“Norwood Hills CC: No Sweat and Plenty of Gain”

Posted on by Patrick Ishmael

Two weeks ago I wrote about Norwood Hills Country Club in Saint Louis, which in 2006 was issued a $1.1 million Historic Preservation Tax Credit (HPTC) from the state of Missouri. Rarely do you see an extensive write-up about the “whys” and “hows” of an individual tax credit, but in July 2005, the industry publication Club & Resort Business wrote a long story about the renovations at Norwood Hills and how the club got the tax credits which helped pay for it. The article offered indispensable insight into the club’s internal tax credit discussions, with the apropos headline, reused above, “Norwood Hills CC: No Sweat and Plenty of Gain.” Notably (emphasis mine):

The two-and-a-half-year process of applying (to both state and federal agencies) was arduous and intensely bureaucratic . . . But in February of this year [2005], Norwood Hills was finally notified that it did indeed qualify to be included on the registry. And with the honor came a huge financial benefit: specifically, the ability to earn tax credits for 45 cents of every dollar spent on the renovation project.

How did the club get 45 cents on the dollar? The state HPTC offers 25 cents on the dollar for qualifying renovation expenses, but the federal version of the HPTC offers an additional 20 cents on the dollar for those expenses. At the Show-Me Institute, we talk a lot about state incentives because we are, after all, a state-focused think tank. However, taxpayers should understand that there oftentimes is more than just state money involved in renovation and building projects like this — so much government money, in fact, that nearly half of the cost of a multi-million dollar renovation to a private golf club could be underwritten with tax credits. Have taxpayers gotten their money’s worth? I report, you decide.

One other noteworthy tidbit from the article is that the original idea of making Norwood Hills a Historic Place came from a real estate developer — who apparently did not think Norwood Hills was that historic of a place (emphasis mine):

Another huge boost to the renovation project came after a Norwood Hills member who is a real estate developer suggested that the club, which hosted the 1948 PGA and has a long and rich connection with St. Louis-area social history, look into the possibility of applying for placement on the National Registry of Historic Places. Successfully securing that status, the developer member advised, would then qualify Norwood Hills, which operates as a for-profit corporation, for renovation tax credits.

“[The member] felt we could qualify not so much because of the club’s history or architecture, but because of the distinction of our members in the St. Louis community through the years,” Wright says.

If Norwood Hills as a place was not itself historic, what exactly was the Historic Preservation Tax Credit preserving? “History” is no doubt in the eyes of the beholder, but for taxpayers on the outside looking in at Norwood Hills, what they gained in this process is of considerable interest, sweat or no sweat.

Why On God’s Green Earth Can Cities Override The County TIF Commission?

Posted on by David Stokes

I have been able to determine that the best and worst laws are in Missouri. This is the best law. But, what is the worst law? From the perspective of bad public policy, I think the law giving authority to cities to override a county TIF (tax increment financing) commission may be the worst law in the state (RSMo 99.825(2). Yesterday’s St. Louis Post-Dispatch has a long story about this issue (link via Combest).

Both the Saint Charles and Saint Louis County Executives have been leading the fight against TIF, to their great credit. They are dead right that TIF is nothing more than cities pursuing their interests at the expense of everything else, all while leading to the economically harmful scenario of developers chasing subsides.

Mayor Conrad Bowers of Bridgeton is totally wrong with this quote in defense of TIF:

“Cities have a legitimate right to do what they think is in the best interest of their community and it certainly was in our best interest to keep Walmart in the city of Bridgeton . . .”

What he is so wrong about is that by using TIF, the city is also making tax decisions that impact every other tax district in the area: school, fire, community college, zoo-museum, county, library, and more. If they were acting only with city money, that would be one thing. They are not. They are acting with everyone’s money, and in a manner that will increase Bridgeton’s sales tax collections while hurting the property tax base of all the other districts.

There is no more important policy change in Missouri than removing the ability of cities to override a county TIF commission’s rejection of a TIF proposal. For more on the Show-Me Institute’s work on TIF and the closely-related sales tax pool, check out these links.

