Finally, A Bill That Promotes Growth: Reducing Missouri’s Corporate Income Tax

Posted on by Patrick Ishmael

Here at the Show-Me Institute we review a lot of bad proposed and enacted legislation, but every once in a while, we find something that could be a gem. I think such a bill may be Senate Bill 661, which in just three pages sows the seeds for a massive realignment of Missouri’s development schema. The bill, introduced by Missouri Sen. Eric Schmitt (R-Dist. 15), is now on its way to a full vote in the Senate. Among other things, the bill would cut Missouri’s 6.25 percent corporate income tax by half within five years to:

  • 5.625 percent for 2012;

  • 5 percent for 2013;

  • 4.375 percent for 2014;

  • 3.75 percent for 2015; and

  • 3.125 percent for 2016 and beyond.

Show-Me Institute Policy Researcher Michael Rathbone and I have talked again and again and again (and again!) about reducing the corporate income tax, which is one of the most destructive taxes in terms of economic growth. As we have argued, eliminating wasteful economic development tax credits would make up for much of the cost of a corporate income tax elimination, assuming legislators are seeking to make the tax cut revenue neutral. SB 661 does not go quite that far — focusing only on tax reduction and not on development tax expenditures — and admittedly, the draw-down is slower than I would like, but it is a great idea and the right direction for Missouri policy.

Who knows? If Missouri starts phasing out its corporate income tax, perhaps the wastefulness of the state’s economic development tax credit system will become clearer.

Status Quo 1 – Kids 0

Posted on by Audrey Spalding

In a sad move, a Saint Louis Circuit Court judge has ruled that Saint Louis Public Schools (SLPS) does not have to pay for students to transfer to a better district, despite the fact that the district has been unaccredited for years.

The ruling is heartless. In essence, Judge David Lee Vincent III argues that it would be too costly to allow Saint Louis City students to choose where to go to school, because too many want to leave. So, instead of allowing those students to escape to a potentially better school, they have to stay to help perpetuate a failing system.

As Robbyn Wahby, executive assistant to the mayor of Saint Louis City aptly tweeted: “Status Quo 1-Kids 0.”

The Circuit Court’s ruling goes directly against a Missouri law that states: “[Unaccredited districts] shall pay the tuition of and transportation . . . for each pupil resident therein who attends an accredited school in another district of the same or adjoining county.”

The judge was able to sidestep that law by citing a 2011 study that estimated that more than 15,000 students who live in Saint Louis City would transfer to a school in a neighboring county if given the chance. The survey estimated that about 8,000 of those students would come directly from SLPS, with the remainder coming from a mix of charter schools and students participating in a voluntary transfer program.

That study estimated that the total cost of paying for transportation and education for those 15,000 students would be nearly $224 million each year. With that amount coming out of SLPS’ budget, SLPS officials testified that losing that much money would put the district at such a financial disadvantage that it could not serve the students who choose to stay.

In light of that evidence, Judge Vincent views the Missouri statute requiring a district to pay tuition and transportation of students who transfer out of an unaccredited district and to an accredited one as an unfunded mandate.

Though I have some questions about the math (15,740 students at $224 million comes to $14,231 per student, which appears to be cheaper than SLPS’ per-student expenditures of $15,861), the estimated cost is a symptom of a bigger problem.

The very fact that 15,000 students in Saint Louis City want to leave for a better school should be evidence enough that severe educational reform is needed. This is not a problem we should push aside because it will take some work to solve.

It is time to prioritize the education of students over the funding of districts. If public education dollars could follow any Missouri student to any school they choose (public, charter, private, parochial, virtual, etc.), then we would not be at this impasse. A wider variety of schools could take on the students from Saint Louis City who want to leave, and ease the potential burden of new students on the public school districts refusing to let city students in.

Frankly, closing bad schools is one option worth considering. If that is what is needed to ensure Missouri students have access to a quality education, then it is the right move.

Episode III: Revenge Of The Rams

Posted on by Michael Rathbone

Officials for the St. Louis Rams football team must submit their counter-proposal for upgrading the Edward Jones Dome to the St. Louis Convention & Visitors Commission (CVC) by tomorrow. It will be interesting to see the Rams’ proposal; however, CVC officials will not release the plan — unless the Rams give them permission (I would not bet on that).

This proposal is integral in determining whether the Rams stay or leave Saint Louis. But what really matters is that the CVC will not let the public review the proposal, which if accepted, could cost the taxpayers millions on top of the $24 million per year that the state, city, and county already pay for the Dome’s construction. The Rams already rejected a proposal from the CVC that would have left the public on the hook for $60 million, so it is reasonable to guess that the public’s portion of the bill in the Rams’ counter-proposal will be much higher.

CVC officials maintain that they are complying with a provision in the lease with the Rams that some information can be kept confidential. However, considering that (a lot) of public money is potentially on the line with this deal, NO decision should be made until the public has a chance to review it.

The Show-Me Institute has a long record of opposing such government “investment.” However, even if the CVC accepts the Rams’ counter-proposal, it should do so only after the people who would actually pay for the project are allowed to see the costs.

Filibudgeting

Posted on by Michael Rathbone

It seems the appropriations process in the Missouri Senate had ground to a standstill before finally passing early Wednesday. What was the cause of the holdup? Apparently, a group of nine senators stalled debate on the budget. The senators argue that the budget fails to set aside enough money for unexpected expenses and that it is out of balance. They also claim that the budget relies on $200 million from one-time funding sources.

Given that Missouri Gov. Jay Nixon’s Executive Budget explicitly states that it is counting on a one-time tax amnesty to help plug the budget shortfall, it would seem that these senators’ grievances are well-grounded. As a general rule, any organization that has a budget should prepare for the worst and not count on rosy scenarios. Unfortunately, rosy scenarios seem to be the only game in town.

