Missouri’s Low Cigarette Taxes (And Why They Should Stay That Way)

Posted on by Michael Rathbone

The St. Louis Post-Dispatch recently published an article lamenting the fact that Missouri has the nation’s lowest taxes on cigarettes. They are not alone; the Kansas City Star editorial that I wrote about on April 3 pushed for the state to raise the cigarette tax. The Post-Dispatch and Star articles differ on the reasons they want the cigarette tax increased;  however, does it occur to people that there might be negative consequences to raising the cigarette tax?

For instance, stores in Missouri that are on the border with other states attract business from people shopping here in order to take advantage of the state’s low excise taxes. Show-Me Institute intern Amy Lutz recently wrote an op-ed that details the impact such a tax hike could have on interstate commerce.

Also, an increased tax on cigarettes would disproportionately harm the poor. The Post-Dispatch article mentions that raising taxes is an effective method for getting people to quit smoking. Do increased cigarette taxes result in significantly fewer smokers? If smoking is bad for us, and it is OK to increase taxes on that, where does it end? What next, enormous taxes on sugar to finance heavy broccoli subsidies? What about an obesity tax? Isn’t there something offensive about government micromanaging our lives?

TIF Gives Cities An Unfair Advantage Over Other Governments

Posted on by David Stokes

Would you like to be able to unilaterally take some of your neighbor’s money and spend it in ways that benefit you, but not him? As ludicrous as that sounds, we allow local governments in Missouri to do it all the time. The subsidy at fault is Tax Increment Financing (TIF), which allows cities to capture money that would have gone to other taxing entities, such as school districts, and use it how the city desires – in some cases simply to subsidize a new Walmart that will replace an existing Walmart. It works the same in Sugar Creek, Liberty, or anywhere in Missouri: those cities pass TIF laws but the money for the TIF mostly comes from the school, fire, and library districts.

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 development costs.

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. TIF projects have to pass a “but-for” test (demonstrating they would not happen without the assistance) and meet a series of eligibility tests. But those tests are a sick joke and a rigged game, as I can’t find one TIF proposal (out of several hundred) in the entire state over the past two decades that has failed to pass them.

The Briarcliff development in the Northland received a Super-TIF (a rare plan where the developer keeps all the incremental sales taxes as well as all the property taxes) on top of an existing TIF plan, even though the area is thriving and has no legitimate need for public subsidies.

A Chicago-area study of TIF use found that cities that use TIF grow at a slower rate economically than cities that do not use it. The reason is that, with TIF, developers make business decisions based on the subsidy; not economic best uses. That is exactly what has happened in Independence, where the city has had to step in and help make debt payments for the giant Bass Pro Shop development done with a TIF. That is an example of a TIF where the taxpayers are both directly and indirectly on the hook for the developers.

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, of course, is exactly how TIF has played out in Missouri, particularly in Saint Louis County, over the past two decades. The East-West Gateway Council of Governments found that the Saint Louis region has subsidized retail development at a cost of approximately $370,000 for each job created — and these are mostly low-paid retail sales jobs. TIF leads not to economic development but to regional bankruptcy. A similar study of TIF in Kansas City would likely find the same results.

Missouri should dramatically tighten its TIF laws. Jackson County Executive Mike Sanders deserves credit for successfully fighting for a more equitable Kansas City TIF Commission. However, he should go further and work both to implement a countywide TIF commission with jurisdiction over all TIFs in Jackson County (including within Kansas City) and removal of the state law giving cities the right to override TIF commission denials. If those two changes were accomplished, perhaps Missouri could finally have a reasonable TIF policy.

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

Papa John’s and The Case of the Over-Regulated Food Trucks

Posted on by Patrick Ishmael

The St. Louis Post-Dispatch reports that the city has sent out new maps setting out where food trucks can set up shop downtown. Already restricted, the location possibilities for food trucks appear to be getting even more limited, and that’s bad news for food trucks and customers alike.

The updated map draws a 200-foot no-parking-zone around every brick-and-mortar restaurant in the Downtown Vending District, which runs roughly from 18th Street east to Interstate 70/55 and from Cole Street south to Chouteau Avenue.

The trucks also are not allowed within 200 feet of other types of street vendors or within several blocks of Busch Stadium, America’s Center and the Edward Jones Dome. A previous version of the map included suggested areas where food trucks could park; the new version does not.[…]

“Like any new industry or trend, as soon as everyone jumps in, the regulations follow, which often makes sense. In this case, I think the city is over-regulating,” Pi Pizzeria owner Chris Sommers said. “They do need to protect existing businesses, but the 200-foot rule plus the silly Cardinals and Convention Zones are too much.”

