So Long, Missouri

Posted on by Audrey Spalding

Today is my last day at the Show-Me Institute. Beginning in July, I will be working for the Mackinac Center for Public Policy, Michigan’s state think tank. While I am excited to return to my home state, I will miss Missouri greatly.

Four years ago, I began at the Institute as an intern, filing hundreds of information requests for school superintendent contracts. I have been fortunate to work with talented and principled co-workers who are passionate about making Missouri a better place to live, work, and start a business. During my time in Missouri, I have learned enough about state and local government to convince me that Ron Swanson is the ideal public official.

At the state and local government level, disinterest allows for the slow deterioration of liberty. Tax credits, for example, can be a very dry subject. But because tax credits are frequently misunderstood, or even ignored, state politicians have gotten away with handing out hundreds of millions of dollars to favored individuals and businesses. Occupational licensing might sound boring, but that is a way the state can make it needlessly difficult for individuals to work.

The same disinterest applies to city government. Few pay attention to the variety of small government meetings in Saint Louis City. But those meetings are where decisions are made to limit where we can eat, limit what we can do with our homes, and limit who can purchase vacant city property. Officials have even paid companies to leave the state. It sounds like a plot from an episode of Desperate Housewives, but it really is true that in Saint Louis City, you can get in trouble for using the wrong trash bins.

I hope Missourians will continue to monitor their elected officials and to ask critical questions about government action. Small and petty people will use government for their small and petty means. Even if you happen to prefer lower grass height, fewer food trucks, or would like to see one building replaced with another, it is important to remember that next time, those powers may be used to accomplish something you find abhorrent.

Instead of hoping that one political party or another prevails, I prefer that government’s power to control our lives be reduced. There are a lot of great, dedicated small activist groups here, and I hope they continue (and succeed) to reduce the size of government.

I am confident that my colleagues at the Show-Me Institute will continue to fight for liberty in Missouri, and I wish them all the best.

How Many Administrators Are Needed To Run One University System?

Posted on by Mary Hopkins

Anyone who has spent time at a bureaucratic agency (think DMV) can attest to the frustration and wasted dollars. Bureaucratic sprawl is just as exasperating and expensive at the university level. Take, for example, the University of Missouri system, which is referred to as UM and includes University of Missouri-St. Louis (UMSL), University of Missouri-Kansas City (UMKC), Missouri University of Science and Technology, and the University of Missouri-Columbia, or Mizzou (with Mizzou referred to separately as MU).

A recent Columbia Daily Tribune article shed some light on the extent to which the administration in the UM system has grown to a quite complex and increasingly burdensome size. From the article:

“UM has a president; MU has a chancellor. UM has a vice president of academic affairs, MU has a provost in charge of academics. UM has a vice president of finance; MU has a budget director. UM has a vice president of research; MU has a vice chancellor of research. UM has a PR office as does MU.”

It is clear that there is significant overlap in duties, which adds to confusion in the system but, more importantly, accounts for unnecessary spending in a rapidly tightening budget. This example does not account for other administrations at state universities in Missouri, such as Northeast Missouri State and Truman State. If the UM system focused on cutting back on costly (not to mention superfluous) administrative expansion rather than chipping away at smaller expenditures such as the university press, they might find it easier to fit into a smaller budget in a much shorter time frame.

As I have said previously, less funding from the state government does not mean that educational quality at Missouri’s colleges and universities needs to suffer. Instead, universities should see it as an opportunity to address the bloated state of their administrations and to re-focus their goals as an educational community. Taking an ax to the beast that has become the oversized bureaucracy in the UM system may seem drastic. But it is far more effective in terms of budgetary savings than the wishy-washy goal of “focusing on strategic priorities” — a phrase that sounds as grossly bureaucratic as the board of administrators that produced it.

Lose-Lose Decision

Posted on by Brenda Talent

This is a day of tremendous concern for the American people. It truly is a lose-lose decision by the U.S. Supreme Court.

For the vast majority of Americans, if you have health insurance that you like, you are either going to pay more for it or lose it. If you do not have it, you will have to buy insurance even if you do not want it or pay an excessive penalty (tax).

We are also going to add almost $2 trillion to our already staggering federal debt.

This ruling does not change the fact that the Affordable Care Act (a.k.a., Obamacare) is bad law and is going to hurt the American people. It needs to be repealed.

Thoughts On Today’s Supreme Court Decision

Posted on by Patrick Ishmael

This morning, the U.S. Supreme Court affirmed the constitutionality of the Affordable Care Act (a.k.a., ObamaCare.) In a twist, rather than finding that the law’s mandate was constitutional under the Commerce Clause (as both the government and plaintiffs asserted) the majority determined that the government’s power to tax — here, to tax not having insurance — saved the law.

