earlier this year, Kansas raised the economic development stakes dramatically by enacting massive state tax reforms and reductions. Kansas is aiming to bury Missouri — leaving the Show-Me State hopelessly behind in terms of new business and capital formation.

Don’t believe it? If so, that’s only because our governor and most of our lawmakers and business leaders have yet to wake up to what has happened.

For many years now, the economic development agencies in both states have fought to a draw, poaching business from each other through targeted tax credits and other subsidies to induce individual businesses to move from one side of the border to the other. Local governments have compounded the problem by offering tax incentives of their own to cater to a tiny contingent of well-connected companies, choking funds from libraries, schools, and other public services dependent on local tax revenues.

This high-stakes game was a win-some-lose-some proposition for both states, played out in a particularly frivolous way in the Kansas City region when corporations moved a handful of miles one way or the other to gain a temporary tax advantage – a situation not unlike the short-sighted Tax Increment Financing (TIF) wars seen in Saint Louis County. Then Kansas got serious about economic growth.

In May, Kansas Gov. Sam Brownback signed the biggest tax cut in the state’s history. The new law cuts the top personal income tax by more than a point to 4.9 percent, well below Missouri’s top rate of 6 percent. That would be cause enough for concern in Missouri if that was all Kansas had done. But more boldly, Kansas cut its tax on the non-wage pass-through income of businesses such as limited liability corporations (LLCs) and subchapter-S corporations (S-Corps), reducing taxes on the income generated from approximately 191,000 Kansas businesses to a rate of zero. Millions of small businesses nationwide are organized as LLCs and S-Corps that enjoy many of the legal benefits of a traditional corporation while being taxed like partnerships. A tax rate of zero on this income is awfully hard to beat, freeing capital for Kansas entrepreneurs to reinvest in their businesses and spend in the market.

The excitement brewing in Kansas does not have to stop there. Missouri may not have the chance to be the “first” to embark on the sort of economic development revolution taking place in the halls of Topeka, but it does not have to be the last. Significant and similar tax reductions and reforms are achievable in Missouri, if there is a political will for it in Jefferson City.

But what happens if Missouri does not act? The state will almost certainly be left behind — not only by Kansas, but by other smart, pro-growth leadership across Missouri’s western border. This year, Nebraska cut its personal income taxes and has primed the pump for future reductions. Oklahoma is seriously considering phasing out its income tax entirely, including deep near-term rate cuts.

If Missouri lawmakers do not arm the state with sound, broad-based, free-market tax reforms of their own, the state risks economic defeat at the hands of her cross-border rivals in one of the most important games imaginable: the one that will determine our future prosperity. We can turn this game around, but time is running out.

Brenda Talent is executive director and Patrick Ishmael is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy.

Columbia: You Can’t Dance At Two Weddings

Posted on by Kacie Barnes (Galbraith)

It looks like Columbia, Mo., officials have never heard that old phrase, “You can’t dance at two weddings.” The city recently offered a substantial incentive package to American Airlines, enticing them to provide service to Columbia Regional Airport. Too bad they forgot about those other airlines already serving the airport. Oopsy daisy.

Incentives often appear to be an easy solution to spur economic development. But this plan is now backfiring for Columbia. Delta has served the Columbia market since 2008 —  without any special government incentives. Now that American has been offered a two-year revenue guarantee of $3 million, Delta is reconsidering its service to Columbia.

In a letter from Delta Senior Vice President Robert Cortelyou to Columbia Mayor Bob McDavid, he states, “While we welcome competition in the marketplace, this revenue guarantee puts Delta at a severe disadvantage by subsidizing American Airlines at Delta’s expense. This is unacceptable.”

Cortelyou emphasizes an important point. If Columbia gives a subsidy to one airline, it creates unfair competition and puts the other companies in that market (Delta and Frontier) at a disadvantage.

Delta officials did state that the airline will exit the Columbia market if they are not offered a similar package. Their threat exemplifies why cities like Columbia should not provide benefits to some companies and exclude others in the first place. If Columbia meets their demands, the city will waste even more scarce public dollars. There is no reason to bribe airlines to serve Columbia.  If there is passenger demand to warrant increased service to the airport, companies will provide it without subsidies, just as Delta has been doing. Doling out subsidies to these companies takes money and resources away from other actions that could be better investments for the city.

However, at this point, Columbia has dug itself a hole and the only option may be to provide similar incentives to Delta, if the deal with American goes through. The good news is that it would only be a two-year commitment. If city officials act prudently, they will prevent it from extending beyond two years.

