Show-Me Institute Book Club: Join Us This Wednesday

Posted on by Greg Aubuchon

Frederic Bastiat once wrote:

Now, legal plunder can be committed in an infinite number of ways. Thus we have an infinite number of plans for organizing it: tariffs, protection, benefits, subsidies, encouragements, progressive taxation, public schools, guaranteed jobs, guaranteed profits, minimum wages, a right to relief, a right to the tools of labor, free credit, and so on, and so on. All these plans as a whole — with their common aim of legal plunder — constitute socialism.

Provocative enough for your tastes? Do you vehemently disagree? Is Bastiat a kook? Come join us for spirited discussion and snacks this Wednesday; Bastiat is our topic.

The Show-Me Institute’s Book Club meets the second Wednesday of each month at our headquarters, located at 4512 West Pine Blvd. in the Central West End. Meetings begin at 7 p.m. and typically last until 8:30 or so. See link for more information. 

Please bring a friend. Hope to see you there.

Stokes on Jaco Report – Minimum Wage

Posted on by David Stokes

Show-Me Institute Policy Analyst David Stokes recently appeared on
Channel 2’s Jaco Report in Saint Louis in support of the idea that the
minimum wage is harmful for the Missouri economy. Appearing opposite Stokes and arguing in favor of the minimum wage was Lara Granich, Director of the Missouri Jobs with Justice coalition.

View the video on Fox 2’s website by clicking here.

Related Links

Policy Study: The Economic Effects of Minimum Wages: What Might Missouri Expect from Passage of Proposition B?

Policy Study: The Impact of Missouri’s Proposed $6.50 Minimum Wage on the Labor Market

Commentary: Minimum Wage Hike Is Poorly Targeted at the Poor

Commentary: The Minimum Wage Hurts Those It Is Designed to Help

Ceux Subventionnes (The Subsidized Ones)

Posted on by David Stokes

It is not our intention to be the Inspector Javert to the Jean Valjean of Winghaven, constantly chasing Paul McKee’s proposals around to criticize them like the fanatical French cop pursued the reformed Valjean. Nonetheless, bad proposals for Saint Louis keep coming from Paul McKee, and if it falls to us to keep saying “stop,” then so be it. (Thanks to johncombest.com for the link, and to Victor Hugo for the references.)

The latest proposal is to transfer the bottle district TIF (tax increment financing) from the original developers to the control of Mr. McKee and his entities. To be clear, McKee and his groups were not involved in the original TIF proposal, so we cannot pin all of this on him. However, unlike tax credits, the TIF law was not drafted with the intention of TIF being transferable. I do not think it is right for one stalled TIF proposal to just be assigned to someone else – and I do not care who that someone else is. (Note: I am not saying transfering the TIF is illegal, just improper.) At least some people in city government seem to be aware of this issue:

[Saint Louis Development Corporation Executive Director Rodney] Crim wouldn’t specify what, exactly, the city objects to. But he suggested officials have concerns about using TIF for one project to help fund another.

“My focus is on what can and cannot be done with the Bottle District TIF,” he said. “We just have some more talking to do.”

I think it is especially wrong to continue to subsidize property that at this very moment is being made more valuable because of major public improvements. Here is one description of the property:

Located just north of the Edward Jones Dome (home of the Rams) along Interstate-70, the site is one of the most desirable development locations left available Downtown. Once the new Mississippi Bridge is complete,  its location next to the bridge will make the site even more visible and accessible than it already is.

Former longtime New York Sen. George Washington Plunkitt would have fully understood developers seeing their opportunities and taking them, but even he would never have asked for the new land to be subsidized on top of it. If this land at the base of a major new bridge has to be subsidized, I guess we are at the point where we just admit everything gets a tax subsidy, unless, of course, you are just a small entrepreneur without political connections.

A Heavenly Deal?

Posted on by Michael Rathbone

Right now, if you are a St. Louis Cardinals baseball fan, you are probably in a state of shock, anger, or melancholic resignation. El Hombre has decided to leave Cardinal Nation behind for the riches of the Golden Coast. Yes, Albert will sign with the Angels. The deal reportedly is above the Cardinals’ latest offer (allegedly 10 years and up to $220 million) and from every indication, an unforgettable era in Saint Louis baseball is over.