In a surprise conclusion to a constitutional showdown, Chief Justice John Roberts joined the Supreme Court’s four liberals Thursday to uphold the linchpin of President Barack Obama’s health plan, the individual mandate requiring citizens to carry insurance or pay a penalty.

By a 5-4 vote, the court held the mandate valid under Congress’ constitutional authority “to lay and collect Taxes” to provide for “the general Welfare of the United States.” The penalty for failing to carry insurance possesses “the essential feature of any tax,” producing revenue for the government, Chief Justice Roberts wrote.

It is difficult to understate the importance of this ruling, now and for the future. In the short term, the core of the Affordable Care Act stands, meaning Americans will still be subjected to one of the most coercive and leviathan government programs enacted in recent memory. Tens of millions will likely lose their current insurance plans, and young people will be especially affected by the law’s provisions. But the Court has also found that the mandate is a tax, meaning that repeal of the law could be as easy as passing a budget bill without the mandate, or the law, in it.

The long-term effects, however, are not irrelevant here. The Supreme Court also found that there was no constitutional basis for the mandate under the Commerce Clause. There are, as it turns out, limits to what the government can regulate under Article I Section 8 of the Constitution. That is a positive thing. Also, the provisions that forced states to expand their Medicaid programs were deemed impermissible under Congress’s spending power, meaning states will not have to choose between expanding their Medicaid eligibility or losing federal funding for their entire Medicaid programs. Those two findings from a policy standpoint are successes, although under the current disappointing circumstances may not seem all that apparent.

This outcome stands as a huge disappointment, but this is not over. Now the solution for turning ACA back has moved in a decidedly legislative direction. Elected officials will have plenty on their plates to consider over the next year when it comes to keeping or spiking the health care law.

After all, according to the justices, Congress enacted a gigantic tax when they implemented ObamaCare. The question now is whether Americans want to pay it.

Tax Increment Financing and Columbia, Missouri

Posted on by David Stokes

Tax Increment Financing (TIF) is Missouri’s bad idea that keeps coming back and refuses to die. Despite TIF’s documented failures, cities throughout Missouri are expanding their use of it greatly. Cities do this because they can have short-term budget benefits from TIF while other government entities, such as school districts, shoulder the burdens. County leaders from both parties in Missouri, including Saint Charles County Executive Steve Ehlmann, Saint Louis County Executive Charlie Dooley, and (to a lesser extent) Jackson County Executive Mike Sanders have seen the harm that TIF is causing their regions and our state. Columbia should reject the expanded use of TIF in its city.

In 2010, Walmart announced that it would close a store located in both Saint Ann and Bridgeton (two suburbs of Saint Louis), and open another store 2 miles away, located solely in Bridgeton. The move seemed, in part, to be an attempt to capture more than $7 million in public subsidies. Even though the Bridgeton City Council approved the subsidy, the $7 million will come primarily from public schools and other taxing districts.

Of course, the subsidy at fault is TIF, which allows cities like Bridgeton to capture money that would have gone to other taxing entities and use it how the city desires — in this case, to subsidize a Walmart that replaced an existing Walmart. Cities gain sales tax dollars right away, while all the other taxing districts bear the burden of having the tax base of the property held steady — while expenses increase — for the next 23 years. Oftentimes, this results in tax increases on the rest of the community. In Liberty, Mo., earlier this year, the superintendent and school board were forced to campaign (unsuccessfully) for a tax increase that they said was necessary due to the harms that heavy use of TIF caused in that community.

TIF allows local government to reimburse developers for some of the project’s costs. With TIF, if a property generates $50,000 in property taxes before it is developed but generates $75,000 after being constructed, the developer gets to keep the $25,000 difference to pay for certain development costs. Fifty percent of sales and other taxes can be diverted as well.

In theory, TIF encourages developers to undertake projects in areas in dire need of economic growth. In reality, TIF is used to subsidize politically-connected developers, to help cities lure chosen businesses from other cities, and to fund an entire cottage industry of urban planners, lawyers, and bankers. There is so little accountability that even if the TIF commissions that are supposed to govern the process reject a proposal, a city can override that determination and go ahead with the project. That is exactly what happened with the Bridgeton Walmart.

TIF has had numerous negative economic effects in Missouri, and in particular in the Saint Louis area. TIF has increased government involvement in the economy, sparked abuse of eminent domain, shrunk the tax base, and made subsidies a permanent fixture of development. Furthermore, TIF has failed at its main purpose: economic growth. The East-West Gateway Council of Governments (the major government planning organization in Saint Louis) concluded that TIFs and other incentives have created jobs at the rate of one retail job for every $370,000 in taxpayer subsidies. That is not a road to growth — it is a road to ruin.