Kansas City Among The Nation’s Worst For Tourism Taxes

Posted on by Patrick Ishmael

Long-time Show-Me Daily readers know that Kansas City is not exactly a tax haven. As the Kansas City Star‘s Yael Abouhalkah has noted, the City of Fountains already has one of the highest tax burdens in the Midwest. But according to a report published this week in the Wall Street Journal, it appears K.C. also has the unfortunate distinction of having one of the highest tax burdens on tourists in the nation.

Car-rental companies and airlines say heavy taxes on their services damp demand. With rental cars, some consumers, particularly leisure travelers, are discouraged from travel or opt for smaller cars to hold down the price of a rental, where taxes can sometimes exceed the car cost.

“Taxes clearly have an impact on consumer behavior,” said Richard Broome, spokesman for Hertz Corp.

A survey last year by the U.S. Travel Association, a nonprofit industry group, found 49% of respondents had altered plans because of high travel taxes, such as by staying in less-expensive hotels and spending less on shopping and entertainment. Ten percent of people surveyed said they had changed city choices for trips because of taxes.

Kansas City’s tax levels rank just behind mega-cities such as Chicago, New York City, and Boston, and in a competitive travel market where fuel is expensive and money is tight, every increment of tax can have consequences. I love my hometown, but does Kansas City have the amenities of Manhattan that would allow it to get away with charging a little more for a hotel? Of course not. As Policy Analyst David Stokes noted last year in a commentary about hotel taxes in Jefferson City, “hotel tax votes are often an easy choice for voters, because it can seem like an attractive idea to tax somebody else to fund your own public service or community asset.” But as we have noted before on this blog and in print, hotel taxes are not just a tax on tourists. They also are a tax on the city’s competitiveness, as the Wall Street Journal also notes.

Unfortunately, Kansas City’s abysmal tax ranking(s) probably will not change anytime soon. Not only have the city’s leaders spent citizens into a hole over the years — raising the city’s debt levels to among the worst in the region — but they seem intent on larding up the city’s budget with taxpayer-funded developments, from streetcars to convention hotels to entertainment zones. This is not a sustainable path. The city must change course.

The DED Gets Audited . . . Hilarity Does Not Ensue (Part 3)

Posted on by Michael Rathbone

The final part of the Missouri auditor’s report, which was released in September, on the Department of Economic Development’s (DED) Division of Business and Community Services (BCS) deals more with the governor’s office than it does with the BCS. According to the report, the DED paid for more than 160 flights for the governor’s office. Close to $80,000 of that was allocated to the BCS. Of the 121 flights the auditor’s office reviewed, 99 were for the governor to publicize economic development incentives and the creation of jobs. Twenty-two of the flights had no clear benefit to the DED or the BCS.

This year, the governor’s office and mansion received more than $2 million in appropriations. If the governor wants to fly all over the state trumpeting new factory openings, then at the very least, he should be using his own office’s funds. Personally, I think a press release would be sufficient.

It should be noted that the governor’s office does not just charge expenses to the DED. According to a separate audit of the governor’s office,  from January 2009 to June 2011, the governor’s office charged approximately $1.7 million in expenses to other state agencies.

It is stuff like this that gets people’s heads shaking. If the governor thinks he needs more money to do his job, he should request additional appropriations, not rack up expenses as he sees fit and have other agencies foot the bill. Even the audit report agrees when it recommends that:

The Office of Governor discontinue the practice of using other agency appropriations to pay the operating costs of the Governor’s office. The Office of Governor should request funding levels sufficient to pay all operating costs of the office and mansion from its own appropriations.

Due to the economic slowdown and subsequent loss of revenue, the state has had to tighten its belt. The governor’s office should be no exception.

Post-Dispatch Still Wrong On Taxes And Growth

Posted on by Patrick Ishmael

Last week, I wrote about a St. Louis Post-Dispatch editorial that suggested tax rates are ultimately immaterial to whether an economy grows. That is a questionable assertion on its own, but too often it seems like the paper’s primary objective has less to do with resolving problems of economic growth than about raising state revenues.

Of course, the paper’s institutional impulse for greater government spending is not an isolated one. Last month, the liberal-leaning Missouri Budget Project (MBP) produced a report bemoaning the fact that state spending had not grown at the same rate as the state economy in recent years. Assuming the state government tried to raise its share of the economy, as the MBP seems to prefer, that would mean millions, if not billions, of dollars in new spending that would have to be funded somehow, likely through tax hikes. As the newspaper noted, there is a pretty robust bipartisan consensus of “no new taxes” in Missouri, and nationally the president was clear on a similar question, way back in 2009: “You don’t raise taxes in a recession.” Pretty straightforward, I think.

