Kansas City Dead Set On Its Dead-End Development Ways

Posted on by Patrick Ishmael

Last week, the Kansas City Star compared the Kansas City region’s race-to-the-bottom tax incentive competition to economic cannibalism. The newspaper cited a series of government-backed deals that have continued the region’s decades-long beggar-thy-neighbor development strategy. While all of the projects noted are cringe-worthy, one deal in particular takes the cake.

In January, Kansas City Mayor Sly James announced that Lockton — a large insurance provider based in the Country Club Plaza — would remain in its current location. Notably:

When Lockton officials announced in January they would remain in their building at 444 W. 47th St. through 2030, city and development agency officials said details of the state aid package were being negotiated. Mayor Sly James also said no city incentives would be involved.

And negotiate they did. The state kicked in almost $12 million in incentives to make sure Lockton did not move. And the city? Contrary to the mayor’s initial claim, the city did throw in an incentive package for the company, giving Lockton a 50 percent personal property tax break. As it turns out, even when we are told at a high-profile press conference “for jobs” that the city will not throw taxpayer money into the pot, the city just might be throwing money into the pot.

Maybe — just maybe — the city’s economic development plan is dysfunctional. Kansas City has one of the worst tax burdens and debt burdens in the Midwest. In the last decade, the city built an entertainment district/fiscal sinkhole to help make its stagnating convention center more marketable, “discovered” that the city also needed a government-backed hotel to better link the district and the convention center, and then decided it needed a government-backed trolley to tie all of its government-backed projects together. Kansas City, in short, is not unlike the state in general — an economic basket case, chasing one “hot industry” after another with tax credits and other incentives, but failing to anchor sustainable growth.

You do not build prosperity as the People’s gambler. You build it as the steward of the People’s tax dollars — fast to save, slow to spend, and eager to facilitate a level playing field for all of its citizens. Kansas City officials should reconsider the trajectory they are setting for the city.

We Are Not The Only Ones Discussing Corporate Taxes

Posted on by Michael Rathbone

It seems that the Show-Me Institute is not alone in its desire to eliminate the corporate income tax. James Pethokoukis, a columnist at the American Enterprise Institute (AEI), lists several reasons eliminating the corporate income tax would be a good thing. Here are a few:

* The corporate income tax hurts workers. AEI economists Kevin Hassett and Aparna Mathur have found that “corporate tax rates affect wage levels across countries. Higher corporate taxes lead to lower wages. A 1 percent increase in corporate tax rates is associated with nearly a 1 percent drop in wage rates.”

* As (Bloomberg View) points out, “The current system often amounts to double taxation, since income earned by a business is subjected to the 35 percent corporate rate, then taxed again when it’s paid out as a dividend.”

* “Corporate income taxes have a highly significant and negative effect on long-term growth,” according to the Tax Foundation.

My colleague Patrick Ishmael and I have proposed eliminating the corporate income tax and making up any lost revenue with the elimination of economic development tax credits, which cost the state about as much as the corporate income tax generates. Not only would this have the positive impact of getting rid of an economically harmful tax, but it would reduce the government’s ability to pick winners and losers, distorting investment decisions and imperiling overall growth. Now is the right time to make this change.

The Missouri Pension Problem

Posted on by Michael Rathbone

My mother and father are both on Missouri public pensions. Thus, it struck close to home when I discovered that state pensions are facing some financial difficulty. According to recent information from the Pew Center for the States, Missouri faces a $60 billion shortfall when it comes to paying for health and pension benefits for retired state workers. The current funding ratio for the pensions is 77 percent (asset value to total liabilities), which is less than the 80 percent level many experts believe is the minimum level required for a pension to be fiscally sustainable.