Just how rich does this make Albert? Well, one local sportscaster estimated today that if Albert bats five times each game next year for the Angels, he will be raking in a cool $30,000 each time he steps into the batter’s box. Not bad, huh?

But if it makes you feel any better, it may not be all win-win for our legendary No. 5. Consider income taxes. Missouri’s top personal income tax rate is 6 percent, which kicks in at $9,000 (he would have also paid an additional 1 percent earnings tax [click on policy study and scroll down to page 46] in Saint Louis). In comparison, California’s top rate is 10.3 percent for incomes above $1 million (of course it might not STAY that way). I am not the only one to notice the possible influence that income tax rates could have had on Albert’s decision (this was regarding the offer from the Miami Marlins).

However, at the margins, how much of a difference would these tax rates have made on Albert’s decision? First, consider that Albert will only have to pay this 10.3 percent top rate for games played in California. He will play a good chunk of his games in states with NO personal income taxes (Washington and Texas). Now, I am not an economist and there are other factors involved here, but just doing some back-of-the-envelope calculations for the home games, I found that Albert would pay slightly more than $4.6 million more in taxes over the life of his contract in Anaheim than Saint Louis. Considering the supposed $30 million to $40 million difference in value of the contracts, would the tax factor make that much of a difference? It is certainly possible (even though Albert did decide to leave). If the Angels had offered him the same amount as the Cardinals, the tax difference would cost Albert approximately $3.7 million.

Who is to say if the difference would matter, especially for a single individual who has to weigh many factors in his decision to move. However, if you are a business, that tax difference could influence a decision between paying taxes or hiring a couple of new employees. Just some things to ponder while Albert packs his bags.

Sometimes Old Law Is Good Law

Posted on by Greg Aubuchon
I once drafted a legal brief for the dismissal of a lawsuit. While the legal arguments were nuanced, the crux of my case rested on a single decision from the 1940s. This worried me, so I vetted the argument with a firm partner. His advice, after reading the brief: Sometimes old law is good law. My client won the motion and the case was dismissed.
 
The Missouri Supreme Court recently heard oral arguments in the case of American Federation of Teachers v. Ledbetter. At issue is whether a public school district has a legal “duty” to collectively bargain in “good faith” with a teachers’ union. 
 
Back in 1947, the Missouri Supreme Court, in City of Springfield v. Clouse, held that Springfield could not collectively bargain employment contracts with public employee unions. The reason was twofold. First, the Missouri Constitution’s clause guaranteeing the right to collectively bargain did not apply to public employees. Second, public entities such as cities act on behalf of the general public and therefore only elected legislators, as the peoples’ representatives, may set the terms of employment for public employees. Non-elected public officers lacked the requisite authority to collectively bargain with labor unions. 
 
Fast forward 60 years. In Independence-NEA v. Independence School District, the Missouri Supreme Court overruled Clouse and held that the collective bargaining clause extended to public school teachers. The court rested its opinion in large part on the modern trend recognizing a legislature’s power to delegate its decision-making authority to administrative agencies. Because a legislature “may” delegate its power to establish the terms of public employment, the constitution’s collective bargaining guarantee was held to extend to all public employees, including teachers. 
 
But did the Missouri Legislature specifically delegate this authority to public school districts? And how can one reconcile the majority’s broad recognition of the power to delegate with its stern rejection of the legislature’s discretionary choice to exclude public school teachers from its grant of collective bargaining rights? 
 
Specifically, the Missouri General Assembly enacted the Public Sector Labor Law in 1965. The Act empowers certain public employees to join labor organizations for the purpose of negotiating terms of employment. But the legislature expressly excluded school teachers from its provisions. By exercising its power to delegate, the legislature “selectively” delegated its powers by withholding collective bargaining rights from teachers. But does the power to delegate not imply the power to withhold? 
 
Unfortunately, the court wants to have it both ways. First, the collective bargaining guarantee is extended to public employees because of the legislature’s broad power to delegate. Yet the legislature may not limit its delegation by excluding school teachers. The Court is torturing the constitution and the statutes to get the results it wants, wielding unauthorized power as a supervening legislative authority. Perhaps we should recall James Madison’s astute observation (quoting Montesquieu): 
 
Were the power of judging joined with the legislative, the life and liberty of the subject would be exposed to arbitrary control, for THE JUDGE would then be THE LEGISLATOR.
 