You can find the new map here. As we’ve noted in the past, creating special protections like these runs afoul of good policy and the facilitation of greater consumer choice. The city’s new map accentuates and enhances these ongoing mistakes.

For instance, why in the world does Starbucks need protection from taco wagons? Starbucks sells coffee and pastries. That has nothing to do with the food that, for example, Seoul Taco sells.

starbucks

Why can’t a mobile sandwich shop like Taste-D-Burger set up shop on a block where a bevy of sandwich shops — upscale and down — are already competing against one another, and many for years?

sandwich

Why is there a halo around this storefront when The Crack Fox doesn’t even open until 3pm, well after the food truck lunch rush?

crackfox

And here’s my favorite: Why does Papa John’s, which can deliver pizzas across the food truck map, get protections around its brick-and-mortar store, and get de facto protections for its delivery routes around the brick-and-mortar stores of others?

papaj

I have to disagree with the owner of Pi’s assessment that the city needs to be “protecting” existing businesses. There are blocks upon blocks of downtown real estate where lunch is served in permanently-located restaurants well-within the 200 foot halos the city has constructed around neighboring shops — permanent locations that are almost certainly greater threats to each other than the food trucks themselves. But even if you wanted to make sure taco joints weren’t being displaced by mobile taco stands parking on their doorstep, the present regulation is far too over-broad to equitably accomplish that goal.

A food truck taco stand couldn’t sell tacos within 200 feet of a storefront that’s closed at lunch, for Pete’s sake. That’s a policy that Saint Louisans will have a hard time digesting.

What Do You Get When More Than 70 Percent Of Voters Support Anti-TIF Candidates?

Posted on by David Stokes

Apparently, you get a TIF (Tax Increment Financing) anyway. The Ellisville City Council appears to be going forward with a TIF plan despite the overwhelming opposition to it within the city. How can I say “overwhelming opposition”? Well, earlier this month, the two anti-TIF candidates for mayor received more than 70 percent of the total vote. Seems like strong evidence to me that the people of Ellisville do not want this tax giveaway. But city officials nevertheless are going forward with it. Last night, the TIF received preliminary approval, and it is set for final passage in another two weeks. If this passes, it would be one of the most appalling decisions by an elected body I have ever seen. “Let’s enact terrible economic policy AND ignore the will of the voters at the same time!”

The vote last night was 5-2, with the newly victorious anti-TIF mayor and one city councilmember (who also ran for mayor opposing the TIF) voting against it.

I predict the Ellisville charter rules on referendum and recall will quickly become very important in Ellisville if the TIF passes — along with Missouri TIF-related case law involving referendums from this lawsuit.

Missouri TIF Update

Posted on by David Stokes

Tonight is the big night in Ellisville. The just-announced closure of the Best Buy in town should make the choice easier for the city to just join the county sales tax pool, as the difference between what Ellisville would get as an “A” (point-of-sale) city and a “B” (pool) city is now much closer.  It should not be used as an excuse to enter into the proposed Tax Increment Financing (TIF). Cities do not have to play this game. They have a way out – the sales tax pool.

A new Walmart is opening in Jefferson County. Yes, it got a TIF. The property taxes will now be frozen for all the other taxing districts. So, someone please explain to me how the school district is going to pay for educating the kids in the 180 new homes that are part of the project, when those homes will not be paying the necessary marginal taxes for the schools. Oh yeah, the school district will seek to raise taxes on everyone else . . .

Meanwhile, in more positive news, Florissant officials are set to vote next week on approving a development for a Walmart that is being built without a TIF. The Florissant City Council rejected a TIF last year, but the project is going forward because this particular plan makes economic sense. I commend Florissant officials for their discipline, and hope this serves as an example to cities throughout Missouri. This is a good opportunity to remind people that I have nothing against Walmart – just the subsidies that usually accompany it.

Finally, here is the Show-Me Institute’s latest study on the basic structure of TIF.

Richmond Heights: TIF Gone Bad

Posted on by Ben Barnes

Richmond Heights is the latest city in Missouri to dangle Tax Increment Financing (TIF) incentives in front of hungry developers seeking taxpayer assistance. Well, not really the latest. You see, Menards and Pace Properties are just the most recent on a long list of suitors who tried to develop Hadley Township, east of Hanley Road between Dale Ave. and Bruno Ave.