It is a fact that the use of TIF is often accompanied by the abuse of eminent domain. With Enhanced Enterprise Zones (EEZ), the threat of eminent domain abuse may be small, but with TIF, it is very real. Many — if not most — of the examples of eminent domain abuse in Missouri have involved TIF. This includes instances in Sunset Hills, Arnold, Sugar Creek, Rock Hill, and more.

An Iowa study of TIF usage concluded that, “On net . . . there is no evidence of economy-wide benefits, fiscal benefits, or population gains.” Another study from Illinois found that economic growth in cities that did not use TIF was stronger than in cities that did, because TIF subsidies caused an inefficient allocation of resources.

A recent study by Washburn University Professor Paul Byrne for the Show-Me Institute documents how TIF is used in Missouri. Byrne shows that the ability of cities to implement a TIF unilaterally leads to cities making decisions that benefit the city, at the expense of other public agencies. Cities that are authorized to enact sales taxes might push for TIF projects that will generate new sales tax dollars without caring about the property tax dollars that the local school district will have to do without. As a result, public tax dollars can end up funding economically inefficient projects. This is what has happened in the large urban areas of the state, and what will happen in Columbia and Boone County if the use of local tax incentives keeps increasing.

The dirty little secret that Regional Economic Development, Inc. (REDI), the local media, and Columbia city officials 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. 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.”

The Columbia supporters of increased use of incentives within the city say that other cities have used these tools with great success (for example, an editorial in the Columbia Daily Tribune, Aug. 13, 2009). In this, they are completely wrong. The City of Saint Louis has been using urban redevelopment tools such as TIF and many others for half a century. How has it worked out? Mapping Decline, a 2008 book by Colin Gordon, 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 — 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 hear readers in Columbia saying, “But we’re not Saint Louis.” You are right, 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 to these projects and have them fail. It would be even worse for a city like Columbia to follow that example with the knowledge that the entire process has failed. At least the trailblazer who takes the wrong path has an excuse.

Missouri should dramatically tighten its TIF laws. At a minimum, TIF should be decided at the county level, and the ability of cities to override rejections from TIF commissions should be eliminated. I hope that Columbia can lead the way to a new realization for our state, where economic development works for everyone when governments do not play favorites and businesses succeed or fail on their own merits.

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

If I Was On The Columbia TIF Panel Tonight . . .

Posted on by David Stokes

. . . I would ask the other panelists for answers to these questions about Tax Increment Financing (TIF) and centralized economic development policy:

1. To the business people on the panel, I would ask: Why, as supposed believers in capitalism and free markets, are you supporting proposals that will increase the use of centralized economic planning in Columbia? Do you believe that central economic planning by governments is desirable, because that is exactly what TIF is? Do you think it is the proper role of government to pick which companies and projects get special tax breaks, while others do not?

2. To the city officials on the panel, I would ask: Why, when Columbia is doing better than most other areas in Missouri, are you attempting to implement policies that are very expensive, have a terrible track record of creating jobs, and have a record of failure throughout the state? Although, frankly, it is probably a waste of time to ask those officials anything. TIF increases the power and involvement of government. If you are a city manager, what is not to like?

3. There are many questions to ask of former Saint Louis Mayor Vince Schoemehl. I would ask about the abject failure of Saint Louis Marketplace as a failure of TIF. I would ask about the failure of Saint Louis Center as a failure of central economic planning. I would ask, who came up with the idea for the disappearing police car? – not for any specific reason but it was a famous ad in Saint Louis political history so I would ask about it. Mostly though, I would ask why he thinks taking money and property from other people to fund things he likes can possibly be good public policy that should be imitated around the state.

TIF has been a total failure in our state, particularly in Saint Louis. Columbia should avoid expanding its use. And, yes, the panel should have included at least one person who is skeptical of the benefits of TIF and local economic planning. Finally, TIF absolutely and regularly involves the abuse of eminent domain. Unlike Enhanced Enterprise Zones, there is a track record of eminent domain abuse associated with TIF usage in Missouri.

Missouri Can Compete – Despite Recent Poor Performance

Posted on by Joseph Haslag

Consider two teams on divergent paths — the Missouri Tigers and the Missouri Widgets.

Clearly, the football Tigers are on the rise — coming off seven consecutive winning seasons. This fall, they will join the “best football conference on the planet” — namely, the SEC, or Southeastern Conference, which has produced the last six national college champions.

Just as clearly, the other team — to which all of us who live and work in Missouri belong — is in a state of serious and prolonged decline.

The Widgets compete in what we will call the Great Midwestern Conference, consisting of Missouri and the eight neighboring states. As recently as 1995, Missouri ranked third in this conference in per capita income — the best measure of relative prosperity. Now we are down in fifth place — behind Illinois, Kansas, Nebraska, and Iowa. On current trends we are in danger of falling into last place — behind Oklahoma, Tennessee, Kentucky, and Arkansas.