Aubuchon is a policy analyst at the Show-Me Institute, which promotes market solutions for Missouri Public Policy.
 

 

A Tale Of Two County Executives (More Similar Than Different)

Posted on by David Stokes

Last month, I attended a tax increment financing (TIF) commission meeting in Saint Charles. Last Wednesday night, I planned to testify before the Saint Louis County TIF commission meeting in Shrewsbury, until it was abruptly cancelled on short notice. Both meetings involved TIF applications for retail centers (among other things) in Saint Charles and Shrewsbury. Both are terrible ideas. Both have the support of cities seeking (understandably) their narrow self-interest over the interest of the county or region. The respective county executives oppose the two plans, although I must be clear that I know Saint Charles County Executive Steve Ehlmann opposes the Saint Charles plan and I believe Saint Louis County Executive Charlie Dooley opposes the Shrewsbury plan (based on history, which I will detail more in-depth later).

Ehlmann gave an excellent talk at the TIF hearing last month. Here is his stated opposition to the TIF:

However, he said a city tax-increment financing subsidy would be “bad public policy” because it would channel into the project some of the new property tax revenue generated that would otherwise go to the St. Charles School District and other governments.

“If the city can do a TIF to make others pay for what is their responsibility, when are we going to start using city money for schools?” Ehlmann said.

Ehlmann and his predecessor, Joe Ortwerth, have been leaders in calling out the fact that these TIFs do not do anything for our economy. They inefficiently redirect activity based on who is giving out the most tax dollars. Saint Charles County has put its money where its mouth is regarding TIF, and actively fought prior TIFs in court, although the rulings have always favored the cities. It is great to see Ehlmann is still fighting that fight against these abuses.

Charlie Dooley has also been leading the fight against these TIFs in Saint Louis County. He has not made a statement directly on the Shrewsbury TIF, so I do not know exactly how he feels about it. But based on his opposition to the last Walmart TIF in Bridgeton, and the comments of the county reps on the current TIF commission, I think he likely is opposed to this one as well. (Someone should feel free to correct me if I am wrong.) Dooley made public comments about the Bridgeton TIF between the TIF commission process and the city council decision. I think that is perfectly appropriate, and I hope he leads the opposition should the Shrewsbury City Council attempt to override the decision of the county TIF commission.

One of the most important legislative changes we need in Missouri is eliminating the ability of cities to override TIF commissions. Cities can approve a TIF even if the commission defeats it. That is an atrocious law that empowers small groups to abuse the tax system at the expense of many other people and entities (such as school districts). Both county executives – Ehlmann and Dooley – deserve great credit for thinking about their whole county (and region) first, and opposing these types of tax abuses.

Coal In The Stocking

Posted on by Michael Rathbone

During this time of year, no one wants to say “Bah, Humbug!” However, I would be remiss if I did not mention that the state might run into a revenue shortfall (between $400 million and $600 million) next year. That can be troublesome, but it also presents an opportunity for the state to reexamine some of its questionable spending decisions. In previous posts, I have listed some areas where the state should reconsider spending money. However, for now, I will focus on the state’s support of the Missouri Agricultural and Small Business Development Authority.

The mission of MASBDA is to make “capital available to Missouri farmers, particularly independent producers; agribusiness; and small business at competitive interest rates on a scale to make a major impact.” This raises a red flag for me. An entity that makes capital available to businesses at a “competitive” interest rate sounds an awful lot like a bank to me. In fact, a couple of the programs that the MASBDA administers include: Missouri Agribusiness Revolving Loan Fund, Alternative Loan Program, and Animal Waste Treatment Loan Program. The total state funds loaned to the Animal Waste Treatment Loan Program alone is close to $500,000 ($485,333.56 for fiscal year 2011, specifically).

Is anybody uncomfortable that a part of state government is acting like a bank? Why can’t the recipients of these loans get private financing? If they are great deals, why are private banks and/or financial institutions not jumping at the chance to invest in these projects? Farms already face lower property tax burdens compared to commercial businesses (farm property has an assessment ration of 12 percent compared to commercial at 32 percent and residential at 19 percent, and the soil quality grading system sets a very low appraised value already) so why do they need ADDITIONAL help with subsidized loans?