According to the St. Louis Post-Dispatch, Richmond Heights has been entertaining proposals since 2003. Things looked great back in 2006, when the Richmond Heights City Council found a serious suitor in Michelson Commercial Realty and Development. But three years later, Michelson still could not get the financing together even with Richmond Heights officials pledging $46.2 million in TIF. The project was scrapped and Michelson pulled out of the 86 contracts it had signed to purchase all the homes and businesses in the affected area. All told, four separate development plan proposals just like Michelson’s failed.

The (eternally) pending developments have sent the neighborhood into a state of disrepair. Richmond Heights City Manager Amy Hamilton told the Post-Dispatch prior to the City Council’s latest vote that more than 35 properties are in “poor or severely deteriorated condition, and the majority of these properties are owned by land speculators.” Hamilton blames speculators and absentee landlords for the degradation, but more likely, Hadley Township property owners are responding to the incentives the city has offered. Who would really invest significant time and money in home improvements while the city unsuccessfully plots deal after deal to snatch up their properties?

And what do Richmond Heights taxpayers get for all their trouble? With Menards, they get yet another big-box home improvement store on South Hanley Road. If the market really drives Menards, Lowe’s, and Home Depot to locate within a half mile of each other, that is great. But it should not be government’s role to plan the local economy. More importantly, however, taxpayers get to finance $19 million of Menards’ $56.1 million development and $26.6 million of Pace’s $125 million development. (Bonus!)

This really is TIF at its worst.

At Least We Are Transparent About Our Cronyism In Missouri!

Posted on by Audrey Spalding

The Pew Center on the States has published a review of the transparency of state tax incentive programs. Some Missouri legislators, of course, are big fans of tax credits — the Missouri government issued about $500 million last year, and during the 2011 legislative session, some legislators pushed very hard for legislation to create nearly another $400 million in tax credits.

Perhaps because these handouts consume so much of our state budget, our government does pay some attention to where the money is going. As such, Missouri ranked high as one of the states that is “leading the way” in the Pew Center’s study.

While tax credit transparency is a laudable goal, it has accomplished little. Many of our state politicians call for tax credit reform, and then support tax credit programs soon thereafter. Consider Missouri Gov. Jay Nixon, who made news last year when he told journalists that it was time for tax credit reform. And yet later that year, he urged legislators to pass expansive tax credit legislation.

Our state may have a somewhat transparent tax credit system, but taxpayer dollars continue to be misused. Just last week, Missouri Journal reported that Brown Shoe received $2.4 million in jobs training tax credits this year — and is laying off 132 workers. Missouri Journal has also reported that Ford Motor Co. received $1.85 million in job training tax incentives, despite plans to lay off more than 1,000 Missouri workers temporarily. This would have been surprising, if it had not happened before: Despite issuing many of its employees pink slips, Liberty Mutual remained eligible for job creation tax credits.

And, regular Show-Me Daily readers certainly are familiar with the state-level reviews of tax credits with a 2010 audit report that found that the state Department of Economic Development had inflated some job creation numbers associated with tax credit awards, and another 2010 state audit report that found that tax credits are more expensive than advertised. The Governor’s Tax Credit Review Commission report had all kinds of strong recommendations for tax credit reform, but those have, perhaps predictably, not been implemented.

I wonder, if Missouri is considered to be “leading the way,” what is going on in states that Pew considers to be “trailing behind”? It seems we have all kinds of accountability problems with our tax credit programs.  Sadly, transparency seems to have given our politicians enough information to provide tough talk about reform, but not the gumption to implement it.

More Than A Third Of Missouri Is Blighted

Posted on by Bruce Stahl

More than a third of the state of Missouri — 24,870 square miles — is in enhanced enterprise zones (EEZ), areas that must be declared blighted in order to be created. The enhanced enterprise zones cover an area the size of West Virginia. These zones are appealing to local governments because businesses in the area become eligible for certain state and local tax incentives. But regardless of the desirability of enhanced enterprise zones, the notion of blight has lost substantial meaning when it characterizes a third of the state.

Blight is not benign. It can lead to eminent domain abuse. As long as it is this easy to blight a property, no home or business is safe. This is the fear of CiViC, the citizen group that has arisen in Columbia, Mo., to resist the EEZ being considered there. The group fears the city’s blight declaration will lead to eminent domain abuse.

EEZs are in red (map as of 2011)
EEZs are in red (zone boundaries as of 2011)

Consider: the definition of blight for the purpose of establishing an EEZ is exactly the same as the definition of blight for statutes explicitly granting eminent domain privileges. The implication is it can be just as easy to declare blight for eminent domain as it has been to declare enhanced enterprise zones in more than a third of the state.

Clearly, it is time to reform the definition of blight and separate it from the use of eminent domain. This separation has been granted to farmland, and it should be extended to all types of property.

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