David Stokes to Appear on McGraw Show

Posted on by Ben Barnes

Tune-in to KTRS 550 AM at 9 a.m. on Thurs., March 15 to hear about the negative impacts of the proposed Ellisville TIF. Show-Me Institute Policy Analyst David Stokes will be on the McGraw Show to discuss the proposal, which would finance a new Walmart Superstore, and why it is bad for both Ellisville and the rest of Saint Louis County.

Read David’s testimony that was presented to the Saint Louis County TIF Commission.

Stiff Necks and Sore Shoulders: A Statewide Concern

Posted on by Michael Rathbone

The state is taxing the wrong things. For those of us who are employed, April 17 looms and a nice massage sure could relieve some stress. That is, if we have enough left in our paychecks after a visit from the taxman.

However, if Missouri would eliminate the income tax and instead tax services such as massages, shoe repair, beauty salons, and tuxedo rentals (all of which are exempt from the state sales tax), we can shift the tax burden to those who CHOOSE to use such services and away from people’s paychecks.

While pondering my income tax burden, I started to wonder just how many services are exempt from the state sales tax.

According to the latest data from the Tax Administration, out of 168 services surveyed, Missouri slapped taxes on only 26! Now, being in favor of low taxes myself, on the surface, that does not necessarily seem to be a bad thing. However, considering that all workers in the state are forced to pay income taxes, wouldn’t it be better to eliminate the exemptions for services that a select group of people use? Then the extra revenue generated could be used to lower the personal income tax. Sure, one would have to pay more for a massage, BUT he/she would have more income to pay for it. The tax burden then would shift to only people who use such services.

Would such a broad-based sales tax harm Missouri? Studies show that taxes on consumption have a less negative impact on GDP growth per capita than taxes on personal income, and personal income tax cuts for lower earners would be most effective for economic recovery.

Tennessee has not been harmed because of its reliance on a broad-based sales tax. Tennessee has no personal income tax and taxes 67 services (at a higher rate, too: 7 percent vs. 4.225 percent in Missouri) and yet it has surpassed Missouri in economic and population growth. This tax structure might not be the only reason for Tennessee’s success, but I think it is fair to say that Tennessee’s economic growth has not been hindered due to a heavy reliance on a broad-based sales tax. Considering that Missouri ranks 49th out of 50 states for job creation, broadening the sales tax base and lowering the personal income tax rates (even if it means more costly massages) does not seem like a bad idea.

Don’t Mistake Taking For Giving

Posted on by Bruce Stahl

This editorial in the Springfield News-Leader argues that the Missouri Legislature should follow the lead of certain charitable foundations and private donors in spending more money on higher education in the state. The piece is titled: “Passion for education now: Hopefully, state officials will learn from those who give.”

However, if the state is going to spend more on higher education, then it is going to have to take it from taxpayers. Taking is the opposite of giving. The state is not learning anything from charitable donors if it uses tax revenue, its primary source of funding, to increase spending on higher education. Spending other people’s money is not charity.

Let’s give credit where it is due; the editorial nicely honors those who have donated money toward the cause of helping others. For instance, it praises the generosity of folks like the late Lorene Thompson Brooks, who donated $4 million toward the “need-based scholarship program Corps of Opportunity and two athletic scholarships.” And it (rightfully) lauds the donors who gave $14.4 million in donations towards a university’s capital campaign – $4.4 million more than the hoped-for $10 million. I cannot help but wonder if these individuals would have been able to be so charitable if the state had taken more of their money.

The argument that the state should mimic the example of private donors, taken to its logical conclusion, undermines real charity. When the state spends more, taxpayers have less money to donate.

Let’s hope the state remains an environment of less taking and more giving.

Calvin Coolidge: The Best President You’ve Never Heard Of

Posted on by Amity Shlaes

On Tuesday, February 28, 2012, Amity Shlaes spoke at Saint Louis University's John Cook School of Business at an event organized and co-sponsored by the Show-Me Institute. The topic of the talk was Shlaes' latest book Coolidge — due for release June 26 — which discusses the presidency of Calvin Coolidge with a focus on the effectiveness of his laissez-faire policies in restoring the turbulent economy of the early 20's to "normalcy."