Also, how can a government and a private enterprise compete when it comes to financing? By issuing below market interest rates to different businesses, isn’t the state undercutting private financial institutions? Even if a state department/agency/program loses money, it can acquire new financing by compulsion with increased taxes. A private organization does not have that same power to tax (although with TDDs and CIDs, we are getting there). Thus, with the ability to achieve easier financing, what real incentive is there for the state to make wise spending decisions when it comes to these loans besides avoiding grief  from dedicated bloggers such as me? Isn’t it time for the state to get out of the business of lending with YOUR money and return to the basics? Just some food for thought.

Oh Well, It Will Be A Thin Report: The Mamtek Hearings

Posted on by Audrey Spalding

A Missouri House committee heard testimony Wednesday from the soon-to-be former director of the Missouri Department of Economic Development (DED), David Kerr.

Kerr’s testimony follows testimony from Moberly officials on Tuesday. A key point of Kerr’s testimony was that it would be a poor use of time and effort for the DED to double check the claims that every business makes when seeking incentives. Kerr said that if every business seeking incentives is treated as a criminal, fewer businesses will come to Missouri. I think that if a background check would deter a CEO with a history of passing bad checks from applying for tax credits, it might be appropriate.

There are two broad issues that legislators and the general public should consider in light of Mamtek. The first is that government officials (and others) mistakenly believe that with the right subsidy package and safeguards, they can eliminate all or nearly all of the risk associated with using public dollars to subsidize a private business. Any business can fail, due to its own negligence, or due to factors beyond its control. Public financing for a project cannot guarantee success, though it may prop up a business that otherwise would not be profitable without taxpayer money. Furthermore, as we may see in Moberly, no matter how many safeguards are used, the result may be that taxpayers are left holding the bag.

The second issue that may be at the heart of the Mamtek debacle is the fact that people and businesses will strive to get the largest benefit for the least amount of effort. That behavior has been seen in Missouri with gaming the requirements of the Missouri Quality Jobs tax credits and the general tendency of companies trying to access as many subsidy programs with a single project. It also has happened in China, where shoddy construction work on a high-speed train may have resulted in at least 39 deaths, along with corruption charges and the misuse of public funds.

As an outside observer, I don’t know whether any of those involved (Mamtek, the DED, current and former top state officials, etc.) deliberately misled anyone. There are ongoing criminal and civil investigations that may determine that.

However, the testimony that the House committee has heard so far sounds bleak, particularly the state’s investigation of the Mamtek company. The Columbia Daily Tribune posted the House committee information packet on Mamtek, and portions of it are riveting.

For example, one point of contention is whether Mamtek ever had an operating plant in China, as the company claimed in its project summary. The company wrote:

As of December 2009, Mamtek had moved from development into manufacturing and sales. We have completed both an 18-ton pilot production line and a full-scale, fully-functional [sic] 60 ton line (metric tons per annum). Each step and detail in the manufacturing and operational processes have been verified independently by the international patent firm Perkins Cole (page 27 of the House committee packet).

And then, Michael Wise, the patent attorney of Perkins Cole, a company closely affiliated with Mamtek, allegedly told the Moberly Economic Development Corporation that he had seen the plant himself, and that it had been operational for several years (page 43).

But yet, in April 2010, attorney Edward Li, a Chinese trade consultant for the Missouri Department of Agriculture, wrote to state officials to say that construction of a plant in China began in 2008, but was never completed (page 5).

Greg Havener, at the DED, wrote in an email with the subject “RE: BUILD PROJECT RUSH”  that he couldn’t find much information about Mamtek. “There is little on Google, oh well it will be a ‘thin report,’ “ he wrote (page 41). That email was sent on June 3, 2010, days before state incentives for Mamtek were approved.

Oh well, indeed. It is my prediction that while the future of Mamtek is uncertain, and while the financial future of the city of Moberly and its 13,000 residents is uncertain, the future of the DED is not.