Unfortunately, in many cases, the financial situation of these pensions is worse than the Pew report indicates. The 77 percent figure comes from an aggregation of several pensions. Individually, many pensions have funding ratios below 77 percent. In 2011, the Missouri State Employees’ Plan (MSEP) had a funding ratio of 79.2 percent, but the Missouri Department of Transportation and Highway Patrol Employees’ Retirement System (MPERS) had a funding ratio of 43.3 percent.

To make matters worse, the state’s monetary contributions to some of these plans is below what is required to keep up with the plans’ new obligations (this includes interest on obligations, which in the case of MSEP, is not fully funded). Thus, in many cases, the financial situation of these pension plans is getting worse, not better.

The Missouri Legislature has taken steps to deal with the pension shortfall. The state raised the retirement age to 67 from 62, along with requiring the workers to contribute 4 percent of their pay toward their pension benefits. Given the current financial situation of some of these pensions, I would suggest an additional common sense change.

The state should index the retirement age to life expectancy. Thus, as life expectancy increases, the retirement age would increase along with it so that the entire plan would be on firmer financial footing. This would not be the only change that could be made, but it would be a rather simple one to accomplish.

Michigan’s Mamtek: Yet Another Reason Missouri Should Abandon Film Tax Credits

Posted on by Audrey Spalding

Apparently Missouri representatives failed to show at the annual Association of Film Commissioners International Show in Los Angeles. Jerry Berger writes that at the show, exhibitors tout state and local film tax incentives in the hopes of luring film production.

“The payoffs can be fantastic,” Berger writes, sounding, not surprisingly, like a former film industry public relations employee.

Well, maybe for film producers. The Show-Me Institute has shown that film production jobs have not increased in Missouri since the state began offering its film production tax credit; that Missouri’s film tax credit has subsidized questionable expenditures; and that state taxpayers have helped fund the production of  saccharine films.

Other studies have found film production tax credits lacking when it comes to job creation, and there have even been instances of outright fraud associated with state film tax credit programs.

If that is not enough to sway those who love the idea of taxpayer-funded film production, consider the case of Allen Park, Mich.

Michigan’s film tax credit program inspired the City of Allen Park to spend nearly $40 million to turn an old building into a film production studio; the state kicked in nearly $3 million.

Today, no films have been made, the promised jobs have not been created, and some estimate that the bonds the city sold to support the project will take 28 years to pay off – costing taxpayers $100 million. The city also has experienced a severe downgrade in its credit rating.

Sadly, Allen Park sounds a lot like the City of Moberly, Mo., and its failed development bet with tax credits and local subsidies. The latest news is that the CEO of Mamtek paid himself $30,000 each month with bonds taken on by the city.

State and local officials have better things to do than to fly to Los Angeles to lure film production teams to Missouri with taxpayer dollars. Why not consider Missouri Gov. Jay Nixon’s Tax Credit Review Commission’s recommendations for tax credit reform? The commission recommended that many of  Missouri’s tax credits be capped or eliminated, including the film tax credit.

Kansas City Trolley Proposal Will Likely Have to Do Without Federal Grant

Posted on by Patrick Ishmael

The Kansas City Star reports that federal grant money which city officials hoped would subsidize part of the city’s streetcar proposal probably will not be coming after all. Higher property and sales taxes along the train’s corridor will likely remain as the primary sources of funding for the city’s $100 million rail project. However, with the federal government’s denial of funds, city officials will have to find another $25 million elsewhere. From the Star:

Mayor Sly James said today that he had not received confirmation of the denial, but strong indications are that Kansas City will not get the grant.

“They loved our application,” James said, but he added that other cities are farther along with their streetcar plans and have their local funding in place.

Kansas City is still trying to get that local funding set up. In fact, ballots go out today asking local voters to create a downtown taxing district for streetcars.

This is — and always has been — a vanity project for city officials, and the vanity continues. Not only are there plans in the works to extend the trolley to the south and east, but all signs point to the city charging ahead with the current proposal despite the apparent funding shortfall. That should put Kansas City and Jackson County taxpayers on high alert as the city starts getting creative with how it funds the project.