The City of Ellisville Versus the Saint Louis County TIF Commission

Posted on by Ben Barnes

Last night, Show-Me Institute Policy Analyst David Stokes testified against the use of tax increment financing (TIF) before the Saint Louis County Tax Increment Financing Commission. Ellisville officials are seeking TIF to finance a $49 million redevelopment of 16 acres on the southwest corner of Manchester and Kiefer Creek Roads. Sansone Group, the proposed developer, plans to build a Walmart.

The Commission voted 7-4 against using tax incentives to finance the development, but despite the commission’s opposition, we may very well see a Walmart Superstore in Ellisville. That is because, in this case, the Commission’s recommendation has little practical effect. The Ellisville City Council still has final say and the negative recommendation’s only effect is to require a supermajority vote of the City Council (five of seven members), whereas a positive recommendation would have required just a simple majority (four of seven).

The Ellisville situation exemplifies just how broken the TIF system is in Saint Louis County. Despite overwhelming opposition from the County (all seven negative votes came from County representatives), Ellisville could still easily get its TIF. This approval process favors point-of-sale cities and plays down the importance of the County TIF Commission’s decision.

The Missouri Legislature needs to revisit the TIF approval process in Saint Louis County. In order for a TIF to pass, the local city government and the county commission should each have to approve the project, independent of one another. Independent approval requirements would encourage collaboration between cities and the county, in contrast to the current adversarial process that threatens the sales tax pool and encourages point-of-sale cities to abuse eminent domain.

Charles Pavlack, the Commission chairman and a former Ellisville City Council member, told the St. Louis Post Dispatch: “For us to say we’ll take the moral high ground and make a brave stand to turn down TIF, when others have used the same method to take our business, doesn’t make sense.” But this should not be about Ellisville versus Saint Louis County. After all, there is overwhelming evidence that an Ellisville TIF is bad for everyone, including Ellisville. According to the East-West Gateway Council of Governments, TIF creates one retail job for every $370,000 in taxpayer subsidies. As David Stokes testified last night: “That is not a road to growth — it is a road to poverty.”

TIF Is A Bad Idea That Refuses To Die

Posted on by David Stokes

Tax increment financing (TIF) is the Rasputin of Saint Louis County – the bad idea that keeps coming back and refuses to die. Despite TIF’s documented failures, Ellisville and interested developers are considering the establishment of a new TIF district in the southwest quadrant of Clarkson and Manchester Roads. The TIF district would take the tax dollars generated by the development and divert them back to the developer. County leaders from both parties, including Steve Ehlmann in Saint Charles and Charlie Dooley in Saint Louis, have seen the harm that TIF is causing our region. The TIF commission and the city council should reject this proposal.

TIF has had numerous negative economic effects in Saint Louis County. TIF has increased government involvement in the economy, sparked abuse of eminent domain, 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 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.

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.

Consistent with those findings, cities’ heavy use of TIF has distorted economic growth and subsidized less efficient, politically-favored developments in Saint Louis County. Citizens are free to choose between shopping at Walmart or mom-and-pop stores, but cities should not give Walmart an advantage over their competition through subsidies.

Everyone wants a “do-something” leader. So, even though the evidence says TIF is bad for the region’s economy, municipal leaders support TIFs within their city. They can claim political credit for the “new” businesses, while playing kick-the-can with the adverse consequences for the other taxing districts, like the schools. Most residents of the Rockwood School District do not live in Ellisville; they have no way of voicing their opposition.

I urge this TIF commission and Ellisville to recognize that the constant quest for retail tax incentives is harming the region’s economic base. By passing this TIF, Ellisville might gain in the short term, but at the expense of other taxing districts that also serve its citizens. More importantly, it will continue the downward spiral of incentive-based retail developments that shrinks our region’s tax base to benefit private developers.

Ellisville can address long-term revenue issues by switching to pool sales tax status. The city, its residents, and its taxpayers would then benefit from development throughout the county. I hope the TIF commission and Ellisville can lead the way to a new realization for our region, 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.

Related Links

‘Sometimes Nothing Can Be A Real Cool Hand’ Saint Louis County TIF Policy, Punting, And Cool Hand Luke

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