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.

NAACP Says Litigation Likely In Fight For School Choice

Posted on by Audrey Spalding

When six failing schools close in an unaccredited school district, where do the students go?

That is the question facing Saint Louis officials and one that may have significant implications for state education policy. At the end of the school year, the six Imagine charter schools in the City of Saint Louis will close. The Imagine Schools have had a host of financial and academic troubles, with some reports raising questions of financial misconduct.

When the Imagine schools close, they will leave 3,000 or more students searching to find a new school. The NAACP, in a letter to state Commissioner of Education Chris Nicastro, estimates that there are only 500 open seats in city charter schools. The remaining Imagine school students’ only publicly provided option is to attend a school in the city’s public school district. The problem is, Saint Louis Public Schools (SLPS) have been unaccredited for years.

Though the Missouri Supreme Court recently ruled that students in an unaccredited district like SLPS must be allowed to transfer to an accredited district, the Imagine school students are not being given the option to attend nearby suburban districts.

Recently, the Saint Louis City firefighters filed a lawsuit to allow their children into nearby accredited schools. It now looks likely that the NAACP will join the fight for expanded educational choice in the Saint Louis area.

The NAACP is strongly advocating that the Imagine students be given a chance to choose a quality school in an accredited district. Adolphus Pruitt, the local NAACP’s director, has said that litigation is likely, and that attorneys are being interviewed.

When will the pressure in Saint Louis be enough to convince state legislators that a solution is needed? Saint Louis would not be mired in this situation if public funding for education could follow students to any school of their choosing. Instead, public education dollars in Missouri are tied to school districts, and subject to a convoluted and outdated funding formula. If legislators do not bring forward a solution, it seems likely that educational choice will be forced through more litigation.

Why a Whopping Increase in Missouri’s Cigarette Tax Is a Bad Idea

Posted on by Amy Lutz

While growing up in the small border town of Atchison,
Kan., my father, uncles, and family friends made frequent trips
over the Amelia Earhart Bridge to a small convenience store in
Buchanan County, Mo. They usually returned with a full gas
tank and small quantities of alcohol or cigarettes. I was too
young to understand what prompted these excursions. Now I
know. My father and others took advantage of Missouri’s low
excise tax rates on gas, alcohol, and cigarettes. As these trips
continued, sales and tax revenue were redistributed from Kansas
to Missouri. While the convenience store in Missouri remained
busy, the Shell station near the bridge in Atchison was often
empty.

Missouri benefited at Kansas’ expense as a direct result
of maintaining a lower tax rate in a competitive marketplace. In
2009, the QuikTrip on Southwest Blvd. in Kansas City, Kan.,
moved its location 100 feet into Missouri to take advantage of
the lower excise taxes. However, the situation that prompted this
move may be about to change.

Last fall, the Missouri Secretary of State gave approval to
a coalition of Missourians, led by the American Cancer Society,
to circulate a petition proposing an increase in the cigarette tax
from 17 cents to 90 cents per pack, a whopping 429 percent
increase. If passed, this proposal will stop the heavy cross-over
traffic of people coming to Missouri from other states to buy
cigarettes at a bargain price. In fact, business likely will shift in
the opposite direction – out of Missouri into other states.
Kansas’s 79-cent cigarette tax would certainly serve as an
appealing alternative to Missouri’s potential 90-cent tax. Under
the proposed increase, those who purchase cigarettes in Missouri
would pay $2.20 more per carton than they would if they
purchase cigarettes in Kansas.

While raising excise taxes might appear to be a simple way to
increase revenue, it can backfire and may even cause a loss in net
cigarette sales. Missouri’s two largest metropolitan areas, Saint Louis
and Kansas City, border states with much higher cigarette taxes,
prompting residents of neighboring Illinois and Kansas to make their
purchases here. Missouri’s 17-cent tax is certainly attractive to residents
of Illinois, where the tax rate is 98 cents, and Kansas, where the rate is
79 cents. Missouri benefits when residents of other states who come to
Missouri for work, sporting events, etc., voluntarily make such purchases
here.

Missouri Attorney General Chris Koster, a proponent of raising
Missouri’s cigarette tax, claimed in the Kansas City Star that a fivefold
increase in the state’s cigarette tax would lift revenue by a commensurate
amount – from $90 million a year to close to $500 million. But Koster’s
figures do not account for the major decrease in sales likely to occur
should the tax hike become a reality. It is silly to think that cigarette
sales will remain the same if Missouri smokers are required to spend
$14.60 more per carton of cigarettes. Remember, when you tax
something, sales will decrease. Increasing a cigarette tax might result in
less smoking, but it will also drive down purchases of cigarettes.

Patrick Fleenor, former senior economist at the Tax Foundation,
provides a telling example: When Michigan increased its cigarette tax
rate from $2.50 to $7.50 per carton (25 cents to 75 cents per pack), sales
decreased 26.7 percent. During the same period, cigarette sales greatly
increased in Indiana and other neighboring states with lower cigarette tax
rates. Should Missouri follow in the footsteps of Michigan, convenience
stores in Atchison, Kan., are likely to become much more profitable and
Missouri will experience a loss of cigarette revenue because fewer
cigarette will be sold on the eastern side of the border.


Amy Lutz is an intern at the Show-Me Institute, which promotes market
solutions for Missouri public policy.

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