As I have argued, if there is a real market demand or need for a streetcar, the private sector should do it. Public buses already serve that route. With the denial of federal funding, Kansas City should take this as an opportunity to rethink whether it really needs a streetcar, or whether it would be better off saving its money for something more important.

Kansas City Eminent Domain Will Harm Residents

Posted on by Brett Gall

According to KSHB, Kansas City Councilman Jermaine Reed has delayed a vote to proceed with the eminent domain condemnation process for holdout landowners on the site of a planned $57 million East Patrol Division/Crime Lab police campus. Hopefully, the two-week delay will help the soon-to-be-displaced property owners better voice their concerns.

The Show-Me Institute has repeatedly highlighted the harms of eminent domain. For example, the exercise of eminent domain power disproportionately affects the poor, destroying struggling neighborhoods. As one affected resident told me via e-mail, “You don’t destroy the neighborhood to make it safer.”

Additionally, while displaced residents are owed “fair market value” for their property, government often inadequately compensates property owners for their losses. This is especially pronounced in a time of depressed housing prices when, as eminent domain professional Rick Rayl observes, “Condemnees are penalized because they are forced to sell at a time when no reasonable seller would do so.”

Kansas City resident Ameena Powell protests the new police campus location. (Photo Credit: Michael Mahoney)
Kansas City resident Ameena Powell
protests the new police campus location.
(Photo Credit: Michael Mahoney)

The police campus project appears to follow the usual patterns of driving out low-income residents for public investment. Ameena Powell, a property owner in the project area, told me via phone that the city provided three property appraisals ranging from $23,000 to $55,000. That is a $32,000 margin of error in a ZIP code where the annual per capita income is less than $20,000.

This $32,000 difference highlights the problems that arise when cities, not markets, price property for sale. While the city often adopts the highest of several appraisals, appraised values can vary wildly. Because appraisals determine the city’s offer, this may force some property owners to sell their property on the cheap following unusually low appraisals. Worst of all, the appraisals ignore personal reasons for valuing a property.

This might dramatically impact individuals’ lives. In the KSHB story, Teri Merriweather, a resident of the soon-to-be-demolished neighborhood, said that “some people still have mortgages, and what the city is offering isn’t enough or is just enough to pay off their mortgage . . . So they have nothing to go buy a new home with.”

The consolidation of police resources to save taxpayer dollars is a praiseworthy objective. However, alternative sites (or possibly even a one-block move, as some residents have suggested) deserved more consideration than the city granted.

More Than Puppy Love 2: A Better Film Than Winter’s Bone?

Posted on by Audrey Spalding

On Tuesday, I spoke with Mark Reardon on KMOX about Missouri’s film tax credit program. Though he agreed with me that it is pretty indefensible for taxpayers to subsidize hotel stays and large living allowances for well-paid actors and directors, Mark pointed to critically-acclaimed films that have received the credit (Winter’s Bone and Up in the Air) as examples of success.

Sure, Winter’s Bone received $260,000 under Missouri’s film tax credit program. And the film did receive great reviews. But the state actually paid more to the film More Than Puppy Love 2, the (apparent) sequel to More Than Puppy Love, a 2002 film that IMDB users panned. One wrote that “This just might be the worst movie ever made.”

I do not know what reviewers said about More Than Puppy Love 2, because I could not find any references to it. But I do know that state taxpayers paid more than $285,000 to have that movie made here in Missouri. I wonder if the puppy used in the film was counted as one of the “jobs” associated with the production of More Than Puppy Love 2. There have been more dubious job claims made when justifying film tax credits.

If you love film, or anything else creative, the last thing you should want is for it to receive taxpayer funding. Some of the best works of art, films, and books are controversial — as they should be. Censorship and the funding of saccharine works begins when taxpayer dollars allow politicians and bureaucrats to get involved in deciding what is, and what is not, art.