Like MBP and the Post-Dispatch, we all want the neediest among us to be supported and our schools to be properly funded, but I strongly disagree with the suggestion that the “if only” here is “more spending.” “Spending” is not a sufficient answer to fix the state’s problems. And as to what the size of the state budget should be? Perhaps Missourians prefer having more money in their pockets rather than less. Perhaps they believe they can spend their money better than the government. Policymakers should respect this revealed preference and concentrate on reforms, not raising revenue.

Columbia Should Refrain From Raising Hotel Taxes

Posted on by David Stokes

The late United States Senator Russell Long used to say that everyone’s ideal tax policy was, “Don’t tax you, don’t tax me, tax that fellow behind the tree.” Nowadays in Missouri, that “fellow behind the tree” is usually a tourist. Officials in Columbia, Mo., are considering paying for an airport terminal expansion with an increase in the city’s hotel tax to 7 percent. That would be a poor decision for the city.

At some level, taxing tourists, via special hotel taxes or other means, is appropriate. There is wide agreement that people are less price-sensitive when traveling and will absorb some additional taxes without changing behavior. So, my complaint is not with Columbia’s current 4 percent hotel tax, which is reasonable by municipal standards. I object to the fact that the first reaction of many cities when they are looking for new revenues is to raise the hotel tax. If the people of Columbia want and need a larger airport, they should pay for it. They should not try to obtain a free lunch by passing off the bill to tourists.

The estimated cost of the terminal expansion is $21 million. Is there another way to pay for that without increasing taxes? Absolutely. A decade ago, the Saint Louis suburb of Florissant privatized its water system. Missouri-American Water paid $14.5 million for it. Columbia, which is much larger than Florissant, operates its own water and electric company. Privatizing either (or both) of those operations could readily pay for a desired airport terminal expansion, if one is truly needed.

The question as to whether terminal expansion is truly needed is fair. The airport currently has just 21 outgoing flights from two carriers per week. The eventual goal (taken directly from the city’s own study) is to add “one or two” commercial air carriers and “a recurring flight” to Chicago. I am not an aviation expert, but I think taxpayers should demand stronger evidence of a true need before investing $21 million on the hope of a few more regular flights per week. Missouri has already experienced one disastrous airport expansion. Saint Louis is stuck in a vicious cycle where it is forced to keep its landing fees high to pay for the hundreds of millions of dollars in airport bonds it issued to pay for its new — and now totally unnecessary — runways.

Voters in two major Saint Louis suburbs rejected hotel tax increases (on top of the already high regional hotel tax) by wide margins in 2010. Those voters said enough is enough to tax increases and government growth. They noted the harm the tax increases would have done to hotels in those two cities. If given the opportunity, Columbia residents should consider sending the same message.

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

Crestwood Says No To Tax Incentives

Posted on by Kacie Barnes (Galbraith)

Remember being a kid and running out to spend all of your allowance at the ice cream truck, just to have your long-anticipated sno-cone pop right out of the paper and land smack in a pile of dirt before you could get one lick? (Did that only happen to me? Awkward.)

Obviously when I was 6 years old I lacked the foresight to bring my sno-cone to the kitchen table, or simply save my money for something better than an artificially colored high-fructose corn syrup treat. But as an adult, I think carefully about my purchases and investments to determine whether they are necessary and beneficial to me.

And I appreciate when cities make careful decisions about spending residents’ money, even when others around them do not.

I commend the Crestwood Board of Aldermen for scrutinizing the use of taxpayer dollars for the Crestwood Mall commercial redevelopment. (See link for project description.)  Board members opposed the heavy use of tax incentives for developer Centrum Partners, despite neighboring cities’ use of incentives for similar projects (such as Kirkwood, Webster Groves, Affton . . .). During the Oct. 9 meeting, the Board voted to defeat a proposal to use $26.6 million of public financial assistance to Centrum via tax incentives.

Centrum’s plan included one subsidy, Tax Increment Financing (TIF), and two additional taxes, which would put Crestwood’s sales tax at 10.745 percent. Neighbor Kirkwood’s sales tax is 8.175 percent.

It sure is enticing to follow the route of surrounding municipalities that used subsidies such as TIF to create shopping centers that took business away from the now vacant Crestwood Mall. But should a commercial center be heavily supported with public dollars? Would it benefit the city to have such high sales taxes? They are right to question the amount of taxpayer money going into this development.

The St. Louis Post-Dispatch reported that the project may be re-visited at the Oct. 23 Board of Aldermen meeting. Hopefully, city officials will continue to stand firm against subsidies for this project.

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