It is not hard to imagine WHY the state is relying on overly optimistic outlooks when it budgets. The Missouri Constitution mandates a balanced budget and thus revenue needs to be raised to match expenses or expenses need to be cut in order to match revenues. Neither option is attractive to legislators, thus, we have the current budget maneuvers.

One option to help deal with the budget, which seems to have support from both the left and the right, would be to rein in the explosion in state tax credit issuances. Every new issuance puts the state on the hook for another dollar and every tax credit redemption costs the state a dollar of revenue. The state needs to make serious changes in how it does business; tax credit reform would be a good start.

EEZs Are An EZ Path To Corporate Welfare

Posted on by David Stokes

In a very funny 1983 episode of “Family Ties,” the father, Steven Keaton, reads an FBI file describing his mild 1960s activism as participation in “left-wing attempts to overthrow the government.” Keaton angrily confronts an FBI agent about the charge. “Oh, don’t take it so personally,” the agent airily responds. “It’s just a bookkeeping thing.”

That is pretty much how Columbia city leaders responded to objections to the recent Enhanced Enterprise Zone (EEZ) designation declaring more than half of Columbia as blighted.

“The word ‘blight’ is just semantics,” the Columbia mayor told a crowd.

“Blight” is not semantics. In this context, it is a word loaded with hidden meaning that the mayor and others do not want to discuss. It does mean that Columbia is taking a major step toward much heavier use of taxpayer subsidies for all types of commercial activity. Once you have blighted more than half the city, it is a short step to the point where almost every development receives some type of subsidy. That is not a “maybe.” That is the current reality in Saint Louis and Kansas City.

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. “Call me blighted and give me the money,” as one city councilman stated, may be an oafish example of out-of-control government, but even worse is the abject economic ignorance it displays.

The panoply of subsidies that come into play when a large area is declared blighted have a number of adverse side effects. They 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.”

The Columbia supporters of the EEZ, the same group that supported the recent TIF projects and the downtown Columbia CID, 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. They might as well stare you in the face and tell 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, 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 (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 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.

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

Revisionist TIF History From Columbia’s City Manager

Posted on by Audrey Spalding

The Columbia Missourian has published an overview of the statewide use of Tax Increment Financing (TIF), a development subsidy that is growing in popularity. The article provides a detailed overview, and the Missourian has posted excellent data online. Unfortunately, Columbia City Manager Mike Matthes, in his comments, seems to be fond of revising TIF history.

Matthes cited Independence, a suburb near Kansas City, as an example of a community that has enjoyed success with TIFs. I wonder if he was referring to the Bass Pro TIF in Independence that has failed. The city of Independence has had to kick in more than $4.1 million to cover bond payments associated with the project.

Matthes also said that “(TIF) does prevent and eliminate blight” and “it does increase property value and tax revenue over time.” Though the Missourian highlighted a TIF in North Kansas City that is characterized as successful, it failed to mention the notorious Citadel TIF in nearby Kansas City.

In late 2011, Kansas City officials voted to pay $15 million to purchase property that had been razed and contaminated with asbestos. The Citadel site now sits vacant, and is an example of a TIF project that made an area much, much worse, instead of eliminating so-called blight.

Moreover, earlier this week, the Wall Street Journal characterized Kansas City’s downtown entertainment TIF development, the Power & Light Development, as a “budget hole.” The Journal reports that the Power & Light Development is generating less than one-third of the tax revenue needed to cover debt costs associated with the project. As a result, Kansas City is setting aside $12.8 million to make up the difference.

On the eastern side of the state, TIF does not look much better. Matthes’ statement that TIF eliminates blight and increases tax revenue over time ignores the findings of a multi-year study of TIF and other development subsidies in the Saint Louis area that those subsidies were frequently concentrated in “higher-income communities.” The same study found that retail jobs associated with TIF projects came at a cost of more than $370,000 in taxpayer dollars.

Those findings are not surprising: Years earlier, the Brookings Institution concluded that TIF in Missouri “. . . is used extensively in high-tax-base Missouri suburban areas with little need for assistance . . .”

Perhaps I am being unfair. When Matthes said that TIF has proven to eliminate blight, he may have been referring to the TIF awarded to a Saint Louis area mall. The mall was deemed “blighted” because it lacked a Nordstrom’s. I suppose, because the West County Mall now has a Nordstrom’s, one could consider the “blight” removed.

Terrible New Valet Parking Law In Saint Louis City

Posted on by David Stokes

I can admit there was a problem with valet parking in the city of Saint Louis. Steve Patterson has covered the issue well over at Urban Review. I agree with all of his comments. Too many new restaurants, etc., were operating valet parking like they owned the street. But, in typical government fashion, the city has taken a jackhammer to a fly. Instead of enforcing a process by which certain areas can be dedicated for valet parking at certain times, and then writing tickets for people or companies who violate it (such as a new restaurant who just decides to install valet parking in front of their restaurant and removes parking to do so), the city has taken the opportunity to just regulate the entire industry. Absolute garbage.

The new law will require that every part-time high school kid who parks cars in the summer to give the city $100 (assuming the fee is set at the maximum legal limit) for the right to do so. Even worse is the option for the city to declare an entire part of the city (such as downtown) a “special valet zone” and then only allow one valet company (of the city’s choosing, wink, wink) to operate within that zone. So the city is going to limit competition within the industry, which always works out great. That is why economists use valet parking as the standard example of a natural monopoly in all the textbooks, because parking is a public good that does not operate under the law of supply and demand. (Sarcasm note: parking is not a public good.)

Licensing the people who park cars as valets is a bad idea that will limit youth employment. Regulating the entire industry is a terrible idea. Limiting competition within the industry is the worst idea of all.

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