Double Trouble In Maplewood

Posted on by Mary Hopkins

The St. Louis Post-Dispatch reports that the Maplewood City Council voted Tuesday night to ban food trucks from operating within city limits. Additionally, the City Council moved forward with a redevelopment plan for the Deer Creek Center, approving the area as a Community Improvement District (CID) and giving a stamp of approval to the redevelopment agreement. In one fell swoop, the City Council managed to limit competition in the food service business and pave the way for yet another development project that will use Tax Increment Financing (TIF).

Policy analysts for the Show-Me Institute have written extensively about food truck regulations, and now Maplewood has jumped on the regulation bandwagon. City Council members who voted in favor of the ban said they were concerned that the food trucks would “cannibalize” existing businesses in the area. I think they are confusing cannibalism with another “c” word that is vital to any market-driven society: competition. Protectionism is bad for new vendors in the short term, but also bad for consumers in the long run because competition improves choice and helps keep prices reasonable. Yet, in Maplewood, because a new food concept is creative, mobile, and relatively inexpensive, it has brick-and-mortar restaurant owners running to the City Council crying foul. Government should not be putting limitations on ingenuity and entrepreneurship.

As if the food truck prohibition was not enough, Maplewood officials moved forward with the plan to redevelop the Deer Creek Center, likely to be paid in part with TIF. Although the Saint Louis County TIF Commission rejected the request for $8.5 million in public funding in January, it would only take a 5-2 vote from the Maplewood City Council to approve the funding. According to the Post-Dispatch, that is expected to happen when the City Council meets later this month. This is yet another example of a city overriding a county TIF commission so that the city can impose its will on the entire county.

Legislators Who Opposed Corporate Welfare Receive Low Grades

Posted on by Audrey Spalding

The Missouri Chamber of Commerce has released its 2012 voting scorecard. State legislators are graded based on how they voted during the past legislative session on the “most important issues.” The Chamber did not post what those issues were, so it is difficult to discern how grades were awarded.

But several Missouri state legislators who received low grades happen to be strong supporters of free-market policies and/or opponents of corporate welfare.

Take Rep. Jay Barnes (R-Jefferson City). The Missouri Chamber gave him an ‘F’.’ I certainly do not agree with everything that he proposed during the 2012 legislative session (nor do I agree with everything that any other lawmaker discussed in this post has sponsored). But Barnes sponsored several bills in the wake of the Mamtek scandal that were designed to limit the Missouri Department of Economic Development (DED) and local governments from irresponsibly awarding large subsidies to corporations.

Rep. Paul Curtman (R-Pacific), who was given a ‘D,’ also sponsored some good legislation aimed at limiting corporate welfare. Curtman sponsored a bill that would require two-thirds of area voters to approve local property tax development subsidies. He also sponsored one of my favorite bills, which would allow people to enter some professions that require a state license without obtaining a license, as long as they do not advertise themselves as being licensed. Do we really need to license interior designers, private investigators, and cosmetologists?

Sen. Jason Crowell (R-Cape Girardeau) was awarded a ‘C’. In my book, Crowell deserves an A+ for taking strong stands against tax credits. Various state departments award hundreds of millions in tax credit dollars every year, frequently with little to show for it. Some state tax credits have been created for just a single company. Crowell has filibustered against these handouts, and during the 2012 legislative session, sponsored a bill that would subject tax credits to the state budgetary process. He also sponsored a bill that would limit tax-delinquent developers from receiving property tax subsidies.

Rep. Jeanette Mott Oxford (D-St. Louis) was awarded the lowest grade. She has introduced bills with which I disagree. But Oxford’s “Good Jobs First” bill would have gone a long way to help bring more transparency and accountability to Missouri’s corporate subsidy programs.

I hope that Missouri legislators continue to fight bills that increase corporate welfare, as well as continue to try and roll back some of our existing corporate welfare programs, regardless of grades received from the Missouri Chamber of Commerce.

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