In the private sector, if a business makes a $40 million mistake, it suffers dire consequences. For many businesses, that kind of mistake can result in bankruptcy. If no substantive reform is implemented at the DED, its operations will continue as usual. In the past, that has meant tax credits awarded to voided projects, inflated job and investment numbers, and vast amounts of taxpayer dollars going to incredibly inefficient programs.

I hope this episode will lead to major changes at the DED. If a more thorough investigation on each development package leads to fewer development handouts, that is a good thing.

High-Speed Rail in Missouri Is Snapshot of Government Delusions

Posted on by David Stokes

Did you know that the building of a high-speed rail line across central Missouri will support more than 200,000 jobs, or roughly 800 jobs for every mile of track? That is right, more than 200,000 jobs. Don’t believe me? Well, it is right there on page 21 of the Missouri Department of Transportation’s (MoDOT) application for $600 million in high-speed rail federal funding for the planning and engineering phase of what eventually will be an $8 billion project: “The construction phase is estimated to support over 208,674 direct, indirect, and induced jobs.”

If you think it is ludicrous that the construction of a single rail line across central Missouri could account for 7 percent of the state’s entire labor force, well, you are correct. But absurd estimates like this are typical for high-speed rail proposals. In 2008, California voters approved bonds to support a high-speed rail proposal that was estimated to cost $43 billion. Now, before any construction has started, the cost is estimated at $98 billion. Seriously, though, what is $55 billion when you are talking about the ability to ride a fast train?

But back to MoDOT. In their defense (although this hardly qualifies as a “defense”), MoDOT officials did not put much original thought into the 208,000 jobs projection. They just applied a federal transportation department formula to the estimated $8 billion cost of the project and came out with that figure. Never mind that the formula counts the same job multiple times, assumes that every job in transportation “induces” two jobs elsewhere, and has been thoroughly discredited. What matters is that the number sounds great.

There are other outlandish claims in the same document. On page 10, we learn that Missourians will use high-speed rail to commute to work. Even though the new system will just go 110 mph at its peak (not dramatically faster than the current system); will only stop in Saint Louis, Kansas City, and perhaps Jefferson City; and a trip across the state will still take four hours at best, Missourians will apparently use it to commute to work each day.

On page 21, we get a detailed account of the supposed environmental benefits of high-speed rail, but absolutely no consideration to the environmental harms of an unnecessary $8 billion construction project. This is an example of government seeing all benefits, and no costs.

The proposed high-speed rail line will connect Chicago, Saint Louis, and Kansas City, and likely the two state capitals in between. Other than people who are terrified to fly, please find me someone in Kansas City who is going to take high-speed rail to Chicago — which will still take about 8 hours — when they can fly there on Southwest Airlines for approximately the same price in 1 hour and 20 minutes?

Megabus and similar companies are perfectly capable of serving existing inter-city travel needs without public tax dollars. Megabus will take you from Saint Louis to Kansas City in 4 1/2 hours, for $34 (often less via promotions). That $34 is less than Amtrak is likely to charge for high-speed rail service, and exists now without spending $8 billion on construction and millions more each year on subsidies. If your mission is to ensure people have safe and affordable travel options, mission accomplished. If your true mission is to spend government money in pursuit of political aims, I guess it isn’t.

High-speed rail is a high-cost luxury built to serve a demand that does not exist. Like many other large transit projects, the price for it is so high that advocates can only generate support by intentionally underestimating the cost and downplaying the future subsidies. California officials deserve credit for their more honest cost revision of $98 billion, but they are still claiming that high-speed rail will not require a subsidy once it is operating. The large majority of high-speed rail systems around the world require a subsidy, and California will not be any different. The few systems that do break even connect some of the most heavily populated parts of the world. Considering that California is intentionally starting its system by connecting Fresno and Bakersfield — some of the less-populated parts of the state — the assertion that it will break even is dizzying.

Missouri would be much better off sticking with its original plan to spend far less money making smart, engineering-based upgrades to our current passenger rail system. The market demand for high-speed rail is a myth. The private sector is perfectly capable of providing affordable and safe inter-city travel via buses. The amount of jobs high-speed rail creates is false and misleading. Saint Louis and Kansas City are not Tokyo or New York, and the $8 billion project would require enormous annual operating subsidies in the future. This proposal is a high-speed path to fiscal disaster.

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

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