Over the 14-year period from 1997 through 2010, Missouri was the slowest-growing state in the region. It ranked dead last in GDP growth (i.e., growth in annual output of goods and services). It also lagged behind all but one other Midwestern state (Illinois) in growth of employment.

In reality, the Great Midwestern Conference is not all that great in terms of economic performance. Between 1997 and 2010, the growth in output for the U.S. economy as a whole was 33 percent. None of the nine Midwestern states matched or exceeded that, but three (Nebraska, Iowa, and Oklahoma) came close at 32 percent, and another three were not far off the pace, with Arkansas and Kansas both at 29 percent and Tennessee at 25 percent.

The three obvious laggards within the conference in terms of their overall growth over the 14 years were Illinois at 19 percent, Kentucky at 17 percent, and Missouri at 14 percent. How bad was Missouri’s performance from a national perspective? The state ranked 48th out of the 50 states in GDP growth, ahead of only Ohio and Michigan, down at 7 and 1 percent, respectively.

What ails Missouri?

In our judgment, two factors merit close attention and study.

First is the continued allegiance of Missouri lawmakers to a faulty set of policy prescriptions in trying to pick economic winners and losers. Second is the failure to implement serious tax reforms to improve Missouri’s competitiveness.

Show-Me Institute policy analysts and scholars have documented numerous instances of how the generous (or, to be more accurate, the wasteful) use of state tax credits for targeted commercial developments has failed to produce promised results.

In recent years, Missouri has issued hundreds of millions of dollars in new tax credits on an annual basis, and the bill for those tax credits has grown alarmingly. In fiscal year 2013, Missouri expects state tax credit redemptions to cost the state roughly $866 million in lost revenues. That is more money than the state spends from general revenues on prisons and public safety.

With the money that would be saved from eliminating costly and unproductive state tax credits, our state could reduce or eliminate the corporate income tax — benefitting not just a few favored businesses, but companies across the state, along with others that might want to move here.

All the evidence points to the conclusion that businesses migrate to (and continue to invest and flourish within) locations that do not waste taxpayer money in trying pick winners and losers . . . and concentrate instead on maintaining a favorable environment for all businesses.

Andrew B. Wilson is a resident fellow and Joseph Haslag is chief economist at the Show-Me Institute, which promotes market solutions for Missouri public policy.

Please, Columbia, Learn From Saint Louis’ TIF Mistakes

Posted on by Audrey Spalding

On Tuesday, the Columbia City Council will hold a panel discussion about how Tax Increment Financing (TIF) works. Former Saint Louis City Mayor Vincent Schoemehl will be one of the panelists.

Schoemehl is perhaps the best person to educate Columbia residents about the pitfalls of TIF. In the early 1990s, he supported the first TIF in Saint Louis, which city-backed bonds partially financed. The project was (and is) a failure, and resulted in Saint Louis taxpayers having to help foot the bill.

Schoemehl has also been on the receiving end of TIF. He is the president and CEO of Grand Center Inc. In 2002, Saint Louis agreed to provide TIF to Grand Center, and gave the nonprofit, in the words of St. Louis Post-Dispatch reporter Jake Wagman, “broad and almost unilateral powers.” Wagman wrote that Grand Center had the power to “approve or reject building designs, dispense up to $80 million in tax incentives and acquire land by eminent domain.”

Columbia residents should also be aware of Saint Louis’ more recent adventures with TIF. Saint Louis City politicians approve massive public subsidies for large, unwieldy development projects with alarming regularity (search for “tax increment financing”). Discussions about Ballpark Village, the perpetually changing development that has yet to happen, have entailed large amounts of TIF.

Saint Louis is also home to the NorthSide TIF, one of the biggest TIFs in the country. That development would involve $390 million in TIF, if only a court would rule that the TIF agreement between the developer and the city was legitimate. Today, NorthSide property remains largely vacant.

And, do not forget the East-West Gateway Council of Governments study of the use of development subsidies in the Saint Louis region. That study found that retail jobs subsidized with TIF (and some Transportation Development District subsidies) came at a cost of more than $370,000 in public dollars per job.

As my colleague David Stokes would say, I wish someone had written a book about the decades of development subsidy failures of Saint Louis. Oh wait, historian Coin Gordon did. As Gordon wrote:

In practice, blight is less an objective definition than it is a legal pretext for various forms of commercial tax abatement . . . Redevelopment policies originally intended to address unsafe or insufficient urban housing are now more routinely employed to subsidize the building of suburban shopping malls.

For more on the revisionist TIF history that has been spouted in Columbia, click here.

Support Us

The work of the Show-Me Institute would not be possible without the generous support of people who are inspired by the vision of liberty and free enterprise. We hope you will join our efforts and become a Show-Me Institute sponsor.

Donate
Man on Horse Charging